In response to an unfavorable royalty decision by the ArkansasSupreme Court last week, Southwestern Energy announced that it hasreceived the go-ahead from its board of directors to sell itsentire utility business to pay for the $109 million judgementagainst the company.. The state Supreme Court ruling upheld a 1998Sebastian County Circuit Court decision against the company.

The class action suit was brought on by the royalty owners ofSEECO, Inc., a wholly-owned Southwestern Energy subsidiary (see DailyGPI, June 23). As a direct result of theruling, Southwestern has also suspended its quarterly dividend, thecompany said.

“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 Mr. Korell. “Two years ago we began makingmajor changes in our E&P segment which are now beginning toshow positive results. Our drilling results in the first quarter of2000 were one of the best in the Company’s history, as we replacedover 200 percent of our year-to-date production. We believe we havea sound E&P strategy that will offer significant upside to ourshareholders.”

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