May 24 - SWN’s CEO Steven Mueller’s statement to the UBS Global Oil & Gas Conference
at Baton Creek Resort, Austin, Texas.

Note: Only his comments about the Brown Dense have been transcribed below:

The Brown Dense is the first play that we rolled out in September of last year.

The industry is, total, between us and other companies, have drilled a total of five wells in the play that have some kind of information on them. Actually, six wells, I’m sorry, in the play. We drilled three of those wells, Cabot has drilled one, Devon has drilled one, and XTO Exxon has drilled one.

The only well besides ours that has any production is the Cabot well.

Now I’ll kind of run through the sequence of how the wells were drilled.

The first well was ours – it says on there “First Well” – that was about a little over 3,500-foot lateral. We have a 100-barrel-a-day production on it, 36 gravity oil, and a couple hundred MCF-a-day of gas.

The blue star right above our second well there, that is the Cabot well. And the blue stars on here are wells [that] are drilled or drilling. And then the green stars on here are permitted wells.

That well – the second one having any production on it – Cabot announced on that well about a 200 barrel-a-day rate. And it again had a 38 to 40 gravity oil in it. And it had, I think it was 500 MCF-a-day of gas.

Our well is, second well, is the next one. It was a 6,500-foot lateral, and we announced 300 barrels-a-day was the peak rate on that one, with about 1.7 million-a-day of gas. It has about 50 to 52 gravity oil in it.

And then when we were drilling the third well, we ran into a surprise. That was going to be a 9,500-foot lateral. And we were just walking up the laterals. And then on the third well we were going to put more stages in it, and put closer fracks, and kind of get what we think was a end [unintelligible].

As we were drilling that lateral, we took a kick, and saw significantly higher pressure than anyone had ever seen in the area before.

There had been over 30 wells drilled before we started the recent drilling there as an industry. None of those wells had any mud weights higher than about a 0.59, 0.6 PSI per foot. And what we encountered in our third well, was well above 0.7 – it was 0.75 to 0.76 PSI per foot.

To put that into perspective, the other wells were Eagle Ford –type pressures. The third well we have is Haynesville-type pressures.

And we don’t know how far the pressure goes. We’ve since drilled a 5,000-foot lateral. We put – we’re in the process of beginning the completion operations now, and we’ll start fracking in probably about a week-and-a-half to two weeks there.

That has changed our schedule. Originally we were going to do another 9,500-foot to 10,000-foot lateral a little bit to the south and a little bit west of the third well, between the second and third wells.

What we’re actually going to do is drill a vertical well north of the third well to see how far this pressure extends. And once we see what happens on the vertical well, we’ll decide how to do that from a horizontal standpoint. And you’ll see us, in the very near future, put a second rig to work out here.

I said before that we reallocated some capital budget, 50 million dollars additional is going in here. That came out of the Fayetteville Shale. And that’ll be to accelerate this project and the next one.

Q&A Period:

Questioner: Can you go back to that fourth Brown Dense well that you were talking about, that you were going to drill? It was unclear to me if you were going to drill it vertically and then decide how to drill it horizontally? Then what is your timing on expectations for results from both that well and the third well?

Mueller: Let me start with the timing on the third well. The third well, we’re fracking in about two weeks. Where we’re at on that well, it’s about a 5,000-foot lateral, just short of 5,000 feet. We didn’t get out to 9,500 because the - when we took the kick, we actually had to set a string of pipe that we weren’t expecting to set. And because of that, the geometry of the well bore just wouldn’t let us get out to 9,500 feet.

We’re going to frack it with 30 stages of fracks in 5,000 feet. We’re going to put it as close as anyone has ever put fracks together in an oil play, to get us an end number there. And one of the things we wanted to do was we wanted to test certain intervals along that well. So we put what we call “swell packers” in it. We put those in the hole about a week ago. It takes about two weeks for the heat to make them swell completely to get good seals, in order to do a 30-stage frack. So, right now we’re just waiting for those to completely get done swelling. In about a week-and-a-half we’re start fracking.

It’ll take us about a week to frack the well, and then we’ll start flowing it back. We’ll flow it back in stages and test it. So I expect by our next conference call all 30 stages will be on production, but barely by that time. Over the next month, month-and-a-half, we’ll be doing various fracture stages and flowing various ones back and testing it and see what happens when you put fracks very close together. And then we also have the pressure to think about.

That fourth well, what we want to do there was, we have no idea how big this pressure area could be. We really don’t know the effects of it until we start seeing some production. So, I said let’s just go out and drill a vertical well, take a core through something, hopefully it’s pressure, take a core through it where we can see exactly what’s going on and what the differences is that might be there. And then we can make decisions about what we want to do in general with the high pressure. Does it have any extent to it, and then we’ll go from there.

Part of that may be backing up and drilling a horizontal well. Part of it may be to actually trying to test something from a vertical standpoint. So it, really that well is on a separate path, and we really have two plays going on here now, with potentially two plays. The high pressure play, and then the, I’ll call it more the conventional unconventional, where we’re trying to add lateral length, and trying to get better fracks, to work our way up to basically 500 barrel-a-day. If we get 500 barrel-a-day on a 30-day rate, that’s what we need to get about 250,000 to 280,000 barrels, and at $70 oil, payout an 8 to 9 million dollar well.

The second well, I said peaked at 300 barrels-a-day. We had about 21, 22 days in the 250 to 300 barrel-a-day range on that well. And we’re still flowing that back, so, it may be more days before it’s all done here. So, we basically need to double the second well in order to make this thing work.