Organization and Summary of Significant Accounting Policies | (1) ORGANIZATION AND SU MMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Southwestern Energy Company (including its subsidiaries, collectively “Southwestern” or the “Company”) is an independent energy company engaged in natural gas , oil and NGL exploration, development and production (“E&P”). The Company is also focused on creating and capturing additional value through its natural gas gathering and marketing businesses (“Midstream”). Southwestern conducts most of its businesses through subsidiaries and operates principally in two segments: E&P and Midstream . Exploration and Production. Southwestern’s primary business is the exploration for and production of natural gas, oil and NGLs, with current operations principally focused on the development of unconventional natural gas reservoirs located in Pennsylvania, West Virginia and Arkansas. The Company’s operations in northeast Pennsylvania, herein referred to as “Northeast Appalachia,” are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale. Operations in West Virginia and southwest Pennsylvania, herein referred to as “Southwest Appalachia,” are focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas and oil reservoirs. Collectively, Southwestern refers to its properties located in Pennsylvania and West Virginia as the “Appalachian Basin.” The Company’s operations in Arkansas are primarily focused on an unconventional natural gas reservoir known as the Fayetteville Shale. Southwestern has smaller holdings in Colorado and Louisiana, along with other areas in which the Company is testing potential new resources. The Company also has drilling rigs located in Pennsylvania, West Virginia and Arkansas and provides oilfield products and services, principally serving its E&P operations. Midstream. Through the Company’s midstream subsidiaries, Southwestern engages in natural gas gathering activities in Arkansas and Louisiana. These activities primarily support the Company’s E&P operations and generate revenue from fees associated with the gathering of natural gas. Southwestern’s marketing activities capture opportunities that arise through the marketing and transportation of the natural gas, oil and NGLs produced in its E&P operations. In February 2018, the Company announced an initiative to actively pursue strategic alternatives for the Fayetteville Shale E&P and related Midstream gathering assets. Basis of Presentation The consolidated financial statements included in this Annual Report present the Company’s financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company evaluates subsequent events through the date the financial statements are issued. Certain reclassifications have been made to the prior year financial s tatements to conform to the 2017 presentation. The Company had $24 million in unamortized debt expense that was classified as a long-term asset at December 31, 2015, which is now presented as a contra-liability as a result of adoption of ASU 2015-03 in the first quarter of 2016. The effects of the reclassifications were not material to the Company’s consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of Southwestern and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In 2015, the Company purchased an 86% ownership in a limited partnership which owns and operates a gathering system in Northeast Appalachia as part of the WPX Property Acquisition (as defined and discussed in Note 3 ). Because the Company owns a controlling interest in the partnership, the operating and financial results are consolidated with the Company’s E&P segment results. The investor’s share of the partnership activity is reported in retained earnings in the consolidated financial statements. Net income attributable to noncontrolling interest for the year s ended December 31, 2017 and 201 6 was insignificant . Revenue Recognition Natural gas and liquid s sales. Natural gas and liquid s sales are recognized when the products are sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred and collectability of the revenue is reasonably assured. The Company uses the entitlement method that requires revenue recognition for the Company’s net revenue interest of sales from its properties. Accordingly, natural gas and liquid sales are not recognized for deliveries in excess of the Company’s net revenue interest, while natural gas and liquid sales are recognized for any under-delivered volumes. Production imbalances are generally recorded at estimated sales prices of the anticipated future settlements of the imbalances. The Company had no significant production imbalances at December 31, 2017 or 201 6 . Marketing. The Company generally markets its natural gas and liquids, as well as some products produced by third parties, to marketers, local distribution companies and end-users, pursuant to a variety of contracts. Marketing revenues are recognized when delivery has occurred, title has transferred, the price is fixed or determinable and collectability of the revenue is reasonably assured. Gas gathering. In certain areas, the Company gathers its natural gas as well as some natural gas produced by third parties pursuant to a variety of contracts. Gas gathering revenues are recognized when the service is performed, the price is fixed or determinable and collectability of the revenue is reasonably assured. Major Customers F or the year ended December 31, 2017, two subsidiaries of Royal Dutch Shell Plc in aggregate accounted for approximately 10.3% of total natural gas, oil and NGL sales. The Company believe s that the loss of a major customer would not have a material adverse effect on its ability to sell its natural gas, oil and NGL production because alternative purchasers are available. Cash and Cash Equivalents Cash and cash equivalents are defined by the Company as short-term, highly liquid investments that have an original maturity of three months or less and deposits in money market mutual funds that are readily convertible into cash. Management considers cash and cash equivalents to have minimal credit and market risk as the Company monitors the credit status of the financial institutions holding its cash and marketable securities . The following table presents a summary of cash and cash equivalents as of December 31, 2017 and December 31, 2016: For the years ended December 31, (in millions) 201 7 201 6 Cash $ 261 $ 254 Marketable securities (1) 605 1,169 Other cash equivalents 50 − Total $ 916 $ 1,423 (1) Consists of government stable value money market funds . Certain of the Company’s cash accounts are zero-balance controlled disbursement accounts. The Company presents the outstanding checks written against these zero-balance accounts as a component of accounts payable in the accompanying consolidated balance sheets. Outstanding checks included as a component of accounts payable totale d $ 17 m illion and $ 8 million as of December 31, 2017 and 2016 , respectively. Property, Depreciation, Depletion and Amortization Natural Gas and Oil Properties. The Company utilizes the full cost method of accounting for costs related to the exploration, development and acquisition of natural gas and oil properties . Under this method, all such costs (productive and nonproductive), including salari es, benefits and other internal costs directly attributable to these activiti es are capitalized on a country-by- country basis and amortized over the estimated lives of the properties using the units-of-production method. These capitalized costs are subject to a ceiling test that limits such pooled costs , net of applicable deferred taxes, to the aggregate of the present valu e of future net revenues attributable to proved natural gas, oil and NGL reserves discounted at 10% (standardized measure) . Any costs in excess of the ceiling are writ ten off as a non-cash expense. The expense may not be reversed in future periods, even though higher natural gas , oil and NGL prices may subsequently increase the ceiling. C ompanies using the full cost method are required to use the average quoted price from the first day of each month from the previous 12 months, including the impact of derivatives designated for hedge accounting, to calculate the ceiling value of their reserves. Decreases in market prices as well as changes in production rates, levels of reserves, evaluation of costs excluded from amortization, future development costs and production costs could result in future ceiling test impairments. Costs associated with unevaluated properties are excluded from the amortization base until the properties are evaluated or impairment is indicated. The costs associated with unevaluated leasehold acreage and related seismic data, wells currently drilling and related capitalized interest are initially excluded from the amortization base. Leasehold costs are either transferred to the amortization base with the costs of drilling a well on the lease or are assessed at least annually for possible impairment or reduction in value. The Company’s decision to withhold costs from amortization and the timing of the transfer of those costs into the amortization base involves a significant amount of judgment and may be subject to changes over time based on several factors, including drilling plans, availability of capital, project economics and drilling results from adjacent acreage. At December 31, 2017, the Company had a total of $1,817 million of costs excluded from the amortization base, all of which related to its properties in the United States. Inclusion of some or all of these costs in the Company’s United States properties in the future, without adding any associated reserves, could result in additional ceiling test impairments. At December 31, 2017, the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas of $2.98 per MMBtu, West Texas Intermediate oil of $47.79 per barrel and NGLs of $14.41 per barrel, adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties did not exceed the ceiling amount and did not result in a ceiling test impairment at December 31, 2017. The Company had no derivative positions that were designated for hedge accounting as of December 31, 2017. The Company’s net book value of its United States and Canada natural gas and oil properties exceeded the ceiling by approximately $641 million (net of tax) at March 31, 2016, $297 million (net of tax) at June 30, 2016 and $506 million (net of tax) at September 30, 2016, resulting in non-cash ceiling test impairments in each of the quarters ending those dates. Using the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas o f $2.48 per MMBtu, West Texas Intermediate oil of $39.25 per barrel and NGLs of $6.74 per barrel , adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties did not exceed the ceiling amount and did not result in a ceiling test impairment at December 31, 2016 . The Company had no derivative positions that were designated for hedge accounting as of December 31, 2016 . T he net book value of the Company’s United States natural gas and oil properties exceeded the ceiling by $944 million (net of tax) at June 30, 2015 and $1,746 million (net of tax) at September 30, 2015 and resulted in non-cash ceiling test impairments for the quarters ended those dates . Cash flow hedges of natural gas production in place increased the ceiling amount by approximately $60 million and $40 million as of June 30, 2015 and September 30, 2015, respectively. Using the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas of $ 2.59 per MMBtu , West Texas Intermediate oil of $ 46.79 per barrel and NGLs of $ 6.82 per barrel , adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties exceeded the ceiling by $1,586 million (net of tax) at December 31, 2015 and resulted in a non-cash ceiling test impairment . The Company had no derivative positions that were designated for hedge accounting as of December 31, 2015. Gathering Systems . The Company’s investment in gathering systems i s primarily in a system serving its Fayetteville Shale operations in Arkansas. These assets are being depreciated on a straight-li ne basis ove r 25 ye ars. Capitalized Interest. Interest is capitalized on the cost of unevaluated natural gas and oil properties that are excluded from amortization. Asset Retirement Obligations . The Company owns natural gas and oil properties , which require expenditures to plug and abandon the wells and reclaim the associated pads when the wells are no longer producing . An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred or when it becomes determinable, with an associated increase in the carrying amount of the related long-lived asset. The cost of the tangible asset, including the asset retirement cost, is depreciated over the useful life of the asset. The asset retirement obligation is recorded at its estimated fair value , and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Impairment of long-lived assets. The carrying value of non-full cost pool long-lived assets is evaluated for recoverability whenever events or changes in circumstances indicate that it may not be recoverable. I ntangible assets . The carrying value of intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that it may not be recoverable. Intangible assets are amortized over their useful life. Income Taxes The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate expected to be in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Deferred income taxes are provided to recognize the income tax effect of reporting certain transactions in different years for income tax and financial reporting purposes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations. Additional information regarding uncertain tax positions along with the impact of recent tax reform legislation can be found in Note 9 – Income Taxes . Derivative Financial Instruments The Company uses derivative financial instruments to manage defined commodity price risks and does not use them for speculative trading purposes. The Company uses fixed price swap agreements and options to financially protect sales of natural gas and certain NGLs . Gains and losses result ing from the settlement of derivative contracts have been recognized in gas sales if designated for hedge accounting treatment or gain (loss) on derivative s if not designated for hedge accounting treatment in the consolidated statements of operations when the contracts expire and the related physical transactions of the commodity hedged are recognized. Changes in the fair value of derivative instruments designated as cash flow hedges and not settled are included in other comprehensive income (loss) to the extent that they are effective in offsetting the changes in the cash flows of the hedged item. In contrast, gains and losses from the ineffective portion of derivative contracts designated for hedge accounting trea tment are recognized currently and have an inconsequential impact in the consolidated statement of operations . Gains and losses from the unsettled portion of derivative contracts not designated for hedge accounting treatment are recognized in gain (loss) on derivatives in the consolidated statement of operations. See Note 4 – Derivatives and Risk Management and Note 6 – Fair Value Measurements for a discussion of the Company’s hedging activities. Earnings Per Share Basic earnings per common share is computed by dividing net income (loss) attributable to common stock by the weighted average number of common sha res outstanding during the reportable period . Th e diluted earnings per share calculation adds to the weighted average number of common shares outstanding : the incremental shares that would have been outstanding assuming the exe rcise of dilutive stock options, the vesting of unvested res tricted shares of common stock, performance units, the assumed conversion of mandatory convertible preferred stock and the shares of common stock declared as a preferred stock dividend. An antidilutive impact is an increase in earnings per share or a reduction in net loss per share resulting from the conversion, exercise, or contingent issuance of certain securities. In July 2016, the Company completed an underwritten public offering of 98,900,000 shares of its common stock, with an offering price to the public of $13.00 per share. Net proceeds from the common stock offering were approximately $1,247 million, after underwriting discount and offering expenses. The proceeds from the offering were used to repay $375 million of the $750 million term loan entered into in November 2015 and to settle certain tender offers by purchasing an aggregate principal amount of approximately $700 million of the Company’s outstanding senior notes due in the first quarter of 2018. The remaining proceeds of the offering were used for general corporate purposes. In January 2015, the Company completed concurrent underwritten public offerings of 30,000,000 shares of its common stock and 34,500,000 depositary shares (both share counts include shares issued as a result of the underwriters exercising their options to purchase additional shares). The common stock offering was priced at $23.00 per share. Net proceeds from the common stock offering were approximately $669 million, after underwriting discount and offering expenses. Net proceeds from the depositary share offering were approximately $1.7 billion, after underwriting discount and offering expenses. Each depositary share represented a 1/20th interest in a share of the Company’s mandatory convertible preferred stock, with a liquidation preference of $1,000 per share (equivalent to a $50 liquidation preference per depositary share). The proceeds from the offerings were used to partially repay borrowings under the Company’s $4.5 billion 364 -day bridge facility with the remaining balance of the bridge facility fully repaid with proceeds from the Company’s January 2015 public offering of $2.2 billion in long-term senior notes. The mandatory convertible preferred stock entitle d the holder to a proportional fractional interest in the rights and preferences of the convertible preferred stock, including conversion, dividend, liquidation and voting rights. The mandatory convertible preferred stock had the non-forfeitable right to participate on an as-converted basis at the conversion rate then in effect in any common stock dividends declared and as such, is considered a participating security. Accordingly, it has been included in the computation of basic and diluted earnings per share, pursuant to the two-class method. In the calculation of basic earnings per share attributable to common shareholders, participating securities are allocated earnings based on actual dividend distributions received plus a proportionate share of undistributed net income attributable to common shareholders, if any, after recognizing distributed earnings. The Company’s participating securities do not participate in undistributed net losses because they are not contractually obligated to do so. On January 12, 2018 the Company converted all outstanding shares of mandatory convertible preferred stock to 74,998,614 share s of the Company’s common stock. On December 18, 2017 , the Company declared the quarterly dividend, payable to holders of the mandatory convertible preferred stock all in cash on January 16, 2018. Dividends declared in the first, second and third quarters of 2017 were settled partially in common stock for a total of 10,040,306 shares, as well as those in the first, second, third and fourth q uarters of 2016 for a total of 9,917,799 shares. The dividend s declared for all quarters in 2015 w ere paid in cash. The following table presents the computation of earnings per share for the years ended December 31, 2017, 2016 and 2015: For the years ended December 31, (in millions, except share/per share amounts) 2017 2016 2015 Net income (loss) $ 1,046 $ (2,643) $ (4,556) Mandatory convertible preferred stock dividend 108 108 106 Participating securities – mandatory convertible preferred stock 123 – – Net income (loss) attributable to common stock $ 815 $ (2,751) $ (4,662) Number of common shares: Weighted average outstanding 498,264,321 435,337,402 380,521,039 Issued upon assumed exercise of outstanding stock options – – – Effect of issuance of non-vested restricted common stock 1,061,056 – – Effect of issuance of non-vested performance units 1,478,920 – – Effect of issuance of mandatory convertible preferred stock – – – Effect of declaration of preferred stock dividends – – – Weighted average and potential dilutive outstanding 500,804,297 435,337,402 380,521,039 Earnings (loss) per common share: Basic $ 1.64 $ (6.32) $ (12.25) Diluted $ 1.63 $ (6.32) $ (12.25) The following table presents the common stock shares equivalent excluded from the calculation of diluted earnings per share for the years ended December 31, 201 7 , 201 6 and 201 5, as they would have had an antidilutive effect: For the years ended December 31, 2017 2016 2015 Unvested stock options 116,717 3,692,697 3,835,234 Unvested share-based payment 5,361,849 959,233 1,990,383 Performance units 765,689 884,644 140,414 Mandatory convertible preferred stock 74,999,895 74,999,895 70,890,312 Total 81,244,150 80,536,469 76,856,343 Supplemental Disclosures of Cash Flow Information The following table provides additional information concerning interest and income taxes paid as well as changes in noncash investing activities for the years ended December 31, 2017, 2016, and 2015: For the years ended December 31, (in millions) 201 7 201 6 201 5 Cash paid during the year for interest, net of amounts capitalized $ 130 $ 75 $ 6 Cash received during the year for income taxes (5) (15) (6) Increase (decrease) in noncash property additions 25 55 (10) Stock-Based Compensation The Company accounts for stock-based compensation transactions using a fair value method and recognizes an amount equal to the fair value of the stock options and stock-based payment cost in either the consolidated statement of operations or capitalizes the cost into natural gas and oil properties or gathering systems included in property and equipment. Costs are capitalized when they are directly related to the acquisition, exploration and development activities of the Company’s natural gas and oil properties or directly related to the construction of the Company’s gathering systems. Treasury Stock The Company maintains a non-qualified deferred compensation supplemental retirement savings plan for certain key employees whereby participants may elect to defer and contribute a portion of their compensation to a Rabbi Trust, as permitted by the plan. The Company includes the assets and liabilit ies of its supplemental retirement savings plan in its consolidated balance sheet. Shares of the Company’s common stock purchased under the non-qualified deferred compensation arrangement are held in the Rabbi Trust , are presented as treasury stock and are carried at cost. As of December 31, 201 7 and 2016 , 31,269 shares were accounted for as treasury stock. Foreign Currency Translation The Company has designated the Canadian dollar as the functional currency for our activities in Canada. The cumulative translation effects of translating the accounts from the functional currency into the U.S. dollar at current exchange rates are included as a separate component of other comprehensive income within stockholders ’ equity. New Accounting Standards Implemented in this Report In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718) (“Update 2016-09”), to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. For public entities, Update 2016-09 became effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company adopted Update 2016-09 during the first quarter with an effective date of January 1, 2017. The recognition of previously unrecognized windfall tax benefits resulted in a net cumulative-effect adjustment of $59 million, which increased net deferred tax assets and the related income tax valuation allowance by the same amount as of the beginning of 2017. The amendments within Update 2016-09 related to the recognition of excess tax benefits and tax shortfalls in the income statement and presentation within the operating section of the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. The Company has elected to account for forfeitures as they occur. The remaining provisions of this amendment did not have a material effect on its consolidated results of operations, financial position or cash flows. New Accounting Standards Not Yet Implemented in this Report In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715) (“Update 2017-07”), which provides additional guidance on the presentation of net benefit cost in the statement of operations and on the components eligible for capitalization in assets. The guidance requires employers to disaggregate the service cost component from the other components of net benefit cost. The service cost component of the net periodic benefit cost shall be reported in the same line item as other compensation costs arising from services rendered by the employees during the period, except for amounts capitalized. All other components of net benefit cost shall be presented outside of a subtotal for income from operations. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this update should be applied retrospectively for the presentation of the service cost component and the other components of net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic benefit cost in assets. The Company does not expect the impact of adopting Update 2017-07 to have a material effect on its consolidated financial statements and related disclosures. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) (“Update 2016-15”), which seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, Update 2016-15 becomes effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect the impact of adopting Update 2016-15 to have a material effect on its consolidated financial statements and related disclosures. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Update 2016-02”), which seeks to increase transparency and comparability among organizations by, among other things, recognizing lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous GAAP and disclosing key information about leasing arrangements. The codification was amended through additional ASUs. Through December 2017, the Company made progress on contract reviews, drafting its accounting policies and evaluating the new disclosure requirements. The Company will continue assessing the effect that Update 2016-02 and related ASUs may have on its consolidated financial statements and related disclosures, and anticipates that its assessment will be complete in 2018. For public entities, Update 2016-02 becomes effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Update 2014-09”), which seeks to provide clarity for recognizing revenue. The new standard removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers and increases disclosure requirements. The codification was amended through additional ASUs and, as amended, requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company performed an analysis, across all revenue streams, of the impact of Update 2014-09 and the related ASUs and did not identify any changes to its revenue recognition policies that would result in a material adjustment to its consolidated financial statements. Additional disclosures will be required to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers, including disaggregation of revenue and any remaining performance obligations. The Company will adopt the new standard in January 2018 using the modified retrospective approach, under which the cumulative effect of initially applying the new guidance will be recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2018. For public entities, the new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. |