In response to an unfavorable royalty decision by the ArkansasSupreme Court two weeks ago week, Southwestern Energy announcedplans sell its entire utility business to pay for the $109 millionjudgment 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 CountyCircuit Court decision. The class action suit was brought byroyalty owners of SEECO, Inc.-held properties. SEECO is awholly-owned Southwestern Energy subsidiary.

“It’s a sad ending to what was a situation, which turned out tobe just a no-win for the company,” said John Olson, analyst withSanders, Morris and Mundy. “They were caught between a rock and ahard place back in 1984-85, with the Arkansas Commission, and thenthe royalty owners demanded satisfaction out of an impossiblesituation. It’s just unfortunate,” he commented

Harold Korell, Southwestern’s CEO said “This unfavorable rulingrequires us to take difficult steps to ensure the long-term successof the Company,” “The sale of the utility business would allow usto fund the judgment, significantly strengthen our financialposition, and focus the Company on its exploration and productionbusiness.”

Southwestern said that it would be arranging financing with itslead banks to meet its immediate financial obligations so that itcan be patient and flexible while selling its utility business. Thecompany will also hire an investment bank to assist in the sale ofthe assets.

“The decision to sell the utility business sets a clear strategyfor the Company to focus all its efforts on exploration andproduction,” explained Korell. “Two years ago we began making majorchanges in our E&P segment which are now beginning to showpositive results. Our drilling results in the first quarter of 2000were one of the best in the Company’s history, as we replaced over200 percent of our year-to-date production. We believe we have asound E&P strategy that will offer significant upside to ourshareholders.”

Alex Steis

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