Southwestern Energy Company (SWN)

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Southwestern Energy Co. (SWN)

Q2 2009 Earnings Call

July 31, 2009 10:00 am ET


Harold M. Korell – Chairman and Chief Executive Officer

Steven L. Mueller – President and Chief Operating Officer

Greg D. Kerley – Executive Vice President and Chief Financial Officer


Michael Jacobs – Tudor, Pickering, Holt & Co

Robert Christensen – Buckingham Research

Brian Singer – Goldman Sachs

David Heikkinen – Tudor, Pickering & Co.

Michael Scialla – Thomas Weisel Partners

Jeff Hayden – Rodman & Renshaw

Nicholas Pope – Dahlman Rose & Co.

Thomas Gardner – Simmons & Company International

Jason Gammel – Macquarie Research Equities

[Cedula Mercy] – CDP US

Scott Hanold – RBC Capital Markets

Joe Allman – JP Morgan Securities, Inc.

Dan McSpirit – BMO Capital Markets



Welcome to the Southwest Energy Company second quarter earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host Harold Korell Executive Chairman of Board for Southwest Energy Company.

Harold Korell

Steve Mueller and Greg Kerley our Chief Executive Officer and Chief Financial Officer are with me here today. If you have not received a copy of yesterday's press release regarding our second quarter results, you can call 281-618-4847 to have a copy faxed to you.

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

Well, we're here to report another very good quarter despite the low commodity price environment. Our gross operative production from the Fayetteville shale reached significant milestone of 1 Bcf per day in July compared to approximately 500 million cubic feet per day at this time a year ago. It is truly amazing to think that it was only five years ago when we told the world about the Fayetteville shale play and our gross production from that play alone is now over 1 billion a day.

We've learned so much during that time and continue to do so as productivity of our wells continues to improve with each quarter. While current gas prices remain low, we believe lower industry drilling activity will result in higher prices over the next 18 months. With our focus on value creation and a world class resource to develop in the Fayetteville shale we are well positioned, not only to weather the current low commodity price environment with our strong balance sheet and financial flexibility, but also to benefit greatly when prices return to more normalized levels.

I'd like to now turn the conference over to Steve for more detail on our E&P and Midstream activities and then to Greg for an update on our financial results, and then we'll be available for questions.

Steven Mueller

During the second quarter of 2009 we produced 74.3 Bcfe up 65% from second quarter of 2008. Our Fayetteville shale production was 60.6 Bcf double between 9.6 we produced in second quarter of 2008.

Our remaining second quarter production came from East Texas where we produced 7.8 Bcf and from the Arkoma properties where we produced 5.8 Bcf.

In the first six months of 2009 we invested approximately $852.5 million in our exploration production activities and participated in drilling 388 wells. Of this amount, approximately $695 million or 82% was for drilling wells. Additionally, we invested $102.5 million in our Midstream segment almost entirely in the Fayetteville shale.

In the first half of 2009 we have invested approximately $793 million in our Fayetteville shale play including both our E&P and Midstream activities. At June 30 our gross for operator production was approximately 990 million cubic feet per day up from 850 million cubic foot at the end March.

We currently have 17 rigs drilling in the Fayetteville shale, 13 that are capable of drilling horizontal wells, and four smaller rigs that are used to drill the vertical portion of the wells. We expect to participate in approximately 575 gross wells in 2009.

As we discussed in our last teleconference, during 2008 the majority of our gas production in our Arkoma basin was moved to markets in the Midwest. This included the Fayetteville lateral Phase 1 portion of the Texas gas transmission or Boardwalk pipeline, which was placed in service on December 24. On April 1 the Fayetteville lateral Phase 2 and Greenville lateral portions of the boardwalk pipeline were placed in service and we began transporting a portion of our gas to eastern markets.

As a result of recent inspections, repairs and maintenance on the Fayetteville lateral, we have experienced curtailments that have impacted our ability to transport our production from our Fayetteville shale. Beginning in April 2009 Boardwalk reduced the capacity on or shutdown the Fayetteville lateral on several occasions due to various activities, including maintenance and pipeline inspection.

These activities, as well as similar repairs to the Greenville lateral, are expected to continue resulting in further curtailments. As an example, the southwestern operating gross production exceeded 1 Bcf a day on Monday and Tuesday of this week. A line inspection was started on Wednesday and total production was reduced 825 million cubic foot per day gross. And then this morning the production is now restored over a Bcf a day.

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