Southwestern Energy Announces Third Quarter 2007 Results

HOUSTON, Oct. 31 /PRNewswire-FirstCall/ -- Southwestern Energy Company today announced financial and operating results for the third quarter of 2007. Highlights include:

* Natural gas and crude oil production of 30.0 Bcfe, up 56% over the same period in 2006 * Earnings of $51.0 million, up 52% from the same period in 2006 * Net cash provided by operating activities before changes in operating assets and liabilities from continuing operations (a non-GAAP measure reconciled below) of $157.7 million, up 66% from the same period in 2006

For the third quarter of 2007, Southwestern reported net income of $51.0 million, or $0.30 per diluted share, up from $33.5 million, or $0.20 per diluted share, for the same period in 2006. Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure; see reconciliation below), was $157.7 million for the third quarter of 2007, up from $95.2 million for the same period in 2006. The company's third quarter comparative financial results were driven primarily by the positive effect on earnings of the significant growth in production volumes from Southwestern's Fayetteville Shale play and higher realized natural gas prices which were primarily the result of the positive effects of the company's commodity hedging program.

"We continue to see improving results across our organization," stated Harold M. Korell, President and Chief Executive Officer of Southwestern. "In our Fayetteville Shale play, we are drilling better wells than we were a few months ago. Production volumes have followed suit, with our gross operated daily production from the Fayetteville Shale rising to approximately 260 MMcf per day at October 22, up from approximately 200 MMcf per day at the end of July. In addition, we continue to see strong results from our conventional Arkoma Basin drilling program and we remain very active in East Texas."

Net income for the nine months ended September 30, 2007 was $149.5 million, or $0.87 per diluted share, up from $128.9 million, or $0.75 per diluted share, for the same period in 2006. Net income for the first nine months of 2006 included an after-tax gain of $6.7 million ($0.04 per share) related to the disposition of the company's 25% interest in the NOARK Pipeline System, Limited Partnership. Net cash provided by operating activities before changes in operating assets and liabilities (non-GAAP; see reconciliation below) was $446.9 million for the first nine months of 2007, up from $304.8 million for the same period in 2006.

Third Quarter 2007 Financial Results

E&P Segment -- Operating income from the company's E&P segment was $88.9 million for the third quarter of 2007, up 58% from $56.3 million for the third quarter of 2006. The increase in revenues resulting from the growth in production volumes was partially offset by increased operating costs.

Southwestern's natural gas and crude oil production totaled 30.0 Bcfe for the third quarter of 2007, up 56% from 19.3 Bcfe for the third quarter of 2006. The increase resulted from increased production from the Fayetteville Shale play which totaled 14.7 Bcf for the third quarter of 2007, compared to 3.8 Bcf for the third quarter of 2006.

Southwestern's average realized gas price was $6.66 per Mcf for the third quarter of 2007, including the effect of hedges, compared to $6.23 per Mcf for the third quarter of 2006. The company's commodity hedging activities increased its average gas price by $1.17 per Mcf during the third quarter of 2007, compared to an increase of $0.19 per Mcf during the third quarter of 2006. For the fourth quarter of 2007, the company has hedged approximately 70% to 75% of its expected gas production (11.5 Bcf hedged with fixed price swaps at an average price of $8.09 per Mcf and 10.5 Bcf hedged through price collars with an average floor price of $7.10 per Mcf and an average ceiling price of $11.21 per Mcf). Assuming current NYMEX natural gas futures prices for the remainder of 2007, the company expects the basis differential for its gas production for the fourth quarter of 2007 to be approximately $0.60 to $0.70 per Mcf below the NYMEX Henry Hub price.

Southwestern's average realized oil price was $72.52 per barrel for the third quarter of 2007, compared to $62.78 per barrel, including the effect of hedges, for the third quarter of 2006. For calendar year 2007, the company has not hedged any of its expected crude oil production.

Lease operating expenses for the company's E&P segment were $0.67 per Mcfe for the third quarter of 2007, down from $0.68 per Mcfe for the third quarter of 2006. The decrease was due to a decrease in the cost of fuel gas for compression-related expenses, partially offset by increases in gathering costs, both primarily related to the company's Fayetteville Shale play.

General and administrative expenses for the company's E&P segment were $0.46 per Mcfe for the third quarter of 2007, compared to $0.54 per Mcfe for the third quarter of 2006. The decrease was due to increased production volumes which more than offset increased payroll and related costs associated with the expansion of the company's E&P operations due to the Fayetteville Shale play.

Taxes other than income taxes were $0.11 per Mcfe for the third quarter of 2007, compared to $0.32 per Mcfe for the third quarter of 2006, primarily due to the changing mix of production. The company's full cost pool amortization rate was $2.56 per Mcfe for the third quarter of 2007, compared to $1.97 per Mcfe for the third quarter of 2006. The higher rate was due to increased capital investments and future development costs relative to the timing of reserve additions, including revisions.

Midstream Services -- Operating income for the company's midstream services segment was $4.1 million for the third quarter of 2007, up from $1.3 million for the third quarter of 2006. The increase was primarily due to increased gathering revenues from the company's operations in the Fayetteville Shale play.

Natural Gas Distribution Business -- The company's natural gas distribution business recorded a seasonal operating loss of $3.5 million for the third quarter of 2007, compared to an operating loss of $4.5 million for the third quarter of 2006. The decrease in operating loss was primarily due to a decrease in general and administrative expenses and the effects of a $5.8 million annual rate increase which became effective August 1, 2007.

First Nine Months of 2007 Financial Results

E&P Segment -- Operating income for the E&P segment was $244.5 million for the first nine months of 2007, up from $186.6 million for the first nine months of 2006. The increase was primarily due to a 53% increase in production volumes.

Gas and oil production totaled 78.7 Bcfe for the first nine months of 2007, compared to 51.6 Bcfe for the first nine months of 2006. The increase was due to increased production from the company's Fayetteville Shale play. Net production from the company's Fayetteville Shale play was 33.6 Bcf for the first nine months of 2007, compared to 6.3 Bcf for the first nine months of 2006.

The company's previous production guidance range for the full year 2007 was 107 to 110 Bcfe. The company currently expects its 2007 production to be approximately 111 Bcfe, up approximately 54% from 2006 production levels. Of the total, approximately 51 Bcf is expected to come from the Fayetteville Shale.

Southwestern's average realized gas price was $6.75 per Mcf, including the effect of hedges, for the first nine months of 2007 compared to $6.73 per Mcf for the first nine months of 2006. The company's hedging activities increased the average gas price realized for the first nine months of 2007 by $0.62 per Mcf, compared to an increase of $0.17 per Mcf for the first nine months of 2006. Southwestern's average realized oil price was $62.58 per barrel for the first nine months of 2007, compared to $60.24 per barrel, including the effect of hedges, for the first nine months of 2006.

Disregarding the impact of hedges, the average price received for the company's gas production for the first nine months of 2007 was approximately $0.70 per Mcf lower than average NYMEX spot prices, compared to the average for the prior year period of approximately $0.89 per Mcf. The change between periods was due to decreased basis differentials across the company's production areas.

Lease operating expenses for the company's E&P segment were $0.71 per Mcfe for the first nine months of 2007, compared to $0.62 per Mcfe for the first nine months of 2006. The increase was due to increases in gathering and compression costs, the majority of which relate to the company's operations in the Fayetteville Shale play. Based on projected production, the company currently expects per unit operating costs for 2007 to be approximately $0.75 per Mcfe.

General and administrative expenses for the company's E&P segment were $0.47 per Mcfe for the first nine months of 2007, compared to $0.56 per Mcfe for the first nine months of 2006. The decrease was due to increased production volumes which more than offset increased payroll and related costs associated with the expansion of the company's E&P operations due to the Fayetteville Shale play. Southwestern added approximately 200 new employees during the first nine months of 2007, most of whom were hired in the company's E&P segment. Southwestern currently expects per unit G&A expenses for 2007 to be approximately $0.47 per Mcfe.

Taxes other than income taxes per unit of production were $0.19 per Mcfe for the first nine months of 2007, compared to $0.34 per Mcfe for the first nine months of 2006. The company's full cost pool amortization rate was $2.41 per Mcfe for the first nine months of 2007, up from $1.79 per Mcfe for the first nine months of 2006, due to increased capital investments and future development costs relative to reserve additions, including revisions.

Midstream Services -- Operating income for the company's midstream services segment was $6.4 million for the first nine months of 2007, compared to $3.1 million for the first nine months of 2006. The increase in operating income was primarily due to increases in gathering revenues from the Fayetteville Shale play.

Natural Gas Distribution Business -- Operating income for Southwestern's natural gas distribution business was $4.1 million for the first nine months of 2007, compared to $1.3 million for the first nine months of 2006. The increase in operating income resulted primarily from increased volumes delivered due to colder weather, the effects of a $5.8 million annual rate increase which became effective August 1, 2007, and a decrease in general and administrative expenses. Weather during the first nine months of 2007 was 8% warmer than normal but 13% colder than the first nine months of 2006.

First Nine Months of 2007 Operating Results

Southwestern invested a total of $1.1 billion in its E&P program during the first nine months of 2007, compared to $578 million in the first nine months of 2006. During the first nine months of 2007, the company participated in drilling 476 wells, 287 of which were successful, 179 were still in progress and 10 were dry at September 30, 2007, for a 97% success rate through the first nine months of 2007. The company is currently projecting capital investments for 2007 of $1,455 million, including approximately $1,335 million related to the company's E&P segment.

Fayetteville Shale Play -- In the first nine months of 2007, Southwestern's E&P segment invested approximately $731 million in its Fayetteville Shale play and placed 187 wells on production. Through September 30, 2007, Southwestern has now drilled and completed a total of 392 operated wells in the Fayetteville Shale play, of which 334 are horizontal wells. The wells are located in 35 separate pilot areas located in eight counties in Arkansas. Of the 334 horizontal wells, 290 wells have been fracture stimulated using slickwater or crosslinked gel fluids. In addition, 92 wells were in the drilling or completion phase at September 30, 2007. The company currently has 19 drilling rigs running in its Fayetteville Shale play area, 15 that are capable of drilling horizontal wells and 4 smaller rigs that are used to drill the vertical section of the wells.

At October 22, 2007, the company's gross production rate from the Fayetteville Shale play was approximately 260 MMcf per day, including approximately 16 MMcf per day from eight wells producing from conventional reservoirs in six pilot areas located in four counties. At October 22, 2007, the company's net production from the Fayetteville Shale play was approximately 194 MMcf per day. The graph below provides gross production data from the company's operated wells in the Fayetteville Shale play area.

(Photo: http://www.newscom.com/cgi-bin/prnh/20071031/LAW122-a)

Approximately 10% of the production at October 22, 2007, was from three of the company's easternmost pilot areas (Sharkey, Hammerhead, and Mako) located in White County. Production increases in these three pilot areas alone account for approximately 28% of the 60 MMcf per day increase in gross operated production since the end of July. Within the last 35 days, the company has placed two wells on production with initial production rates of over 5 MMcf per day. The Poole #1-15H well, located in the company's Sharkey pilot area, was fracture stimulated using a slickwater fluid system along a 2,949 feet horizontal lateral section and placed on production at a rate of 5.2 MMcf per day. The Featherston #1-22 well, also located in the Sharkey pilot area, was fracture stimulated using an open-hole packer slickwater system along a 2,946 feet long horizontal lateral section and was placed on production at a rate of 5.4 MMcf per day, which is the highest initial rate of any Fayetteville Shale well the company has put on production to date.

During the third quarter of 2007, the company focused the majority of its Fayetteville Shale drilling activity in the areas that have been identified as better performing to date and, where possible, in areas with 3-D seismic coverage. As of September 30, 2007, the company had acquired or purchased a total of approximately 320 square miles of 3-D data in the Fayetteville Shale area and currently expects to have acquired or purchased approximately 450 square miles of 3-D seismic data by year-end. During the second quarter, the company also shifted to completing the majority of its wells using slickwater stimulations. Results from the company's 2007 drilling activities are as follows:

Wells First 30- First 60- Completion Est. Placed Average Day Avg Day Avg Average Method Well Time on Pro- IP Rate Rate (# Rate (# Lateral SW/XL/ Cost Frame duction (Mcf/d) of wells) of wells) Length Hy-RHy ($MM) 1st Qtr 2007 62 1,208 1,023(62) 921(62) 2,113 12/40/10 $2.6 2nd Qtr 2007 50 1,473 1,203(50) 1,030(50) 2,497 27/12/11 $2.9 3rd Qtr 2007 75 1,836 1,499(61) 1,363(35) 2,613 70/4/1 $3.0 SW - Slickwater fluids XL - Crosslinked gel fluids Hy-RHy - Hybrid or Reverse Hybrid method (combination slickwater/crosslinked gel fluid system)

During the third quarter, the company's typical horizontal well had an average completed well cost of $3.0 million per well, average horizontal lateral length of 2,613 feet and average time to drill to total depth of 16 days from re-entry to re-entry. This compares to average completed well costs during the second quarter of 2007 of $2.9 million per well with an average horizontal lateral length of 2,497 feet and an average time to drill to total depth of 18 days from re-entry to re-entry. As the company continues to drill wells with longer laterals in some of its pilot areas, the number of drilling days and well costs may increase.

Southwestern has drilled and completed 24 slickwater wells with lateral lengths over 3,000 feet through September 30, 2007. Southwestern forecasts that the average gross ultimate recovery from wells with greater than 3,000 feet horizontal laterals to range from 2.0 to 2.5 Bcf per well. Below are the results from these wells:

First 30- First 60- Average Est. Average Wells Average Day Avg Day Avg Successful Well Lateral Placed on IP Rate Rate (# Rate (# # of Frac Cost Length Production (Mcf/d) of wells) of wells) Stages ($MM) 3,348 24 2,219 2,026(19) 1,883(12) 6.4 $3.3

The graph below provides normalized average daily production data through September 30, 2007, for the company's horizontal wells using slickwater and crosslinked gel fluids. The "dark blue" curve is for horizontal wells fracture stimulated with either slickwater or crosslinked gel fluid systems and excludes 18 wells which had significant mechanical issues that are negatively impacting the wells' production performance. The "red curve" indicates results for the company's slickwater wells with lateral lengths greater than 3,000 feet. The normalized production curves provide a qualitative measure of the company's Fayetteville Shale wells' performance and should not be used to estimate an individual well's estimated ultimate recovery. The 1.3, 1.5 and 2.0 Bcf typecurves are shown for reference purposes.

(Photo: http://www.newscom.com/cgi-bin/prnh/20071031/LAW122-b )

The company currently expects that it will invest approximately $1.0 billion (including capital investments related to gathering) in the Fayetteville Shale project area during 2007 and participate in approximately 400 horizontal wells, of which approximately 70% are expected to be operated by Southwestern. The total number of wells in which the company will participate will depend on several factors including the number of wells operated by others, the company's drilling time performance on individual wells, total vertical depths related to the areas in which the company is drilling as well as average horizontal lateral lengths.

At September 30, 2007, the company held approximately 902,000 net acres in the Fayetteville Shale play area (667,000 net undeveloped acres, 110,000 net developed acres held by Fayetteville Shale production and approximately 125,000 net acres held by conventional production).

Conventional Arkoma Program -- (Outside the Fayetteville Shale play area) Southwestern participated in drilling 85 wells in its conventional Arkoma Basin drilling program during the first nine months of 2007, including 44 wells at its Ranger Anticline area and 21 wells at its Midway area, resulting in production of 17.8 Bcf for the first nine months of 2007, compared to 14.6 Bcf for the first nine months of 2006.

East Texas -- Southwestern participated in drilling 64 wells in East Texas during the first nine months of 2007, 35 of which were located in its Overton Field in Smith County, Texas. All of these wells were either productive or in progress at September 30, 2007. Production from the company's East Texas properties was 22.7 Bcfe for the first nine months of 2007, compared to 24.1 Bcfe for the first nine months of 2006.

At September 30, 2007, Southwestern held approximately 80,000 gross acres in its Angelina River Trend area located primarily in Angelina, Nacogdoches and San Augustine Counties, Texas. The company drilled 25 wells in the Angelina River Trend area during the first nine months of 2007, all of which were either productive or in progress at September 30. For calendar year 2007, Southwestern plans to drill approximately 43 wells at Overton, approximately 33 wells in its Angelina River Trend area and 4 wells in other areas.

New Ventures -- Southwestern also announced that it has acquired approximately 70,000 net acres in Pennsylvania under which it believes the Marcellus Shale is prospective. The company plans to begin drilling on this acreage in early 2008.

Explanation and Reconciliation of Non-GAAP Financial Measures

Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. The company has also included this information because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the company may not control and may not relate to the period in which the operating activities occurred. Net cash provided by operating activities before changes in operating assets and liabilities should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles. The table below reconciles net cash provided by operating activities before changes in operating assets and liabilities with net cash provided by operating activities as derived from the company's financial information.

3 Months Ended 9 Months Ended September 30, September 30, 2007 2006 2007 2006 (in thousands) Net cash provided by operating activities before changes in operating assets and liabilities $157,720 $95,182 $446,906 $304,847 Add back (deduct): Change in operating assets and liabilities 19,080 6,903 (11,888) 26,289 Net cash provided by operating activities $176,800 $102,085 $435,018 $331,136 $176,800 $102,085 $435,018 $331,136

Southwestern will host a teleconference call on Thursday, November 1 at 10:00 a.m. Eastern (9:00 a.m. Central) to discuss the company's third quarter 2007 financial and operating results. The toll-free number to call is 888- 221-9588 and the confirmation number is 1540730. The teleconference can also be heard live on the Internet at http://www.swn.com/.

Southwestern Energy Company is an integrated company whose wholly-owned subsidiaries are engaged in oil and gas exploration and production, natural

gas gathering and marketing and natural gas distribution. Additional information on the company can be found on the Internet at http://www.swn.com/.

All statements, other than historical financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements that address activities, outcomes and other matters that should or may occur in the future, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for the company's future operations, are forward-looking statements. Although the company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. The company has no obligation and makes no undertaking to publicly update or revise any forward-looking statements. You should not place undue reliance on forward-looking statements. They are subject to known and unknown risks, uncertainties and other factors that may affect the company's operations, markets, products, services and prices and cause its actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with forward-looking statements, risks, uncertainties and factors that could cause the company's actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: the timing and extent of changes in market conditions and prices for natural gas and oil (including regional basis differentials); the timing and extent of the company's success in discovering, developing, producing and estimating reserves; the economic viability of, and the company's success in drilling, the company's large acreage position in the Fayetteville Shale play, overall as well as relative to other productive shale gas plays; the company's ability to fund the company's planned capital investments; the company's ability to determine the most effective and economic fracture stimulation for the Fayetteville Shale formation; the costs and availability of oil field personnel services and drilling supplies, raw materials, and equipment and services, including pressure pumping equipment and crews in the Arkoma Basin; the company's future property acquisition or divestiture activities; the effects of weather; increased competition; the impact of federal, state and local government regulation; the financial impact of accounting regulations and critical accounting policies; the comparative cost of alternative fuels; conditions in capital markets and changes in interest rates, and any other factors listed in the reports the company has filed and may file with the Securities and Exchange Commission (SEC). For additional information with respect to certain of these and other factors, see reports filed by the company with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Financial Summary Follows OPERATING STATISTICS (Unaudited) Southwestern Energy Company and Subsidiaries Three Months Nine Months Periods Ended September 30 2007 2006 2007 2006 Exploration & Production Production Gas production (MMcf) 29,145 18,175 75,879 48,415 Oil production (MBbls) 139 180 472 527 Total equivalent production (MMcfe) 29,982 19,255 78,714 51,577 Commodity Prices Average gas price per Mcf, including hedges $6.66 $6.23 $6.75 $6.73 Average gas price per Mcf, excluding hedges $5.49 $6.04 $6.13 $6.56 Average oil price per Bbl, including hedges $72.52 $62.78 $62.58 $60.24 Average oil price per Bbl, excluding hedges $72.52 $68.31 $62.58 $65.31 Operating Expenses per Mcfe Lease operating expenses $0.67 $0.68 $0.71 $0.62 General & administrative expenses $0.46 $0.54 $0.47 $0.56 Taxes, other than income taxes $0.11 $0.32 $0.19 $0.34 Full cost pool amortization $2.56 $1.97 $2.41 $1.79 Marketing Gas volumes marketed (MMcf) 40,160 20,072 99,517 50,485 Gas Distribution Sales and end-use transportation deliveries (Bcf) 3.0 3.0 16.7 14.9 Number of customers at period end 148,111 145,987 148,111 145,987 Average sales rate per Mcf $13.22 $14.21 $11.11 $13.11 Heating weather - degree days 9 55 2,309 2,005 - percent of normal 23% 117% 92% 79% STATEMENTS OF OPERATIONS (Unaudited) Southwestern Energy Company and Subsidiaries Three Months Nine Months Periods Ended September 30 2007 2006 2007 2006 (in thousands, except share/per share amounts) Operating Revenues Gas sales $201,095 $121,515 $596,798 $409,883 Gas marketing 81,361 33,261 208,916 98,277 Oil sales 10,113 11,305 29,566 31,749 Gas transportation and other 5,053 2,313 17,076 9,186 297,622 168,394 852,356 549,095 Operating Costs and Expenses Gas purchases - midstream services 78,588 31,314 201,293 91,474 Gas purchases - gas distribution 2,063 2,174 57,471 50,994 Operating expenses 21,562 17,360 62,084 47,828 General and administrative expenses 20,099 16,947 54,782 46,738 Depreciation, depletion and amortization 81,426 40,459 203,646 100,512 Taxes, other than income taxes 4,431 7,022 17,862 20,333 208,169 115,276 597,138 357,879 Operating Income 89,453 53,118 255,218 191,216 Interest Expense Interest on long-term debt 10,695 2,871 22,204 7,690 Other interest charges 173 400 1,099 1,043 Interest capitalized (3,604) (3,051) (9,575) (8,232) 7,264 220 13,728 501 Other Income (Loss) 83 1,217 (21) 17,674 Income Before Income Taxes and Minority Interest 82,272 54,115 241,469 208,389 Minority Interest in Partnership (79) (120) (273) (525) Income Before Income Taxes 82,193 53,995 241,196 207,864 Provision for Income Taxes - Deferred 31,233 20,518 91,654 78,988 Net Income $50,960 $33,477 $149,542 $128,876 Earnings Per Share: Basic $0.30 $0.20 $0.88 $0.77 Diluted $0.30 $0.20 $0.87 $0.75 Weighted Average Common Shares Outstanding: Basic 169,795,520 167,514,249 169,292,304 167,114,831 Diluted 172,544,112 171,578,104 172,363,419 171,140,513 BALANCE SHEETS (Unaudited) Southwestern Energy Company and Subsidiaries September 30 2007 2006 (in thousands) ASSETS Current Assets $311,153 $246,808 Property, Plant and Equipment, at cost 4,172,838 2,865,663 Less: Accumulated depreciation, depletion and amortization 1,225,527 975,781 2,947,311 1,889,882 Other Assets 34,665 43,853 $3,293,129 $2,180,543 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities $429,510 $257,768 Long-Term Debt 730,300 137,200 Deferred Income Taxes 459,525 359,189 Long-Term Hedging Liability 7,915 7,909 Other Liabilities 44,453 29,469 Commitments and Contingencies Minority Interest in Partnership 10,912 11,383 Stockholders' Equity Common stock, $.01 par value; authorized 540,000,000 shares, issued 170,307,333 shares in 2007 and 168,452,336 in 2006 1,703 1,684 Additional paid-in capital 768,312 731,134 Retained earnings 810,399 627,097 Accumulated other comprehensive income 34,752 18,289 Common stock in treasury, at cost, 111,162 shares in 2007 and 207,196 in 2006 (4,652) (579) 1,610,514 1,377,625 $3,293,129 $2,180,543 STATEMENTS OF CASH FLOWS (Unaudited) Southwestern Energy Company and Subsidiaries Nine Months Periods Ended September 30 2007 2006 (in thousands) Cash Flows From Operating Activities Net income $149,542 $128,876 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 204,662 101,425 Deferred income taxes 91,654 78,988 Unrealized (gain) loss on derivatives (2,669) 3,542 Stock-based compensation expense 3,839 4,034 Minority interest in partnership (122) (230) Gain on sale of investment in partnership and other property - (10,863) Equity in income of NOARK partnership - (925) Change in operating assets and liabilities (11,888) 26,289 Net cash provided by operating activities 435,018 331,136 Cash Flows From Investing Activities Capital investments (1,139,946) (603,410) Proceeds from sale of investment in partnership and other property 5,777 79,655 Other items 383 880 Net cash used in investing activities (1,133,786) (522,875) Cash Flows From Financing Activities Debt retirement (600) (600) Payments on revolving long-term debt (628,050) - Borrowings under revolving long-term debt 1,222,350 - Revolving credit facility amendment costs (1,275) - Excess tax benefit for stock-based compensation 17,858 7,447 Change in bank drafts outstanding 42,013 11,768 Proceeds from exercise of common stock options 4,160 2,540 Net cash provided by financing activities 656,456 21,155 Decrease in cash and cash equivalents (42,312) (170,584) Cash and cash equivalents at beginning of year 42,927 223,705 Cash and cash equivalents at end of period $615 $53,121 SEGMENT INFORMATION (Unaudited) Southwestern Energy Company and Subsidiaries Natural Gas Exploration Midstream Distribution & Production Services & Other Eliminations Total (in thousands) Quarter Ending September 30, 2007 Revenues $204,130 $239,027 $17,366 $(162,901) $297,622 Gas purchases - 226,209 7,557 (153,115) 80,651 Operating expenses 19,938 4,782 6,489 (9,647) 21,562 General & administrative expenses 13,693 2,140 4,405 (139) 20,099 Depreciation, depletion & amortization 78,279 1,505 1,642 - 81,426 Taxes, other than income taxes 3,364 313 754 - 4,431 Operating Income (Loss) $88,856 $4,078 $(3,481) $- $89,453 Capital Investments(1) $381,099 $31,115 $4,386 $- $416,600 Quarter Ending September 30, 2006 Revenues $124,772 $125,327 $18,406 $(100,111) $168,394 Gas purchases - 120,571 9,129 (96,212) 33,488 Operating expenses 13,051 1,720 6,357 (3,768) 17,360 General & administrative expenses 10,428 1,475 5,175 (131) 16,947 Depreciation, depletion & amortization 38,792 174 1,493 - 40,459 Taxes, other than income taxes 6,175 128 719 - 7,022 Operating Income (Loss) $56,326 $1,259 $(4,467) $- $53,118 Capital Investments(1) $233,688(2) $14,727 $10,030 $- $258,445 Nine Months Ending September 30, 2007 Revenues $547,189 $651,283 $122,189 $(468,305) $852,356 Gas purchases - 622,109 77,960 (441,305) 258,764 Operating expenses 55,734 13,140 19,783 (26,573) 62,084 General & administrative expenses 36,761 5,668 12,780 (427) 54,782 Depreciation, depletion & amortization 195,392 3,291 4,963 - 203,646 Taxes, other than income taxes 14,784 676 2,402 - 17,862 Operating Income $244,518 $6,399 $4,301 $- $255,218 Capital Investments(1) $1,051,422 $76,395 $12,877 $- $1,140,694 Nine Months Ending September 30, 2006 Revenues $360,245 $337,461 $119,476 $(268,087) $549,095 Gas purchases - 325,957 77,257 (260,746) 142,468 Operating expenses 31,934 3,413 19,396 (6,915) 47,828 General & administrative expenses 28,733 4,000 14,431 (426) 46,738 Depreciation, depletion & amortization 95,225 580 4,707 - 100,512 Taxes, other than income taxes 17,747 383 2,203 - 20,333 Operating Income $186,606 $3,128 $1,482 $- $191,216 Capital Investments(1) $577,905(2) $30,639 $23,578 $- $632,122 (1) Capital investments include a reduction of $20.2 million and $2.5 million for the three- and nine-month periods ended September 30, 2007, respectively, and an increase of $11.5 million and $26.8 million for the three- and nine-month periods ended September 30, 2006, respectively, relating to the change in accrued expenditures between periods. (2) Exploration and production capital investments include $28.6 million and $73.8 million for the three- and nine-month periods ended September 30, 2006 for the investment in drilling rigs which were sold and leased back in December 2006.