After operating more than half a century as an integratedbusiness, Southwestern Energy Co. has poised itself to become apure exploration and production company, a strategic move that willfocus the company’s assets on its drilling program in the Arkomaand Permian Basins and onshore Gulf Coast.

Speaking at Denver’s Oil & Gas Conference last week, CEOHarold Korell said the company will sell its gas distributionassets and move toward E&P only, especially concentrating onwhat he called the legacy asset for the company, the Arkoma Basin.

Though part of the changes followed a court decision in June thatforced Southwestern to pay a $109 million judgment (see Daily GPI, June 23), Korell put a good face on themove toward E&P. A class action lawsuit was filed againstSouthwestern in 1996 on behalf of royalty owners allegingimproprieties in the disbursement of royalties. But Korell said thateven before June’s ruling, the company had been in a turnaround mode,beginning with a management team that was first set up in 1998.

At the time, Korell rebuilt the company’s E&P staff from”top to bottom” with a hand-picked team of “proven experienced,industry professionals.” Korell said the team now is focused onadding $1.20 to $130 of discounted value for every $1 invested. “Asa result, Southwestern’s operational results on all fronts —finding costs, reserve replacement and present value added perdollar invested — have improved dramatically over the past twoand a half years.”

For sale will be its distribution operation, Arkansas WesternGas, which serves 181,000 customers in Arkansas and Missouri. Itsgas transportation business includes NOARK (258 miles) and Ozarkpipelines (749 miles) in Oklahoma and Arkansas.

Most of the E&P will be concentrated in the short term inthe Arkoma Basin, which now accounts for more than half ofSouthwestern’s production and reserves, and provides both “stableproduction” and long-lived reserves for the company, according toKorell.

“Southwestern’s low-risk Arkoma development activities inArkansas and Oklahoma are complemented by medium-risk explorationand exploitation efforts in the Permian Basin, particularly insoutheast New Mexico, where the company has recently madesignificant progress,” he said “Additionally, Southwestern isexposed to impressive growth potential from its inventory ofhigh-quality exploration opportunities in the onshore Gulf Coast,each of which are supported by 3-D seismic.”

The move, so far, appears to be paying off. For the six monthsended June 30, Southwestern replaced 230% of its year-to-dateproduction with new reserves added at a finding and developmentcost of $1 per Mcfe. At year-end 1999, Southwestern added 345 Bcfeof oil and gas reserves, 87% of which were natural gas and 83% ofwhich were proved developed. Southwestern also had a reserve lifeof 10.8 years at year-end 1999.

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