SOUTHWESTERN ENERGY CO (Form: 8-K, Received: 08/10/2021 16:33:06)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________

FORM 8-K

________________________________________________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 10, 2021

________________________________________________________________

SOUTHWESTERN ENERGY COMPANY

(Exact name of registrant as specified in its charter)

________________________________________________________________

Delaware

001-08246

71-0205415

(State or other jurisdiction of incorporation)

(Commission File Number)

(IRS Employer Identification No.)

10000 Energy Drive

Spring, TX 77389

(Address of principal executive offices)(Zip Code)

(832) 796-1000

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

________________________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01

SWN

New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01 Other Events.

On June 1, 2021, Southwestern Energy Company (“Southwestern”) entered into an Agreement and Plan of Merger with Ikon Acquisition Company, LLC (“Ikon”), Indigo Natural Resources LLC (“Indigo”) and Ibis Unitholder Representative (the “Indigo Merger Agreement”). Pursuant to the terms of the Indigo Merger Agreement, Indigo will merge with and into Ikon, a subsidiary of Southwestern, with Indigo surviving the merger (the “Indigo Merger”). The outstanding equity interests in Indigo will be cancelled and converted into the right to receive (i) $400 million in cash consideration, and (ii) 339,270,568 shares of Southwestern common stock. Additionally, Southwestern will assume $700 million in aggregate principal amount of 5.375% Senior Notes due 2029 of Indigo (the “Indigo Notes”).

Incorporated by reference in this filing are the audited consolidated financial statements of Indigo for the periods described in Item 9.01(a) below, the notes related thereto and the report of an independent auditor. The unaudited condensed consolidated financial statements of Indigo for the periods described in Item 9.01(a) below and the notes related thereto are included in this filing as Exhibit 99.3.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired

Audited consolidated financial statements of Indigo and its subsidiaries comprised of the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, statements of members’ common equity and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes to the consolidated financial statements, incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed with the Commission on July 2, 2021.

Unaudited condensed consolidated financial statements of Indigo and its subsidiaries comprised of the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, and the related condensed consolidated statements of operations, statements of members’ common equity and cash flows for the six months ended June 30, 2021 and 2020, and the related notes to the unaudited condensed consolidated financial statements, attached as Exhibit 99.3 hereto.

(b) Unaudited Pro Forma Financial Information

The unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of Southwestern and Indigo. In addition, on November 13, 2020, pursuant to the Agreement and Plan of Merger, dated as of August 12, 2020, by and between Southwestern and Montage Resources Corporation (“Montage”), Southwestern completed its previously announced acquisition of Montage, by means of a merger of Montage with and into Southwestern, with Southwestern continuing as the surviving corporation (the “Montage Merger” and, together with the Indigo Merger, the “Mergers”). Accordingly, the unaudited pro forma condensed combined financial statements also incorporate the historical financial activity of Montage through November 13, 2020, and have been adjusted to reflect 1) the Montage-related equity offering and the Montage-related debt offering and the use of the proceeds therefrom and 2) the Indigo Merger, as described above.

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 pro forma financial information, and the related notes thereto, required to be filed under Item 9.01 of this Current Report on Form 8-K are included as Exhibit 99.4 to this Current Report on Form 8-K and are incorporated by reference into this Item 9.01(b).


Exhibit No.						Descriptions
99.1						Agreement and Plan of Merger between Southwestern Energy Company, Ikon Acquisition Company, LLC, Indigo Natural Resources LLC and Ibis Unitholder Representative dated June 1, 2021 (incorporated by reference from Exhibit 99.1 to Current Report on Form 8-K filed with the Commission on June 2, 2021).
99.2						The audited consolidated balance sheets of Indigo Natural Resources LLC, as of December 31, 2020 and 2019, and the audited consolidated statements of operations, statements of cash flows and statements of members’ common equity of Indigo Natural Resources LLC, for the years ended December 31, 2020 and 2019, and the notes related thereto (incorporated by reference from Exhibit 99.2 to Current Report on Form 8-K filed with the Commission on July 2, 2021).
99.3*						The unaudited consolidated balance sheet of Indigo Natural Resources LLC as of June 30, 2021 and the unaudited consolidated statements of operations, statements of cash flows and statements of members’ common equity of Indigo Natural Resources LLC for the six-month periods ended June 30, 2021 and 2020, and the notes related thereto.
99.4*						The unaudited pro forma condensed combined balance sheet as of June 30, 2021 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and the six-month period ended June 30, 2021.
99.5						The unaudited consolidated balance sheets of Montage Resources Corporation, as of September 30, 2020 and the unaudited consolidated statements of operations and comprehensive income , statements of cash flows and statements of stockholders ’ equity of Montage Resources Corporation, for the nine-month periods ended September 30, 2020 and 2019, and the notes related thereto (incorporated by reference from Quarterly Report on Form 10-Q filed with the Commission on November 6, 2020 ).
104						Cover Page Interactive Date File (embedded within the Inline XBRL document)

•Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	SOUTHWESTERN ENERGY COMPANY
	Registrant

Dated: August 10, 2021	By:	/s/ CARL F. GIESLER, JR.
		Name:	Carl F. Giesler, Jr.
		Title:	Executive Vice President, Chief Financial Officer

Indigo Natural Resources LLC

Unaudited Condensed Consolidated Financial Statements

June 30, 2021 and 2020


Indigo Natural Resources LLC Index to Consolidated Financial Statements June 30, 2021 and 2020


			Page
Condensed Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020			1
Consolidated Statements of Operations for the six months ended June 30, 2021			2
and 2020
Consolidated Statements of Members’ Common Equity for the six months ended			3
June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the six months ended June 30, 2021			4
and 2020
Notes to Condensed Consolidated Financial Statements			5


Indigo Natural Resources LLC Consolidated Balance Sheets (Unaudited)


(in thousands, except unit amounts)	June 30, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	75,645	$	85,162
Accounts receivable–trade, net of allowance for doubtful accounts of $349 and $1,524	138,755		141,405
Prepaid costs and other current assets	2,995		2,471
Derivative instruments	79		24,434
Total current assets	217,474		253,472
Property and equipment, net of accumulated depreciation, depletion, amortization and impairment of $1,256,053 and $1,657,849	1,984,592		2,731,443
Investment in midstream joint venture	—		15,465
Debt issuance costs and other noncurrent assets, net	5,760		6,650
Derivative instruments	126		29,968
Total noncurrent assets	1,990,478		2,783,526
Total assets	$	2,207,952	$	3,036,998
Liabilities and members’ equity
Current liabilities
Accounts payable–trade	$	14,958	$	6,011
Royalties payable	82,518		96,462
Accrued capital expenditures	71,920		48,997
Accrued gathering and transportation expense	25,864		24,384
Accrued lease operating expense	8,291		7,672
Accrued interest expense	16,223		17,510
Other accrued liabilities	87,563		55,674
Accrued liabilities–related parties	120		941
Derivative instruments	192,799		8,885
Total current liabilities	500,256		266,536
Long-term debt	724,389		779,414
Asset retirement obligation	13,023		47,461
Other noncurrent liabilities	9,513		26,460
Derivative instruments	64,195		9,010
Total noncurrent liabilities	811,120		862,345
Total liabilities	1,311,376		1,128,881
Commitments and contingencies
Members’ common equity, 13.9 million Class A units and 0.9 million Class B units issued and outstanding	896,576		1,908,117
Total liabilities and members’ common equity	$	2,207,952	$	3,036,998

The accompanying notes are an integral part of these condensed consolidated financial statements.


Indigo Natural Resources LLC Consolidated Statements of Operations (Unaudited)


	Six Months Ended June 30,
(in thousands)	2021		2020
Revenue and other operating income
Natural gas, NGL and oil revenue	$	468,954	$	306,479
(Loss) gain on derivative instruments	(305,206)		86,581
Other	76,016		5,496
Total revenue and other operating income	239,764		398,556
Operating expenses
Lease operating expense	39,874		54,852
Gathering and transportation expense	117,835		91,550
Severance taxes, net of refunds received	6,277		9,282
Other operating costs, net	71,794		3,014
Exploration costs	346		386
Depreciation, depletion and amortization	223,069		229,289
Impairment	25,672		3,976
General and administrative expense	28,181		26,015
Loss (gain) on sale of assets	622,822		(15)
Total operating expenses	1,135,870		418,349
Operating (loss) income	(896,106)		(19,793)
Other income (expense)
Interest and other financing expense	(18,638)		(17,945)
Loss from equity method investment in midstream joint venture	(7,976)		(6,848)
(Loss) gain on extinguishment of debt	(33,886)		1,906
Other, net	477		66
Total other expense	(60,023)		(22,821)
Pretax (loss) income	(956,129)		(42,614)
State income tax (expense) benefit	(26)		181
Net (loss) income	(956,155)		(42,433)
Preferred dividends	—		(10,964)
Accretion of discount on preferred equity	—		(2,770)
Preferred tax distribution	—		(4,180)
Net (loss) income attributable to members’ common equity	$	(956,155)	$	(60,347)

The accompanying notes are an integral part of these condensed consolidated financial statements.


Indigo Natural Resources LLC Consolidated Statements of Members’ Common Equity (Unaudited)


(in thousands)	2021		2020
Beginning balance at January 1	$	1,908,117	$	2,218,750
Indigo equity-based compensation expense	4,614		5,064
M5 Midstream LLC incentive unit distributions to Indigo employees	—		687
Distributions	(60,000)		(270,764)
Net (loss) income attributable to members’ common equity	(956,155)		(60,347)
Balance at June 30	$	896,576	$	1,893,390

The accompanying notes are an integral part of these condensed consolidated financial statements.


Indigo Natural Resources LLC Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,
(in thousands)	2021		2020
Cash flows from operating activities
Net (loss) income	$	(956,155)	$	(42,433)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Equity-based compensation expense	4,614		5,751
Depreciation, depletion and amortization	223,069		229,289
Impairment	25,672		3,976
Loss (gain) on sale of assets	622,822		(15)
Amortization of debt issuance costs	1,814		1,975
Loss (gain) on extinguishment of debt	33,886		(1,906)
Loss from equity method investment in midstream joint venture	7,976		6,848
Non-cash changes in derivative fair values	297,460		53,525
Other, net	(1,036)		(525)
Changes in assets and liabilities
Accounts receivable–trade, net	1,317		28,926
Prepaid costs and other current assets	(524)		690
Accounts payable–trade	8,947		(7,160)
Accrued and other liabilities	11,351		(1,530)
Net cash provided by operating activities	281,213		277,411
Cash flows from investing activities
Acquisitions	(518)		(292)
Capital expenditures	(269,297)		(308,542)
Distributions from midstream joint venture	15,465		—
Adjustment to M5 Louisiana sale proceeds	(25,376)		—
Proceeds from sales of assets	113,599		3,034
Other investing activities	487		43
Net cash used in investing activities	(165,640)		(305,757)
Cash flows from financing activities
Proceeds from issuance of debt	700,000		175,000
Debt issuance costs	(11,262)		(123)
Repayment of debt	(754,965)		(3,034)
Make-whole premium on extinguishment of debt	(23,515)		—
Preferred dividends	—		(5,178)
Preferred tax distribution	—		(4,180)
Member distributions	(35,000)		(270,764)
Payment of capital lease obligations	(348)		(318)
Net cash used in financing activities	(125,090)		(108,597)
Net decrease in cash and cash equivalents	(9,517)		(136,943)
Cash and cash equivalents
Beginning of period	85,162		186,799
End of period	$	75,645	$	49,856
Supplemental cash flow information
Cash paid for interest, net of amounts capitalized	$	14,045	$	17,171
Non-cash investing and financing activities
Change in accrued capital expenditures	$	22,923	$	(31,470)
Change in accrued interest capitalized	$	(4,011)	$	1,506
Asset retirement cost capitalized, net	$	1,429	$	932
Accrued common equity distributions	$	25,000	$	—
Capital leases	$	—	$	122
Dividends accrued to the preference accrual	$	—	$	5,743
Accretion of discount on preferred equity	$	—	$	2,770

The accompanying notes are an integral part of these condensed consolidated financial statements.


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

These condensed consolidated financial statements include the accounts of Indigo Natural Resources LLC’s (“Indigo” or the “Company”) majority-owned, controlled subsidiaries and are unaudited; however, they reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed consolidated financial statements, including notes, have been prepared in conformity with accounting principles generally accepted in the United States of America and do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for 2020 and 2019. Other operating income and other operating costs, net for the six months ended June 30, 2020 were overstated by $5.2 million in the Company’s previously-issued Consolidated Statement of Operations for that period, related to the presentation of third-party natural gas sales and purchases. The accompanying Consolidated Statement of Operations for the six months ended June 30, 2020 has been revised to correct this error, which had no effect on net loss and was not material to the previously issued financial statements. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year.

2. Accounting Standards

Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that changes the impairment model for financial assets, including trade receivables and certain other instruments. The update replaces the current “incurred loss” model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the update’s effective date for Indigo was deferred to 2023, and the update must be adopted using a modified-retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. Early adoption is permitted. The Company is evaluating the provisions of this update, but based on its preliminary analysis, does not expect adoption to have a material impact on its results of operations, financial position and cash flows.

In February 2016, the FASB issued an amendment to the accounting standards for leases which requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on the balance sheet for substantially all leases, though not mineral leases. For operating leases, a lessee must recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and reflect cash payments as operating activities, except when the lease cost is capitalized as a development cost, in which case cash payments are reflected as investing activities. For finance leases, a lessee must recognize interest on the lease liability separately from amortization of the right-of-use asset and reflect repayments of the principal portion of the lease liability as financing activities and payments of interest as operating activities. Disclosure of key information about leasing arrangements is also required. In June 2020, the amendment’s effective date for Indigo was deferred to 2022 and early adoption is permitted. At adoption, entities are allowed the option to recognize and measure leases at the beginning of the earliest period presented using a modified-retrospective approach or to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The Company is evaluating the provisions of this amendment and assessing the impact it will have on its results of operations, financial position and cash flows.

Recently Adopted

In August 2018, the FASB issued amendments to the disclosure requirements regarding fair value measurements that (i) eliminate certain disclosure requirements, including those related to transfers


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

between Level 1 and Level 2 of the fair value hierarchy, (ii) modify certain other disclosure requirements and (iii) add disclosure requirements, including expanded disclosures regarding significant unobservable inputs used to develop Level 3 fair value measurements. On January 1, 2020, the Company adopted the amendments to the disclosure requirements regarding fair value measurements and adoption did not have a material impact on the Company’s fair value disclosures.

3. Pending Merger with Southwestern Energy Company

In June 2021, the Company entered into a definitive merger agreement with Southwestern Energy Company (“SWN”) under which SWN will acquire Indigo for $400.0 million of cash, approximately 339 million shares of SWN common stock and SWN’s assumption of the Company’s 2029 Notes, subject to closing adjustments (the “Merger”). The transaction is expected to close in the second half of 2021, subject to customary closing conditions including SWN shareholder approval.

4. Conventional Cotton Valley Assets Divestiture

In April 2021, Indigo entered into a purchase and sale agreement for the divestiture of substantially all of the Company’s interests in operated and non-operated conventional Cotton Valley oil and gas properties and related assets located in North Louisiana. Under the terms of the agreement, the sale price for these non-core assets was $135.0 million in cash, before customary closing adjustments. The assets and associated liabilities were classified as held for sale as of March 31, 2021 and the divestiture closed in May 2021. The Company received cash proceeds of $113.1 million at closing, net of costs to sell, which are subject to customary post-closing adjustments to be finalized in the third quarter of 2021, resulting in a $623.3 million loss reflected as loss (gain) on sale of assets in the Consolidated Statement of Operations for the six months ended June 30, 2021. A portion of the cash proceeds received at closing was used to repay $90.0 million of borrowings outstanding under the Company’s Amended and Restated Revolving Credit Facility (the “Revolver”).

The pretax loss of the conventional Cotton Valley assets was $0.2 million and $31.4 million for the six months ended June 30, 2021 and 2020, respectively.

5. Operating Revenue

Disaggregation of Natural Gas, NGL and Oil Revenue

Natural gas, NGL and oil revenue from contracts with customers disaggregated by product type consisted of the following for the six months ended June 30, , 2021 and 2020 (in thousands):


	Six Months Ended June 30,
	2021		2020
Natural gas, NGL and oil revenue:
Natural gas	$	457,805	$	297,042
NGLs	8,031		6,311
Oil	3,118		3,126
Total natural gas, NGL and oil revenue from contracts with customers	$	468,954	$	306,479

Receivables from Contracts with Customers

At June 30, 2021 and December 31, 2020, accounts receivable—trade included $129.4 million and $132.0 million, respectively, of receivables from contracts with customers related to natural gas, NGL and oil revenue and third-party natural gas sales.


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

Remaining Performance Obligations

Indigo has executed forward natural gas sales contracts to lock in markets and fix basis differentials for a portion of its future natural gas production. In these cases, the Company has utilized the optional exemption which allows the Company to exclude the disclosure of the transaction price related to unsatisfied performance obligations and expected timing of revenue recognition if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Because each unit of natural gas to be delivered under these contracts represents a separate performance obligation, future performance obligations are wholly unsatisfied.

This forward sales program provides a significant portion of the Company’s gross marketed natural gas with a diverse mix of outlets, transportation and end-user markets. As of June 30, 2021, the Company has entered into contracts with purchasers with investment grade credit ratings or adequate credit support for the following gross volumes in the years indicated: 1,445 billion British thermal units of natural gas per day (“BBtu/d”) in the remainder of 2021, 1,287 BBtu/d in 2022, 1,116 BBtu/d in 2023, 950 BBtu/d in 2024 and 486 BBtu/d in 2025 through 2030. Portions of the sales proceeds from these gross deliveries will be recorded in the Consolidated Statement of Operations for the applicable periods as (i) natural gas, NGL and oil revenue, reflecting Indigo’s net revenue interest share of the sales of its natural gas production, and (ii) other operating income, reflecting third-party natural gas sales.

Other Operating Income

Other operating income for the six months ended June 30, 2021 and 2020 included $70.0 million and $3.0 million, respectively, of third-party natural gas sales to facilitate management of the Company’s forward sales contracts and transportation agreements. Other operating income for the six months ended June 30, 2021 and 2020 also included immaterial amounts for (i) service fees charged to joint interest partners for the use of company-owned field assets on wells Indigo operates, (ii) adjustments to the liability for gas imbalances as a result of natural gas price and proved reserve changes and (iii) various other items.

6. Property and Equipment

Property and equipment consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):


	Six Months Ended June 30,
	2021		2020
Proved properties	$	2,988,185	$	3,953,225
Unproved leasehold acquisition costs	104,021		282,597
Costs of wells in progress	133,538		137,492
Other property and equipment	14,901		15,978
Less: Accumulated depreciation, depletion, amortization and impairment	(1,256,053)		(1,657,849)
Property and equipment, net	$	1,984,592	$	2,731,443

The Company had no suspended exploration wells pending evaluation at June 30, 2021 or December 31, 2020.

During the six months ended June 30, 2021 and 2020, the Company recorded $25.7 million and $4.0 million, respectively, for impairment of unproved properties that will not become productive. The impairment charge during the six months ended June 30, 2021 primarily reflects changes to the Company’s development plans as a result of the divestiture of the conventional Cotton Valley assets discussed in Note 4.


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Incremental Minimum Volume Commitments Associated with M5 Louisiana Sale

The Company has determined it is probable that deficiency fees will be incurred in 2021 under the letter agreement entered into in conjunction with M5 Louisiana Holdings, LLC’s (the “Midstream JV”) sale of its wholly-owned subsidiaries (collectively, “M5 Louisiana”) in 2019, that provided for incremental minimum volume commitments on the gathering system sold as part of M5 Louisiana. As of June 30, 2021, such deficiency fees were estimated to be $32.0 million for the full year, and therefore $16.0 million is recorded as other accrued liabilities, reflecting the Company’s estimated obligation to the buyer of M5 Louisiana incurred through the first six months of 2021. The $8.0 million loss from equity method investment in midstream joint venture for the six months ended June 30, 2021 reflects Indigo’s portion of this downward adjustment to the M5 Louisiana sale proceeds, net to its 50% equity interest in the Midstream JV. As of June 30, 2021, the remaining $16.8 million deferred credit for the M5 Midstream LLC (“M5”) deficiency fee settlement paid to Indigo in 2020 is reflected as other current liabilities of $8.0 million, for M5’s share of the estimated deficiency fees not yet accrued for the remainder of 2021 that will be due in 2022, and other noncurrent liabilities of $8.8 million, for the settlement to be applied to deficiency fees that may be incurred in the future.

For the six months ended June 30, 2020, loss from equity method investment in midstream joint venture included Indigo’s $6.3 million share of the downward adjustment to the M5 Louisiana sale proceeds incurred through the first six months of 2020, based on the deficiency fees estimated for the full year 2020 at that date.

8. Long-Term Debt

Long-term debt was comprised of the following at June 30, 2021 and December 31, 2020 (in thousands):


	June 30,		December 31,
	2021		2020
2029 Notes	$	700,000	$	—
2026 Notes	—		644,965
Revolver	35,000		145,000
Total principal outstanding	735,000		789,965
Unamortized debt issuance costs	(10,611)		(10,551)
Long-term debt	$	724,389	$	779,414

2029 Senior Unsecured Notes

Issuance

In February 2021, the Company issued $700.0 million of Senior Unsecured Notes due 2029 (the “2029 Notes”). The 2029 Notes bear interest at an annual rate of 5.375% and such interest is payable on February 1 and August 1 of each year. The 2029 Notes will mature on February 1, 2029.

A portion of the proceeds from the issuance of the 2029 Notes was used to redeem the Senior Unsecured Notes due 2026 (the “2026 Notes”) discussed below. In addition, the Company repaid $20.0 million of borrowings outstanding under the Revolver. A waiver was received from the lenders under the Revolver and therefore the issuance of the 2029 Notes did not impact the Revolver’s borrowing base.

Terms

At any time prior to February 1, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the 2029 Notes with an amount of cash not greater than the net proceeds of certain equity offerings at a redemption price equal to 105.375% of the principal amount of the 2029 Notes redeemed, plus accrued and unpaid interest to the redemption date, if at least 60% of the aggregate principal amount of the 2029 Notes remains outstanding after the redemption and the


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

redemption occurs within 180 days of the closing of such equity offering. In addition, at any time prior to February 1, 2024, the Company may redeem some or all of the 2029 Notes at a price equal to 100% of the principal amount of the notes redeemed, plus a “make-whole” premium equal to the excess, if any, of (a) the present value at the time of redemption of (i) the redemption price of such notes on February 1, 2024 plus (ii) all required interest payments on such notes through February 1, 2024, computed using a discount rate equal to a reference treasury rate at such time plus 50 basis points over (b) the principal amount of the notes redeemed, and any accrued and unpaid interest to the redemption date. On and after February 1, 2024, the Company may redeem the 2029 Notes, in whole or in part, at the redemption prices set forth in the indenture governing the 2029 Notes, plus any accrued and unpaid interest to the redemption date. If the Company experiences certain kinds of changes of control accompanied by a ratings decline, holders of the 2029 Notes may have the right to require the Company to repurchase their notes for cash at 101% of the principal amount of the notes, plus any accrued and unpaid interest to the date of purchase.

The indenture governing the 2029 Notes restricts the Company’s ability and the ability of certain of its subsidiaries to, among other things: (i) incur additional debt; (ii) pay distributions on, or repurchase, equity interests or subordinated indebtedness; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer and sell assets. These covenants are subject to a number of important exceptions and qualifications.

The 2029 Notes are senior unsecured obligations and rank equally in right of payment with all of the Company’s other senior indebtedness and senior to any of its subordinated indebtedness. The 2029 Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of Indigo’s restricted subsidiaries that guarantee its indebtedness. The 2029 Notes are effectively subordinated to all of the Company’s secured indebtedness (including all borrowings and other obligations under the Revolver) to the extent of the value of the collateral securing such indebtedness, and structurally subordinated in right of payment to all indebtedness and other liabilities (including trade payables) of any future subsidiaries or joint ventures which constitute subsidiaries that do not guarantee the 2029 Notes.

2026 Senior Unsecured Notes

2021 Redemption

In February 2021, in conjunction with the issuance of the 2029 Notes discussed above, the Company used a portion of the proceeds from the 2029 Notes to redeem the entire $645.0 million principal amount of the 2026 Notes for $689.2 million, including a make-whole premium and accrued and unpaid interest, resulting in a $33.9 million loss on extinguishment of debt, which is reflected in the Consolidated Statement of Operations for the six months ended June 30, 2021.

2020 Redemption

During the six months ended June 30, 2020, the Company repurchased certain 2026 Notes with a principal amount of $5.0 million in the open market at a discount. A $1.9 million gain on extinguishment of debt is reflected in the Consolidated Statement of Operations for that period, representing the excess of the carrying value over the amount paid for the repurchases.

Amendment to the Revolver

In May 2021, the Revolver was amended to decrease the borrowing base and elected commitment to $675.0 million based on the regularly-scheduled semi-annual redetermination, reflecting the divestiture of the conventional Cotton Valley assets discussed in Note 4.

9. Asset Retirement Obligation

Activity related to the Company's asset retirement obligation for the six months ended June 30, 2021 was as follows (in thousands):


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)


	June 30,
	2021
Beginning balance at January 1	$	47,862
Liabilities incurred through drilling	1,429
Liabilities incurred through acquisitions	79
Liabilities associated with assets sold	(37,044)
Current year accretion	1,452
Settlements	(400)
Carrying amount of ARO at June 30	13,378
Less: Asset retirement obligation–current	355
Asset retirement obligation	$	13,023

10. Derivative Instruments

Commodity Derivatives

The Company sells natural gas, NGLs and oil in the normal course of its business and utilizes derivative instruments to manage the variability in cash flows due to commodity price movements. The Company enters into derivative instruments to economically hedge a portion of its forecasted natural gas sales. The Company did not designate these contracts as hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. Commodity derivatives are recorded on the Consolidated Balance Sheet at fair value. See Note 11 for fair value disclosures about commodity derivatives.

The following summarizes gains and losses on natural gas derivative instruments included in other operating income for the six months ended June 30, 2021 and 2020 (in thousands):


	Six Months Ended June 30,
	2021		2020
Unsettled (loss) gain	$	(297,460)	$	(53,525)
Settled gain	(7,746)		140,106
Total (loss) gain on natural gas derivatives	$	(305,206)	$	86,581

The following summarizes open positions at June 30, 2021, and represents, as of such date, derivatives in place through December 31, 2024:


	2021		2022		2023		2024
Fixed price swaps:
Volume (MMBtu)	118,286,746		219,187,980		143,075,000		56,630,000
Weighted average price per MMBtu	$	2.74	$	2.77	$	2.65	$	2.43
Collars:
Volume (MMBtu)	24,845,000		16,440,000
Sold calls (Weighted average price per MMBtu)	$	2.87	$	3.16
Purchased puts (Weighted average price per MMBtu)	$	2.57	$	2.68


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheet Presentation

The Company had the following outstanding derivative contracts recorded on the Consolidated Balance Sheets at June 30, 2021 and December 31, 2020, as indicated (in thousands):


		Fair Value
Hedged item	Balance Sheet Classification	June 30, 2021		December 31, 2020
Natural gas	Derivative instruments – current assets	$	79	$	24,434
Natural gas	Derivative instruments – noncurrent assets	126		29,968
Natural gas	Derivative instruments – current liabilities	(192,799)		(8,885)
Natural gas	Derivative instruments – noncurrent liabilities	(64,195)		(9,010)
	Total	$	(256,789)	$	36,507

11. Fair Value Measurements

The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and do not prioritize among the techniques. These standards establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets that management has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs that are corroborated by market data and may be used with internally-developed methodologies that result in management’s best estimate of fair value.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Fair Values – Recurring

The Company estimates the fair value of derivative instruments using various inputs including publicly available prices. Fixed price commodity swaps and commodity collars are classified as Level 2 because the inputs used to value the instruments were substantially observable for the term of the instruments.

The following tables summarize the valuation and classification of the Company’s financial instruments accounted for at fair value on a recurring basis at June 30, 2021 and December 31, 2020 (in thousands):


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)


June 30, 2021	Level 1		Level 2		Level 3		Total
Assets:
Derivative instruments
Commodity derivatives
Fixed price swaps	$	—	$	205	$	—	$	205

Liabilities:
Derivative instruments
Commodity derivatives
Fixed price swaps	—		(229,111)		—		(229,111)
Collars	—		(27,883)		—		(27,883)
	$	—	$	(256,789)	$	—	$	(256,789)


December 31, 2020	Level 1		Level 2		Level 3		Total
Assets:
Derivative instruments
Commodity derivatives
Fixed price swaps	$	—	$	52,117	$	—	$	52,117
Collars	—		2,285		—		2,285

Liabilities:
Derivative instruments
Commodity derivatives
Fixed price swaps	—		(15,300)		—		(15,300)
Collars	—		(2,595)		—		(2,595)
	$	—	$	36,507	$	—	$	36,507

Fair Values – Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to their short maturities.

Based on the variable rate applicable to the borrowings under the Revolver, the fair value of the facility approximates its carrying value at June 30, 2021 and December 31, 2020.

At June 30, 2021 and December 31, 2020, the fair value of the 2029 Notes and 2026 Notes, respectively, totaled $733.4 million and $663.7 million, respectively. The related aggregate carrying value was $689.4 million and $634.4 million, respectively, including unamortized debt issuance costs. The fair value of the 2029 Notes and 2026 Notes is measured based on quoted prices, which is classified as Level 1.

12. Equity Distributions

2021

During the six months ended June 30, 2021, Indigo made distributions totaling $35.0 million to its common equity holders using cash on hand, which are reflected as a reduction of members’ common equity during the period.

In June 2021, Indigo’s board of directors approved distributions totaling $25.0 million to be made to the Company’s common equity holders prior to the closing of the Merger discussed in Note 3. This amount is reflected as other accrued liabilities in the Consolidated Balance Sheet as of June 30, 2021, and as a reduction of members’ common equity during the six months ended June 30, 2021.


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

2020

There were tax implications related to the sale of M5 Louisiana. Indigo made tax distributions of $270.8 million and $4.2 million to its common and preferred unit holders, respectively, in January 2020. The distributions on the common units are reflected as a reduction of members’ common equity during the six months ended June 30, 2020. The distributions on preferred units are reflected as preferred tax distributions in the Statement of Operations for the six months ended June 30, 2020.

13. Related Party Transactions

Transactions with Momentum

Certain of the Company’s members are also members of M5 and M6 Midstream LLC (collectively, “Momentum”). The Company and Momentum co-employ certain of the Company’s executive management and are parties to a shared services agreement under which employees of Momentum provide various services to the Company.

The Company incurred $0.7 million and $0.7 million, respectively, under these shared services arrangements and these costs are reflected as general and administrative expense in the Consolidated Statements of Operations for the six months ended June 30, 2021 and 2020.

At June 30, 2021 and December 31, 2020, accrued liabilities–related parties included an aggregate $0.1 million and $0.9 million, respectively, due to Momentum related to the co-employment and shared services agreement.

Other Related Party Transactions

During the six months ended June 30, 2021 and 2020 Indigo paid $5 thousand and $0.2 million to Martin Timberlands LLC, an affiliate of Martin Sustainable Resources, L.L.C., a member of the Company, for rights-of-way and related costs associated with certain drilling locations.

Beland Energy LLC, a member of the Company, and NRI Energy Partners LLC, whose sole member is also a member of the Company, hold royalty interests in certain of the Company’s operated wells and the Company makes royalty distributions on those interests monthly.

14. Commitments and Contingencies

Legal and Regulatory Proceedings

C.L. Bryant, et. al. v. XTO Energy Inc., et. al., Cause No. 79549, in the 42nd Judicial District Court, DeSoto Parish, Louisiana

On June 12, 2018, a collection of 51 individuals and entities filed a lawsuit against fifteen oil and gas company defendants, including Indigo, in Louisiana state court claiming damages arising out of current and historical exploration and production activity on certain acreage located in DeSoto Parish, Louisiana. The plaintiffs, who claim to own the properties at issue, assert that Indigo’s actions and the actions of other current operators conducting exploration and production activity, combined with the improper plugging and abandoning of legacy wells by former operators, have caused environmental contamination to their properties. Among other things, the plaintiffs contend that the defendants’ conduct resulted in the migration of natural gas, along with oilfield contaminants, into the Carrizo-Wilcox aquifer system underlying certain portions of DeSoto Parish. The plaintiffs assert claims based in tort, breach of contract, and for violations of the Louisiana Civil and Mineral Codes, and they seek injunctive relief and monetary damages in an unspecified amount, including punitive damages.

On September 13, 2018, Indigo filed a variety of exceptions in response to the plaintiffs’ petition in this matter. Since the initial filing, supplemental petitions have been filed joining additional individuals and entities as plaintiffs in the matter. On September 29, 2020, plaintiffs filed their fourth supplemental and amending petition in response to the court’s order ruling that plaintiffs’ claims were improperly vague and


Indigo Natural Resources LLC Notes to Condensed Consolidated Financial Statements (Unaudited)

failed to identify with reasonable specificity the defendants’ allegedly wrongful conduct. Indigo and the majority of the other defendants filed several exceptions to plaintiffs’ fourth amended petition challenging the sufficiency of plaintiffs’ allegations and seeking dismissal of certain claims. On February 18, 2021, plaintiffs filed a fifth supplemental and amending petition, which seeks to augment the claims of select plaintiffs.

The presence of natural gas in a localized area of the Carrizo-Wilcox aquifer system in DeSoto Parish is currently the subject of a regulatory investigation by the Louisiana Office of Conservation (“Conservation”), and Indigo is cooperating and coordinating with Conservation in that investigation. The Conservation matter number is EMER18-003.

Indigo is vigorously defending itself in these legal and regulatory proceedings and does not believe they will have a material adverse effect on its business. However, Indigo cannot predict the outcome of these proceedings with certainty, and if Indigo is unsuccessful in these matters and any loss exceeds any available insurance it may have, this could have a material adverse effect on its results of operations.

Other

Indigo is party to various other litigation matters arising out of the normal course of its oil and gas business. The ultimate outcome of each of these matters cannot be absolutely determined, and the liability Indigo may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued. However, Indigo does not believe any such matters will have a material adverse effect on Indigo’s financial position, results of operations or cash flows.

Contractual Obligations

At June 30, 2021, there were no significant changes to the Company’s contractual obligations disclosed as of December 31, 2020. However, in connection with the divestiture of the conventional Cotton Valley assets discussed in Note 4, certain water services and gathering and transportation contracts were amended to allow volumes of produced water and natural gas delivered by the buyer of the Cotton Valley assets to be applied to our minimum volume commitments under those contracts. These amendments could potentially reduce the amounts we are ultimately required to pay under our contractual commitments by up to $4.6 million in the remainder of 2021, $9.1 million in 2022, $9.1 million in 2023, $9.2 million in 2024, 8.4 million in 2025 and $16.5 million thereafter.

15. Subsequent Events

SWN Exchange Offer for the 2029 Notes

In August 2021, SWN commenced an offer to eligible holders to exchange any and all of Indigo’s outstanding 2029 Notes for (i) up to $700.0 million aggregate principal amount of new 5.375% Senior Notes due 2029 issued by SWN and guaranteed by certain of its subsidiaries and (ii) cash. In conjunction with the offer, SWN is soliciting consents to adopt certain proposed amendments to the indenture governing the 2029 Notes to eliminate substantially all of the restrictive covenants and events of default. The exchange offer and consent solicitation are subject to the consummation of the pending Merger discussed in Note 3.

Subsequent events were evaluated through August 9, 2021, the date the condensed consolidated financial statements were available to be issued.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Acquisition of Indigo Natural Resources LLC

On June 1, 2021, Southwestern Energy Company (“Southwestern”) entered into an Agreement and Plan of Merger with Ikon Acquisition Company, LLC (“Ikon”), Indigo Natural Resources LLC (“Indigo”) and Ibis Unitholder Representative (the “Indigo Merger Agreement”). Pursuant to the terms of the Indigo Merger Agreement, Indigo will merge with and into Ikon, a subsidiary of Southwestern, with Indigo surviving the merger (the “Indigo Merger”). The outstanding equity interests in Indigo will be cancelled and converted into the right to receive (i) $400 million in cash consideration, and (ii) 339,270,568 shares of Southwestern common stock, in each case, subject to adjustment as provided in the Indigo Merger Agreement. Additionally, Southwestern will assume $700 million in aggregate principal amount of 5.375% Senior Notes due 2029 of Indigo (the “Indigo Notes”).

Acquisition of Montage Resources LLC

On November 13, 2020, pursuant to the Agreement and Plan of Merger, dated as of August 12, 2020, by and between Southwestern and Montage Resources Corporation (“Montage”), Southwestern completed its previously announced acquisition of Montage, by means of a merger of Montage with and into Southwestern, with Southwestern continuing as the surviving corporation (the “ Montage Merger” and, together with the Indigo Merger, the “Mergers”).

In exchange for each share of Montage common stock, Montage shareholders received 1.8656 shares of Southwestern common stock, plus cash in lieu of any fractional share of Southwestern common stock that otherwise would have been issued, based on an average price of $3.05 per share of Southwestern common stock on the NYSE on November 13, 2020. Approximately 69.7 million total shares were issued to Montage shareholders and its management team as consideration for the Montage Merger.

Additionally, in August 2020, Southwestern completed an underwritten public offering of 63.25 million shares of common stock with an offering price to the public of $2.50 per share, with net proceeds from the offering totaling $152 million after deducting underwriting discounts and offering expenses (the “Equity Offering”). Also in August 2020, Southwestern completed an underwritten public offering of $350 million aggregate principal amount of 8.375% senior notes due 2028 (the “Debt Offering”). The net proceeds from the Debt Offering, after deducting the underwriting discount and offering expenses, were approximately $345 million. Southwestern used the net proceeds from the Debt Offering, together with the net proceeds received from the Equity Offering and borrowings under Southwestern’s credit facility, to fund the redemption of $510 million aggregate principal amount of Montage’s outstanding 8.875% Senior Notes due 2023 (the “Montage Notes”) and to pay off of the outstanding Montage credit facility balance and all related accrued interest in connection with the closing of the Montage Merger.

Unaudited Pro Forma Condensed Combined Financial Statements

The following unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of Southwestern and Indigo and from the historical financial activity of Montage through November 13, 2020, the closing date of the Montage Merger, and have been adjusted to reflect 1) the Equity Offering and the Debt Offering and the use of the proceeds therefrom as described above and 2) the Indigo Merger, as described above.

The proposed Indigo Merger will be accounted for using the acquisition method of accounting with Southwestern identified as the acquirer. Under the acquisition method of accounting, Southwestern will record assets acquired and liabilities assumed at their respective acquisition date fair values at the effective time of the Indigo Merger.

Certain historical amounts of Montage and Indigo have been reclassified to conform to Southwestern’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of June 30, 2021 gives effect to the Indigo Merger as if the transaction had been completed on June 30, 2021. 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, the Equity Offering and the Debt Offering as if each transaction had been completed on January 1, 2020.

The unaudited pro forma condensed combined financial statements reflect the following Merger-related pro forma adjustments, based on available information and certain assumptions that Southwestern believes are reasonable:

•the Mergers, accounted for using the acquisition method of accounting, with Southwestern identified as the acquirer, and, in the case of Montage, the issuance of shares of Southwestern common stock in exchange for each share of Montage, and, in the case of Indigo, the issuance of shares of Southwestern common stock and $400 million in cash for all of the company units of Indigo as merger consideration;

•adjustments to conform Montage’s and Indigo’s historical accounting policies related to oil and natural gas properties from the successful efforts method of accounting to the full cost method of accounting used by Southwestern;

•the Equity Offering and the Debt Offering and the redemption of the Montage Notes as well as repayment in full and termination of Montage’s revolving credit facility and all related accrued interest, each of which occurred in connection with the Montage Merger;

•Southwestern’s related $400 million borrowing on its credit facility to fund the cash portion of the acquisition consideration and the planned assumption of the Indigo Notes as well as repayment in full and termination of Indigo’s revolving credit facility, each of which is expected to occur in connection with the consummation of the Indigo Merger or soon thereafter;

•adjustments to conform the classification of certain assets and liabilities in Indigo’s historical balance sheet to Southwestern’s classification for similar assets and liabilities;

•adjustments to conform the classification of revenues and expenses in Indigo’s and Montage’s historical statements of operations to Southwestern’s classification for similar revenues and expenses; and

•the recognition of estimated tax impacts of the pro forma adjustments.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements. In Southwestern’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to the Mergers, the Equity Offering and the Debt Offering along with the use of proceeds therefrom. These adjustments are directly attributable to the Mergers, factually supportable and, with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results of Southwestern following the Mergers.

The assets acquired and liabilities assumed from Montage were recorded at their preliminary estimated fair values at the date of the Montage Merger. Although the purchase price allocation for Montage is substantially complete as of the date of this filing, there may be further adjustments to Montage’s natural gas and oil properties as the studies necessary to determine the fair value are finalized. These amounts will be finalized no later than one year from the acquisition date. There have been no material changes to the allocation presented in Southwestern’s Form 10-Q for the six months ended June 30, 2021.

The acquisition method of accounting as it relates to the Indigo Merger is dependent upon certain valuations and other studies that, as of the date hereof, have yet to commence or progress to a stage where there is sufficient information for a definitive measure. As of the date of this current report, Southwestern has performed a preliminary valuation analysis of the fair value of Indigo’s assets to be acquired and liabilities to be assumed and has made certain adjustments to the historical book values of the assets and liabilities of Indigo to reflect preliminary estimates of the fair value necessary to prepare the unaudited pro forma condensed combined financial statements. 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 completion of the Indigo

Merger. 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. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements presented below. Southwestern estimated the fair value of Indigo’s assets and liabilities based on discussions with Indigo’s management, preliminary valuation studies, due diligence, and information presented in Indigo’s historical financial statements. Until the Indigo Merger is completed, both companies are limited in their ability to share certain information. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the unaudited pro forma condensed combined balance sheet and/or statements of operations. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.

The unaudited pro forma condensed combined financial information is not intended to represent what Southwestern’s financial position or results of operations would have been had the Mergers actually been consummated on the assumed dates nor does it purport to project the future operating results or financial position of the combined company following the Indigo Merger. The unaudited pro forma condensed combined financial information does not reflect future events that may occur after the Indigo Merger, including, but not limited to, the anticipated realization of ongoing savings from potential operating efficiencies, asset dispositions, cost savings, or economies of scale that the combined company may achieve with respect to the combined operations. Specifically, the unaudited pro forma condensed combined statements of operations do not include projected synergies expected to be achieved as a result of the Mergers and any associated costs that may be required to be incurred to achieve the identified synergies. The unaudited pro forma condensed combined statements of operations also exclude the effects of transaction costs associated with the Indigo Merger, costs associated with any restructuring, integration activities, and asset dispositions that may result from the Mergers. Further, the unaudited pro forma condensed combined financial statements do not reflect the effect of any regulatory actions that may impact the results of the combined company following the Mergers.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in Southwestern’s Annual Report on Form 10-K for the year ended December 31, 2020, Southwestern’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, and Indigo’s historical financial statements and accompanying notes as of and for the year ended December 31, 2020 (incorporated by reference from Exhibit 99.2 to the Current Report on Form 8-K filed with the Commission on July 2, 2021) and as of and for the six months ended June 30, 2021 included as an exhibit to the accompanying Current Report on Form 8-K, and Montage’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 (incorporated by reference in this Current Report on Form 8-K under Exhibit 99.5).

Southwestern Energy Company

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2021

(in millions)


	Southwestern Historical		Indigo Historical		Reclassification Adjustments (Note 3)			Acquisition Adjustment (Note 3)			Pro Forma Combined
Assets
Current Assets
Cash and cash equivalents	$	2	$	76	$	—		$	(35)	(m)	$	43
Accounts receivable, net	408		139		—			—			547
Derivative assets	132		—		—			—			132
Other current assets	51		2		—			—			53
Total Current Assets	593		217		—			(35)			775
Natural gas and oil properties	27,796		3,226		—			62		(c)	31,084
Other property, plant and equipment	496		15		—			(12)		(c)	499
Less: Accumulated depreciation, depletion and amortization	(23,846)		(1,256)		—			1,256		(c)	(23,846)
Total property, plant and equipment, net	4,446		1,985		—			1,306			7,737
Operating lease assets	147		—		—			—			147


Other long-term assets	208		6		—			(3)		(d)	211
Total Long-Term Assets	355		6		—			(3)			358
TOTAL ASSETS	$	5,394	$	2,208	$	—		$	1,268		$	8,870
Liabilities and Stockholders’ Equity
Current Liabilities:
Current portion of long-term debt	$	207	$	—	$	—		$	—		$	207
Accounts payable	653		132		69		(a)	—			854
Taxes payable	62		—		6		(a)	—			68
Interest payable	57		16		—			—			73
Derivative liabilities	901		193		—			—			1,094
Current operating lease liabilities	41		—		—			—			41
Accrued capital expenditures	—		72		(72)		(a)	—			—

Other current liabilities	23		87		(3)		(a)	—			107
Total Current Liabilities	1,944		500		—			—			2,444
Long-term debt	2,814		724					408		(c)(f)(m)	3,946
Long-term operating lease liabilities	104		—		—			—			104
Asset retirement obligation	—		13		(13)		(a)	—			—
Long-term derivative liabilities	355		64		—			—			419
Pension and other postretirement liabilities	33		—		—			—			33
Other long-term liabilities	162		10		13		(a)	—			185

Total Long-Term Liabilities	3,468		811		—			408			4,687
Equity:
Members’ common equity	—		897		—			(897)		(g)	—
Common stock	7		—		—			3		(h)	10
Additional paid-in capital	5,104		—		—			1,754		(h)	6,858
Retained earnings (accumulated deficit)	(4,892)		—		—			—			(4,892)
Accumulated other comprehensive loss	(35)		—		—			—			(35)
Common stock in treasury	(202)		—		—			—			(202)
Total Equity	(18)		897		—			860			1,739
TOTAL LIABILITIES AND EQUITY	$	5,394	$	2,208	$	—		$	1,268		$	8,870

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Southwestern Energy Company

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2021

(in millions, except share/per share amounts)


	Southwestern Historical		Indigo Historical		Reclassification and Conforming Adjustments (Note 3)			Acquisition Adjustment (Note 3)			Pro Forma Combined
Operating Revenues:
Gas sales	$	897	$	—	$	458	(a)	$	—		$	1,355
Oil sales	187		—		3		(a)	—			190
NGL sales	352		—		8		(a)	—			360
Natural gas, oil and natural gas liquids sales	—		469		(469)		(a)	—			—
Marketing	684		—		70		(a)	—			754
Other	2		(229)		235		(a)	—			8
Total Revenues	2,122		240		305			—			2,667
Operating Costs and Expenses:
Marketing purchases	689		—		70		(a)	—			759
Operating expenses	509		112		48		(a)	—			669
Gathering and transportation expense	—		118		(118)		(a)	—			—
General and administrative expenses	72		28		—			—			100
Montage merger-related expenses	4		—		—			—			4
(Gain) loss on sale of operating assets	—		623		(623)		(a)	—			—
Restructuring charges	7		—		—			—			7
Depreciation, depletion and amortization	196		223		—			(59)		(i)	360
Impairments	—		26		—			—			26
Exploration	—		—		—			—			—
Severance taxes	—		6		(6)		(a)	—			—
Taxes, other than income taxes	51		—		6		(a)	—			57
Total Operating Costs and Expenses	1,528		1,136		(623)			(59)			1,982
Operating Income (Loss)	594		(896)		928			59			685
Interest Expense:
Interest on debt	98		19		3		(a)	(1)		(l)	119
Other interest charges	6		—		2		(a)	—			8
Interest capitalized	(43)		—		(5)		(a)	(13)		(e)	(61)
Net Interest Expense	61		19		—			(14)			66

Loss on Derivatives	(1,062)		—		(305)		(a)	—			(1,367)
Loss on Early Extinguishment of Debt	—		(34)		—			—			(34)
Loss from Equity Method Investment	—		(8)		—			—			(8)
Other Income, Net	—		1		—			—			1
Income (Loss) Before Income Taxes	(529)		(956)		623			73			(789)
Provision for Income Taxes:
Current	—		—		—			—			—
Deferred	—		—		—			—			—
Total Provision for Income Taxes	—		—		—			—			—
Net Income (Loss)	$	(529)	$	(956)	$	623		$	73		$	(789)

Earnings Per Common Share:
Basic	$	(0.78)									$	(0.78)
Diluted	$	(0.78)									$	(0.78)

Weighted Average Common Shares Outstanding:
Basic	676,057,534							339,270,568		(h)	1,015,328,102
Diluted	676,057,534							339,270,568		(h)	1,015,328,102

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Southwestern Energy Company

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2020

(in millions, except share/per share amounts)


	Southwestern Historical		Montage Historical Through November 12, 2020		Indigo Historical		Montage Reclassification and Conforming Adjustments (Note 3)			Indigo Reclassification and Conforming Adjustments (Note 3)			Montage-Related Issuance of Debt and Equity and Related Use of Proceeds (Note 3)			Montage Acquisition Adjustment (Note 3)			Indigo Acquisition Adjustment (Note 3)			Pro Forma Combined
Operating Revenues:
Gas sales	$	967	$	—	$	—	$	250	(a)	$	698	(a)	$	—		$	—		$	—		$	1,915
Oil sales	154		—		—		60		(a)	6		(a)	—			—			—			220
NGL sales	265		—		—		55		(a)	14		(a)	—			—			—			334
Natural gas, oil and natural gas liquids sales	—		365		718		(365)		(a)	(718)		(a)	—			—			—			—
Marketing	917		28		—		—			43		(a)	—			—			—			988
Other	5		—		49		—			(45)		(a)	—			—			—			9
Total Revenues	2,308		393		767		—			(2)			—			—			—			3,466
Operating Costs and Expenses:
Marketing purchases	946		28		—		—			42		(a)	—			—			—			1,016
Operating expenses	813		37		147		183		(a)	169		(a)	—			—			—			1,349
Gathering and transportation expense	—		183		211		(183)		(a)	(211)		(a)	—			—			—			—
General and administrative expenses	121		38		51		—			—			—			—			—			210
Montage merger-related expenses	41		—		—		—			—			—			—			—			41
Gain on sale of operating assets	—		(1)		—		—			—			—			—			—			(1)
Restructuring charges	16		—		—		—			—			—			—			—			16
Depreciation, depletion and amortization	357		165		485		—			—			—			(53)		(i)	(40)		(i)	914
Impairments	2,830		—		5		—			—			—			—			—			2,835
Exploration	—		38		1		(38)		(a)	(1)		(a)	—			—			—			—
Severance taxes	—		12		15		(12)		(a)	(15)		(a)	—			—			—			—
Taxes, other than income taxes	55		—		—		12		(a)	15		(a)	—			—			—			82
Total Operating Costs and Expenses	5,179		500		915		(38)			(1)			—			(53)			(40)			6,462
Operating Loss	(2,871)		(107)		(148)		38			(1)			—			53			40			(2,996)
Interest Expense:
Interest on debt	171		51		35		(4)		(a)	16		(a)	(25)		(b)	—			(3)		(l)	241
Other interest charges	11		—		—		4		(a)	4		(a)	—			—			—			19
Interest capitalized	(88)		—		—		—			(20)		(a)	—			2		(e)	(16)		(e)	(122)
Net Interest Expense	94		51		35		—			—			(25)			2			(19)			138


	Southwestern Historical		Montage Historical Through November 12, 2020		Indigo Historical		Montage Reclassification and Conforming Adjustments (Note 3)		Indigo Reclassification and Conforming Adjustments (Note 3)			Montage-Related Issuance of Debt and Equity and Related Use of Proceeds (Note 3)			Montage Acquisition Adjustment (Note 3)			Indigo Acquisition Adjustment (Note 3)			Pro Forma Combined
Gain (Loss) on Derivatives	224		(17)		—		—		2		(a)	—			—			—			209
Gain on Early Extinguishment of Debt	35		—		2		—		—			—			—			—			37
Income from Equity Method Investment	—		—		184		—		—			—			—			—			184
Other Income, Net	1		—		1		—		—			—			—			—			2
Income (Loss) Before Income Taxes	(2,705)		(175)		4		38		1			25			51			59			(2,702)
Provision (Benefit) for Income Taxes:
Current	(2)		—		—		—		—			—			—			—			(2)
Deferred	409		—		—		—		—			—			—			—			409
Total Provision (Benefit) for Income Taxes	407		—		—		—		—			—			—			—			407
Income (Loss) from Continuing Operations	$	(3,112)	$	(175)	$	4	$	38	$	1		$	25		$	51		$	59		$	(3,109)

Loss Per Common Share:
Basic	$	(5.42)																			$	(3.07)
Diluted	$	(5.42)																			$	(3.07)

Weighted Average Common Shares Outstanding:
Basic	573,889,502											39,856,164		(k)	60,378,378		(j)	339,270,568		(h)	1,013,394,612
Diluted	573,889,502											39,856,164		(k)	60,378,378		(j)	339,270,568		(h)	1,013,394,612

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

Southwestern Energy Company

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1. Basis of Presentation

The unaudited pro forma condensed combined financial information has been derived from the historical consolidated financial statements of Southwestern and Indigo, from the historical financial activity of Montage through November 13, 2020, the date the Montage Merger was completed, and have been adjusted to reflect 1) the Equity Offering and Debt Offering and the use of the proceeds therefrom and 2) the proposed Indigo Merger, as described above. Certain of Montage’s and Indigo’s historical amounts have been reclassified to conform to Southwestern’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of June 30, 2021 gives effect to the Indigo Merger as if it had occurred on June 30, 2021. 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 and the Equity Offering and Debt Offering as if each transaction had been completed on January 1, 2020.

The unaudited pro forma condensed combined financial statements reflect pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions that Southwestern believes are reasonable, however, actual results may differ from those reflected in these statements. In Southwestern’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The unaudited pro forma condensed combined financial statements do not purport to represent what Southwestern’s financial position or results of operations would have been if the transactions had actually occurred on the dates indicated above, nor are they indicative of Southwestern’s future financial position or results of operations. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes of Southwestern, Montage and Indigo, as applicable, for the periods presented.

The unaudited pro forma condensed combined financial information includes adjustments to conform Montage’s and Indigo’s accounting policies to Southwestern’s accounting policies, including adjusting Montage’s and Indigo’s oil and gas properties to the full cost method. Both Montage and Indigo follow the successful efforts method of accounting for oil and gas properties, while Southwestern follows the full cost method of accounting for oil and gas properties. Certain costs that are expensed under the successful efforts method are capitalized under the full cost method, including unsuccessful exploration drilling costs, geological and geophysical costs, delay rentals on leases and general and administrative expenses directly related to exploration and development activities. Under the full cost method of accounting, property acquisition costs, costs of wells, related equipment and facilities and future development costs are all included in a single full cost pool, which is amortized on a units-of-production basis over total proved reserves. Under the successful efforts method of accounting, property acquisition costs are amortized on a units-of-production basis over total proved reserves, while costs of wells and related equipment and facilities are amortized on a units-of-production basis over proved developed reserves. The pro forma condensed combined financial information has reclassified Montage’s and Indigo’s exploration expenses, which are capitalized under the full cost method of accounting for oil and gas properties.

Note 2. Unaudited Pro Forma Combined Balance Sheet

The Indigo Merger will be accounted for using the acquisition method of accounting using the accounting guidance in Accounting Standards Codification 805, Business Combinations. The allocation of the preliminary estimated purchase price is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of June 30, 2021 using currently available information. Due to the fact that the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. Southwestern expects to finalize its allocation of the purchase consideration as soon as practicable after completion of the proposed transaction.

The preliminary purchase price allocation is subject to change due to several factors, including but not limited to:

•changes in the estimated fair value of Southwestern’s common stock consideration transferred to Indigo’s equity holders, based on Southwestern’s share price at the date of closing of the Indigo Merger;

•changes in the estimated fair value of Indigo’s assets acquired and liabilities assumed as of the date of the closing of the Indigo Merger, resulting from the finalization of Southwestern’s detailed valuation analysis, including changes in future oil and gas commodity prices, reserve estimates, interest rates and other factors;

•the implementation of ASC 842 Leases as it relates to Indigo’s lease obligations and right of use assets expected to be recorded as part of purchase accounting upon the closing of the Indigo Merger; and

•the resolution of certain matters that Southwestern is indemnified for under the Indigo Merger Agreement for which not enough information is available to assess the fair value of at this time.

The preliminary consideration to be transferred and the fair value of assets acquired and liabilities assumed is as follows:


	Preliminary Purchase Price Allocation as of June 30, 2021 (in millions)
Consideration:
Fair value of Southwestern’s stock to be issued (1)	$	1,757
Cash consideration to be paid	400
Total Consideration	$	2,157
Fair Value of Assets Acquired:
Cash and cash equivalents	$	41
Accounts receivable	139
Other current assets	2
Evaluated oil and gas properties	2,534
Unevaluated oil and gas properties	753
Other property, plant and equipment	4
Other long-term assets	3
Total assets acquired	$	3,476
Fair Value of Liabilities Assumed:
Accounts payable	$	201
Other current liabilities	106
Derivative liabilities	257
Senior notes	732
Asset retirement obligations	13
Other noncurrent liabilities	10
Total liabilities assumed	1,319
Net Assets Acquired and Liabilities Assumed	2,157

(1)Based on 339,270,568 shares of Southwestern common stock at $5.18 per share (closing price as of July 26, 2021).

Under the Indigo Merger Agreement, Indigo equity holders will receive 339,270,568 shares of Southwestern common stock or approximately $1,757 million in value (based on the Southwestern common stock closing price on the NYSE as of July 26, 2021 of $5.18) and $400 million in cash as merger consideration, in each case, subject to adjustment as provided in the Indigo Merger Agreement.

The Indigo Merger will be non-taxable to Southwestern, and, because Indigo is a partnership, the tax basis in Indigo’s assets and liabilities will be stepped up to fair market value upon closing of the Indigo Merger. The Company is in the process of assessing the impacts of the Indigo Merger on our existing tax attributes.

From June 1, 2021, the last trading date prior to the public announcement of the proposed Indigo Merger, to July 26, 2021, the preliminary value of Southwestern’s merger consideration to be transferred had decreased approximately $193 million, as a result of the decrease in the closing share price of Southwestern common stock on the NYSE from $5.75 to $5.18. The final value of the Indigo Merger consideration will be determined based on the market price of Southwestern common stock on the closing date of the Indigo Merger. A 20 percent increase or decrease in the closing price of a share of Southwestern common stock, as compared to the July 26, 2021 closing price of $5.18, would increase or decrease the purchase price by approximately $351 million, assuming all other factors are held constant.

Note 3. Pro Forma Adjustments

The following adjustments have been made to the accompanying unaudited pro forma condensed combined financial statements:

(a)The following reclassifications and conforming adjustments were made as a result of the transactions to conform to Southwestern’s presentation and full-cost accounting methodology for oil and gas properties:

Pro Forma Condensed Combined Balance Sheet as of June 30, 2021:

Indigo Reclassification Adjustments

•Reflects reclassification of approximately $72 million from accrued capital expenditures to accounts payable;

•Reflects reclassification of approximately $3 million from accounts payable and $3 million from other current liabilities to taxes payable; and

•Reflects reclassification of approximately $13 million from asset retirement obligation to other long-term liabilities.

Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2021:

Indigo Reclassification and Conforming Adjustments

•Reflects reclassification of approximately $469 million from natural gas, oil and natural gas liquids (“NGL”) sales to the respective sales revenues by product ($458 million for gas sales, $3 million for oil sales and $8 million for NGL sales);

•Reflects reclassification of approximately $118 million from gathering and transportation expense to operating expenses;

•Reflects the elimination of $623 million of loss on sale of operating assets related to the sale of oil and gas properties which is not recorded on the income statement under the full cost method of accounting for oil and gas properties (used by Southwestern) as the sale would not significantly alter the relationship between capitalized costs and proved reserves in Southwestern’s full cost pool;

•Reflects reclassification of approximately $6 million from severance taxes to taxes, other than income;

•Reflects reclassification of a $305 million loss in other revenue to loss on derivatives;

•Reflects reclassification of $70 million in third party gas sales from other revenues to marketing revenues;

•Reflects reclassification of $70 million in third party gas purchases from operating expenses to marketing purchases; and

•Reflects the gross up of capitalized interest of $5 million, gross up of interest paid of $3 million, and gross up of $2 million in other interest charges related to the amortization of debt issuance costs to demonstrate the components that comprised net interest expense.

Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2020:

Montage Reclassification and Conforming Adjustments

•Reflects reclassification of approximately $365 million from natural gas, oil and NGL sales to the respective sales revenues by product ($250 million for gas sales, $60 million for oil sales and $55 million for NGL sales);

•Reflects reclassification of approximately $183 million from transportation, gathering and compression to operating expenses;

•Reflects the elimination of $38 million of exploration expenses which are capitalized under the full cost method of accounting for oil and gas properties (used by Southwestern);

•Reflects reclassification of approximately $12 million from severance taxes to taxes, other than income; and

•Reflects reclassification of $4 million of interest on debt to other interest charges related to the amortization of letter of credit costs and debt issuance costs incurred during the period.

Indigo Reclassification and Conforming Adjustments

•Reflects reclassification of approximately $718 million from natural gas, oil and NGL sales to the respective sales revenues by product ($698 million for gas sales, $6 million for oil sales and $14 million for NGL sales);

•Reflects reclassification of approximately $211 million from gathering and transportation expense to operating expenses;

•Reflects the elimination of $1 million of exploration expenses which are capitalized under the full cost method of accounting for oil and gas properties (used by Southwestern);

•Reflects reclassification of approximately $15 million from severance taxes to taxes, other than income;

•Reflects reclassification of approximately $2 million from other revenue to gain on derivatives;

•Reflects reclassification of $43 million in third party gas sales from other revenues to marketing revenues;

•Reflects reclassification of $42 million in third party gas purchases from operating expenses to marketing purchases; and

•Reflects the gross up of capitalized interest of $20 million, gross up of interest paid of $16 million, and gross up of $4 million in other interest charges related to amortization of debt issuance costs to demonstrate the components that comprised net interest expense.

(b)During August 2020, in contemplation of the Montage Merger, Southwestern completed an offering of $350 million aggregate principal amount of 8.375% Senior Notes due 2028 resulting in net proceeds of $345 million after deducting the underwriting discount and offering expenses. This adjustment reflects the use of the net proceeds from the Debt Offering, available cash and cash equivalents and incremental borrowings under the Southwestern credit facility, to fund a redemption of Montage Notes, the Montage credit facility and all related accrued interest shortly after the consummation of the Montage Merger.

• The adjustment reflects an approximately $25 million net decrease in interest on debt related to the retirement of the Montage Notes, the Montage credit facility, all related accrued interest and the associated decrease in amortization of issuance costs related to the Montage Notes and revolving line of credit. This decrease was partially offset by increases in interest on debt associated with the issuance of $350 million in Southwestern’s new 8.375% Senior Notes due 2028 related to the Debt Offering and borrowings under Southwestern’s credit facility used to pay off the Montage Notes, Montage credit facility and related accrued interest.

(c)The allocation of the estimated fair value of consideration transferred (based on the closing price of Southwestern common stock on the NYSE of $5.18 per share at July 26, 2021) to the estimated fair value

of the Indigo assets acquired and liabilities assumed resulted in the following purchase price allocation adjustments:

•$1,306 million increase to Indigo’s net book basis of total property, plant and equipment to reflect fair value;

•$32 million increase in long-term debt to reflect the Indigo Notes at fair value; and

•$400 million increase in long-term debt to reflect the borrowing under Southwestern’s credit facility to fund the cash portion of the Indigo Merger consideration payment.

(d)Reflects the write-off of approximately $3 million in unamortized debt issuance costs related to Indigo’s revolving credit facility.

(e)Reflects a $13 million increase and a $16 million increase in capitalized interest related to the fair value of the unevaluated oil and gas properties acquired from Indigo for the six months ended June 30, 2021 and twelve months ended December 31, 2020, respectively, and a $2 million decrease in capitalized interest related to the fair value of the unevaluated oil and gas properties acquired from Montage for the 12 months ended December 31, 2020.

(f)Reflects the increase in long-term debt as a result of the write-off of approximately $11 million in unamortized debt discount and debt issuance costs related to the Indigo Notes.

(g)Reflects the elimination of Indigo’s historical members’ common equity balances in accordance with the acquisition method of accounting.

(h)Reflects the estimated increase in shares of Southwestern common stock resulting from the issuance of shares of Southwestern common stock to Indigo’s equity holders to effect the transaction as follows:


(in millions, except share, per share amounts)
Shares of Southwestern common stock to be issued to Indigo equity holders	339,270,568
NYSE closing price per share of Southwestern common stock on July 26, 2021	$	5.18
Fair value of Southwestern common shares to be issued	$	1,757
Increase in Southwestern common stock ($0.01 par value per share) as of June 30, 2021	3
Increase in Southwestern additional paid-in capital as of June 30, 2021	$	1,754

(i)Reflects the pro forma depreciation, depletion and amortization (“DD&A”) expense calculated in accordance with the full cost method of accounting for oil and gas properties, which was based on the preliminary purchase price allocations for both Montage and Indigo, as applicable.

(j)Reflects the impact of the issuance of shares of Southwestern common stock to Montage shareholders and management team to effect the Montage Merger, which were already reflected in Southwestern’s historical condensed consolidated balance sheet as of June 30, 2021. This adjustment reflects the impact of these additional shares on the weighted average basic and diluted shares outstanding used to calculate the respective earnings per share amounts.

(k)During August 2020, in contemplation of the Montage Merger, Southwestern completed the Equity Offering of 63.25 million shares resulting in net proceeds of $152 million, which were already reflected in Southwestern’s historical condensed consolidated balance sheet as of June 30, 2021. This adjustment reflects the impact of these additional shares on the weighted average basic and diluted shares outstanding used to calculate the respective earnings per share amounts.

(l)Reflects an approximately $1 million and $3 million net decrease in interest on debt for the six months ended June 30, 2021 and year ended December 31, 2020, respectively, related to the pay-off and retirement of the Indigo credit facility, all related accrued interest and the associated decrease in amortization of issuance costs related to Indigo’s revolving line of credit. These decreases are partially offset by an increase in interest expense related to the $400 million borrowing under Southwestern’s credit facility to fund the cash portion of the merger consideration associated with the Indigo Merger.

(m)Reflect the use $35 million in existing cash to retire the Indigo credit facility balance that existed at June 30, 2021.

Note 4. Supplemental Pro Forma Oil and Natural Gas Reserves Information

The following tables present the estimated pro forma combined net proved developed and undeveloped natural gas, oil and NGL reserves as of December 31, 2020, along with a summary of changes in the quantities of net remaining proved reserves during the year ended December 31, 2020. The pro forma reserve information set forth below gives effect to the Indigo Merger as if it had been completed on January 1, 2020.


	Natural Gas (Bcf)
	Southwestern Historical	Indigo Historical (1)	Southwestern Pro Forma Combined Total (1)
December 31, 2019	8,630	4,560	13,190
Revisions of previous estimates	(1,380)	(1,318)	(2,698)
Extensions, discoveries and other additions	714	780	1,494
Production	(694)	(367)	(1,061)
Acquisition of reserves in place	1,911	—	1,911
Disposition of reserves in place	—	(5)	(5)
December 31, 2020	9,181	3,650	12,831

Proved developed reserves as of:
December 31, 2019	4,906	1,269	6,175
December 31, 2020	6,342	1,191	7,533
Proved undeveloped reserves as of:
December 31, 2019	3,724	3,291	7,015
December 31, 2020	2,839	2,459	5,298

(1) The Indigo Historical and Southwestern Pro Forma Combined Total reserves as of December 31, 2020 both include 562 Bcf of natural gas reserves associated with the conventional Cotton Valley oil and gas properties which were sold in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. Of the 562 Bcf of natural gas reserves sold, 179 Bcf were proved developed reserves and 383 Bcf were proved undeveloped reserves.


	Oil (MBbls)
	Southwestern Historical	Indigo Historical (1)	Southwestern Pro Forma Combined Total (1)
December 31, 2019	72,925	2,235	75,160
Revisions of previous estimates	(28,691)	(231)	(28,922)
Extensions, discoveries and other additions	135	22	157
Production	(5,141)	(168)	(5,309)
Acquisition of reserves in place	18,796	—	18,796
Disposition of reserves in place	—	—	—
December 31, 2020	58,024	1,858	59,882

Proved developed reserves as of:
December 31, 2019	26,124	1,175	27,299
December 31, 2020	33,563	797	34,360
Proved undeveloped reserves as of:
December 31, 2019	46,801	1,060	47,861
December 31, 2020	24,461	1,061	25,522

(1) The Indigo Historical and Southwestern Pro Forma Combined Total reserves as of December 31, 2020 both include 1,749 MBbls of oil reserves associated with the conventional Cotton Valley oil and gas properties which were sold by Indigo in the second quarter of 2021 prior

to the signing of the Indigo Merger Agreement. Of the 1,749 MBbls of oil reserves sold, 688 MBbls were proved developed reserves and 1,061 MBbls were proved undeveloped reserves.


	NGLs (MBbls)
	Southwestern Historical	Indigo Historical (1)	Southwestern Pro Forma Combined Total (1)
December 31, 2019	608,761	23,020	631,781
Revisions of previous estimates	(232,195)	(4,784)	(236,979)
Extensions, discoveries and other additions	4,371	249	4,620
Production	(25,927)	(1,063)	(26,990)
Acquisition of reserves in place	55,141	—	55,141
Disposition of reserves in place	—	(2)	(2)
December 31, 2020	410,151	17,420	427,571

Proved developed reserves as of:
December 31, 2019	226,271	7,660	233,931
December 31, 2020	276,548	5,521	282,069
Proved undeveloped reserves as of:
December 31, 2019	382,490	15,360	397,850
December 31, 2020	133,603	11,899	145,502

(1) The Indigo Historical and Southwestern Pro Forma Combined Total reserves as of December 31, 2020 both include 17,383 MBbls of NGL reserves associated with the conventional Cotton Valley oil and gas properties which were sold by Indigo in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. Of the 17,383 MBbls of NGL reserves sold, 5,484 MBbls were proved developed reserves and 11,899 MBbls were proved undeveloped reserves.


	Total (Bcfe)
	Southwestern Historical	Indigo Historical (1)	Southwestern Pro Forma Combined Total (1)
December 31, 2019	12,721	4,711	17,432
Revisions of previous estimates	(2,946)	(1,348)	(4,294)
Extensions, discoveries and other additions	741	782	1,523
Production	(880)	(374)	(1,254)
Acquisition of reserves in place	2,354	—	2,354
Disposition of reserves in place	—	(5)	(5)
December 31, 2020	11,990	3,766	15,756

Proved developed reserves as of:
December 31, 2019	6,421	1,322	7,743
December 31, 2020	8,203	1,229	9,432
Proved undeveloped reserves as of:
December 31, 2019	6,300	3,389	9,689
December 31, 2020	3,787	2,537	6,324

(1) The Indigo Historical and Southwestern Pro Forma Combined Total reserves as of December 31, 2020 both include 677 Bcfe of proved reserves associated with the conventional Cotton Valley oil and gas properties which were sold by Indigo in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement. Of the 677 Bcfe of proved reserves sold, 216 Bcfe were proved developed reserves and 461 Bcfe were proved undeveloped reserves.

The pro forma standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves as of December 31, 2020 is as follows:


(in millions)	Southwestern Historical		Indigo Historical (1)		Southwestern Pro Forma Combined Total (1)
Future cash inflows	$	17,997	$	7,178	$	25,175
Future production costs	(11,969)		(3,756)		(15,725)
Future development costs (1)	(1,924)		(1,946)		(3,870)
Future income tax expense	—		—		—
Future net cash flows	4,104		1,476		5,580
10% annual discount for estimated timing of cash flows	(2,257)		(827)		(3,084)
Standardized measure of discounted future net cash flows	$	1,847	$	649	$	2,496

(1) The Indigo Historical and Southwestern Pro Forma Combined Total standardized measure as of December 31, 2020 both include $45 million of standardized measure associated with the conventional Cotton Valley oil and gas properties which were sold by Indigo in the second quarter of 2021 prior to the signing of the Indigo Merger Agreement.

The changes in the pro forma standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2020 are as follows:


(in millions)	Southwestern Historical		Indigo Historical (1)		Southwestern Pro Forma Combined Total (1)
Standardized measure, beginning of year	$	3,700	$	2,044	$	5,744
Sales and transfers of natural gas and oil produced, net of production costs	(478)		(391)		(869)
Net changes in prices and production costs	(2,720)		(1,386)		(4,106)
Extensions, discoveries, and other additions, net of future production and development costs	81		156		237
Acquisition of reserves in place	443		—		443
Sales of reserves in place	—		—		—
Revisions of previous quantity estimates	(987)		(1,156)		(2,143)
Net change in income taxes	35		—		35
Changes in estimated future development costs	1,241		918		2,159
Previously estimated development costs incurred during the year	624		271		895
Changes in production rates (timing) and other	(466)		—		(466)
Accretion of discount	374		193		567
Standardized measure, end of year	$	1,847	$	649	$	2,496