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Southwestern's Fayetteville Comes Alive With $4 NatGas

When natural gas prices are $3, Southwestern Energy Co. has 1,200-1,500 well locations to drill in the Fayetteville Shale, but "in today's price environment, that changes substantially," CFO Robert Craig Owen said Wednesday in Austin, TX.

"We have thousands and thousands of well locations," he said at the UBS Global Oil and Gas Conference. "We'll be drilling at this pace for many years to come, assuming the [Nymex] strip pricing that we have today. We do plan to drill close to 400 wells this year and that certainly, of all of our operations, can flex more than any others as we need to respond to gas prices, one way or the other."

Owen said the company has driven down the number of days it takes to drill a well and well costs, too, while increasing lateral lengths. Last year, well costs in the play averaged $2.5 million a copy; that was down to $2.1 million during the first quarter, he said. The drive to reduce costs and increase speed continues, with continued impact, but someday a limit will be reached.

"...[T]here's a floor down there somewhere; we just don't know where it is, although we continue to drill faster. So I don't know where that floor is," Owen said.

Besides being "very economic" at today's gas prices, the Fayetteville offers Southwestern the ability to ramp activities up or down with greater flexibility than it can in the Marcellus Shale, which is expected to be the company's driver of growth this year.

Owen said Southwestern planned its budget for the year based on $3.50 gas prices. As $4 handles firm up in the strip, Southwestern "may start trying to accelerate or look for opportunities to accelerate capital and additional opportunities," Owen said. "And we probably, certainly would like to target Marcellus as much as we can.

"As we get later in the year, we may decide to flex our capital a little bit and may possibly add rigs, either Marcellus, Fayetteville or both, if it makes sense. Now there will be a governor on that...the constraint in Marcellus will be our firm transport. We'll produce to that firm transport capacity and we won't produce over that. We'll certainly attack the market through new projects or potentially available capacity on the market to get additional capacity to allow our production growth to grow even more."

Southwestern exited 2012 producing just over 300 MMcf/d gross from the Marcellus. In April the company surpassed 400 MMcf/d of gross production. Owen said the ramp-up in production would continue and would match firm transport capacity, which by the end of 2015 is expected to be nearly 800 MMcf/d. "By the end of 2013, that number will be just south of 600 MMcf/d."

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