Organization And Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2014

Organization And Summary Of Significant Accounting Policies [Abstract]

Nature Of Operations

Southwestern Energy Company (including its subsidiaries, collectively “Southwestern” or the “Company”) is an independent energy company engaged in natural gas and oil exploration, development and production (“E&P”).  Our current operations are principally focused within the United States on development of two unconventional natural gas reservoirs located in Arkansas and Pennsylvania. The Company’s operations in Arkansas are primarily focused on an unconventional natural gas reservoir known as the Fayetteville Shale, and its operations in northeast Pennsylvania are focused on an unconventional natural gas reservoir known as the Marcellus Shale (herein referred to as “Northeast Appalachia”). Recently, the Company acquired a significant stake in properties located in West Virginia and southwest Pennsylvania which it also intends to develop. These operations in West Virginia are also focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas and oil reservoirs (herein referred to as “Southwest Appalachia”). Collectively, the Company’s properties located in West Virginia and Pennsylvania are herein referred to as the “Appalachian Basin.”  To a lesser extent, the Company has exploration and production activities ongoing in Colorado, Louisiana, Texas and in the Arkoma Basin in Arkansas and Oklahoma. The Company also actively seeks to find and develop new natural gas and oil plays with significant exploration and exploitation potential, which it refers to as “New Ventures,” and through acquisitions. The Company also operates drilling rigs in Arkansas and Pennsylvania, as well as in other operating areas, and provide oilfield products and services, principally serving its exploration and production operations. Southwestern’s natural gas gathering and marketing (“Midstream Services”) activities primarily support the Company’s E&P activities in Arkansas, Texas, Louisiana, Pennsylvania, and West Virginia.

Basis Of Presentation

The consolidated financial statements included in this Annual Reportpresent the Company’s financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.The Company evaluates subsequent events through the date the financial statements are issued.Certain reclassifications have been made to the prior year financial statements to conform to the 2014 presentation.The effects of the reclassifications were not material to the Company’s consolidated financial statements. 

Principles Of Consolidation

The consolidated financial statements include the accounts of Southwestern and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition

Natural gasand oil sales. Natural gas and oil sales are recognized when the products are sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred and collectability of the revenue is reasonably assured. The Company uses the entitlement method that requires revenue recognition for the Company’s net revenue interest of sales from its properties. Accordingly, natural gasand oil sales are not recognized for deliveries in excess of the Company’s net revenue interest, while natural gas and oil sales are recognized for any under delivered volumes. Production imbalances are generally recorded at estimated sales prices of the anticipated future settlements of the imbalances. The Company had no significant production imbalances at December 31, 2014 or 2013.

Marketing. The Company generally markets its natural gas and oil, as well as some products produced by third parties, to brokers, local distribution companies and end-users, pursuant to a variety of contracts. Marketing revenues are recognized when delivery has occurred, title has transferred, the price is fixed or determinable and collectability of the revenue is reasonably assured.

Gas gathering. In certain areas, the Company gathers its natural gas as well as some natural gas produced by third parties pursuant to a variety of contracts. Gas gathering revenues are recognized when the service is performed, the price is fixed or determinable and collectability of the revenue is reasonably assured.

Cash And Cash Equivalents

Cash and cash equivalents are defined by the Company as short-term, highly liquid investments that have an original maturity of three months or less and deposits in money market mutual funds that are readily convertible into cash.  Management considers cash and cash equivalents to have minimal credit and market risk.

Certain of the Company’s cash accounts are zero-balance controlled disbursement accounts that do not have the right of offset against the Company’s other cash balances. The Company presents the outstanding checks written against these zero-balance accounts as a component of accounts payable in the accompanying consolidated balance sheets. Outstanding checks included as a component of accounts payable totaled $17 million and $5 million as of December 31, 2014 and 2013, respectively.

Inventory

Inventory is comprised of natural gas in underground storage and tubular and other equipment. Natural gas in underground storage is carried at the lower of cost or market and accounted for by a weighted average cost method. Tubulars and other equipment are carried at the lower of cost or market and are accounted for by a moving weighted average cost method that is applied within specific classes of inventory items.

The components of inventory as of December 31, 2014 and December 31, 2013 consisted of the following:

		For year ended December 31,
		2014		2013
		(in millions)
Inventory:
Natural gas in underground storage	$	4	$	4
Tubulars and other equipment		33		34

Property, Depreciation, Depletion And Amortization

Natural Gas and Oil Properties. The Company utilizes the full cost method of accounting for costs related to the exploration, development and acquisition of natural gas and oil reserves. Under this method, all such costs (productive and nonproductive), including salaries, benefits and other internal costs directly attributable to these activities are capitalized on a country by country basis and amortized over the estimated lives of the properties using the units-of-production method. These capitalized costs, less accumulated amortization and related deferred income taxes, are subject to a ceiling test that limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved natural gas and oil reserves discounted at 10% plus the lower of cost or market value of unproved properties. Any costs in excess of the ceiling are written off as a non-cash expense. The expense may not be reversed in future periods, even though higher natural gas and oil prices may subsequently increase the ceiling. Companiesutilizing the full cost method must use the average quoted price from the first day of each month from the previous 12 months, including the impact of derivatives qualifying as cash flow hedges, to calculate the ceiling value of their reserves.

Using the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas of $4.35 per MMBtu, West Texas Intermediate oil of $91.48 per barrel and NGLs of $23.79 per barrel, adjusted for market differentials, the Company’s net book value of its United States natural gas and oil properties did not exceed the ceiling amount and did not result in a ceiling test impairment at December 31, 2014. Cash flow hedges of natural gas production in place increased this ceiling amount by approximately $4 million, net of tax, as of December 31, 2014.  At December 31, 2013, the ceiling value of the Company’s reserves was calculated based upon the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas of $3.67 per MMBtu, West Texas Intermediate oil of $93.42 per barrel, and NGLs of $43.45 per barrel. At December 31, 2012, the ceiling value of the Company’s reserves was calculated based upon the average quoted price from the first day of each month from the previous 12 months for Henry Hub natural gas of $2.76 per MMBtu and for West Texas Intermediate oil of $91.21. Decreases in market prices as well as changes in production rates, levels of reserves, evaluation of costs excluded from amortization, future development costs and production costs could result in future ceiling test impairments. During 2012, the net capitalized costs of the Company’s natural gas and oil properties exceeded the ceiling by approximately $1,192 million (net of tax) and resulted in a non-cash ceiling test impairment.

All of the Company’s costs directly associated with the acquisition and evaluation of properties in Canada relating to its exploration program as of December 31, 2014and as of December 31, 2013 were unproved and did not exceed the ceiling amount.  If the exploration program in Canada is unsuccessful on all or a portion of these properties, including the effects of changes in laws or regulations due to the new government in New Brunswick or otherwise or the Company’s exploration licenses in New Brunswick are not renewed in the first quarter of 2015, a ceiling test impairment may result in the future.

Gathering Systems. The Company’s investment in gathering systems is primarily related to its Fayetteville Shale assets in Arkansas and Northeast Appalachiaassets in Pennsylvania. These assets are being depreciated on a straight-line basis over 25 years.

Capitalized Interest.Interest is capitalized on the cost of unevaluated natural gas and oil properties that are excluded from amortization and actively being evaluated.

Asset Retirement Obligations.  The Company owns natural gas and oil properties, which require expenditures to plug and abandon the wells and reclaim the associated pads when reserves in the wells are depleted. An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred or when it becomes determinable, with an associated increase in the carrying amount of the related long-lived asset. The cost of the tangible asset, including the asset retirement cost, is depreciated over the useful life of the asset. The asset retirement obligation is recorded at its estimated fair value and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value.

Impairment of long-lived assets. The carrying values of long-lived assets are evaluated for recoverability whenever events or changes in circumstances indicate that it may not be recoverable.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Deferred income taxes are provided to recognize the income tax effect of reporting certain transactions in different years for income tax and financial reporting purposes.  A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.

The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying Consolidated Statements of Operations. Additional information regarding uncertain tax positions can be found in Note 10 – Income Taxes.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage defined commodity price risks and does not use them for speculative trading purposes. The Company uses commodity fixed price swaps and fixed price option contracts to hedge sales of natural gas. Gains and losses resulting from the settlement of hedge contracts have been recognized in gas sales if designated for hedge accounting treatment or gain (loss) on derivatives if not designated for hedge accounting treatment in the consolidated statements of operations when the contracts expire and the related physical transactions of the commodity hedged are recognized. Changes in the fair value of derivative instruments designated as cash flow hedges and not settled are included in other comprehensive income (loss) to the extent that they are effective in offsetting the changes in the cash flows of the hedged item. In contrast, gains and losses from the ineffective portion of fixed price swaps designated for hedge accounting treatment are recognized currentlyand have an inconsequential impact in the consolidated statement of operations. Gains and losses from the unsettled portion of fixed price swaps not designated for hedge accounting treatment, interest rate swaps, fixed price call options and basis swaps that were not designated for hedge accounting treatment are recognized in gain (loss) on derivatives in the consolidated statement of operations.  See Note 5and Note 7 for a discussion of the Company’s hedging activities.

Earnings Per Share

Basic earnings per common share is computed by dividing net income (loss) attributable to Southwestern by the weighted average number of common shares outstanding during each year. The diluted earnings per share calculation adds to the weighted average number of common shares outstanding the incremental shares that would have been outstanding assuming the exercise of dilutive stock options and the vesting of unvested restricted shares of common stock.  Antidilutive is an increase in earnings per share or reduction in net loss per share resulting from the conversion, exercise, or contingent issuance of certain securities.

For the year ended December 31, 2014, outstanding options for 241,603 shares with an average exercise price of $34.03 were included in the calculation of diluted shares. Options for 1,446,004 shares were excluded from the calculation because they would have had an antidilutive effect. For the year ended December 31, 2013, outstanding options for 377,626 shares with an exercise price of $28.03 were included in the calculation of diluted shares. Options for 1,634,695 shares were excluded from the calculation because they would have had an antidilutive effect. As the Company recognized a net loss for the year ended December 31, 2012, the unvested stock options were not recognized in diluted earnings per share calculations as they would be antidilutive. Options for 1,716,109 shares were excluded from the calculation of diluted shares because they would have had an antidilutive effect. 

For the year ended December 31, 2014, 448,415 shares of restricted stock were included in the calculation of diluted shares. The calculation excluded 29,879 shares of restricted stock because they would have had an antidilutive effect. For the year ended December 31, 2013, 258,396 shares of restricted stock were included in the calculation of diluted shares. The calculation excluded 114,433 shares of restricted stock because they would have had an antidilutive effect. As the Company recognized a net loss for the year ended December 31, 2012, the unvested share-based payments were not recognized in diluted earnings per share calculations as they would be antidilutive. The calculation of diluted shares excluded 602,429 shares of restricted because they would have had an antidilutive effect.

For the year ended December 31, 2014, 273,918 shares of performance units were included in the calculation of diluted shares. There were no performance units issued in 2013.

Supplemental Disclosures of Cash Flow Information

The following table provides additional information concerning interest and income taxes paid as well as changes in noncash investing activities for the years ended December 31, 2014, 2013, and 2012.

	For the years ended December 31,
	2014		2013		2012
	(in millions)
Cash paid during the year for interest, net of amounts capitalized	$	50	$	36	$	17
Cash paid during the year for income taxes		28		19		1
Increase (decrease) in noncash property additions		174		(13)		(26)

Stock-Based Compensation

The Company accounts for stock-based compensation transactions using a fair value method and recognizes an amount equal to the fair value of the stock options and stock-based payment cost in either the consolidated statement of operations or capitalizes the cost into natural gas and oil properties or gathering systems included in property and equipment. Costs are capitalized when they are directly related to the acquisition, exploration and development activities of the Company’s natural gas and oil properties or directly related to the construction of the Company’s gathering systems.

Treasury Stock

The Company maintains a non-qualified deferred compensation supplemental retirement savings plan for certain key employees whereby participants may elect to defer and contribute a portion of their compensation to a Rabbi Trust, as permitted by the plan. The Company includes the assets and liability of its supplemental retirement savings plan in its consolidated balance sheet. Shares of the Company’s common stock purchased under the non-qualified deferred compensation arrangement are held in the Rabbi Trust and are presented as treasury stock and carried at cost. As of December 31, 2014,  11,055 shares were accounted for as treasury stock, compared to 9,924 shares at December 31, 2013.

Foreign Currency Translation

The Company has designated the Canadian dollar as the functional currency for our operations in Canada.  The cumulative translation effects of translating the accounts from the functional currency into the U.S. dollar at current exchange rates are included as a separate component of stockholders' equity.

New Accounting Standards Not Yet Implemented in this Report

In April 2014, the FASB issued Accounting Standards Update No. 2014-08 (“Update 2014-08”), which amends FASB Accounting Standards Codification Topic 205, “Presentation of Financial Statements” and Topic 360, “Property, Plant, and Equipment.” Update 2014-08 alters the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances, and calls for more extensive disclosures about a discontinued operation’s assets, liabilities, income and expenses. The guidance is effective for all disposals or classifications as held-for sale of components of an entity that occur within annual periods beginning on or after December 15, 2014. The Company has evaluated the provisions of Update 2014-08 and does not expect it to have an impact on its consolidated results of operations, financial position or cash flows.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Update 2014-09”), which seeks to provide clarity for recognizing revenue. Topic 606 Revenue from Contracts with Customers will supersede the revenue recognition requirement as in Topic 605 Revenue Recognition. Update 2014-09 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to those goods or services. Entities may apply the amendments in Update 2014-09 either (a) retrospectively to each reporting period presented, and the entity may elect a practical expedient per the update, or (b) retrospectively with the cumulative effect of initially applying Update 2014-09 recognized at the date of initial application – if an entity elects this transition method it also should provide the additional disclosures in reporting periods. For public entities, Update 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the provisions of Update 2014-09 and assessing the impact, if any, it may have on its consolidated results of operations, financial position or cash flows.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved After the Requisite Service Period (“Update 2014-12”), which clarifies the accounting treatment of such awards in practice. Update 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities may apply the amendments in Update 2014-12 either (a) prospectively to all awards granted or modified after the effective date, or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Update 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and early adoption is permitted. The Company is currently evaluating the provisions of Update 2014-12 and assessing the impact, if any, it may have on its consolidated results of operations, financial position or cash flows.