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Southwestern to Sell Utility, Settle with Ruling
In response to an unfavorable royalty decision by the Arkansas Supreme Court two weeks ago week, Southwestern Energy announced plans sell its entire utility business to pay for the $109 million judgment against the company. As a direct result of the ruling, Southwestern also has suspended its quarterly dividend.
The state Supreme Court ruling upheld a 1998 Sebastian County Circuit Court decision. The class action suit was brought by royalty owners of SEECO, Inc.-held properties. SEECO is a wholly-owned Southwestern Energy subsidiary.
"It's a sad ending to what was a situation, which turned out to be just a no-win for the company," said John Olson, analyst with Sanders, Morris and Mundy. "They were caught between a rock and a hard place back in 1984-85, with the Arkansas Commission, and then the royalty owners demanded satisfaction out of an impossible situation. It's just unfortunate," he commented
Harold Korell, Southwestern's CEO said "This unfavorable ruling requires us to take difficult steps to ensure the long-term success of the Company," "The sale of the utility business would allow us to fund the judgment, significantly strengthen our financial position, and focus the Company on its exploration and production business."
Southwestern said that it would be arranging financing with its lead banks to meet its immediate financial obligations so that it can be patient and flexible while selling its utility business. The company will also hire an investment bank to assist in the sale of the assets.
"The decision to sell the utility business sets a clear strategy for the Company to focus all its efforts on exploration and production," explained Korell. "Two years ago we began making major changes in our E&P segment which are now beginning to show positive results. Our drilling results in the first quarter of 2000 were one of the best in the Company's history, as we replaced over 200 percent of our year-to-date production. We believe we have a sound E&P strategy that will offer significant upside to our shareholders."
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