Table of Contents Index to Financial Statements SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Basis of Presentation Principles of Consolidation Major Customers Southwestern Energy Company (including its subsidiaries, collectively “Southwestern” or the “Company”) is an independent energy company engaged in natural gas, oil and NGLs exploration, development and production (“E&P”). The Company is also focused on creating and capturing additional value through its marketing business (“Marketing”), which was previously referred to as “Midstream” when it included the operations of gathering systems. Southwestern conducts most of its business through subsidiaries and operates principally in two segments: E&P and Marketing. E&P.  Southwestern’s primary business is the exploration for and production of natural gas, oil and NGLs, with ongoing operations focused on the development of unconventional natural gas and oil reservoirs located in Pennsylvania, Ohio and West Virginia. The Company’s operations in northeast Pennsylvania, herein referred to as “Northeast Appalachia,” are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale. Operations in West Virginia, Ohio and southwest Pennsylvania, herein referred to as “Southwest Appalachia,” are focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas and oil reservoirs. Collectively, Southwestern refers to its properties located in Pennsylvania, Ohio and West Virginia as “Appalachia.” The Company also operates drilling rigs located in Appalachia, and provides oilfield products and services, principally serving the Company's E&P operations through vertical integration. In August 2020, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Montage Resources Corporation ("Montage") pursuant to which Montage will merge with and into Southwestern, with Southwestern continuing as the surviving company (the "Merger"). The Company acquired at the effective time of the merger all of the outstanding shares of common stock in Montage in exchange for 1.8656 shares of Southwestern common stock per share of Montage common stock. The transaction closed on November 13, 2020. The Merger expanded the Company's footprint in Appalachia by supplementing the Northeast Appalachia and Southwest Appalachia operations and by expanding the Company's operations into Ohio. See  Note 3  for more information about the Merger. Marketing.  Southwestern’s marketing activities capture opportunities that arise through the marketing and transportation of natural gas, oil and NGLs primarily produced in its E&P operations. The consolidated financial statements include the accounts of Southwestern and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements included in this Annual Report present the Company’s financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company evaluates subsequent events through the date the financial statements are issued. In 2015, the Company purchased an 86% ownership in a limited partnership that owns and operates a gathering system in Northeast Appalachia. Because the Company owns a controlling interest in the partnership, the operating and financial results are consolidated with the Company’s E&P segment results. The minority partner’s share of the partnership activity is reported in retained earnings in the consolidated financial statements. Net income attributable to noncontrolling interest for the years ended December 31, 2020, 2019 and 2018 was insignificant. The Company sells the vast majority of its E&P natural gas, oil and NGL production to third-party customers through its marketing subsidiary. Customers include major energy companies, utilities and industrial purchasers of Natural gas. For the year ended December 31, 2020, one purchaser accounted for 10% of total revenues. A default on this account could have a material impact on the Company, but the Company does not believe that there is a material risk of default. No other purchasers accounted for greater than 10% of consolidated revenues. For the year ended December 31, 2019, no single customer accounted for 10% or greater of total sales. The Company believes that the loss of any one customer would not have an adverse effect on its ability to sell its natural gas, oil and NGL production. 80