(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, 7.125% Senior Notes and 4.10% 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, 2013:
Operating revenues	$	–	$	818,087	$	126,845	$	(82,891)	$	862,041
Operating costs and expenses:
Gas purchases – midstream services		–		200,584		–		(474)		200,110
Operating expenses		–		124,780		39,773		(82,398)		82,155
General and administrative expenses		–		40,946		6,643		(19)		47,570
Depreciation, depletion and amortization		–		174,382		12,485		–		186,867
Taxes, other than income taxes		–		16,990		3,032		–		20,022
Total operating costs and expenses		–		557,682		61,933		(82,891)		536,724
Operating income		–		260,405		64,912		–		325,317
Other income, net		–		298		56		–		354
Gain on derivatives		–		93,449		–		–		93,449
Equity in earnings of subsidiaries		245,631		–		–		(245,631)		–
Interest expense		–		7,587		1,691		–		9,278
Income before income taxes		245,631		346,565		63,277		(245,631)		409,842
Provision for income taxes		–		142,283		21,928		–		164,211
Net income		245,631		204,282		41,349		(245,631)		245,631
Comprehensive income	$	285,470	$	245,273	$	39,930	$	(285,203)	$	285,470


Three months ended June 30, 2012:
Operating revenues	$	–	$	563,822	$	115,596	$	(73,342)	$	606,076
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)		–		(713,337)		67,291		–		(646,046)
Other income (loss), net		–		(65)		2,642		–		2,577
Loss on derivatives		–		(6,348)		–		–		(6,348)
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 (benefit) 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)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated

	(in thousands)
Six months ended June 30, 2013:
Operating revenues	$	–	$	1,508,231	$	248,214	$	(160,755)	$	1,595,690
Operating costs and expenses:
Gas purchases – midstream services		–		380,748		–		(682)		380,066
Operating expenses		–		235,321		71,095		(160,037)		146,379
General and administrative expenses		–		72,812		12,009		(36)		84,785
Depreciation, depletion and amortization		–		341,904		24,430		–		366,334
Taxes, other than income taxes		–		34,705		6,144		–		40,849
Total operating costs and expenses		–		1,065,490		113,678		(160,755)		1,018,413
Operating income		–		442,741		134,536		–		577,277
Other loss, net		–		(78)		(101)		–		(179)
Gain on derivatives		–		63,655		–		–		63,655
Equity in earnings of subsidiaries		373,146		–		–		(373,146)		–
Interest expense		–		14,525		3,774		–		18,299
Income before income taxes		373,146		491,793		130,661		(373,146)		622,454
Provision for income taxes		–		200,329		48,979		–		249,308
Net income		373,146		291,464		81,682		(373,146)		373,146
Comprehensive income	$	318,788	$	239,020	$	79,234	$	(318,254)	$	318,788


Six months ended June 30, 2012:
Operating revenues	$	–	$	1,176,633	$	228,721	$	(144,443)	$	1,260,911
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)		–		(592,028)		130,308		–		(461,720)
Other income (loss), net		–		(239)		2,616		–		2,377
Loss on derivatives		–		(4,714)		–		–		(4,714)
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 (benefit) 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)


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
June 30, 2013:

ASSETS

Cash and cash equivalents	$	25,303	$	–	$	382	$	–	$	25,685
Accounts receivable		2,642		420,119		23,175		–		445,936
Inventories		–		36,045		2,055		–		38,100
Other current assets		5,331		270,094		7,687		–		283,112
Total current assets		33,276		726,258		33,299		–		792,833

Intercompany receivables		2,510,744		66		30,746		(2,541,556)		–

Property and equipment		231,348		12,617,326		1,419,715		–		14,268,389
Less: Accumulated depreciation, depletion and amortization		(95,880)		(7,264,007)		(214,246)		–		(7,574,133)
		135,468		5,353,319		1,205,469		–		6,694,256

Investments in subsidiaries (equity method)		2,632,570		–		–		(2,632,570)		–

Other assets		33,704		98,372		16,026		–		148,102

Total assets	$	5,345,762	$	6,178,015	$	1,285,540	$	(5,174,126)	$	7,635,191

LIABILITIES AND EQUITY

Accounts payable	$	132,447	$	461,157	$	95,037	$	–	$	688,641
Other current liabilities		3,758		152,810		1,846		–		158,414
Total current liabilities		136,205		613,967		96,883		–		847,055

Intercompany payables		–		2,541,556		–		(2,541,556)		–

Long-term debt		1,897,734		–		–		–		1,897,734
Deferred income taxes		(130,850)		993,255		398,141		–		1,260,546
Other liabilities		69,078		172,997		14,186		–		256,261
Total liabilities		1,972,167		4,321,775		509,210		(2,541,556)		4,261,596
Commitments and contingencies
Total equity		3,373,595		1,856,240		776,330		(2,632,570)		3,373,595

Total liabilities and equity	$	5,345,762	$	6,178,015	$	1,285,540	$	(5,174,126)	$	7,635,191


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
December 31, 2012:

ASSETS

Cash and cash equivalents	$	47,491	$	5,988	$	104	$	–	$	53,583
Restricted Cash		8,542		–		–		–		8,542
Accounts receivable		2,677		353,607		21,354		–		377,638
Inventories		2		26,975		1,164		–		28,141
Other current assets		7,461		321,396		12,151		–		341,008
Total current assets		66,173		707,966		34,773		–		808,912

Intercompany receivables		2,259,713		42		27,077		(2,286,832)		–

Property and equipment		220,837		11,491,222		1,316,380		–		13,028,439
Less: Accumulated depreciation, depletion and amortization		(82,178)		(6,923,106)		(186,179)		–		(7,191,463)
		138,659		4,568,116		1,130,201		–		5,836,976

Investments in subsidiaries (equity method)		2,309,947		–		–		(2,309,947)		–

Other assets		35,136		42,247		14,256		–		91,639

Total assets	$	4,809,628	$	5,318,371	$	1,206,307	$	(4,596,779)	$	6,737,527

LIABILITIES AND EQUITY

Accounts payable	$	140,367	$	375,604	$	41,009	$	–	$	556,980
Other current liabilities		3,758		205,623		1,410		–		210,791
Total current liabilities		144,125		581,227		42,419		–		767,771

Intercompany payables		–		2,108,360		178,472		(2,286,832)		–

Long-term debt		1,668,273		–		–		–		1,668,273
Deferred income taxes		(116,207)		820,279		345,066		–		1,049,138
Other liabilities		77,565		124,505		14,403		–		216,473
Total liabilities		1,773,756		3,634,371		580,360		(2,286,832)		3,701,655
Commitments and contingencies
Total equity		3,035,872		1,684,000		625,947		(2,309,947)		3,035,872

Total liabilities and equity	$	4,809,628	$	5,318,371	$	1,206,307	$	(4,596,779)	$	6,737,527


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)

Six months ended June 30, 2013:
Net cash provided by (used in) operating activities	$	(30,843)	$	651,169	$	257,226	$	–	$	877,552
Investing activities:
Capital investments		(12,156)		(1,084,093)		(79,385)		–		(1,175,634)
Transfers from restricted cash		8,542		–		–		–		8,542
Other		(73)		1,894		3,807		–		5,628
Net cash used in investing activities		(3,687)		(1,082,199)		(75,578)		–		(1,161,464)
Financing activities:
Intercompany activities		(243,555)		425,042		(181,487)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,233,150)		–		–		–		(1,233,150)
Borrowing under revolving long-term debt		1,463,150		–		–		–		1,463,150
Other Items		26,497		–		–		–		26,497
Net cash provided by (used in) financing activities		12,342		425,042		(181,487)		–		255,897
Effect of exchange rate changes on cash		–		–		117		–		117
Increase (decrease) in cash and cash equivalents		(22,188)		(5,988)		278		–		(27,898)
Cash and cash equivalents at beginning of year		47,491		5,988		104		–		53,583
Cash and cash equivalents at end of period	$	25,303	$	–	$	382	$	–	$	25,685


Six months ended June 30, 2012:
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		90		(2,287)		11,092		–		8,895
Net cash used in investing activities		(162,373)		(866,065)		(73,375)		–		(1,101,813)
Financing activities:								–
Intercompany activities		(54,667)		245,329		(190,662)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,273,700)		–		–		–		(1,273,700)
Borrowings under revolving long-term debt		602,200		–		–		–		602,200
Proceeds from issuance of long-term debt		998,780		–		–		–		998,780
Other items		(36,370)		–		–		–		(36,370)
Net cash provided by (used in) financing activities		235,643		245,329		(190,662)		–		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