Southwestern Energy Company (SWN)

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Southwestern Energy Co. (SWN)

Q3 2009 Earnings Call

October 30, 2009 10:00 am ET


Harold Korell – Executive Chairman

Steve Mueller - CEO

Greg Kerley - CFO


David Kistler - Simmons & Company

Scott Hanold - RBC Capital Markets

Jeff Hayden - Rodman and Renshaw

Brian Singer - Goldman Sachs

Mike Scialla - Thomas Weisel Partners

Ben Dell - Bernstein Research

Jason Gammel - Macquarie Capital

Monroe Helm - CM Energy Partners

Joe Allman - JPMorgan

Stuart Wineman - Catapult Partners



Greetings and welcome to the Southwestern Energy Company Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. In the interest of time, please limit yourself to two questions. Afterwards you may feel free to re-queue for additional questions. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Harold Korell, Executive Chairman of the Board for Southwestern Energy Company. Thank you, sir, you may begin.

Harold Korell

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

Also I would like to point out that many of the comments during our teleconference are forward-looking statements that involve risks and uncertainties affecting outcomes many of which are beyond our control, and are discussed in more detail in the risk factors and forward-looking statements section of our annual and quarterly filings with the SEC. 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.

We had a solid quarter despite depressed natural gas prices, which were at a seven year low and the various curtailment issues we experienced related to the maintenance and repairs of the Boardwalk Pipeline. We do not expect these factors to weigh us heavily in the fourth quarter of '09 as the Boardwalk Pipeline was placed online sooner than we had expected and as gas prices appear to be moving higher than they had been over the past nine months.

As a result of the Boardwalk Pipeline being back online, we were able to reach another milestone last week, when we surpassed one Bcf of net production per day as a company. Meantime in other areas things continue to heat up in Pennsylvania as joint ventures are being formed, companies drill and report higher rate wells, and pay high prices in and around our acreage position. Our plan is to begin an active drilling program there in 2010.

In addition, as we detailed in our earnings release, good things are happening on our acreage in East Texas both in the James Lime and the Haynesville. As we look ahead, we see continued profitable growth in our production reserves, which coupled with our low cost structure will [create] tremendous value for Southwestern Energy and its shareholders.

I will now turn the teleconference over to Steve for more details 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 afterwards.

Steve Mueller

During the third quarter of 2009, we produced 73.2 Bcfe, up 38% from third quarter of 2008. Our Fayetteville Shale production was 58.8 Bcf, 60% greater than the 37.2, we produced in the third quarter of 2008. Our remaining third quarter production came from East Texas, where we produced nine Bcf and 5.3 Bcf from our conventional Arkoma properties.

As discussed last quarter, repairs and maintenance on the Texas Gas Transmission pipeline often referred to as Boardwalk Pipeline, laterals for the Fayetteville and Greenville areas, servicing our shale caused us to experience curtailments that impacted our ability to transport our production. Beginning on October 8, the Fayetteville lateral was placed back into service after being shutdown since September 1. The Greenville lateral was placed back in service in October after the shutdown.

The completion of these repairs ahead of our anticipated schedule as well as the continued strong performance of our Fayetteville Shale and East Texas wells are the reasons for revising our previous gas and oil production guidance for 2009 from 278 to 288 Bcf to the new range of 297 to 300 Bcfe. At this higher production guidance, we expect to have production growth of approximately 53% over 2008 levels.

In the first nine months of 2009, we invested approximately $1.2 billion in our exploration and production business activities and participated in drilling 476 wells, of this amount approximately $1 billion or 81% was for drilling wells. Additionally, we invested $167 million in our midstream segment, almost entirely in the Fayetteville Shale. Speaking of the Fayetteville Shale, we invested approximately $1 billion in the first nine months of 2009 in this play, including both our E&P and midstream activities.

At October 24, our gross production rate was approximately 1.23 Bcf per day, double the 600 million per day from a year ago. We currently have 17 drilling rigs running in the Fayetteville, 13 in are capable drilling horizontal wells and four smaller rigs that are used to drill the vertical portion of the holes. During the third quarter our horizontal wells had an average completed well cost of $2.9 million per well, average horizontal length of 4,100 feet and average time to drill to total depth of 12 days from out entry to reentry.

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