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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark one)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended DECEMBER 31, 1993
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ______________ to ______________
Commission file number 1-8246
SOUTHWESTERN ENERGY COMPANY
(Exact name of registrant as specified in charter)
ARKANSAS 71-0205415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1083 SAIN STREET, FAYETTEVILLE, ARKANSAS 72703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501) 521-1141
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock - Par Value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $ 438,425,828 based on the New York Stock Exchange -
Composite Transactions closing price on March 25, 1994 of $ 17.25.
The number of shares outstanding as of March 25, 1994, of the
Registrant's common stock, par value $.10, was 25,684,110.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the Part of the Form 10-K into
which the document is incorporated: (1) Annual Report to holders of the
Registrant's common stock for fiscal year ended December 31, 1993 -
PARTS I, II, and IV; and (2) definitive proxy statement to holders of
the Registrant's common stock in connection with the solicitation of
proxies to be used in voting at the Annual Meeting of Shareholders
on May 25, 1994 - PART III.
PART I
ITEM 1. BUSINESS
Southwestern Energy Company (the Company) is a diversified natural gas
company which conducts its primary activities through four wholly owned
subsidiaries. The Company operates principally in the exploration and
production segment and the gas distribution segment of the natural gas
industry. The Company was incorporated on July 2, 1929, under the laws of
the State of Arkansas. The Company operates an integrated natural gas
gathering, transmission and distribution system in northwest Arkansas, and
natural gas distribution systems in northeast Arkansas and parts of Missouri.
The nature of the Company's natural gas transmission and distribution
operations changed in 1992 when a new 258 mile long intrastate pipeline in
which the Company owns an interest commenced operations. The intrastate
pipeline crosses three interstate pipelines and ties the Company's
distribution and gathering pipeline systems in northwest Arkansas to its
distribution systems in northeast Arkansas and southeast Missouri. The
Company also serves as operator of the pipeline. In 1943, the Company
commenced a program of exploration for and development of natural gas
reserves in Arkansas for supply to its utility customers. In 1971, the
Company initiated an exploration and development program outside Arkansas,
unrelated to the utility requirements. Since that time, the Company's
exploration and development activities outside Arkansas have expanded. The
exploration, development and production activities are a separate, primary
business of the Company. The Company is an exempt holding company under the
Public Utility Holding Company Act of 1935.
Exploration and production activities consist of ownership of mineral
interests in productive and undeveloped leases located entirely within the
United States. The Company engages in gas and oil exploration and production
through its subsidiaries, SEECO, Inc. (SEECO) and Southwestern Energy
Production Company (SEPCO). SEECO operates exclusively in the State of
Arkansas and holds a large base of both developed and undeveloped gas
reserves and conducts an ongoing drilling program in the historically
productive Arkansas section of the Arkoma Basin. SEPCO conducts an
exploration program in areas outside Arkansas, primarily the Gulf Coast areas
of Texas and Louisiana. SEPCO also holds a block of leasehold acreage
located on the Fort Chaffee military reservation in western Arkansas and in
other parts of Arkansas away from the operating areas of the Company's other
subsidiaries. The Company's subsidiary Arkansas Western Gas Company
(Arkansas Western) operates integrated natural gas distribution systems in
Arkansas and Missouri. Arkansas Western is the largest single purchaser of
SEECO's gas production. Southwestern Energy Pipeline Company (SWPL) owns an
interest in the NOARK Pipeline System (NOARK), an intrastate natural gas
transmission system which extends across northern Arkansas. A discussion of
the primary businesses conducted by the Company through its wholly owned
subsidiaries follows.
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
Substantially all of the Company's exploration and production activities
and reserves are concentrated in the Arkoma Basin of Arkansas and the Gulf
Coast areas of Texas and Louisiana. At December 31, 1993, the Company had
proved natural gas reserves of 318.8 billion cubic feet (Bcf) and proved oil
reserves of 479 thousand barrels (MBbls). Revenues of the exploration and
production subsidiaries are predominately generated from production of
natural gas. The Company's gas production increased for the sixth
consecutive year in 1993, totaling 35.4 Bcf, up 39% from 25.5 Bcf in 1992.
Sales of gas production accounted for 97% of total operating revenues for
this segment in 1993, 95% in 1992 and 91% in 1991. SEECO's largest customer
for sales of its gas production was the Company's utility subsidiary. Sales
to unaffiliated purchasers by both SEECO and SEPCO have increased
significantly, however, during the last few years primarily as a result of
higher production from
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Arkansas properties and from discoveries made in earlier years offshore in
the Gulf of Mexico. Sales to unaffiliated purchasers accounted for 64% of
total gas volumes sold by the exploration and production segment in 1993, 55%
in 1992 and 35% in 1991.
Gas volumes sold by SEECO to Arkansas Western for its northwest Arkansas
division (AWG) were approximately 7.1 Bcf in 1993, 7.2 Bcf in 1992 and 7.6
Bcf in 1991. Through these sales, SEECO furnished approximately 50% of the
northwest Arkansas system's requirements in each of these years. SEECO also
delivered approximately 2.2 Bcf in 1993, 2.8 Bcf in 1992 and .6 Bcf in 1991
directly to certain large business customers of AWG through a transportation
service of the utility subsidiary that became effective in October, 1991.
These customers previously purchased the majority of their requirements
directly from AWG through a spot market purchasing program offered by the
utility. Most of the sales to AWG are pursuant to a twenty-year contract
between SEECO and AWG which committed to the utility all Company owned
reserves in Arkansas as of the contract date of July 24, 1978. Most reserves
committed to this contract were classified as Section 105 gas under the
Natural Gas Policy Act of 1978 (NGPA). Section 105 covers gas committed to
intrastate commerce at the date of enactment of the NGPA and provides that
the price received for any such gas will be the contract price, provided that
the contract price does not exceed the maximum price as published quarterly
by the Federal Energy Regulatory Commission (FERC) for Section 102 gas under
the NGPA. The pricing under this contract has been frozen at the December,
1984 level. All gas dedicated to this contract was deregulated as of January
1, 1993. Reserves discovered after the contract date in areas not previously
committed to the utility may be sold to the utility at prices determined by
present gas market conditions or to unaffiliated companies. The contract
also contains provisions for the release of dedicated reserves for sale to
unaffiliated companies in certain circumstances. In addition to this
contract, SEECO also sells gas to AWG under newer long-term contracts with
flexible pricing provisions and under short-term spot market arrangements.
SEECO's sales to AWG accounted for approximately 31%, 45% and 49% of total
exploration and production revenues in 1993, 1992 and 1991, respectively. In
November, 1993, the Arkansas Public Service Commission (APSC or Commission)
issued an order which found the purchases of AWG under the 1978 contract to
be in violation of an Arkansas statute requiring that gas purchases be made
"from the lowest or most advantageous market." The APSC order is discussed
more fully below under "Natural gas gathering, transmission and
distribution."
SEECO's sales to Associated Natural Gas Company (Associated), a division
of Arkansas Western which operates natural gas distribution systems in
northeast Arkansas and parts of Missouri, were 5.7 Bcf in 1993, 4.3 Bcf in
1992 and 5.3 Bcf in 1991. These deliveries accounted for approximately 67%
of Associated's total requirements in 1993, 56% in 1992 and 55% in 1991.
These sales represented 15% of total exploration and production revenues in
1993, 14% in 1992 and 20% in 1991. Deliveries to Associated increased in
1993 primarily due to colder winter heating weather and storage requirements
during the summer months. The decrease in volumes delivered to Associated in
1992, as compared to 1991, was primarily the result of some of Associated's
larger industrial customers switching to transportation service. Effective
October, 1990, SEECO entered into a ten-year contract with Associated to
supply its base load system requirements at a price to be redetermined
annually. Deliveries under this contract were made at a price of $1.90 per
thousand cubic feet (Mcf) from inception of the contract through the first
nine months of 1993, and are currently being made at a price of $2.385 per
Mcf.
In 1990, SEECO completed the initial mapping and engineering phases of a
multi-year geological field study of the Arkoma Basin of Arkansas. The
product developed was an extensive database and geologic interpretations of
the distribution of gas-bearing sands in the region and resulted in the
identification of 69.7 Bcf of proved undeveloped reserves that were added to
the Company's base of proved reserves. At December 31, 1993, after
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transfers and revisions, the remaining proved undeveloped reserves identified
by the study were 55.8 Bcf. The data base developed is continually updated
by drilling activity and serves as the guide for a development drilling
program that the Company plans to continue over the next several years. The
development drilling program added 27.0 Bcf in 1993 and 22.5 Bcf in 1992 of
new natural gas reserve additions and resulted in the transfer of 2.6 Bcf in
1993 and 8.7 Bcf in 1992 from the proved undeveloped category to the proved
developed category. SEECO participated in a total of 74 development wells
during 1993 with a completion rate of 73% and expects the number of wells
drilled in 1994 to approximate the number drilled in 1993. SEECO's sales
to unaffiliated purchasers increased to 9.7 Bcf in 1993, from 4.5 Bcf in 1992
and 1.1 Bcf in 1991. The increase in both years resulted from the Company's
development drilling program. At present, SEECO's contracts for sales of gas
to unaffiliated customers consist of short-term sales made to customers of
AWG's transportation program, which became effective in October, 1991, and
spot sales into markets away from AWG's distribution system. In the past,
the Company's ability to enter into sales arrangements with unaffiliated
customers has generally been constrained by a lack of pipeline transportation
to markets away from the Arkoma Basin. Initiatives of the FERC to
restructure the natural gas interstate pipeline service rules through its
Order No. 636 series have improved and should continue to improve the
Company's ability to market its existing and potential reserves. Also
contributing to the increase in the ability of SEECO to market its gas to
unaffiliated customers was the completion in September, 1992 of NOARK, as
explained more fully below under "Natural gas gathering, transmission and
distribution."
At December 31, 1993, the gas reserves of SEPCO were located primarily in
the states of Arkansas, Oklahoma, Louisiana and offshore Texas, while its oil
reserves were located primarily in Oklahoma, North Dakota, Louisiana and
offshore Texas. SEPCO holds about 22% of the Company's natural gas reserves
and all of its oil reserves. SEPCO's gas sales increased to 12.9 Bcf in
1993, from 9.6 Bcf in 1992 and 5.9 Bcf in 1991. The increase in 1993 was
primarily the result of increased production from properties located in the
Gulf of Mexico. The increase in 1992 was the result of sales from Fort
Chaffee, as discussed below. The Company's production from Fort Chaffee and
the Gulf of Mexico is sold under contracts which reflect current short-term
prices and which are subject to seasonal price swings. The Company curtailed
gas production during 1992 and 1991 when sales prices were deemed below
acceptable levels. Oil production was 96 MBbls in 1993, compared to 120
MBbls in 1992, and 176 MBbls in 1991. The Company's exploration program has
been directed almost exclusively toward natural gas in recent years. The
Company plans to continue to concentrate on developing gas reserves for
production but will also selectively seek opportunities to participate in
projects oriented toward oil production. Over the long-term, however, oil
sales are not expected to account for a significant part of the Company's
future revenues. SEPCO's gas and oil sales accounted for approximately 33%
of total gas and oil operating revenues in 1993, 31% in 1992, and 26% in
1991.
In 1989, SEPCO purchased at oral auction 11,000 undrilled acres containing
17 separate drilling units on the Fort Chaffee military reservation of
western Arkansas. The total cost of this acreage was approximately $11.0
million. Conflicts with military training activities have limited SEPCO's
drilling operations at Fort Chaffee. The primary training function at Fort
Chaffee was transfered to another military installation during 1993 and it
appears that scheduling conflicts should be lessened in the future. To date
the Company has drilled or participated in eight wells at Fort Chaffee that
have discovered an estimated 46.6 Bcf of new gas reserves, net to the
Company's interest. SEPCO is currently completing evaluation of a seven line
seismic program on its Fort Chaffee acreage. The data provided by the
seismic program will be used to develop an exploration plan covering the
remainder of SEPCO's acreage at Fort Chaffee. The plan will then be
submitted for military approval with a goal of conducting further exploration
drilling during 1994. Sales of gas production from Fort Chaffee began
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in August, 1991 and totaled 5.1 Bcf in 1993, 5.8 Bcf in 1992 and 2.2 Bcf in
1991. Since late 1992, sales from Fort Chaffee have taken place under a firm
sales contract for 25 million cubic feet per day (MMcfd) to an independent
marketer. The gas was transported by the marketer under a firm
transportation contract on NOARK. The Company met its obligation under the
firm sales contract in part by providing gas supplied from SEECO's
development drilling program. In late 1993, the marketer filed suit against
NOARK, the Company and certain of its affiliates, seeking rescission of the
firm sales and transportation contracts. Since that time, the Company has
entered into its own sales arrangements covering the affected gas production
and does not believe its sales will be adversely affected while the
litigation is proceeding. This gas production continues to be transported
through NOARK at a price based on current spot market prices, net of
transportation. See discussion at "Natural gas gathering, transmission and
distribution" for additional information concerning the independent
marketer's decision to cease honoring its contractual obligations.
Outside Arkansas, the Company added 19.0 Bcf of new reserves from
drilling, with 15.2 Bcf of that from an onshore discovery in the coastal area
of southeast Louisiana. The Gulf Coast region continues to be the focus of
most of the Company's exploration activity outside Arkansas. The Company
expects in the future to direct its exploration activities toward the onshore
Gulf Coast by focusing on the internal generation of prospects in the upper
Texas Gulf Coast and in south Louisiana. SEPCO is also participating with an
interest of approximately 50% in an exploration program on a 135,000 acre
farmout by a major oil company of acreage held by production in the Oklahoma
Panhandle. Though the wells drilled are of smaller magnitude than SEPCO's
typical Gulf Coast prospect, drilling costs in the Oklahoma Panhandle are low
and the wells are economically attractive. Six tests drilled to date have
resulted in five completions. Approximately seven new test wells are planned
for 1994.
In the natural gas and oil exploration segment, competition is encountered
primarily in obtaining leaseholds for future exploration. Competition in the
State of Arkansas has increased in recent years, due largely to the
development of improved access to interstate pipelines. Due to the Company's
significant holdings of undeveloped acreage in Arkansas and its long-time
presence and reputation in this area, the Company believes it will continue
to be successful in acquiring new leases in Arkansas. While improved
intrastate and interstate pipeline transportation in Arkansas should increase
the Company's access to markets for its gas production, these markets will
generally be served by a number of other suppliers. Thus, the Company will
encounter competition which may affect both the price it receives and
contract terms it must offer. Outside Arkansas, the Company is less
well-established and faces competition from a larger number of other
producers. The Company has in recent years been successful in building its
inventory of undeveloped leases and obtaining participating interests in
drilling prospects outside Arkansas.
The Company expects its 1994 capital expenditures for gas and oil
exploration and development to total $50.0 million, up from $37.4 million in
1993. Most of the increase in capital spending will be directed to the
onshore Gulf Coast along with Fort Chaffee and the Oklahoma Panhandle. The
Company will review this budget periodically during the year for possible
adjustment depending upon cash flow projections related to fluctuating prices
for oil and natural gas.
NATURAL GAS GATHERING, TRANSMISSION AND DISTRIBUTION
The Company's natural gas distribution operations are concentrated
primarily in north Arkansas and southeast Missouri. The Company serves
approximately 160,000 retail customers and obtains a substantial portion of
the gas they consume through its Arkoma Basin gathering facilities. The
Company is also a participant in a partnership that owns the NOARK Pipeline
System. The complexity of AWG's distribution operations, particularly its
gathering system in the Arkoma Basin gas fields, increased significantly with
the start up of
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NOARK. AWG provides field management services to NOARK under a contract with
the partnership and AWG's gathering system delivers to NOARK a substantial
part of the gas NOARK transports. The Company completed a pipeline in 1993
that connects NOARK to Associated's distribution system, tying together the
Company's two primary gas distribution systems.
Arkansas Western consists of two operating divisions. The AWG division
gathers natural gas in the Arkansas River Valley of western Arkansas and
transports the gas through its own transmission and distribution systems,
ultimately delivering it at retail to approximately 93,000 customers in
northwest Arkansas. The Associated division currently receives its gas from
transportation pipelines and delivers the gas through its own transmission
and distribution systems, ultimately delivering it at retail to approximately
67,000 customers primarily in northeast Arkansas and southeast Missouri.
Associated, formerly a wholly owned subsidiary of Arkansas Power and Light
Company, was acquired and merged into Arkansas Western, effective June 1,
1988. The Arkansas Public Service Commission (APSC) and the Missouri Public
Service Commission (MPSC) regulate the Company's utility rates and
operations. In Arkansas, the Company operates through municipal franchises
which are perpetual by state law. These franchises, however, are not
exclusive within a geographic area. In Missouri, the Company operates
through municipal franchises with various terms of existence.
AWG and Associated deliver natural gas to residential, commercial and
industrial customers. The industrial customers are generally smaller
concerns using gas for plant heating or product processing. AWG has no
restriction on adding new residential or commercial customers and will supply
new industrial customers which are compatible with the scale of its
facilities. AWG has never denied service to new customers within its service
area or experienced curtailments because of supply constraints. Associated
has not denied service to new customers within its service area or
experienced curtailments because of supply constraints since the acquisition
date, although service restrictions and supply related curtailments did occur
prior to that time. Curtailment of large industrial customers of AWG and
Associated occurs only infrequently when extremely cold weather requires
their systems to be dedicated exclusively to human needs customers.
AWG and Associated have experienced a general trend in recent years toward
lower rates of usage among their customers, largely as a result of
conservation efforts which the Company encourages. Competition is
increasingly being experienced from alternative fuels, primarily electricity,
fuel oil and propane. A significant amount of fuel switching has not been
experienced, though, as natural gas is generally the least expensive, most
readily available fuel in the service territories of AWG and Associated. The
Company is, however, beginning to experience competition from alternative
suppliers of natural gas.
The competition from alternative fuels and alternative sources of natural
gas has intensified in recent years as a result of the significant declines
in prices of petroleum products and the deliverability surplus of natural gas
experienced in the recent past. Industrial customers are most likely to
consider utilization of these alternatives, as they are less readily
available to commercial and residential customers. In an effort to provide
some pricing alternatives to its large industrial customers with relatively
stable loads, AWG offers an optional tariff to its larger business customers
and to any other large business customer which shows that it has an alternate
source of fuel at a lower price or that one of its direct competitors in
another area has access to cheaper sources of energy. This optional tariff
enables those customers willing to accept the risk of price and supply
volatility to direct AWG to obtain a certain percentage of their gas
requirements in the spot market. Participating customers continue to pay the
nongas costs of service included in AWG's present tariff for large business
customers and agree to reimburse AWG for any take-or-pay liability caused by
spot market purchases on the customer's behalf.
In an effort to more fully meet the service needs of larger business
customers, both AWG and Associated instituted a transportation service in
October, 1991, that allows such customers in Arkansas to obtain their own
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gas supplies directly from other suppliers. Associated has offered
transportation service to its larger customers in Missouri for several years
and AWG's spot market purchasing program has provided customers in northwest
Arkansas with many of the benefits of transportation service. Under the
programs, transportation service is available in Arkansas to any large
business customer which consumes a minimum of 150,000 Mcf per year and no
less than 3,000 Mcf per month. Transportation service is available in
Missouri to any customer whose average monthly useage exceeds 2,000 Mcf. The
minimums can be met by aggregating facilities under common ownership. A
total of eleven customers are currently using the Arkansas transportation
service, including AWG's three largest customers in northwest Arkansas and
Associated's largest customer in northeast Arkansas. In its order approving
the transportation program, the APSC indicated that it would review the
program after one year and consider the desirability of lowering the minimum
volume requirement. The APSC also indicated that it would consider in 1992
whether AWG's spot market purchasing program should be continued. The APSC
has deferred the review of both programs to a later date.
AWG purchases its system gas supply directly at the wellhead under
long-term contracts. Purchases are made from approximately 310 working
interest owners in 475 producing wells. Most of the volumes purchased by AWG
are covered by contracts which contain provisions for periodic or automatic
escalation in the price to be paid. In the mid-1980's, however, AWG took
steps to freeze the prices paid under those contracts containing indefinite
price escalators tied to Section 102 or prices escalating under Section 103
of the NGPA. Producers under these contracts were offered an amendment
freezing the price at the December, 1984 level, with a right to renegotiate
in one year. AWG received acceptances from producers holding the majority of
the reserves under such contracts, either accepting the amendment or agreeing
to freeze the price. Since that time, the price freeze has remained in
effect and AWG has continued to make payments at the frozen 1984 price
levels. This price freeze applies to gas purchased from SEECO, as well as to
purchases from unaffiliated producers. A significant portion of AWG's supply
comes from newer, market responsive, long-term contracts which take advantage
of the lower prices presently available from gas suppliers.
At December 31, 1993, AWG had a gas supply available to its northwest
Arkansas system of approximately 237 Bcf of proved developed reserves, equal
to 17 times current annual usage. Of this total, approximately 116 Bcf were
net reserves available from SEECO. For purposes of determining AWG's
available gas supply, deliveries to AWG's spot market purchasing program or
transportation customers and the reserves related to those deliveries are not
considered.
Prior to 1993, Associated purchased gas for its system supply from six
interstate pipelines, SEECO and various spot market suppliers. As a result
of the unbundling of gas sales, gathering, transmission and storage services
by interstate pipelines mandated by the FERC's Order No. 636, (discussed more
fully below), Associated now purchases gas for its system supply from
unaffiliated suppliers in the producing fields accessed by interstate
pipelines and from SEECO. As previously discussed, Associated purchases its
base load system requirements from SEECO under a ten-year contract with
annual price redeterminations. Purchases made from unaffiliated suppliers
are under purchase contracts with expiration dates ranging from October, 1994
to December, 1995. The rates charged by these suppliers include demand
components to ensure availability of gas supply, administration fees and a
commodity component which is based on spot market gas prices. Associated's
gas purchases are transported through nine pipelines. The pipeline
transportation rates include demand charges to reserve pipeline capacity and
commodity charges based on volumes transported. Associated has also
contracted with five of the interstate pipelines for storage capacity to meet
its peak seasonal demands. These contracts involve demand charges based on
the maximum deliverability, capacity charges based on the maximum storage
quantity, and charges for the quantities injected and withdrawn.
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Over the past several years changes at the federal level have brought
significant changes to the regulatory structure governing interstate sales
and transportation of natural gas. The FERC's Order No. 636 series changed a
major portion of the gas acquisition merchant function provided to gas
distributors by interstate pipelines. AWG already obtains its supply at the
wellhead directly from producers and will not be directly impacted by Order
No. 636. Associated has acquired the bulk of its gas supply at the wellhead
since its acquisition by AWG, but continues to purchase a portion of both its
peak and base requirements from interstate suppliers. During 1993,
Associated renegotiated those contracts in accordance with the pipeline
restructurings before the FERC. The changes mandated by Order No. 636 have
placed the responsibility for arranging firm supplies of natural gas directly
on local distribution companies and have, as a result, lessened the ability
of Associated to purchase gas on the short-term spot market.
Some of AWG's long-term purchase contracts with unaffiliated companies
provide for payments to be made if AWG does not take an annual, minimum
quantity of gas (take-or-pay). Any payments made are recovered if the gas is
taken before a certain date in the future. As of December 31, 1993, AWG had
no unrecovered payments of this type. Associated's previous gas purchase
contracts with interstate pipelines also contained take-or-pay provisions.
To date, Associated has paid approximately $3.2 million for contract
reformation costs incurred by its interstate pipeline suppliers and for
contracted quantities of gas not taken. The Company believes these costs are
recoverable from its utility customers and expects approval from the proper
regulatory agencies after the payments are reviewed in the normal course of
business. To date Associated has recovered, subject to refund, approximately
$1.6 million of these charges from its customers. The implementation in 1991
of transportation service in Arkansas increases the exposure of AWG and
Associated to take-or-pay liabilities, but the Company expects to continue to
be able to satisfactorily manage this exposure. AWG has negotiated certain
modifications to some of its gas purchase contracts which contain market-out
provisions to decrease its exposure to take-or-pay liabilities.
The gas heating load is one of the most significant uses of natural gas
and is sensitive to outside temperatures. Sales, therefore, vary throughout
the year. Profits, however, have become less sensitive to fluctuations in
temperature in recent years as the structure of the Company's utility rates
has become somewhat flatter; i.e., most recovery of return on rate base is
built into a customer charge and the first step of its rates.
AWG and Associated pass along to customers through an automatic cost of
gas adjustment clause any increase or decrease experienced in purchased gas
costs. As previously mentioned, the APSC and the MPSC regulate the Company's
utility rates and operations. Late in 1990, the APSC and the MPSC approved
rate increases for the Company totaling $7.4 million annually. AWG received
an increase of $5.7 million annually and Associated was awarded an increase
of $.9 million annually for its Missouri properties and $.8 million annually
for its system in Arkansas. Arkansas Western has no immediate plans to file
for additional rate increases as customer growth and transportation revenues
have helped to offset the effects of attrition since the last rate case.
AWG's rates for gas delivered to its customers are not regulated by the FERC,
but its transmission and gathering pipeline systems are subject to the FERC's
regulations concerning open access transportation since AWG accepted a
blanket transportation certificate in connection with its merger with
Associated.
In its order approving the 1990 Arkansas rate increase, the APSC
established procedures to investigate a number of changes in the regulatory
mechanisms under which purchased gas costs are charged to and recovered from
the customers of the utility subsidiary. The APSC indicated that its
interest was heightened by the fact that Arkansas Western purchases a
substantial portion of the gas supply for both AWG and Associated from SEECO.
Most of the sales of SEECO's production to AWG take place under a twenty-
year, fixed price contract which was approved by the APSC in connection with
a corporate rearrangement of the Company in 1978 (the 1978
8
contract). Additionally, the APSC Staff has regularly examined and accepted
the gas purchase costs of the utility subsidiary since the Commission
approved the corporate reorganization in 1978. These examinations included a
review in the 1990 rate case by an outside consultant hired directly by the
APSC Staff. That consultant performed an extensive review of the utility's
purchasing practices and gas costs, including its purchases from the
Company's exploration and production segment, and recommended in filed
testimony sponsored by the APSC Staff that all of the utility's gas costs
including purchases under the contract in question, be accepted without
adjustment. The APSC originally ordered that its proposals related to gas
cost recovery and pricing be considered by the parties to the proceeding with
the goal of reaching a mutually agreeable resolution of its concerns. After
meeting extensively, the parties were unable to reach such a resolution and
each party to the proceeding filed its own report with the APSC in July,
1991. In February, 1992, the APSC issued an order establishing a procedural
schedule to further address the issues raised by its Staff and Office of the
Attorney General of the State of Arkansas (AG). In establishing the
schedule, the APSC stated that the record developed does not contain
adequately developed evidence on which an informed decision on those issues
can be based. The APSC also stated that it will consider only those
proposals proffered by the parties which address prospective gas cost
reductions. The APSC conducted a hearing in January, 1993, concerning the
issues raised in its 1990 order. In November, 1993, the APSC issued an order
that found AWG's purchases under the contract in question to be in violation
of an Arkansas statute requiring that gas purchases be made "from the lowest
or most advantageous market" and that the price paid by AWG was too high. In
that same order, the APSC found that purchases by Associated were in
compliance with the statute. The order also scheduled a hearing for mid-
January, 1994 to accept additional evidence as to the price which should be
paid under the AWG contract. At the January, 1994 hearing, both the Staff of
the APSC and the AG presented testimony describing recommendations designed
to lower the price received by the Company's exploration and production
subsidiary under the contract. The Company presented testimony which it
believes reinforced its position that the contractual arrangements questioned
by the Commission are the most advantageous to its utility customers. Legal
briefs were filed in late February, 1994, and the Company expects a
Commission order to be forthcoming. If necessary, the Company intends to
continue to defend its gas purchasing practices through the courts. The
Company does not expect any outcome of this proceeding to have a material
adverse impact on the financial position of the Company. Of the Company's
35.4 Bcf of gas production in 1993, approximately 6.0 Bcf was sold under the
contract in question.
As mentioned above, NOARK is an intrastate pipeline constructed by a
limited partnership in which SWPL holds a 47.33% general partnership interest
and is the pipeline's operator. NOARK's main line was completed and placed
in service in September, 1992. A lateral line of NOARK that allows the
Company's gas distribution segment to augment its supply to an existing
market as well as supply gas to new markets was completed and placed in
service in November, 1992. The 258 mile long pipeline originates near the
Fort Chaffee military reservation in western Arkansas and terminates in
northeast Arkansas. NOARK interconnects with three major interstate
pipelines and provides additional access to markets for gas production of
both the Company and other producers. Construction of an eight-mile
interstate pipeline connecting NOARK to the distribution system of Associated
was completed during 1993. NOARK has a capacity of 141 MMcfd and cost
approximately $103.0 million to construct. NOARK's original cost estimate
was approximately $73.0 million. The cost overrun was the result of the
addition of a major central compressor station and increased costs incurred
as a result of the rocky, mountainous terrain through which NOARK passes.
NOARK completed its first full year of operation in 1993 and had an average
daily throughput during the year of 79 MMcfd. Arkansas Western has
contracted for 41 MMcfd of firm capacity on NOARK under a ten-year
transportation contract. NOARK also has a five-year transportation contract
with an independent marketer to transport 50 MMcfd through NOARK on a firm
9
basis. The Company's exploration and production segment supplies 25 MMcfd of
the volumes transported by the marketer under that agreement. In late 1993,
the gas marketing company filed suit against NOARK, the Company and certain
of its affiliates, and, effective January 1, 1994, ceased transporting gas
under its agreement with NOARK. The complaint seeks rescission of the
transportation contract and a contract to purchase gas from the Company's
affiliates, and actual and punitive damages. The Company and NOARK both
believe the suit is without merit and have filed counterclaims seeking
enforcement of the contracts and damages. The Company is currently making
its own sales arrangements and transporting through NOARK the 25 MMcfd of
production which was previously purchased by the marketer. NOARK provides
additional pipeline capacity to a portion of the Arkoma Basin in Arkansas
which was not previously adequately served by pipelines offering firm
transportation. NOARK is currently incurring losses and the Company expects
further losses from its equity investment in NOARK until the pipeline is able
to increase its level of throughput and until improvement occurs in the
competitive conditions which determine the transportation rates NOARK can
charge. NOARK competes primarily with two interstate pipelines in its
gathering area. One of those elected to become an open access transporter
subsequent to NOARK's start of construction. That pipeline does not offer
firm transportation, but the increased availability of interruptible
transportation services intensified the competitive environment within which
NOARK operates. The Company believes that the FERC's Order No. 636
restructuring rules implemented in the latter part of 1993 will have a
positive impact on NOARK. The unbundling of gas sales, gathering,
transmission and storage services required by Order No. 636 should provide
NOARK with expanded options for accessing gas supply and for transporting gas
to downstream customers. NOARK is a public utility regulated by the APSC.
The APSC established NOARK's maximum transportation rate based on its
original construction cost estimate of approximately $73.0 million.
The Company is subject to laws and regulations relating to the protection
of the environment. The Company's policy is to accrue environmental and
cleanup related costs of a non-capital nature when it is both probable that a
liability has been incurred and when the amount can be reasonably estimated.
The Company has no material amounts accrued at December 31, 1993.
Additionally, management believes any future remediation or other compliance
related costs will not have any material effect upon capital expenditures,
earnings or the competitive position of the Company's subsidiaries in the
segments in which they operate.
REAL ESTATE DEVELOPMENT
A. W. Realty Company (AWR) owns approximately 170 acres of real estate,
most of which is undeveloped. AWR's real estate development activities are
concentrated on a 130-acre tract of land located near the Company's
headquarters in a growing part of Fayetteville, Arkansas. The Company has
owned an interest in this land for many years. The property is zoned for
commercial, office and multi-family residential development. AWR continues
to review with a joint venture partner various options for developing this
property which would minimize the Company's initial capital expenditures but
still enable it to retain an interest in any appreciation in value. This
activity, however, does not represent a significant portion of the Company's
business.
EMPLOYEES
At December 31, 1993, the Company had 651 employees, 85 of whom are
represented under a collective bargaining agreement.
INDUSTRY SEGMENT AND STATISTICAL INFORMATION
The following portions of the 1993 Annual Report to Shareholders (filed as
Exhibit 13 to this filing) are hereby incorporated by reference for the
purpose of providing additional information about its business. Refer to
Note 9 to the financial statements for information about industry segments
and "Financial and Operating
10
Statistics" for additional statistical information, including the average
sales price per unit of gas produced and of oil produced and the average
production cost per unit.
ITEM 2. PROPERTIES
The portions of the 1993 Annual Report to Shareholders (filed as Exhibit
13 to this filing) listed below are hereby incorporated by reference for the
purpose of describing its properties.
Refer to the Appendix for information concerning areas of operation of the
Company's gas distribution systems. For information concerning the Company's
exploration and production areas of operation, also refer to the Appendix.
See the table entitled "Operating Properties" at the Appendix for information
concerning miles of pipe of the Company's gas distribution systems and for
information regarding leasehold acreage and producing wells by geographic
region of the Company's exploration and production segment. Also, see Notes
5 and 6 to the financial statements for additional information about the
Company's gas and oil operations. For information concerning capital
expenditures, refer to the "Capital Expenditures" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Also refer to "Financial and Operating Statistics" for information concerning
gas and oil wells drilled and gas and oil produced.
The following information is provided to supplement that presented in the
1993 Annual Report to Shareholders:
NET WELLS DRILLED DURING THE YEAR
EXPLORATORY
Productive
Year Wells Dry Holes Total
---- ---------- --------- -----
1993 2.8 4.0 6.8
1992 1.2 6.1 7.3
1991 2.0 1.2 3.2
DEVELOPMENT
Productive
Year Wells Dry Holes Total
---- ---------- --------- -----
1993 37.9 10.5 48.4
1992 53.4 13.4 66.8
1991 9.8 2.9 12.7
WELLS IN PROGRESS AS OF DECEMBER 31, 1993
Type of Well Gross Net
------------ ----- ---
Exploratory 2.0 .5
Development 3.0 .6
----- ----
Total 5.0 1.1
----- ----
----- ----
11
Due to the insignificance of the Company's oil reserves and producing oil
wells to its total reserves and producing wells, separate disclosure of gas
and oil producing wells has not been made.
No individually significant discovery or other major favorable or adverse
event has occurred since December 31, 1993.
During 1993, SEECO and SEPCO were required to file Form 23, "Annual Survey
of Domestic Oil and Gas Reserves" with the Department of Energy. The basis
for reporting reserves on Form 23 is not comparable to the reserve data
included in Note 6 to the financial statements in the 1993 Annual Report to
Shareholders. The primary differences are that Form 23 reports gross
reserves, including the royalty owners' share and includes reserves for only
those properties where either SEECO or SEPCO is the operator.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved and were not involved at
December 31, 1993, in any material pending legal proceedings. The outcome of
litigation in which the Company is involved would not have a material effect
on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1993, to a vote of security holders, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is information with regard to executive officers of the
Company:
NAME OFFICER POSITION AGE
- --- ---------------- ---
Charles E. Scharlau Chairman of the Board (since 1979), 67
Southwestern Energy Company and
Subsidiaries, and Chief Executive
Officer (since 1968),
Southwestern Energy Company.
Dan B. Grubb President and Chief Operating Officer 58
(since 1992), Director (1988-1992),
Southwestern Energy Company.
Chairman and Chief Executive Officer
of Grubb Industries, Inc., and Investor
and Business Consultant (since 1988).
Previously, President and Chief Operating
Officer, Midcon Corporation (since 1987).
Stanley D. Green Executive Vice President - Finance and 40
Corporate Development (since 1992), and
Chief Financial Officer (since 1987),
Vice President - Treasurer and Secretary
(since 1987), Controller (since 1981),
Southwestern Energy Company and Subsidiaries.
B. Brick Robinson Executive Vice President and Chief Operating 63
Officer (since 1988), Southwestern Energy
Production Company and SEECO, Inc.
(subsidiaries of Southwestern Energy Company).
Previously, various positions with Occidental
Petroleum Corporation and its subsidiaries,
including Vice President, Far East and
Domestic Frontier Exploration, Occidental
International (since 1985).
12
Gregory D. Kerley Vice President - Treasurer and Secretary 38
(since 1992), and Chief Accounting Officer
(since 1990), Controller (since 1990),
Southwestern Energy Company and Subsidiaries.
Previously, Treasurer and Controller,
Agate Petroleum, Inc. (since 1984).
J. Thomas Devins Vice President and Chief Operating Officer 53
(since 1992), Southwestern Energy
Pipeline Company (subsidiary of
Southwestern Energy Company).
Previously, President, NOARK Gas Marketing
Company (since 1990), President,
Diamond Shamrock Natural Gas Marketing
Company (since 1988) and Vice President,
Gulf Energy Development Corporation
(since 1985).
All officers are elected at the Annual Meeting of the Board of Directors
for one-year terms or until their successors are duly elected.
There are no arrangements between any officer and any other person
pursuant to which he was selected as an officer. There is no family
relationship between any of the executive officers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The "Shareholder Information" and "Financial and Operating Statistics"
sections of the 1993 Annual Report to Shareholders (filed as Exhibit 13 to
this filing) are hereby incorporated by reference for information concerning
the market for and prices of the Company's common stock, the number of
shareholders and cash dividends paid.
The terms of the Company's long-term debt instruments and agreements
impose restrictions on the payment of cash dividends. At December 31, 1993,
$102,793,000 of retained earnings was available for payment as cash
dividends. These covenants generally limit the payment of dividends in a
fiscal year to the total of net income earned since January 1, 1990, plus
$20,000,000 less dividends paid and purchases, redemptions or retirements of
capital stock during the period since December 4, 1991.
The Board of Directors increased the quarterly dividend by 20% in the
third quarter of 1993, to $.06 per share, equal to an annual rate of $.24 per
share (after the effect of a three-for-one stock split distributed August 5,
1993). While the Board of Directors intends to continue the practice of
paying dividends quarterly, amounts and dates of such dividends as may be
declared will necessarily be dependent upon the Company's future earnings and
capital requirements.
ITEM 6. SELECTED FINANCIAL DATA, AND
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, AND
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following portions of the 1993 Annual Report to Shareholders (filed as
Exhibit 13 to this filing) are hereby incorporated by reference.
13
"Financial and Operating Statistics" for selected financial data of the
Company. The comparability of data between years is affected by the
acquisition of Associated Natural Gas Company in June, 1988.
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The consolidated financial statements as detailed in item 14 (a)(1) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The definitive proxy statement to holders of the Company's common stock in
connection with the solicitation of proxies to be used in voting at the
Annual Meeting of Shareholders on May 25, 1994 (the 1994 Proxy Statement), is
hereby incorporated by reference for the purpose of providing information
about the identification of directors. Refer to the sections "Election of
Directors" and "Security Ownership of Nominees and Executive Officers" for
information concerning the directors.
Information concerning executive officers is presented in Part I, Item 4
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The 1994 Proxy Statement is hereby incorporated by reference for the
purpose of providing information about executive compensation. Refer to the
section "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The 1994 Proxy Statement is hereby incorporated by reference for the
purpose of providing information about security ownership of certain
beneficial owners and management. Refer to the section "Security Ownership
of Nominees and Executive Officers" of the proxy statement for information
about security ownership of certain beneficial owners and management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 1994 Proxy Statement is hereby incorporated by reference for the
purpose of providing information about related transactions. Refer to the
section "Security Ownership of Nominees and Executive Officers" and
"Compensation Committee Interlocks and Insider Participation" for information
about transactions with members of the Company's Board of Directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company and
its subsidiaries, included with its 1993 Annual Report to Shareholders (filed
as Exhibit 13 to this filing) and the report of independent auditors on such
report are hereby incorporated by reference:
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1993 and 1992.
Consolidated Statements of Income for the years ended December 31, 1993,
1992 and 1991.
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991.
Consolidated Statements of Retained Earnings for the years ended December
31, 1993, 1992 and 1991.
14
Notes to Consolidated Financial Statements, December 31, 1993, 1992 and
1991.
(2) The following financial statement schedules for the years 1993,
1992 and 1991 are submitted herewith:
PAGE
REFERENCE
---------
Report of Independent Auditors on Supporting
Schedules as of December 31, 1993, 1992 and 1991,
and for the years then ended 18
V. Property, Plant and Equipment for the years ended
December 31, 1993, 1992 and 1991. 19
VI. Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment for the years ended
December 31, 1993, 1992 and 1991 20
IX. Short-Term Borrowings for the years ended
December 31, 1993, 1992 and 1991. 21
X. Supplementary Income Statement Information for
the years ended December 31, 1993, 1992 and 1991 22
All other schedules are omitted because they are not required, inapplicable,
or the information is otherwise shown in the financial statements or notes
thereto.
(3) The exhibits listed on the accompanying Exhibit Index (pages 23 -
25) immediately following the financial statement schedules are filed as part
of, or incorporated by reference into, this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December
31, 1993. The Company filed on January 17, 1994, a Current Report on
Form 8-K reporting that the Arkansas Public Service Commission issued an
order on November 29, 1993, in a three-year-old gas cost case involving
purchases by Arkansas Western under a long-term gas purchase contract
with SEECO. The order found Arkansas Western's purchases under the
contract in question to be in violation of an Arkansas statute requiring
that gas purchases be made "from the lowest or most advantageous
market." The order found that the price paid by Arkansas Western to its
affiliate was too high, determined that purchases under the contract
should be indexed to an "appropriate market price", but stated that
"additional evidence is necessary in order to determine the most
equitable pricing methodology" and "the parties should provide testimony
on any premium that should be attached to the published price to reflect
Arkansas Western's gas requirements." The Commission scheduled a public
hearing on these issues to begin on January 18, 1994.
Additionally, as reported on the Form 8-K, a class action refund
complaint was filed against Arkansas Western in December, 1993, asking
the APSC to order Arkansas Western to refund amounts related to gas
costs collected from its customers since 1978. The claim purports to be
a class action, although no Arkansas law specifically authorizes the
pursuit of class action complaints before the APSC. The complaint is
based on the APSC's order discussed above. The complaint requests that
the Commission order Arkansas Western to refund its ratepayers and
customers at least $14 million per year since 1978 or $210 million or
the amount by which the rates charged have exceeded the amount
reasonably justified by the rules of the APSC and the statutes of
Arkansas. The complaint does not explain how the refund amount was
calculated, and no refund amount can be calculated from the order
because the order made no finding as to the appropriate price. In the
order issued by the APSC, it was reiterated that refunds were not at
issue in this docket and that Arkansas Western's gas purchasing
practices, affiliate transactions, gas costs and
15
gas cost allocation practices were being addressed on a prospective
basis only. The Registrant believes the complaint is frivolous.
The Company filed on January 19, 1994, a current report on Form 8-K
reporting that Vesta Energy Company ("Vesta") filed on December 21,
1993, and amended on January 6, 1994, a complaint in the Federal
District Court for the Northern District of Oklahoma against the
Registrant, four of its subsidiaries, and the NOARK Pipeline System.
The complaint makes several allegations and generally claims that the
defendants induced Vesta to enter into a contract to transport 50,000
Million British Thermal Units (MMBtu) of gas per day on NOARK and a
separate contract to purchase 25,000 MMBtu per day of the total from two
of the Registrant's subsidiaries through a series of false
representations. On February 17, 1994, Vesta requested permission to
amend its complaint a second time to allege anti-trust violations under
the Sherman Act. Vesta is seeking rescission of the contracts, actual
damages in excess of $1.0 million and punitive damages in excess of $1.0
million. The Registrant believes that Vesta's claim is wholly without
merit and in February, 1994, NOARK and the Registrant filed separate
lawsuits against Vesta in state and federal courts in Arkansas seeking
enforcement of the contracts and damages.
16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THE REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOUTHWESTERN ENERGY COMPANY
---------------------------
(Registrant)
BY: /s/ STANLEY D. GREEN
------------------------
Stanley D. Green,
Dated: March 25, 1994 Executive Vice President - Finance
and Corporate Development, and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 25, 1994.
/s/ CHARLES E. SCHARLAU
- ------------------------------- Director, Chairman, and
Charles E. Scharlau Chief Executive Officer
/s/ STANLEY D. GREEN Executive Vice President -
- ------------------------------- Finance and Corporate Development,
Stanley D. Green and Chief Financial Officer
/s/ GREGORY D. KERLEY Vice President - Treasurer
- -------------------------------- and Secretary, and
Gregory D. Kerley Chief Accounting Officer
/s/ E. J. BALL Director
- --------------------------------
E. J. Ball
/s/ JAMES B. COFFMAN Director
- --------------------------------
James B. Coffman
/s/ JOHN PAUL HAMMERSCHMIDT Director
- --------------------------------
John Paul Hammerschmidt
/s/ CHARLES E. SANDERS Director
- --------------------------------
Charles E. Sanders
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
Not Applicable
17
REPORT OF INDEPENDENT AUDITORS ON SUPPORTING SCHEDULES
AS OF DECEMBER 31, 1993, 1992, AND 1991 AND FOR THE YEARS THEN ENDED
To the Board of Directors and Shareholders of
Southwestern Energy Company:
We have audited in accordance with generally accepted auditing standards
the financial statements included in Southwestern Energy Company's 1993
Annual Report to Shareholders incorporated by reference in this Form 10-K,
and have issued our report thereon dated February 7, 1994. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in the index above are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Tulsa, Oklahoma
February 7, 1994
18
SCHEDULE V
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
--------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
----------------------------------------------------
(in thousands)
Balance at Balance
Beginning Additions Retirements at End
Classification of Period at Cost or Sales Transfers of Period
-------------- -------- ------- ----------- --------- ---------
For the year ended
December 31, 1993:
Gas and oil properties $338,062 $37,337 $ 118 $ - $375,281
Gas distribution systems 146,837 19,892 1,286 - 165,443
Gas in underground storage 46,290 - 9,119 - 37,171
Other 13,040 1,990 346 - 14,684
-------- ------- ------- ------ --------
$544,229 $59,219 $10,869 $ - $592,579
-------- ------- ------- ------ --------
-------- ------- ------- ------ --------
For the year ended
December 31, 1992:
Gas and oil properties $307,261 $30,772 $ (29) $ - $338,062
Gas distribution systems 136,267 12,188 1,634 16 146,837
Gas in underground storage 41,858 4,432 - - 46,290
Other 11,131 1,949 24 (16) 13,040
-------- ------- ------- ------ --------
$496,517 $49,341 $1,629 $ - $544,229
-------- ------- ------- ------ --------
-------- ------- ------- ------ --------
For the year ended
December 31, 1991:
Gas and oil properties $276,979 $30,309 $ 27 $ - $307,261
Gas distribution systems 129,541 7,856 1,236 106 136,267
Gas in underground storage 42,293 - 435 - 41,858
Other 10,702 723 188 (106) 11,131
-------- ------- ------- ------ --------
$459,515 $38,888 $1,886 $ - $496,517
-------- ------- ------- ------ --------
-------- ------- ------- ------ --------
19
SCHEDULE VI
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
--------------------------------------------
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
----------------------------------------------------
OF PROPERTY, PLANT AND EQUIPMENT
--------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
----------------------------------------------------
(in thousands)
Additions Charged To Retirements
-------------------- -----------
Salvage
Balance at Costs Net of Balance
Beginning and Other Original Removal at End
Classification of Period Expenses Accounts (1) Cost Costs Transfers of Period
-------------- ----------- -------- ------------ -------- ------- --------- ---------
For the year ended
December 31, 1993:
Gas and oil properties $120,841 $25,630 $ - $ - $ - $ - $146,471
Gas distribution systems 49,748 4,564 763 939 138 - 54,274
Other 4,360 750 295 201 - - 5,204
-------- ------- ----- ------ ----- ---- ---------
$174,949 $30,944 $1,058 $1,140 $138 $ - $205,949
-------- ------- ----- ------ ----- ---- ---------
-------- ------- ----- ------ ----- ---- ---------
For the year ended
December 31, 1992:
Gas and oil properties $101,784 $19,057 $ - $ - $ - $ - $120,841
Gas distribution systems 46,240 4,213 698 1,488 85 - 49,748
Other 3,466 610 297 13 - - 4,360
-------- ------- ----- ------ ----- ---- --------
$151,490 $23,880 $ 995 $1,501 $ 85 $ - $174,949
-------- ------- ----- ------ ----- ---- --------
-------- ------- ----- ------ ----- ---- --------
For the year ended
December 31, 1991:
Gas and oil properties $ 88,014 $13,770 $ - $ - $ - $ - $101,784
Gas distribution systems 42,597 3,978 631 1,054 79 9 46,240
Other 2,715 500 262 2 - (9) 3,466
-------- ------- ----- ------ ----- ---- --------
$133,326 $18,248 $ 893 $1,056 $ 79 $ - $151,490
-------- ------- ----- ------ ----- ---- --------
-------- ------- ----- ------ ----- ---- --------
(1) Represents primarily amounts for depreciation on transportation
equipment which is charged to operating and general expense and
other accounts on the basis of transportation equipment usage,
and amortization of an acquisition adjustment which is charged
to other income and expense.
20
SCHEDULE IX
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
--------------------------------------------
SHORT-TERM BORROWINGS
---------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
----------------------------------------------------
(in thousands except percentages)
Maximum Average Weighted
Category of Weighted Amount Amount Average
Aggregate Balance Average Outstanding Outstanding Interest Rate
Short-Term at End Interest During the During the During the
Borrowings(1) of Period Rate Period Period Period (2)
-------------- --------- ------- -------------- ----------- --------------
For the year ended
December 31, 1993:
Payable to banks $ - N/A $ - $ - N/A
--------- ------ -------- ------- --------
--------- ------ -------- ------- --------
For the year ended
December 31, 1992:
Payable to banks $ - N/A $ - $ - N/A
--------- ------ -------- ------- --------
--------- ------ -------- ------- --------
For the year ended
December 31, 1991:
Payable to banks $ - N/A $11,500 $ 6,679 5.92%
--------- ------ -------- ------- --------
--------- ------ -------- ------- --------
(1) These are borrowings under short-term agreements which bear interest
at various rates at or below the prime rate. The revolving lines are
either cancellable by the banks involved at any time or renewable, at
the bank's option, annually.
(2) Based on the number of days and rates at which borrowings were outstanding.
21
SCHEDULE X
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
--------------------------------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
----------------------------------------------------
1993 1992 1991
------- ------- -------
(in thousands)
Taxes, other than income taxes:
Ad valorem taxes $1,120 $1,071 $ 997
Privilege taxes 110 122 113
Severance taxes 436 499 490
Other, primarily payroll taxes 1,641 1,478 1,441
Less amounts charged to other accounts (26) (26) (24)
------- ------- -------
Taxes, other than income taxes $3,281 $3,144 $3,017
------- ------- -------
------- ------- -------
Maintenance and repairs $4,844 $3,950 $3,764
------- ------- -------
------- ------- -------
22
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION REFERENCE
- ------- ----------- ---------
3. Articles of Incorporation and Bylaws of the Company *
4. Shareholder Rights Agreement, dated May 5, 1989 (v)
Material Contracts:
10.1 Gas Purchase Contract between SEECO, Inc., and
Arkansas Western Gas Company, dated July 24, 1978,
and amended May 21, 1979 (i)
10.2 Agreement between Southwestern Energy Company,
Arkansas Western Gas Company, Arkansas Power &
Light Company and Associated Natural Gas Company,
dated September 1, 1987, as amended February 22,
1988, and May 16, 1988 (iii), (iv)
10.3 Gas Purchase Contract between SEECO, Inc., and
Associated Natural Gas Company, dated
October 1, 1990 (vii)
10.4 Compensation Plans:
(a) Summary of Southwestern Energy Company
Annual and Long-Term Incentive Compensation
Plan, effective January 1, 1985, as amended
July 10, 1989, (Replaced by Southwestern
Energy Company 1993 Incentive Compensation Plan,
effective January 1, 1993. (i), (vi)
(b) Summary of Southwestern Energy Company 1993
Incentive Compensation Plan, effective
January 1, 1993. *
(c) Nonqualified Stock Option Plan, as amended
July 10, 1989 (Replaced by Southwestern Energy
Company 1993 Stock Incentive Plan, dated
April 7, 1993). (ii)
(d) Exploration Incentive Plan A, effective
January 1, 1988, as amended July 10, 1989. (vi)
(e) Southwestern Energy Company 1993 Stock
Incentive Plan, dated April 7, 1993. (x)
(f) Southwestern Energy Company 1993 Stock
Incentive Plan for Outside Directors,
dated April 7, 1993. (x)
10.5 Southwestern Energy Company Supplemental Retirement
Plan, adopted May 31, 1989, and Amended and Restated
as of December 15, 1993. *
10.6 Southwestern Energy Company Supplemental Retirement
Plan Trust, dated December 30, 1993. *
10.7 Executive Severance Agreement for Charles E.
Scharlau, effective August 4, 1989. (vi)
10.8 Executive Severance Agreement for Stanley D. Green,
effective August 4, 1989. (vi)
10.9 Executive Severance Agreement for B. Brick Robinson,
effective August 4, 1989. (vi)
10.10 Executive Severance Agreement for Dan B. Grubb,
effective July 8, 1992. (ix)
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10.11 Consulting Agreement between the Company and J. B.
Coffman & Associates, Inc., effective
November 8, 1989. (vi)
10.12 Employment Agreement for Charles E. Scharlau,
dated December 18, 1990, effective January 1, 1991. (vii)
10.13 Employment Agreement for Dan B. Grubb, effective
July 8, 1992. (ix)
10.14 Form of Indemnity Agreement, between the Company and
each officer and director of the Company, dated
May 25, 1988 or October 9, 1991. (iv), (viii)
10.15 Gas Transportation Agreement between NOARK Pipeline
System, Limited Partnership and Arkansas Western
Gas Company, dated February 4, 1991, and amended
February 14, 1992. (ix)
10.16 Limited Partnership Agreement of NOARK Pipeline
System, Limited Partnership, dated October 10, 1991,
and amended February 24, 1993. (viii), (ix)
10.17 Operating Agreement of NOARK Pipeline System,
dated March 19, 1991. (viii)
10.18 Agreement for Sale of Partnership Interest between
Southwestern Energy Pipeline Company and GRUBB NOARK
Pipeline, Inc., dated July 24, 1992. (ix)
13. 1993 Annual Report to Shareholders, except for those
portions not expressly incorporated by reference into
this report. Those portions not expressly
incorporated by reference are not deemed to be filed
with the Securities and Exchange Commission as part of
this report. *
22. Subsidiaries of the Registrant. (ix)
_______________
(i) Incorporated by reference to the exhibit filed with the
Company's filing on Form 10-K for the year ended December 31, 1984.
(ii) Incorporated by reference to the exhibit filed with the Company's
filing on Form 10-K for the year ended December 31, 1985.
(iii) Incorporated by reference to the exhibit filed with the Company's
filing on Form 10-K for the year ended December 31, 1987.
(iv) Incorporated by reference to the exhibit filed with the Company's
filing on Form 10-K for the year ended December 31, 1988.
(v) Incorporated by reference to the exhibit filed with the Company's
Form 8-K on May 10, 1989.
(vi) Incorporated by reference to the exhibit filed with the Company's
filing on Form 10-K for the year ended December 31, 1989.
(vii) Incorporated by reference to the exhibit filed with the Company's
filing on Form 10-K for the year ended December 31, 1990.
24
(viii) Incorporated by reference to the exhibit filed with the
Company's filing on Form 10-K for the year ended December 31,
1991.
(ix) Incorporated by reference to the exhibit filed with the Company's
filing on form 10-K for the year ended December 31, 1992.
(x) Incorporated by reference to the appendix filed with the Company's
definitive proxy statement to holders of the Registrant's Common
Stock in connection with the solicitation of proxies to be used
in voting at the Annual Meeting of Shareholders on May 26, 1993.
* Exhibit filed with the Company's filing on Form 10-K for the year
ended December 31, 1993.
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