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Southwestern's Fayetteville Shale Drives Record Output

Southwestern Energy Co., the largest leaseholder in the Fayetteville Shale, reported record production of 45.1 Bcfe in 2Q2008, which was 74% higher than in the same period a year ago when the company produced 25.8 Bcfe. Natural gas production in the Arkansas play alone reached 29.6 Bcf, up from 10.7 Bcf in 2Q2007 and ahead of the 23.6 Bcf reported in the first three months of this year.

Total natural gas production in the period jumped to 44.2 Bcf, up from 24.8 Bcf reported in 2Q2007. Southwestern also marketed 59,512 MMcf/d in the quarter, ahead of the 32,270 MMcf/d a year ago.

"We achieved record results in the second quarter, driven primarily by our production growth in the Fayetteville Shale and higher gas prices," said CEO Harold M. Korell. "Our knowledge of how to drill and complete wells in the shale is consistently improving. These improvements are clearly visible in our production rates which, as of July 1, reflected gross daily operated production volumes from the Fayetteville of approximately 500 MMcf, up from about 200 MMcf/d a year ago. We are also seeing good results from our activities in the James Lime play in East Texas and our conventional Arkoma Basin properties."

To complement its record production, the Houston-based explorer reported record earnings of $136.6 million, which was 187% higher than in 2Q2007. Operating income from the exploration and production segment rose to $215.1 million for the period, up from $81.4 million in 2Q2007. Southwestern's average realized gas price was $8.17/Mcf for 2Q2008, including hedges, compared with $6.90/Mcf in 2Q2007. The company's commodity hedging activities decreased average gas prices by $1.83/Mcf in the quarter.

The producer revised its production guidance for 2008 upward and said it now expects to produce 181-185 Bcfe, which would be 60% higher than in 2007. It had previously estimated it would produce 168-172 Bcfe this year. Of the revised output guidance, about 119-124 Bcf is expected to come from the Fayetteville Shale, in which it holds around 857,000 net acres. The producer's gross operated production rate from the play was 500 MMcf /d on July 1.

In addition to the Arkansas field, Southwestern also is drilling wells in East Texas. The producer has 102,000 gross acres in its Angelina River Trend area of East Texas, and it is targeting the Pettet, Travis Peak and James Lime formations. Current net production from the James Lime is around 23 MMcf/d. Southwestern has a 50/50 joint venture with a private company to also drill two wells that will target the Haynesville/Bossier Shale intervals in Shelby and San Augustine counties, TX.

Another 105,000 net undeveloped acres are "prospective" in the Marcellus Shale of the Appalachian Basin, Southwestern said. The company drilled its first two vertical wells on its acreage located in Bradford and Susquehanna counties, PA, and it expects to complete the wells by the end of September. At least two additional test wells, one of which will be a horizontal well, are slated to be drilled by the end of the year.

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