(17) 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 June 30, 2012: (Restated)
Operating revenues	$	–	$	557,474	$	115,596	$	(73,342)	$	599,728
Operating costs and expenses:
Gas purchases – midstream services		–		127,757		–		(143)		127,614
Operating expenses		–		101,816		27,203		(72,405)		56,614
General and administrative expenses		–		39,041		6,685		(794)		44,932
Depreciation, depletion and amortization		–		196,245		11,585		–		207,830
Impairment of natural gas and oil properties		–		800,652		–		–		800,652
Taxes, other than income taxes		–		11,648		2,832		–		14,480
Total operating costs and expenses		–		1,277,159		48,305		(73,342)		1,252,122
Operating income (loss)		–		(719,685)		67,291		–		(652,394)
Other income (loss), net		–		(65)		2,642		–		2,577
Equity in earnings of subsidiaries		(405,132)		–		–		405,132		–
Interest expense		–		4,505		3,856		–		8,361
Income (loss) before income taxes		(405,132)		(724,255)		66,077		405,132		(658,178)
Provision for income taxes		–		(278,220)		25,174		–		(253,046)
Net income (loss)		(405,132)		(446,035)		40,903		405,132		(405,132)
Comprehensive income (loss)	$	(558,199)	$	(598,840)	$	40,387	$	558,453	$	(558,199)


Three months ended June 30, 2011:
Operating revenues	$	–	$	728,430	$	100,108	$	(63,372)	$	765,166
Operating costs and expenses:
Gas purchases – midstream services		–		200,420		–		(368)		200,052
Operating expenses		–		88,477		28,793		(62,216)		55,054
General and administrative expenses		–		35,298		5,728		(788)		40,238
Depreciation, depletion and amortization		–		161,699		9,921		–		171,620
Taxes, other than income taxes		–		13,568		2,092		–		15,660
Total operating costs and expenses		–		499,462		46,534		(63,372)		482,624
Operating income		–		228,968		53,574		–		282,542
Other income, net		–		16		53		–		69
Equity in earnings of subsidiaries		167,454		–		–		(167,454)		–
Interest expense		–		1,748		4,422		–		6,170
Income (loss) before income taxes		167,454		227,236		49,205		(167,454)		276,441
Provision for income taxes		–		89,651		19,336		–		108,987
Net income (loss)		167,454		137,585		29,869		(167,454)		167,454
Comprehensive income (loss)	$	216,395	$	186,204	$	29,995	$	(216,199)	$	216,395


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Six months ended June 30, 2012: (Restated)
Operating revenues	$	–	$	1,171,919	$	228,721	$	(144,443)	$	1,256,197
Operating costs and expenses:
Gas purchases – midstream services		–		274,660		–		(370)		274,290
Operating expenses		–		204,872		55,184		(142,484)		117,572
General and administrative expenses		–		80,749		14,598		(1,589)		93,758
Depreciation, depletion and amortization		–		379,082		22,375		–		401,457
Impairment of natural gas and oil properties		–		800,652		–		–		800,652
Taxes, other than income taxes		–		28,646		6,256		–		34,902
Total operating costs and expenses		–		1,768,661		98,413		(144,443)		1,722,631
Operating income (loss)		–		(596,742)		130,308		–		(466,434)
Other income (loss), net		–		(239)		2,616		–		2,377
Equity in earnings of subsidiaries		(297,428)		–		–		297,428		–
Interest expense		–		8,260		7,439		–		15,699
Income (loss) before income taxes		(297,428)		(605,241)		125,485		297,428		(479,756)
Provision for income taxes		–		(231,328)		49,000		–		(182,328)
Net income (loss)		(297,428)		(373,913)		76,485		297,428		(297,428)
Comprehensive income (loss)	$	(383,925)	$	(460,883)	$	76,450	$	384,433	$	(383,925)


Six months ended June 30, 2011:
Operating revenues	$	–	$	1,370,273	$	193,766	$	(122,538)	$	1,441,501
Operating costs and expenses:
Gas purchases – midstream services		–		371,002		–		(720)		370,282
Operating expenses		–		175,329		56,777		(120,254)		111,852
General and administrative expenses		–		67,342		11,577		(1,564)		77,355
Depreciation, depletion and amortization		–		316,100		18,967		–		335,067
Taxes, other than income taxes		–		27,475		4,277		–		31,752
Total operating costs and expenses		–		957,248		91,598		(122,538)		926,308
Operating income		–		413,025		102,168		–		515,193
Other income, net		–		361		82		–		443
Equity in earnings of subsidiaries		304,063		–		–		(304,063)		–
Interest expense		–		5,393		8,213		–		13,606
Income (loss) before income taxes		304,063		407,993		94,037		(304,063)		502,030
Provision for income taxes		–		161,013		36,954		–		197,967
Net income (loss)		304,063		246,980		57,083		(304,063)		304,063
Comprehensive income (loss)	$	328,471	$	270,607	$	57,471	$	(328,078)	$	328,471


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

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

ASSETS

Cash and cash equivalents	$	36,888	$	4,209	$	402	$	–	$	41,499
Restricted cash		144,384		–		–		–		144,384
Accounts receivable		2,322		246,742		23,686		–		272,750
Inventories		–		33,562		967		–		34,529
Other current assets		6,040		499,095		5,216		–		510,351
Total current assets		189,634		783,608		30,271		–		1,003,513

Intercompany receivables		2,114,806		40		24,265		(2,139,111)		–

Property and equipment		203,486		10,625,280		1,224,616		–		12,053,382
Less: Accumulated depreciation, depletion and amortization		(67,749)		(5,400,488)		(160,398)		–		(5,628,635)
		135,737		5,224,792		1,064,218		–		6,424,747

Investments in subsidiaries (equity method)		2,794,486		–		–		(2,794,486)		–

Other assets		35,537		157,864		17,549		–		210,950

Total assets	$	5,270,200	$	6,166,304	$	1,136,303	$	(4,933,597)	$	7,639,210

LIABILITIES AND EQUITY

Accounts payable	$	109,858	$	423,901	$	46,275	$	–	$	580,034
Other current liabilities		9,816		293,916		2,183		–		305,915
Total current liabilities		119,674		717,817		48,458		–		885,949

Intercompany payables		10,498		1,832,910		295,703		(2,139,111)		–

Long-term debt		1,668,811		–		–		–		1,668,811
Deferred income taxes		(96,715)		1,180,710		290,264		–		1,374,259
Other liabilities		52,055		53,112		6,179		–		111,346
Total liabilities		1,754,323		3,784,549		640,604		(2,139,111)		4,040,365
Commitments and contingencies
Total equity		3,515,877		2,381,755		495,699		(2,794,486)		3,598,845

Total liabilities and equity	$	5,270,200	$	6,166,304	$	1,136,303	$	(4,933,597)	$	7,639,210


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	$	206,541	$	332,710	$	37,276	$	–	$	576,527
Other current liabilities		4,712		301,170		2,504		–		308,386
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)

Six months ended June 30, 2012: (Restated)
Net cash provided by (used in) operating activities	$	(51,093)	$	624,945	$	263,538	$	–	$	837,390
Investing activities:
Capital investments		(18,079)		(1,032,169)		(90,413)		–		(1,140,661)
Proceeds from sale of property and equipment		–		168,391		5,946		–		174,337
Transfers to restricted cash		(167,750)		–		–		–		(167,750)
Transfers from restricted cash		23,366		–		–		–		23,366
Other		10,584		(10,809)		9,120		–		8,895
Net cash used in investing activities		(151,879)		(874,587)		(75,347)		–		(1,101,813)
Financing activities:
Intercompany activities		(65,161)		253,851		(188,690)		–		–
Payments on short-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,273,700)		–		–		–		(1,273,700)
Borrowing under revolving long-term debt		602,200		–		–		–		602,200
Borrowing under long-term debt		998,780		–		–		–		998,780
Other Items		(36,370)		–		–		–		(36,370)
Net cash provided by (used in) financing activities		225,149		253,851		(188,690)		–		290,310
Effect of exchange rate changes on cash		–		–		(15)		–		(15)
Increase (decrease) in cash and cash equivalents		22,177		4,209		(514)		–		25,872
Cash and cash equivalents at beginning of year		14,711		–		916		–		15,627
Cash and cash equivalents at end of period	$	36,888	$	4,209	$	402	$	–	$	41,499


Six months ended June 30, 2011:
Net cash provided by (used in) operating activities	$	(29,781)	$	763,933	$	122,778	$	–	$	856,930
Investing activities:
Capital investments		(35,347)		(889,700)		(99,611)		–		(1,024,658)
Proceeds from sale of property and equipment		–		120,892		241		–		121,133
Transfers to restricted cash		(85,002)		–		–		–		(85,002)
Other		7,244		(11,339)		7,974		–		3,879
Net cash used in investing activities		(113,105)		(780,147)		(91,396)		–		(984,648)
Financing activities:								–
Intercompany activities		22,870		8,583		(31,453)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,717,600)		–		–		–		(1,717,600)
Borrowings under revolving long-term debt		1,840,600		–		–		–		1,840,600
Other items		2,415		–		–		–		2,415
Net cash provided by (used in) financing activities		147,685		8,583		(31,453)		–		124,815
Effect of exchange rate changes on cash		–		–		127		–		127
Increase (decrease) in cash and cash equivalents		4,799		(7,631)		56		–		(2,776)
Cash and cash equivalents at beginning of year		8,381		7,631		43		–		16,055
Cash and cash equivalents at end of period	$	13,180	$	–	$	99	$	–	$	13,279