SPRING, Texas, April 26, 2018 /PRNewswire/ -- Southwestern Energy Company (NYSE: SWN) today announced first quarter results ended March 31, 2018, along with other recent developments. Highlights include:
- Net production of 226 Bcfe, an increase of 11%, including a 37% increase in liquids production, compared to the first quarter of 2017;
- Appalachian Basin net production of 159 Bcfe, or 1.77 Bcfe per day, an increase of 29% compared to the first quarter of 2017;
- Total capital investments of $338 million, consistent with the Company's disciplined approach to invest within net cash flow. Net cash provided by operating activities was $364 million and net cash flow was $358 million;
- Appalachian Basin net cash provided by operating activities improved 36% to $294 million compared to the first quarter of 2017;
- Northeast Appalachia generated net cash provided by operating activities, net of capital of approximately $115 million in the first quarter of 2018;
- Net income attributable to common stock of $205 million, or $0.36 per diluted share, and adjusted net income attributable to common stock of $162 million, or $0.28 per diluted share;
- Entered into a new, five-year $3.5 billion secured revolving credit facility, with an initial commitment of $2.0 billion supported by a borrowing base of $3.2 billion;
- The new facility replaces the 2016 revolving and secured term loan facilities, with estimated interest expense savings for the remainder of 2018 of approximately $20 million;
- Cash on hand was used to reduce gross debt by approximately $830 million compared to March 31, 2018 as the $1.2 billion term loan was repaid in full;
- Narrowing full year 2018 natural gas discount to NYMEX guidance including transportation to $0.70 - $0.80 per Mcf due to improving outlook for basis differentials and the Company's ability to capture higher pricing utilizing the strength and flexibility of its transportation portfolio;
- Delivered operational efficiency throughout the portfolio, which will provide additional cost savings and accelerate production timing:
- Executed new record level completion performance in Southwest Appalachia, increasing the number of stages pumped per day using zipper fracs to over 6 stages, a greater than 55% improvement compared to historical completion operations;
- Further cycle time reductions with record facility installation performance in Southwest Appalachia for the first quarter of 2018, reducing the average facility installations time by 45% versus the 2017 average; and
- Progressed Fayetteville redevelopment program by successfully testing two additional wells utilizing optimized landing zones and advanced completion technology.
"We delivered a strong start to the year, meeting or exceeding all commitments for the quarter," said Bill Way, President and Chief Executive Officer of Southwestern Energy. "Momentum from growing liquids production and relentless delivery of operational and technical excellence, combined with our new credit facility, will improve margins in 2018 and into the future. These tangible steps demonstrate the growing value of our Appalachia assets and the strong confidence we have in repositioning the Company."
|
Financial Results |
For the three months ended | ||||
|
March 31, | |||||
|
2018 |
2017 | ||||
|
(in millions, except per share amounts) |
|||||
|
Operating income |
$ |
255 |
$ |
266 | |
|
Adjusted operating income (non-GAAP measure) |
$ |
264 |
$ |
266 | |
|
Net earnings attributable to common stock |
$ |
205 |
$ |
281 | |
|
Adjusted net income attributable to common stock (non-GAAP measure) |
$ |
162 |
$ |
87 | |
|
Earnings per diluted share |
$ |
0.36 |
$ |
0.57 | |
|
Adjusted earnings per diluted share (non-GAAP measure) |
$ |
0.28 |
$ |
0.18 | |
|
Net cash provided by operating activities |
$ |
364 |
$ |
312 | |
|
Net cash flow (non-GAAP measure) |
$ |
358 |
$ |
318 | |
|
Exploration and Production Financial Results |
For the three months ended | ||||
|
March 31, | |||||
|
2018 |
2017 | ||||
|
Production |
|||||
|
Northeast Appalachia (Bcf) |
108 |
87 | |||
|
Southwest Appalachia (Bcfe) |
51 |
36 | |||
|
Fayetteville (Bcf) |
67 |
81 | |||
|
Total production (Bcfe) |
226 |
204 | |||
|
% Natural Gas |
87% |
90% | |||
|
Average unit costs per Mcfe |
|||||
|
Lease operating expenses(1) |
$ |
0.94 |
$ |
0.89 | |
|
General & administrative expenses |
$ |
0.21 |
$ |
0.21 | |
|
Taxes, other than income taxes |
$ |
0.09 |
$ |
0.12 | |
|
Full cost pool amortization |
$ |
0.48 |
$ |
0.40 | |
|
(1) |
The first quarter of 2018 included additional charges related to preventative maintenance associated with extended severe winter weather and a $3.7 million one-time charge related to NGL processing fees. |
|
Realized Prices |
For the three months ended | ||||
|
March 31, | |||||
|
2018 |
2017 | ||||
|
Natural Gas Price: |
|||||
|
NYMEX Henry Hub Price ($/MMBtu)(1) |
$ |
3.00 |
$ |
3.32 | |
|
Discount to NYMEX(2) |
$ |
(0.28) |
$ |
(0.59) | |
|
Average realized gas price per Mcf, excluding derivatives |
$ |
2.72 |
$ |
2.73 | |
|
Gain (loss) on settled financial basis derivatives ($/Mcf) |
$ |
(0.11) |
$ |
(0.01) | |
|
Gain (loss) on settled commodity derivatives ($/Mcf) |
$ |
0.06 |
$ |
(0.15) | |
|
Average realized gas price per Mcf, including derivatives |
$ |
2.67 |
$ |
2.57 | |
|
Oil Price: |
|||||
|
WTI Oil Price ($/Bbl) |
$ |
62.87 |
$ |
51.91 | |
|
Discount to WTI |
$ |
(6.86) |
$ |
(8.17) | |
|
Average realized oil price per Bbl |
$ |
56.01 |
$ |
43.74 | |
|
NGL Price: |
|||||
|
Average net realized NGL price per Bbl(3) |
$ |
15.43 |
$ |
13.28 | |
|
Percentage of WTI |
25% |
26% | |||
|
Average net realized C3+ NGL price per Bbl |
$ |
36.01 |
$ |
30.91 | |
|
Percentage of WTI |
57% |
60% | |||
|
Total Weighted Average Realized Price: |
|||||
|
Excluding derivatives |
$ |
2.81 |
$ |
2.75 | |
|
Including derivatives |
$ |
2.77 |
$ |
2.61 | |
|
(1) |
Based on last day settlement prices from monthly futures contracts. |
|
(2) |
This discount includes a basis differential, physical basis sales, third-party transportation charges and fuel charges and excludes financial basis hedges. |
|
(3) |
Includes the impact of transportation costs and $0.01 per Bbl and $0.02 per Bbl of realized derivative gains for the three months ended March 31, 2018 and March 31, 2017, respectively. |
First Quarter of 2018 Financial Results
Operating income was $255 million for the first quarter of 2018. E&P segment operating income of $238 million was 6% higher than the first quarter of 2017 driven by higher production and improved realized pricing, partially offset by higher operating costs associated with increased volumes. In the Appalachian Basin, net cash provided by operating activities increased to approximately $294 million for the first quarter of 2018, or 36%, compared to approximately $216 million during the first quarter of 2017.
During the first quarter of 2018, production increased by 11%, including a 37% increase in liquids production, compared to the first quarter of 2017. In the Appalachian Basin, production increased to 159 Bcfe or 1.77 Bcfe per day, an increase of 29% compared to the first quarter of 2017, despite the impact of winter weather.
The Company's realized natural gas price, excluding derivatives, was $2.72 per Mcf, comparable to the first quarter of 2017, despite a 10% decrease in NYMEX pricing. This includes a $0.31 per Mcf improvement in the discount to NYMEX prices, driven by Northeast Appalachia where the Company realized a $0.04 per Mcf premium to NYMEX for the first quarter of 2018. Additionally, NGL pricing, excluding derivatives, increased to $15.42 per Bbl, including C3+ pricing of $36.01 per Bbl, an increase of 16% compared to the first quarter of 2017. The increase in liquids production and realizations generated a $0.09 per Mcfe uplift to the Company's weighted average realized price excluding derivatives compared to a $0.02 per Mcfe uplift in the same period in 2017.
Midstream operating income, comprised of gathering and marketing activities, was $17 million for the first quarter of 2018, compared to $41 million for the same period of 2017. The change in operating income was driven by decreased gathered volumes associated with lower production and one-time compressor facility repair costs in the Fayetteville Shale and the impairment of an unrelated, non-core gathering asset.
Capital Structure and Investments – At March 31, 2017, the Company had cash of $958 million, gross debt of $4.4 billion and $3.4 billion in net debt. In April 2018, the Company entered into a new, five-year $3.5 billion secured revolving credit facility, supported by an initial borrowing base of $3.2 billion, with the Company electing an initial commitment of $2.0 billion. Pricing is based on LIBOR plus a margin of 150 to 250 basis points, depending on utilization. The new agreement is expected to reduce interest expense by approximately $20 million in 2018 and approximately $30 million annually in future years. This facility replaces the 2016 revolving credit and secured term loan bank facilities, with the prior term loan bank facility borrowings retired using cash on hand and borrowings under the new facility.
During the first quarter of 2018, Southwestern Energy invested total capital of $338 million. This included approximately $334 million invested in its E&P business and $4 million invested in the Midstream segment. Of the $338 million, approximately $28 million was associated with capitalized interest and $25 million was associated with capitalized expenses.
E&P Operational Review
During the first quarter of 2018, Southwestern Energy invested a total of approximately $334 million in its E&P business, and drilled 32 wells, completed 29 wells, and placed 33 wells to sales.
|
First Quarter 2018 E&P Division Results |
Appalachia |
Fayetteville | ||||||
|
Northeast |
Southwest |
Shale | ||||||
|
Production (Bcfe)(1) |
108 |
51 |
67 | |||||
|
Gross operated production as of March 2018 (MMcfe/d)(2) |
1,421 |
963 |
1,053 | |||||
|
Capital investments ($ in millions) |
||||||||
|
Exploratory and development drilling, including workovers |
$ |
99 |
$ |
146 |
$ |
10 | ||
|
Acquisition and leasehold |
2 |
18 |
− | |||||
|
Seismic and other |
1 |
2 |
1 | |||||
|
Capitalized interest and expense |
9 |
36 |
4 | |||||
|
Total capital investments |
$ |
111 |
$ |
202 |
$ |
15 | ||
|
Gross operated well count summary |
||||||||
|
Drilled |
9 |
21 |
2 | |||||
|
Completed |
13 |
15 |
1 | |||||
|
Wells to sales |
17 |
16 |
− | |||||
|
Average completed well cost (in millions)(3) |
$ |
6.2 |
$ |
8.8 |
$ |
− | ||
|
Average lateral length (in feet)(3) |
7,360 |
6,790 |
− | |||||
|
Realized natural gas price |
||||||||
|
NYMEX Henry Hub Price ($/MMBtu) |
$ |
3.00 |
$ |
3.00 |
$ |
3.00 | ||
|
Discount to NYMEX ($/Mcf)(4) |
$ |
0.04 |
$ |
(0.53) |
$ |
(0.72) | ||
|
Average realized gas price, excluding derivatives ($/Mcf) |
$ |
3.04 |
$ |
2.47 |
$ |
2.28 | ||
|
(1) |
Southwest Appalachia production included 22 Bcf of natural gas, 4,218 MBbls of NGLs and 594 MBbls of oil. |
|
(2) |
Temporarily restricted Fayetteville production rate due to compressor facility repairs. The rate on March 31, 2018 was 1,121 MMcf/d. |
|
(3) |
Southwest Appalachia includes only wells drilled and completed by SWN. |
|
(4) |
This discount includes a basis differential, physical basis sales, third-party transportation charges and fuel charges and excludes financial basis hedges. |
Southwest Appalachia – Southwestern Energy had total net production of 51 Bcfe, or 567 MMcfe per day, a 42% increase compared to the first quarter of 2017. Higher liquids production and realizations continue to drive margin expansion, with the increase in liquids realizations generating a price uplift of approximately $0.53 per Mcfe compared to its realized natural gas price of $2.75 per Mcf. Southwest Appalachia's weighted average realized price for the first quarter improved to $3.00 per Mcfe, which matched NYMEX gas price for the first quarter of 2018.
Southwestern Energy placed 16 wells to sales, 14 of which were drilled and completed by the Company. Twelve Company drilled and completed wells, targeting the Marcellus rich gas window, were online for at least 30 days and had an average lateral length of 6,950 feet with an average 30 day rate of approximately 8.4 MMcfe per day, comprised of 67% liquids. These 12 wells were producing over 130 MMcfe per day including over 5,000 Bbls per day of condensate at the end of the quarter, contributing to a 27% increase in Southwest Appalachia's quarter over quarter condensate exit rate. The Company continues to extend lateral lengths and drilled its longest well in Southwest Appalachia with a measured depth of over 20,000 feet and horizontal lateral over 13,400 feet.
Northeast Appalachia – The Company had total net production of 108 Bcf, or 1.2 Bcf per day, a 24% increase compared to the first quarter of 2017. Northeast Appalachia realized a premium of $0.04 per Mcf to NYMEX gas price, including transportation costs, and generated positive net cash flow from operating activities, net of capital, of approximately $115 million. The Company was able to take advantage of its firm transportation portfolio to capture increased pricing due to winter weather.
The Company placed 17 wells to sales in the first quarter, all in Susquehanna County. The average rate for the first 30 days for the 8 wells that were online for at least 30 days was 15.2 MMcf per day per well. In March, the Watts 1H well was placed to sales and was drilled with a lateral length of over 11,200 feet and had an initial production rate of 34.1 MMcf per day, further demonstrating improved capital efficiency that will continue to be targeted throughout the area.
The Company is driving further improvements in its Tioga area economics by lowering projected completion costs through water infrastructure installation and increasing lateral lengths. The Company commissioned dedicated third-party water infrastructure in Tioga, expected to reduce completion costs by approximately $400,000 per well by the middle of 2018. Additionally, the latest 3-well pad drilled in Tioga had an average lateral length of over 10,800 feet, a 45% improvement compared to historical drilled wells in this area.
Fayetteville Shale – The Company drilled two additional wells that were placed to sales in mid-April as part of its field-wide redevelopment program, which utilizes advanced completion designs and optimized landing zones to improve well performance. The Sisson well had a lateral length of 8,642 feet and an initial production rate of approximately 8 MMcf per day. The Guinn James well had a lateral length of 4,944 feet and an initial production rate of approximately 6 MMcf per day. This well is currently in the early stages of flowback and is still cleaning up. Additionally, the Company's cumulative production from its initial redevelopment well, the McNew, is further outperforming historical production in the area by over 60% in the first 180 days online. These well results, supported by the Company's big data analytics, further confirm Fayetteville's low-risk redevelopment opportunities.
Hedging Update
Southwestern Energy continues to execute a disciplined hedging program with physical, financial and basis hedges on its forecasted natural gas and natural gas liquids production. As of April 24, 2018, the Company had approximately 434 Bcf of its remaining 2018 forecasted gas production volumes protected at an average swap or purchased put strike price of $2.97 per Mcf. Approximately half of these protected volumes retain upside exposure up to $3.37 Mcf. Additionally, the Company had approximately 311 Bcf of its 2019 forecasted gas production protected at an average swap or purchased put strike price of $2.92 per Mcf, with upside exposure on approximately 60%, or 186 Bcf, of those protected volumes up to $3.24 per Mcf.
A detailed breakdown of the Company's natural gas derivative financial instruments as of April 24, 2018 is shown below. Please refer to our quarterly report on Form 10-Q to be filed with the Securities and Exchange Commission for complete information on the Company's commodity, basis and interest rate protection.
|
Weighted Average Price per MMBtu | |||||||||||||
|
Volume |
Swaps |
Sold Puts |
Purchased |
Sold Calls | |||||||||
|
Financial protection on production |
|||||||||||||
|
2018 |
|||||||||||||
|
Fixed price swaps |
215 |
$ |
2.97 |
$ |
– |
$ |
– |
$ |
– | ||||
|
Two-way costless collars |
6 |
– |
– |
2.90 |
3.27 | ||||||||
|
Three-way costless collars |
213 |
– |
2.40 |
2.97 |
3.37 | ||||||||
|
Total |
434 |
||||||||||||
|
2019 |
|||||||||||||
|
Fixed price swaps |
126 |
$ |
2.95 |
$ |
– |
$ |
– |
$ |
– | ||||
|
Two-way costless collars |
53 |
– |
– |
2.80 |
2.98 | ||||||||
|
Three-way costless collars |
133 |
– |
2.49 |
2.93 |
3.34 | ||||||||
|
Total |
311 |
||||||||||||
|
2020 |
|||||||||||||
|
Fixed price swaps |
2 |
$ |
2.77 |
$ |
– |
$ |
– |
$ |
– | ||||
|
Three-way costless collars |
38 |
– |
2.44 |
2.80 |
3.00 | ||||||||
|
Total |
40 |
||||||||||||
|
Note: Amounts may not sum due to rounding |