SWN’s President & CEO Steven Mueller’s Presentation to Credit Suisse Energy Summit in Vail, Colorado, February 5, 2013.

Note: Only parts related to the Brown Dense have been transcribed.

Now I want to jump - just a couple of our New Ventures plays to give you some flavor of what we’re trying to do.  But before I talk specifically about it, I just need to give you a little bit of overview of our New Ventures.

The whole concept behind the New Ventures were, is that that we had a good position in the Marcellus, we had a good position in the Fayetteville, but at some point down the road we need to replace those.  And so what we said was let’s think about a 5-year time frame, and what is reasonable if we only invest in two, uh, 10 percent of our capital budget over a 5-year time frame.  What’s reasonable from an acreage standpoint; what’s reasonable from number of projects standpoint to be able to test with basically two conditions:  One, that it was a 20 to 30 percent chance of working.  These aren’t super high-risk wildcats, but they certainly not going all – all aren’t going to work.  And the number two that we had on there was that we wanted one or two of them, we wanted to have enough size that one or two of them could add up to the Fayetteville Shale.  Because I started the presentation saying focus is very important to us.  Part of the reason that we have had, we’re one of the lowest cost operators in this industry is because we’ve had economies of scale, and we want to keep the economies of scale.  So as I talk about each project you’ll see that come through in anything that we do.

And now we talk specifically about it.  This is Brown Dense.  Brown Dense is a zone that is actually a carbonate with a lot of black shale in it, so it’s not true shale from that standpoint.  It would match up more with the rock that they’re looking at called the crummy rock plays that are going on in west Texas.

We’ve drilled six wells in the play.  The industry now I think has about three or four other wells.  There’s probably 11 wells been drilled in the last three years in this play.

Our first well was a 100 barrel-a-day, 24-hour IP.  The second one was a 200 barrel-a-day, 24-hour IP.  Three hundred was right, uh, third well was right at 400 barrel-a-day, 24-hour IP, 350 barrel-a-day 30-day IP.

One of the things we found in our first three wells were we weren’t getting the fracks across the entire zone.   This interval is over 450-foot thick.  We were only getting out, at best, 200 feet.  In that second well that had a 200 barrel-a-day rate, we were only out about a 100 feet in a vertical sense on our horizontals.  So we drilled the fourth and fifth wells that were vertical.  We tried all kinds of different kinds of frack techniques in those wells, and actually completed both of those wells as vertical.  The fourth well never produced much frankly, and we had some fracks that didn’t work real well on that well.  What we learned on the fourth we applied on the fifth.  The fifth well we used a frack that seemed to be working better for us.  Put that well on production.  It actually had a 200 barrel-a-day 30-day rate, and actually it’s more like a 60-day 200 barrel-a-day rate in that well out of vertical section that was only about 200-foot thick.

We used the frack technique that we had in the fifth well for our sixth well.  That sixth well came on production in December, and we’ll talk more about it in our conference call here in a few weeks. 

The key to this is – you say well that’s great, you’re going through all these numbers, well what do I do with this?   What we need is the production.  So we have three wells to-date.  The third, fifth and sixth are producing.  We need a 120 days, 180 days of production so we can see what the shape of the production curve is.  For those who used to follow the Haynesville, and there was a big debate in the Haynesville whether it’s exponential or hyperbolic, if this is exponential there isn’t enough production for it to be economic.  If it’s hyperbolic like the Eagle Ford, which is what we kind of modeled this off of - and the reason we used the Eagle Ford it’s roughly the same depths, the same pressures - if it’s hyperbolic like the Eagle Ford, for a 12-million dollar well we need a 425 barrel-a-day 30-day rate.  For a 10-million dollar well, we need about 325 barrel-a-day well, and if the wells are happening to be long, long laterals and cost you 14-million, you need about 500 barrels-a-day.  So that’s the key, as I said, so what about it?  We’re getting close if it’s the shape of the Eagle Ford, and with a 120 to 180 days of production on three wells, we’ll figure out if it’s the shape of the Eagle Ford.  That will probably be – maybe we’ll talk a little more about it towards the end of the first quarter, but certainly by the end of the second quarter we’ll know what’s happening here.  The key is it’s getting better.  We’re still not getting fracks across the entire zones, but we’re getting in the range where this could be an economic play.  And again, we have over 500,000 acres in it.

Questioner:  Steve, this is - might be the most optimistic I’ve heard you on the Brown Dense.  If you make the determination that it is commercial, how does that capital program change the Fayetteville and Marcellus?

Mueller:  Yeah.  The commerciality in it, one is Brown Dense and the other plays, I think the earliest we could call commercial would be summertime, where you actually start working – maybe you could do a little bit ahead of that – so you’re talking about half a year this year, then whatever happens in the future.  The fastest you could scale up would probably be (unintelligible) of the year.  Maybe, certainly two rigs, but maybe as high as four rigs.  And if you think about a two to four rig program, here, Brown Dense would be about a 150-million dollars for a rig to run for a year.  That’d be drilling and completing.  Colorado it’s a little less than that, probably a 100-million dollars a year to drill and complete.  So if you scaled up, we’d need to come up with about 300 to 400-million dollars this year, and the real dollars that you needed to have would be in 2014 and beyond.  Since we have a billion-and-a-half dollar borrowing base with nothing borrowed on it, and we have some cash in the bank, I don’t think you’d see any difference on what we’re doing on the Fayetteville or any difference on what you’d see us do on Marcellus.  We’d just add that on to our capital budget.  And then we’d figure out how to fund 2014, 2015.  We have some time to do that.  So that would be the general thought process.

Let me also just mention, I get asked all the time, what happens if gas price goes like it did last year and averages 2.80 rather than 3.50.  This budget is pretty solid.  The wells we’re going to be drilling work at $3.00 gas, so I don’t see us changing it that much.  You may see us tweak a little bit on the New Ventures side, down.  We may not put as much in the mid-stream side, but, you know, it’d be a 1.8 to 1.9 billion dollar capital budget made versus a 2-billion dollar capital budget.  From a Marcellus and a Fayetteville and a production standpoint, I don’t think there’d be much difference there.

Questioner:  Is there a hold by drilling liability, obligation?  You’ve got this acreage, but when does it fall away if you don’t drill?

Mueller: And - I’ll just kind of make a comment about all of our acreage, and we’re right on it, held by drilling issues.  Because Marcellus could have the same kind of question.  Marcellus in 2013 we need to drill a little less than 40 wells; 2014 we need to drill about 30 wells, and we basically got the HBP covered that direction.

In the Brown Dense, the Colorado and the other plays that we’re working on, we’ve got basically anywhere from four to five-year leases.  In the Brown Dense we’re about two-and-a-half to three years in on those leases.  Most of the leases have what we call “kickers” on them.  If you pay a fee, then you get another four to five years on them.  So we don’t have any immediate acreage issues.  If for some reason, going back to the question about the Brown Dense on, before, if for some reason we can’t make a decision by this summer, and it pushes it out, then we have to start worrying about HBP.  But I think, if we make the decision by this summer, if it were happen to work, there or Colorado, either one of them, we’ve got plenty of time to hold the acreage we want to hold.