Southwestern Energy Company (SWN)

SWN 
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Exchange: NYSE
Industry: Energy
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Southwestern Energy (SWN)

Q4 2012 Earnings Call

February 21, 2013 10:00 am ET

Executives

Steven L. Mueller - Chief Executive Officer, President and Director

William J. Way - Chief Operating Officer and Executive Vice President

Robert Craig Owen - Chief Financial Officer, Senior Vice President and Chief Accounting Officer

Analysts

Brian Singer - Goldman Sachs Group Inc., Research Division

David W. Kistler - Simmons & Company International, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

Gilbert K. Yang - DISCERN Investment Analytics, Inc

Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division

Abhishek Sinha - BofA Merrill Lynch, Research Division

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

David Heikkinen

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Robert L. Christensen - The Buckingham Research Group Incorporated

Marshall H. Carver - Capital One Southcoast, Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Southwestern Energy Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Mueller, President and CEO. Thank you. Mr. Mueller, you may now begin.

Steven L. Mueller

Thank you. Good morning, and thank you for joining us. With me today are Bill Way, our Chief Operating Officer; Craig Owen, our Chief Financial Officer; Jeff Sherrick, Senior VP of Corporate Development; and Brad Sylvester, our VP of Investor Relations.

If you’ve not received a copy of yesterday's press release regarding our fourth quarter and year-end 2012 results, you can find a copy of all this on our website, www.swn.com.

Also, I'd like to point out that many of the comments during this teleconference are forward-looking statements that involve risks and uncertainties affecting outcomes, many of which are beyond our control that are discussed in more detail in the Risk Factors and the Forward-looking Statement sections of our annual and quarterly filings with the Securities and Exchange Commission. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially. Let's begin.

Our goal every year is to deliver more to our investors than our competition. Internally, we call this Value+ or V+. 2012 was another in a long string of years where we set new records, developed new efficiencies and expanded both our producing areas and our New Ventures footprint. Almost every day brought new challenges, and I'm proud to say many of those challenges were converted to opportunities through the innovation and hard work of SWN staff.

Our production grew by 13% as a result from our wells in the Fayetteville Shale as they improved, and our Marcellus production has begun to ramp dramatically. We also recorded our second highest cash flow ever as we have made meaningful progress in lowering our cash costs during 2012 and the cash flow growth from our Midstream business continues its strong performance.

We began testing ideas in the Bakken in Montana and in Marmaton in Colorado, and we reached a new milestone in the Brown Dense. During the past 12 months, it has contributed to some of those daily challenges, but we're beginning to see a glimpse of how the Brown Dense might be successful, and we're in the final stages of signing up a partner to help us to reach commerciality. All indications are that 2013 will continue the string of adding Value+. We'll drive down days and costs and ramp up production. But we'll also continue to add more value to new exploration ideas, new ways to approach how we work and new ways we enhance the communities where we work.

I will now turn the call over to Bill for more details on some of the Value+ in our operations, and then to Craig for a recap of our strong financial position.

William J. Way

Thank you, Steve, and good morning, everyone. To echo Steve's comments and reflecting on the extraordinary efforts of our outstanding team of industry professionals, the company achieved several major milestones and accomplishments during the year, which I want to share with you this morning.

Among these, we expanded and advanced the company's prospective New Ventures opportunities, including acquiring new acreage and commencing testing in several new plays, in addition to the nearly 495,000 net acres of undisclosed ventures in our portfolio.

We grew our production to a new record of 565 Bcf equivalent in 2012, which is up 13% compared to 2011 results. Our growth was driven by our 2 core operating areas. In the Fayetteville Shale play, we grew our production by 11% to 485 Bcf versus 2011 results. From our efforts to grow our Marcellus business, we more than doubled our production from 23 Bcf in 2011 to 54 Bcf in 2012 as we expanded our development in the play to all 4 acreage areas.

This growth more than offset the decline in our Ark-La-Tex production, which included a reduction due to the sale of our Overton Field last year.

We continued to expand our Midstream business, and we entered -- as we entered new producing areas. We also reduced our production expenses and general and administrative expenses by $0.05 per Mcf equivalent across the company. We booked 919 Bcf equivalent of reserves in 2012 and invested $1.9 billion.

The 33% year-over-year decrease in natural gas price decreased our proved reserves to approximately 4 Tcf equivalent from 5.9 Tcf equivalent in 2011. As gas prices rise from the $2.76 per Mcf price that was used in 2012, we know that many of these reserves that are written off at that price will naturally come back on our books over time. Our strong focus on health, safety and the environment resulted in continued improvement in HSE performance as well.

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