(16) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company is providing condensed consolidating financial information for SEECO, SEPCO and SES, its subsidiaries that are currently guarantors of the Company’s registered public debt, and for its other subsidiaries that are not guarantors of such debt. These wholly owned subsidiary guarantors have jointly and severally, fully and unconditionally guaranteed the Company’s 7.35% Senior Notes and 7.125% Senior Notes. The subsidiary guarantees (i) rank equally in right of payment with all of the existing and future senior debt of the subsidiary guarantors; (ii) rank senior to all of the existing and future subordinated debt of the subsidiary guarantors; (iii) are effectively subordinated to any future secured obligations of the subsidiary guarantors to the extent of the value of the assets securing such obligations; and (iv) are structurally subordinated to all debt and other obligations of the subsidiaries of the guarantors.

The Company has not presented separate financial and narrative information for each of the subsidiary guarantors because it believes that such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantees. The following condensed consolidating financial information summarizes the results of operations, financial position and cash flows for the Company’s guarantor and non-guarantor subsidiaries.


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Three months ended September 30, 2012:
Operating revenues	$	–	$	642,082	$	121,343	$	(77,577)	$	685,848
Operating costs and expenses:
Gas purchases – midstream services		–		149,765		–		(114)		149,651
Operating expenses		–		106,293		32,277		(76,664)		61,906
General and administrative expenses		–		30,818		6,102		(799)		36,121
Depreciation, depletion and amortization		–		189,777		10,878		–		200,655
Impairment of natural gas and oil properties		–		441,465		–		–		441,465
Taxes, other than income taxes		–		13,513		2,739		–		16,252
Total operating costs and expenses		–		931,631		51,996		(77,577)		906,050
Operating income (loss)		–		(289,549)		69,347		–		(220,202)
Other income, net		–		216		22		–		238
Equity in earnings of subsidiaries		(144,815)		–		–		144,815		–
Interest expense		–		7,200		3,406		–		10,606
Income (loss) before income taxes		(144,815)		(296,533)		65,963		144,815		(230,570)
Provision (benefit) for income taxes		–		(111,505)		25,750		–		(85,755)
Net income (loss)		(144,815)		(185,028)		40,213		144,815		(144,815)
Comprehensive income (loss)	$	(274,706)	$	(316,170)	$	41,210	$	274,960	$	(274,706)


Three months ended September 30, 2011:
Operating revenues	$	–	$	730,826	$	105,486	$	(69,057)	$	767,255
Operating costs and expenses:
Gas purchases – midstream services		–		175,729		–		(493)		175,236
Operating expenses		–		101,645		30,034		(67,768)		63,911
General and administrative expenses		–		34,030		2,366		(796)		35,600
Depreciation, depletion and amortization		–		169,446		9,667		–		179,113
Taxes, other than income taxes		–		13,731		3,946		–		17,677
Total operating costs and expenses		–		494,581		46,013		(69,057)		471,537
Operating income		–		236,245		59,473		–		295,718
Other loss, net		–		(16)		(106)		–		(122)
Equity in earnings of subsidiaries		175,173		–		–		(175,173)		–
Interest expense		–		2,376		3,281		–		5,657
Income (loss) before income taxes		175,173		233,853		56,086		(175,173)		289,939
Provision for income taxes		–		92,725		22,041		–		114,766
Net income (loss)		175,173		141,128		34,045		(175,173)		175,173
Comprehensive income (loss)	$	296,540	$	263,517	$	32,826	$	(296,343)	$	296,540


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Nine months ended September 30, 2012:
Operating revenues	$	–	$	1,814,001	$	350,064	$	(222,020)	$	1,942,045
Operating costs and expenses:
Gas purchases – midstream services		–		424,425		–		(484)		423,941
Operating expenses		–		311,165		87,461		(219,148)		179,478
General and administrative expenses		–		111,567		20,700		(2,388)		129,879
Depreciation, depletion and amortization		–		568,859		33,253		–		602,112
Impairment of natural gas and oil properties		–		1,377,364		–		–		1,377,364
Taxes, other than income taxes		–		42,159		8,995		–		51,154
Total operating costs and expenses		–		2,835,539		150,409		(222,020)		2,763,928
Operating income (loss)		–		(1,021,538)		199,655		–		(821,883)
Other income (loss), net		–		(23)		2,638		–		2,615
Equity in earnings of subsidiaries		(525,211)		–		–		525,211		–
Interest expense		–		15,460		10,845		–		26,305
Income (loss) before income taxes		(525,211)		(1,037,021)		191,448		525,211		(845,573)
Provision (benefit) for income taxes		–		(395,112)		74,750		–		(320,362)
Net income (loss)		(525,211)		(641,909)		116,698		525,211		(525,211)
Comprehensive income (loss)	$	(741,599)	$	(860,021)	$	117,660	$	742,361	$	(741,599)


Nine months ended September 30, 2011:
Operating revenues	$	–	$	2,101,099	$	299,252	$	(191,595)	$	2,208,756
Operating costs and expenses:
Gas purchases – midstream services		–		546,731		–		(1,213)		545,518
Operating expenses		–		276,974		86,811		(188,022)		175,763
General and administrative expenses		–		101,372		13,943		(2,360)		112,955
Depreciation, depletion and amortization		–		485,546		28,634		–		514,180
Taxes, other than income taxes		–		41,206		8,223		–		49,429
Total operating costs and expenses		–		1,451,829		137,611		(191,595)		1,397,845
Operating income		–		649,270		161,641		–		810,911
Other income (loss), net		–		345		(24)		–		321
Equity in earnings of subsidiaries		479,236		–		–		(479,236)		–
Interest expense		–		7,769		11,494		–		19,263
Income (loss) before income taxes		479,236		641,846		150,123		(479,236)		791,969
Provision for income taxes		–		253,738		58,995		–		312,733
Net income (loss)		479,236		388,108		91,128		(479,236)		479,236
Comprehensive income (loss)	$	625,011	$	534,124	$	90,297	$	(624,421)	$	625,011


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
September 30, 2012:

ASSETS

Cash and cash equivalents	$	16,961	$	1,365	$	234	$	–	$	18,560
Restricted cash		127,074		–		–		–		127,074
Accounts receivable		3,269		271,542		22,962		–		297,773
Inventories		–		29,672		958		–		30,630
Other current assets		6,472		355,779		10,459		–		372,710
Total current assets		153,776		658,358		34,613		–		846,747

Intercompany receivables		2,205,219		34		25,142		(2,230,395)		–

Property and equipment		210,717		11,058,390		1,237,796		–		12,506,903
Less: Accumulated depreciation, depletion and amortization		(73,829)		(6,168,742)		(172,384)		–		(6,414,955)
		136,888		4,889,648		1,065,412		–		6,091,948

Investments in subsidiaries (equity method)		2,521,938		–		–		(2,521,938)		–

Other assets		35,276		80,783		18,197		–		134,256

Total assets	$	5,053,097	$	5,628,823	$	1,143,364	$	(4,752,333)	$	7,072,951

LIABILITIES AND EQUITY

Accounts payable	$	133,968	$	352,240	$	33,572	$	–	$	519,780
Other current liabilities		6,962		232,336		2,087		–		241,385
Total current liabilities		140,930		584,576		35,659		–		761,165

Intercompany payables		–		2,003,287		227,108		(2,230,395)		–

Long-term debt		1,695,342		–		–		–		1,695,342
Deferred income taxes		(96,550)		984,116		316,137		–		1,203,703
Other liabilities		60,096		93,475		5,891		–		159,462
Total liabilities		1,799,818		3,665,454		584,795		(2,230,395)		3,819,672
Commitments and contingencies
Total equity		3,253,279		1,963,369		558,569		(2,521,938)		3,253,279

Total liabilities and equity	$	5,053,097	$	5,628,823	$	1,143,364	$	(4,752,333)	$	7,072,951


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
December 31, 2011:

ASSETS

Cash and cash equivalents	$	14,711	$	–	$	916	$	–	$	15,627
Accounts receivable		2,914		309,038		29,963		–		341,915
Inventories		–		45,260		974		–		46,234
Other current assets		6,087		563,635		4,780		–		574,502
Total current assets		23,712		917,933		36,633		–		978,278

Intercompany receivables		2,053,132		53		23,517		(2,076,702)		–

Property and equipment		180,300		9,731,944		1,148,575		–		11,060,819
Less: Accumulated depreciation, depletion and amortization		(57,254)		(4,220,205)		(137,880)		–		(4,415,339)
		123,046		5,511,739		1,010,695		–		6,645,480

Investments in subsidiaries (equity method)		3,256,195		–		–		(3,256,195)		–

Other assets		28,641		227,152		23,346		–		279,139

Total assets	$	5,484,726	$	6,656,877	$	1,094,191	$	(5,332,897)	$	7,902,897

LIABILITIES AND EQUITY

Accounts payable	$	205,341	$	332,710	$	37,276	$	–	$	575,327
Other current liabilities		5,912		301,170		2,504		–		309,586
Total current liabilities		211,253		633,880		39,780		–		884,913

Intercompany payables		–		1,628,750		447,952		(2,076,702)		–

Long-term debt		1,342,100		–		–		–		1,342,100
Deferred income taxes		(97,045)		1,442,576		241,267		–		1,586,798
Other liabilities		59,114		54,826		5,842		–		119,782
Total liabilities		1,515,422		3,760,032		734,841		(2,076,702)		3,933,593
Commitments and contingencies
Total equity		3,969,304		2,896,845		359,350		(3,256,195)		3,969,304

Total liabilities and equity	$	5,484,726	$	6,656,877	$	1,094,191	$	(5,332,897)	$	7,902,897


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)

Nine months ended September 30, 2012:
Net cash provided by (used in) operating activities	$	(55,324)	$	915,885	$	331,916	$	–	$	1,192,477
Investing activities:
Capital investments		(38,946)		(1,452,061)		(132,744)		–		(1,623,751)
Proceeds from sale of property and equipment		144		169,149		31,868		–		201,161
Transfers to restricted cash		(167,774)		–		–		–		(167,774)
Transfers from restricted cash		40,700		–		–		–		40,700
Other		16,575		(24,340)		13,004		–		5,239
Net cash used in investing activities		(149,301)		(1,307,252)		(87,872)		–		(1,544,425)
Financing activities:
Intercompany activities		(148,027)		392,732		(244,705)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,774,000)		–		–		–		(1,774,000)
Borrowing under revolving long-term debt		1,129,000		–		–		–		1,129,000
Proceeds from issuance of long-term debt		998,780		–		–		–		998,780
Other Items		1,722		–		(11)		–		1,711
Net cash provided by (used in) financing activities		206,875		392,732		(244,716)		–		354,891
Effect of exchange rate changes on cash		–		–		(10)		–		(10)
Increase (decrease) in cash and cash equivalents		2,250		1,365		(682)		–		2,933
Cash and cash equivalents at beginning of year		14,711		–		916		–		15,627
Cash and cash equivalents at end of period	$	16,961	$	1,365	$	234	$	–	$	18,560


Nine months ended September 30, 2011:
Net cash provided by (used in) operating activities	$	(23,901)	$	1,146,062	$	178,050	$	–	$	1,300,211
Investing activities:
Capital investments		(53,085)		(1,333,977)		(156,487)		–		(1,543,549)
Proceeds from sale of property and equipment		–		121,281		265		–		121,546
Transfers to restricted cash		(85,040)		–		–		–		(85,040)
Transfers from restricted cash		15,779		–		–		–		15,779
Other		11,046		(31,564)		25,458		–		4,940
Net cash used in investing activities		(111,300)		(1,244,260)		(130,764)		–		(1,486,324)
Financing activities:								–
Intercompany activities		(44,592)		92,018		(47,426)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(2,575,000)		–		–		–		(2,575,000)
Borrowings under revolving long-term debt		2,753,600		–		–		–		2,753,600
Other items		5,254		–		–		–		5,254
Net cash provided by (used in) financing activities		138,662		92,018		(47,426)		–		183,254
Effect of exchange rate changes on cash		–		–		97		–		97
Increase (decrease) in cash and cash equivalents		3,461		(6,180)		(43)		–		(2,762)
Cash and cash equivalents at beginning of year		8,381		7,631		43		–		16,055
Cash and cash equivalents at end of period	$	11,842	$	1,451	$	–	$	–	$	13,293