In 1998, Houston's Southwestern Energy Co. (NYSE: SWN) had a tough hill to climb. The small-cap integrated energy company-focused primarily on natural gas E&P activities in Arkansas, Oklahoma, Texas, New Mexico and Louisiana-had a new president, Harold Korell, and a new chief financial officer, Greg Kerley. That's the good news. The flip side of the coin: coverage by only one sellside analyst and a deficit in credibility spawned by an operational shortfall in its upstream business segment. Indeed, the company wasn't even replacing reserves. Challenges for any investor-relations program, to be sure. But under the stewardship of Korell and Kerley, the company during the next two years retooled its E&P operations with handpicked people and began to deliver positive operating results. The duo then took this message on the road, telling investors how the company had reversed its upstream fortunes. By year-end 1999, they were able to point out that the company's reserves had grown to 355 billion cubic feet equivalent (Bcfe), with the company achieving an annual replacement level of 150%. They also were able to cite that earnings for 1999 had upticked to 40 cents per share from a prior-year loss of $1.23 per share. Soon, analysts began to take notice of the company, and by mid-2000, shares of Southwestern rose to $10 each-from $6.56 at year-end 1999. "A good IR program starts at the top, in this case with president Harold Korell and Greg Kerley," says Brad Sylvester, the firm's investor-relations manager. "They understand the importance of this function; in fact, they believe that getting out and telling Southwestern's story to institutional investors is one of their primary roles as leaders of the company." That job, however, was made more than a little difficult around June 2000 when the company lost a gas-price-contract lawsuit dating back to 1978. "Any ground we had gained up to that point was undone by the $109-million judgment against the company which had to be paid the following month," observes Sylvester. He notes that Southwestern's debt-to-cap ratio immediately rose to 74% from a year-end 1999 level of 61%. In addition, the company put up for sale its utility, Arkansas Western Gas Co., in a move it later reconsidered, lost an analyst that had initiated coverage on SWN, and faced an investment community "that had begun to turn up their noses at the company." Despite these adverse circumstances, the operator and its investor-relations effort plowed ahead, and a number of measures-both operational and financial-were put in place to reverse the financial effects of the lawsuit and the tide of market sentiment. "As a result of our exploration efforts between 1999 and 2001, we began finding significant reserves," explains Sylvester. "However, during the past three years, those efforts have morphed into low-risk development programs-almost manufacturing-type plays-in places like the Overton Field in East Texas, and the Ranger Anticline and the Fayetteville Shale play in Arkansas." Out of cash flow from operations, the company also began paying down debt. In addition, in early 2003, the company kick-started its Overton Field drilling with a $103-million equity offering when its shares were trading around $11 to $12. The results: by year-end 2004, SWN's annual production had climbed to more than 54 Bcfe, from 32.9 Bcfe in 1999. Similarly, the company's reserves in 2004 increased to 645 Bcfe as its annual reserve-replacement level hit 388%. Meanwhile, consensus First Call 2004 earnings estimates for Southwestern are $2.76 per share; cash flow estimates, $6.49 per share. Debt-to-cap, once 74%, is now only 42%. And the company's stock price, up a robust 112% last year versus 2003, has been recently trading north of $55 per share. "These results are important to communicate to buysiders; however, when we go out to talk about Southwestern, our focus is quite different from most other E&P companies in that, instead of stressing growth, we emphasize adding value for each dollar we invest," says Sylvester, himself a former buysider. "Simply put, we seek to create, through the drillbit, at least $1.30 of pre-tax net present value for each upstream dollar that we invest. If we continue to do that-as we have during the past five years-organic growth in volumes, reserves and net asset value will follow." That message was conveyed by Southwestern in 2004 during 12 energy-conference presentations throughout the country and in more than 120 one-on-one meetings with investors. In addition, SWN's stock is now covered by 12 sellside analysts-not just one. Clearly, the plaudits that Southwestern's IR program have generated-and there are many-aren't simply a function of the company's upstream operational success and its ability to add value through the drillbit. Rather, it's a reflection of how senior management has embraced the importance of the investor-relations role. David Heikkinen, E&P analyst for Hibernia Southcoast Capital in New Orleans, concurs that Southwestern has done a great job of going out and visiting its investors, which includes appearing at energy conferences and being available for one-on-one meetings. But just as importantly, the company is very responsive to questions, he points out. "Whether it's Brad Sylvester, Greg Kerley or Harold Korell, these people have established an open and honest company, and what they say they're going to do, they execute and deliver." Heikkinen recalls that an IR person at a much larger E&P company once said, "If you treat every investor that calls you like they were a Fidelity, you're going to build good relationships with the investment community." Southwestern, he believes, has done just that. Michael Scialla, E&P analyst for A.G. Edwards & Sons in Denver, says, "Whether a sellside analyst has a Buy, Hold or Sell rating on the stock, Southwestern is prompt in its responsiveness to inquiries." He notes that the company has been very open in communicating its story, in terms of working with sellside analysts to arrange one-on-one meetings with buysiders. "Also, Southwestern has gone out of its way to arrange field trips for analysts-such as one in 2003 to Overton Field in East Texas-to help the investment community better understand its operations." The basic story Southwestern is getting across, says Scialla, is that it has a technically superior management team that's capable of growing the company through the drillbit. "Indeed, this producer has been demonstrating 20%-plus growth in volumes and reserves during the past couple of years, and we think that growth can continue for the foreseeable future." In his dealings with the IR departments of E&P companies, Michael D. Bodino, senior research analyst for Sterne Agee & Leach Inc. in New Orleans, also puts a premium on an operator's responsiveness to inquiries, as well as simplicity in communications, in terms of providing clear and concise information. "In this regard, I would put Southwestern Energy at the top of its peer group," he says. "Management gets out on the road and tells a very simple story about a handful of key projects-the Overton Field, the Ranger Anticline and the Fayetteville Shale-that are fueling the company's growth." During the past two years, the analyst notes, SWN was a Top 10 upstream performer out of 60 E&P companies he ranks. "The company's stock closed at $11.45 per share at the end of 2002 and at $50.69 at the end of 2004-a 343% move in stock-price appreciation." Bodino says that Southwestern's management has consistently underpromised and overperformed. "This gives everyone a lot of comfort that what the company is telling the analyst community is very conservative-and that there's the likelihood of further overperformance." He adds that in its communication with investors, Southwestern emphasizes not so much growth as its ability to generate strong rates of return. "The company conveys the message that it's going to be a good steward of capital and that for every dollar it invests, it's going to generate more than $1.30 in net present value."