Form 424B5 filed by SOUTHWESTERN ENERGY CO on 2021-08-16
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The information in this prospectus supplement is not complete and may be changed. This prospectus supplement and the accompanying prospectus are part of an effective registration statement filed with the Securities and Exchange Commission. This prospectus supplement and the accompanying prospectus are not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Filed pursuant to Rule 424(b)(5)
Registration No. 333-238633

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 16, 2021

PRELIMINARY PROSPECTUS SUPPLEMENT

(TO PROSPECTUS DATED AUGUST 16, 2021)

 

LOGO

Southwestern Energy Company

$1,000,000,000                 % Senior Notes due 2030

 

 

We are offering $1,000,000,000 aggregate principal amount of our                 % Senior Notes due 2030 (the “notes”). We will pay interest on the notes on each                 and                 , beginning on                 , 2022. The notes will be issued only in registered form in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.

The notes will be our senior unsecured obligations, will be equal in right of payment with all of our other existing and future senior unsecured indebtedness, including our outstanding senior notes, and will be effectively subordinated to all of our secured indebtedness, including the indebtedness under our Credit Agreement (as defined below), to the extent of the value of the collateral securing such secured indebtedness. In addition, the notes will be structurally subordinated to any indebtedness of our subsidiaries that are not guarantors. The obligations under the notes will be fully and unconditionally guaranteed on a senior unsecured basis by our subsidiaries that guarantee our indebtedness under our Credit Agreement, as, and subject to the terms, described under “Description of Notes—The Guarantees”.

We may, at our option, at any time and from time to time, redeem the notes, in whole or in part, prior to their maturity as described herein under “Description of Notes—Optional Redemption.” There are no sinking funds for the notes.

We intend to use the net proceeds from this offering to repay a portion of the borrowings under our Credit Agreement and to fund the tender offers and consent solicitation for or redemption of certain series of our outstanding senior notes, as described herein under “Use of Proceeds.”.

On June 1, 2021, we entered into an Agreement and Plan of Merger (the “Indigo Merger Agreement”) with Indigo Natural Resources LLC (“Indigo”), pursuant to which, and on the terms and subject to the conditions of which, we will acquire Indigo for aggregate consideration of approximately $2.7 billion, consisting of a combination of cash and shares of our common stock and the assumption of certain indebtedness of Indigo, and Indigo will become our wholly owned subsidiary (the “Indigo Merger”). This offering is not contingent on the consummation of the Indigo Merger, and the notes are not subject to any special mandatory redemption in the event the Indigo Merger does not occur. The notes will remain outstanding even if we do not consummate the Indigo Merger.

 

 

Investing in the notes involves risks. Please read “Risk Factors” beginning on page S-22 of this prospectus supplement and on page 5 of the accompanying prospectus, as well as in our Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2021 and June 30, 2021 and in the other documents incorporated by reference in this prospectus supplement.

 

 

 

      Per note     Total      

Public offering price(1)

         %       $            

Underwriting discount

         %       $            

Proceeds, before expenses, to Southwestern Energy Company

            $              

 

 

 

(1)   Plus accrued interest, if any, from                 , 2021.

The notes will be a new issue of securities with no established trading market. We do not intend to apply to list the notes on any securities exchange.

The underwriters expect to deliver the notes in book-entry form only through the facilities of The Depository Trust Company for the accounts of its participants, including Clearstream Banking, société anonyme, and Euroclear Bank SA/NV, as operator of the Euroclear System, against payment in New York, New York on                 , 2021.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

Joint Book-Running Managers

 

BofA Securities   Citigroup   J.P. Morgan
Credit Agricole CIB  

Mizuho Securities

 

MUFG

PNC Capital Markets LLC

 

RBC Capital Markets

 

Truist Securities

Wells Fargo Securities

   

Regions Securities LLC

 

Senior Co-Managers

 

CIBC Capital Markets   Credit Suisse   HSBC   SMBC

Co-Managers

 

Citizens Capital Markets   Fifth Third Securities  

Goldman Sachs & CO. LLC

The date of this prospectus supplement is                  , 2021.


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUPPLEMENT

 

ABOUT THIS PROSPECTUS SUPPLEMENT

     S-ii  

EXTENDED SETTLEMENT

     S-ii  

INCORPORATION BY REFERENCE

     S-iii  

FORWARD-LOOKING STATEMENTS

     S-iv  

MARKET AND INDUSTRY DATA

     S-vi  

NON-GAAP FINANCIAL MEASURES

     S-vii  

PROSPECTUS SUPPLEMENT SUMMARY

     S-1  

THE OFFERING

     S-7  

RISK FACTORS

     S-22  

USE OF PROCEEDS

     S-33  

CAPITALIZATION

     S-34  

DESCRIPTION OF OTHER INDEBTEDNESS

     S-36  

DESCRIPTION OF NOTES

     S-39  

FORM, BOOK-ENTRY PROCEDURES AND  TRANSFER

     S-55  

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     S-58  

UNDERWRITING (CONFLICTS OF INTEREST)

     S-62  

LEGAL MATTERS

     S-68  

EXPERTS 

     S-68  

PROSPECTUS

 

     Page  

ABOUT THIS PROSPECTUS

     1  

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

     2  

THE COMPANY

     4  

RISK FACTORS

     5  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     6  

USE OF PROCEEDS

     8  

DESCRIPTION OF CAPITAL STOCK

     9  

DESCRIPTION OF DEBT SECURITIES AND RELATED GUARANTEES

     13  

DESCRIPTION OF OTHER SECURITIES

     23  

GLOBAL SECURITIES

     24  

PLAN OF DISTRIBUTION

     27  

LEGAL MATTERS

     28  

EXPERTS

     28  

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering. The second part, the accompanying prospectus, including the documents incorporated by reference, provides more general information, some of which may not apply to this offering. The accompanying prospectus was filed as part of our registration statement on Form S-3 (Registration No. 333-238633) with the Securities and Exchange Commission (the “SEC”) on May 22, 2020 as part of a “shelf” registration process and was amended by post-effective amendments filed with the SEC on August 18, 2020 and August 16, 2021. Under the shelf registration process, we may offer to sell debt securities, guarantees of debt securities, preferred or common stock and other securities, from time to time, in one or more offerings in an unlimited amount. Generally, when we refer to this prospectus supplement, we are referring to both parts of this document combined. We urge you to read carefully this prospectus supplement, the accompanying prospectus, the information incorporated by reference, and any free writing prospectus that we may authorize to be delivered or made available to you before buying any of the securities being offered under this prospectus supplement. This prospectus supplement may supplement, update or change information contained in the accompanying prospectus. To the extent that any statement that we make in this prospectus supplement is inconsistent with statements made in the accompanying prospectus or any documents incorporated by reference therein, the statements made in this prospectus supplement will be deemed to modify or supersede those made in the accompanying prospectus and such documents incorporated by reference therein.

Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained or incorporated by reference in this prospectus supplement or the accompanying prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the underwriters are not, making an offer of these securities in any state where the offer or sale is not permitted. You should not assume that the information provided by this prospectus supplement, the accompanying prospectus, any free writing prospectus we may authorize to be delivered or made available to you or the documents incorporated by reference in this prospectus supplement or in the accompanying prospectus is accurate as of any date other than their respective dates or any earlier date as of which such information is given. Our business, financial condition, results of operations and prospects may have changed since those dates.

Before you invest in the notes, you should carefully read the registration statement (including the exhibits thereto) of which this prospectus supplement and the accompanying prospectus form a part, as well as the post-effective amendments thereto, this prospectus supplement, the accompanying prospectus, the documents incorporated by reference into this prospectus supplement and the accompanying prospectus, and any free writing prospectus we may authorize to be delivered or made available to you. The incorporated documents are described in this prospectus supplement under “Incorporation by Reference.”

EXTENDED SETTLEMENT

Delivery of the notes is expected to be made against payment therefor on or about             , 2021, which is the tenth business day following the date of pricing of the notes (such settlement being referred to as “T+10”). Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), trades in the secondary market generally are required to settle in two business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes prior to the second trading day preceding the date on which we deliver the notes to the underwriters for this offering will be required, by virtue of the fact that the notes initially will settle in T+10, to specify an alternate settlement cycle at the time of any such trade to prevent failed settlement and should consult their own advisers.

 

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INCORPORATION BY REFERENCE

The SEC allows us to “incorporate by reference” the information that we file with it, which means that we can disclose important information to you by referring you to other documents. The information incorporated by reference is an important part of this prospectus supplement, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the following documents and all documents that we subsequently file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, until all of the notes that are part of this offering have been sold or this offering has been terminated (other than information that is furnished and not filed):

 

   

Our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021;

 

   

Those portions of our Definitive Proxy Statement on Schedule 14A that was filed on April 8, 2021 and are incorporated by reference into Part III of our Form 10-K for the year ended December 31, 2020;

 

   

Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, filed with the SEC on April 29, 2021 and July 29, 2021, respectively;

 

   

Our Current Reports on Form 8-K filed on January 4, 2021 (Item 5.02 only), May  21, 2021, June  2, 2021, June  9, 2021, July  2, 2021, July  15, 2021 (Item 5.02 only), August  2, 2021, August  10, 2021 and August  16, 2021 and on Form 8-K/A filed on January 22, 2021; and

 

   

The description of our Common Stock contained in our Registration Statement on Form 8-A, dated October 23, 1981, as amended by Amendment No. 1 filed with our Current Report on Form 8-K dated July 8, 1993 and Amendment No.  2 filed with our Current Report on Form 8-K/A dated August  3, 2006 and in Exhibit 4.1 filed with our Annual Report on Form 10-K for the year ended December 31, 2020.

Information that is furnished to the SEC (including information furnished under Item 2.02 or 7.01 of Form 8-K and corresponding information furnished under Item 9.01 or included as an exhibit) shall not be incorporated by reference or deemed to be incorporated by reference into this prospectus supplement or the related registration statement.

 

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FORWARD-LOOKING STATEMENTS

This prospectus supplement, including the documents incorporated by reference, contain certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to future events and anticipated results of operations and business strategies, statements regarding the Indigo Merger, including the anticipated benefits of the Indigo Merger, the anticipated impact of the Indigo Merger on Southwestern’s business and future financial and operating results, the expected amount and timing of synergies from the Indigo Merger, and the anticipated closing date for the Indigo Merger and other aspects of operations or operating results. All statements, other than statements of historical fact, included in this prospectus supplement that address activities, events or developments that Southwestern or Indigo expects, believes or anticipates will or may occur in the future are forward-looking statements. Words and phrases such as “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other similar words can be used to identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. Where, in any forward-looking statement, Southwestern or Indigo expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future performance and involve certain risks, uncertainties and other factors beyond Southwestern’s and Indigo’s control. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in the forward-looking statements. The following important factors and uncertainties, among others, could cause actual results or events to differ materially from those included in this prospectus supplement. These include:

 

   

risks related to the Indigo Merger, including the risk that the Indigo Merger is not consummated on the terms expected or on the anticipated schedule, or at all, potential litigation relating to the Indigo Merger, and the effect of the announcement or pendency of the Indigo Merger on business relationships, operating results, employees, stakeholders and business generally of the parties;

 

   

our ability to realize the expected benefits from acquisitions, including our recently completed Montage Merger (as defined below) and the Indigo Merger (together, the “Mergers”);

 

   

costs in connection with the Mergers;

 

   

integration of operations and results subsequent to the Mergers;

 

   

our ability to consummate the Indigo Merger, the Exchange Offer (as defined herein) and other transactions described herein;

 

   

the timing and extent of changes in market conditions and prices for natural gas, oil and natural gas liquids (“NGLs”) (including regional basis differentials) and the impact of reduced demand for our production and products in which our production is a component due to governmental and societal actions taken in response to the COVID-19 or other pandemic;

 

   

our ability to fund our planned capital investments;

 

   

a change in our credit rating, an increase in interest rates and any adverse impacts from the discontinuation of the London Interbank Offered Rate;

 

   

the extent to which lower commodity prices impact our ability to service or refinance our existing debt;

 

   

the impact of volatility in the financial markets or other global economic factors, including the impact of COVID-19 or other diseases;

 

   

difficulties in appropriately allocating capital and resources among our strategic opportunities;

 

   

the timing and extent of our success in discovering, developing, producing and estimating reserves;

 

   

our ability to maintain leases that may expire if production is not established or profitably maintained;

 

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our ability to transport our production to the most favorable markets or at all;

 

   

availability and costs of personnel and of products and services provided by third parties;

 

   

the impact of government regulation, including changes in law, the ability to obtain and maintain permits, any increase in severance or similar taxes, and legislation or regulation relating to hydraulic fracturing or other drilling and completing techniques, climate and over-the-counter derivatives;

 

   

the impact of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally;

 

   

the effects of weather or power outages;

 

   

increased competition;

 

   

the financial impact of accounting regulations and critical accounting policies;

 

   

the comparative cost of alternative fuels;

 

   

credit risk relating to the risk of loss as a result of non-performance by our counterparties; and

 

   

any other factors listed in the reports we have filed and may file with the SEC.

These and other risks and uncertainties are described under the “Risk Factors” section of this prospectus supplement, and under Part 1, Item 1A., “Risk Factors” and elsewhere in Southwestern’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”), Part 2, Item 1A., “Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 and Part 2, Item 1A., “Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021. In addition, Southwestern may be subject to currently unforeseen risks that may have a materially adverse impact on it. For additional information, see the sections entitled “Risk Factors” and “Where You Can Find More Information”.

Should one or more of the risks or uncertainties described above or elsewhere in this prospectus supplement occur, or should underlying assumptions prove incorrect, Southwestern’s actual results and plans could differ materially from those expressed in any forward-looking statements. Southwestern specifically disclaims all responsibility to update publicly any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

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MARKET AND INDUSTRY DATA

Market and industry data and forecasts included or incorporated by reference in this prospectus supplement have been obtained from independent industry sources as well as from research reports prepared for other purposes. Although we believe these third-party sources to be reliable, we have not independently verified the data obtained from these sources and we cannot assure you of the accuracy or completeness of the data. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements included or incorporated by reference in this prospectus supplement.

 

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NON-GAAP FINANCIAL MEASURES

Pre-tax PV-10 is a non-GAAP financial measure and generally differs from standardized measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. Neither pre-tax PV-10 nor standardized measure represents an estimate of the fair market value of our oil and natural gas properties. We understand that securities analysts use pre-tax PV-10 as one measure of the value of a company’s current proved reserves and to compare relative values among peer companies without regard to income taxes.

Total capitalization is non-GAAP financial measure that is defined as total debt plus total equity.

EBITDA and Adjusted EBITDA also are each a non-GAAP financial measure. EBITDA is defined as net income (loss) plus interest, income tax expense, depreciation, depletion and amortization. Adjusted EBITDA is defined as EBITDA less gains (losses) on sale of assets, gain (loss) on early extinguishment of debt, gains (losses) on unsettled derivatives and (income) loss from equity method investment plus non-cash equity-based compensation, restructuring charges, impairments, merger-related expenses, legal settlements and other one-time charges. Southwestern has included information concerning EBITDA and Adjusted EBITDA because they are used by certain investors as a measure of the ability of a company to service or incur indebtedness and because it is a financial measure commonly used in the energy industry. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, net cash provided by operating activities or other income or cash flow data prepared in accordance with GAAP or as a measure of profitability or liquidity. EBITDA and Adjusted EBITDA, as defined above, may not be comparable to similarly titled measures of other companies. Net income (loss) is a financial measure calculated and presented in accordance with GAAP. For a reconciliation to net income (loss), the most directly comparable GAAP measure, see “Prospectus Supplement Summary-Summary Historical Consolidated Financial Data of Southwestern” and “Prospectus Supplement Summary-Summary Historical Consolidated Financial Data of Indigo”.

 

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PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights information from this prospectus supplement and the accompanying prospectus to help you understand this offering. You should read carefully the entire prospectus supplement, the accompanying prospectus, any free writing prospectus that we may authorize to be delivered or made available to you, and the documents incorporated by reference herein and therein for a more complete understanding of this offering. You should read “Risk Factors” beginning on page S-20 of this prospectus supplement and on page 5 of the accompanying prospectus, as well as in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 for more information about important risks that you should consider before making an investment in the notes.

Unless otherwise indicated or the context requires otherwise, references to “Southwestern,” “the Company,” “we,” “us” and “our” in this prospectus supplement mean Southwestern Energy Company and its direct and indirect subsidiaries on a consolidated basis. As used herein, references in this prospectus supplement to (i) to “pro forma” or “on a pro forma basis,” mean giving pro forma effect to the Indigo Merger and, as applicable, the Montage Merger and certain related transactions, as set forth in the unaudited pro forma financial statements and related notes incorporated in this prospectus supplement by reference, but not this offering or the use of proceeds of this offering or the Exchange Offer, and (ii) “as further adjusted” or “on an as further adjusted basis” mean further adjusting, as set forth under “Capitalization,” to give effect to this offering and the application of the net proceeds therefrom described under “Use of Proceeds” but not the Exchange Offer. In addition, unless we specifically state otherwise, the information in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, does not give effect to the Indigo Merger.

Southwestern Energy Company

Southwestern is an independent energy company engaged in natural gas, oil and natural gas liquids exploration, development and production, which we refer to as “E&P.” We are also focused on creating and capturing additional value through our marketing business, which we refer to as “Marketing.” We conduct most of our businesses through subsidiaries, and we currently operate exclusively in the lower 48 United States.

E&P. Our primary business is the exploration for, and production of, natural gas, oil and NGLs, with our ongoing operations focused on the development of unconventional natural gas reservoirs located in Pennsylvania, Ohio and West Virginia. Our operations in northeast Pennsylvania, which we refer to as “Northeast Appalachia,” are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale. Our operations in West Virginia, Ohio and southwest Pennsylvania, which we refer to as “Southwest Appalachia,” are focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas and oil reservoirs. Collectively, we refer to our properties in Pennsylvania, Ohio and West Virginia as “Appalachia.” We also have drilling rigs located in Appalachia, and we provide certain oilfield products and services, principally serving our E&P operations through vertical integration.

On November 13, 2020, we closed on our Agreement and Plan of Merger with Montage Resources Corporation (“Montage”) pursuant to which Montage merged with and into Southwestern, with Southwestern continuing as the surviving company (the “Montage Merger”). The Montage Merger expanded our footprint in Appalachia by supplementing our Northeast Appalachia and Southwest Appalachia operations and by expanding our operations into Ohio.

Marketing. Our marketing activities capture opportunities that arise through the marketing and transportation of natural gas, oil and NGLs primarily produced in our E&P operations.

 

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Our principal executive offices are located at 10000 Energy Drive, Spring, Texas 77389-4954 and our telephone number is (832) 796-1000. Our website is www.swn.com. Any references in this prospectus supplement and the accompanying prospectus to our website are inactive textual references only, and the information contained on or that can be accessed through our website (except for the SEC filings expressly incorporated by reference herein) is not incorporated in, and is not a part of, this prospectus supplement or the accompanying prospectus, and you should not rely on any such information in connection with making an investment in the notes.

Our Business Strategy

We aim to deliver sustainable and industry-leading returns through excellence in exploration and production and marketing performance from our extensive resource base and targeted expansion of our activities and assets along the hydrocarbon value chain. Our formula embodies our corporate philosophy and guides how we operate our business:

 

 

LOGO

Our formula, “The Right People doing the Right Things, wisely investing the cash flow from our underlying Assets will create Value+,” also guides our business strategy. We always strive to attract and retain strong talent, to work safely and act ethically with unwavering vigilance for the environment and the communities in which we operate, and to creatively apply technical skills, which we believe will grow long-term value for our shareholders. The arrow in our formula is not a straight line: we acknowledge that factors may adversely affect quarter-by-quarter results, but the path over time points to value creation.

In applying these core principles, we concentrate on:

 

   

Financial Strength. We are committed to rigorously managing our balance sheet and financial risks. We budget and dynamically manage our operations in order to ensure that our investments do not exceed our net cash flow from operations (net of changes in working capital) in each calendar year, protect our projected cash flows through hedging and continue to maintain a strong balance sheet with ample liquidity.

 

   

Increasing Margins. We apply strong technical, operational, commercial and marketing skills to reduce costs, improve the productivity of our wells and pursue commercial arrangements to extract greater value. We believe our demonstrated ability to maximize margins, especially by leveraging the scale of our large assets, gives us a competitive advantage as we move into the future.

 

   

Exercising Capital Allocation Discipline. We continually assess market conditions in order to adjust our capital allocation decisions to maximize shareholder returns. This allocation process includes consideration of multiple alternatives including but not limited to the development of our natural gas and oil assets, strategic mergers or acquisitions, reducing debt and returning capital to our shareholders.

 

   

Operational Value Creation. We prepare an economic analysis for our drilling programs and other investments based upon the expected Internal Rate of Return. We target projects that generate the highest returns in excess of our cost of capital. This disciplined investment approach governs our investment decisions at all times, including low price commodity markets.

 

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Dynamic Management of Assets Throughout Life Cycle. We own large-scale, long-life assets in various phases of development. In early stages, we ramp up development through technical, operational and commercial skills, and as they grow we look for ways to maximize their value through efficient operating practices along with applying our commercial and marketing expertise.

 

   

Deepening Our Inventory. We continue to expand the inventory of properties that we can develop profitably by converting our extensive resources into proved reserves, targeting additions whose productivity largely has been demonstrated and improving efficiencies in production.

 

   

The Hydrocarbon Value Chain. We believe that our vertical integration enhances our margins and provides us competitive advantages. For example, we own and operate drilling rigs and well stimulation equipment and have invested in a water transportation project in West Virginia. These activities provide operational flexibility, lower our well costs, minimize the risk associated with the lack of availability of these resources from third parties and capture additional value over time.

 

   

Technological Innovation. Our people constantly search for the next revolutionary technology and other operational advancements to capture greater value in unconventional hydrocarbon resource development. These developments—whether single, step-changing technologies or a combination of several incremental ones—can reduce finding and development costs and thus increase our margins.

 

   

Environmental Solutions and Policy Formation. We are a leader in identifying and implementing innovative solutions to unconventional hydrocarbon development to minimize the environmental and community impacts of our activities. We work extensively with governmental, non-governmental and industry stakeholders to develop responsible and cost-effective programs. We demonstrate that a company can operate responsibly and profitably, putting us in a better position to comply with new regulations as they evolve.

Recent Developments

Pending Acquisition of Indigo Natural Resources LLC

On June 1, 2021, we entered into the Indigo Merger Agreement with Indigo, one of the largest natural gas producers in the Haynesville Shale and the third largest private natural gas producer in the U.S. The holders of Indigo’s membership units include a number of investment firms, including Yorktown Partners LLC, Indigo’s largest sponsor. Pursuant to the terms of the Indigo Merger Agreement, Indigo will merge with and into a subsidiary of the Company, with Indigo surviving the merger, and the outstanding equity interests in Indigo will be cancelled and converted into the right to receive (i) $400.0 million in cash (subject to adjustment as provided in the Indigo Merger Agreement), and (ii) 339,270,568 shares (subject to adjustment as provided in the Indigo Merger Agreement) of Southwestern common stock (the “Stock Consideration”), which shares would represent approximately 33% of the outstanding shares of common stock of Southwestern after giving effect to the Indigo Merger, and had an aggregate dollar value equal to approximately $1.6 billion based on the volume weighted average sales price as traded on the New York Stock Exchange of such shares calculated for the 30-day trading day period ending on May 28, 2021. The Indigo Merger Agreement provides that, at least ten days prior to the closing of the Indigo Merger, Southwestern can request that Indigo merges its subsidiaries into Indigo prior to the closing of the Indigo Merger (the “Indigo Subsidiary Consolidation”). Southwestern requested Indigo complete the Indigo Subsidiary Consolidation prior to the closing of the Indigo Merger.

The Indigo Merger is expected to close in September 2021, subject to, among other things, regulatory approvals, customary closing conditions and the approval by Southwestern’s shareholders of the issuance of additional Southwestern common stock in connection with the Indigo Merger at the August 27, 2021 special meeting of Southwestern’s shareholders. However, we cannot assure you that the Indigo Merger will be completed within the time frame anticipated or at all. See “Risk Factors—Risks Related to the Indigo Merger—There can be no assurances when or if the Indigo Merger will be completed.”

 

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As of June 30, 2021, Indigo had outstanding $700 million aggregate principal amount of the 5.375% Senior Notes due 2029 issued by Indigo (the “Indigo Notes”) and $35 million outstanding under its senior secured revolving credit facility (the “Indigo Revolver”). In connection with the closing of the Indigo Merger, we intend to repay in full any borrowings outstanding under, and terminate, the Indigo Revolver. We intend to fund the cash consideration in the Indigo Merger and the repayment of the Indigo Revolver from a combination of cash on hand and borrowings under our Credit Agreement. We have commenced an offer to exchange all of the Indigo Notes for a new series of our senior notes, together with cash payments in certain circumstances, as further described under “—Exchange Offer for Indigo Notes”. Any Indigo Notes that are not exchanged in the Exchange Offer will remain outstanding as obligations of Indigo following the Indigo Merger.

We prepare our financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The accounting guidance for business combinations requires the use of the acquisition method of accounting for the Indigo Merger, which requires the judgment of the acquirer, the total consideration paid, the acquisition date, the fair value of assets and liabilities of the acquiree and the measurement of a gain or goodwill, if any. We will be treated as the acquirer for accounting purposes. As of the date of this offering, we have not completed the valuation study necessary to arrive at the required final estimates of the fair value of the Indigo assets to be acquired and the liabilities to be assumed and the related allocations of the consideration paid nor have we identified all adjustments necessary to conform Indigo’s accounting policies to our accounting policies. In addition, the value of the consideration to be paid by Southwestern upon the consummation of the Indigo Merger will be determined based on the closing price of Southwestern common stock on the closing date of the Indigo Merger. While we are still assessing the final accounting implications of the Indigo Merger, currently we expect any difference between the consideration paid (i.e., the market value of the stock issued and the liabilities assumed) and the fair value of the assets acquired at closing would be booked as a gain in the case of a bargain purchase or as goodwill. A final determination of the fair value of Indigo’s assets and liabilities, including potential intangible assets with both indefinite or finite lives, will be based on the actual net tangible and intangible assets and liabilities of Indigo that exist as of the closing date of the Indigo Merger and, therefore, cannot be made prior to the consummation of the Indigo Merger.

The Indigo Assets

Indigo is an independent natural gas company focused on the development and production of reserves from its large, contiguous acreage position in North Louisiana. In May of 2021, Indigo sold its Cotton Valley assets and as such all references to operating statistics of Indigo in this section exclude those interests. As of June 1, 2021, Indigo owned approximately 275,000 net effective acres in DeSoto, Sabine, Natchitoches and Red River Parishes in Louisiana. This includes approximately 149,000 net acres in the Haynesville Shale and approximately 126,000 net acres in the Bossier Shale.

For the six months ended June 30, 2021 and the year ended December 31, 2020, and adjusted for the sale of Cotton Valley assets, Indigo’s average daily net production from its properties was approximately 898 MMcf/d and 916 MMcf/d, respectively.

Indigo operated 326 gross producing unconventional wells as of December 31, 2020 with an average working interest of approximately 93%. Based on information provided by Indigo and adjusted for the Cotton Valley assets sold in May 2021, as of December 31, 2020, Indigo had estimated proved developed reserves of 1,013 Bcfe, substantially all of which was natural gas. In addition, Indigo’s estimated 2,076 Bcfe of proved undeveloped reserves as of December 31, 2020 were based on Indigo’s development plans and may not necessarily reflect our development plans for these properties. Therefore, upon closing of the Indigo Merger, the proved undeveloped reserves we book may differ. Based on analysis by our management, we estimate that Indigo owned approximately 1,090 remaining locations as of December 31, 2020. We expect that the Indigo inventory will compete for investment within our existing portfolio, with current plans to maintain activity on the acquired acreage.

 

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Tender Offers and Consent Solicitation

On August 16, 2021, we commenced cash tender offers (the “Tender Offers”) to purchase any and all of our 7.500% Senior Notes due 2026 (the “2026 Notes”) and up to $25 million maximum aggregate principal amount of our 4.950% Senior Notes due 2025 (the “2025 Notes” and, together with the 2026 Notes, the “Tender Securities”).

As part of the Tender Offers, we are also soliciting consents (the “Consent Solicitation”) from the holders of the 2026 Notes for certain proposed amendments to the applicable indenture that would, among other things, eliminate restrictive covenants and certain related events of default contained in the indenture governing the 2026 Notes and shorten the notice period for the optional redemption of the 2026 Notes (the “Proposed Amendments”). Adoption of the Proposed Amendments with respect to the 2026 Notes requires the consent of the holders of at least a majority in aggregate principal amount of the outstanding 2026 Notes.

Total consideration offered in the Tender Offers is $1,060 per $1,000 principal amount for the 2026 Notes and $1,095 per $1,000 principal amount for the 2025 Notes, in each case plus accrued interest to, but excluding, the applicable settlement date. The total consideration for the Tender Securities includes a premium of $30 (the “Early Tender Premium”) for each $1,000 principal amount of Tender Securities that are validly tendered (and not validly withdrawn) at or prior to an early tender deadline on August 27, 2021. Holders that validly tender their Tender Securities subsequent to the early tender deadline but prior to the expiration date of the Tender Offers will not receive the Early Tender Premium. The Tender Offers are scheduled to expire on September 13, 2021.

The Tender Offers and Consent Solicitation are being made pursuant to a separate offer to purchase, dated August 16, 2021 (the “Offer to Purchase”), sent to holders of Tender Securities. Each Tender Offer may be amended, extended or terminated individually. Subject to applicable law, we reserve the right to increase or decrease the maximum aggregate purchase price and/or amend other terms or conditions of the Tender Offers, including the total consideration and Early Tender Premium. Holders of the Tender Securities are not obligated to tender their Tender Securities to us pursuant to the Tender Offers. Accordingly, we cannot assure you that any of the Tender Securities will be purchased in the Tender Offers.

If the conditions to the Tender Offers are satisfied but less than all 2026 Notes are purchased in the Tender Offers, we intend to redeem, in accordance with the applicable indenture, any 2026 Notes that are not purchased in the Tender Offers, at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption.

This prospectus supplement is not an offer to purchase or a notice of redemption of any of the Tender Securities. Our obligation to accept for purchase and to pay for Tender Securities in the Tender Offers is subject to the satisfaction or, as applicable, waiver of a number of conditions, including completion of satisfactory financing. This offering, however, is not conditioned on completion of, or any minimum amount of Tender Securities being tendered in, the Tender Offers. There can be no assurance as to the amount of Tender Securities that will be tendered in the Tender Offers or that we will consummate the Tender Offers or the Consent Solicitation.

We intend to use a portion of the net proceeds from this offering to pay the consideration for Tender Securities validly tendered (and not validly withdrawn) and accepted for purchase in the Tender Offers and to redeem any 2026 Notes not purchased in the Tender Offers. However, to the extent we have net proceeds from this offering remaining, we may choose to repay other indebtedness. See “Use of Proceeds.”

 

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Exchange Offer for Indigo Notes

On August 2, 2021, we commenced an exchange offer (the “Exchange Offer”) to exchange any and all of the Indigo Notes held by eligible holders for up to $700 million aggregate amount of our 5.375% Senior Notes due 2029 and cash payments in certain circumstances, subject to the consummation of the Indigo Merger and certain other conditions. As part of the Exchange Offer, we are also soliciting consents (the “Indigo Consent Solicitation”) from the holders of Indigo Notes for certain proposed amendments to the Indigo Notes that would among other things, eliminate substantially all of the restrictive covenants, the requirement for Indigo’s subsidiaries to make guarantees in the future and certain events of default contained in the indenture governing the Indigo Notes (the “Proposed Indigo Amendments”). The Proposed Indigo Amendments with respect to the Indigo Notes requires the consent of the holders of at least a majority in aggregate principal amount of the outstanding Indigo Notes. As of the Indigo Early Tender Deadline (as defined below), $694,960,000 aggregate principal amount of the Indigo Notes (representing approximately 99.28% of the outstanding Indigo Notes) had been validly tendered and not withdrawn in the Exchange Offer and may no longer be withdrawn except as required by law. As a result, the Proposed Indigo Amendments have received the requisite consents, and Southwestern intends to cause Indigo to enter into a supplemental indenture with the trustee. The Proposed Amendments are expected to become operative upon completion of the Exchange Offer.

Total consideration offered in the Exchange Offer is (i) $1,000 principal amount of our new 5.375% Notes due 2029 and $5.00 cash per $1,000 of Indigo Notes for the Indigo Notes that were tendered and not validly withdrawn at or prior to the early tender deadline on August 13, 2021 (the “Indigo Early Tender Deadline) and accepted for exchange (the “Indigo Early Tender Premium”) and (ii) $970 principal amount of our new 5.375% Notes due 2029 per $1,000 of Indigo Notes for Indigo Notes that are tendered after the Indigo Early Tender Deadline but at or prior to the expiration date, not validly withdrawn at or prior to the withdrawal deadline (as applicable) and accepted for exchange. The Exchange Offer is scheduled to expire on September 1, 2021.

The Exchange Offer and the Indigo Consent Solicitation are being made pursuant to a private offering memorandum and consent solicitation statement dated August 2, 2021 (the “Offering Memorandum”), sent to holders of the Indigo Notes. Subject to applicable law, we may amend the terms of the Exchange Offer or waive conditions to it.

This prospectus supplement is not an offer to exchange any of the Indigo Notes in the Exchange Offer. Our obligation to exchange the Indigo Notes in the Exchange Offer is subject to consummation of the Indigo Merger and certain other conditions but is not subject to any minimum amount of Indigo Notes being tendered in the Exchange Offer. Moreover, this offering is not conditioned on completion of, or any minimum amount of Indigo Notes being tendered in the Exchange Offer. There can be no assurance as to the amount of Indigo Notes that will be tendered in the Exchange Offer or that we will consummate the Exchange Offer or the Indigo Consent Solicitation.

 

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THE OFFERING

In this section, the terms “we,” “our,” “us” and “Southwestern Energy Company” refer solely to Southwestern Energy Company and not its subsidiaries.

 

Issuer

Southwestern Energy Company

 

Securities offered

$1,000,000,000 aggregate principal amount of        % Senior Notes due 2030 (the “notes”). The notes will be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.

 

Maturity date

The notes will mature on            , 2030.

 

Interest

Interest will accrue on the notes at        % per year, accruing from             , 2021.

 

Interest payment dates

Interest on the notes will be paid on             and             of each year, beginning on             , 2022.

 

Use of proceeds

We expect to receive net proceeds from this offering of approximately $            million after deducting the underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to fund the Tender Offers and Consent Solicitation, to redeem any 2026 Notes not purchased in the Tender Offers, to repay borrowings under the Credit Agreement and the remainder, if any, to repay other indebtedness or for general corporate purposes, as further described below under “Use of Proceeds.” See also for more information.

 

Risk factors

Investing in the notes involves risks. Please read “Risk Factors” beginning on page S-20 of this prospectus supplement and on page 5 of the accompanying prospectus, as well as in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, Part 2, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 and Part 2, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 for more information about important risks that you should consider before making an investment in the notes.

 

Priority

The notes will be

 

   

our senior unsecured debt obligations;

 

   

equal in right of payment with all of our other present and future senior unsecured indebtedness, including our outstanding senior notes;

 

   

effectively subordinated to any of our secured indebtedness, including the indebtedness under our Credit Agreement, to the extent of the value of the collateral securing such indebtedness;

 

   

guaranteed by the guarantors on a senior unsecured basis; and

 

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structurally subordinated to any indebtedness of subsidiaries that are not guarantors.

 

  As of June 30, 2021, we had total outstanding consolidated debt of $3,021 million. As of June 30, 2021, on an as further adjusted basis, our total outstanding consolidated debt would have been $4,179 million, including $664 million of secured indebtedness, and we would have had $1,103 million of available borrowing capacity under our Credit Agreement.

 

  The indenture places no limitation on the amount of additional senior unsecured indebtedness that we may incur, and such indebtedness would be equal in right of payment with the notes. In addition, although the covenants in the indenture limit the amount of indebtedness that may be secured by our principal properties and by equity interests in certain of our subsidiaries without securing the notes on at least an equal and ratable basis, we will be able to incur additional secured indebtedness without so securing the notes. We expect from time to time to incur additional indebtedness constituting senior indebtedness, some or all of which may be secured indebtedness.

 

Guarantees

The notes will be fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of our direct and indirect, wholly owned subsidiaries that guarantee our Credit Agreement, as, and subject to the terms described under “Description of Notes—The Guarantees”. These subsidiaries also guarantee our outstanding senior notes. Subject to completion of the Exchange Offer and effectiveness of the Proposed Indigo Amendments, Indigo is expected to become a guarantor of our Credit Agreement, the notes offered hereby and our other outstanding senior notes including the senior notes issued in exchange for the Indigo Notes in the Exchange Offer, following the consummation of the Indigo Merger. No assurance can be given as to whether these conditions will be satisfied. See “—Exchange Offer for Indigo Notes” above.

 

  Each guarantee of the notes will be:

 

   

that guarantor’s senior unsecured debt obligation;

 

   

equal in right of payment with all of that guarantor’s other present and future senior unsecured indebtedness, including that guarantor’s guarantee of our outstanding senior notes;

 

   

effectively subordinated to any of that guarantor’s secured indebtedness, including that guarantor’s obligations under our Credit Agreement, to the extent of the value of the collateral securing such indebtedness; and

 

   

structurally subordinated to any indebtedness of subsidiaries of that guarantor that are not also guarantors.

 

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  In the event of insolvency, liquidation, reorganization, dissolution or other winding up of any subsidiary that is not a guarantor of the notes, all of that subsidiary’s creditors (including trade creditors) would be entitled to payment in full out of that subsidiary’s assets before we or any of our creditors would be entitled to any payment. As of June 30, 2021, our non-guarantor subsidiaries held less than 1% of our total assets and had no material liabilities.

 

Change of control offer

If we experience a change of control event, as defined below, we will be required to make an offer to purchase the notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date. See “Description of Notes—Change of Control Event.”

 

Optional redemption

The notes will be redeemable by us at our option in whole or in part on or after             , 2025 at the redemption prices specified herein, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to             , 2025, the notes will be redeemable by us at our option in whole or in part at a make-whole redemption price specified herein.

 

  See “Description of Notes—Optional Redemption.”

 

Covenants

We will issue the notes as a new series of debt securities under an indenture, to be dated as of the closing date of this offering, between us and Regions Bank, as trustee, as supplemented by a supplemental indenture thereto to be entered into on the closing date of this offering by and among us, the guarantors party thereto and the trustee. The indenture will contain covenants for your benefit. These covenants restrict our ability, and our ability to permit our subsidiaries, with certain exceptions, to incur debt secured by liens and to engage in sale and leaseback transactions. These covenants also restrict our and the guarantors’ ability, with certain exceptions, to merge or consolidate with another entity. See “Description of Notes—Certain Covenants.”

 

Form, delivery and clearance

The notes will be represented by one or more global notes registered in the name of The Depository Trust Company (“DTC”), or its nominee. Beneficial interests in the notes will be evidenced by, and transfers thereof will be effected only through, records maintained by participants in DTC.

 

Trustee

Regions Bank

 

Governing law

New York

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SOUTHWESTERN

The following information as of December 31, 2020 and 2019, and for each of the years in the three-year period ended December 31, 2020, has been derived from our audited consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, which is incorporated by reference into this prospectus supplement. The following information as of December 31, 2018 has been derived from our audited consolidated financial statements and accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, which is not incorporated by reference into this prospectus supplement. The following information as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 have been derived from our unaudited consolidated financial statements contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, which is incorporated by reference into this prospectus supplement. The following information as of June 30, 2020 has been derived from our unaudited consolidated financial statements contained in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which is not incorporated by reference into this prospectus supplement. The following information is only a summary and does not provide all of the information contained in our financial statements.

The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments necessary for a fair statement of the information set forth therein. The results of interim periods are not necessarily indicative of results that may be expected for the full year or any future periods.

In addition, the following information includes the results of Montage from November 13, 2020, the closing date of the Montage Merger. As a result, the comparability of the periods ended June 30, 2021 and December 31, 2020 to prior periods could be impacted as a result of the Montage Merger.

 

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     Six Months
Ended June  30,
    Year Ended December 31,  
     2021     2020     2020     2019     2018  
     (in millions)  

Financial Review

          

Operating revenues:

          

Exploration and production

   $ 1,409     $ 555     $ 1,348     $ 1,703     $ 2,525  

Marketing

     1,980       937       2,145       2,850       3,745  

Intersegment revenues

     (1,267     (490     (1,185     (1,515     (2,408
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,122       1,002       2,308       3,038       3,862  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

          

Marketing purchases

     689       449       946       1,320       1,229  

Operating and general and administrative expenses

     581       433       934       886       994  

(Gain) loss on sale of operating assets, net

                       2       (17

Merger-related expenses

     4             41              

Restructuring charges

     7       12       16       11       39  

Depreciation, depletion and amortization

     196       197       357       471       560  

Impairments

           2,134       2,830       16       171  

Taxes, other than income taxes

     51       23       55       62       89  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,528       3,248       5,179       2,768       3,065  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     594       (2,246     (2,871     270       797  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

     61       41       94       65       124  

Gain (loss) on derivatives

     (1,062     230       224       274       (118

Gain (loss) on early extinguishment of debt

           35       35       8       (17

Other income (loss), net

           1       1       (7      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (529     (2,021     (2,705     480       538  

Provision (benefit) for income taxes:

          

Current

           (2     (2     (2     1  

Deferred

           408       409       (409      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           406       407       (411     1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (529   $ (2,427   $ (3,112   $ 891     $ 537  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

   $ 617     $ 254     $ 528     $ 964     $ 1,223  

Net cash provided by (used in) investing activities

   $ (492   $ (470   $ (881   $ (1,045   $ 359  

Net cash provided by (used in) financing activities

   $ (136   $ 221     $ 361     $ (115   $ (2,297

Capitalization

          

Total debt

   $ 3,021     $ 2,440     $ 3,150     $ 2,242     $ 2,318  

Total equity

     (18     823       497       3,246       2,362  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization(1)

   $ 3,003     $ 3,263     $ 3,647     $ 5,488     $ 4,680  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,394     $ 4,555     $ 5,160     $ 6,717     $ 5,797  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Total capitalization is a non-GAAP financial measure that is defined as total debt plus total equity.

 

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Non-GAAP Financial Measures of Southwestern

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2021     2020     2020  
     (in millions)  

Net income (loss)

   $ (529   $ (2,427   $ (3,112

Add back (deduct):

      

Interest expense

     61       41       94  

Income tax expense

           406       407  

Depreciation, depletion and amortization

     196       197       357  

Merger-related expenses

     4             41  

Impairments

           2,134       2,830  

Restructuring charges

     7       12       16  

(Gain) loss on unsettled derivatives

     941       (17     138  

(Gain) loss on early extinguishment of debt

           (35     (35

Legal settlement charges

                 1  

Gain on sale of assets

                  

(Income) loss from equity method investment

                  

Other

           (1     2  

Stock-based compensation expense

     2       2       3  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     682       312       742  
  

 

 

   

 

 

   

 

 

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF INDIGO

The following information as of December 31, 2020 and 2019, and for each of the years in the two-year period ended December 31, 2020, has been derived from Indigo’s audited consolidated financial statements and accompanying notes contained in our Current Report on Form 8-K filed on July 2, 2021, which is incorporated by reference into this prospectus supplement. The following information as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 have been derived from Indigo’s unaudited consolidated financial statements contained in our Current Report on Form 8-K filed on August 10, 2021, which is incorporated by reference into this prospectus supplement. The following information is only a summary and does not provide all of the information contained in Indigo’s financial statements.

The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of Indigo’s management, include all adjustments necessary for a fair statement of the information set forth therein. The results of interim periods are not necessarily indicative of results that may be expected for the full year or any future periods.

 

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     Six Months
Ended June 30,
     Year Ended December 31,  
     2021     2020      2020      2019  
     (in thousands, except unit amounts)  

Financial Review

          

Revenues and Other Operating Income:

          

Natural gas, NGL and oil revenue

   $ 468,954     $ 306,479      $ 717,878      $ 851,833  

(Loss) gain on derivative instruments

     (305,206     86,581        2,214        266,438  

Other

     76,016       5,496        47,721        18,205  
  

 

 

   

 

 

    

 

 

    

 

 

 
     239,764       398,556        767,813        1,136,476  
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating expenses:

          

Lease operating expense, excluding ad valorem taxes

     37,043       50,655        92,988        99,631  

Gathering and transportation expense

     117,835       91,550        210,628        162,500  

Ad valorem taxes

     2,831       4,197        7,887        7,528  

Severance taxes, net of refunds received

     6,277       9,282        15,212        19,941  

Other operating costs, net

     71,794       3,014        46,414        11,859  

Exploration costs

     346       386        792        933  

Depreciation, depletion and amortization

     223,069       229,289        485,500        381,673  

Impairment

     25,672       3,976        5,149        4,657  

General and administrative expenses

     28,181       26,015        51,496        57,070  

Loss (gain) on sale of assets

     622,822       (15      (321      (472
  

 

 

   

 

 

    

 

 

    

 

 

 

Total operating expenses

     1,135,870       418,349        915,745        745,320  
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (896,106     (19,793      (147,932      391,156  
  

 

 

   

 

 

    

 

 

    

 

 

 

Other income (expense):

          

Interest and other financing expense

     (18,638     (17,945      (34,766      (68,980

Income (loss) from equity method investment in midstream joint venture

     (7,976     (6,848      184,161        590,860  

Gain (loss) on extinguishment of debt

     (33,886     1,906        1,906        (30,182

Other, net

     477       66        211        287  
  

 

 

   

 

 

    

 

 

    

 

 

 

Total other expense

     (60,023     (22,821      151,512        491,985  
  

 

 

   

 

 

    

 

 

    

 

 

 

Pretax (loss) income

     (956,129     (42,614      3,580        883,141  
  

 

 

   

 

 

    

 

 

    

 

 

 

State income tax (expense) benefit

     (26     181        179        265  
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income

     (956,155     (42,433      3,759        883,406  
  

 

 

   

 

 

    

 

 

    

 

 

 

Preferred dividends

           (10,964      (14,736      (21,109
  

 

 

   

 

 

    

 

 

    

 

 

 

Accretion of discount on preferred equity

           (2,770      (3,727      (5,391
  

 

 

   

 

 

    

 

 

    

 

 

 

Preferred tax distributions

           (4,180      (4,180       
  

 

 

   

 

 

    

 

 

    

 

 

 

Loss on redemption of preferred equity

                  (28,026       
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income attributable to members’ common equity

   $ (956,155   $ (60,347    $ (46,910    $ 856,906  
  

 

 

   

 

 

    

 

 

    

 

 

 

Net cash provided by operating activities

   $ 281,213     $ 277,411      $ 489,300      $ 644,161  

Net cash provided by (used in) investing activities

   $ (165,640   $ (305,757    $ (221,782    $ 110,189  

Net cash used in financing activities

   $ (125,090   $ (108,597    $ (369,155    $ (637,953

Capitalization

          

Total long-term debt

   $ 724,389        $ 779,414      $ 637,312  

Total equity (Preferred equity and Members’ common equity)

     896,576          1,908,117        2,218,750  
  

 

 

      

 

 

    

 

 

 

Total capitalization(1)

   $ 1,620,965        $ 2,687,531      $ 2,856,062  
  

 

 

      

 

 

    

 

 

 

Total assets

   $ 2,207,952        $ 3,036,998      $ 3,335,000  
  

 

 

      

 

 

    

 

 

 

 

(1)   Total capitalization is a non-GAAP financial measure that is defined as total debt plus total equity.

 

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Non-GAAP Financial Measures of Indigo

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
         2021             2020         2020  
     (in millions)  

Net income (loss)

   $ (956   $ (42   $ 4  

Add back (deduct):

      

Interest expense

     19       18       35  

Income tax expense

                  

Depreciation, depletion and amortization

     223       229       486  

Merger-related expenses

     3              

Impairments

     25       4       5  

Restructuring charges

                  

(Gain) loss on unsettled derivatives

     297       53       199  

(Gain) loss on early extinguishment of debt

     34       (2     (2

Legal settlement charges

                  

Loss on sale of assets

     623              

(Income) loss from equity method investment

     8       7       (184

Other

                 1  

Equity-based compensation expense

     5       6       11  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     281       273       555  
  

 

 

   

 

 

   

 

 

 

 

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SUMMARY HISTORICAL RESERVE AND OPERATING DATA OF SOUTHWESTERN

The following table provides an overall and categorical summary of our estimated natural gas, oil and NGL reserves, as of year-end 2020 based on average year prices, and our well count, net acreage and PV-10 as of December 31, 2020, and sets forth 2020 annual information related to production and capital investments for each of our operating areas:

 

     Appalachia              
     Northeast     Southwest     Other(1)     Total  

Estimated proved reserves(2):

        

Natural gas (Bcf):

        

Developed

     3,668       2,674             6,342  

Undeveloped

     1,248       1,591             2,839  
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,916       4,265             9,181  

Crude oil (MMBbls):

        

Developed

           33.5       0.1       33.6  

Undeveloped

           24.5             24.5  
  

 

 

   

 

 

   

 

 

   

 

 

 
           58.0       0.1       58.1  

Natural gas liquids (MMBbls):

        

Developed

           276.5             276.5  

Undeveloped

           133.6             133.6  
  

 

 

   

 

 

   

 

 

   

 

 

 
           410.1             410.1  

Total proved reserves (Bcfe)(3):

        

Developed

     3,668       4,534       1       8,203  

Undeveloped

     1,248       2,539             3,787  
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,916       7,073       1       11,990  
  

 

 

   

 

 

   

 

 

   

 

 

 

Percent of total

     41     59         100

Percent proved developed

     75     64     100     68

Percent proved undeveloped

     25     36     0     32

Production (Bcfe)

     473       407             880  

Capital investments (in millions)(4)

   $ 362     $ 510     $ 27     $ 899  

Total gross producing wells(5)

     744       1,833       14       2,591  

Total net producing wells

     668       1,521       11       2,200  

Total net acreage(6)

     217,296       571,922       22,001       811,219  

Net undeveloped acreage(6)

     89,086       425,702       9,764       524,552  

PV-10:

        

Pre-tax (in millions)(7)(8)

   $ 876     $ 974     $ (3   $ 1,847  

PV of taxes (in millions)(7)

                        
  

 

 

   

 

 

   

 

 

   

 

 

 

After-tax (in millions)(7)(8)

   $ 876     $ 974     $ (3   $ 1,847  
  

 

 

   

 

 

   

 

 

   

 

 

 

Percent of total

     47     53     0     100

Percent operated(9)

     98     100     97     97

 

(1)   Other reserves and acreage consists primarily of properties in Colorado.
(2)   Our estimated proved reserves were determined in accordance with SEC rules and used a 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December for the year 2020. For oil and NGL volumes, the SEC benchmark average WTI spot price of $39.57 per barrel for December 31, 2020 is then adjusted for quality, transportation fees and market differentials. For gas volumes, the SEC benchmark average NYMEX Henry Hub spot price of $1.98 per MMBtu for December 31, 2020 is then adjusted for energy content, transportation fees and market differentials. See “Risk Factors—Natural gas, oil and NGL prices greatly affect our revenues and thus profits, liquidity, growth, ability to repay our debt and the value of our assets.” in our Annual Report on Form 10-K for the year ended December 31, 2020.

 

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(3)   We have no reserves from synthetic gas, synthetic oil or nonrenewable natural resources intended to be upgraded into synthetic gas or oil. We used standard engineering and geoscience methods, or a combination of methodologies in determining estimates of material properties, including performance and test date analysis, offset statistical analogy of performance data, volumetric evaluation, including analysis of petrophysical parameters (including porosity, net pay, fluid saturations (i.e., water, oil and gas) and permeability) in combination with estimated reservoir parameters (including reservoir temperature and pressure, formation depth and formation volume factors), geological analysis, including structure and isopach maps and seismic analysis, including review of 2-D and 3-D data to ascertain faults, closure and other factors.
(4)   Other capital investments includes $9 million related to our water infrastructure project, $16 million related to our E&P service companies and $2 million related to other developmental activities.
(5)   Excludes 587 wells in Northeast Appalachia and 99 wells in Southeast Appalachia in which we only have an overriding royalty interest. These wells were included in the December 31, 2020 reserves calculation.
(6)   Excludes exploration licenses for 2,518,519 net acres in New Brunswick, Canada, which have been subject to a moratorium since 2015. Our exploration licenses expire, unless extended, on March 16, 2026.
(7)   Pre-tax PV-10 (a non-GAAP measure) is one measure of the value of a company’s proved reserves that we believe is used by securities analysts to compare relative values among peer companies without regard to income taxes. The reconciling difference in pre-tax PV-10 and the after-tax PV-10, or standardized measure, is the discounted value of future income taxes on the estimated cash flows from our proved natural gas, oil and NGL reserves. Our existing tax attributes, including net operating losses and remaining depreciable tax basis related to our natural gas and oil properties, more than offset our future net operating income, resulting in no tax effect to our PV-10 calculation for the year ended December 31, 2020.
(8)   Includes future asset retirement obligations outside of Appalachia.
(9)   Based upon pre-tax PV-10 of proved developed producing activities.

The following table sets forth information for the six months ended June 30, 2021 related to production for each of our operating areas:

 

Production volumes:

   For the six months
ended June 30, 2021
 

Natural Gas (Bcf)

  

Northeast Appalachia

     241  

Southwest Appalachia

     192  
  

 

 

 

Total

     433  

Oil (MBbls)

  

Southwest Appalachia

     3,484  

Other

     9  
  

 

 

 

Total

     3,493  

NGL (MBbls)

  

Southwest Appalachia

     15,242  

Other

     2  
  

 

 

 

Total

     15,244  

Production volumes by area: (Bcfe)

  

Northeast Appalachia

     241  

Southwest Appalachia

     304  
  

 

 

 

Total

     545  
  

 

 

 

Production percentage: (Bcfe)

  

Natural gas

     79

Oil

     4

NGL

     17

 

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SUMMARY HISTORICAL RESERVE AND OPERATING DATA OF INDIGO

The following table presents Indigo’s estimated net proved natural gas, NGLs and oil reserves as of December 31, 2020, based on information provided by Indigo. The estimated proved reserves have been prepared in accordance with the rules and regulations of the SEC.

 

     2020  

Proved Developed Reserves(1):

  

Natural gas (MMcf)

     1,191,034  

NGLs (MBbls)

     5,521  

Oil (MBbls)

     797  
  

 

 

 

Equivalent (MMcfe)

     1,228,943  

Proved Undeveloped Reserves(2):

  

Natural gas (MMcf)

     2,459,083  

NGLs (MBbls)

     11,899  

Oil (MBbls)

     1,061  
  

 

 

 

Equivalent (MMcfe)

     2,536,841  

Proved Reserves(3):

  

Natural gas (MMcf)

     3,650,117  

NGLs (MBbls)

     17,420  

Oil (MBbls)

     1,858  
  

 

 

 

Equivalent (MMcfe)

     3,765,784  

PV-10 (in thousands)

   $ 649,212  

 

(1)   The Indigo historical proved developed reserves as of December 31, 2020 include 179 Bcf of natural gas reserves, 5,484 MBbls of NGL reserves and 688 MBbls of oil reserves associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent proved developed reserves associated with the sold Cotton Valley oil and gas properties was 216 Bcfe as of December 31, 2020.
(2)   The Indigo historical proved undeveloped reserves as of December 31, 2020 include 383 Bcf of natural gas reserves, 11,899 MBbls of NGL reserves and 1,061 MBbls of oil reserves associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent proved undeveloped reserves associated with the sold Cotton Valley oil and gas properties was 461 Bcfe as of December 31, 2020.
(3)   The Indigo historical total proved reserves as of December 31, 2020 include 562 Bcf of natural gas reserves, 17,383 MBbls of NGL reserves and 1,749 MBbls of oil reserves associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent proved reserves associated with the sold Cotton Valley oil and gas properties was 677 Bcfe as of December 31, 2020.

 

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Production and Price History

The following table sets forth information regarding Indigo’s net production of natural gas, NGLs and oil, and certain price and cost information for the periods indicated:

 

     Year Ended
December 31
 
     2020(1)      2019(2)  

Net production volumes:

     

Natural gas (MMcf)

     367,092        331,306  

NGLs (MBbls)

     1,063        1,234  

Oil (MBbls)

     168        203  
  

 

 

    

 

 

 

Total (MMcfe)

     374,478        339,928  

Average daily net production volumes:

     

Natural gas (Mcf/d)

     1,002,984        907,688  

NGLs (Bbls/d)

     2,904        3,381  

Oil (Bbls/d)

     459        556  
  

 

 

    

 

 

 

Total (Mcfe/d)

     1,023,164        931,310  

 

(1)   Indigo historical production for the year ended December 31, 2020 includes 32,024 MMcf of natural gas, 1,058 MBbls of NGLs and 136 MBbls of oil production associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent production associated with the divested Cotton Valley oil and gas properties was 39,186 MMcfe for the year ended December 31, 2020.
(2)   Indigo historical production for the year ended December 31, 2019 includes 44,572 MMcf of natural gas, 1,230 MBbls of NGLs and 166 MBbls of oil production associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent production associated with the divested Cotton Valley oil and gas properties was 52,950 MMcfe for the year ended December 31, 2019.

 

Average realized price, before effects of derivative settlements:

     

Natural gas ($/Mcf)

   $ 1.90      $ 2.47  

NGLs ($/Bbl)

     13.31        18.36  

Oil ($/Bbl)

     33.92        54.93  
  

 

 

    

 

 

 

Total ($/Mcfe)

   $ 1.92      $ 2.51  
  

 

 

    

 

 

 

Expenses (per Mcfe):

     

Lease operating, excluding ad valorem taxes

   $ 0.25      $ 0.29  

Gathering and transportation expense

   $ 0.56      $ 0.48  

Ad valorem taxes

   $ 0.02      $ 0.02  

Severance taxes, net of refunds received

   $ 0.04      $ 0.06  

Depreciation, depletion, amortization and accretion

   $ 1.30      $ 1.12  

General and administrative

   $ 0.14      $ 0.17  

General and administrative expense—excluding non-cash equity compensation and non-recurring, non-cash items

   $ 0.11      $ 0.12  

 

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The following tables set forth information regarding Indigo’s net production of natural gas, NGLs and oil for the periods indicated:

 

Net production volume:

   For the six  months
ended June 30, 2021(1)
 

Natural gas (MMcf)

     172,192  

NGLs (MBbls)

     307  

Oil (MBbls)

     57  
  

 

 

 

Total (MMcfe)

     174,376  

Average daily net production volume:

  

Natural gas (Mcf/d)

     951,337  

NGLs (Bbls/d)

     1,696  

Oil (Bbls/d)

     315  
  

 

 

 

Total (Mcfe/d)

     963,403  

 

(1)   Indigo historical production for the six months ended June 30, 2021 includes 9,771 MMcf of natural gas, 305 MBbls of NGLs and 43 MBbls of oil production associated with the Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. The total equivalent production associated with the divested Cotton Valley oil and gas properties was 11,853 MMcfe for the six months ended June 30, 2021.

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following table presents summary unaudited pro forma condensed combined financial information about our financial condition and results of operations on a pro forma basis giving effect to the Indigo Merger and, as applicable, the Montage Merger and certain related transactions, but not this offering or the use of proceeds of this offering or the Exchange Offer, as set forth in the unaudited pro forma condensed combined financial statements incorporated in this prospectus supplement by reference. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and the six months ended June 30, 2021 give effect to the Mergers as if they had been consummated on January 1, 2020. The unaudited pro forma condensed combined balance sheet as of June 30, 2021 has been prepared to give effect to the Indigo Merger as if it had been consummated on June 30, 2021.

The summary unaudited pro forma condensed combined financial information is derived from, and should be read in conjunction with, our consolidated financial statements and related notes incorporated by reference into this prospectus supplement, and the consolidated financial statements and related notes of Montage and Indigo incorporated by reference in this prospectus supplement, together with the more detailed information as set forth in the unaudited pro forma financial statements incorporated in this prospectus supplement by reference and related notes included in this prospectus supplement. The summary unaudited pro forma condensed combined financial information set forth below has been presented for informational purposes only and is not necessarily indicative of what the combined financial condition or results of operations actually would have been had the applicable transaction been completed as of the dates indicated. In addition, the summary unaudited pro forma condensed combined financial information presented below does not purport to project the combined financial condition or operating results for any future period.

 

     Six Months
Ended
June 30, 2021
    Year Ended
December 31,
2020
 
     (in millions)  

Unaudited Pro Forma Condensed Combined Statement of Operations:

    

Revenue

   $ 2,667     $ 3,466  

Net income (loss)

   $ (789   $ (3,109

 

     At June 30, 2021  
     (in millions)  

Unaudited Pro Forma Condensed Combined Balance Sheet (at end of period):

  

Cash and cash equivalents

   $ 43  

Total assets

   $ 8,870  

Total debt

   $ 4,153  

Total stockholders’ equity

   $ 1,739  

 

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RISK FACTORS

An investment in the notes involves risks. You should consider carefully the following risks and the risks in the accompanying prospectus, as well as the risk factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, as applicable, together with all of the other information included in, or incorporated by reference into, this prospectus supplement and the accompanying prospectus, any free writing prospectus that we may authorize to be delivered or made available to you, and the documents incorporated by reference herein and therein when evaluating an investment in the notes. To the extent the COVID-19 pandemic adversely affects our business, operations, financial condition and operating results, it may also have the effect of heightening many of such risks, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Risks Relating to This Offering and the Notes

We have a holding company structure in which our subsidiaries conduct our operations and own a substantial portion of our operating assets, causing us to be dependent upon their distributions to make payments on the notes.

As we are a holding company, our subsidiaries and affiliates conduct our operations and own a substantial portion of our operating assets. As a result, our ability to make required payments on the notes depends on the performance of our subsidiaries and their ability to make distributions, dividends, loans or advances to us. The ability of our subsidiaries to make distributions, dividends, loans or advances to us, and to engage in other transactions with us, may be restricted by, among other things, agreements of indebtedness, applicable state laws and other laws and regulations. If we are unable to obtain the funds necessary to pay the principal amount of the notes at maturity, we may be required to adopt one or more alternatives, such as a refinancing of the notes. We cannot assure you that we would be able to refinance the notes on acceptable terms or at all.

The notes and the guarantees will be unsecured obligations and will be effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness and structurally subordinated to the existing and future indebtedness of any non-guarantor subsidiaries.

The notes and the guarantees will be general unsecured senior obligations ranking effectively subordinated to all of our and the guarantors’ existing and future secured indebtedness (including all borrowings under our Credit Agreement) to the extent of the value of the collateral securing such indebtedness. As of June 30, 2021, on an as further adjusted basis, we would have had approximately $664 million of secured indebtedness outstanding under our Credit Agreement, and borrowing availability under our Credit Agreement of approximately $1,103 million. If we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, the holders of our secured indebtedness or the secured indebtedness of such guarantor will be entitled to be paid in full from the proceeds of the assets, if any, securing such indebtedness before any payment may be made with respect to the notes or the affected guarantees. Holders of the notes will participate ratably in any remaining proceeds with all holders of our unsecured indebtedness, including unsecured indebtedness incurred after the notes are issued that does not rank junior to the notes, including trade payables and all of our other general indebtedness, based on the respective amounts owed to each holder or creditor. In any of the foregoing events, there may not be sufficient funds to pay amounts due on the notes. As a result, holders of the notes would likely receive less, ratably, than holders of secured indebtedness.

Additionally, the notes will be structurally subordinated to all existing and future indebtedness of our existing or future subsidiaries that are not guarantors of the notes. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of any subsidiary that is not a guarantor, all of that subsidiary’s

 

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creditors (including trade creditors) would be entitled to payment in full out of that subsidiary’s assets before we or any of our creditors would be entitled to any payment. As of June 30, 2021, our non-guarantor subsidiaries held less than 1% of our total assets and had no material liabilities.

Our current and future levels of indebtedness may adversely affect our results and limit our growth.

As of June 30, 2021, we had total indebtedness of $3,021 million and $568 million of borrowings and $233 million of letters of credit under our Credit Agreement, resulting in borrowing availability under our Credit Agreement of approximately $1,199 million. As of June 30, 2021, on an as further adjusted basis, we would have had total indebtedness of $4,179 million, and we would have had $1,103 million of available borrowing capacity under our Credit Agreement. The terms of the indentures governing our outstanding senior notes, our Credit Agreement and the lease agreements relating to our drilling rigs, other equipment and headquarters building, which we collectively refer to as our “financing agreements,” impose restrictions on our ability and, in some cases, the ability of our subsidiaries to take a number of actions that we may otherwise desire to take, which may include, without limitation, one or more of the following:

 

   

incurring additional debt;

 

   

redeeming stock or redeeming debt;

 

   

making investments;

 

   

creating liens on our assets; and

 

   

selling assets.

The Credit Agreement contains customary representations, warranties and covenants including, among others, the following covenants:

 

   

a prohibition against incurring debt, subject to permitted exceptions;

 

   

a restriction on creating liens on assets, subject to permitted exceptions;

 

   

restrictions on mergers and asset dispositions;

 

   

restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business; and

 

   

maintenance of the following financial covenants:

 

   

Minimum current ratio of no less than 1.00 to 1.00, whereby current ratio is defined as the Company’s consolidated current assets (including unused commitments under the credit agreement, but excluding non-cash derivative assets) to consolidated current liabilities (excluding non-cash derivative obligations and current maturities of long-term debt).

 

   

Maximum total net leverage ratio of no greater than 4.00 to 1.00. Total net leverage ratio is defined as total debt less cash on hand (up to the lesser of 10% of credit limit or $150 million) divided by consolidated EBITDAX for the last four consecutive quarters. For purposes of calculating consolidated EBITDAX, we can include the Montage EBITDAX prior to the Montage Merger for the same rolling twelve-month period. EBITDAX, as defined in our Credit Agreement, excludes the effects of interest expense, depreciation, depletion and amortization, income tax, any non-cash impacts from impairments, certain non-cash hedging activities, stock-based compensation expense, non-cash gains or losses on asset sales, unamortized issuance cost, unamortized debt discount and certain restructuring costs.

 

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In conjunction with the October 2020 redetermination process under our Credit Agreement, we entered into an amendment to our Credit Agreement to, among other matters:

 

   

limit our unrestricted cash and cash equivalents to $200 million when loans under our Credit Agreement are outstanding, subject to certain exceptions; and

 

   

increase the applicable rate by 25 basis points on loans outstanding under our Credit Agreement.

Although we do not anticipate any violations of our financial covenants, our ability to comply with these financial covenants depends in part on the success of our development program and upon factors beyond our control, such as the market prices for natural gas, oil and NGLs.

Although the indenture that will govern the notes and our existing indentures governing our outstanding senior notes contain covenants limiting liens and sale and leaseback transactions, these covenants contain exceptions that would allow us to create, grant or incur certain liens or security interests. Moreover, these indentures do not contain any limitations on the ability of us or our subsidiaries to incur debt, pay dividends or make investments, or limit the ability of our subsidiaries to make distributions to us. Such activities may, however, be limited by our other financing agreements in certain circumstances.

Our level of indebtedness and off-balance sheet obligations, and the covenants contained in our financing agreements and other debt agreements, could have important consequences for our operations, including:

 

   

requiring us to dedicate a substantial portion of our cash flow from operations to required payments, thereby reducing the availability of cash flow for working capital, capital investing and other general business activities;

 

   

limiting our ability to obtain additional financing in the future for working capital, capital investing, acquisitions and general corporate and other activities;

 

   

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

 

   

detracting from our ability to successfully withstand a downturn in our business or the economy generally.

Our ability to comply with the covenants and other restrictions in our financing agreements may be affected by events beyond our control, including prevailing economic and financial conditions.

Failure to comply with the covenants and other restrictions could lead to an event of default and the acceleration of our obligations under our outstanding senior notes, credit facilities or other financing or debt agreements, and in the case of the lease agreements for drilling rigs, compressors and pressure pumping equipment, loss of use of the equipment. In particular, the occurrence of other risks, such as declines in commodity prices, increases in basis differentials and inability to access markets, could reduce our profits and thus the cash we have to fulfill our financial obligations. If we are unable to satisfy our obligations with cash on hand, we could attempt to refinance such debt, sell assets or repay such debt with the proceeds from an equity offering. We cannot assure that we will be able to generate sufficient cash flow to pay the interest on our debt, to meet our lease obligations, or that future borrowings, equity financings or proceeds from the sale of assets will be available to pay or refinance such debt or obligations. The terms of our financing agreements and other debt agreements may also prohibit us from taking such actions. Factors that will affect our ability to raise cash through an offering of our capital stock, a refinancing of our debt or a sale of assets include financial market conditions and our market value and operating performance at the time of such offering or other financing. We cannot assure that any such proposed offering, refinancing or sale of assets can be successfully completed or, if completed, that the terms will be favorable to us.

 

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We may be unable to repay the notes when due or repurchase the notes when we are required to do so.

At final maturity of the notes or in the event of acceleration of the notes following an event of default, the entire outstanding principal amount of the notes will become due and payable. Upon a change of control event (as described herein), we will be required to offer to repurchase in cash all outstanding notes at a redemption price equal to 101% of the principal amount of the notes plus accrued and unpaid interest up to, but excluding, the repurchase date. If we were unable to make the required payments or repurchases of the notes, it would constitute an event of default under the indenture related to the notes and under our other financing agreements and other debt agreements. The indentures for our outstanding senior notes and the senior notes we may issue in the future, including in exchange for the Indigo Notes in the Exchange Offer, also provide or may in the future provide for repurchase rights upon certain change of control events, and our Credit Agreement requires repayment of amounts outstanding thereunder and certain other amounts. Any future debt agreements may have similar provisions. As a result, holders of our other debt securities may have the ability to require us to repurchase their debt securities before or at the same time as the holders of the notes offered hereby would have such repurchase rights. It is possible that we will not have sufficient funds at maturity, upon acceleration or at the time of the change of control event or other fundamental change to make the required repurchase of the notes and our other debt securities. In addition, certain change of control events would constitute an event of default under our Credit Agreement, which could lead to a default on the notes and our other debt securities or an inability to make a change of control payment on the notes and our other debt securities.

Federal and state statutes allow courts, under specific circumstances, to avoid or limit the notes and guarantees, and to require holders of the notes to return payments previously made by us or the guarantors.

Our creditors and the creditors of the guarantors of the notes could challenge the issuance of the notes or the subsidiary guarantors’ issuance of their guarantees, respectively, as fraudulent conveyances or on other grounds such as equitable subordination. Under the federal bankruptcy law and similar provisions of state fraudulent transfer laws, the issuance of the notes and the guarantees could be avoided (that is, cancelled or limited) as fraudulent transfers or subordinated to other creditors if a court determined that the company, at the time it issued the notes, or any guarantor, at the time it issued the guarantee (or, in some jurisdictions, when payment became due under the guarantee):

 

   

issued the notes or guarantees, as the case may be, with the intent to hinder, delay or defraud its existing or future creditors; or

 

   

received less than reasonably equivalent value or did not receive fair consideration for the issuance of the notes or guarantees, as the case may be, and if the company or any guarantor:

 

   

was insolvent or rendered insolvent at the time it issued the notes or issued the guarantee, as applicable;

 

   

was engaged in a business or transaction for which the company’s or guarantor’s remaining assets constituted unreasonably small capital; or

 

   

intended to incur, or believed that it would incur, debts beyond its ability to pay such debts generally as they mature.

If the notes or guarantees were avoided or limited under fraudulent transfer or other laws, any claim you may make against us or the applicable guarantor for amounts payable on the notes or related guarantee would be unenforceable to the extent of such avoidance or limitation or may be subordinated to the claims of other creditors. Moreover, the court could order you to return any payments previously made by us or such guarantor.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a party would be considered insolvent if:

 

   

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets;

 

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the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its debts as they become due.

We cannot be sure what standard a court would apply in making these determinations or, regardless of the standard, that a court would not avoid the notes or guarantees.

The indenture governing the notes provides that the issuance of the notes and the obligation of each guarantor under its guarantee are limited as necessary to prevent them from constituting a fraudulent conveyance or fraudulent transfer under applicable law. We cannot assure you that this limitation will protect the issuance of the notes or the guarantees from fraudulent conveyance or fraudulent transfer challenges or, if it does, that the remaining amount due and collectible would suffice, if necessary, to pay the notes in full when due.

Not all of our subsidiaries are required to guarantee the notes, and we can release guarantees from time to time without the consent of holders of the notes.

Under the terms of the indenture, only certain of our subsidiaries are required to guarantee the notes or our outstanding notes. In addition, holders of the notes will be deemed to have consented to the release of the guarantee of the notes provided by a subsidiary guarantor, without any action required on the part of the trustee or any holder of the notes, upon such subsidiary guarantor ceasing to guarantee or be a borrower under our Credit Agreement or certain other indebtedness of ours or another subsidiary guarantor under the circumstances described under “Description of the Notes—The Guarantees.” In addition, a subsidiary guarantor will be released and relieved from all its obligations under its subsidiary guarantee in the other circumstances set out under “Description of the Notes—The Guarantees.” Any such release would result in any debt or other obligations of the applicable subsidiary becoming structurally senior to the notes.

A downgrade in our credit rating could negatively impact our cost of and ability to access capital and our liquidity.

Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, could impact our ability to access debt markets in the future to refinance existing debt or obtain additional funds, affect the market value of our notes and increase our borrowing costs. Such ratings are limited in scope, and do not address all material risks relating to us, but rather reflect only the view of each rating agency of the likelihood we will be able to repay our debt at the time the rating is issued. An explanation of the significance of each rating may be obtained from the applicable rating agency. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant.

Actual downgrades in our credit ratings may also impact our interest costs and liquidity. The interest rates under certain of our notes increases as credit ratings fall. Many of our existing commercial contracts contain, and future commercial contracts may contain, provisions permitting the counterparty to require increased security upon the occurrence of a downgrade in our credit rating. Providing additional security, such as posting letters of credit, could reduce our available cash or our liquidity under our Credit Agreement for other purposes. We had $233 million of letters of credit outstanding at June 30, 2021. The amount of additional financial assurance would depend on the severity of the downgrade from the credit rating agencies, and a downgrade could result in a decrease in our liquidity.

 

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The credit ratings assigned to our notes may not reflect all risks of an investment in our notes.

We expect that our notes will be rated by at least two nationally recognized statistical rating organizations. These credit ratings are limited in scope, and do not address all material risks relating to an investment in the notes, but rather reflect only the view of each rating agency at the time the rating is issued. An explanation of the significance of such rating may be obtained from such rating agency. There can be no assurance that such credit ratings will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the applicable rating agencies if, in such rating agency’s judgment, circumstances so warrant. Agency credit ratings are not a recommendation to buy, sell or hold any security. Each agency’s rating should be evaluated independently of any other agency’s rating. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect the market value of our notes and increase our corporate borrowing costs.

We may not be able to repurchase the notes upon a Change of Control Triggering Event.

We may not be able to repurchase the notes upon a Change of Control Triggering Event because we may not have sufficient funds. Upon a Change of Control Triggering Event, holders of the notes may require us to make an offer to purchase the notes for cash at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereto, but not including, the date of purchase. Our failure to purchase such tendered notes upon the occurrence of such Change of Control Triggering Event would result in an event of default under the indenture governing the notes and a cross-default under the agreements governing certain of our other indebtedness which may result in the acceleration of such indebtedness requiring us to repay that indebtedness immediately. If such a Change of Control Triggering Event were to occur, we may not have sufficient funds to repay any such accelerated indebtedness. In addition, you may not be able to require us to repurchase the notes under the change of control provisions in the indenture in the event of certain important corporate events, such as a leveraged recapitalization (which would increase the level of our indebtedness, potentially resulting in a downgrade of our credit ratings, thereby negatively affecting the value of the notes), reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a “Change of Control Triggering Event” under the indenture. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change that constitutes a “Change of Control Triggering Event” that would trigger our obligation to purchase the notes. Therefore, if an event occurs that does not constitute a “Change of Control Triggering Event,” we will not be required to make an offer to purchase the notes and you may be required to continue to hold your notes despite the event.

Active trading markets for the notes may not develop, which could make it more difficult for holders of the notes to sell their notes and/or result in a lower price at which holders would be able to sell their notes.

There is no existing market for the notes. The notes will not be listed on any securities exchange. There can be no assurance that a trading market for the notes will ever develop or will be maintained. Further, there can be no assurance as to the liquidity of any market that may develop for the notes, your ability to sell your notes or the price at which you will be able to sell your notes. Future trading prices of the notes will depend on many factors, including prevailing interest rates, our financial condition and results of operations, the then-current ratings assigned to the notes and the market for similar securities. Any trading market that develops would be affected by many factors independent of and in addition to the foregoing, including:

 

   

time remaining to the maturity of the notes;

 

   

outstanding amount of the notes;

 

   

the terms related to optional redemption of the notes; and

 

   

level, direction and volatility of market interest rates generally.

 

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If trading markets do develop, changes in our credit ratings or the debt markets could adversely affect the market prices of the notes.

The market prices for the notes will depend on many factors, including:

 

   

our credit ratings with major credit rating agencies;

 

   

the prevailing interest rates being paid by other companies similar to us;

 

   

our financial condition, financial performance and future prospects, including relative to guidance or analyst estimates;

 

   

the overall condition of the financial markets; and

 

   

the other risks detailed in this document and in our other filings with the SEC.

The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Such fluctuations could have an adverse effect on the prices of the notes.

Risks Related to the Indigo Merger

There can be no assurances when or if the Indigo Merger will be completed.

Although we expect to complete the Indigo Merger in September 2021, there can be no assurances as to the exact timing of consummation of the Indigo Merger or that the Indigo Merger will be completed at all. The consummation of the Indigo Merger is subject to numerous conditions, including, among others, (i) the absence of any law, order or injunction prohibiting the Indigo Merger, (ii) the expiration or earlier termination of the waiting period under the Hart–Scott–Rodino Antitrust Improvements Act of 1976, as amended, (iii) the accuracy of each party’s representations and warranties, (iv) each party’s compliance with its covenants and agreements contained in the Indigo Merger Agreement and (v) approval of the issuance of the Stock Consideration by the affirmative vote of the holders of a majority of shares of our common stock present in person or represented by proxy and entitled to vote at such stockholders meeting. There can be no assurance that the conditions required to complete the Indigo Merger, some of which are beyond the control of Southwestern and Indigo, will be satisfied or waived on the anticipated schedule, or at all.

Additionally, the Indigo Merger Agreement also provides for certain termination rights for both Southwestern and Indigo, including if the Indigo Merger is not consummated on or before the date which is 180 days following the date of execution of the Indigo Merger Agreement. Upon termination of the Indigo Merger Agreement under certain circumstances, including (a) the termination by Indigo in the event of a change of recommendation by the board of directors of Southwestern, or (b) termination by Southwestern or Indigo if an alternative transaction is publicly proposed or publicly disclosed and not withdrawn prior to Southwestern shareholder meeting and Southwestern enters into such alternative transaction within twelve months of termination, Southwestern will be obligated to pay a termination fee of $81 million.

Termination of the Indigo Merger Agreement or failure to otherwise complete the Indigo Merger could negatively impact our business and financial results.

Termination of the Indigo Merger Agreement or any failure to otherwise complete the Indigo Merger may result in various consequences, including:

 

   

our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Indigo Merger, without realizing any of the anticipated benefits of completing the Indigo Merger;

 

   

in certain instances, payment by Southwestern of a termination fee of $81 million to the unitholders of Indigo;

 

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the market price of the notes may decline to the extent that the market price prior to termination reflects a market assumption that the Indigo Merger will be completed; and

 

   

negative reactions from the financial markets and customers may occur if the anticipated benefits of the Indigo Merger are not able to be realized. Such anticipated benefits may include, among others, operational efficiencies, cost savings, and synergies.

If the Indigo Merger is not consummated, we cannot assure you that the risks described above will not negatively impact the business, financial results, and ability to repay its outstanding indebtedness.

Until the consummation of the Indigo Merger or the termination of the Indigo Merger Agreement in accordance with its terms, Southwestern and Indigo are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Southwestern or Indigo and their respective stockholders.

From and after the date of the Indigo Merger Agreement and prior to consummation of the Indigo Merger, the Indigo Merger Agreement restricts Southwestern and Indigo from taking specified actions without the consent of the other party and generally requires that the business of each company and its respective subsidiaries be conducted in all material respects in the ordinary course of business consistent with past practice. These restrictions may prevent Southwestern or Indigo from making appropriate changes to their respective businesses or organizational structures or from pursuing attractive business opportunities that may arise prior to the consummation of the Indigo Merger, and could have the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the Indigo Merger could be exacerbated by any delays in consummation of the Indigo Merger or termination of the Indigo Merger Agreement.

Litigation could result in an injunction preventing the consummation of the Indigo Merger or a judgment resulting in the payment of damages or other impacts.

Lawsuits in connection with the Indigo Merger could prevent or delay the consummation of the Indigo Merger and result in significant costs to us, including any costs associated with the indemnification of directors and officers. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Indigo Merger is completed may adversely affect our business, financial condition, results of operations and cash flows. For example, following the announcement of the Indigo Merger Agreement, lawsuits were filed by purported stockholders of Southwestern seeking, among other things, to enjoin the Indigo Merger, to rescind the Indigo Merger, rescissory damages and attorneys’ fees. Each of these lawsuits is at the preliminary stage. Southwestern believes the claims are meritless but cannot currently predict the outcome of or estimate the possible loss or range of loss from such lawsuits.

If the Indigo Merger is consummated, Southwestern may be unable to successfully integrate Indigo’s business into its business or achieve the anticipated benefits of the Indigo Merger.

The success of the Indigo Merger will depend, in part, Southwestern’s ability to realize the anticipated benefits and cost savings from combining Southwestern’s and Indigo’s businesses, and there can be no assurance that Southwestern will be able to successfully integrate or otherwise realize the anticipated benefits of the Indigo Merger. Difficulties in integrating Southwestern and Indigo may result in the combined company performing differently than expected, in operational challenges, or in the failure to realize anticipated expense-related efficiencies. Potential difficulties that may be encountered in the integration process include, among others:

 

   

the inability to successfully integrate Indigo in a manner that permits the achievement of full revenue, expected cash flows and cost savings anticipated from the Indigo Merger;

 

   

not realizing anticipated operating synergies;

 

   

integrating personnel from Indigo and the loss of key employees;

 

   

potential unknown liabilities and unforeseen expenses or delays associated with and following the consummation of the Indigo Merger;

 

   

integrating relationships with customers, vendors and business partners;

 

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performance shortfalls as a result of the diversion of management’s attention caused by completing the Indigo Merger and integrating Indigo’s operations;

 

   

the impact of Southwestern’s recent acquisition of Montage Resources Corporation and continuing integration related to the acquisition; and

 

   

the disruption of, or the loss of momentum in, Southwestern’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Southwestern’s ability to achieve the anticipated benefits of the Indigo Merger will depend in part upon whether it can integrate Indigo’s business into Southwestern’s existing business in an efficient and effective manner. Southwestern may not be able to accomplish this integration process successfully. The successful acquisition of producing properties, including those owned by Indigo, requires an assessment of several factors, including:

 

   

recoverable reserves;

 

   

future natural gas and oil prices and their appropriate differentials;

 

   

availability and cost of transportation of production to markets;

 

   

availability and cost of drilling equipment and of skilled personnel;

 

   

development and operating costs including access to water and potential environmental and other liabilities; and

 

   

regulatory, permitting and similar matters.

The accuracy of these assessments is inherently uncertain. In connection with these assessments, Southwestern has performed a review of the subject properties that it believes to be generally consistent with industry practices. The review was based on Southwestern’s analysis of historical production data, assumptions regarding capital expenditures and anticipated production declines. Data used in such review was furnished by Indigo or obtained from publicly available sources. Southwestern’s review may not reveal all existing or potential problems or permit Southwestern to fully assess the deficiencies and potential recoverable reserves for all of the acquired properties, and the reserves and production related to the assets and operations of Indigo may differ materially after such data is reviewed further by Southwestern. Inspections will not always be performed on every well, and environmental problems are not necessarily observable even when an inspection is undertaken. Even when problems are identified, Indigo may be unwilling or unable to provide effective contractual protection against all or a portion of the underlying deficiencies. Southwestern is often not entitled to contractual indemnification for environmental liabilities and acquire properties on an “as is” basis, and, as is the case with certain liabilities associated with the assets and operations of Indigo, Southwestern is entitled to remedies for only certain environmental liabilities. Additionally, Southwestern will not have the ability to control operations with respect to the portion of the assets and operations of Indigo in which Indigo holds only a non-operating interest. The integration process may be subject to delays or changed circumstances, and Southwestern can’t give any assurances that the assets and operations of Indigo will perform in accordance with Southwestern’s expectations or that Southwestern’s expectations with respect to integration or cost savings as a result of the Indigo Merger will materialize.

Consummation of the Indigo Merger may trigger change in control or other provisions in certain agreements to which Indigo is a party, which may have an adverse impact on the combined company’s business and results of operations.

Consummation of the Indigo Merger may trigger change in control and other provisions in certain agreements to which Indigo is a party. For those agreements for which we and Indigo are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. We could require a significant amount of

 

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funds to make these repurchases and repayments. The foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.

Southwestern’s results may suffer if it does not effectively manage its expanded operations following the Indigo Merger.

Following consummation of the Indigo Merger, the size of the Company’s business will increase significantly beyond its current size. Southwestern’s future success will depend, in part, on Southwestern’s ability to manage this expanded business, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Indigo into Southwestern’s existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners.

Following consummation of the Indigo Merger, Southwestern may be exposed to additional commodity price risk as a result of the acquisition of Indigo’s upstream assets.

The prices for natural gas have historically been volatile, and Southwestern expects this volatility to continue in the future. The Indigo Merger may increase Southwestern’s exposure to these, or other, commodity price risks.

To mitigate its exposure to changes in commodity prices, Indigo hedges natural gas from time to time, primarily through the use of certain derivative commodity instruments. Southwestern will bear the economic impact of all of Indigo’s current hedges following the consummation of the Indigo Merger. Actual natural gas prices may differ from the Company’s expectations and, as a result, such hedges could have a negative impact on Southwestern’s business.

The combined company may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.

We will account for the Indigo Merger as an acquisition of a business in accordance with GAAP. Under the acquisition method of accounting, the assets and liabilities of Indigo and its subsidiaries will be recorded, as of completion, at their respective fair values and added to ours. Our reported financial condition and results of operations for periods after consummation of the Indigo Merger will reflect Indigo’s balances and results after consummation of the Indigo Merger but will not be restated retroactively to reflect the historical financial position or results of operations of Indigo and its subsidiaries for periods prior to the Indigo Merger.

Under the acquisition method of accounting, the total purchase price will be allocated to Indigo’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of consummation of the Indigo Merger. The excess of the purchase price over those fair values, if any, will be recorded as goodwill. To the extent the value of goodwill or intangibles, if any, becomes impaired in the future, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.

We will incur significant transaction costs in connection with the Indigo Merger.

We have incurred and are expected to continue to incur a number of non-recurring costs associated with the Indigo Merger, combining the operations of Indigo with ours and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by us whether or not the Indigo Merger is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors and employee retention, severance, and benefit costs. We will also incur costs related to formulating and implementing integration plans.

 

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Although we expect that the elimination of duplicative costs, as well as the realization of synergies and efficiencies related to the integration of Indigo’s assets, should allow us to offset these transaction costs over time, this net benefit may not be achieved in the near term or at all.

The unaudited pro forma condensed combined financial information and the pro forma reserves information incorporated by reference in this prospectus supplement is presented for illustrative purposes only and may not be reflective of our operating results, financial condition or reserves following consummation of the Indigo Merger. In addition, such information is subject to change.

The unaudited pro forma condensed combined financial information incorporated by reference in this prospectus supplement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Indigo Merger been completed on the dates indicated. Similarly, the pro forma reserves information in this prospectus supplement is presented for illustrative purposes only and is not necessarily indicative of what our reserves would have been had the Indigo Merger been completed on the dates indicated. Further, our actual results and financial position after the Indigo Merger may differ materially and adversely from the pro forma information that is included in this prospectus supplement.

The unaudited pro forma condensed combined financial information reflects adjustments based upon preliminary estimates of the fair value of the assets to be acquired and liabilities to be assumed.

In addition, it is possible that we may be required to make changes in the future to the pro forma condensed combined financial statements, including as a result of review by the SEC of the proxy statement we have filed with respect to the Indigo Merger or otherwise. Any such change or modifications could be significant.

Indigo is a private company, and therefore, Indigo’s financial statements are not prepared in accordance with the SEC requirements for public company financial statements.

Indigo is a private company and is not subject to the SEC financial reporting requirements. Indigo’s historical consolidated financial statements included in this prospectus supplement are not prepared in accordance with SEC financial reporting requirements or public company accounting principles. Based on this, there may be information not included, which would be necessary to include in a public company’s historical consolidated financial statements. Accordingly, such information is subject to change, including as a result of review by the SEC of the proxy statement we have filed with respect to the Indigo Merger or otherwise. Any such change or modifications could be significant.

Our ability to utilize our U.S. net operating loss carryforwards to reduce future taxable income following the consummation of the Indigo Merger will be subject to various limitations under the Code.

Section 382 of the Code imposes a limitation on the ability of a corporation to utilize its net operating loss carryforwards (“NOLs”) upon the occurrence of an ownership change resulting from issuances of a corporation’s stock or the sale or exchange of such corporation’s stock by certain shareholders if, as a result, there is an aggregate change of more than 50% in the beneficial ownership of such corporation’s stock by such shareholders during any three-year period. We believe that the Indigo Merger, if consummated, will result in an ownership change with respect to us, which would trigger a limitation on our ability to utilize any of its historic loss carryforwards following the consummation of the Indigo Merger, based on information currently available. The limitation with respect to such loss carryforwards generally would be equal to (i) the fair market value of our equity as of immediately prior to such ownership change multiplied by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. In addition, the limitation would, under current law, be increased if there are recognized built-in gains during any post-change year, but only to the extent of any net unrealized built-in gains in our assets at the time of the ownership change. Any such limitation imposed on the ability to use such NOLs to offset future taxable income could cause us to pay U.S. federal income taxes earlier than it otherwise would if such limitations were not in effect and could cause certain of such NOLs to expire unused, thereby reducing or eliminating the benefit of such NOLs.

 

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USE OF PROCEEDS

We expect to receive net proceeds from this offering of approximately $        million after deducting the underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds to fund the Tender Offers and Consent Solicitation, to redeem any 2026 Notes not purchased in the Tender Offers, to repay borrowings under our Credit Agreement, and the remainder, if any, to repay other indebtedness or for general corporate purposes.

As of June 30, 2021, we had $856 million in principal amount of outstanding 2025 Notes, which bear interest at a rate of 6.450% per year and mature on January 23, 2025.

As of June 30, 2021, we had $618 million in principal amount of outstanding 2026 Notes, which bear interest at a rate of 7.500% per year and mature on April 1, 2026.

As of June 30, 2021, we had $568 million of borrowings outstanding under the Credit Agreement. The interest rate on the Credit Agreement at June 30, 2021 was 2.10%. The Credit Agreement matures in April 2024. Within the past year, we have used borrowings under our Credit Agreement primarily for general corporate purposes.

Certain of the underwriters or their affiliates are lenders under our Credit Agreement and also may hold Tender Securities and, accordingly, may receive a portion of the net proceeds of this offering to the extent used to repay borrowings under our Credit Agreement or to repurchase or redeem Tender Securities. Citigroup Global Markets Inc. and BofA Securities, Inc. are acting as lead dealer managers and lead solicitation agents in connection with the Tender Offers and Consent Solicitation. Credit Agricole Securities (USA) Inc., MUFG Securities Americas Inc., RBC Capital Markets LLC and Wells Fargo Securities LLC and are acting as co-dealer managers and co-solicitation agents in connection with the Tender Offers and Consent Solicitation. Please read “Underwriting”.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2021:

 

   

on a consolidated Southwestern historical basis;

 

   

as adjusted to give effect to (i) this offering and (ii) the application of the net proceeds of this offering as described under “Use of Proceeds” to fund the Tender Offers and Consent Solicitation, to redeem any 2026 Notes not purchased in the Tender Offers, to repay borrowings under our Credit Agreement and the remainder, if any, to repay other indebtedness or for general corporate purposes; and

 

   

on an as further adjusted basis to give effect to (i) the assumption of Indigo’s cash and cash equivalents and total debt upon closing of the Indigo Merger, (ii) the $400 million increase in amounts outstanding under our Credit Agreement to reflect the borrowing to fund the cash portion of the Indigo Merger consideration, (iii) the assumed payoff of the $35 million Indigo Revolver balance using $35 million in Indigo cash on hand, and (iv) the issuance to Indigo’s equity holders of 339,270,568 shares of Southwestern common stock or approximately $1,757 million in value (based on Southwestern common stock closing price as of July 26, 2021 of $5.18) in Stock Consideration.

There can be no assurance that we will complete the Indigo Merger or the Tender Offers or Consent Solicitation. The completion of this offering is not conditioned upon the Indigo Merger or the Tender Offers or Consent Solicitation.

The following table does not give effect to any changes that may occur as a result of the Exchange Offer. As of the Indigo Early Tender Deadline, $694,960,000 aggregate principal amount of the Indigo Notes (representing approximately 99.28% of the outstanding Indigo Notes) had been validly tendered and not withdrawn in the Exchange Offer and may no longer be withdrawn except as required by law. As a result, the Proposed Indigo Amendments have received the requisite consents, and Southwestern intends to cause Indigo to enter into a supplemental indenture with the trustee. The Proposed Amendments are expected to become operative upon completion of the Exchange Offer.

You should read “Use of Proceeds,” our historical consolidated financial statements and the notes thereto and the unaudited pro forma financial statements incorporated in this prospectus supplement by reference.

 

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    As of June 30, 2021  
    Southwestern
Historical
    As Adjusted (3)(4)     Historical
lndigo
Indebtedness
    Indigo Merger
Related
Adjustments
    As Further
Adjusted
 
   

(Unaudited)

(Dollars in millions)

 

Cash and cash equivalents

  $ 2     $ 2     $ 76       (35     43  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Short-term portion of long-term debt

         

4.10% Senior Notes due March 2022

    207       207                   207  

Long-term debt(1):

         

Variable rate (2.10% at June 30, 2021) Revolving Credit Facility due April 2024(2)(5)

    568       264             400       664  

4.95% Senior Notes due January 2025

    852       827                   827  

7.50% Senior Notes due April 2026

    613                          

7.75% Senior Notes due October 2027

    436       436                   436  

8.375% Senior Notes due September 2028

    346       346                   346  

Notes offered hereby

          1,000                   1,000  

Indigo Notes(6)

                700             700  

Indigo Revolving Credit Facility

                35       (35      

Unamortized debt discount

    (1     (1                 (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term debt

    2,814       2,872       735       365       3,972  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt(1)

    3,021       3,079       735       365       4,179  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

         

Common stock, $0.01 par value; 1,250,000,000 shares authorized; issued 721,372,443 shares (historical and as adjusted) and 1,060,643,011 shares (on an as further adjusted basis)

    7       7         3       10  

Preferred stock, $0.01 par value, 10,000,000 shares authorized, issued no shares as of June 30, 2021

                             

Additional paid-in capital

    5,104       5,104         1,754       6,858  

Accumulated deficit(7)

    (4,892     (4,933             (4,933

Accumulated other comprehensive loss

    (35     (35             (35

Common stock in treasury, 44,353,224 shares

    (202     (202             (202
 

 

 

   

 

 

     

 

 

   

 

 

 

Total equity

    (18     (59       1,757       1,698  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

    3,003       3,020       735       2,122       5,877  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Debt amount, other than the notes offered hereby, are presented net of unamortized issuance expense.
(2)   As of August 11, 2021, we had approximately $837 million of outstanding borrowings and $233 million of outstanding letters of credit under our Credit Agreement, and approximately $930 million of borrowing capacity.
(3)   We intend to redeem, in accordance with the applicable indenture, any 2026 Notes that are not purchased in the Tender Offers, at a redemption price of 105.625% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the date of redemption. The as adjusted cash and cash equivalents is presented for illustrative purposes only to give effect to the receipt of the proceeds from this offering, reduced by (i) the payment of the total consideration in the Tender Offers and Consent Solicitation, together with accrued interest on the Tender Securities, assuming that all of the 2026 Notes and up to the maximum aggregate principal amount of the 2025 notes, are tendered prior to the early tender date at the applicable price set forth in the Offer to Purchase as of the date of this prospectus supplement and accepted for purchase in the Tender Offers and (ii) the repayment of borrowings under our Credit Agreement. The amount of as adjusted cash and cash equivalents and borrowings under the Credit Agreement is subject to change based on the actual principal amount of each series of Tender Securities tendered and accepted for purchase in the Tender Offers, and the purchase price for such Tender Securities, accrued interest thereon and actual fees and expenses of this offering and the Tender Offers and Consent Solicitation.
(4)   Excludes the impact of approximately $19 million in accrued interest that is expected to be paid upon the redemption of the 2026 Notes.
(5)   The as adjusted revolving credit facility balance reflects the pay down of $304 million, which is the amount of the expected net proceeds remaining after paying $655 million to retire the principal on the 2026 Notes and $27 million to retire the principal on the 2025 Notes, including premiums paid, and $2 million in other debt-related costs.
(6)   Does not include $11 million in unamortized debt issuance cost that will be written off upon closing of the Indigo Merger.
(7)   The as adjusted accumulated deficit reflects the combined loss on retirement of the 2026 Notes and 2025 Notes of $41 million related to the premiums paid and other debt-related costs.

 

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DESCRIPTION OF OTHER INDEBTEDNESS

Credit Agreement

In April 2018, we entered into a Credit Agreement governing our revolving credit facility. The Credit Agreement has an aggregate maximum revolving credit amount of $3.5 billion and, in March 2021, the banks participating in the 2018 credit facility reaffirmed the elected borrowing base and aggregate commitments to be $2.0 billion. The borrowing base is subject to redetermination at least twice a year, in April and October, and is secured by substantially all of the assets owned by the Company and its U.S. subsidiaries. The lien covenant in the indentures governing our outstanding senior notes currently limits liens securing indebtedness, other than permitted liens, to the greatest of (i) $2.0 billion, (ii) 25% of our adjusted consolidated net tangible assets at the time of incurrence and (iii) with respect to borrowings under our Credit Agreement, the “borrowing base” as defined in the indentures.

We may utilize our Credit Agreement in the form of loans and letters of credit. Loans under our Credit Agreement are subject to varying rates of interest based on whether the loan is a Eurodollar loan or an alternate base rate loan. Eurodollar loans bear interest at the Eurodollar rate, which is adjusted LIBOR for such interest period plus the applicable margin (as those terms are defined in our Credit Agreement documentation). The applicable margin for Eurodollar loans under our Credit Agreement ranges from 1.75% to 2.75% based on our utilization of our Credit Agreement. Alternate base rate loans bear interest at the alternate base rate plus the applicable margin. The applicable margin for alternate base rate loans under our Credit Agreement ranges from 0.75% to 1.75% based on our utilization of our Credit Agreement.

The Credit Agreement contains customary representations, warranties and covenants including, among others, the following covenants:

 

   

a prohibition against incurring debt, subject to permitted exceptions;

 

   

a restriction on creating liens on assets, subject to permitted exceptions;

 

   

restrictions on mergers and asset dispositions;

 

   

restrictions on use of proceeds, investments, transactions with affiliates, or change of principal business; and

 

   

maintenance of the following financial covenants:

 

   

Minimum current ratio of no less than 1.00 to 1.00, whereby current ratio is defined as the Company’s consolidated current assets (including unused commitments under the Credit Agreement, but excluding non-cash derivative assets) to consolidated current liabilities (excluding non-cash derivative obligations and current maturities of long-term debt).

 

   

Maximum total net leverage ratio of no greater than 4.00 to 1.00. Total net leverage ratio is defined as total debt less cash on hand (up to the lesser of 10% of the credit limit under the Credit Agreement and $150 million) divided by consolidated EBITDAX for the last four consecutive quarters. For purposes of calculating consolidated EBITDAX, we can include the Montage EBITDAX prior to the Montage Merger for the same rolling twelve-month period. EBITDAX, as defined in our Credit Agreement, excludes the effects of interest expense, depreciation, depletion and amortization, income tax, any non-cash impacts from impairments, certain non-cash hedging activities, stock-based compensation expense, non-cash gains or losses on asset sales, unamortized issuance cost, unamortized debt discount and certain restructuring costs.

In conjunction with the October 2020 redetermination process under our Credit Agreement, we entered into an amendment to our Credit Agreement to, among other matters:

 

   

limit our unrestricted cash and cash equivalents to $200 million when loans under our Credit Agreement are outstanding, subject to certain exceptions; and

 

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increase the applicable rate by 25 basis points on loans outstanding under our Credit Agreement.

The Credit Agreement is secured by substantially all of the assets owned by us and our U.S. subsidiaries, and is guaranteed by each of our U.S. domestic subsidiaries. The Credit Agreement contains customary events of default that include, among other things, the failure to comply with the financial covenants described above, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments and cross-defaults to material indebtedness. If an event of default occurs and is continuing, all amounts outstanding under our Credit Agreement may become immediately due and payable. As of June 30, 2021, we were in compliance with all of the covenants contained in our Credit Agreement.

Effective June 9, 2021, the Credit Agreement was amended to, among other things, waive the requirement for Indigo and its subsidiaries to guarantee, and provide collateral to secure, the Credit Agreement until the earliest of (a) the date on which all of the Indigo Notes have been redeemed or otherwise satisfied and the related indenture is satisfied and discharged (b) the earliest date on which all of the Indigo Notes are able to be redeemed by the issuer at par pursuant to the terms of the related indenture, and (c) the date that the related indenture is amended to provide for Indigo and its subsidiaries to guarantee, and provide collateral to secure, the Credit Agreement. As of the Indigo Early Tender Deadline, $694,960,000 aggregate principal amount of the Indigo Notes (representing approximately 99.28% of the outstanding Indigo Notes) had been validly tendered and not withdrawn in the Exchange Offer and may no longer be withdrawn except as required by law. As a result, the Proposed Indigo Amendments have received the requisite consents, and Southwestern intends to cause Indigo to enter into a supplemental indenture with the trustee. The Proposed Amendments are expected to become operative upon completion of the Exchange Offer, and Indigo and its subsidiaries, as applicable, are expected to become guarantors under the Credit Agreement following consummation of the Indigo Merger.

Senior Notes

As of June 30, 2021, we had outstanding $2,471 million aggregate principal amount of senior unsecured notes having various maturity dates and interest rates. See “Capitalization.”

Our outstanding senior notes are our unsecured senior obligations and are equal in right of payment with all of our other existing and future senior unsecured indebtedness and senior in right of payment to all of our future subordinated indebtedness. Our outstanding senior notes are guaranteed, jointly and severally, on a senior unsecured basis by all of our direct and indirect, wholly owned subsidiaries that guarantee our Credit Agreement.

We may redeem certain series of our senior notes at any time at specified make-whole or redemption prices. Our senior notes are governed by indentures containing covenants that limit our ability and our subsidiaries’ ability to incur secured indebtedness, enter into sale/leaseback transactions, and consolidate, merge or transfer assets. The indentures governing the senior notes do not have any financial or restricted payment covenants. The outstanding senior notes indentures have cross acceleration provisions that apply to other indebtedness we may have from time to time, depending on the indenture.

Indigo Notes

In February 2021, Indigo issued $700 million of senior unsecured notes due 2029. The Indigo Notes bear interest at an annual rate of 5.375% and will mature on February 1, 2029. All of the $700 million aggregate principal amount of the Indigo Notes is currently outstanding. We have commenced an offer to exchange all of the Indigo Notes held by eligible holders for a new series of our senior notes and cash payments in certain circumstances subject to consummation of the Indigo Merger and certain other conditions as further described under “Prospectus Supplement Summary—Exchange Offer for Indigo Notes”.

 

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The Indigo Notes are Indigo’s unsecured senior obligations and may be redeemed at specified make-whole or redemption prices, depending on the timing of such redemption. In addition, the Indigo Notes contain a provision in which, in the event of the occurrence of both (i) certain change of control events (which include the Indigo Merger) and (ii) a ratings decline during a specified period, the holders have the right to require Indigo to repurchase their notes at 101% plus accrued and unpaid interest to, but not including, the purchase date. The Indigo Notes also contain high-yield style covenants, including covenants that will restrict the ability of Indigo and its subsidiaries to make distributions, dividends, loans or advances to us and to engage in other transactions with us.

 

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DESCRIPTION OF NOTES

The following description of the particular terms of the notes and summaries of certain provisions of the indenture do not purport to be complete and are subject to and are qualified in their entirety by reference to all of the provisions of the indenture, which provisions of the indenture are incorporated herein by reference. Capitalized and other terms not otherwise defined in this prospectus supplement will have the meanings given to them in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act. You may obtain a copy of the indenture from us upon request.

In this section, the terms “we,” “our,” “us” and “Southwestern Energy Company” refer solely to Southwestern Energy Company and not its subsidiaries. References to “holders” mean those who have notes registered in their names on the books that we or the trustee maintain for that purpose, and not those who own beneficial interests in notes issued in book-entry form through DTC or in notes registered in street name. Owners of beneficial interests in the notes should refer to “Form, book-entry procedures and transfer” below.

The Notes

The notes will be issued as a new series of our senior debt securities described in the accompanying base prospectus, under an indenture to be dated as of the closing date of this offering (the “base indenture”) between us and Regions Bank, as trustee, as supplemented by a supplemental indenture thereto to be entered into on the closing date of this offering by and among us, the guarantors party thereto and the trustee (the base indenture, as so supplemented, being referred to herein as the “indenture”). The terms of the notes will be as set forth herein and in the accompanying base prospectus, provided that to the extent that any terms of the notes or the indenture in this “Description of Notes” are different than the description in the base prospectus, this description will govern.

The notes will mature on         , 2030. Unless previously redeemed or purchased and cancelled, we will repay the notes in cash at 100% of their principal amount together with accrued and unpaid interest thereon at maturity. We will pay principal of and interest on the notes in U.S. dollars.

The notes will be:

 

   

our senior unsecured debt obligations;

 

   

equal in right of payment with all of our other present and future senior unsecured indebtedness, including our outstanding senior notes;

 

   

effectively subordinated to any of our secured indebtedness, including the indebtedness under the Credit Agreement, to the extent of the value of the collateral securing such indebtedness;

 

   

unconditionally guaranteed by the guarantors on a senior unsecured basis, subject to release as described below; and

 

   

structurally subordinated to any indebtedness of subsidiaries that are not guarantors.

The notes will be issued in registered, book-entry form only without interest coupons in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.

The notes will be subject to defeasance as described under “Description of Debt Securities and Related Guarantees—Defeasance” in the accompanying prospectus and satisfaction and discharge as described under “Description of Debt Securities and Related Guarantees—Satisfaction and Discharge” in the accompanying prospectus.

 

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The indenture and the notes will not limit the amount of indebtedness that may be incurred or the amount of securities which may be issued by us, and contain no financial or similar restrictions on us, except as described under “Certain Covenants” below. The base indenture will provide that we may issue other series of debt securities thereunder.

The notes will be issued in the aggregate initial principal amount set forth on the cover of this prospectus supplement, subject to our ability to issue additional notes as described under “—Further Issuances.”

The Guarantees

The notes will be fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of our direct and indirect, wholly owned subsidiaries that guarantee our Credit Agreement, subject to release as described below. Subject to the completion of the Exchange Offer and effectiveness of the Proposed Indigo Amendments, Indigo and its subsidiaries, as applicable, are expected to become guarantors under our Credit Agreement, the notes offered hereby and our other outstanding senior notes, including the notes in exchange for the Indigo Notes in the Exchange Offer, following consummation of the Indigo Merger. No assurance can be given as to whether these conditions will be satisfied. Each guarantee of the notes will be:

 

   

that guarantor’s senior unsecured debt obligation;

 

   

equal in right of payment with all of that guarantor’s other present and future senior unsecured indebtedness, including that guarantor’s guarantee of our outstanding senior notes;

 

   

effectively subordinated to any of that guarantor’s secured indebtedness, including that guarantor’s obligations under the Credit Agreement, to the extent of the value of the collateral securing such indebtedness; and

 

   

structurally subordinated to any indebtedness of subsidiaries of that guarantor that are not also guarantors.

If, in the future, any of our non-guarantor subsidiaries guarantees, becomes a borrower or guarantor under, or grants any lien to secure certain indebtedness of us or a subsidiary guarantor, as described below under “Certain Covenants—Future Guarantors,” then we will cause such subsidiary to become a guarantor of the notes by executing a supplement to the indenture and delivering such supplement to the trustee promptly (but in any event, within ten business days of the date on which it guaranteed or incurred such obligations or granted such lien, as the case may be). In the event of a bankruptcy, liquidation or reorganization of any subsidiary that does not guarantee the notes, such non-guarantor subsidiary will pay the holders of its debt or debt it guarantees and its trade creditors before it will distribute any of its assets to us.

The obligations of each guarantor under its subsidiary guarantee will be limited as necessary to prevent that subsidiary guarantee from constituting a fraudulent conveyance under applicable law. If a subsidiary guarantee is rendered voidable, it could be subordinated by a court to all other debt (including guarantees and other contingent liabilities) of the applicable guarantor, and, depending on the amount of such debt, a guarantor’s liability on its subsidiary guarantee could be reduced to zero.

The indenture will limit the ability of a guarantor to consolidate with or merge with or into any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets and the properties or assets of its subsidiaries (taken as a whole with the properties or assets of such guarantor) to another person in one or more related transactions.

 

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Each of our subsidiaries’ guarantees will be released:

(1)         in connection with any sale or other disposition of all or substantially all of the properties or assets of, or all of our direct or indirect limited partnership, limited liability company or other equity interests in, that guarantor (including by way of merger or consolidation) to a person that is not (either before or after giving effect to such transaction) an affiliate of us;

(2)        upon the merger of the guarantor into us or any other guarantor or the liquidation or dissolution of the guarantor;

(3)        upon legal defeasance or covenant defeasance as described in the accompanying prospectus under the caption “Description of Debt Securities and Related Guarantees—Defeasance” or upon satisfaction and discharge of the indenture as described in the accompanying prospectus under the caption “Description of Debt Securities and Related Guarantees—Satisfaction and Discharge”; or

(4)        upon delivery of written notice to the trustee of the release of all guarantees or other obligations of the guarantor under the Credit Agreement and any future credit facility or other indebtedness for money borrowed that required that guarantor to guarantee the notes under the covenant described below under “—Certain Covenants—Future Guarantors” such that the subsidiary would not be required to be a guarantor under such covenant.

If at any time following any release of a guarantor from its guarantee of the notes pursuant to clause (4) in the preceding paragraph, the guarantor again incurs obligations under the Credit Agreement or any future credit facility or other indebtedness for money borrowed such that the subsidiary would be required to be a guarantor under the second paragraph of this covenant, then we will cause the guarantor to again guarantee the notes in accordance with the indenture.

Interest

Interest will accrue on the notes at the rate of         % per year from the date of issuance. We will make interest payments on the notes semi-annually in arrears on              and             of each year, commencing on        , 2022 to the person in whose name such notes are registered at the close of business on the immediately preceding             and             , as applicable. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months.

If an interest payment date for the notes falls on a day that is not a business day, the interest payment shall be postponed to the next succeeding business day, and no interest on such payment shall accrue for the period from and after such interest payment date.

Further Issuances

We may from time to time, without notice to or the consent of the registered holders of the notes, create and issue further notes having the same terms as the notes in all respects (or in all respects other than the payment of interest accruing prior to the issue date of such further notes or except for the first payment of interest following the issue date of such further notes). Such further notes will form a single series with the notes and have substantially similar terms as to status, optional redemption or otherwise as the notes (subject to any further notes having special mandatory redemption features in connection with future acquisitions or otherwise), provided that the further notes will have a separate CUSIP number unless (i) the further notes have no more than a de minimis amount of original issue discount for U.S. federal income tax purposes or (ii) such issuance would constitute a “qualified reopening” for U.S. federal income tax purposes.

 

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Optional Redemption

On or after             , 2025, we may on any one or more occasions redeem all or a part of the notes, upon notice as provided in the indenture, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, on the notes redeemed, to, but excluding, the applicable date of redemption, if redeemed during the twelve-month period beginning on             of the years indicated below, subject to the rights of holders of notes on the relevant record date to receive interest due on the relevant interest payment date:

 

Year

   Percentage  

2025

    

2026

    

2027

    

2028 and thereafter

     100.000

At any time prior to         , 2025, we may on any one or more occasions redeem all or a part of the notes, upon notice as provided in the indenture, at a redemption price equal to 100% of the principal amount of the notes redeemed, plus the relevant Applicable Premium, and accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to the rights of holders of notes on the relevant record date to receive interest due on the relevant interest payment date.

If the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the person in whose name the note is registered at the close of business on such record date. We will send or cause to be sent a notice of redemption at least 15 days but not more than 60 days before the redemption date to each holder of the notes to be redeemed at its registered address, except that redemption notices may be sent more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may be subject to satisfaction or waiver of one or more conditions precedent specified in the notice of redemption.

Unless we default in payment of the redemption price or a condition to the redemption as specified in the notice of redemption is not satisfied, on and after the redemption date, interest will cease to accrue on the notes or portions thereof called for redemption. Notes called for redemption become due on the date fixed for redemption, subject to satisfaction or waiver of any conditions specified in the notice of redemption. If less than all of the notes are to be redeemed, the trustee will select notes for redemption as follows:

(1)        if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or

(2)        if the notes are not so listed, on a pro rata basis (subject to the procedures of DTC) or, to the extent a pro rata basis is not permitted, by lot or in such other manner as the trustee shall deem to be fair and appropriate.

However, no note of $2,000 in principal amount or less shall be redeemed in part. If any note is to be redeemed in part only, the notice of redemption relating to such note will state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion will be issued in the name of the holder thereof upon cancellation of the original note.

Change of Control Event

If a change of control event occurs with respect to the notes, each holder of the notes will have the right, pursuant to the terms set forth in the indenture, to require us to repurchase all or any part (in any amount equal to $2,000 or an integral multiple as specified of $1,000 in excess thereof) of such holder’s notes at a purchase price

 

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in cash equal to 101% of the principal amount of such notes plus accrued and unpaid interest, if any, to, but excluding, the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Within 30 days following a change of control event, if we have not (prior to the change of control event) sent a redemption notice for the notes in connection with any optional redemption that may be permitted by the indenture, we will give a notice (the “change of control offer”) to each note holder to which this provision applies, with a copy to the trustee (or we will otherwise comply with DTC procedures for the giving of such notice, if any), stating:

(1)        that a change of control event has occurred and that such holder has the right to require us to purchase such holder’s notes at a purchase price in cash equal to 101% of the principal amount of such notes plus accrued and unpaid interest, if any, up to but excluding the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date) (the “change of control payment”);

(2)        the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is sent) (the “change of control payment date”);

(3)        that any note not properly tendered will remain outstanding and continue to accrue interest;

(4)        that unless we default in the payment of the change of control payment, all notes accepted for payment pursuant to the change of control offer will cease to accrue interest on the change of control payment date;

(5)        that holders electing to have any notes purchased pursuant to a change of control offer will be required to surrender such notes (or otherwise comply with applicable DTC procedures), with the form entitled “Option of Holder to Elect Purchase” on the reverse of such notes completed, to the paying agent specified in the notice at the address specified in the notice prior to the close of business on the Business Day preceding the change of control payment date;

(6)        that holders will be entitled to withdraw their tendered notes and their election to require us to purchase such notes, provided that the paying agent receives, not later than the close of business on the Business Day preceding the change of control payment date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder of the notes, the principal amount of notes tendered for purchase, and a statement that such holder is withdrawing its tendered notes and its election to have such notes purchased (or such holder complies with applicable DTC procedures for withdrawals);

(7)        that holders electing to have their notes purchased pursuant to a change of control offer must specify the principal amount that is being tendered for purchase. The principal amount of the portion of notes tendered must be equal to $2,000 or an integral multiple of $1,000 thereafter;

(8)        any conditions to the change of control offer;

(9)        the procedures determined by us, consistent with the indenture, that a holder must follow in order to have its notes repurchased; and

(10)        any other information necessary to enable any holder to tender debt securities and to have such debt securities purchased pursuant to the indenture.

On the change of control payment date, we will, to the extent lawful:

(1)        accept for payment all notes or portions of notes (of at least $2,000 or an integral multiple of $1,000 thereafter) properly tendered and not properly withdrawn pursuant to the change of control offer;

 

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(2)        deposit with the paying agent an amount equal to the change of control payment in respect of all notes or portions of notes accepted for payment; and

(3)        deliver or cause to be delivered to the trustee the notes so accepted together with an officer’s certificate stating the aggregate principal amount of notes or portions of notes being purchased by us.

The paying agent will promptly send to each holder of notes properly tendered and not properly withdrawn the change of control payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each such new note will be in a principal amount of $2,000 or an integral multiple of $1,000 thereafter.

If the change of control payment date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, will be paid to the person in whose name a note is registered at the close of business on such record date, and no further interest will be payable to holders who tender pursuant to the change of control offer.

The provisions described above will be applicable to any change of control event whether or not any other provisions of the indenture are applicable. Except as described above with respect to a change of control event, the indenture will not contain provisions that permit the holders to require us to repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

We will not be required to make a change of control offer upon a change of control event if a third party makes the change of control offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a change of control offer made by us and purchases all notes validly tendered and not withdrawn under such change of control offer.

We will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes as a result of a change of control event. To the extent that the provisions of any securities laws or regulations conflict with provisions of the indenture, or compliance with the change of control event provisions of the indenture would constitute a violation of any such laws or regulations, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations described in the indenture by virtue of our compliance with such securities laws or regulations.

Our ability to repurchase notes pursuant to a change of control offer may be limited by a number of factors. The occurrence of certain of the events that constitute a change of control would constitute a default under the Credit Agreement. In addition, certain events that may constitute a change of control under the Credit Agreement and cause a default under the Credit Agreement will not constitute a change of control or a change of control event under the indenture. Our future indebtedness or that of our subsidiaries may also contain prohibitions of certain events that would constitute a change of control or require such indebtedness to be repurchased upon a change of control or a change of control event. Moreover, the exercise by the holders of their right to require us to repurchase the notes following a change of control in connection with a change in control event could cause a default under such indebtedness, even if the change of control itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the holders upon a repurchase may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.

Even if sufficient funds were otherwise available, the terms of the Credit Agreement and other and/or future indebtedness may prohibit our prepayment or repurchase of notes before their scheduled maturity. Consequently, if we are not able to prepay any such other indebtedness containing similar restrictions or obtain requisite consents, we will be unable to fulfill our repurchase obligations if holders of notes exercise their repurchase

 

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rights following a change of control, resulting in a default under the indenture. A default under the indenture may result in a cross-default under the Credit Agreement. The provisions described above may deter certain mergers, tender offers and other takeover attempts involving us. The change of control purchase feature is a result of negotiations between the underwriters of the notes and us. We have no present intention to engage in a transaction involving a change of control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a change of control or a change of control event under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional indebtedness are contained in the covenants described under “Certain Covenants—Limitation on Liens” and “Certain Covenants—Limitation on Sale and Leaseback Transactions.” Such restrictions in the indenture can be waived only with the consent of the holders of a majority in principal amount of the notes then outstanding. Except for the limitations contained in such covenants, however, the indenture will not contain any covenants or provisions that may afford holders of the notes protection in the event of a highly leveraged transaction.

The definition of “change of control” includes a disposition of all or substantially all of the assets of Southwestern Energy Company (determined on a consolidated basis). Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the property or assets of a person. As a result, it may be unclear as to whether a change of control has occurred and whether a holder of notes may require us to make an offer to repurchase the notes as described above.

The provisions under the indenture relative to our obligation to make an offer to repurchase the notes as a result of a change of control event may be waived or modified or terminated with the written consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the notes) prior to the occurrence of such change of control event.

Certain Covenants

Except as described below, we will not be restricted by the indenture from incurring, assuming or becoming liable for any type of debt or other obligations, from paying dividends or making distributions on our capital stock or purchasing or redeeming our capital stock. The indenture will not require the maintenance of any financial ratios or specified levels of net worth or liquidity. In addition, with certain exceptions, the indenture will not contain any covenants or other provisions that would limit our right to incur additional indebtedness. The indenture will not contain any provisions that would require us to repurchase or redeem or otherwise modify the terms of the notes upon certain events (other than a change of control event) that may adversely affect the creditworthiness of the notes, for example, a highly leveraged transaction.

Limitation on Liens

We will not, and will not permit any of our subsidiaries to, incur, assume or guarantee any indebtedness for borrowed money secured by a lien on (a) productive property, (b) any principal transmission facility or (c) any shares of stock of any subsidiary (collectively, (a), (b) and (c), “principal property”), if the sum, without duplication, of:

 

   

the aggregate principal amount of all secured debt (other than secured debt referred to in clauses (i)-(vii) below); and

 

   

all attributable debt of us or our subsidiaries in respect of sale and leaseback transactions involving any principal property (other than sale and leaseback provisions permitted pursuant to the second paragraph of the covenant “—Limitation on sale and leaseback transactions” below),

 

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exceeds the greatest of (i) $2.0 billion, (ii) 25% of our ACNTA at the time of incurrence and (iii) with respect to borrowings under the Credit Agreement, the “borrowing base” as defined below, unless we provide that the notes will be secured equally and ratably with (or, at our option, prior to) such secured debt.

The provisions described in the foregoing paragraph do not apply to liens incurred, assumed or guaranteed that do not arise from indebtedness for borrowed money and, without limiting the foregoing, also do not apply to liens on principal property:

 

  (i)   upon any principal property (including any related contract rights) existing at the time of acquisition thereof by us or any of our subsidiaries (whether such acquisition is direct or by acquisition of stock, assets or otherwise, provided any such lien is not incurred in contemplation of such acquisition);

 

  (ii)   securing indebtedness under credit facilities of any subsidiary, provided that the aggregate principal amount of any indebtedness under such credit facilities shall not exceed $500.0 million at any time outstanding;

 

  (iii)   upon or with respect to any property (including any related contract rights) acquired, constructed, refurbished or improved by us or any of our subsidiaries (including, but not limited to, liens to secure all or any part of the cost of construction, alteration or repair of any building, equipment, facility or other improvement on, all or any part of such property, including any pipeline financing) after the date of the indenture which are created, incurred or assumed contemporaneously with, or within 360 days after, the latest to occur of the acquisition (whether by acquisition of stock, assets or otherwise), completion of construction, refurbishment or improvement, or the commencement of commercial operation, of such property (or, in the case of liens on contract rights, the completion of construction or the commencement of commercial operation of the facility to which such contract rights relate, regardless of the date when the contract was entered into) to secure or provide for the payment of any part of the purchase price of such property or the cost of such construction, refurbishment or improvement; provided, however, that in the case of any such construction, refurbishment or improvement, the lien shall relate only to indebtedness reasonably incurred to finance such construction, refurbishment or improvement;

 

  (iv)   securing indebtedness owing by any of our subsidiaries to us or to other subsidiaries;

 

  (v)   arising from the deposit of funds or securities in trust for the purpose of decreasing or defeasing indebtedness;

 

  (vi)   for the sole purpose of extending, renewing or replacing (or successive extensions, renewals or replacements), in whole or in part, any lien referred to in the foregoing subsections (i) or (iii) or above or this subsection (vi); provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or part of the property subject to the lien so extended, renewed or replaced (plus refurbishment of or improvements on or to such property); and

 

  (vii)   any ordinary course lien arising, but only so long as continuing, in the ordinary course of our business or the business of our subsidiaries.

In all of the cases set forth above, notwithstanding any stated limitation on the assets that may be subject to such lien, a lien on a specified asset or group or type of assets may include liens on all improvements, additions and accessions thereto and all products and proceeds thereof (including, without limitation, dividends, distributions and increases in respect thereof).

 

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Limitation on Sale and Leaseback Transactions.

Neither we nor any of our subsidiaries may enter into, assume, guarantee or otherwise become liable with respect to any sale and leaseback transaction involving any principal property, unless after giving effect thereto the sum of all attributable debt in respect of such sale and leaseback transactions (other than those referred to in the following paragraph) does not exceed $250.0 million.

This restriction shall not apply to any sale and leaseback transaction (A) between us and any of our subsidiaries or between any of our subsidiaries or (B) for which, at the time the transaction is entered into, the term of the related lease to us or our subsidiary of the property sold pursuant to such transaction is three years or less.

Future Guarantors

The indenture will provide that if, in the future, any subsidiary of ours that is not a guarantor of the notes (a “non-guarantor subsidiary”) subsequently becomes a borrower or guarantor under, or grants a lien to secure, any indebtedness of ours or of a subsidiary guarantor under (i) the Credit Agreement or any future credit facility or (ii) any other indebtedness for borrowed money, in each case with an outstanding principal amount in excess of $500.0 million, then we will cause that non-guarantor subsidiary to become a guarantor of the notes by executing a supplement to the indenture and delivering such supplement to the trustee promptly (but in any event within ten business days) following the date that that such non-guarantor subsidiary so subsequently becomes a borrower or guarantor under or so grants a lien to secure such indebtedness of ours or of a subsidiary guarantor. No such subsidiary shall be required to become a guarantor of the notes if it merges into us or merges into an existing subsidiary guarantor and the surviving entity remains a subsidiary guarantor. Such subsidiary shall be released from its guarantee of the notes as described under “—The Guarantees” above.

Definitions

Under the indenture:

 

   

ACNTA” means (without duplication), as of the date of determination:

 

  (a)   the sum of:

 

  (i)   discounted future net revenue from proved crude oil and natural gas reserves of us and our subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated in a reserve report prepared as of the end of the our most recently completed fiscal year, which reserve report is prepared or audited by independent petroleum engineers as to at least 80% of the value of the reserves covered thereby, provided, however, that in lieu of using commodities prices and costs determined under SEC guidelines in such reserve report and for all purposes of this definition, such discounted future net revenue shall be adjusted using NYMEX prices after giving further effect to commodity derivatives contracts in effect on the date of determination and estimates of costs in light of prevailing market conditions in effect as of the date of determination, in each case as determined in good faith by us, as increased by, as of the date of determination, the discounted future net revenue before any state or federal income taxes of:

(A) estimated proved crude oil and natural gas reserves of us and our subsidiaries attributable to acquisitions consummated since the date of such year-end reserve report, and

(B) estimated proved crude oil and natural gas reserves of us and our subsidiaries attributable to extensions, discoveries and other additions and upward determinations of estimates of proved crude oil and natural gas reserves (including previously estimated development costs incurred during the period and the accretion of discount since the prior year-end) due to exploration, development or exploitation, production or other activities which reserves were not reflected in such year-end reserve report (as adjusted for pricing and costs as set forth above),

 

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in the case of the determination made under each of clauses (A) and (B) above, calculated in accordance with SEC guidelines (except utilizing commodities prices and costs as set forth above) before any state or federal income taxes, and as decreased by, as of the date of determination, the discounted future net revenue before any state or federal income taxes attributable to:

(C) estimated proved crude oil and natural gas reserves of us and our subsidiaries reflected in such year-end reserve report (as adjusted for pricing and costs as set forth above) produced or disposed of since the date of such year-end reserve report, and

(D) reductions in the estimated proved crude oil and natural gas reserves of us and our subsidiaries reflected in such year-end reserve report (as adjusted for pricing and costs as set forth above)

since the date of such year-end reserve report attributable to downward determinations of estimates of proved crude oil and natural gas reserves due to exploration, development or exploitation, production or other activities conducted or otherwise occurring since the date of such year-end reserve report, in each case calculated in accordance with SEC guidelines (except utilizing the commodities prices and costs as set forth above) before any state or federal income taxes;

provided, however, that, in the case of each of the determinations made pursuant to clauses (A) through (D) above, such increases and decreases shall be as estimated in good faith by us;

 

  (ii)   the capitalized costs that are attributable to crude oil and natural gas properties of us and our subsidiaries to which no proved crude oil and natural gas reserves are attributed, based on our books and records as of a date no earlier than the date of our latest annual or quarterly financial statements;

 

  (iii)   the net working capital, excluding unrealized gains and losses related to unsettled derivatives, on a date no earlier than the date of our latest annual or quarterly financial statements; and

 

  (iv)   the greater of (I) the net book value on a date no earlier than the date of our latest annual or quarterly financial statements and (II) the appraised value, as estimated by independent appraisers within the immediately preceding 12 months, of other tangible assets of us and our subsidiaries (provided that we shall not be required to obtain such an appraisal of such assets if no such appraisal has been performed);

minus

 

  (b)   to the extent not otherwise taken into account in the immediately preceding clause (a), the sum of:

 

  (i)   minority interests;

 

  (ii)   any net gas or other balancing liabilities of us and our subsidiaries reflected in the our latest audited consolidated financial statements;

 

  (iii)   the discounted future net revenue, calculated in accordance with SEC guidelines (except utilizing the commodities prices and costs set forth above) before any state or federal income taxes, attributable to reserves that are required to be delivered to third parties to fully satisfy the obligations of us and our subsidiaries with respect to volumetric production payments on the schedules specified with respect thereto; and

 

   

the discounted future net revenue, calculated in accordance with SEC guidelines before any state or federal income taxes, attributable to reserves subject to dollar denominated production payments that, based on the estimates of production included in determining the discounted future net revenue specified in the immediately preceding clause (a)(i) (except utilizing the commodities prices and costs set forth above), would be necessary to satisfy fully the obligations of us and our subsidiaries with respect to dollar denominated production payments on the schedules specified with respect thereto.

 

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applicable premium” means, with respect to any note at the time of computation, the excess, if any, of:

 

   

the present value at such time of (i) the redemption price of the note at                , 2025 (such redemption price being set forth in the table appearing under “—Optional Redemption” above) plus (ii) all required interest payments due on the note through                 , 2025, (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate as of such time plus 50 basis points discounted to the redemption date on a semi-annual basis (assuming a 360 day year consisting of twelve 30-day months); over

 

   

the principal amount of the note.

 

   

attributable debt” means, in respect of a sale and leaseback transaction, as at the time of determination, the present value (discounted at the interest rate borne by the notes, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended); provided, however, that if such sale and leaseback transaction results in a finance lease obligation, the amount of indebtedness represented thereby will be determined in accordance with the definition of “finance lease obligation.”

 

   

borrowing base” means, with respect to borrowings under the credit agreement and any amendment to and/or modification or replacement thereof in the form of a reserve-based borrowing base credit facility, in each case with lenders that include commercial banks regulated by the U.S. Office of the Comptroller of the Currency, the maximum amount determined or re-determined by the lenders thereunder as the aggregate lending value to be ascribed to the oil and gas properties and other assets of Southwestern Energy Company and its subsidiaries against which such lenders are prepared to provide loans, letters of credit or other indebtedness to Southwestern Energy Company and its subsidiaries under the Credit Agreement, using customary practices and standards for determining reserve-based loans and which are generally applied to borrowers in the oil and gas business by commercial lenders, as determined semi-annually during each year and/or on such other occasions as may be required or provided for by the credit agreement, and which is based upon, inter alia, the review by such lenders of the hydrocarbon reserves, royalty interests and assets and liabilities of Southwestern Energy Company and its subsidiaries.

 

   

capital stock” means, as to any person, any and all shares, units of beneficial interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such person, including any preferred stock, but excluding any debt securities or other indebtedness convertible into such equity.

 

   

change of control” means the occurrence of any of the following:

 

   

any “person,” as such term is used in Section 13(d)(3) of the Exchange Act, becoming the beneficial owner, directly or indirectly, of more than 50% of the voting power of the voting stock of Southwestern Energy Company; provided that a transaction in which Southwestern Energy Company becomes a subsidiary of another person shall not constitute a change of control if, immediately following such transaction, (i) the persons who were stockholders of Southwestern Energy Company immediately prior to such transaction continue to beneficially own, directly or indirectly through one or more intermediaries, 50% or more of the voting power of the outstanding voting stock of such other person of whom Southwestern Energy Company has become a subsidiary and (ii) no person other than such other person of whom Southwestern Energy Company has become a subsidiary beneficially owns, directly or indirectly, more than 50% of the voting power of the voting stock of Southwestern Energy Company;

 

   

the merger or consolidation of Southwestern Energy Company with or into another person or the merger of another person with or into Southwestern Energy Company, or the sale, lease or other disposition of all or substantially all the assets of Southwestern Energy Company (determined on a consolidated basis) to another person, other than (i) (A) a transaction following which in the case of a

 

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merger or consolidation transaction, holders of securities that represented 100% of the voting stock of Southwestern Energy Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the voting stock of the surviving person (or any parent thereof) in such merger or consolidation transaction immediately after such transaction or (B) a transaction that would be permitted under the proviso to clause (a) of this definition of “change of control” or (b) in the case of a sale, lease or other disposition of all or substantially all assets transaction, a transaction in which each transferee becomes an obligor in respect of the notes and a subsidiary of the transferor of such assets; or

 

   

the adoption of a plan relating to the liquidation or dissolution of Southwestern Energy Company.

 

   

change of control event” means the occurrence of either of the following: (i) if the notes do not have an investment grade rating from both of the rating agencies on the first day of the trigger period, the notes are downgraded by at least one rating category (e.g., from BB+ to BB or Ba1 to Ba2) from the applicable rating of the notes on the first day of the trigger period by both of the rating agencies on any date during the trigger period, or (ii) if the notes have an investment grade rating from both of the rating agencies on the first day of the trigger period, the notes cease to have an investment grade rating from both of the ratings agencies on any date during the trigger period; provided, however, that for so long as any of our existing senior notes are outstanding, if we are required to offer to purchase any such existing senior notes as a result of the occurrence of a change of control (as defined in such existing senior notes), then the occurrence of such change of control shall constitute a change of control event. For purposes of the foregoing, “existing senior notes” means our 4.10% senior notes due 2022, our 4.95% senior notes due 2025, our 7.50% senior notes due 2026, our 7.75% senior notes due 2027 and our 8.375% senior notes due 2028.

If a rating agency is not providing a rating for the notes at the commencement of the trigger period, a change of control event shall be deemed to have occurred with respect to such rating agency as a result of the related change of control. Notwithstanding the foregoing, no change of control event will be deemed to have occurred in connection with any particular change of control unless and until such change of control has actually occurred.

 

   

Credit Agreement” means that certain Credit Agreement, dated as of April 26, 2018, by and among Southwestern Energy Company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, as amended, restated, modified, renewed, refunded, replaced in any manner (whether upon or after termination or otherwise) or refinanced in whole or in part from time to time, in each case with one or more reserve-based borrowing base credit facilities with lenders that include commercial banks regulated by the U.S. Office of the Comptroller of the Currency.

 

   

credit facilities” means one or more debt facilities (including, without limitation, our senior credit facility), indentures or commercial paper facilities, in each case with banks, investment banks, insurance companies, mutual funds and/or other institutional lenders or investors providing for debt financing, revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from (or sell receivables to) such lenders against such receivables) or letters of credit, in each case, as amended, extended, restated, renewed, refunded, replaced or refinanced (in each case with credit facilities), supplemented or otherwise modified (in whole or in part and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time.

 

   

finance lease obligation” means an obligation that is required to be classified and accounted for as a finance lease for financial reporting purposes in accordance with GAAP, and the amount of indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

 

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GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are in effect on the date of the indenture.

 

   

hydrocarbons” means oil, natural gas, casing head gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.

 

   

investment grade rating” means a rating equal to or greater than (i) BBB- by S&P or (ii) Baa3 by Moody’s or (iii) the equivalent thereof under any new ratings system if the ratings system of either such agency shall be modified after the date hereof, or (iv) the equivalent rating of any other ratings agency selected by Southwestern Energy Company as provided by the definition of ratings agency.

 

   

Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.

 

   

net working capital” means:

 

  (a)   all current assets of us and our subsidiaries, minus

 

  (b)   all current liabilities of us and our subsidiaries, except current liabilities included in indebtedness; in each case determined in accordance with GAAP.

 

   

NYMEX prices” means, as of any date of determination, the forward month prices for the most comparable hydrocarbon commodity applicable to such future production month for a five year period (or such shorter period if forward month prices are not quoted for a reasonably comparable hydrocarbon commodity for the full five year period), with such prices held constant thereafter based on the last quoted forward month price of such period, as such prices are (i) quoted on the New York Mercantile Exchange (or its successor) as of a date within 30 days of the date of determination and (ii) adjusted for energy content, quality and basis differentials; provided that with respect to estimated future production for which prices are defined, within the meaning of SEC guidelines, by contractual arrangements excluding escalations based upon future conditions, then such contract prices shall be applied to future production subject to such arrangements.

 

   

oil and gas business” means (i) the acquisition, exploration, exploitation, development, production, treatment, operation, servicing, processing, refining and disposition of interests in oil, gas and other hydrocarbon properties (including the acquisition of properties and interests therein that we in our reasonable judgment deem necessary or appropriate for the activities described in the foregoing), (ii) the gathering, marketing, treating, processing, storage, selling and transporting of any production from such interests or properties, (iii) any business relating to exploration for or exploitation, development, production, treatment, operation, servicing, processing, refining, storage, transportation or marketing of oil, natural gas and other hydrocarbon product and other minerals and products produced in association therewith and (iv) any activity that is ancillary or incidental to or necessary or appropriate for the activities described in clauses (i) through (iii) of this definition.

 

   

oil and gas properties” means all properties, including equity or other ownership interest therein, owned by such person or any of its subsidiaries which contain or are believed to contain “proved oil and gas reserves” as defined in Rule 4-10 of Regulation S-X of the Securities Act.

 

   

ordinary course lien” means any:

 

  (a)   lien incurred in the ordinary course of business to secure the obtaining of advances or the payment of the deferred purchase price of property;

 

  (b)   lien created by any interest or title of a lessor under any lease entered into by us or any subsidiary in the ordinary course of business and covering only the assets so leased;

 

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  (c)   liens arising from precautionary UCC financing statements or similar filings made in respect of operating leases;

 

  (d)   lien that is a contractual right of set-off (a) relating to the establishment of depository relations with banks not given in connection with the issuance of indebtedness, (b) relating to pooled deposits or sweep accounts to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business or (c) relating to purchase orders and other agreements entered in the ordinary course of business;

 

  (e)   oil, gas or mineral leases arising in the ordinary course of business where the liens arise from the rights of lessors;

 

  (f)   customary initial deposits and margin deposits and similar liens attaching to commodity trading accounts or other brokerage accounts that are not for speculative purposes and arise in the ordinary course of business;

 

  (g)   liens on cash and cash equivalents in favor of, and letters of credit issued for the benefit of, counterparties to swap agreements securing obligations under such swap agreements;

 

  (h)   lien arising from the sale or other transfer in the ordinary course of business of (A) crude oil, natural gas, other petroleum hydrocarbons or other minerals in place for a period of time until, or in an amount such that, the purchaser or other transferee will realize therefrom a specified amount of money (however determined) or a specified amount of such minerals, or (B) any other interest in property of the character commonly referred to as a “production payment,” “overriding royalty,” “forward sale” or similar interest;

 

  (i)   liens which may be attached to undeveloped real estate not containing oil or gas reserves presently owned by us in the ordinary course of our real estate, sales development and rental activities;

 

  (j)   liens in favor of the United States of America, any State, any foreign country or any department, agency, instrumentality or political subdivision of any such jurisdiction, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or cost of constructing, refurbishing, developing or improving any property subject thereto, including without limitation, liens to secure indebtedness of pollution control or industrial revenue bond type; and

 

  (k)   lien arising from any right which any municipal or governmental body or agency may have by virtue of any franchise, license, contract or statute to purchase, or designate a purchaser of or order the sale of, any property of us or any subsidiary upon payment of reasonable compensation therefor or to terminate any franchise, license or other rights or to regulate the property and business of us or any subsidiary.

 

   

principal transmission facility” means any transportation or distribution facility, including pipelines, of us or any subsidiary located in the United States of America other than (i) any such facility which in the opinion of our Board of Directors is not of material importance to the business conducted by us and its subsidiaries, taken as a whole, or (ii) any such facility in which interests are held by us or by one or more subsidiaries or by us and one or more subsidiaries and by others and the aggregate interest held by the Borrower and all Subsidiaries does not exceed 50%.

 

   

productive property” means any property interest owned by us or any subsidiary in land (including submerged land and rights in and to oil, gas and mineral leases) located in the United States of America classified by us or such subsidiary, as the case may be, as productive of crude oil, natural gas or other petroleum hydrocarbons in paying quantities; provided that such term shall not include any exploration or production facilities on said land, including any drilling or producing platform.

 

   

ratings agency” means any of (1) Moody’s, (2) S&P, or (3) if S&P or Moody’s ceases to rate the notes or ceases to make a rating on the notes publicly available, an entity registered as a “nationally recognized statistical rating organization” (registered as such pursuant to Section 3(a)(62) of the Exchange Act) then making a rating on the notes publicly available selected by Southwestern Energy Company (as certified by an officer’s certificate), which shall be substituted for S&P or Moody’s, as the case may be.

 

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sale and leaseback transaction” means any direct or indirect arrangement with any person or to which any such person is a party, providing for the leasing to us or our subsidiary of any property, whether owned at the date of the indenture or thereafter acquired, which has been or is to be sold or transferred by us or such subsidiary to such person or to any other person to whom funds have been or are to be advanced by such person on the security of such property, in each case provided that the completion of construction or the commencement of commercial operation of the property subject to such transaction shall have occurred more than 180 days prior thereto.

 

   

secured debt” means any indebtedness for borrowed money incurred, assumed or guaranteed by us or one of our subsidiaries that is secured by a lien.

 

   

S&P” means S&P Global Ratings, or any successor to the rating agency business thereof.

 

   

swap agreement” means (a) any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions, whether or not any such transaction is governed by or subject to any master agreement and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any master agreement; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of us or any of our subsidiaries shall be a “swap agreement.”

 

   

treasury rate” means, in respect of any redemption date, the yield to maturity, as of the time of computation, of the most recently issued United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 that has become publicly available at least two business days prior to such time (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to                , 2025; provided, however, that if the period from the redemption date to                , 2025, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. The Company will (a) calculate the treasury rate no later than the second (and no earlier than the fourth) business day preceding the applicable redemption date (or, in the case of any redemption in connection with a defeasance of the notes or a satisfaction and discharge of the indenture, on the business day preceding such event) and (b) prior to such redemption date, file with the trustee a statement setting forth the applicable premium and the treasury rate and showing the calculation of each in reasonable detail.

 

   

trigger period” means the period commencing on the day of the first public announcement (the “announcement date”) by us of any change of control (or pending change of control) and ending 60 days following consummation of such change of control (which trigger period will be extended following consummation of a change of control for so long as either of the rating agencies has publicly announced that it is considering a possible ratings downgrade related to such change of control).

 

   

volumetric production payments” mean production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.

 

   

voting stock” of a person means all classes of capital stock of such person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

 

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Regarding the Trustee

Regions Bank will be the trustee under the indenture. We maintain banking and other commercial relationships with the trustee and its affiliates in the ordinary course of business. We may, but need not, designate more than one trustee under the indenture, each with respect to the notes. The trustee under the indenture may resign or be removed with respect to the notes, and we may appoint a successor trustee to act with respect to the notes. We maintain banking and other commercial relationships with the trustee and its affiliates in the ordinary course of business.

The indenture will not prohibit the trustee from serving as trustee under any other indenture to which we may be a party from time to time or from engaging in other transactions with us. If the trustee acquires any conflicting interest within the meaning of the Trust Indenture Act and any debt securities issued pursuant to any indenture are in default, it must eliminate such conflict or resign.

 

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FORM, BOOK-ENTRY PROCEDURES AND TRANSFER

General

The notes will be issued initially only in the form of one or more global notes (collectively, the “global notes”). The global notes will be deposited upon issuance with the trustee as custodian for DTC and registered in the name of DTC or its nominee, in each case, for credit to an account of a direct or indirect participant in DTC as described below. Beneficial interests in the global notes may be held only through the Euroclear System (“Euroclear”) and Clearstream Banking, S.A. (“Clearstream”) (as indirect participants in DTC), unless transferred to a person that takes delivery through a global note in accordance with the certification requirements described below.

Except as set forth below, the global notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for definitive notes in registered certificated form (“certificated notes”) except in the limited circumstances described below. See “—Exchange of Book-Entry Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the global notes will not be entitled to receive physical delivery of notes in certificated form.

In addition, transfers of beneficial interests in the global notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.

Depositary Procedures

The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.

DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the “participants”) and to facilitate the clearance and settlement of transactions in those securities between the participants through electronic book-entry changes in accounts of its participants. The participants include securities brokers and dealers (including the underwriters, banks, trust companies, clearing corporations and certain other organizations). Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (collectively, the “indirect participants”). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

DTC has also advised us that, pursuant to procedures established by it:

(1)        upon deposit of the global notes, DTC will credit the accounts of the participants designated by the underwriters with portions of the principal amount of the global notes; and

(2)        ownership of these interests in the global notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and the indirect participants (with respect to other owners of beneficial interest in the global notes).

Investors in the global notes who are participants may hold their interests therein directly through DTC. Investors in the global notes who are not participants may hold their interests therein indirectly through

 

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organizations (including Euroclear and Clearstream) which are participants. Euroclear and Clearstream will hold interests in the global notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositaries, which are Euroclear Bank SA/NV, as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a global note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some jurisdictions may require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a global note to such persons will be limited to that extent. Because DTC can act only on behalf of the participants, which in turn act on behalf of the indirect participants, the ability of a person having beneficial interests in a global note to pledge such interests to persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of interests in the global notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or “holders” thereof under the indenture for any purpose.

Payments in respect of the principal of, premium, if any, on, and interest, if any, on, a global note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the trustee will treat the persons in whose names the notes, including the global notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither we nor the trustee will have any responsibility or liability for:

(1)        any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interest in the global notes or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to the beneficial ownership interests in the global notes; or

(2)        any other matter relating to the actions and practices of DTC or any of its participants or indirect participants.

DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the responsibility of us, DTC or the trustee. Neither we nor the trustee will be liable for any delay by DTC or any of the participants or the indirect participants in identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between the participants will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

Cross-market transfers between the participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by their respective depositaries; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements,

 

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deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant global note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream.

DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account DTC has credited the interests in the global notes and only in respect of such portion of the aggregate principal amount of the notes as to which such participant or participants has or have given such direction. However, if there is an event of default under the notes, DTC reserves the right to exchange the global notes for legended notes in certificated form, and to distribute such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the global notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Book-Entry Notes for Certificated Notes

Notes in physical, certificated form will be issued and delivered to, and registered in the name of, each person that DTC identifies as a beneficial owner of the related notes only if:

 

   

DTC notifies us at any time that it is unwilling or unable to continue as depositary for the global notes and a successor depositary is not appointed within 90 days;

 

   

DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days;

 

   

we, at our option, notify the trustee that we elect to cause the issuance of certificated notes; or

 

   

certain other events provided in the indenture should occur, including the occurrence and continuance of an event of default under the indenture followed by a request from holders of the notes as provided in the indenture.

The indenture permits us to determine at any time and in our sole discretion that notes shall no longer be represented by global securities. DTC has advised us that, under its current practices, it would notify its participants of our request, but will only withdraw beneficial interests from the global security at the request of each DTC participant. We would issue definitive certificates in exchange for any beneficial interests withdrawn.

 

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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a discussion of U.S. federal income tax considerations generally applicable to the ownership and disposition of the notes issued pursuant to this offering. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations, possibly with retroactive effect. There can be no assurance the IRS or a court will not take a contrary position to those discussed below regarding the tax considerations of the ownership and disposition of the notes.

This discussion is limited to Non-U.S. Holders who hold the notes as “capital assets” within the meaning of the Code (generally, property held for investment). In addition, this discussion is limited to persons purchasing the notes for cash pursuant to this offering at the original issue price. This discussion does not address all U.S. federal income tax considerations relevant to a Non-U.S. Holder in light of its particular circumstances, including the impact of the Medicare tax on net investment income, nor does this discussion address the effects of other U.S. federal tax laws, such as estate and gift tax laws, or any applicable state, local or foreign tax laws. In addition, it does not address considerations relevant to Non-U.S. Holders subject to special rules, including, without limitation:

 

   

certain former citizens or long-term residents of the United States;

 

   

persons subject to the alternative minimum tax;

 

   

persons whose functional currency is not the U.S. dollar;

 

   

persons holding the notes as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;

 

   

banks, insurance companies, and other financial institutions;

 

   

real estate investment trusts or regulated investment companies;

 

   

brokers, dealers or traders in securities;

 

   

“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

   

S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);

 

   

tax-exempt organizations or governmental organizations;

 

   

persons deemed to sell the notes under the constructive sale provisions of the Code; and

 

   

persons subject to special tax accounting rules as a result of any item of gross income with respect to the notes being taken into account in an applicable financial statement.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSIDERATIONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

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Definition of a Non-U.S. Holder

For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of a note (other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that, for U.S. federal income tax purposes, is not and is not treated as:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

   

a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds the notes, the U.S. federal income tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding the notes and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax considerations of purchasing, owning and disposing of the notes.

Payments of Interest

Subject to the discussion of backup withholding and FATCA withholding below, interest paid on a note to a Non-U.S. Holder that is not effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (or, if required by an applicable tax treaty, such interest is not attributable to a permanent establishment maintained in the United States) will generally not be subject to U.S. federal income or withholding tax, provided that:

 

   

the Non-U.S. Holder does not, actually or constructively, own 10% or more of the total combined voting power of all classes of our voting stock;

 

   

the Non-U.S. Holder is not a controlled foreign corporation related to us through actual or constructive stock ownership; and

 

   

either (1) the Non-U.S. Holder certifies in a statement provided to the applicable withholding agent under penalties of perjury that it is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the note on behalf of the Non-U.S. Holder certifies to the applicable withholding agent under penalties of perjury that it, or the financial institution between it and the Non-U.S. Holder, has received from the Non-U.S. Holder a statement under penalties of perjury that such Non-U.S. Holder is not a United States person and provides a copy of such statement to the applicable withholding agent; or (3) the Non-U.S. Holder holds its note directly through a “qualified intermediary” (within the meaning of applicable Treasury Regulations) and certain conditions are satisfied.

If interest on the notes is not effectively connected with the conduct of a trade or business in the United States by a Non-U.S. Holder, but such Non-U.S. Holder does not satisfy the requirements above, interest on the notes will generally be subject to U.S. withholding tax at a 30% rate (or a lower applicable treaty rate). To claim a reduction in or an exemption from withholding as a result of an applicable tax treaty, the Non-U.S. Holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation).

 

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If interest paid to a Non-U.S. Holder is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such interest is attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a note is not subject to withholding tax because it is effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States.

Any such effectively connected interest will generally be subject to U.S. federal income tax at the regular graduated rates generally applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.

The certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. Holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

Sale or Other Taxable Disposition

Subject to the discussion of backup withholding below, a Non-U.S. Holder will generally not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange, redemption, retirement or other taxable disposition of a note unless:

 

   

the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); or

 

   

the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met.

Gain described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at the regular graduated rates generally applicable to U.S. persons. A Non-U.S. Holder that is a foreign corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any capital gain derived from the disposition, which may be offset by U.S. source capital losses of the Non-U.S. Holder, provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

Proceeds from the disposition of a note that are attributable to accrued but unpaid interest generally will be subject to, or exempt from, tax to the same extent as described above with respect to interest paid on a note, as discussed above in “—Payments of interest.”

Non-U.S. Holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

 

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Information Reporting and Backup Withholding

A Non-U.S. Holder will be required to comply with certain certification procedures to establish that the holder is not a U.S. person in order to avoid backup withholding with respect to our payments of principal and interest on, or the proceeds of the sale or other taxable disposition of, a note. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will generally be allowed as a refund or credit against that Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that certain required information is provided on a timely basis to the IRS. In addition, in certain circumstances, the name and address of the beneficial owner and the amount of interest paid on a note, as well as the amount of any tax withheld may be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides.

Additional Withholding Tax on Payments Made to Foreign Accounts

U.S. federal withholding taxes may be imposed under sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act, or “FATCA”) on certain types of payments made to certain foreign financial institutions (including investment funds). Specifically, a 30% U.S. federal withholding tax may be imposed on payments of interest in respect of a note paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each of its direct or indirect substantial United States owner to the applicable withholding agent (generally by providing a properly executed IRS Form W-8BEN-E), or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in the notes.

 

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UNDERWRITING

BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC are acting as the representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the principal amount of notes set forth opposite its name below.

 

Underwriter

   Principal Amount of
Notes
 

BofA Securities, Inc.

  

Citigroup Global Markets Inc.

  

J.P. Morgan Securities LLC

  

Credit Agricole Securities (USA) Inc.

  

Mizuho Securities USA LLC

  

MUFG Securities Americas Inc.

  

PNC Capital Markets LLC

  

RBC Capital Markets, LLC

  

Truist Securities, Inc.

  

Wells Fargo Securities, LLC

  

Regions Securities LLC

  

CIBC World Markets Corp.

  

Credit Suisse Securities (USA) LLC

  

HSBC Securities (USA) Inc.

  

SMBC Nikko Securities America, Inc.

  

Citizens Capital Markets, Inc.

  

Fifth Third Securities, Inc.

  

Goldman Sachs &Co. LLC

  
  

 

 

 

Total

   $ 1,000,000,000  
  

 

 

 

Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the notes sold under the underwriting agreement if any of these notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

We have agreed to indemnify the underwriters and their controlling persons against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the notes, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The representative has advised us that the underwriters propose initially to offer the notes to the public at the public offering prices set forth on the cover page of this prospectus supplement. In addition, the underwriters may offer the notes to certain dealers at prices that represent a concession not in excess of         % of the principal amount of the notes. Any underwriter may allow, and any such dealer may reallow, a concession not in excess of         % of the notes to certain other dealers. After the initial offering, the public offering price, concession or any other term of this offering may be changed.

 

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The following table shows the underwriting discount to be paid by us to the underwriters in connection with this offering:

 

     Paid by Us  

Per note

   $                

Total

   $                

The expenses of this offering, not including the underwriting discounts, are estimated at $            and are payable by us.

New Issue of Notes

The notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any national securities exchange or for inclusion of the notes on any automated dealer quotation system. We have been advised by certain of the underwriters that they presently intend to make a market in the notes after completion of this offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the notes or that an active public market for the notes will develop. If an active public trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected. If the notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our operating performance and financial condition, general economic conditions and other factors.

Short Positions

In connection with this offering of the notes, the underwriters may engage in overallotment, stabilizing transactions and syndicate covering transactions. Overallotment involves sales in excess of this offering size, which creates a short position for the underwriters. Stabilizing transactions involve bids to purchase the notes in the open market for the purpose of pegging, fixing or maintaining the price of the notes. Syndicate covering transactions involve purchases of the notes in the open market after the distribution has been completed in order to cover short positions. Stabilizing transactions and syndicate covering transactions may have the effect of preventing or retarding a decline in the market price of the notes or cause the price of the notes to be higher than it would otherwise be in the absence of those transactions. If the underwriters engage in stabilizing or syndicate covering transactions, they may discontinue them at any time. Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Extended Settlement

Delivery of the notes is expected to be made against payment therefor on or about                 , 2021, which is the tenth business day following the date of pricing of the notes (such settlement being referred to as “T+10”). Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in two business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes prior to the second trading day preceding the date on which we deliver the notes to the underwriters for this offering will be required, by virtue of the fact that the notes initially will settle in T+10, to specify an alternate settlement cycle at the time of any such trade to prevent failed settlement and should consult their own advisers.

 

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Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. Certain of the underwriters or their affiliates are lenders under our Credit Agreement and may hold the Tender Securities. Accordingly, certain of the underwriters or their affiliates may receive payments in respect of the Tender Securities and borrowings under our Credit Agreement that are repaid with the proceeds of this offering. If any underwriter or its affiliate receives 5% or more of the net proceeds of this offering, that underwriter will be deemed to have a conflict of interest within the meaning of FINRA Rule 5121.

In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the notes offered hereby. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Citigroup Global Markets Inc. and BofA Securities, Inc. are acting as lead dealer managers and lead solicitation agents in connection with the Tender Offers and Consent Solicitation. Credit Agricole Securities (USA) Inc., MUFG Securities Americas Inc., RBC Capital Markets LLC and Wells Fargo Securities LLC and are acting as co-dealer managers and co-solicitation agents in connection with the Tender Offers and Consent Solicitation.

Selling Restrictions

European Economic Area

The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”) For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended, the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation. This prospectus supplement has been prepared on the basis that any offer of notes in any Member State of the EEA will be made pursuant to an exemption under the Prospectus Regulation from the requirement to publish a prospectus for offers of notes. This prospectus supplement is not a prospectus for the purposes of the Prospectus Regulation.

The above selling restriction is in addition to any other selling restrictions set out below.

Notice to Prospective Investors in the United Kingdom

The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the United Kingdom (“UK”). For these purposes, a retail investor means a person who is one (or more) of (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act

 

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2018 (“EUWA”); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the “FSMA”) and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) 600/2014 as it forms part of domestic law by virtue of the EUWA; or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the EUWA (the “UK Prospectus Regulation”). Consequently no key information document required by Regulation (EU) 1286/2014 as it forms part of domestic law by virtue of the EUWA (the “UK PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation. This prospectus supplement has been prepared on the basis that any offer of notes in the UK will be made pursuant to an exemption under the UK Prospectus Regulation and the FSMA from the requirement to publish a prospectus for offers of notes. This prospectus supplement is not a prospectus for the purposes of the UK Prospectus Regulation or the FSMA.

This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.

Notice to Prospective Investors in Canada

The notes may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement or the accompanying prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Notice to Prospective Investors in Switzerland

This prospectus supplement does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations and the notes will not be listed on the SIX Swiss Exchange. Therefore, this prospectus supplement may not comply with the disclosure standards of the listing rules (including any additional listing rules or prospectus schemes) of the SIX Swiss Exchange. Accordingly, the notes may not be

 

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offered to the public in or from Switzerland, but only to a selected and limited circle of investors who do not subscribe to the notes with a view to distribution. Any such investors will be individually approached by the underwriters from time to time.

Notice to Prospective Investors in the Dubai International Financial Centre

This prospectus supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this prospectus supplement. The notes to which this prospectus supplement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the notes offered should conduct their own due diligence on the notes. If you do not understand the contents of this prospectus supplement you should consult an authorized financial advisor.

Notice to Prospective Investors in Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to this offering. This prospectus supplement does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the notes may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the notes without disclosure to investors under Chapter 6D of the Corporations Act.

The notes applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring notes must observe such Australian on-sale restrictions.

This prospectus supplement contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus supplement is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to Prospective Investors in Hong Kong

The notes have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the notes has been or may be issued or has been or may be in the possession of any

 

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person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Notice to Prospective Investors in Japan

The notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to Prospective Investors in Singapore

This prospectus supplement has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the notes were not offered or sold or caused to be made the subject of an invitation for subscription or purchase and will not be offered or sold or caused to be made the subject of an invitation for subscription or purchase, and this prospectus supplement or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes, has not been circulated or distributed, nor will it be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

  (a)   a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

  (b)   a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the notes pursuant to an offer made under Section 275 of the SFA except:

 

  (a)   to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

  (c)   where no consideration is or will be given for the transfer;

 

  (d)   where the transfer is by operation of law; or

 

  (e)   as specified in Section 276(7) of the SFA.

 

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LEGAL MATTERS

The validity of the issuance of the notes covered by this prospectus supplement will be passed upon for Southwestern Energy Company by Skadden, Arps, Slate, Meagher & Flom LLP, Houston, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Vinson & Elkins L.L.P., Houston, Texas.

EXPERTS

The financial statements and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control Over Financial Reporting) incorporated in this prospectus supplement by reference to the Annual Report on Form 10-K of Southwestern Energy Company for the year ended December 31, 2020 and the audited historical financial statements of Indigo Natural Resources LLC included in Southwestern Energy Company’s Current Report on Form 8-K dated July 2, 2021 have been so incorporated in reliance on the reports (which contains an explanatory paragraph on the effectiveness of internal control over financial reporting due to the exclusion of Montage Resources Corporation because it was acquired by Southwestern Energy Company in a purchase business combination during 2020) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The audited consolidated financial statements of Montage Resources Corporation incorporated by reference in this prospectus supplement and elsewhere in this registration statement have been so incorporated by reference in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.

Estimates of our oil and gas reserves and related future net cash flows and the present value thereof were based on a reserve audit prepared by Netherland, Sewell & Associates, Inc., Houston, Texas, an independent petroleum engineering firm. Those estimates are included or incorporated by reference in this prospectus supplement in reliance upon the authority of such firm as an expert in such matters.

Estimates of Indigo Natural Resources LLC’s oil and gas reserves and related future net cash flows and the present value thereof were based on a reserve report prepared by Netherland, Sewell & Associates, Inc., Dallas, Texas, an independent petroleum engineering firm. Those estimates are included or incorporated by reference in this prospectus supplement in reliance upon the authority of such firm as an expert in such matters.

 

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PROSPECTUS

 

LOGO

Southwestern Energy Company

Common Stock

Preferred Stock

Debt Securities

Guarantees of Debt Securities

Depositary Shares

Warrants

Purchase Contracts

Units

 

 

We may offer and sell the securities identified above from time to time in one or more offerings. This prospectus provides you with a general description of the securities.

Each time we offer and sell securities, we will provide a supplement to this prospectus that contains specific information about the offering and the amounts, prices and terms of the securities. The supplement may also add, update or change information contained in this prospectus with respect to that offering. You should carefully read this prospectus and the applicable prospectus supplement before you invest in any of our securities.

We may offer and sell the securities described in this prospectus and any prospectus supplement to or through one or more underwriters, dealers and agents, or directly to purchasers, or through a combination of these methods. If any underwriters, dealers or agents are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement. See the sections of this prospectus entitled “About this Prospectus” and “Plan of Distribution” for more information. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities.

 

 

INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE “RISK FACTORS” ON PAGE 5 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.

Our common stock is listed on the New York Stock Exchange under the symbol “SWN.” On August 13, 2021, the last reported sale price of our common stock on the New York Stock Exchange was $4.36 per share.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act of 1933, as amended, using a “shelf” registration process. By using a shelf registration statement, we may sell securities from time to time and in one or more offerings as described in this prospectus. Each time that we offer and sell securities, we will provide a prospectus supplement to this prospectus that contains specific information about the securities being offered and sold and the specific terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement, you should rely on the information contained in the applicable prospectus supplement. Before purchasing any securities, you should carefully read both this prospectus and the applicable prospectus supplement, together with the additional information described under the heading “Where You Can Find More Information; Incorporation by Reference.”

We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and the applicable prospectus supplement to this prospectus is accurate as of the date on its respective cover, and that any information incorporated by reference is accurate only as of the date of the document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.

When we refer to “Southwestern,” “we,” “our,” “us” and the “Company” in this prospectus, we mean Southwestern Energy Company and its consolidated subsidiaries, unless otherwise specified. When we refer to “you,” we mean the holders of the applicable series of securities. References in this prospectus to the “Subsidiary Guarantors” means one or more of our wholly owned subsidiaries that are listed as subsidiary guarantor registrants in the registration statement of which this prospectus forms a part.

 

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WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

Available Information

We file reports, proxy statements and other information with the SEC. The SEC maintains a web site that contains reports, proxy and information statements and other information about issuers, such as us, who file electronically with the SEC. The address of that web site is http://www.sec.gov.

Our website is www.swn.com. Any references in this prospectus or any prospectus supplement to our website are inactive textual references only, and the information contained on or that can be accessed through our website (except for the SEC filings expressly incorporated by reference herein) is not incorporated in, and is not a part of, this prospectus supplement or the accompanying prospectus, and you should not rely on any such information in connection with making an investment in any securities.

This prospectus and any prospectus supplement are part of a registration statement that we filed with the SEC and do not contain all of the information in the registration statement. The full registration statement may be obtained from the SEC or us, as provided below. Forms of the indenture and other documents establishing the terms of the offered securities are or may be filed as exhibits to the registration statement or our other SEC filings and incorporated by reference herein. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect a copy of the registration statement through the SEC’s website, as provided above.

Incorporation by Reference

The SEC’s rules allow us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, and subsequent information that we file with the SEC will automatically update and supersede that information. Any statement contained in a previously filed document incorporated by reference will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus modifies or replaces that statement.

We incorporate by reference our documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act” in this prospectus, between the date of this prospectus and the termination of the offering of the securities described in this prospectus. We are not, however, incorporating by reference any documents or portions thereof, whether specifically listed below or filed in the future, that are not deemed “filed” with the SEC, including our Compensation Committee report and performance graph or any information furnished pursuant to Item 2.02 or 7.01 of Form 8-K or related exhibits furnished pursuant to Item 9.01 of Form 8-K.

This prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously been filed with the SEC:

 

   

Our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021;

 

   

Those portions of our Definitive Proxy Statement on Schedule 14A that was filed on April 8, 2021 and are incorporated by reference into Part III of our Form 10-K for the year ended December 31, 2020;

 

   

Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, filed with the SEC on April 29, 2021 and July 29, 2021, respectively;

 

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Our Current Reports on Form 8-K filed on January  4, 2021 (Item 5.02 only), May  21, 2021, June  2, 2021, June  9, 2021, July  2, 2021, July  15, 2021 (Item 5.02 only), August  2, 2021, August  10, 2021 and August 16, 2021 and on Form 8-K/A filed on January 22, 2021; and

 

   

The description of our Common Stock contained in our Registration Statement on Form 8-A, dated October 23, 1981, as amended by Amendment No. 1 filed with our Current Report on Form 8-K dated July 8, 1993 and Amendment No. 2 filed with our Current Report on Form 8-K/A dated August  3, 2006 and in Exhibit 4.1 filed with our Annual Report on Form 10-K for the year ended December 31, 2020.

All reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering but excluding any information furnished to, rather than filed with, the SEC, will also be incorporated by reference into this prospectus and deemed to be part of this prospectus from the date of the filing of such reports and documents.

You may request a free copy of any of the documents incorporated by reference in this prospectus (other than exhibits, unless they are specifically incorporated by reference in the documents) by writing or telephoning us at the following address:

Southwestern Energy Company

10000 Energy Drive

Spring, Texas 77389-4954

Attn. Investor Relations

(832) 796-1000

Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus supplement.

 

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THE COMPANY

Southwestern is an independent energy company engaged in natural gas, oil and natural gas liquids (“NGLs”) exploration, development and production, which we refer to as “E&P.” We are also focused on creating and capturing additional value through our marketing business, which we refer to as “Marketing.” We conduct most of our businesses through subsidiaries, and we currently operate exclusively in the lower 48 United States.

E&P. Our primary business is the exploration for, and production of, natural gas, oil and NGLs, with our ongoing operations focused on the development of unconventional natural gas reservoirs located in Pennsylvania, Ohio and West Virginia. Our operations in northeast Pennsylvania, which we refer to as “Northeast Appalachia,” are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale. Our operations in West Virginia, Ohio and southwest Pennsylvania, which we refer to as “Southwest Appalachia,” are focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas and oil reservoirs. Collectively, we refer to our properties in Pennsylvania, Ohio and West Virginia as “Appalachia.” We also have drilling rigs located in Appalachia, and we provide certain oilfield products and services, principally serving our E&P operations through vertical integration.

On November 13, 2020, we closed on our Agreement and Plan of Merger with Montage Resources Corporation (“Montage”) pursuant to which Montage merged with and into Southwestern, with Southwestern continuing as the surviving company (the “Montage Merger”). The Montage Merger expanded our footprint in Appalachia by supplementing our Northeast Appalachia and Southwest Appalachia operations and by expanding our operations into Ohio.

Marketing. Our marketing activities capture opportunities that arise through the marketing and transportation of natural gas, oil and NGLs primarily produced in our E&P operations.

We filed our certificate of incorporation with the Secretary of State of Delaware on February 24, 2006.

Our principal executive offices are located at 1000 Energy Drive, Spring, Texas 77389-4954, and our telephone number is (832) 796-1000.

 

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RISK FACTORS

Investment in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. You should carefully consider the risk factors incorporated by reference to our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K we file after the date of this prospectus, and all other information contained or incorporated by reference into this prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained in the applicable prospectus supplement before acquiring any of such securities. The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than historical fact or present financial information, in this prospectus and the documents incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements that address activities, outcomes and other matters that should or may occur in the future, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for our future operations, are forward-looking statements. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance. We have no obligation and make no undertaking to publicly update or revise any forward-looking statements, except as may be required by law.

Forward-looking statements include the items identified in the preceding paragraph, information concerning possible or assumed future results of operations and other statements identified by words such as “anticipate,” “intend,” “plan,” “project,” “estimate,” “continue,” “potential,” “should,” “could,” “may,” “will,” “objective,” “guidance,” “outlook,” “effort,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “forecast,” “model,” “target” or similar words. Statements may be forward-looking even in the absence of these particular words.

You should not place undue reliance on forward-looking statements. They are subject to known and unknown risks, uncertainties and other factors that may affect our operations, markets, products, services and prices and cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with forward-looking statements, risks, uncertainties and factors that could cause our actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

 

   

the timing and extent of changes in market conditions and prices for natural gas, oil and natural gas liquids (“NGLs”) (including regional basis differentials) and the impact of reduced demand for our production and products in which our production is a component due to governmental and societal actions taken in response to the COVID-19 or other pandemic;

 

   

our ability to fund our planned capital investments;

 

   

a change in our credit rating, an increase in interest rates and any adverse impacts from the discontinuation of the London Interbank Offered Rate (“LIBOR”);

 

   

the extent to which lower commodity prices impact our ability to service or refinance our existing debt;

 

   

the impact of volatility in the financial markets or other global economic factors, including the impact of COVID-19 or other diseases;

 

   

difficulties in appropriately allocating capital and resources among our strategic opportunities;

 

   

the timing and extent of our success in discovering, developing, producing and estimating reserves;

 

   

our ability to maintain leases that may expire if production is not established or profitably maintained;

 

   

our ability to transport our production to the most favorable markets or at all;

 

   

availability and costs of personnel and of products and services provided by third parties;

 

   

the impact of government regulation, including changes in law, the ability to obtain and maintain permits, any increase in severance or similar taxes, and legislation or regulation relating to hydraulic fracturing or other drilling and completing techniques, climate and over-the-counter derivatives;

 

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the impact of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally;

 

   

the effects of weather or power outages;

 

   

increased competition;

 

   

the financial impact of accounting regulations and critical accounting policies;

 

   

the comparative cost of alternative fuels;

 

   

credit risk relating to the risk of loss as a result of non-performance by our counterparties; and

 

   

any other factors included in this prospectus or in the reports we have filed and may file with the SEC that are incorporated by reference herein.

For a more detailed description of the risks and uncertainties involved, see “Risk Factors” beginning on page 5 of this prospectus and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our subsequent Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021.

Should one or more of the risks or uncertainties described above or elsewhere occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to update publicly any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

 

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USE OF PROCEEDS

We intend to use the net proceeds from the sale of the securities as set forth in the applicable prospectus supplement.

 

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DESCRIPTION OF CAPITAL STOCK

Common Stock

As of the date of this prospectus, we are authorized to issue up to 1,250,000,000 shares of common stock, par value $0.01 per share.

We may issue additional shares of our common stock at times and under circumstances so as to have a dilutive effect on our earnings per share, our net tangible book value per share and on the equity ownership of the holders of our common stock. If we issue shares of our common stock, the prospectus supplement relating to an offering will set forth the information regarding any dilutive effect of that offering.

The following description is a summary of the material provisions of our common stock but does not purport to be complete and is subject to, and qualified in its entirety by reference to, our certificate of incorporation and our bylaws, which are incorporated by reference as exhibits to the registration statement of which this prospectus forms a part. You should refer to our certificate of incorporation and bylaws for additional information.

Listing

Our common stock is listed on the New York Stock Exchange under the symbol “SWN.” Any additional common stock that we issue will also be listed on the New York Stock Exchange, unless otherwise indicated in a prospectus supplement.

Dividends

We currently do not pay dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. All decisions regarding the declaration and payment of dividends and stock repurchases are at the discretion of our board of directors and will be evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law and any other factors that our board of directors deems relevant.

Fully Paid

All of our outstanding shares of common stock are fully paid and non-assessable. Any additional shares of common stock will also be fully paid and non-assessable when issued.

Voting Rights

Holders of our common stock are entitled to one vote per share on all matters voted on by our stockholders, including the election of directors.

Other Provisions

We will notify holders of our common stock of any stockholders’ meetings in accordance with applicable law. If we liquidate, dissolve or wind-up, whether voluntarily or not, our common stockholders will share equally in the assets remaining after we pay our creditors. Our board of directors may make rules and regulations concerning the transfer of shares of our common stock from time to time, in accordance with our bylaws. Holders of our common stock will have no conversion, sinking fund or redemption rights.

Transfer Agent

The transfer agent and registrar of our common stock is Computershare Trust Company N.A.

 

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Preferred Stock

Our board of directors has the authority, without further action by our stockholders, to issue up to 10,000,000 shares of preferred stock, par value $0.01 per share, in one or more series. Our board of directors may designate the number of shares constituting any series and the rights, preferences, privileges and restrictions of such preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference and sinking fund terms, but no shares of any series of preferred stock may be issued without the approval of shareholders if (i) the voting rights of the shares of such series would be materially disproportionate to the voting rights of the shares of common stock or (ii) the shares of such series would be convertible into a materially disproportionate number of shares of common stock, in each case taking into account the issue price of the shares of such series and the fair market value of the shares of common stock at the time of such issuance. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that holders of common stock will receive dividend payments and payments upon liquidation.

Undesignated Preferred Stock

This summary of the undesignated preferred stock discusses terms and conditions that may apply to preferred stock offered under this prospectus. The applicable prospectus supplement will describe the particular terms of each series of preferred stock actually offered. If indicated in the prospectus supplement, the terms of any series may differ from the terms described below.

The following description, together with any applicable prospectus supplement, summarizes all the material terms and provisions of any preferred stock being offered by this prospectus. It does not restate the terms and provisions in their entirety. We urge you to read our charter and the applicable certificate of designation (each, as filed with the SEC) because they, and not this description, define the rights of any holders of preferred stock. We have filed our charter as an exhibit to the registration statement which includes this prospectus. We will incorporate by reference as an exhibit to the registration statement the form of any certificate of designation before the issuance of any series of preferred stock.

The prospectus supplement for any preferred stock that we actually offer pursuant to this prospectus may include some or all of the following terms:

 

   

the designation of the series of preferred stock;

 

   

the number of shares of preferred stock offered, the liquidation preference per share and the offering price of the preferred stock;

 

   

the dividend rate or rates of the shares, the method or methods of calculating the dividend rate or rates, the dates on which dividends, if declared, will be payable, and whether or not the dividends are to be cumulative and, if cumulative, the date or dates from which dividends will be cumulative;

 

   

the amounts payable on shares of the preferred stock in the event of our voluntary or involuntary liquidation, dissolution or winding up;

 

   

the redemption rights and price or prices, if any, for the shares of preferred stock;

 

   

any terms, and the amount, of any sinking fund or analogous fund providing for the purchase or redemption of the shares of preferred stock;

 

   

any restrictions on our ability to make payments on any of our capital stock if dividend or other payments are not made on the preferred stock;

 

   

any voting rights granted to the holders of the shares of preferred stock in addition to those required by Delaware law or our certificate of incorporation;

 

   

whether the shares of preferred stock will be convertible or exchangeable into shares of our common stock or any other security, and, if convertible or exchangeable, the conversion or

 

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exchange price or prices, and any adjustment or other terms and conditions upon which the conversion or exchange shall be made;

 

   

any other rights, preferences, restrictions, limitations or conditions relative to the shares of preferred stock permitted by Delaware law or our

 

   

certificate of incorporation;

 

   

any listing of the preferred stock on any securities exchange; and

 

   

the U.S. federal income tax considerations applicable to the preferred stock.

Subject to our certificate of incorporation and to any limitations imposed by any then-outstanding preferred stock, we may issue additional series of preferred stock, at any time or from time to time, with such powers, preferences, rights and qualifications, limitations or restrictions as the board of directors determines, and without further action of the stockholders, including holders of our then outstanding preferred stock, if any.

Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and Bylaws and Delaware Law

The following provisions of our certificate of incorporation and bylaws and the following provisions of Delaware law may have the effect of delaying, deterring or preventing a change of control of us.

Certificate of Incorporation and Bylaws

Our certificate of incorporation and bylaws include provisions:

 

   

authorizing blank check preferred stock, which we could issue with voting, liquidation, dividend and other rights superior to our common stock;

 

   

limiting the liability of, and providing indemnification to, our directors and officers;

 

   

requiring advance notice of proposals by our stockholders for business to be conducted at stockholder meetings and for nominations of candidates for election to our board of directors; and

 

   

controlling the procedures for the conduct of our board and stockholder meetings and the election, appointment and removal of our directors.

The Delaware General Corporation Law

We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Section 203 defines a “business combination” as a merger, asset sale or other transaction resulting in a financial benefit to an interested stockholder. Section 203 defines an “interested stockholder” as a person who, together with affiliates and associates, owns, or, in some cases, within three years prior, did own, 15% or more of the corporation’s voting stock. Under Section 203, a business combination between us and an interested stockholder is prohibited unless:

 

   

our board of directors approved either the business combination or the transaction that resulted in the stockholders becoming an interested stockholder prior to the date the person attained that status;

 

   

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares

 

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outstanding, shares owned by persons who are directors and also officers and shares issued under employee stock plans under which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 

   

the business combination is approved by our board of directors on or subsequent to the date the person became an interested stockholder and authorized at an annual or special meeting of the stockholders by the affirmative vote of the holders of at least 66 2/3 % of the outstanding voting stock that is not owned by the interested stockholder.

 

   

This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock. With approval of our stockholders, we could amend our certificate of incorporation in the future to elect not to be governed by this provision. This election would be effective 12 months after the adoption of the amendment and would not apply to any business combination between us and any person who became an interested stockholder on or before the adoption of the amendment.

 

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DESCRIPTION OF DEBT SECURITIES AND RELATED GUARANTEES

The following description, together with the additional information we include in any applicable prospectus supplement, summarizes certain general terms and provisions of the debt securities that we may offer under this prospectus and any guarantees of such debt securities by one or more Subsidiary Guarantors related thereto. When we offer to sell a particular series of debt securities and any related guarantees, we will describe the specific terms of the series in a supplement to this prospectus. We will also indicate in the supplement to what extent the general terms and provisions described in this prospectus apply to a particular series of debt securities and any related guarantees.

We may issue debt securities either separately, or together with, or upon the conversion or exercise of or in exchange for, other securities described in this prospectus. Debt securities may be our senior, senior subordinated or subordinated obligations and, unless otherwise specified in a supplement to this prospectus, the debt securities will be our direct, unsecured obligations and may be issued in one or more series.

The debt securities will be issued under an indenture to be entered into between us and Regions Bank, as trustee. We may, but need not, designate more than one trustee under the indenture, each with respect to one or more series of debt securities. The trustee under the indenture may resign or be removed with respect to one or more series of debt securities, and we may appoint a successor trustee to act with respect to any such series. We have summarized select portions of the indenture below. The summary is not complete. The form of indenture has been filed as an exhibit to the registration statement and you should read the indenture for provisions that may be important to you. Capitalized terms used in the summary and not defined herein have the meanings specified in the indenture.

General

The debt securities that we may offer under the indenture are not limited in aggregate principal amount. We may issue debt securities at one or more times in one or more series. Each series of debt securities may have different terms. The terms of any series of debt securities will be described in, or determined by action taken pursuant to, a resolution of our board of directors or a committee appointed by our board of directors, in an officer’s certificate or in a supplement to the indenture relating to that series.

We are not obligated to issue all debt securities of one series at the same time and, unless otherwise provided in the prospectus supplement, we may reopen a series, without the consent of the holders of the debt securities of that series, for the issuance of additional debt securities of that series. Additional debt securities of a particular series will have the same terms and conditions as outstanding debt securities of such series (except for the issue date, the offering price and certain other terms that may be specified in any prospectus supplement relating to such issuance), and will be consolidated with, and form a single series with, such outstanding debt securities.

The debt securities issued by us will be unsecured obligations and will rank equally with all of our other unsecured senior indebtedness.

The prospectus supplement relating to any series of debt securities that we may offer will state the price or prices at which the debt securities will be offered and will contain the specific terms of that series. These terms may include the following:

 

   

The title of the series;

 

   

The purchase price, denomination and any limit upon the aggregate principal amount of the series;

 

   

The date or dates on which each of the principal of and premium, if any, on the securities of the series is payable and the method of determination thereof;

 

   

The rate or rates at which the securities of the series shall bear interest, if any, or the method of calculating such rate or rates of interest;

 

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