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Commitments and Contingencies
9 Months Ended
Sep. 30, 2011
Commitments and Contingencies [Abstract] 
Commitments and Contingencies

10)  Commitments and Contingencies

 

Commitments

 

During the first and second quarters of 2011, the Company's marketing subsidiary, Southwestern Energy Services Company ("SES"), entered into a number of short and long term firm transportation service and gathering agreements in support of the Company's growing Marcellus Shale operations in Pennsylvania and the Company has provided certain guarantees of a portion of SES's obligations under these agreements.  In March 2011, SES entered into a precedent agreement with Millennium Pipeline Company, L.L.C. pursuant to which it will enter into short and long term firm natural gas transportation services on Millennium's existing system and expansions of the system expected to be in-service by late 2012 and late 2013.  Certain of SES's obligations under the precedent agreement are subject to the satisfaction of conditions precedent.  On June 30, 2011, SES entered into a long term agreement with Bluestone Gathering, a wholly owned subsidiary of DTE Energy Company, pursuant to which Bluestone Gathering will build and operate a natural gas gathering system in Susquehanna County, Pennsylvania and Broome County, New York, and provide gathering services to SES in support of a portion of the Company's future Marcellus Shale natural gas production. The projected in-service date for the gathering system is as early as the second quarter of 2012.  SES also executed firm transportation agreements with Tennessee Gas Pipeline that increase the Company's ability to move its Marcellus Shale natural gas production in the short term to market as well as a precedent agreement for an expansion project with a projected in-service date of November 2013 pursuant to which SES has subscribed for 100,000 Dekatherm/day of capacity. As of September 30, 2011, SES's obligations for demand and similar charges under the firm transportation agreements totaled approximately $120.4 million and the Company currently has no guarantee obligations with respect to the firm transportation agreements and the gathering project and services.

 

On October 6, 2011, the Company's subsidiary, Southwestern Energy Production Company ("SEPCO"), entered into a 15-year agreement with a subsidiary of Boardwalk Pipeline Partners for the construction of a gathering system in Susquehanna and Lackawanna counties in Pennsylvania, which once constructed is expected to have a delivery capacity of 275,000 DeKatherm/day.

 

In the first quarter of 2010, the Company was awarded exclusive licenses by the Province of New Brunswick in Canada to conduct an exploration program covering approximately 2.5 million acres in the province. The licenses require the Company to make certain capital investments in New Brunswick of approximately $47 million Canadian dollars ("CAD") in the aggregate over a three year period. In order to obtain the licenses, the Company provided promissory notes payable on demand to the Minister of Finance of the Province of New Brunswick with an aggregate principal amount of CAD $44.5 million. The promissory notes secure the Company's capital expenditure obligations under the licenses and are returnable to the Company to the extent the Company performs such obligations. If the Company fails to fully perform, the Minister of Finance may retain a portion of the applicable promissory notes in an amount equal to any deficiency. The Company commenced its Canada exploration program in 2010 and, as of September 30, 2011, no liability has been recognized in connection with the promissory notes.

 

Environmental Risk

 

The Company is subject to laws and regulations relating to the protection of the environment. Environmental and cleanup related costs of a non-capital nature are accrued when it is both probable that a liability has been incurred and when the amount can be reasonably estimated. Management believes any future remediation or other compliance related costs will not have a material effect on the financial position or reported results of operations of the Company.

 

Litigation

 

In February 2009, SEPCO was added as a defendant in a Third Amended Petition in the matter of Tovah Energy, LLC and Toby Berry-Helfand v. David Michael Grimes, et, al. In the Sixth Amended Petition, filed in July 2010, in the 273 rd District Court in Shelby County, Texas (collectively, the "Sixth Petition") plaintiff alleged that, in 2005, they provided SEPCO with proprietary data regarding two prospects in the James Lime formation pursuant to a confidentiality agreement and that SEPCO refused to return the proprietary data to the plaintiff, subsequently acquired leases based upon such proprietary data and profited therefrom. Among other things, the plaintiff's allegations in the Sixth Petition included various statutory and common law claims, including, but not limited to claims of misappropriation of trade secrets, violation of the Texas Theft Liability Act, breach of fiduciary duty and confidential relationships, various fraud based claims and breach of contract, including a claim of breach of a purported right of first refusal on all interests acquired by SEPCO between February 15, 2005 and February 15, 2006. In the Sixth Petition, plaintiff sought actual damages of over $55 million as well as other remedies, including special damages and punitive damages of four times the amount of actual damages established at trial.

 

Immediately before the commencement of the trial in November 2010, plaintiff was permitted, over SEPCO's objections, to file a Seventh Amended Petition claiming actual damages of $46 million and also seeking the equitable remedy of disgorgement of all profits for the misappropriation of trade secrets and the breach of fiduciary duty claims. In December 2010, the jury found in favor of the plaintiff with respect to all of the statutory and common law claims and awarded $11.4 million in compensatory damages. The jury did not, however, award the plaintiff any special, punitive or other damages. In addition, the jury separately determined that SEPCO's profits for purposes of disgorgement were $381.5 million. This profit determination does not constitute a judgment or an award. The plaintiff's entitlement to disgorgement of profits as an equitable remedy will be determined by the judge and it is within the judge's discretion to award none, some or all the amount of profit to the plaintiff. On December 31, 2010, the plaintiff filed a motion to enter the judgment based on the jury's verdict. On February 11, 2011, SEPCO filed a motion for a judgment notwithstanding the verdict and a motion to disregard certain findings. On March 11, 2011, the plaintiff filed an amended motion for judgment and intervenor filed its motion for judgment seeking not only the monetary damages and the profits determined by the jury but also seeking, as a new remedy, a constructive trust for profits from 143 wells as well as future drilling and sales of properties in the prospect areas. A hearing on the post-verdict motions was held on March 14, 2011. At the suggestion of the judge, all parties voluntarily agreed to participate in non-binding mediation efforts. The mediation occurred on April 6, 2011 and was unsuccessful. On June 6, 2011, SEPCO received by mail a letter dated June 2, 2011 from the judge, in which he made certain rulings with respect to the post-verdict motions and responses filed by the parties. In his rulings, the judge denied SEPCO's motion for judgment, judgment notwithstanding the verdict and to disregard certain findings. Plaintiff's and intervenor's claim for a constructive trust was denied but the judge ruled that plaintiff and intervenor shall recover from SEPCO $11.4 million and a reasonable attorney's fee of 40% of the total damages awarded and are entitled to recover on their claim for disgorgement. The judge instructed that SEPCO calculate the profit on the designated wells for each respective period. SEPCO performed the calculation and provided it to the judge in June 2011. On July 5, 2011, plaintiff and intervenor filed a letter with the court raising objections to the accounting provided by SEPCO, to which SEPCO filed a response on July 11, 2011. On July 12, 2011, the judge sent a letter to the parties in which he ruled that after reviewing the parties' respective position letters, he was awarding $23.9 million in disgorgement damages in favor of the plaintiff and intervenor. In the July 12, 2011 letter, the judge instructed the plaintiff and intervenor to prepare a judgment for his approval prior to July 21, 2011 consistent with his findings in his June 2, 2011 letter and the disgorgement award. On August 24, 2011, a judgment was entered pursuant to which plaintiff and intervenor are entitled to recover approximately $11.4 million in actual damages and approximately $23.9 million in disgorgement as well as prejudgment interest and attorney's fees which currently are estimated to be up to $8.9 million and all costs of court of the plaintiff and intervenor. On September 22, 2011, the plaintiff and intervenor filed a motion to modify, correct or reform the judgment which requested that the court vacate the final judgment ordering SEPCO to produce additional accounting information and reconsider the amount SEPCO should disgorge. On September 23, 2011, SEPCO filed a motion for a new trial.