The Fayetteville Shale, where Southwestern Energy Corp. is the dominant player, powered double-digit production growth and profits for the company in 2Q2007. Gross daily natural gas output from its Arkansas leasehold was up four-fold from a year ago, to 200 MMcf/d from 50 MMcf/d in 2Q2006.

Southwestern, which also has drilling activity ongoing in East Texas and the Arkoma Basin, reported a 57% jump in its oil and gas production in the quarter, to 25.8 Bcfe from 16.4 Bcfe a year ago. Most of the output was attributed to the Fayetteville Shale, where the company produced 10.7 Bcf, compared with 1.8 Bcf in 2Q2006. In 1Q2007, the play was responsible for 8.2 Bcf of Southwestern’s output.

“Although our results were primarily driven by the continued success of our development program in the Fayetteville Shale, we are also having very good results from our base activities in East Texas and the Arkoma Basin,” said CEO Harold M. Korell. “We are also gaining a better understanding of the Fayetteville Shale and are beginning to focus our drilling program in areas which have shown better results.”

At the end of June, Southwestern held more than 900,000 net acres in the Fayetteville Shale, including 699,000 net undeveloped acres, 76,000 net developed acres and 125,000 net acres held by conventional production. Southwestern had drilled and completed 303 operated wells in the play at the end of the quarter, including 246 horizontal wells. The company currently has 19 drilling rigs running there, and this year it expects to invest about $950 million, including capital investments related to gathering. All together, Southwestern expects to participate in about 400 horizontal wells in the play in 2007.

Lease operating expenses grew to 73 cents/Mcfe from 64 cents a year earlier, which Southwestern attributed to increases in gathering and compression costs, most of which also resulted from growth in the Fayetteville play. And Southwestern added 79 new employees in the quarter, with most of the new hires designated for its exploration and production subsidiary.

In the quarter, Southwestern’s net income jumped 29% to $47.6 million (28 cents/share) from $37.0 million (22 cents) in 2Q2006. Operating income rose to $146.8 million from $84.3 million. Average realized gas prices were $6.90/Mcf, including the effect of hedges, compared with $6.23 in 2Q2006. This year, Southwestern has hedged 75% of its expected gas production.

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