Southwestern Energy Company (SWN)

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Southwestern Energy (SWN)

Q3 2011 Earnings Call

October 28, 2011 10:00 am ET

Executives

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

Greg D. Kerley - Chief Financial Officer, Executive Vice President and Director

Analysts

Robert L. Christensen - Buckingham Research Group, Inc.

Brian Singer - Goldman Sachs Group Inc., Research Division

Rehan Rashid - FBR Capital Markets & Co., Research Division

Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division

Gil Yang - BofA Merrill Lynch, Research Division

Scott M. Wilmoth - Simmons & Company International, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

Amir Arif - Stifel, Nicolaus & Co., Inc., Research Division

Michael J. McAllister - Sterne Agee & Leach Inc., Research Division

Michael D. Bodino - Global Hunter Securities, LLC, Research Division

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

Presentation

Operator

Greetings, and welcome to Southwestern Energy Third Quarter 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 all for joining us. With me today are Bill Way, our Chief Operating Officer; Greg Kerley, our CFO; and Brad Sylvester, our VP of Investor Relations. If you have not received a copy of yesterday's press release regarding our third quarter results, you can find a copy 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 and are discussed in more detail in the Risk Factors and Forward Looking Statement sections of our annual and quarterly filings with the Securities and Exchange Commission. Although we believe these expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially.

To begin, we posted outstanding results for third quarter. Our earnings and cash flow were up primarily driven by our production growth, which continues to exceed our expectations. As a result, we have increased our production guidance for the fourth quarter and for the full year 2011.

Total production growth was 23% during the quarter, fueled by our Fayetteville Shale which grew 21%, with production of 112 Bcf. We also produced 7.4 Bcf from Marcellus Shale and 9.6 Bcf from our Ark-La-Tex division.

Now I'll talk about each of our operating areas. We placed 132 operated wells on production in the Fayetteville Shale during the third quarter which resulted in gross operating production reaching approximately 1.9 Bcf per day earlier this week. Overall, our operated horizontal wells on average completed well cost of $2.8 million per well with an average lateral length of 4,847 feet and an average drilling time of 7.8 days during the third quarter. We also placed 25 wells in production during the quarter that we drilled in 5 days or less. In total, we have drilled 80 wells to date in 5 days or less. Our average initial producing rates were approximately 3.4 million cubic feet per day, which is up 14% from the second quarter.

In the Northeast Pennsylvania, we were very encouraged by what we have seen. No new wells are placed on production in third quarter. However, we're excited that the same 17 Marcellus Shale horizontal wells in our Greenzweig area and Bradford County are currently producing approximately 110 million cubic feet of gross operated production per day compared to 104 million cubic feet per day when we spoke to you at the last teleconference. Net production from the area was 7.4 Bcf in the third quarter of 2011 compared to 5.4 -- 5.1 Bcf in the second quarter.

As for activities for the rest of the year, we are currently in the process of completing a 5-well pad in Bradford County and expect those wells to come online in November. We have also moved into the second rig and started drilling in our Price area in Susquehanna County, and we expect to have first production from this area in January. We will be drilling in Greenzweig, Price and Range Trust areas throughout the rest of the year, but we will not put any new wells to sale until January due to state permitting delays and the constraints of firm transportation and gathering capacity. We are planning to put -- be much more active in the Northeast Pennsylvania in 2012, and we recently signed a contract for 2 additional rigs to be delivered in midyear 2012. These rigs will be new builds and designed specifically for our Marcellus Shale operations.

Switching to New Ventures. In New Brunswick, we completed the second phase of surface geochemical sampling and the acquisition phase of approximately 250 miles of 2D data. Interpretation of both sets of data is currently underway. The next step in 2012 is to shoot more 2D seismic to help better -- give us a better understanding of where to drill our first well.

Outside of New Brunswick, we currently have approximately 948,000 net undeveloped acres in connection with other new venture prospects. Of these 948,000 net acres, we have approximately 487,000 net acres located in the Lower Smackover Brown Dense formation, an unconventional oil reservoir find in Southern Arkansas and Northern Louisiana. We spud our first well in September, the Roberson #1-15H located in Columbia County, Arkansas, and is currently drilling the lateral portion of the well. This well has a vertical depth of approximately 9,200 feet and a planned horizontal lateral length of 4,000 feet and is planned to be completed next month.

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