HOUSTON, Feb. 8, 2018 /PRNewswire/ -- Southwestern Energy
Company (NYSE: SWN) today announced its 2017 highlights and its
2018 guidance based on a $2.85 NYMEX
gas price. The Company took on commodity price challenges and
delivered on commitments made in its 2017 guidance.
2017 highlights include:
- Delivered on commitment to invest within net cash flow
(supplemented by the remaining $200
million from the 2016 equity offering as previously
disclosed);
- Total net production of 897 Bcfe, including 578 Bcfe from the
Appalachian Basin and 316 Bcf from the Fayetteville Shale;
-
- Comprised of 89% natural gas and 11% NGLs and condensate;
- Record Appalachian Basin gross operated exit rate production of
2.35 Bcfe per day, a 40% increase compared to December 2016;
- Increase in estimated pre-tax PV10 reserve value to
approximately $5.8 billion, up 247%
compared to year-end 2016, including $3.8
billion from the Appalachian Basin;
- Preliminary total proved reserves(1) of
approximately 14.8 Tcfe, including 11.1 Tcfe from the Appalachian
Basin, up 181% and 393%, respectively, compared to 2016;
-
- Comprised of 75% natural gas and 25% NGLs and condensate at
year-end 2017, compared to 93% and 7% in 2016, respectively;
- 46% proved undeveloped at year-end 2017; and
- Further optimized completion techniques leading to enhanced
well productivity and economics in the Appalachian Basin.
Detailed information on these and other 2017 results will appear
in the Company's earnings release and annual report on Form 10-K to
be issued on March 1, 2018.
2018 guidance highlights include:
- Capital investments of $1.15 to
$1.25 billion, funded entirely by net
cash flow;
- Average net production of 930 to 965 Bcfe, a 6% increase (using
midpoints) over the 2017 production of 897 Bcfe;
-
- Appalachian Basin net production of 671 to 698 Bcfe, an 18%
increase over 2017, including a 30% increase in Southwest
Appalachia;
- NGLs and condensate production increase to approximately 130
Bcfe, an increase of 31% compared to 2017;
- Improved capital efficiency demonstrated by investing almost
$100 million less in drilling and
completion activities while delivering both higher value and
production growth versus the 2017 program;
- Northeast Appalachia expected to generate positive cash flow
from operations, net of capital for the first time, delivering
approximately $150 million;
- Total Company and Northeast Appalachia gas differentials
expected to improve by approximately $0.10 per Mcf and $0.25 per Mcf, respectively; and
- Hedge protection on approximately 69% of projected 2018 natural
gas volumes at an average swap or purchased put strike price of
$2.97 per Mcf.
(1) Audited by independent petroleum engineering
firm
In a separate press release issued today, the Company announced
its intent to actively pursue strategic alternatives for the
Fayetteville Shale E&P and related midstream gathering assets
along with other initiatives. The 2018 guidance excludes any
impact from the strategic actions announced today in that press
release.
"Our commitment to value creation is clearly evident with our
2018 plan," said Bill Way, President
and Chief Executive Officer of Southwestern Energy. "We are
delivering more with less, benefiting from the capital efficiency
gains that we have captured over the past two years. We will
continue to invest within net cash flow and maintain capital
discipline by prioritizing investments to those projects that are
expected to generate the highest returns for our
shareholders."
2018 Guidance Summary
Across the portfolio, the
Company continues to identify opportunities to expand margins and
increase capital efficiency, enhancing the value of its
inventory. During 2018, the Company plans to invest
$1,130 million to $1,215 million in its E&P business, which
includes $775 million to $815 million for drilling and completion
activities, $210 million to
$230 million for capitalized interest
and expenses, $65 million to
$75 million in water infrastructure
and $80 million to $95 million for land, seismic and other
items.
The 2018 capital budget will once again prioritize investments
generating the highest returns for shareholders and will focus on
the Appalachian Basin, where the Company plans to begin the year
operating four rigs and utilizing three completion crews in
Southwest Appalachia and two rigs and two completion crews in
Northeast Appalachia. The 2018 program includes drilling 100
to 120 wells, completing 105 to 125 wells and placing 125 to 145
wells to sales.
Southwest Appalachia – In Southwest Appalachia,
based on current liquids realizations and improving economics, the
Company plans to target the liquids rich portion of the play, which
is expected to increase total production by 30% (using midpoints),
with liquids representing 54% of total production in 2018.
The increase in liquids realizations is expected to generate a
price uplift of approximately $0.80
per Mcfe. This increase, coupled with reduced processing
rates, is expected to further improve cash margins. The
Company plans to allocate approximately $490
million to $510 million in
discretionary capital to Southwest Appalachia, with approximately
$430 million to $450 million allocated to drilling and
completions activities. Approximately $60 million is planned to be used for land and
seismic activity. The Company expects the average 2018 completed
well cost for the wells placed to sales to be $7.6 million per well with approximately 7,200
foot average horizontal lateral length. As the Company
targets longer lateral lengths, the Company's drilled lateral
lengths are expected to increase throughout the year, averaging
approximately 8,500 feet for the second half of 2018.
Additionally, the Company commenced a water infrastructure project
in late 2017 and plans to invest approximately $65 million to $75
million in capital in 2018. While this project does
not directly provide production growth, it is expected to reduce
well costs by approximately $500
thousand per well beginning in late 2018 and lower the
breakeven gas price threshold by $0.25 per Mcf. This water project will be
utilized for future development of the rich and lean gas Marcellus
wells, along with dry gas Utica development.
Northeast Appalachia – The 2018 program plans to
focus primarily on its core area in Susquehanna County while
further developing its Tioga County acreage. The Company
plans to allocate approximately $340
million to $360 million in
discretionary capital to Northeast Appalachia, with approximately
$320 million to $340 million allocated to drilling and
completions and the remaining $20
million allocated to land and other capital. The
Company expects the average 2018 completed well cost for the wells
placed to sales to be $6.6 million
per well with approximately 7,100 foot average horizontal lateral
length.
As additional pipeline capacity is added in the region,
Southwestern's transportation portfolio is positioned to capture
materially improving basis differentials without significant
increases in transportation charges, resulting in a $0.25 per Mcf improvement in Northeast Appalachia
margins. As a result, the Company expects to generate
approximately $150 million in
positive cash flow from operations, net of capital, in 2018 while
growing production 13% (using midpoints), capitalizing on the
operational momentum created during 2017.
Fayetteville –
The Company continues to identify additional opportunities to
realize incremental value from these assets. Along with
advancing its learnings and monitoring the longer term results from
the Moorefield wells drilled in 2017, the Company plans in 2018 to
further test additional redevelopment concepts in which the latest
generation drilling and completion techniques are utilized in
legacy development areas of the Fayetteville. The Company has announced an
initiative to actively pursue strategic alternatives for the
Fayetteville Shale E&P and related midstream gathering
assets.
2018 Budget Overview
The following tables provide
detailed information and guidance for 2018 based on an average
natural gas price of $2.85 per Mcf
and an average oil price of $60.00
per barrel.
|
|
|
2018
Guidance
|
in millions
(except per share amounts, production and well
count)
|
$2.85 /
$60.00
|
Capital
investments:
|
|
Discretionary
capital
|
$935 -
$1,015
|
Capitalized interest and
expenses
|
$215 -
$235
|
Total
capital investments
|
$1,150 -
$1,250
|
|
|
Net cash flow
(1)
|
$1,150 -
$1,250
|
|
|
Net income
(2)
|
$350 -
$450
|
Share
Count(3)
|
585 -
595
|
Diluted earnings
per share
|
$0.59 -
$0.76
|
|
|
Adjusted EBITDA
(1)
|
$1,250 -
$1,350
|
|
|
Production
(Bcfe)
|
930 –
965
|
Wells
drilled
|
100 – 120
|
Wells
completed
|
105 – 125
|
Wells placed to
sales
|
125 – 145
|
Ending DUC
inventory
|
35 – 45
|
|
(1) This represents a Non-GAAP
measure; see "Explanation and Reconciliation of Non-GAAP Financial
Measures" below.
|
(2) Assumes 24.5% income tax rate
and no unsettled derivative gain/losses.
|
(3)
Mandatory preferred shares converted on January 12, 2018 to
approximately 75 million shares.
|
Estimated Production
and Capital Investments in 2018
|
|
|
|
|
|
|
2018
Guidance
|
|
Production
|
|
Capital
|
|
(Bcfe)
|
|
($ in
millions)
|
Northeast
Appalachia
|
440 – 454
|
|
$
|
340 – 360
|
Southwest
Appalachia
|
231 – 244
|
|
|
490 – 510
|
Fayetteville
Shale
|
258 – 265
|
|
|
15 – 25
|
Southwest Appalachia
water project
|
|
|
|
65 – 75
|
Other
E&P
|
1 – 2
|
|
|
10 – 15
|
Midstream
Services
|
|
|
|
5 –
10
|
Corporate
|
|
|
|
10 – 20
|
Capitalized
interest
|
|
|
|
115 – 125
|
Capitalized
expense
|
|
|
|
100 – 110
|
Total
|
930 - 965
|
|
$
|
1,150 -
1,250
|
Estimated Production
by Quarter in 2018
|
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
Year
|
Guidance:
|
|
|
|
|
|
|
|
|
|
Natural
Gas (Bcf)
|
196 – 200
|
|
197 – 202
|
|
204 – 211
|
|
207 – 218
|
|
804 – 831
|
Oil
(MBbls)
|
560 – 635
|
|
665 – 730
|
|
900 – 965
|
|
900 – 970
|
|
3,025 –
3,300
|
NGLs
(MBbls)
|
3,950 –
4,200
|
|
4,050 –
4,400
|
|
4,750 –
5,000
|
|
5,250 –
5,400
|
|
18,000 –
19,000
|
Total
Production (Bcfe)
|
223 –
229
|
|
225 –
233
|
|
238 –
247
|
|
244 –
256
|
|
930 –
965
|
Total
Production (MMcfe/d)
|
2,478 –
2,544
|
|
2,473 –
2,560
|
|
2,587 –
2,685
|
|
2,652 –
2,783
|
|
2,548 –
2,644
|
|
|
Estimated E&P
Pricing Deductions in 2018
|
|
Avg gas discount to
NYMEX including transportation(1)
|
$0.70 - $0.85 per
Mcf
|
Avg oil discount to
WTI including transportation
|
$8.00 - $10.00 per
Bbl
|
Avg NGL realization
including transportation
|
23% - 28% of
WTI
|
|
|
Estimated E&P
Operating Expenses in 2018 (per Mcfe)
|
|
Lease operating
expenses
|
$0.89 -
$0.94
|
General &
administrative expense
|
$0.19 -
$0.23
|
Taxes, other than
income taxes
|
$0.09 -
$0.11
|
Full cost pool
amortization
|
$0.55 -
$0.60
|
|
|
Other Items in
2018
|
|
Midstream EBITDA ($
in millions)(2)
|
$170 -
$200
|
Midstream
depreciation ($ in millions)
|
$60 - $70
|
Interest expense -
net of capitalization ($ in millions)
|
$150 -
$160
|
Income tax rate
(~100% Deferred)(3)
|
24.5%
|
|
(1)
Excludes impact of financial basis hedges
|
(2)
Non-GAAP measure – see explanation and reconciliation of Non-GAAP
financial measures below
|
(3)
Assumes no impact from valuation allowance
|
Estimated Gross Well
Counts in 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning DUC
Inventory
|
|
Drilled
|
|
Completed
|
|
To
Sales
|
|
Ending DUC
Inventory
|
NE
Appalachia
|
|
30
|
|
36 – 44
|
|
50 – 58
|
|
56 – 64
|
|
8 –
13
|
SW
Appalachia
|
|
36
|
|
63 – 71
|
|
54 – 62
|
|
68 – 76
|
|
27 – 32
|
Fayetteville
|
|
-
|
|
1 – 5
|
|
1 – 5
|
|
1 – 5
|
|
–
|
Total Well
Count
|
|
66
|
|
100 –
120
|
|
105 –
125
|
|
125 –
145
|
|
35 –
45
|
First Quarter 2018 Update
The Company's first quarter
net production rates are estimated to average 2.48 Bcfe per day to
2.54 Bcfe per day. The decline in production compared to the
fourth quarter of 2017 is largely due to a reduction in activity in
late 2017, the timing of completions and the impacts from severe
winter weather on our operations in the month of January
2018. The winter weather increased realized prices in the
northeast to more than offset the impact on production, thus
generating growth in cash flow. In January, the Company
realized an approximately $0.55
premium to NYMEX price in Northeast Appalachia, an improvement of
almost $0.70 per Mcf compared to
January 2017.
Additionally, on January 12, 2018, the Company's mandatory
convertible preferred stock converted into approximately 75 million
shares of the Company's common stock. For the first quarter,
the Company's weighted average share count is expected to be 570
million to 575 million shares. This conversion eliminates
approximately $108 million per year
in dividends and also removes the allocation of net income to
preferred shareholders, increasing the amount that is available to
common shareholders.
Hedging Update
As of February 2, 2018, the
Company had approximately 566 Bcf of its 2018 forecasted gas
production protected at an average swap or purchased put strike
price of $2.97 per Mcf.
Including the protected volumes, the Company retained upside
exposure on approximately two thirds of its forecasted 2018
volumes. Additionally, the Company had approximately 215 Bcf
of its 2019 forecasted gas production protected at an average swap
or purchased put strike price of $2.96 per Mcf, with upside exposure on
approximately 57%, or 121 Bcf, of those protected volumes to
$3.31 per Mcf.
A detailed breakdown of the Company's natural gas derivative
financial instruments as of February 2,
2018 is shown below. Southwestern's annual report on
Form 10-K will have further information on the Company's commodity,
basis and interest rate protection.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Price per MMBtu
|
|
Volume
(Bcf)
|
|
Swaps
|
|
Sold
Puts
|
|
Purchased
Puts
|
|
Sold
Calls
|
Financial
protection on production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
swaps
|
265
|
|
$
|
2.98
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
Two-way costless
collars
|
29
|
|
|
–
|
|
|
–
|
|
|
2.96
|
|
|
3.50
|
Three-way costless
collars
|
273
|
|
|
–
|
|
|
2.40
|
|
|
2.97
|
|
|
3.38
|
Total
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
swaps
|
93
|
|
$
|
3.00
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
Two-way costless
collars
|
9
|
|
|
–
|
|
|
–
|
|
|
2.90
|
|
|
3.27
|
Three-way costless
collars
|
112
|
|
|
–
|
|
|
2.48
|
|
|
2.94
|
|
|
3.31
|
Total
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold call
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
63
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
3.50
|
2019
|
52
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.50
|
2020
|
68
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.63
|
2021
|
57
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.52
|
Total
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Amounts may not
sum due to rounding
|
(1) Includes
positions settled since January 1, 2018
|
As of February 2, 2018, the
Company had also taken steps to mitigate the volatility of basis
differentials by protecting basis on approximately 329 Bcf of its
2018 forecasted natural gas production at a basis differential to
NYMEX natural gas prices of approximately ($0.31) per Mcf, which includes the impact of
both physical and financial basis hedges. A detailed
breakdown of the Company's financial basis positions as of
February 2, 2018 is shown below:
Financial basis
positions
(excludes physical
positions)
|
Volume
(Bcf)
|
|
Basis
Differential
($/MMBTU)
|
|
|
|
|
|
Q1
2018(1)
|
|
|
|
|
Dominion South
|
16.6
|
|
$
|
(1.20)
|
TETCO M3
|
8.7
|
|
|
0.99
|
Transco Z6
Non-NY
|
0.5
|
|
|
2.04
|
Total
|
25.8
|
|
$
|
(0.40)
|
|
|
|
|
|
2018(1)
|
|
|
|
|
Dominion
South
|
50.0
|
|
$
|
(0.83)
|
TETCO M3
|
28.0
|
|
|
(0.00)
|
Transco Z6
Non-NY
|
0.5
|
|
|
2.04
|
Total
|
78.4
|
|
$
|
(0.52)
|
|
|
|
|
|
2019
|
|
|
|
|
Dominion
South
|
1.0
|
|
$
|
(0.63)
|
TETCO M3
|
1.1
|
|
|
1.38
|
Transco Z6
Non-NY
|
0.0
|
|
|
-
|
Total
|
2.2
|
|
$
|
0.42
|
|
(1) Includes
positions settled since January 1, 2018
|
Sensitivities
Below is a summary of the approximate
impacts of potential commodity price movements on expected net cash
flow based on production estimates and the Company's hedging
activities.
|
|
|
|
Price
Sensitivities (based on annual prices)
|
Net Cash
Flow
|
|
(in
millions)
|
NYMEX Natural
Gas:
|
|
$2.75/$60.00
|
$1,115 -
$1,215
|
$2.85/$60.00
|
$1,150 -
$1,250
|
$3.00/$60.00
|
$1,225 -
$1,325
|
$3.25/$60.00
|
$1,350 -
$1,475
|
+ $5.00 per bbl oil
change (with constant NGL realization %)
|
~$40
|
+ 2% NGL realization
change (with constant oil price)
|
~$20
|
Explanation and Reconciliation of Non-GAAP Financial
Measures
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States of America ("GAAP").
However, management believes certain non-GAAP performance measures
may provide financial statement users with additional meaningful
comparisons between current results and the results of its peers
and of prior periods.
One such non-GAAP financial measure is net cash flow. Management
presents this measure because (i) it is accepted as an indicator of
an oil and gas exploration and production company's ability to
internally fund exploration and development activities and to
service or incur additional debt, (ii) changes in operating assets
and liabilities relate to the timing of cash receipts and
disbursements which the Company may not control and (iii) changes
in operating assets and liabilities may not relate to the period in
which the operating activities occurred.
Additional non-GAAP financial measures referenced in this news
release are adjusted net income and adjusted EBITDA. Management
presents these measures because (i) they are consistent with the
manner in which the Company's performance is measured relative to
the performance of its peers, (ii) these measures are more
comparable to earnings estimates provided by securities analysts,
and (iii) charges or amounts excluded cannot be reasonably
estimated and guidance provided by the Company excludes information
regarding these types of items. These adjusted amounts are not a
measure of financial performance under GAAP.
See the reconciliations below of GAAP financial measures to
non-GAAP financial measures for the forecasted 2018 annual period.
Non-GAAP financial measures should not be considered in isolation
or as a substitute for the Company's reported results prepared in
accordance with GAAP.
|
|
|
|
|
2018
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$2.85 Gas / $60.00
Oil
|
|
|
(in
millions)
|
Cash flow from
operating activities:
|
|
|
Net cash provided by
operating activities
|
|
$1,150 -
$1,250
|
Add back
(deduct):
|
|
|
Change
in operating assets and liabilities
|
|
-
|
Net cash
flow
|
|
$1,150 -
$1,250
|
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted EBITDA
|
|
2018
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$2.85 Gas / $60.00
Oil
|
|
|
(in
millions)
|
Net income
attributable to common stock
|
|
$350 -
$450
|
|
|
|
Add back:
|
|
|
Provision for income taxes
|
|
114 – 146
|
Interest
expense
|
|
150 – 160
|
Non-cash
stock based compensation
|
|
20 – 30
|
Depreciation, depletion and amortization
|
|
590 – 610
|
Adjusted
EBITDA(1)
|
|
$1,250 -
$1,350
|
(1) Calculated
consistently with provisions of the Company's principal credit
agreements.
|
|
|
|
|
|
Midstream Adjusted
EBITDA
|
|
2018
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$2.85 Gas / $60.00
Oil
|
|
|
(in
millions)
|
Net income
attributable to common stock
|
|
$75 - $100
|
|
|
|
Add back:
|
|
|
Provision for income taxes
|
|
24 – 32
|
Interest
expense
|
|
–
|
Non-cash
stock based compensation
|
|
2 – 5
|
Depreciation, depletion and amortization
|
|
60 – 70
|
Adjusted
EBITDA
|
|
$170 -
$200
|
Southwestern Energy Company is an independent energy company
whose wholly-owned subsidiaries are engaged in natural gas and oil
exploration, development and production, natural gas gathering and
marketing. Additional information on the company can be found on
the Internet at http://www.swn.com.
This news release contains forward-looking statements.
Forward-looking statements relate to future events and anticipated
results of operations, business strategies, and other aspects of
our operations or operating results. In many cases you can identify
forward-looking statements by terminology such as "anticipate,"
"intend," "plan," "project," "estimate," "continue," "potential,"
"should," "could," "may," "will," "objective," "guidance,"
"outlook," "effort," "expect," "believe," "predict," "budget,"
"projection," "goal," "forecast," "target" or similar words.
Statements may be forward looking even in the absence of these
particular words. Where, in any forward-looking statement, the
Company expresses an expectation or belief as to future results,
such expectation or belief is expressed in good faith and believed
to have a reasonable basis. However, there can be no assurance that
such expectation or belief will result or be achieved. The actual
results of operations can and will be affected by a variety of
risks and other matters including, but not limited to, changes in
commodity prices; changes in expected levels of natural gas and oil
reserves or production; operating hazards, drilling risks,
unsuccessful exploratory activities; limited access to capital or
significantly higher cost of capital related to illiquidity or
uncertainty in the domestic or international financial markets;
international monetary conditions; unexpected cost increases;
potential liability for remedial actions under existing or future
environmental regulations; potential liability resulting from
pending or future litigation; and general domestic and
international economic and political conditions; as well as changes
in tax, environmental and other laws applicable to our business.
Other factors that could cause actual results to differ materially
from those described in the forward-looking statements include
other economic, business, competitive and/or regulatory factors
affecting our business generally as set forth in our filings with
the Securities and Exchange Commission. Unless legally required,
Southwestern Energy Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
View original
content:http://www.prnewswire.com/news-releases/southwestern-energy-announces-2017-highlights-and-2018-guidance-300595756.html
SOURCE Southwestern Energy Company