Southwestern Energy Company Earnings Call Insights: Marcellus Acquisition and Brown Dense

Southwestern Energy Company (NYSE:SWN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Marcellus Acquisition

David Kistler – Simmons & Company: Real quickly maybe go into announcement you made on Monday 1st about the acquisition in the Marcellus. Can you walk us through maybe some of the lease terms associated with those 162,000 acres or some that are expiring rapidly, what portion of that acreage will be acreage that you’ll focus for development in ’14, and are there any kind of parameters you can give us around prospectively for the breakdown of that acreage?

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R. Craig Owen – SVP and CFO: Let me just kind of give you just a quick overview, certainly this is acreage that has between four and five year terms on it, and then there are extensions. Those extensions are expensive. They are probably in the $3,000 to $4,000 type ranges to extend those for another four to five years and there is some that will come up in 2013, 2014. When we did our analysis, we basically assumed that all of the acreage that was in ’13 and ’14, we would not renew. In real life, it looks like of that 160,000 acres probably about 40,000 we would not renew at this point in time for ’13 and ’14 as we go through the overall process. As far as the general value, we think that is somewhere around half the acreage that ultimately will have wells better than 5 Bcf on it and it takes a little bit of time to figure that out, but the real key for us was, when we did the analysis, if we had $4 flat forever we would take about 70 wells to get ourselves a PV-10 or a 10% return on the acquisition and we’re very comfortable we have a lot more than 70 wells. So, we’re really excited about the acquisition. It fits right where we’re at. We’ve been trying to get that Susquehanna acreage for the last three or four years to fill our position at Susquehanna. We’ve got in a lot more acreage along the way. So, it’s a good overall acquisition for us.

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David Kistler – Simmons & Company: Maybe just one follow-up on the Susquehanna acreage. I’m assuming based on kind of the net well parameters that were as part of that release that it is non-operated acreage, is that a fair assumption or is the way that it’s set up, it allows you to, exercise longer laterals on your existing leases because they fall into these other areas. Can you just kind of give us a little color on that?

Steven L. Mueller – President and CEO: Almost all this acreage is 100% operated. There’s very little that is outside operated, just we can’t drill much on it yet. So, in Susquehanna, I think almost everything there is a little bit to the north, it kind of goes in where Williams is at, that we have a little bit of partnership acreage on it, most of it is 100% there, but it’s really just a matter of they had not drilled much on the acreage. So, the little bit of activity that was on the acreage was by other people, putting in a little bit of their acreage in units.

Brown Dense

Amir Arif – Stifel, Nicolaus & Company: I understand that you’re still engaged in discussions in terms of the Brown Dense, but is there any color you can provide in terms of what issues are the sticking points, whether it’s price, terms or well results?

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Steven L. Mueller – President and CEO: Yeah, I wouldn’t put it that we’re still in discussions. Bill and I have a little bit of difference mainly where this is at. We thought we had a deal with a group. They tried to renegotiate the terms. That’s not the way I work and we are not in the deal anymore. May be we will come back in the deal but really it’s just simply that from that standpoint. The other thing about it in general we have had a lot of debates where we should get a partner and I get a partner. Certainly we knew a few months ago that we are the winner of the Chesapeake package and getting some dollars in on the round end side, we had now applied in Marcellus was attractive to us, but overall we are only going to do deal that is a good deal and we only do deals with someone we want to work with. So we are still looking at deals in the Brown Dense, certainly if you can get a partner you can go a little bit faster but as we said in our press release we had budgeted as if we didn’t have one and we are on the pace to do exactly we said we are going to do in that direction. So it is nothing more than somebody tried to change the terms on us and we are just not going to do work that way…

Amir Arif – Stifel, Nicolaus & Company: Just asking a little more into the changing of the terms, was that after they went through the data room or saw data, could you just provide some color on that?

Steven L. Mueller – President and CEO: Knowing about your question about was there more well control. There isn’t any more well control at all. When we made the announcement we had basically a term sheet with all the agreed terms on it and the major thing they needed to do is do due diligence that was more on the land side of it. It wasn’t with the geology or anything in that direction. As I said no new geological or no new information on any directions, just say you want to go back and start over (along somewhere) in the terms.

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Amir Arif – Stifel, Nicolaus & Company: The second question looking at the acquisitions you did and the attractive acquisitions price, any desire to look at maybe the acquisition market to get into some new areas just given the attractive prices that are out there in your balance sheet, rather just as bolt-ons?

Steven L. Mueller – President and CEO: We have couple areas that we target, and we’re always looking at to get into. I’ll just remind everyone we look at our acquisition effort as an extension of our new ventures. We’re not looking for significant production per se. What we’re looking for is something that we can use our talents to. We can drill into, have a long running room on it, user vertical integration. So, except those – any of those kinds of acquisitions in particular areas, we’re definitely looking to those and in this case it just happen to be one of those right in our backyard in Marcellus.

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