Southwestern Energy Co. Low Natural Gas Prices Dim Earnings Outlook

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1 EQUITY RESEARCH COMPANY UPDATE March 2, 2012 Stock Rating: PERFORM mo. Price Target NA SWN - NASDAQ $ Yr. EPS Gr. Rate NA 52-Wk Range $49.25-$28.37 Shares Outstanding 349.0M Float 339.1M Market Capitalization $11,762.8M Avg. Daily Trading Volume 6,142,832 Dividend/Div Yield NA/NM Fiscal Year Ends Dec Book Value $ E ROE 8.5% LT Debt $1,342.1M Preferred NA Common Equity $3,696M Convertible Available No EPS Diluted Q1 Q2 Q3 Q4 Year Mult. 2010A x 2011A x 2012E x Prior (E) x 2013E x ENERGY/OIL & GAS Southwestern Energy Co. Low Natural Gas Prices Dim Earnings Outlook SUMMARY SWN is a pure play on US onshore gas. It has grown its production and reserves by more than 20% annually over the last 10 years, while its share price gained more than 35% annually. The Fayetteville Shale gas play in Arkansas is SWN's key asset, accounting for the bulk of its production, reserves, CAPEX, earnings and operating cash flow. SWN is rapidly expanding its presence in the Marcellus Shale gas play in Pennsylvania, and is testing its large acreage in New Brunswick, Canada, Brown Dense in Arkansas/Louisiana and D-J Basin in Eastern Colorado. The sharp drop in natural gas prices has forced spending cuts and increased borrowing to close the expected free cash flow deficit this year and next. KEY POINTS 4Q11 Earnings. Net income was $158.5M, or $0.45/sh, slightly below consensus of $0.47, up 6% from a year ago but down 10% sequentially. Higher production was offset by lower gas prices of 7% and 6%, respectively. Unit costs averaged $2.54/mcfe, down 1% from 4Q10, but up 2% sequentially. Production. Averaged 1.45 Bcfed, up 18% from 4Q10 and 3% sequentially, and at the high end of guidance of Bcfed. Fayetteville made up 87% of total production, averaging 1.27 Bcfed, up 18% YoY and 4% sequentially. Marcellus averaged 88 mmcfd, up from 9 mmcfd a year ago and 10% sequentially, and 6% of total. Operations. SWN placed 142 Fayetteville wells on production in 4Q11, boosting gross production to 1.95 Bcfd, from 1.9 Bcfd in 3Q. In the Marcellus, SWN has participated in 45 wells, 18 producing in Bradford County and 27 in Susquehanna County. Guidance. SWN lowered 2012E CAPEX to $2.1B, from $2.34B, primarily in the Fayetteville and New Ventures due to lower gas prices. Accordingly, 2012 production guidance was cut by 10 Bcfe, to Bcfe (13% growth). This includes production of Bcfe in the Fayetteville, also down 10 Bcfe. Proved Reserves. Grew 956 Bcfe, to 5.9 Tcfe, 100% gas and 55% developed. This included additions of 1.46 Tcfe through the drill bit and upward revisions of 33.7 Tcfe for a reserve replacement ratio of 299% and an average F&D cost of $1.31/mcf. Reserves were 87% Fayetteville, 6% Marcellus, and 7% Other. Stock Price Performance 1 Year Price History for SWN Company Description Southwestern Energy Company is an independent energy company engaged in natural gas and crude exploration, development and production onshore North America. Its primary producing area is the Fayetteville Shale in Arkansas. It also has properties in Oklahoma, Texas and Pennsylvania. Q1 Q2 Q3 Q Created by BlueMatrix Fadel Gheit fadel.gheit@opco.com Robert Du Boff, CFA Robert.DuBoff@opco.com Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures and Certifications" section at the end of this report for important disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. Oppenheimer & Co. Inc. 85 Broad Street, New York, NY Tel: Fax:

2 Earnings 2011 was a record year for SWN with production of 1.37 bcfed, up 24%, earnings of $637.9 million, or $1.82/share, up 5%, and operating cash flow of $1,751 million, up 11%. 4Q11 earnings were $158.5 million, or $0.45/sh, slightly below consensus of $0.47/sh, up 6% from 4Q10, but down 10% sequentially. Table 1: Segment Earnings ($ mm, except share data) % of 4Q11/ 2011/ 4Q11 Total 4Q10 3Q Oil & gas sales % 12% -3% 2,089 12% Marketing & gathering % 8% -3% % Total revenue % 11% -3% 2,953 13% Total costs and expenses % 2% 1, % Total interest expense % -15% % Income tax expense % -12% % Net Income % -9% % EPS Diluted $0.45 6% -10% $1.82 5% Source: Company data & Oppenheimer & Co. Inc. estimates. Production Full year production of 1.37 bcfed was 87% from the Fayetteville and was essentially all natural gas. Marcellus Shale production surged from 1 Bcf in 2010 to 23 Bcf in 2011, but Ark-La-Tex production declined by 26% from 54 Bcf in 2010 to 40 Bcf in Table 2: Production Profile % of 4Q11/ 2011/ 4Q11 Total 4Q10 3Q Oil (mbd) % -47% -25% % Gas (mmcfd) 1, % 18% 3% 1, % Total (mmcfed) 1, % 18% 3% 1, % Source: Company data & Oppenheimer & Co. Inc. estimates. Fayetteville Shale SWN spud 580 operated wells in the play in 2011 and placed a record 560 operated wells on production, which boosted gross production from operated wells by 19% to 1.9 Bcfd, from 1.6 Bcfd. Drilling efficiency improved significantly with drilling times down to eight days at $2.8 million/ well with an average horizontal length of more than 4,800 feet. SWN drilled 104 wells in less than five days and placed 73 of these wells on production last year. IP rates averaged 3.6 mmcf/d in 4Q11, compared with 3.4 mmcf/d in 2011 and 3.3 mmcf/d in SWN added 1.2 Tcf of new reserves at F&D cost of $1.13/mcf, ending the year with 5.1 Tcf, up 17%. Marcellus Shale SWN spud 70 wells to date, including 67 horizontal wells and three vertical wells, and put 23 wells on production. Production exit rate was 133 mcf/d and was limited by deliverability constraints. The cost of drilling and completing SWN-operated horizontal wells averaged $6.4 million for 4,000 feet horizontal lateral lengths and 12 frac stages, while the EUR averaged 7.5 Bcf for the undeveloped wells and 8.6 Bcf for proved developed wells in SWN does not yet have any operated wells put on production in Susquehanna County and the first producing well is expected in the middle of March. In Bradford County, the EUR of SWN wells ranges from 5 Bcf to 15 Bcf with same pad range of 6-12 Bcf. SWN added 327 Bcf of new reserves from the play at an average F&D cost of $1.02/mcf, and now has 342 Bcf. 2

3 New Ventures SWN had 3.6 million net undeveloped acres at the end of 2011, including 2.5 million acres in New Brunswick, Canada, and 1.1 million acres in the United States. New Brunswick. SWN has invested $24 million in New Brunswick through December 31, 2011, and acquired 248 miles of 2-D seismic and plans to acquire 130 additional miles of 2-D seismic and drill two wells in 4Q12. Lower Smackover Brown Dense. SWN holds 520,000 acres at an average cost of $375/acre in this play in Southern Arkansas and Northern Louisiana. It drilled its first well in Columbia County, Arkansas with vertical depth of 9,369 feet and a horizontal lateral length of 3,600 feet which was completed in 11 frack stages, and core analysis indicated this section to have the lowest permeability in the formation. The well is producing from 8 of the 11 frack stages and produced for 20 days of the planned day clean-up period. Oil production began on the eighth day with the highest 24-hour rates 103 b/d of oil and 200 mc/d of gas and 1 mbd of water, of which 45% was recovered to date. SWN drilled its second well in Claiborne Parish, Louisiana, to a total depth of 10,863 feet in February 2012 with a 6,536-foot horizontal lateral which is being completed. Drilling was faster and rock quality was better. SWN is currently drilling its third well in Union Parish, Louisiana. D-J Basin. SWN plans to drill wells targeting oil plays in its 238,000 net acres in the D-J Basin in Eastern Colorado, which range in vertical depths from 8,000 to 10,500 feet and are within the oil window. Its primary Atoka-Marmaton objectives are alternating low permeability, foot thick carbonates separated by foot thick with 2%-27% organic-rich carbonate content. The play thickness is in the foot range. SWN lease acquisition costs averaged $176/acre with 85% average revenue interest and 5-year terms, with 3-year extensions. There is currently no production in the area, but drilling tests indicate both rich gas and high quality light crude oil. The closest oil production to SWN acreage is 65 miles to the southeast from the Great Plains Field, discovered in 2009, from 12 wells that produced almost 1 mmbbl of 36 gravity API oil from conventional carbonate porosity zones. SWN is awaiting approval to drill its first well in Adams County in 2Q12, targeting the lower Pennsylvanian Morrow Formation with vertical depth of 9,500 feet and a 2,000 foot lateral in a Marmaton objective. It also plans to drill another 9,500 foot vertical well to the south to test the Morrow Formation. Depending on the results, SWN could ramp up its drilling activity sharply in this area in the next several years. SWN drilled vertical wells in the Great Plains Field in the Pennsylvanian section. The reason for drilling vertically is because there is over a 2,000 foot section of potential rock interval with feet of potential pay. The field produced 247 mmb of oil in 20 months with an IP of 1,500 b/d in the first 24 hours and a 30-day average of 634 b/d. There are 96 wells in the immediate area in Southeastern Colorado that have produced from this section, which is in the southern part of Colorado and the north end of SWN acreage is on the edge of what would be the Niobrara play, but it doesn't have Niobrara sections on its acreage. Reserves Year-end proved reserves increased by 19% to a record 5.9 Tcf, with approximately 45% proved undeveloped. SWN replaced 299% of its 2011 production at an average finding and developing (F&D) cost of $1.31/mcfe including revisions. This low F&D cost plus low cash costs of $1.27/mcfe provide SWN with one of the lowest cost structures in the industry. Guidance SWN is preparing for low natural gas prices throughout this year, and possibly for next year, and will adjust its capital spending accordingly. As a result, it has trimmed its 2012 budget to $2.1 billion from $2.3 billion. The cuts were primarily in the Fayetteville, which will likely reduce production by 10 Bcf, or 2% from the midpoint of the previous guidance. The company expects 2012 gas production to be up 3

4 13%. Hedges SWN has 266 Bcf, or 47%, of its 2012 projected natural gas production hedged with an average floor price of $5.16/mcf. SWN believes its hedge position and cash flow from its Midstream gathering business provides protection on 65% of its expected cash flow in Low Cost Structure SWN has one of the lowest cost structures in the industry, with cash operating costs of $1.27/mcf in 2011, including LOE, G&A, interest and taxes. Its lease operating expenses were $0.84/mcf, compared with $0.83/mcf in 2010, mainly due to increased gathering costs in the Fayetteville Shale play. G&A expenses declined 10% to $0.27/mcf in 2011 due to increased production. Sales taxes were flat at $0.11/mcf and the full cost pool amortization rate to $1.30/mcf declined from $1.34/mcf due to low F&D costs and the sale oil and gas properties in East Texas. Unit profit averaged $0.92/mcf in 4Q11, down 14% from the year-ago period and 16% sequentially, mainly due to lower realized natural gas prices. For the year, profit averaged $1.02/mcf, down 19% from Midstream Services Operating income was $248 million in 2012, up 29% from 2010, and EBITDA was $285 million. The increase was mainly due to higher gathering revenues on increased Fayetteville and Marcellus production as well as higher gas marketing margins. The Midstream segment now gathers 2.1 Bcf/d of natural gas through 1,800 miles of gathering lines in the Fayetteville Shale play, compared to 1.8 Bcf/d in Low drilling activity in response to weak natural gas prices is likely to reduce third-party gas going into its midstream assets from 180 mcf to mmcf/d during the year. Financial Condition The cash balance at the end of 2011 was $15.6 million, debt was $1.3 billion and net debt ratio was 25%, down from 27% at the end of Operating cash flow was $1.75 million, which partially funded $2.2 billion CAPEX, resulting in $456 million negative free cash flow. Table 5: Financials ($ in mm, except share data) 4Q11/ 2011/ 4Q11 4Q10 3Q Cash Balance % 18% NA NA Total Debt 1,342 23% 6% 1,342 23% Equity 3,969 34% 10% 3,969 34% Debt Ratio 25.3% -6% -3% 25.3% -6% Operating Cash Flow % -4% 1,751 11% CAPEX % 38% 2,207 4% Free Cash Flow (167) -13% 5495% (456) -16% Source: Company data & Oppenheimer & Co. Inc. estimates. Outlook Our financial projections are based on company guidance regarding production volumes, costs and expenses, effective income tax rates and capital expenditures. Realized oil and gas prices are based on NYMEX futures, adjusted for the company's locational and quality differentials and updated for hedges. We expect SWN total production average 1.55 bcfed this year and 1.79 bcfed next year, up 13% and 16%, respectively. NYMEX prices are expected to average $107.01/b for WTI crude oil, up 13% and $2.77/mcf for Henry Hub natural gas, down 32%. In 2013, we expect WTI to be $105.68/b, down just 1%, with gas prices to average $3.59/mcf, up 30%. We expect realized prices, including hedging, to average $3.65/mcf this year and $3.71/mcf next year. 4

5 Capital spending is expected to be $2.1 billion this year, down 4% from last year, and $2.3 billion next year, up 7% sequentially. We expect net income of $453 million, or $1.29/share this year, down 29% from last year, mainly due to much lower realized natural gas prices, and $540 million, or $1.54/share next year, up 19%. We expect operating cash flow of $1.56 billion, or $4.46/share this year, down 11%, and $1.82 billion, or $5.21/share next year, up 17%. We expect SWN to have a free cash flow deficit of $560 million this year and $451 million next year, which will be funded through a combination of additional debt and proceeds from asset sales. Relative Valuation SWN shares are trading at higher P/E and P/CF multiples than the averages for the large E&P stocks in our energy universe, based on 2102 consensus estimates. Net debt ratio is above the peer average and return on average capital employed is slightly higher. SWN is the only company in the group that does not pay dividend. The implied reserve value (IRV) of $40.25/boe, using oil to gas conversion ratio of 15 to 1, instead of the 6 to 1 ratio, based on energy equivalent, is the highest in the group and 36% above the peer average of around $29.50/boe. Stock Performance SWN stock gained 4% this year, compared with gains of 11% for the peer average and 9% for the S&P 500. The shares are currently trading 32% off their 12-month high and 17% above their lows, compared with 18% and 46% for the peer average. The S&P is slightly below its 12-month high and 27% above the low. SWN was the best performing stock in the sector in the last 10-year period and has outperformed both the peer average and S&P 500 in the last 5- and 10-year periods. 5

6 $ mm $/boe $/boe $ mm mboed Southwestern Energy Co. Southwestern Peer Rankings $1,800 $1,600 Exhibit 1: 4Q11 Adjusted Net Income 800 Exhibit 2: 4Q11 Production $1, $1,200 $1,000 $800 $ $ $200 $0 ($200) ($400) OXY APA DVN MRO APC HES CHK EOG MUR NBL SWN APA OXY APC DVN CHK EOG MRO HES SWN NBL MUR Upstream Other Liquids Gas Exhibit 3: 4Q11 Average Realized Prices Exhibit 4: 4Q11 E&P Unit Profit $80.00 $25.00 $70.00 $60.00 $20.00 $50.00 $15.00 $40.00 $30.00 $10.00 $20.00 $10.00 $5.00 $0.00 HES MUR MRO OXY APA APC EOG NBL DVN CHK SWN $0.00 OXY APA MRO HES MUR DVN NBL CHK EOG APC SWN 12,000 Exhibit 5: 2012E CAPEX Exhibit 6: 2012E CAPEX/Operating Cash Flow 200% 10,000 8, % 6, % 4,000 2,000 50% 0 APA OXY CHK EOG APC HES DVN MRO MUR NBL SWN 0% APC OXY MRO APA HES DVN NBL MUR SWN EOG CHK 6

7 $/bbl $ bn Southwestern Energy Co. Exhibit 7: Net Debt Ratio 80 Exhibit 8: Market Capitalization 50% 40% 60 30% 20% 10% 40 0% -10% 20-20% MUR OXY MRO DVN SWN APA HES EOG NBL APC CHK 0 OXY APC APA EOG DVN MRO HES NBL CHK MUR SWN Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Exhibit 9: 2012 P/E Exhibit 10: 2012 P/CF APA MRO HES MUR DVN OXY CHK NBL SWN EOG APC 0 APA HES CHK MRO MUR DVN APC EOG NBL SWN OXY Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Exhibit 11: Implied Reserve Value Exhibit 12: Dividend Yield 2.5% $45.00 $ % $35.00 $ % $25.00 $ % $15.00 $ % $5.00 $0.00 CHK MRO HES DVN MUR OXY APA APC NBL EOG SWN 0.0% OXY MRO MUR CHK DVN NBL APA HES EOG APC SWN Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. Source: Company data, FactSet and Oppenheimer & Co. Inc. estimates. 7

8 Southwestern Energy Financial and Operating Model Q11 2Q11 3Q11 4Q Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E Revenues ($mm): Gas sales 1, , , ,423 Gas marketing Oil sales Gas gathering Other (1) (1) Total Revenue 2, , , ,345 Expenses ($mm): Gas purchases - midstream services Gas distribution Operating expenses G&A DD&A Impairments Taxes, other than income taxes Total Costs and Expenses 1,589 1, , , ,423 Operating Income (Loss) 1, , Total Interest Expenses Other Income Gain on asset sales Pretax Income , Income Taxes Net Income (Loss) Basic $1.75 $0.39 $0.48 $0.50 $0.46 $1.84 $0.33 $0.31 $0.32 $0.35 $1.30 $0.35 $0.36 $0.39 $0.45 $1.55 Diluted $1.73 $0.39 $0.48 $0.50 $0.45 $1.82 $0.33 $0.31 $0.32 $0.34 $1.29 $0.34 $0.36 $0.39 $0.45 $1.54 Common shares out (diluted): EBITDA 1, , , ,841 EBITDA per share $4.54 $1.11 $1.28 $1.34 $1.28 $5.02 $1.08 $1.07 $1.13 $1.22 $4.51 $1.23 $1.27 $1.33 $1.43 $5.26 Cash Flow 1, , , ,824 Cash Flow per share $4.51 $1.11 $1.28 $1.33 $1.28 $5.00 $1.07 $1.06 $1.12 $1.21 $4.46 $1.22 $1.26 $1.31 $1.42 $5.21 (CAPEX) (2,120) (531) (556) (470) (650) (2,207) (528) (528) (533) (535) (2,122) (555) (555) (580) (585) (2,275) (Share Repurchase)/Issuance Sales/(Acquistions) (Dividends) Free cash flow (542) (128) 3 (3) (167) (456) (153) (156) (141) (111) (560) (129) (115) (120) (89) (451) Natural Gas (mmcfd) 1,106 1,277 1,347 1,399 1,448 1,368 1,460 1,504 1,558 1,646 1,546 1,733 1,765 1,798 1,852 1,787 Oil (mbd) Total production (mmcfed) 1,109 1,279 1,349 1,400 1,449 1,370 1,461 1,505 1,560 1,647 1,548 1,734 1,767 1,800 1,854 1,789 Benchmark Prices WTI ($/b) $79.38 $94.08 $94.08 $94.08 $94.08 $95.02 $ $ $ $ $ $ $ $ $ $ Henry Hub ($/mcf) $4.39 $4.14 $4.14 $4.14 $4.14 $4.07 $2.61 $2.59 $2.80 $3.09 $2.77 $3.49 $3.49 $3.59 $3.77 $3.59 Realization Gas price (including hedges) $4.65 $4.12 $4.30 $4.30 $4.04 $4.19 $3.64 $3.59 $3.63 $3.72 $3.65 $3.67 $3.65 $3.71 $3.82 $3.71 Average oil price per Bbl $76.84 $92.11 $ $88.35 $96.49 $94.08 $98.31 $ $ $ $ $ $ $99.92 $98.14 $ Realized price ($/mcfe) $4.67 $4.14 $4.32 $4.31 $4.05 $4.20 $3.65 $3.60 $3.64 $3.74 $3.66 $3.68 $3.67 $3.72 $3.83 $3.73 Balance Sheet Items Q11 2Q11 3Q11 4Q Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E Cash and Equivalents Total Assets LT debt $1,093 $1,203 $1,215 $1,271 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 $1,342 Equity $2,965 $3,085 $3,306 $3,609 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 $3,969 Key Items & Ratios Debt ratio 27% 28% 27% 26% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% Net Debt Ratio 27% 28% 27% 26% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% Book Value $8.58 $8.90 $9.52 $10.39 $11.42 $11.43 $11.42 $11.42 $11.42 $11.42 $11.42 $11.42 $11.42 $11.42 $11.42 $

9 Southwestern Energy Oil and Gas Price Sensitivity Analysis Production Profile SWN Stock Price $33.51 /sh Dividend $0 mm Oil Gas Total Common Shares 350 mm Yield 0.0% Volume mbd mmcfd mboed Mix Market Capitalization $11.7 bn Cash (9/30/11) $398 mm US 0.2 1, % 2012E CAPEX $2,122 mm Net Debt $874 mm Mix 0% 100% Income Tax Rate 40% Net Debt Ratio 19% Hedges 0% 47% 47% Oil Gas Earnings Cash Flow EBITDA Free Cash Multiples $/b $/mcf $mm $/sh $mm $/sh $mm $/sh $mm $/sh P/E P/CF EV/EBITDA $1.92 1,918 $5.48 1,940 $5.54 (204) ($0.58) $1.66 1,771 $5.06 1,790 $5.11 (351) ($1.00) $1.40 1,625 $4.64 1,641 $4.69 (497) ($1.42) $1.15 1,478 $4.22 1,491 $4.26 (644) ($1.84) $0.89 1,332 $3.80 1,342 $3.83 (790) ($2.26) $1.92 1,917 $5.48 1,939 $5.54 (205) ($0.59) $1.66 1,770 $5.06 1,789 $5.11 (352) ($1.00) $1.40 1,624 $4.64 1,640 $4.69 (498) ($1.42) $1.15 1,477 $4.22 1,491 $4.26 (645) ($1.84) $0.89 1,331 $3.80 1,341 $3.83 (791) ($2.26) $1.92 1,916 $5.47 1,938 $5.54 (206) ($0.59) $1.66 1,770 $5.06 1,789 $5.11 (352) ($1.01) $1.40 1,623 $4.64 1,639 $4.68 (499) ($1.43) $1.14 1,477 $4.22 1,490 $4.26 (645) ($1.84) $0.89 1,330 $3.80 1,340 $3.83 (792) ($2.26) $1.92 1,915 $5.47 1,937 $5.53 (207) ($0.59) $1.66 1,769 $5.05 1,788 $5.11 (353) ($1.01) $1.40 1,622 $4.63 1,638 $4.68 (500) ($1.43) $1.14 1,476 $4.22 1,489 $4.25 (646) ($1.85) $0.89 1,329 $3.80 1,340 $3.83 (793) ($2.26) $1.92 1,915 $5.47 1,937 $5.53 (207) ($0.59) $1.66 1,768 $5.05 1,787 $5.11 (354) ($1.01) $1.40 1,622 $4.63 1,638 $4.68 (500) ($1.43) $1.14 1,475 $4.21 1,488 $4.25 (647) ($1.85) $0.88 1,329 $3.80 1,339 $3.82 (793) ($2.27) Sensitivity Oil ($90-$100/b) 0 $ $ $ Year Gas ($2.5-$3/mcf) 90 $ $ $ Year Source: Company information and Oppenheimer & Co. estimates. Oil price is NYMEX WTI. Assumes a 10% premium for Brent. 9

10 Investment Thesis We have a Perform rating on Southwestern Energy (SWN) shares, as we believe their upside potential in the next months is not much greater than the downside risk from continued weakness in natural gas prices. SWN is the most pure natural gas play in the sector, with nearly 100% of both production and reserve coming from natural gas. We expect US natural gas prices to remain depressed because of continued oversupply, weak industrial demand and high volume in storage. SWN is one of the largest and fastest growing E&P companies involved in exploration and production activities, primarily focused on the Fayetteville Shale gas play in Arkansas. Important Disclosures and Certifications Analyst Certification - The author certifies that this research report accurately states his/her personal views about the subject securities, which are reflected in the ratings as well as in the substance of this report.the author certifies that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Potential Conflicts of Interest: Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest. Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by Oppenheimer & Co. Inc: Stock Prices as of March 2, 2012 Apache Corporation (APA - NYSE, , OUTPERFORM) Anadarko Petroleum (APC - NYSE, 85.81, OUTPERFORM) Devon Energy Corporation (DVN - NYSE, 74.13, OUTPERFORM) EOG Resources, Inc. (EOG - NYSE, , OUTPERFORM) Chesapeake Energy (CHK - NYSE, 24.93, OUTPERFORM) Hess Corporation (HES - NYSE, 66.16, OUTPERFORM) Marathon Oil (MRO - NYSE, 34.26, OUTPERFORM) Murphy Oil Corporation (MUR - NYSE, 64.37, OUTPERFORM) Occidental Petroleum (OXY - NYSE, , OUTPERFORM) Noble Energy, Inc. (NBL - NYSE, 95.93, PERFORM) 10

11 Rating and Price Target History for: Southwestern Energy Co. (SWN) as of /20/10 I:P:NA Created by BlueMatrix All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories, please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager. Oppenheimer & Co. Inc. Rating System as of January 14th, 2008: Outperform(O) - Stock expected to outperform the S&P 500 within the next months. Perform (P) - Stock expected to perform in line with the S&P 500 within the next months. Underperform (U) - Stock expected to underperform the S&P 500 within the next months. Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential conflict of interest. Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008: Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector. Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere. Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group. 11

12 Distribution of Ratings/IB Services Firmwide IB Serv/Past 12 Mos. Rating Count Percent Count Percent OUTPERFORM [O] PERFORM [P] UNDERPERFORM [U] Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform. Company Specific Disclosures The analyst/associate/member of the analyst's or associate's household owns a long position in DVN. The Oppenheimer & Co. Inc. analyst(s) who covers this company also has a long position in APA, APC, DVN, and HES. A member of the household of an Oppenheimer & Co. Inc. research analyst who covers this company has a long position in DVN. Additional Information Available Please log on to or write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department, Business Manager. Other Disclosures This report is issued and approved for distribution by Oppenheimer & Co. Inc. Oppenheimer & Co. Inc transacts Business on all Principal Exchanges and Member SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients of Oppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report, the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor.oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report.past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize 12

13 losses on investments in such securities, including the loss of investment principal. Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable to Oppenheimer & Co. Inc.All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer & Co. Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice.nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.this report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright Oppenheimer & Co. Inc