SOUTHWESTERN ENERGY CO, PRE 14A, 1996-03-04

SOUTHWESTERN ENERGY CO
PRE 14A, 1996-03-04
NATURAL GAS TRANSMISISON & DISTRIBUTION

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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934

Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

SOUTHWESTERN ENERGY COMPANY
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

<PAGE>

SOUTHWESTERN ENERGY COMPANY
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 13, 1996

THIS IS NOT A PROXY SOLICITATION

The Annual Meeting of Shareholders of Southwestern Energy Company will
be held at the Northwest Arkansas Holiday Inn, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Monday, the 13th day of May, 1996, at 11:00 a.m.,
Central Daylight Time, for the following purposes:

(1) The election of five (5) directors to serve until the 1997
Annual Meeting or until their respective successors are duly
elected and qualified;

(2) To consider and take action upon a proposal to consent to and
authorize an increase in the Company's "bonded indebtedness"
(within the meaning of Article 12, Section 8 of the
Constitution of the State of Arkansas) up to a total aggregate
amount of $400,000,000 (four hundred million dollars),
including $187,929,000 of bonded indebtedness outstanding as
of March 14, 1996, and containing such other terms, provisions
and conditions as the Board of Directors shall approve; and

(3) To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.

The Board of Directors has fixed the close of business on March 4,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting. You are cordially invited to attend the
meeting.

THIS NOTICE IS PROVIDED PURSUANT TO ARTICLE 12, SECTION 8 OF THE
CONSTITUTION OF THE STATE OF ARKANSAS AND SECTION 4-27-705 OF THE ARKANSAS CODE
WHICH REQUIRE 60 DAYS NOTICE OF ANY SHAREHOLDERS' MEETING AT WHICH THE
SHAREHOLDERS WILL CONSIDER A PROPOSAL TO CONSENT TO AN INCREASE IN THE COMPANY'S
BONDED INDEBTEDNESS. THIS IS NOT A PROXY SOLICITATION. A PROXY STATEMENT AND
PROXY CARD WILL BE MAILED AT A LATER DATE TO SHAREHOLDERS OF RECORD AS OF MARCH
4, 1996. NO IMMEDIATE ACTION IS REQUIRED ON YOUR PART IN RESPONSE TO THIS
NOTICE.

By Order of the Board of Directors

GREGORY D. KERLEY
Secretary
March 14, 1996

<PAGE>

SOUTHWESTERN ENERGY 1083 Sain Street
COMPANY P. O. Box 1408
Fayetteville, Arkansas 72702-1408

March 29, 1996

TO OUR SHAREHOLDERS:

Southwestern Energy Company's Annual Meeting of Shareholders is at
11:00 a.m., Monday, May 13, 1996, at the Northwest Arkansas Holiday Inn,
Springdale, Arkansas. We hope you will be able to attend.

The major item of business is the election of the Board of Directors.
Mr. Robert L. Howard of Houston, Texas, appointed to the Board in October of
1995 to fill an unexpired term, is one of the nominees. Since this is his first
appearance on the slate on nominees, I would like to tell you about his
experience and qualifications that will make him a valuable member of our Board.

Mr. Howard, 59, retired from Shell Oil Company in March of 1995. He is
a graduate of Rice University, BSME, 1959. He joined Shell Oil Company that year
and served in various positions with Shell involving production and exploration
in areas including Alaska, Michigan, Texas, New Mexico, Oklahoma, the Gulf Coast
and Gulf of Mexico. From 1992 until retirement he served Shell as Vice
President, Domestic Operations, Exploration and Production. His wide experience
in exploration and production will contribute greatly to the direction and
growth of our Company.

As an Arkansas corporation we are required by an old Arkansas
Constitutional provision to give notice to shareholders before increasing
capital stock or bonded indebtedness. Interest rates and terms now can change
dramatically in a short time frame. In order to act promptly when it is
advantageous, we are asking for your authority to increase indebtedness. There
are no plans for use of the authorization other than normal operations at this
time. If approved, the authorization should suffice for our borrowing needs for
the foreseeable future.

Please sign, date and return the enclosed proxy as soon as possible so
your shares can be voted at the meeting in accordance with your instructions. If
you can attend we will be most pleased to see you.

Sincerely yours,

CHARLES E. SCHARLAU
Chairman and Chief Executive Officer

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SOUTHWESTERN ENERGY COMPANY
1083 SAIN STREET
P. O. BOX 1408
FAYETTEVILLE, ARKANSAS 72702-1408

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 13, 1996

(1) The election of five (5) directors to serve until the 1997
Annual Meeting or until their respective successors are duly
elected and qualified;

(3) To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.

The Board of Directors has fixed the close of business on March 4,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.

You are cordially invited to attend the meeting. In the event you will
be unable to attend, you are respectfully requested to mark, sign, date and
return the enclosed proxy at your earliest convenience in the enclosed return
envelope.

By Order of the Board of Directors

GREGORY D. KERLEY
Secretary
March 29, 1996

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SOUTHWESTERN ENERGY COMPANY

PROXY STATEMENT

This Proxy Statement is furnished to the shareholders of Southwestern
Energy Company (the "Company") in connection with the solicitation of proxies to
be used in voting at the Annual Meeting of Shareholders on May 13, 1996, and any
adjournment or adjournments thereof.

The complete mailing address of the principal executive offices of the
Company is:

1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408

The enclosed proxy is solicited by the Board of Directors of the
Company. A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised.

The Board of Directors has engaged Morrow & Co., Inc., a proxy
solicitation firm, to solicit proxies from brokerage firms, banks and
institutional holders of shares on its behalf at a cost of $5,500 plus expenses.
The cost of this proxy solicitation will be borne by the Company, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of stock. The solicitation will be by mail and
such cost will include the cost of preparing and mailing this Proxy Statement
and proxy. In addition to the use of the mails, proxies may be solicited by
personal interview, by telephone or by other means. Although solicitation will
be made primarily through the use of the mail, officers, directors or regular
employees of the Company may solicit proxies personally or by telephone or other
means without additional remuneration for such activity.

This Proxy Statement along with a copy of the Company's Annual Report
is being mailed to shareholders on March 29, 1996.

VOTING SECURITIES OUTSTANDING
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS AUTHORIZED

On March 4, 1996, the Company had outstanding 24,701,349 shares of
Common Stock ($.10 par value). Each share outstanding on the record date for the
meeting entitles the holder thereof to one vote upon each matter to be voted
upon at the meeting, except that for the election of directors each such
shareholder shall be entitled to as many votes as shall equal the number of
shares of stock outstanding in his name multiplied by the number of directors to
be elected, and he may cast all such votes for a single director or he may
distribute them among the number to be voted for, or for any two or more of
them, as he may see fit. Unless contrary instructions

<PAGE>

are given, persons named as proxies will have discretionary authority to
cumulate votes in the same manner. All shares represented by effective proxies
will be voted at the meeting or any adjournment thereof as specified therein by
the person giving the proxy. Abstentions and broker nonvoted shares are
disregarded in the vote tallies and do not have the effect of "no" votes. For
purposes of determining a quorum, a share is present once it is represented for
any purpose at the meeting. Abstentions are counted present for purposes of
determining a quorum. Broker nonvoted shares are counted present if represented
at the meeting for any purpose.

Unless revoked, each properly executed proxy will be voted in the
manner directed therein. If no direction is made, each such proxy will be voted
FOR the election of directors and FOR the proposal to authorize an increase in
bonded indebtedness.

Only shareholders of record at the close of business on March 4, 1996,
will be entitled to vote at the Annual Meeting of Shareholders.

ELECTION OF DIRECTORS

At the meeting, five (5) directors are to be elected to serve for the
ensuing year and until their respective successors are elected and qualified.
The shares represented by the enclosed proxy will be voted as instructed by the
shareholders for the election of the nominees named below. If no direction is
made, this proxy will be voted for the election of the nominees named below. If
any nominee becomes unavailable for any reason or if a vacancy should occur
before the election, the shares represented by the enclosed proxy may be voted
for such other person as may be determined by the holders of such proxies. The
Company has no knowledge that any nominee will be unavailable for election.
Directors shall be elected by plurality vote. Certain information concerning the
nominees for election as directors, is set forth below.

Nominees For Election

JOHN PAUL HAMMERSCHMIDT - Mr. Hammerschmidt is a retired U.S.
Congressman, Third District of Arkansas, who served from 1967-1993. He has been
a director of Dillard's Department Stores Inc., Little Rock, Arkansas since
1992. He has also been a member of the Metropolitan Washington Airports
Authority Board of Review since 1987. Mr. Hammerschmidt has served as a director
of First Federal Bank of Arkansas, Harrison, Arkansas since 1966. From 1946-1984
he was active in the lumber business, serving as President of Hammerschmidt
Lumber Company, Harrison, Arkansas. Mr. Hammerschmidt is 73 years old and was
first elected to the Board of Directors in 1992.

ROBERT L. HOWARD - Mr. Howard is a retired Vice President of Shell Oil
Company. He was most recently Vice President, Domestic Operations, Exploration
and Production of Shell, a position he held from 1992-1995. In that position, he
was responsible for all domestic exploration and production activities. From
1985-1991, Mr. Howard was President, Shell Offshore Inc., and was responsible
for all offshore exploration and production in the Gulf of

<PAGE>

Mexico, the East Coast and Florida. During Mr. Howard's 36 years with Shell, he
held various positions within Shell's exploration and production operations,
including General Manger, Exploration and Production, Mid-Continent Division,
and General Manager, Exploration and Production, Rocky Mountain Division and
Alaska Division. Mr. Howard has served as a director of Camco International,
Inc. of Houston, Texas since 19__. He is 59 years old and was appointed to the
Board of Directors in October, 1995, to fill the unexpired term of a director
who resigned in 1995.

KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law, firm of Ball
and Mourton, Ltd., PLLC, Fayetteville, Arkansas. He is the Managing Principal
Attorney for this firm. Mr. Mourton is also President and principal shareholder
of Coors of Western Arkansas, Inc., since 1980; President and majority
shareholder of E. J. Ball Plaza, Inc., since 1992; and part owner of Emerald
Travel Services, Ltd., since 1989. All of these businesses are located in
Fayetteville, Arkansas. Mr. Mourton is Chairman, since 1992, of Razorback
Foundation, Inc., a non-profit corporation which supports University of Arkansas
athletic programs. He is also a Board member of the Arkansas Rural Endowment
Fund, a nonprofit corporation created by the State of Arkansas to help lower
income rural Arkansas children obtain college and university educations. Mr.
Mourton is 45 years old and was first elected to the Board of Directors in 1995.

CHARLES E. SANDERS - Mr. Sanders is a retired General Manager of
Springdale Publishing Co., Springdale, Arkansas, and presently manages his own
investments. Mr. Sanders is 76 years old and first became a director in 1973.

CHARLES E. SCHARLAU - Mr. Scharlau is Chairman of the Board and Chief
Executive Officer of the Company, and a director since 1980 of C. H. Heist
Corporation, Clearwater, Florida. Mr. Scharlau is 69 years old and first became
a director in 1966.

Shareholders entitled to vote for the election of directors at the
annual meeting may nominate additional candidates provided written notice of
such nomination is received at the Company's principal executive offices no
later than the close of business on April 15, 1996. The Company's by-laws
require that this notice contain certain information about any proposed nominee
and the shareholder submitting the notice. The Company may also require any
proposed nominee to furnish such other information as may reasonably be required
to determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.

<PAGE>

BOARD COMMITTEES

The Board of Directors has a standing audit committee (the "Audit
Committee") composed of noncompany members of the Board. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial reporting practices of the Company and for recommending the
appointment of the independent auditors. The Audit Committee meets periodically
with the Company's management, internal auditors and independent auditors to
review the work of each and to satisfy itself that said parties are properly
discharging their responsibilities. The independent auditors have direct access
to the Audit Committee and periodically meet with the Audit Committee without
management representatives present. The Audit Committee is currently composed of
Messrs. John Paul Hammerschmidt, Chairman, Robert L. Howard and Charles E.
Sanders.

The Board of Directors has a compensation committee (the "Compensation
Committee") which is responsible for recommending to the Board of Directors
officer compensation and discretionary awards under the various incentive plans.
Messrs. Charles E. Sanders, Chairman, and John Paul Hammerschmidt presently
serve on this committee.

The Board of Directors also has a retirement committee (the
"Retirement Committee") which is responsible for administering the Company's
pension and retirement plans and for recommending retirement policy to the Board
of Directors. Messrs. Charles E. Scharlau, Chairman, Kenneth R. Mourton and
Charles E. Sanders presently serve on this committee.

The Company has no standing nominating committee. Candidates for
nomination for Board positions are considered by the Board as a whole. The Board
will consider qualified candidates recommended by shareholders. Any shareholder
wishing to recommend a candidate may do so by letter addressed to Mr. Gregory D.
Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street, P. O. Box
1408, Fayetteville, Arkansas 72702-1408. Such letter should state in detail the
qualifications of the candidate. Shareholders entitled to vote for the election
of directors at the annual meeting may nominate additional candidates
independent of the Board of Directors. Shareholder nominees to be presented to
the 1996 Annual Meeting must be submitted pursuant to the procedures described
under the subheading, "Nominees for Election." Shareholders entitled to vote for
the election of directors at the 1997 Annual Meeting may present independent
nominees to the 1997 Annual Meeting provided that notice of such nomination is
received at the Company's principal executive offices not less than 50 nor more
than 75 days prior to the 1997 meeting date. If less than 65 days notice of the
1997 annual meeting is given, written notice of any such nomination must be
received no later than the close of business on the 15th day following the day
on which notice of the meeting date is mailed. The Company's by-laws require
that this notice contain certain information about any proposed nominee and the
shareholder submitting the notice. The Company may also require any proposed
nominee to furnish such other information as may reasonably be required to
determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary,

<PAGE>

Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408, (501) 521-1141.

DIRECTOR COMPENSATION

In 1995, for their services as directors, Messrs. John Paul
Hammerschmidt, Charles E. Sanders and Charles E. Scharlau were each paid $24,000
in cash. Mr. E. J. Ball was paid $10,000 in cash for services rendered prior to
his retirement in May of 1995. Mr. James B. Coffman was paid $14,000 in cash for
services rendered prior to his resignation in July of 1995. Mr. Kenneth R.
Mourton was paid $14,000 in cash for services rendered after his initial
election to the Board in May of 1995, and Mr. Robert L. Howard was paid $6,000
in cash for services rendered after his initial appointment to the Board in
October of 1995. Each outside director serving as of December 29, 1995, was
granted an option to purchase 12,000 shares of the Company's Common Stock at
$12.875 per share, representing the fair market value on the date of grant. Such
options were granted in tandem with limited stock appreciation rights, as
defined under "Compensation Committee Report," and become exercisable in
installments at a rate of 25% per year for each full twelve months of service as
a director. In addition, each outside member of the Audit, Compensation and
Retirement Committees is paid $500 per diem for his participation on each
committee. During 1995, the Board of Directors held ten meetings, the Audit
Committee held two meetings, the Compensation Committee held two meetings and
the Retirement Committee held one meeting.

Directors who retire with certain qualifications are appointed to the
position of Director Emeritus and are paid a fee of $1,000 per meeting attended.
Mr. Ball was appointed to the position of Director Emeritus upon his retirement
at the Company's 1995 Annual Meeting. During 1995, Mr. Ball was paid $3,000 for
his services as Director Emeritus. Mr. Ball is General Counsel to the Company,
and Mr. Ball and Mr. Mourton are partners in the law firm of Ball and Mourton,
Ltd. During 1995, the Company paid $36,366 in legal fees to Ball and Mourton,
Ltd.

BONDED INDEBTEDNESS

Article 12, Section 8 of the Constitution of the State of Arkansas,
adopted in 1874, prohibits private corporations from increasing their "bonded
indebtedness" without the prior consent of their shareholders obtained at a
meeting held after notice of not less than 60 days. The term "bonded
indebtedness" is not defined by the Constitution or other laws of the State of
Arkansas. On the advice of Arkansas counsel, the Company believes that the term
"bonded indebtedness" includes only debt obligations of the Company represented
by written evidences of indebtedness such as bonds, debentures, and
interest-bearing notes with specific maturities of five (5) years or more
whether or not secured by mortgages on specific property of the Company; under
this definition, "bonded indebtedness" would not include the Company's revolving
credit agreements or the Company's several guarantee of 60% of the NOARK
Pipeline

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System, Limited Partnership ("NOARK") debt obligations. In this context the
Company submits for shareholder approval the following proposal to consent to
and authorize an increase in the Company's bonded indebtedness.

The Board of Directors has declared advisable and submits to the
shareholders at this meeting a proposal to consent to and authorize an increase
by the Company of "bonded indebtedness" up to a total aggregate amount of
$400,000,000 (four hundred million dollars), including $187,928,571 of bonded
indebtedness outstanding as of March 14, 1996. The amount and time of issuance
of such authorized indebtedness will be determined by the Board of Directors
from time to time.

At present, there are no definitive plans for the issuance of
additional authorized indebtedness. The Company does, however, expect its
requirements for operating capital to result in additional borrowings in the
future. Further, the Company may encounter nonroutine opportunities to acquire
assets or otherwise make investments consistent with its operating strategies.
Depending upon market conditions and the Company's needs for external financing,
all or part of the authorized amount may be issued, redeemed and/or reissued as
long as the Company's total bonded indebtedness outstanding at any time does not
exceed $400,000,000. The Board of Directors believes it advisable to obtain the
authorization presently, however, in order to avoid the potential time delay and
expense of calling a special meeting of shareholders when the need to issue the
additional authorized indebtedness arises.

If issued, the proceeds from the additional indebtedness may be used to
fund the Company's capital expenditures program (described below), purchase
significant assets including other companies, or to repay amounts borrowed under
existing revolving credit facilities. In recent years, the Company has utilized
revolving credit facilities, as described below, as a source of medium-term
capital. These borrowings, along with occasional short-term bank borrowings,
have been used to meet seasonal requirements and to provide a portion of the
Company's debt requirements for debt capital. The amount outstanding under
existing revolving credit facilities was $22,900,000 as of December 31, 1995.
The amount outstanding under existing revolving credit facilities as of March
14, 1996, was [$16,000,000]. The Company expects that the amount outstanding on
its revolving credit facilities will increase later in 1996 as cash flow during
the second and third quarters of the year will be seasonally lower and capital
spending will be seasonally higher. No required repayments on the Company's
existing revolving credit facilities are due until April, 1998. Repayments may
be made earlier, however, through the application of internally generated cash
flow or if the Board of Directors determines that favorable interest rates or
other terms are available through issuance of all or a part of the additional
authorized bonded indebtedness.

The following table provides information concerning the Company's
historical and projected capital expenditures.

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CAPITAL EXPENDITURES
(in millions)
<CAPTION>

Actual Projected
-------------------------- ---------
1993 1994 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Exploration and Production
Developmental and Exploratory Drilling.............. $24.7 $25.5 $ 39.1 $31.0
Lease Acquisitions.................................. 3.5 4.9 14.0 3.9
Property Acquisitions............................... -- 3.9 9.3 20.0
Delay Rentals, Capitalized Interest, and Other...... 9.2 11.1 19.8 16.1
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . 37.4 55.4 82.2 71.0
------ ------ ------ ------
Gas Distribution
Gathering Lines and Miscellaneous Production . . 10.0 4.1 4.5 3.4
Transmission Plant . . . . . . . . . . . . . . . . . 3.3 .4 3.3 1.3
Distribution Plant . . . . . . . . . . . . . . . . . 4.7 11.3 6.5 5.5
General Plant . . . . . . . . . . . . . . . . . . . 1.9 1.8 4.2 3.2
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . 19.9 17.6 18.5 13.4
------ ------ ------ ------

Corporate and Other................................... 1.9 3.9 .9 2.0
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . $59.2 $76.9 $101.6 $86.4
====== ====== ====== ======
</TABLE>

In addition to the projected capital expenditures, the Company will be
required to make advances to NOARK which are expected to be approximately $1.0 -
$1.5 million during 1996. The Company expects to utilize its revolving credit
facilities as the source of funds for these advances. NOARK is an intrastate
pipeline owned and operated by a limited partnership in which the Company owns a
47.93% general partnership interest.

In recent years, the Company has generally limited its routine capital
spending to internally generated cash flow or less. Additional borrowings have
been incurred primarily in connection with expenditures incurred to take
advantage of unusual opportunities for growth. Further, other requirements of
the Company for cash, including scheduled debt repayments, payment of dividends,
and changes in working capital assets, have led to additional borrowings. These
additional borrowings have been funded through the utilization of the Company's
revolving credit facilities and through the issuance of additional bonded
indebtedness. A summary of significant changes in recent years in the Company's
bonded indebtedness follows below.

In 1988, the Company issued $30,000,000 of 10.63% Senior Notes
repayable in ten equal annual installments beginning September, 1994. The
Company had several prepayment options under the terms of the notes, subject to
certain limitations and adjustments. Proceeds from issuance of these notes were
used to repay amounts outstanding on the then existing revolving credit
facilities, most of which had been incurred in connection with the acquisition
of

<PAGE>

Associated Natural Gas Company (Associated) in June, 1988. Associated was merged
with and is now a division of the Company's gas distribution subsidiary. These
notes were prepaid on November 17, 1996, using funds drawn on the Company's
revolving credit facilities.

In 1989, the Company purchased a leasehold interest in 11,000 undrilled
acres of the Fort Chaffee military reservation in western Arkansas. Financing
for the $11,000,000 purchase price was provided by the then existing revolving
credit facilities.

In 1990, the Company called for redemption of its 8-1/2% Senior
Convertible Debentures due September 15, 2010. The debentures were issued in
connection with the repurchase of 9.9% of the outstanding shares of the
Company's Common Stock. As a result of the redemption, holders of $7,874,000 of
the $30,000,000 principal amount exercised their right to convert to shares of
the Company's Common Stock at a conversion price of $32-3/8 per share. Holders
of the remaining $22,126,000 in principal amount redeemed their debentures and
received $1,128,000 in redemption premiums and $679,000 in accrued interest.
These principal, interest, and premium amounts were funded through the Company's
then existing revolving credit facilities.

In 1991, the Company issued $66,000,000 in Senior Notes in three series
as follows: $22,500,000 of 8.69% Series A Notes due December 4, 1997;
$21,500,000 of 8.86% Series B Notes due in annual installments of $3,071,429
each beginning December 4, 1995, with the final installment due December 4,
2001; and $22,000,000 of 9.36% Series C Notes due in annual installments of
$2,000,000 each beginning December 4, 2001, with the final installment due
December 4, 2011. The Company has several prepayment options under the terms of
the notes, subject to certain limitations and adjustments. Proceeds from the
issuance of these notes were used to repay amounts borrowed under the Company's
then existing revolving credit facilities. The amounts outstanding under these
revolving credit facilities had largely been incurred in connection with the
1989 purchase of $11.0 million of leasehold interest at the Fort Chaffee
military reservation and the redemption of the Senior Convertible Debentures
described above.

In February, 1995, the Company's Board of Directors authorized the
repurchase of up to $30,000,000 of the Company's Common Stock. To date, the
Company has repurchased 1,000,000 shares for $14.3 million. The stock
repurchases have been funded by the Company's revolving credit facilities.

In November, 1995, the Company filed a shelf registration statement
with the Securities and Exchange Commission to issue up to $250,000,000 in
senior unsecured debt securities. Effective December 1, 1995, the Company
issued, in a public offering, $125,000,000 of 6.70% Senior Notes due 2005.
Interest on these notes is payable semi-annually beginning June 1, 1996, and the
notes are not redeemable prior to maturity. Proceeds from the issuance of these
notes were used primarily to repay certain borrowings under revolving credit
facilities. The amounts outstanding under these facilities had been incurred to
prepay the Company's 10.63% Senior Notes and to repurchase 1,000,000 shares of
the Company's Common Stock, as described above, and fund the Company's capital
spending program.

<PAGE>

As of March 14, 1996, the Company had outstanding approximately
$187,929,000 in bonded indebtedness which was issued under authorization
previously granted by the shareholders. The present proposal to consent to and
authorize incurrence of bonded indebtedness in total amounts of up to
$400,000,000 will, if approved, give the Company authorization to issue bonded
indebtedness in excess of any amounts presently outstanding.

The table below provides information concerning the Company's total
long-term debt and interest on long-term debt, as reflected in its December 31,
1995, financial statements.

Interest on
Long-term Debt, Long-term
Long-term Including NOARK Annual Ratio of Debt as a
Long-term Debt as a Obligations, as a Interest on Earnings to Percent of
Debt at Percent of Percent of Long-term Fixed Operating
December 31 Total Capital Total Capital (1) Debt Charges(2) Revenues
------------- ------------- ----------------- ------------- ----------- ----------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C>
1993 $124.0 40.19% 49.37% $10.1 4.0x 5.77%
1994 $136.2 40.10% 49.06% $10.0 3.6x 5.85%
1995 $207.8 51.65% 57.09% $13.0 1.9x 8.48%

- ------------------------
<FN>

(1) The Company and the other general partner of NOARK have severally
guaranteed the availability of certain minimum cash balances to service
the 9.7375% Senior Secured Notes used to finance a portion of NOARK's
total construction cost. At December 31, 1995, the Senior Secured Notes
had a remaining balance of $56.7 million and a remaining term of 14
years. At December 31, 1995, NOARK also had an unsecured long-term
revolving credit agreement in the amount of $30.0 million with a group
of banks, of which $23.2 million was outstanding. Amounts borrowed
under the long-term revolving credit facility are severally guaranteed
by the Company and an affiliate of the other general partner. The
Company's share of the several guarantee of the notes and the line of
credit is 60%. Under the definitions of indebtedness in the agreements
evidencing the Company's existing long-term debt, the Company's
obligations under NOARK's long-term financing arrangements are
considered as additional long-term indebtedness subject to the
limitation that long-term indebtedness may not exceed 65% of total
capital.

(2) In the calculation of the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes, adjusted to add back
fixed charges (excluding capitalized interest relating to oil and gas
properties), the amortization of interest previously capitalized on oil
and gas properties, and the Company's 47.93% ownership share of the
fixed charges of NOARK. "Fixed charges" consists of interest on
borrowings (including capitalized interest), amortization of debt
discount and expense, a portion of rental expense determined to be
representative of the interest factor, and the Company's 60% guaranty
of the fixed charges of NOARK.
</FN>
</TABLE>

<PAGE>

The Company's ability to issue additional bonded indebtedness will be
limited by covenants contained in its existing debt agreements. Under its
existing debt agreements, the Company generally may not issue long-term
indebtedness, as defined in such agreements, in excess of 65% of its total
capital and may not issue total indebtedness, as defined in such agreements, in
excess of 70% of its total capital. To issue additional long-term indebtedness,
the Company generally must also have, after giving effect to the indebtedness to
be issued, a ratio of earnings to fixed charges of at least 1.50 or higher, for
any period of 12 consecutive calendar months within the 24 calendar months
immediately preceding the date on which such debt is to be incurred.

The Company's ability to issue bonded indebtedness is further limited
by certain agreements it entered into as a part of the long-term financing
arrangements for NOARK. The Company's obligations under NOARK's financing
arrangements are contingent upon NOARK's ability to generate sufficient cash
flow to service its indebtedness. NOARK presently is unable to generate
sufficient cash flow to service its indebtedness and this inability is expected
to continue for the foreseeable future. The Company's investment in the NOARK
partnership is recorded under the equity method of accounting.

If additional long-term debt is issued under the requested
authorization, the issuance may be by either private placement or public sale.
The debt will be issued upon the best terms and conditions available in the
opinion of the Board of Directors. The terms of any debt issued may be
structured in such a manner as to inhibit or preclude a change of control of the
Company. Terms of the debt securities, including their nature (i.e., first
mortgage bonds, notes, or debentures), interest rates, redemption prices,
maturity dates, restrictions on the issuance of additional funded debt and on
the issuance of dividends, the creation of liens or mortgages and similar
matters, will be determined by the Board of Directors. Under the requested
authorization, bonded indebtedness may be issued, redeemed and reissued as long
as the Company's total bonded indebtedness outstanding at any time does not
exceed $400,000,000. No further authorization for the issuance, redemption or
reissuance of the securities by a vote of the shareholders will be solicited
prior to such issuance, redemption or reissuance. Existing security holders will
not be affected by the issuance, redemption or reissuance of these securities
other than as a result of the terms, covenants and amounts of the additional
debt issued, redeemed or reissued. Consent of the holders of Company securities
other than common stock is not required.

THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE OUTSTANDING SHARES OF THE
COMPANY IS REQUIRED TO AUTHORIZE THE ISSUANCE OF THE ADDITIONAL BONDED
INDEBTEDNESS. THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE AUTHORIZATION AND
CONSENT TO THE INCURRENCE OF BONDED INDEBTEDNESS UP TO A TOTAL AMOUNT OF FOUR
HUNDRED MILLION DOLLARS.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following persons were known by the Company to beneficially own
more than 5% of the Company's Common Stock as of March 4, 1996.

Percent
Title of Name and Address of Amount and Nature of of
Class Beneficial Owner Beneficial Ownership Class
------------ ----------------------- -------------------- ------
Common Stock State Farm Mutual 1,430,800 (1) 5.79%
Automobile Insurance Co.
One State Farm Plaza
Bloomington, IL 61710

- ------------------------

(1) State Farm Fire and Casualty Company, a wholly owned subsidiary of a
wholly owned subsidiary of State Farm Mutual Automobile Insurance
Company, holds sole voting and dispositive power on 731,700 shares.
State Farm Mutual Automobile Insurance Company holds sole voting and
dispositive power on the remaining 699,100 shares. Each company
disclaims beneficial ownership of shares held by the other, and each
company disclaims that it is part of a group.

SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND EXECUTIVE OFFICERS

The following table sets forth information as of March 4, 1996, with
respect to beneficial ownership of the Company's Common Stock by its directors
and executive officers.
<TABLE>
<CAPTION>

Number of Shares of $.10
Par Value Common Stock
Beneficially Owned as of 3-4-96
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) (1) of Class
------------------------ ------------------------------- --------

<S> <C> <C>
Executive Officers:
Charles E. Scharlau........................... 619,450 2.51%
Dan B. Grubb.................................. 178,337 .72%
Stanley D. Green.............................. 209,165 .85%
B. Brick Robinson............................. 190,952 .77%
Gregory D. Kerley............................. 69,553 .28%
Directors and Nominees:
John Paul Hammerschmidt....................... 36,000 .15%
Robert L. Howard.............................. 12,000 .05%

<PAGE>

Kenneth R. Mourton............................ 13,000 .05%
Charles E. Sanders............................ 65,856 .27%
All persons as a group (9 in number) who are
directors, nominees or executive officers of the
Company.......................................... 1,394,313 (2) 5.65%
- ------------------------
<FN>

(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the
exercise of stock options, beneficial ownership of the following number
of shares: Mr. Scharlau, 169,650; Mr. Grubb, 21,810; Mr. Green, 65,610;
Mr. Robinson, 45,000; Mr. Kerley, 11,764; and 9,000 each for Messrs.
Hammerschmidt and Sanders. Included in the number of shares reported as
beneficially owned are the rights of the named individuals to acquire
the following number of shares through the exercise of stock options
immediately upon a "change in control" as defined under "Agreements
Concerning Employment and Changes in Control" on page 24 of the Proxy
Statement: Mr. Scharlau, 295,996; Mr. Grubb, 138,406; Mr. Green,
125,906; Mr. Robinson, 138,247; Mr. Kerley 54,833; 27,000 each for
Messrs. Hammerschmidt and Sanders; and 12,000 each for Messrs. Howard
and Mourton. Also included in the number of shares reported as
beneficially owned are the following restricted shares with respect to
which the named individuals have voting power but not investment power:
Mr. Grubb, 5,999; Mr. Green, 12,162; Mr. Robinson, 3,070; and Mr.
Kerley, 1,290. The named individuals acquire investment power on these
shares immediately upon a "change in control."

(2) Of this number, all directors and executive officers as a group had the
right to acquire beneficial ownership of 331,834 shares through the
exercise of stock options within 60 days. Also included in this number
is this group's right to acquire an additional 831,388 shares through
the exercise of stock options immediately upon a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control"
on page 24 of this Proxy Statement.
</FN>
</TABLE>

Compliance With Section 16(a) of the 1934 Act

In January 1995, Mr. Robinson failed to make one Form 4 filing as
required by Section 16(a) of the Securities Exchange Act of 1934. The duty to
make this filing was triggered by three separate purchases of the Company's
stock totaling 1,000 shares. These transactions were subsequently reported on
Mr. Robinson's Form 5 for 1994 filed in February, 1995. These three transactions
were also reported in the Company's 1995 Proxy Statement.

<PAGE>

Transactions With Nominees and Executive Officers

Prior to the time Mr. Grubb was appointed President and Chief Operating
Officer of the Company in July, 1992, he owned an equity interest in certain
business enterprises which the Company also owned an equity interest. More
specifically, companies owned by Mr. Grubb held both a 4% general partnership
interest in NOARK Pipeline System, Limited Partnership ("NOARK"), which was
formed to own and operate a $103 million intrastate natural gas pipeline system
in Arkansas, and a 25% interest in NOARK Gas Marketing Company ("NGMC"), a
general partnership formed to develop markets to be served through NOARK.

In connection with the construction of the NOARK Pipeline System, NOARK
issued $63.0 million in Senior Secured Notes to The Prudential Insurance Company
of America ("Prudential"). Through a guarantee agreement Mr. Grubb's companies
held ultimate responsibility for 4% of this debt.

In 1992, upon Mr. Grubb's appointment as President and Chief Operating
Officer of the Company, a wholly owned subsidiary of the Company purchased Mr.
Grubb's 4% general partnership interest in NOARK and his 25% general partnership
interest in NGMC. The Company agreed to pay Mr. Grubb the sum of $7,912 for his
interest in NGMC. No cash consideration was paid to Mr. Grubb for his general
partnership interest in NOARK. The Company and its wholly owned subsidiaries
also agreed to assume all liabilities and obligations of Mr. Grubb and his
companies incurred in connection with their participation in NOARK and NGMC as
of the date of the acquisitions. Among the liabilities assumed by the Company
and its wholly owned subsidiaries were GRUBB NOARK Pipeline Inc.'s obligations
under the Senior Secured Notes issued to Prudential as described above. Mr.
Grubb is Chairman, Chief Executive Officer, and principal shareholder of GRUBB
NOARK Pipeline, Inc. In 1995, NOARK generated insufficient cash flow to cover
its debt service obligations to Prudential, and the Company paid $331,200 to
Prudential which Mr. Grubb and his companies would otherwise have been obligated
to pay if the Company had not assumed these obligations.

In December, 1995, lawsuits filed in 1993 and 1995 by Vesta Energy
Company ("Vesta") against NOARK, the Company, certain of its wholly owned
subsidiaries, GRUBB NOARK Pipeline, Inc., and Mr. Grubb were settled by a
$6,000,000 lump sum payment by Vesta to NOARK. The Company and its subsidiaries
paid all litigation costs and attorneys' fees incurred in connection with this
lawsuit which might otherwise have been attributable to GRUBB NOARK Pipeline,
Inc. and Mr. Grubb, but the Company and its subsidiaries were not required to
pay any sum to Mr. Grubb or his companies as indemnity against any liability.
The Company is aware of no other material liabilities or obligations assumed in
connection with these acquisitions.

Mr. Scharlau was also named as an individual defendant in the 1995
lawsuit filed by Vesta described above. The Company paid all litigation costs
and attorneys' fees incurred in connection with this lawsuit which might
otherwise have been attributable to Mr. Scharlau but was not required to pay any
sum to Mr. Scharlau as indemnity against any liability.

<PAGE>

During 1995, the Company paid $16,299 to the law firm of Conner and
Winters of Tulsa, Oklahoma for certain legal services. Mr. Greg Scharlau, Mr.
Scharlau's son, is a partner in Conner and Winters.

COMPENSATION COMMITTEE REPORT

Compensation Philosophy

In determining the compensation of the Chief Executive Officer (the
"CEO") and the other executive officers of the Company and its subsidiaries, the
Compensation Committee seeks to align compensation with the attainment of the
Company's objectives, the Company's performance and the attraction and retention
of individuals who contribute to the Company's success. For the CEO and the
other named executive officers, the Compensation Committee makes recommendations
to the Board of Directors, and final compensation decisions are made by the full
Board. The Compensation Committee believes that compensation should:

- relate to the value created for shareholders by being directly
tied to the financial performance and condition of the Company
and the particular executive officer's contribution thereto;

- reward individuals who help the Company achieve its short-term
and long- term objectives and thereby contribute significantly
to the success of the Company;

- help to attract and retain the most qualified individuals in
the natural gas and oil and gas industries by being
competitive with compensation paid to persons having similar
responsibilities and duties in other companies in the same and
closely related industries; and

- reflect the qualifications, skills, experience and
responsibilities of the particular executive officer.

In determining executive compensation, the Company uses peer group
comparisons. The industry group index shown in the performance chart reported in
this Proxy Statement includes a number of the companies that are used for
compensation analysis. The Compensation Committee believes that companies
operating exclusively in the oil and gas producing industry are also appropriate
to include in its compensation analysis. Compensation packages are targeted to
the median of the range of compensation paid by comparable companies. Executive
compensation paid by the Company during 1995 generally corresponded to the 50th
percentile of compensation paid by comparable companies.

Changes made to the Internal Revenue Code in 1993 could potentially
limit the ability of the Company to deduct, for federal income tax purposes,
certain compensation in excess of

<PAGE>

$1,000,000 per year paid to individuals named in the summary compensation table.
This limitation became effective in 1994. The Company believes that all
compensation paid in 1995 will be fully deductible. Further, none of the named
individuals received compensation in excess of $1,000,000 during 1995. If, in
the future, it appears that the compensation paid to a named individual may be
in excess of limitations imposed on deductibility for federal income tax
purposes, the Company will seek ways to maximize the deductibility of
compensation payments without compromising the Company's or the Compensation
Committee's flexibility in designing effective compensation plans that can meet
the Company's objectives and respond quickly to marketplace needs. Although the
Compensation Committee will from time to time review the advisability of making
changes in compensation plans to reflect changes in government-mandated
policies, it will not do so unless it feels that such changes are in the best
interest of the Company and/or its stockholders.

Components of Compensation

Base Salary. In establishing the base salaries of the CEO and the other
executive officers, the Compensation Committee examines competitive peer group
surveys and data in order to determine whether the total compensation package is
competitive with compensation offered by other companies in the natural gas and
oil and gas producing industries which are similar in terms of the complexity of
their operations and which offer the most direct competition for competent
executives. The Compensation Committee also takes into account the Company's
financial and operating performance as compared with the industry mean and the
individual performance of the Company's executives as compared to the
Compensation Committee's expectations of performance for top level executives in
general. The Compensation Committee also considers the diverse skills required
of its executive management to expand the exploration and production segment of
its operations while maintaining satisfactory performance in the highly
regulated gas distribution segment. In addition, the Compensation Committee
considers the particular executive's performance, responsibilities,
qualifications and experience in the natural gas industry. The Compensation
Committee is periodically advised by outside compensation consultants on its
compensation policies and receives evaluations from the appropriate level of
management concerning the performance of executives within their range of
reporting responsibilities.

Minimum base salaries for Mr. Scharlau and Mr. Grubb have been
incorporated into employment agreements as further described under the heading
"Agreements Concerning Employment and Changes in Control." Changes in base
salary also affect other elements of compensation including: (i) awards under
the Company's Incentive Compensation Plan, (ii) pension benefits, (iii) company
matching portions of 401(k) and Nonqualified Plan contributions and (iv) life
insurance benefits.

Incentive Compensation Plan. The Company maintains an Incentive
Compensation Plan (the "Incentive Plan") applicable to executives with
responsibility for the Company's major business segments. The Incentive Plan is
intended to encourage and reward the achievement of (1) year-to-year growth in
the Company's actual reported earnings, (2) returns on equity which

<PAGE>

are above industry averages, (3) reserve additions and acquisitions at
competitive costs, (4) return on utility rate base, and (5) pipeline throughput
and margins. These criteria are deemed by the Compensation Committee to be
critical to increasing shareholder value, and the applicability of each of these
criteria in determining awards to any particular executive depends on the
responsibilities of that executive. A portion of each award under the Incentive
Plan is an automatic award based upon the achievement of these corporate
financial objectives, and a portion is discretionary based on a subjective
evaluation of the executive's performance by the Compensation Committee. The
Incentive Plan is also designed to assist in the attraction and retention of
qualified employees, to further link the financial interest and objectives of
employees with those of the Company and to foster accountability and teamwork
throughout the Company.

The CEO and the executive officers have responsibilities directly
affecting the Company's operation and are assigned target, minimum and maximum
award levels expressed as a percentage of their base salary. In 1995, the target
awards which could be paid based on attainment of corporate performance measures
ranged from 18.75% to 30% of base salary for these individuals, the minimum
awards ranged from 9.375% to 15% of base salary, and the maximum awards which
could be paid ranged from 37.5% to 60% of base salary. None of these awards are
paid if corporate performance as determined by the corporate performance
measures is below a specified level. In addition, the participating executives
are eligible for discretionary awards based upon their individual performance
ranging from 12.5% to 20% of base salary. Payouts under the Incentive Plan are
based on the achievement of corporate financial profit objectives, business unit
results and the Committee's evaluation of individual performance. Awards are
payable in cash, restricted Common Stock of the Company, or a combination of
cash and restricted Common Stock. Restricted Common Stock awarded under the
Incentive Plan is subject to the provisions of the Company's 1993 Stock
Incentive Plan, discussed below, and counts toward the aggregate number of
shares authorized under that plan.

Generally, when multiple factors are considered to measure the
performance of the Company's executives, such factors are equally weighted in
determining the Company performance portion of an executive's bonus. In
determining automatic awards under the Incentive Plan for the CEO and the named
executive officers, the Compensation Committee examines (1) the Company's return
on equity as compared to the performance of a peer group of the Company as
indicated by The Value Line Investment Survey group of natural gas (diversified)
companies and (2) the increase in actual reported earnings per share over the
previous year. Because these factors are weighted equally, proportionate awards
are made if targets for at least one of the factors are met. In 1995, the return
on equity and earnings per share growth minimum performance levels were not met.
Therefore, no bonuses were paid based upon the Company performance measures.
Discretionary awards for these executives are based on a subjective evaluation
of the executive's performance by the Compensation Committee. Discretionary
awards may be influenced by the performance of individual business segments, but
are primarily intended to provide an incentive to recognize exceptional
performance by an individual.

Stock Incentive Plan. The CEO and other executive officers are also
eligible to participate in the Company's 1993 Stock Incentive Plan (the "Stock
Plan"). The Stock Plan is

<PAGE>

designed to attract and retain key executive employees by enabling them to
acquire a proprietary interest in the Company and by tying executive rewards to
shareholder interests. The Stock Plan provides for the granting of restricted
stock, phantom stock, stock bonuses, options to purchase Common Stock of the
Company, and limited, tandem and stand-alone stock appreciation rights in such
amounts as determined by the Compensation Committee on a discretionary basis.
Limited stock appreciation rights are exercisable only upon a change in control
and provide for certain cash payments in lieu of the exercise of the stock
options to which they relate. Grants relating to 1995 performance were made at a
price equal to the fair market value on the date of grant. In addition, the
Stock Plan provides for the granting of cash bonuses in connection with awards
of restricted stock and stock bonuses when a participant is required to
recognize income for federal or state income tax purposes with respect to such
awards. The number of shares of the $.10 par value Common Stock of the Company
which may be issued under the Stock Plan cannot exceed 1,275,000, subject to
adjustment in the event of any change in the outstanding Common Stock of the
Company by reason of any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation, combination or exchange of shares, or
any other similar event. In determining the options granted to executive
officers under the Stock Plan, the Compensation Committee considers a number of
factors in addition to considering the goals of attracting and retaining such
officers and tying their rewards to shareholder interests. The number of options
and restricted shares awarded in fiscal 1995 were based partially upon an
analysis of the value of long-term incentive plan awards made by the Company's
competitive peer group. The Compensation Committee also evaluated the
performance of the Company, the performance and responsibility of the particular
executive, and the desirability of providing a particular executive with an
adequate incentive to remain in the employ of the Company.

In 1993, the annual component of the Company's former Annual and
Long-Term Incentive Compensation Plan (the "Prior Plan") was replaced by the
Company's Incentive Compensation Plan, discussed above. The long-term component
of the Prior Plan was replaced by the Stock Incentive Plan for performance
periods beginning after January 1, 1993. Payouts of awards previously granted
and payouts of awards related to five-year performance periods ending each year
through December 31, 1997, will continue to be made under the Prior Plan. Key
employees were selected annually to participate in the Prior Plan based on their
ability to have a significant impact on the performance of the Company. Under
the long-term incentive component of the Prior Plan, cash awards are based on
the Company's performance during overlapping five-year periods. A new five-year
performance period began each year on January 1, with the final five-year
performance period beginning January 1, 1993. For all participants, awards are
based equally on the compounded five-year growth in earnings per share and the
cumulative five-year return on equity. The return on equity performance factor
is compared to the composite actual average return on equity for the previous
five-year period of the natural gas (diversified) group of companies as
determined by reference to The Value Line Investment Survey. Payouts of awards
are tied to achieving specified levels of return on equity and earnings per
share (EPS) growth. None of these awards are paid if both return on equity and
EPS growth are below specified levels, but proportionate awards may be paid if
only one of these performance factors is below the specified level. Target
awards which could be paid based on attainment of corporate performance measures
range from 10% to 40% of base salary

<PAGE>

(determined at the beginning of each five-year performance period), minimum
awards range from 5% to 20% of base salary, while the maximum awards range from
20% to 80% of base salary. During the five-year performance period ending
December 31, 1995, the specified target EPS growth rate was not achieved while
the return on equity performance factor resulted in maximum awards. Any award
earned is payable at the rate of 20% per year, commencing at the end of each
five-year performance cycle. The purpose of this component of the Prior Plan is
to balance the focus of senior managers between annual goals and long-term
strategies of the Company.

Mr. Scharlau's base salary remained at $425,000 for three years
(1992-1994) prior to being increased to $450,000 for 1995 and 1996. Under the
Company's Incentive Compensation Plan, Mr. Scharlau has a targeted annual bonus
award of 50% of base salary, with minimum and maximum awards of 20% and 80%,
respectively, depending upon the achievement of corporate performance measures.
Of these awards, a portion is an automatic award based upon the achievement of
the corporate financial objectives relating to earnings per share growth and
return on equity as described under the subheading, "Incentive Compensation
Plan" above, and a portion is discretionary based on a subjective evaluation of
Mr. Scharlau's performance by the Compensation Committee and the Board of
Directors and may be influenced by the performance of individual business
segments. In 1995, Mr. Scharlau was not awarded a bonus under the Incentive
Compensation Plan. Under the long-term component of the Prior Plan, Mr. Scharlau
earned an award in 1995 of $160,000, or 40% of his 1991 base salary for the
five-year performance period ending December 31, 1995. This award will be paid
out at the rate of 20% per year through 2000. For this performance period,
minimum, target and maximum awards applicable to Mr. Scharlau under the
long-term component of the Prior Plan were 20%, 40% and 80% of base salary,
respectively. During this period, the specified target EPS growth rate was not
achieved while the return on equity performance factor resulted in maximum
awards. For performance periods beginning after January 1, 1993, the long-term
component of this plan was replaced by the Stock Plan.

In 1995, Mr. Scharlau was awarded options to purchase 50,000 shares of
the Company's Common Stock under the Stock Plan, as described above. The options
vest at the end of three years or immediately upon his retirement or a change in
control. Limited stock appreciation rights were granted in tandem with these
options. The number of options awarded in fiscal 1995 was based upon a
competitive analysis of long-term incentive awards made to the chief executive
officers of the Company's competitive peer group, and is consistent with the
objectives of the Stock Plan. The number of options awarded in 1995 was not
based upon any specific performance measures.

In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Scharlau, the Compensation Committee
took into consideration Mr. Scharlau's substantial experience (44 years) and
standing in the industry in general and with the Company in particular. The
Compensation Committee also considered Mr. Scharlau's increase in
responsibilities and the complexity of his position as a result of the Company's
diversification and growth in recent years.

JOHN PAUL HAMMERSCHMIDT
CHARLES E. SANDERS
Members of the Compensation Committee

<PAGE>

EXECUTIVE COMPENSATION

The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities
during the years 1993, 1994 and 1995 of the CEO and the next four most highly
paid executive officers of the Company and its subsidiaries whose direct
aggregate remuneration exceeded $100,000 in 1995.

<TABLE>

SUMMARY COMPENSATION TABLE
<CAPTION>

Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------------------- ---------------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)

Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($)(2) ($) ($)(3) SARs(#) ($)(4) ($)
- --------------------------- ---- -------- -------- ------------ ---------- ---------- -------- ------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau 1995 $450,000 $ -- $ 7,380 $ -- 50,000 $156,362 $38,994 (5)
Chairman of the Board, 1994 425,000 161,500 7,380 -- 200,000 -- 30,999
Chief Executive Officer, 1993 425,000 255,000 7,380 -- 45,996 130,560 32,874
and Director

Dan B. Grubb 1995 285,000 -- 7,140 -- 25,000 -- 6,676 (6)
President and Chief 1994 275,000 58,140 7,140 -- 110,000 -- 5,186
Operating Officer 1993 275,000 92,822 51,900 115,097 10,216 -- 9,824

Stanley D. Green 1995 225,000 30,000 59,841(7) 67,544 12,500 30,382 6,938 (8)
Executive Vice President - 1994 204,000 36,046 24,379 22,094 110,000 -- 5,696
Finance and Corporate 1993 196,000 88,213 51,301 113,556 10,216 23,696 6,996
Development, and Chief
Financial Officer

B. Brick Robinson 1995 225,000 -- 7,140 -- 15,000 -- 6,938 (9)
Executive Vice President 1994 204,000 -- 45,260 58,138 110,000 -- 5,700
and Chief Operating Officer, 1993 204,000 91,800 7,140 -- 13,247 -- 7,304
Southwestern Energy
Production Company and
SEECO, Inc. (1)

Gregory D. Kerley 1995 135,000 14,000 11,194(10) 6,754 3,750 -- 4,810(11)
Vice President - Treasurer 1994 116,000 21,238 10,893 6,313 50,000 -- 4,138
and Secretary, and Chief 1993 102,000 47,061 11,601 12,861 3,247 -- 3,651
Accounting Officer

- ------------------------
<FN>

(1) Southwestern Energy Production Company and SEECO, Inc. are wholly owned
subsidiaries of the Company.

(2) In connection with the 1993 awards, the named executive officers were
given the option of taking up to 25% of their awards under the
Company's Incentive Compensation Plan in restricted stock, and Mr.
Grubb, Mr. Green and Mr. Kerley elected to take 25%, 25%, and 8%,
respectively, of their awards in restricted stock. In connection with
the 1994 awards, these officers were given the option to take up to
100% of their awards under the Incentive Plan in restricted stock. Mr.
Robinson, Mr. Green and Mr. Kerley elected to take 100%, 38%, and 23%,
respectively, of their 1994 awards in restricted stock.

<PAGE>

(3) Restricted stock awards for Mr. Green relating to 1995 performance vest
at the end of five years while awards for Mr. Kerley relating to 1995
performance vest ratably over five years. Restricted stock awards for
Messrs. Green, Robinson and Kerley relating to 1994 performance vest
ratably over 3 years. Restricted stock awards for Messrs. Grubb and
Green relating to 1993 performance generally vest at the end of five
years. Awards relating to 1993 performance for Mr. Kerley vest ratably
over 5 years. The value of all nonvested restricted shares held by
Messrs. Grubb, Green, Robinson and Kerley at year-end was $76,487,
$162,499, $58,714 and $18,564, respectively. Dividends are paid on all
restricted stock. The values reported in this table represent all the
restricted stock held by the named executive officers.

(4) Payments scheduled to be made in 1994 were made in December, 1993, and
85% of the payments scheduled to be made in 1993 were made in December,
1992.

(5) Includes $24,000 of Director fees, $4,500 as the Company matching
portion of 401(k) contributions, $7,860 as the Company matching portion
of Nonqualified Plan contributions and $2,634 as the cost of life
insurance benefits provided by the Company.

(6) Includes $3,580 as the Company matching portion of 401(k)
contributions, $1,425 as the Company matching portion of Nonqualified
Plan contributions and $1,671 as the cost of life insurance.

(7) Includes $52,701 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1995.

(8) Includes $4,500 as the Company matching portion of 401(k)
contributions, $1,125 as the Company matching portion of Nonqualified
Plan contributions and $1,313 as the cost of life insurance.

(9) Includes $4,500 as the Company matching portion of 401(k)
contributions, $1,125 as the Company matching portion of Nonqualified
Plan contributions and $1,313 as the cost of life insurance.

(10) Includes $4,594 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1995.

(11) Includes $4,026 as the Company matching portion of 401(k) contributions
and $784 as the cost of life insurance.

</FN>
</TABLE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>

Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(3)
- --------------------------------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g)

% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted(1) Year ($/Sh)(2) Date 5%($) 10%($)
- ------------------- ----------- ---------- --------- ---------- -------- ----------

<S> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau 50,000 36.2% $13.375 12/08/2005 $420,573 $1,065,815

Dan B. Grubb 25,000 18.1% $13.375 12/08/2005 210,287 532,908

Stanley D. Green 12,500 9.1% $13.375 12/08/2005 105,143 266,454

B. Brick Robinson 15,000 10.9% $13.375 12/08/2005 126,172 319,745

Gregory D. Kerley 3,750 2.7% $13.375 12/08/2005 31,543 79,936

- ------------------------
<FN>

(1) All 1995 grants except those to Mr. Scharlau and Mr. Robinson vest and
become exercisable ratably over three years beginning one year from the
date of grant or immediately upon a "change in control." All 1995
grants to Mr. Scharlau and Mr. Robinson vest at the earlier of three
years from the date of the grant or at retirement, or immediately upon
a "change in control," and are exercisable three years from the date of
grant or immediately upon a "change in control." All 1995 grants expire
after ten years from the date of grant but may expire earlier upon
termination of employment. Limited stock appreciation rights were
granted in tandem with all options granted in 1995.

(2) The exercise price reflects the fair market value of the Company's
Common Stock on the date of grant.

(3) Realizable values are reported net of the option exercise price, but
before taxes associated with exercise. The dollar amounts shown are the
result of calculations using 5% and 10% rates of appreciation as
specified by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. The assumed annual appreciation of 5% and 10%
would result in the price of the Company's stock increasing to $20.77
and $33.07, respectively. Realization by optionees of the amounts shown
are dependent on future increases in the price of the Company's Common
Stock and the continued employment of the optionee with the Company.

</FN>
</TABLE>

<PAGE>

<TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

(a) (b) (c) (d) (e)

Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at FY-End(#) Options/SARs at FY-End($)(2)
Shares -------------------------------- ---------------------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable(1) Unexercisable(1) Exercisable(1) Unexercisable(1)
- ------------------- ----------- ----------- -------------- ---------------- -------------- ----------------

<S> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau -- -- 169,650 295,996 $519,806 $ --

Dan B. Grubb -- -- 21,810 138,406 -- --

Stanley D. Green -- -- 65,610 125,906 197,663 --

B. Brick Robinson -- -- 45,000 138,247 124,313 --

Gregory D. Kerley -- -- 11,764 54,833 14,813 --

- ------------------------
<FN>

(1) All 1995 and 1993 grants except those to Mr. Scharlau and Mr. Robinson
vest and become exercisable ratably over three years beginning one year
from the date of grant or immediately upon a "change in control." All
1995 and 1993 grants to Mr. Scharlau and Mr. Robinson vest at the
earlier of three years from the date of the grant or at retirement, or
immediately upon a "change in control" and are exercisable three years
from the date of grant or immediately upon a "change in control." All
1994 grants vest and become exercisable ratably over the four year
period beginning six years from the date of grant or sooner upon
achievement of certain performance objectives, upon a "change in
control" as defined under "Agreements Concerning Employment and Changes
in Control" on page 24 of the Proxy Statement, or upon retirement. (See
"Compensation Committee Report" for discussion of performance goals.)
All grants made prior to 1993 are presently exercisable and expire on
the earlier of (a) ten years and one day from the date of grant, or (b)
termination of employment other than for retirement due to age or
disability. All 1993, 1994 and 1995 grants expire after ten years from
the date of grant but may expire earlier upon termination of
employment. Limited stock appreciation rights were granted in tandem
with all options granted in 1993, 1994 and 1995.

(2) Values are calculated as the difference between the exercise price of
the options/LSARs and the market value of the Company's Common Stock as
of December 31, 1995 ($12.75/share).
</FN>
</TABLE>

LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<CAPTION>

Estimated Future Payouts
under Non-Stock Price-Based Plans(2)
------------------------------------
(a) (b) (c) (d) (e) (f)

Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights (1) Payout ($ or #) ($ or #) ($ or #)
- ---------------------- ------------- ------------- --------- -------- --------

<S> <C> <C> <C> <C> <C>
Charles E. Scharlau $160,000 1996-2000 -- -- --

Dan B. Grubb (3) -- -- -- -- --

Stanley D. Green 37,500 1996-2000 -- -- --

B. Brick Robinson (3) -- -- -- -- --

Gregory D. Kerley 8,100 1996-2000 -- -- --

- ------------------------
<FN>

(1) Specified awards are payable in the years 1996 through 2000 at the rate
of 20% per year and relate to the five-year performance period
beginning January 1, 1991, and ending December 31, 1995. The awards
were calculated as a percentage of the participants' 1991 base salary.

(2) The long-term component of the Company's Annual and Long-Term Incentive
Compensation Plan was replaced for performance periods beginning after
January 1, 1993, by the Stock Plan. Payouts will continue under the
long-term component of the Annual and Long-Term Incentive Compensation
Plan for five-year performance periods ending each year through
December 31, 1997.

(3) Messrs. Grubb and Robinson were not participants in the long-term
incentive component of the Company's Annual and Long-Term Incentive
Compensation Plan for the performance period ending on December 31,
1995.
</FN>
</TABLE>

The long-term incentive awards described above were awarded pursuant to
the Company's former Annual and Long-Term Incentive Compensation Plan. For
discussion of this Plan, refer to page 14 of this Proxy Statement under
"Compensation Committee Report."

<PAGE>

Agreements Concerning Employment and Changes in Control

On December 18, 1990, the Company entered into a five-year employment
agreement with Mr. Scharlau commencing January 1, 1991, under which Mr. Scharlau
will be paid a minimum base salary of $400,000 per year and will be entitled to
participate in any of the Company's compensation or benefit plans for which he
otherwise qualifies. In 1994, this agreement was extended for two additional
years at a minimum base salary of $400,000 per year. On July 8, 1992, the
Company entered into a four-year employment agreement with Mr. Grubb under which
Mr. Grubb will be paid a minimum base salary of $250,000 per year and will be
entitled to participate in any of the Company's compensation or benefit plans
for which he otherwise qualifies.

On August 4, 1989, the Company entered into Severance Agreements with
Messrs. Scharlau, Green and Robinson. Effective July 8, 1992, and December 14,
1994, respectively, the Company entered into Severance Agreements with Mr. Grubb
and Mr. Kerley. The Severance Agreements provide that if within three years
after a "change in control" of the Company the officer's employment is
terminated by the Company without cause, the officer is entitled to a payment
equal to the product of 2.99 and the officer's "base amount" as defined under
Section 280G of the Internal Revenue Code. Generally, Section 280G defines the
term "base amount" as the officer's average W-2 compensation over the five-year
period preceding his termination of employment. In addition, the officer will be
entitled to continued participation in certain insurance plans and fringe
benefits from the date of his termination of employment until the earliest of
(a) the expiration of three years, (b) his death or (c) the date he is afforded
a comparable benefit at comparable cost by a subsequent employer.

Messrs. Scharlau, Grubb and Robinson also are entitled to the severance
benefits described above if within three years after a "change in control" they
voluntarily terminate employment with the Company for any reason. Messrs. Green
and Kerley are also entitled to the severance benefits described above if within
one year after a "change in control" they voluntarily terminate employment with
the Company for "good reason," or if in the next two succeeding years they
voluntarily terminate employment with the Company for any reason.

For purposes of the severance agreements, a "change in control"
includes (i) the acquisition by any person (other than, in certain cases, an
employee of the Company) of 20% or more of the Company's voting securities, (ii)
approval by the Company's shareholders of an agreement to merge or consolidate
the Company with another corporation (other than certain corporations controlled
by or under common control with the Company), (iii) certain changes in the
composition of the Board of Directors of the Company, (iv) any changes which
would be required to be reported to the shareholders of the Company in a proxy
statement and (v) a determination by a majority of the Board of Directors that
there has been a "change in control" or that there will be a "change in control"
upon the occurrence of certain specified events and such events occur. "Good
reason" includes (i) a reduction in the employee's employment status or
responsibilities, (ii) a reduction in the employee's base salary, (iii) a change
in the employee's

<PAGE>

principal work location and (iv) certain adverse changes in the Company's
incentive or other benefit plans.

The Company's 1993 Stock Incentive Plan provides that all outstanding
stock options and all limited, tandem and stand-alone stock appreciation rights
become exercisable immediately upon a "change in control." The Stock Plan also
provides that all shares of restricted and phantom stock which have not
previously vested or been cancelled or forfeited shall vest immediately upon a
"change in control." For purposes of the Stock Plan, a "change in control" has
the same meaning contained in the Company's Severance Agreements as defined
above.

The Company's Incentive Compensation Plan adopted in 1993 provides that
all restrictions on shares of restricted stock granted pursuant to the Incentive
Plan shall lapse upon a "change in control," as defined in the Company's
Severance Agreements. This plan also provides that upon a participant's
termination of employment under certain conditions on or after a "change in
control" all determined but unpaid incentive awards shall be paid immediately,
and any undetermined awards shall be determined and paid based on projected
performance factors calculated in accordance with the plan.

The Company's Annual and Long-Term Incentive Compensation Plan (the
"Prior Plan") provides that:

(a) Upon a participant's involuntary termination of employment
other than for cause, or voluntary termination for "good
reason" on or after a "change of control" or as otherwise
provided in a severance agreement between the participant and
the Company, all determined but unpaid incentive awards shall
be paid immediately, and any undetermined awards shall be
determined and paid based on projected performance factors
calculated in accordance with the plan;

(b) On or after a "change in control," all awards accrued but
unpaid and all awards thereafter accrued shall be 100% vested
and nonforfeitable; and

(c) On or after a "change in control," the Compensation Committee
of the Company's Board of Directors and the Company's Chief
Executive Officer as they existed immediately prior to such
"change in control" shall retain their authority to administer
the plan.

For purposes of the Prior Plan, the terms "change in control" and "good reason"
have the meanings contained in the Company's Severance Agreements as defined
above.

<PAGE>

STOCK PERFORMANCE CHART

The following chart compares for the last five years the performance of
the Company's Common Stock to the S&P 500 Index and The Value Line Natural Gas,
Diversified, Industry Index (see footnote (1) below). The chart assumes that the
value of the investment in the Company's Common Stock and each index was $100 at
December 31, 1990, and that all dividends were reinvested.

(Chart Appears Here)

1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Southwestern Energy Company 100 103 129 181 152 133
S&P 500 Index 100 130 140 155 157 215
Value Line Natural Gas, 100 91 109 132 119 157
Diversified, Industry Index(1)

- ------------------------
<FN>

(1) The following companies are included in The Value Line Natural Gas,
Diversified, Industry Index: Burlington Resources, Inc., Cabot Oil and
Gas, The Coastal Corporation, The Columbia Gas System, Inc.,
Consolidated Natural Gas Company, Enron Corp., ENSERCH Corporation,
Equitable Resources, Inc., KN Energy, Inc., Mitchell Energy &
Development Corporation, National Fuel Gas Company, NorAm Energy Corp.,
Panhandle Eastern Corporation, Questar Corp., Seagull Energy
Corporation, Sonat Inc., Southwestern Energy Company, Tenneco Inc.,
Valero Energy Corporation, and The Williams Companies, Inc.
</FN>
</TABLE>

<PAGE>

PENSION PLANS

The estimated annual benefits payable upon retirement in 1995 to
persons in specified remuneration and years of service classifications are as
follows:

<TABLE>

PENSION PLAN TABLE

Years of Service
---------------------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 90,000 $ 20,250 $ 27,000 $ 33,750 $ 40,500 $ 47,250 $ 54,000
120,000 27,000 36,000 45,000 54,000 63,000 72,000
150,000 33,750 45,000 56,250 67,500 78,750 90,000
180,000 40,500 54,000 67,500 81,000 94,500 108,000
210,000 47,250 63,000 78,750 94,500 110,250 126,000
240,000 54,000 72,000 90,000 108,000 126,000 144,000
270,000 60,750 81,000 101,250 121,500 141,750 162,000
300,000 67,500 90,000 112,500 135,000 157,500 180,000
330,000 74,250 99,000 123,750 148,500 173,250 198,000
360,000 81,000 108,000 135,000 162,000 189,000 216,000
390,000 87,750 117,000 146,250 175,500 204,750 234,000
420,000 94,500 126,000 157,500 189,000 220,500 252,000
450,000 101,250 135,000 168,750 202,500 236,250 270,000
480,000 108,000 144,000 180,000 216,000 252,000 288,000
510,000 114,750 153,000 191,250 229,500 267,750 306,000
540,000 121,500 162,000 202,500 243,000 283,500 324,000

- -----------------
<FN>

(1) The Internal Revenue Code (the "Code") limits both the amount of
compensation that may be used for purposes of calculating a participant's
Pension Plan benefit and the maximum annual benefit payable to a
participant under the Pension Plan. For the 1995 plan year, (i) a
participant's compensation in excess of $150,000 is disregarded for
purposes of determining average compensation and (ii) the maximum annual
Pension Plan benefit permitted under the Code is $120,000. The numbers
presented in the table disregard these limitations because the Company's
Supplemental Retirement Plan, discussed below, provides participants with
a supplemental retirement benefit to compensate them for the limitation on
benefits imposed by the Code.
</FN>
</TABLE>

The Company's Pension Plan provides for defined benefits to eligible
officers and employees in the event of retirement at a specified age based on
number of years of service and average monthly compensation during the five
years of highest pay in the last ten years before

<PAGE>

terminating. Contributions to the plan cannot be allocated to individual
participants because funding is based on average and not individual
participation. No contributions from the Company to the plan were required in
1995.

On May 31, 1989, the Company adopted a Supplemental Retirement Plan
which provides benefits equal to the amount which would be payable under the
Pension Plan in the absence of certain limitations of the Code, less the amount
actually paid under the Pension Plan. In the event of a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control" on page
24 of the Proxy Statement, the benefits of a participant then employed by the
Company would be determined as if the participant had credit for three
additional years of service.

The remuneration covered by the Pension Plan includes wages and
salaries but excludes incentive awards, bonuses and fees. The benefit amounts
listed above are not subject to any deductions for Social Security benefits or
other offset amounts.

RELATIONSHIP WITH INDEPENDENT AUDITORS

Arthur Andersen LLP, with offices at 6450 South Lewis, Suite 300,
Tulsa, Oklahoma 74136-1068, has been the independent auditor of the Company
since 1979. Representatives will be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement to the
shareholders if they so desire. The representatives will also be available to
respond to appropriate questions from the shareholders. There have been no
disagreements with the auditors on accounting and financial disclosure.

PROPOSALS FOR 1997 ANNUAL MEETING

Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders must be received by the Company at its principal offices
not later than November 29, 1996, for inclusion in the 1997 Proxy Statement and
form of proxy. Proposals intended to be the subject of a separate solicitation
may be brought before the 1997 Annual Meeting by shareholders provided that
written notice of any such proposal is received at the Company's principal
executive offices not less than 50 nor more than 75 days prior to the called
meeting date. If less than 65 days notice of the 1997 Annual Meeting is given,
written notice of any such proposal must be received no later than the close of
business on the 15th day following the day on which notice of the annual meeting
date was mailed. The Company's by-laws require that notices of shareholder
proposals contain certain information about any proposal and the proposing
shareholder. A copy of the relevant by-law provisions may be obtained by
contacting Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.

<PAGE>

OTHER BUSINESS

While the Notice of Annual Meeting of Shareholders calls for
transaction of such other business as may properly come before the meeting, the
Company's management has no knowledge of any matters to be presented for action
by shareholders at the meeting other than as set forth in this statement. If any
other business should come before the meeting, the persons named in the proxy
have discretionary authority to vote in accordance with their best judgment.
Shareholders may bring additional proposals before the meeting provided written
notice of any such proposal is received at the Company's principal executive
offices no later than the close of business on April 15, 1996. The Company's
by-laws require that this notice must contain certain information about any
proposal and the proposing shareholder. A copy of the relevant by-law provisions
may be obtained by contacting Mr. Gregory D. Kerley, Secretary, Southwestern
Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville, Arkansas
72702-1408, (501) 521-1141.

Any shareholder who has not received a copy of the Company's Annual
Report or wishes to obtain a copy of the Company's Form 10-K may obtain a copy
of either free of charge by contacting Mr. Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408.

By Order of the Board of Directors

GREGORY D. KERLEY
Secretary
Dated: March 29, 1996

<PAGE>

SOUTHWESTERN ENERGY COMPANY
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints each of Kenneth R. Mourton and Charles
E. Scharlau as Proxies, with power of substitution, and hereby authorizes them
to represent and to vote, as designated below, all the shares of Common Stock of
Southwestern Energy Company held of record by the undersigned on March 4, 1996,
at the Annual Meeting of Shareholders to be held on May 13, 1996, or any
adjournment or adjournments thereof.

1. ELECTION OF DIRECTORS

J. Hammerschmidt C. Sanders FOR [ ] WITHHELD [ ]
R. Howard C. Scharlau
K. Mourton

FOR, except vote WITHHELD from the following nominee(s):
FOR, with exercise of cumulative voting privilege. Indicate number of
votes cast for each nominee.

2. BONDED INDEBTEDNESS

Proposal to consent to and authorize an increase in the Company's
"bonded indebtedness" (within the meaning of Article 12, Section 8 of
the Constitution of the State of Arkansas) up to a total aggregate
amount of $400,000,000 (four hundred million dollars), including
$187,929,000 of bonded indebtedness outstanding as of as of March 14,
1996 and containing such other terms, provisions and conditions as the
Board of Directors shall approve.

FOR [ ] AGAINST [ ]

In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.

The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof. This proxy is revocable at any
time before it is exercised, the signer retaining the right to attend the
meeting and vote in person.

This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR the election of
directors and FOR the proposal to authorize an increase in bonded indebtedness.

NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.

SIGNATURE(S) ________________________________________________ DATE __________

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

<PAGE>