Southwestern Energy Company The Right Balance...Southwestern Energy Company 2007 Annual Report pg. 1 2007 • We set records for net income, EBITDA (1), production, reserves and reserve

®

The Right Balance Southwestern Energy Company 2007 Annual Report

Southwestern Energy Company2350 N. Sam Houston Pkwy. East, Suite 125Houston, Texas 77032 281-618-4700

Southwestern Energy C

ompany 2007 A

nnual Report

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113136CVR_r1_MECH07_SWN_AR.indd 1 3/9/08 12:53:59 PM

®

The Right People doing the Right Things, wisely investing the cash flow from the underlying Assets will create Value +®

Southwestern Energy Company’s Form 10-K for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission (SEC) includes the required certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. The Company also has filed with the New York Stock Exchange (NYSE) the 2007 annual certification of the Chief Executive Officer confirming that Southwestern Energy Company has complied with the NYSE corporate governance listing standards.

Forward looking statements: This annual report contains forward-looking statements regarding Southwestern Energy Company’s future plans and performance based on assumptions the Company believes are reasonable. A number of factors could cause actual results to differ materially from these statements. For further information regarding these factors, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2007 Form 10-K.

Design: Michael Thede DesignPhotography: Cover – GettyOne;Introduction, Fayetteville Shale Play, Arkoma Basin and East Texas – DOXA;Executive portraits – Pete Lacker PhotographyPrinting: Classic Color

©2008 Southwestern Energy Company All rights reserved.

ANNUAL MEETING

May 6, 2008 at 11:00 a.m. CDTWyndham Hotel - GreenspointHouston, Texas

INDEPENDENT PUBLIC ACCOUNTANTS

PricewaterhouseCoopers LLPTulsa, Oklahoma

INVESTOR RELATIONS

Greg D. KerleyExecutive Vice Presidentand Chief Financial Officer

Brad D. SylvesterManager,Investor Relations281-618-4897

WEBSITE

www.swn.com

TRANSFER AGENT AND REGISTRAR

Computershare Trust Co., N.A.P.O. Box 43069Providence, RI 02940-3069800-446-2617

The DirectSERVICEInvestment Programc/o Computershare Trust Co., N.A.P.O. Box 43081Providence, RI 02940-3081800-446-2617

CORPORATE HEADQUARTERS

Southwestern Energy Company2350 N. Sam Houston Pkwy. EastSuite 125Houston, Texas 77032281-618-4700281-618-4818 (fax)

SUBSIDIARY OFFICES

Southwestern Energy Production CompanySouthwestern Midstream Services Company2350 N. Sam Houston Pkwy. EastSuite 125Houston, Texas 77032281-618-4700281-618-4818 (fax)

SEECO, Inc.1083 Sain StreetP.O. Box 13408Fayetteville, Arkansas 72703-1004479-521-1141479-521-0328

Arkansas WesternGas Company1001 Sain StreetP.O. Box 13288Fayetteville, Arkansas72703-1002479-521-5400479-582-4747

Southwestern Energy CompanySouthwestern Energy Production CompanySEECO, Inc.DeSoto Drilling, Inc. (DDI)DeSoto Gathering Company, LLC (DGC)23 Nabco AvenueConway, Arkansas 72032501-548-6500 501-548-6550 (fax)501-548-6600 (DDI)501-548-6852 (DDI fax)501-548-6700 (DGC)501-548-6755 (DGC fax)

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SouthwesternEnergy Company 2007Annual Report

pg. 1

2007• We set records for net income,EBITDA(1), production, reserves

and reserve replacement(2)

• Significant progress realized in our Fayetteville Shale play

• Solid results from our conventional Arkoma Basin activities and new plays being

pursued in East Texas and Appalachia• Meaningful growth in our

Midstream business• Laid the foundation for anotheryear of substantial growth in 2008

(1) EBITDA is a non-GAAP financial measure. (2) Includes reserve revisions.

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113136AR_r3_MECH07_SWN_AR.indd 1 3/12/08 4:52:48 PM

The close of 2007 recorded another banner year at Southwestern Energy — production volumes grew in 2007 at a record rate of 57% over 2006 and our reserves increased by 41% to 1.45 Tcfe. Our reserve replacement ratio of 474% in 2007 means we booked nearly 5 times as many new reserves as we produced during the year. The most heartening aspect of our 2007 success was the progress we made in our Fayetteville Shale play in Arkansas which greatly contributed to our results. During the year, we made strides in perfecting our completion techniques for the Fayetteville Shale, increased our3-D seismic database to 525 square miles which improves our ability to reduce risk in our drilling program, and began drilling and completing longer laterals, all of which led to higher productivity in our horizontal wells.

As we look forward to 2008 and beyond, we find ourselves in a very desirable position relative to many of our peers. Our 900,000+ net acreage position in the Fayetteville Shale project continues to deliver positive results and positions us with an attractive drilling program for many years. In addition, our drilling in the conventional plays in East Texas and the Arkoma Basin are growing our opportunityset. What then are Southwestern Energy’s challenges?

In the past, I have often described our E&P business as a teeter-totter. On the one end rests the opportunity set generated by the enterprise and on the other end is capital. When our opportunity set has become heavy, we have used debt and equity to bring the equation into balance. While the reality for most companies over the past several years is that they have been short on opportunities, this has not been the case for Southwestern Energy. About 10 years ago we set out to be, and have in fact become, an opportunity-generating machine.

Today, I find myself using a different analogy to describe Southwestern Energy’s challenges — it’s more like a three-bladed helicopter. Two of the blades are familiar — “opportunity sets” and “capital,” but the third blade represents today’s reality — the need for the human resources necessary to increase activity levels and otherwise get the job done.

TO OUR STOCKHOLDERS:

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Thisnotonlymeanstheabilitytocarryontheoperation,buttoabsorb,understandandmakeuseofalltheinformationthatflowsoutofalargeoperation.Ourindustryisparticularlychallengedtodayandwillbefortheforeseeablefutureinthehumanresourcearena—peopleareinshortsupply.Overthepasttwoyears,Southwesternhasaddedover700peopletoourteamand,withsuchalargeinventoryofwellstodrill,wewillneedtorecruitmoregoodpeopletomeetourneeds.So,thisisourprimarychallengetoday,butitwillchangefromtimetotime.Tenyearsagowewereshortonideas,butwerecruitedateamofpeopletogenerateideasandhavedonebetterthanmostatthis.Inearly2003andagainin2005,weneededcapitaltotakeadvantageofalltheopportunitiesinfrontofus.Todayandintothefuture,therealchallengeforourcompanywillbetokeeptheproperbalanceofideas,peopleandcapitaltoensurethatwekeepSouthwesternclimbingupandtotheright.

WehaveahugeopportunitysetinfrontofusintheFayettevilleShale,alongwithexcitingnewopportunitieswehaveseededinEastTexasandtheMarcellusShaleinPennsylvania.Inaddition,wehaveastrongbalancesheetandanorganizationthatisgrowingtofillourneeds.Thegreatestlimitationtodayistheshortageofpeopleneededtoaccelerateourprogram—however,weareworkinghardonthat.AsIthinkaboutthesechallenges,theyaregoodonestohave!

Inclosing,weexpectanotherveryfineyearin2008aswebegintohitourstrideintheFayettevilleShale.MythankstothemanystockholdersoftheCompanywhohaveenjoyedthistimewithusandmostofalltotheRightPeopleofSouthwesternEnergywhohavebeendoingtheRightThings.

Sincerely,

HaroldM.Korell,President&CEO


pgs. 2/3

“Aswelookforwardto2008andbeyond,wefindourselvesina

verydesirablepositionrelativetomanyofourpeers.”

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In 2007 we set records fornet income, EBITDA, production,reserves and reserve replacement.

’07 ’06 ’05FINANCIAL

Operating revenues (in millions) $ 1,255.1 $ 763.1 $ 676.3 Operating income (in millions) $ 381.5 $ 246.3 $ 245.9

Net income (in millions) $ 221.2 $ 162.6 $ 147.8 Diluted earnings per share $ 1.27 $ 0.95 $ 0.95 EBITDA (in millions)(1) $ 675.4 $ 414.5 $ 345.9 Capital investments (in millions) $1,503.1 $ 942.4 $ 483.1 Average diluted shares outstanding (in millions) 173.7 171.3 156.3

EXPLORATION & PRODUCTION

Total proved reserves (Bcf equivalent) 1,450.3 1,026.3 826.8 Percent of reserves natural gas 96% 95% 93% Percent of reserves proved, developed 64% 65% 73% Total production (Bcf equivalent) 113.6 72.3 61.0

Average gas price ($/Mcf) $ 6.80 $ 6.55 $ 6.51 Average oil price ($/barrel) $ 69.12 $ 58.36 $ 42.62

Reserve replacement ratio(2) 474% 386% 399% Reserve life (years) 12.8 14.2 13.6

MIDSTREAM SERVICES

Operating income (in millions) $ 13.2 $ 4.1 $ 5.7 EBITDA (in millions) $ 18.8 $ 5.3 $ 6.0 Gas volumes marketed (Bcf ) 145.7 72.7 61.9 Gas volumes gathered (Bcf ) 78.7 14.6 2.3

(1)EBITDAisanon-GAAPfinancialmeasure. (2)Includesreserverevisions.

Financial & Operating Highlights

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Financial & Operating Highlights continued

’07

113.6

PRODUCTION(Bcfe)

’06

61.0

’05

54.1

’04

41.2

’03

72.3

’07

474%

RESERVEREPLACEMENTRATIO

’06

399%

’05

365%

’04

313%

’03

386%

’07

$221.2

NET INCOME(in millions)

’06

$147.8

’05

$103.6

’04

$48.9

’03

$162.6

’07

$675.4

EBITDA(in millions)

’06

$345.9

’05

$255.3

’04

$151.4

’03

$414.5

’07

$1,503.1

CAPITALINVESTMENTS(in millions)

’06

$483.1

’05

$295.0

’04

$180.2

’03

$942.4

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pgs. 6/7

We made tremendous strides in our Fayetteville

Shale play during 2007. Not only did we

accelerate our drilling activity, but the advancements

in our completion techniques, our move to longer

completed lateral lengths and the growing

use of 3-D seismic data led to results which

exceeded expectations.

During 2007, we drilled a total of 415 wells,

compared to 196 wells in 2006 and 67 wells in 2005.

As a result, our gross production volumes increased

dramatically from approximately 100 MMcf per

day at the beginning of 2007 to approximately

325 MMcf per day at year-end, resulting in net

production of 53.5 Bcf in 2007, compared to 11.8

Bcf in 2006 and 1.8 Bcf in 2005. Total proved gas

reserves booked in the play also grew to 716 Bcf at

year-end 2007, compared to 300 Bcf at year-end

2006 and 101 Bcf at year-end 2005.

During 2008 and for the second consecutive

year, we intend to invest more than $1 billion in the

Fayetteville Shale play (including capital investments

in gathering systems), which will bring our total

planned investment to more than $2.5 billion

by the end of 2008. We expect to participate in

approximately 475 horizontal wells in 2008 (75%

operated), over 50% of which will be drilled with

lateral lengths greater than 3,000 feet and developed

on multi-well pads. In addition, approximately 75%

of our wells drilled in 2008 will have the benefit of our

growing 3-D seismic database, compared to about

20% in 2007. We also plan to drill approximately 40

vertical wells in the play area targeting the shallower

conventional reservoirs above the Fayetteville Shale,

up from 11 wells drilled in 2007.

With this planned level of activity, we expect

that our capital program will generate a significant

increase in our production volumes from the play,

which could reach as high as 450 MMcf per

day by the end of 2008 and could result in net

production of 90.0 to 95.0 Bcf for the year.

During 2007, we also saw meaningful growth

in our Midstream Services business which, when

combined with our company-operated drilling

rigs, are two of the key reasons why we have made

such significant progress in the play over a short

period of time.

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In 2007, we invested approximately $148 million

and participated in 114 wells in our conventional

Arkoma properties, 81 of which were successful and

23 were in progress at year-end, resulting in an 89%

success rate and new reserves additions of 60.6

Bcf. We experienced 18% growth in our production

volumes during 2007, primarily driven by the

continued successful delineation of our Ranger

Anticline area. We produced 23.8 Bcf in 2007,

compared to 20.1 Bcf in 2006 and 20.2 Bcf in 2005.

Our reserves in the basin grew as well to 304 Bcf

in 2007, compared to 277 Bcf in 2006 and 271

Bcf in 2005.

Prior to 2007, our production over the last

few years from our conventional drilling activities in

the Arkoma Basin was fairly consistent, as new

production stemming from our drilling program offset

the natural production decline from existing wells.

During 2007, we successfully completed 52

out of 67 wells at Ranger (excluding 12 wells

in progress at year-end), which added 25.5 net

Bcf of new reserves. Net production from the field

increased by 67% to 9.5 Bcf during 2007,

compared to 5.7 Bcf in 2006 and 5.6 Bcf in 2005.

We began drilling at our Midway prospect area,

located approximately 11 miles north of Ranger,

two years ago and through year-end 2006 we had

drilled a total of six wells. In 2007, we began to

accelerate our program at Midway, drilling 26 wells

which were all either productive or in progress at

year-end. Our wells at Midway primarily produce

from the same productive zones as our wells

at Ranger. Depending on the performance of these

wells, there may be significant additional drilling

potential on our Midway acreage.

We are planning another very active year in our

conventional Arkoma program in 2008 by investing

approximately $132 million and drilling approximately

100 to 110 wells, including 40 wells at the Ranger

Anticline and 45 wells at Midway.

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Our drilling program in East Texas began in

2000 with the acquisition of approximately 11,000

gross acres in the Overton Field in Smith County,

Texas. Since that time and through December 31,

2007, we had drilled 365 wells at Overton, all

of which were successful. Our accomplishments

at Overton have been a great example of how

the Right People doing the Right Things, which

includes creative thinking, using new technologies

and process improvements, will contribute to

the significant increase in the value of an asset.

Over the years as we expanded our development

at Overton, we were also working on expanding

our other activities in East Texas. Our Angelina River

Trend area, concentrated in several separate

development areas located in four different counties

in East Texas, has the potential to contribute greatly

to our future success in East Texas.

Through year-end 2007, we held 87,000 gross

acres at Angelina and had drilled a total of 59 wells

primarily targeting the Travis Peak or James Lime

formations, with all but one well being successful.

In 2007, we invested approximately $88 million

and drilled 31 wells at Angelina. Net production

from the area was 2.5 Bcfe in 2007, compared to

1.8 Bcfe in 2006 and 0.9 Bcfe in 2005. In December

2007, we completed our first operated horizontal

well targeting the James Lime formation, the

Timberstar-Mills 1H, which had an initial production

rate of 12.1 MMcfe per day. In 2008, we intend

to participate in an additional 10 to 15 James Lime

horizontal wells in both our Angelina and Jebel

prospect areas.

We will continue to be active in East Texas and

plan to invest $122 million in the area during 2008,

drilling between 30 and 35 wells in our Angelina

and Jebel areas.

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Harold M. Korell (11)President, Chief Executive Officer and Chairman of the Board

Greg D. Kerley (18)Executive Vice President and ChiefFinancial Officer

Richard F. Lane (10)Executive Vice Presidentand President, Southwestern EnergyProduction Company and SEECO, Inc.

Mark K. Boling (6)Executive Vice President,General Counsel andSecretary

Gene A. Hammons (3)President, SouthwesternMidstream Services Company

CORPORATE OFFICERS

Harold M. Korell (11)President, Chief ExecutiveOfficer and Chairman ofthe Board

Greg D. Kerley (18)Executive Vice Presidentand Chief Financial Officer

Richard F. Lane (10)Executive Vice President

Mark K. Boling (6)Executive Vice President,General Counsel andSecretary

Dee W. Hency (30)Vice President –Administration and ChiefInformation Officer

Timothy J. O’Donnell (17)Vice President – HumanResources and Treasurer

Stanley T. Wilson (22)Controller and ChiefAccounting Officer

EXECUTIVEOFFICERS

SUBSIDIARYOFFICERS

Southwestern EnergyProduction Companyand SEECO, Inc.

Richard F. Lane (10)President

J. Alan Stubblefield (10)Senior Vice President –Southwestern EnergyProduction Company

John D. Thaeler (9)Senior Vice President –SEECO, Inc.

Jim R. Dewbre (10)Senior Vice President – Land and Business/Organizational Development

John C. Gargani (14)Vice President – Economic Planningand Acquisitions

Alan R. Clemens (10)Vice President – Geosciences and DeSoto Planning

James L. Bolander, Jr. (7)Vice President – DeSoto Operations

Southwestern MidstreamServices Company

Gene A. Hammons (3)President

Arkansas Western Gas Company

Alan N. Stewart (4)President

Charles V. Stevens (36)Senior Vice President

Ricky A. Gunter (35)Vice President – Ratesand Regulation

Bob Lamb (17)Vice President –Community Development

Jeffrey L. Dangeau (22)General Counseland Secretary

Glenn M. Morgan (31)Controller and Treasurer

DIRECTORS

As Shown from left to right: Robert L. Howard (13), Retired, Shell Oil Company; Vello A. Kuuskraa (5), President and Chairman of the Board, Advanced Resources International, Inc.; Lewis E. Epley, Jr. (10), Retired, Attorney at Law; Harold M. Korell (11), President, Chief Executive Officer and Chairman of the Board, Southwestern Energy Company; Kenneth R. Mourton (13), Managing Partner, Ball and Mourton, Ltd., PLLC; Charles E. Scharlau (56), Retired CEO, Southwestern Energy Company (Years of service with the company are shown on this page in parentheses.)

Alan N. Stewart (4)President,Arkansas WesternGas Company

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®

The Right People doing the Right Things, wisely investing the cash flow from the underlying Assets will create Value +®

Southwestern Energy Company’s Form 10-K for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission (SEC) includes the required certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. The Company also has filed with the New York Stock Exchange (NYSE) the 2007 annual certification of the Chief Executive Officer confirming that Southwestern Energy Company has complied with the NYSE corporate governance listing standards.

Forward looking statements: This annual report contains forward-looking statements regarding Southwestern Energy Company’s future plans and performance based on assumptions the Company believes are reasonable. A number of factors could cause actual results to differ materially from these statements. For further information regarding these factors, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2007 Form 10-K.

Design: Michael Thede DesignPhotography: Cover – GettyOne;Introduction, Fayetteville Shale Play, Arkoma Basin and East Texas – DOXA;Executive portraits – Pete Lacker PhotographyPrinting: Classic Color

©2008 Southwestern Energy Company All rights reserved.

ANNUAL MEETING

May 6, 2008 at 11:00 a.m. CDTWyndham Hotel - GreenspointHouston, Texas

INDEPENDENT PUBLIC ACCOUNTANTS

PricewaterhouseCoopers LLPTulsa, Oklahoma

INVESTOR RELATIONS

Greg D. KerleyExecutive Vice Presidentand Chief Financial Officer

Brad D. SylvesterManager,Investor Relations281-618-4897

WEBSITE

www.swn.com

TRANSFER AGENT AND REGISTRAR

Computershare Trust Co., N.A.P.O. Box 43069Providence, RI 02940-3069800-446-2617

The DirectSERVICEInvestment Programc/o Computershare Trust Co., N.A.P.O. Box 43081Providence, RI 02940-3081800-446-2617

CORPORATE HEADQUARTERS

Southwestern Energy Company2350 N. Sam Houston Pkwy. EastSuite 125Houston, Texas 77032281-618-4700281-618-4818 (fax)

SUBSIDIARY OFFICES

Southwestern Energy Production CompanySouthwestern Midstream Services Company2350 N. Sam Houston Pkwy. EastSuite 125Houston, Texas 77032281-618-4700281-618-4818 (fax)

SEECO, Inc.1083 Sain StreetP.O. Box 13408Fayetteville, Arkansas 72703-1004479-521-1141479-521-0328

Arkansas WesternGas Company1001 Sain StreetP.O. Box 13288Fayetteville, Arkansas72703-1002479-521-5400479-582-4747

Southwestern Energy CompanySouthwestern Energy Production CompanySEECO, Inc.DeSoto Drilling, Inc. (DDI)DeSoto Gathering Company, LLC (DGC)23 Nabco AvenueConway, Arkansas 72032501-548-6500 501-548-6550 (fax)501-548-6600 (DDI)501-548-6852 (DDI fax)501-548-6700 (DGC)501-548-6755 (DGC fax)

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®

The Right Balance Southwestern Energy Company 2007 Annual Report

Southwestern Energy Company2350 N. Sam Houston Pkwy. East, Suite 125Houston, Texas 77032 281-618-4700

Southwestern Energy C

ompany 2007 A

nnual Report

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Documents

Southwestern Energy Company The Right Balance...Southwestern Energy Company 2007 Annual Report pg. 1 2007 • We set records for net income, EBITDA (1), production, reserves and reserve