Balancing dual priorities of debt reduction and managing productive capacity

Southwestern Energy Company (NYSE: SWN) today announced financial and operating results for the third quarter ended September 30, 2023.

  • Generated $45 million net income, $106 million adjusted net income (non-GAAP), $513 million adjusted EBITDA (non-GAAP), $477 million net cash provided by operating activities and $23 million free cash flow (non-GAAP)
  • Quarter-end total debt $4.1 billion, down from $4.4 billion at year-end 2022
  • Reported total net production of 425 Bcfe, or 4.6 Bcfe per day, including 4.0 Bcf per day of gas and 104 MBbls per day of liquids
  • Invested $454 million of capital and placed 23 wells to sales, including 15 in Appalachia and 8 in Haynesville
  • Released its 10th annual Corporate Responsibility report, highlighting sustainability initiatives and progress, including a 17% reduction in Scope 1 GHG emissions intensity and a 20% reduction in methane intensity in 2022 compared to 2021

“During the third quarter, the Company continued its disciplined approach of optimizing free cash flow generation and activity. This approach balances our dual priorities of debt reduction and managing the productive capacity of the Company in the structurally improving natural gas environment. As we look ahead to next year, Southwestern Energy is well positioned with its deep inventory, firm transportation portfolio and market access to benefit from the expected growing demand from LNG facilities along the Gulf Coast,” said Bill Way, Southwestern Energy President and Chief Executive Officer.

Financial Results

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions)

 

2023

 

2022

 

2023

 

2022

Net income (loss)

 

$

45

 

 

$

450

 

 

$

2,215

 

 

$

(1,052

)

Adjusted net income (non-GAAP)

 

$

106

 

 

$

360

 

 

$

547

 

 

$

1,175

 

Diluted earnings (loss) per share

 

$

0.04

 

 

$

0.40

 

 

$

2.01

 

 

$

(0.94

)

Adjusted diluted earnings per share (non-GAAP)

 

$

0.10

 

 

$

0.32

 

 

$

0.50

 

 

$

1.05

 

Adjusted EBITDA (non-GAAP)

 

$

513

 

 

$

824

 

 

$

1,796

 

 

$

2,551

 

Net cash provided by operating activities

 

$

477

 

 

$

797

 

 

$

2,039

 

 

$

2,196

 

Net cash flow (non-GAAP)

 

$

477

 

 

$

765

 

 

$

1,694

 

 

$

2,380

 

Total capital investments (1)

 

$

454

 

 

$

543

 

 

$

1,714

 

 

$

1,672

 

Free cash flow (deficit) (non-GAAP)

 

$

23

 

 

$

222

 

 

$

(20

)

 

$

708

 

(1)

Capital investments include a decrease of $94 million and $33 million for the three months ended September 30, 2023 and 2022, respectively, and a decrease of $122 million and an increase of $44 million for the nine months ended September 30, 2023 and 2022, respectively, relating to the change in accrued expenditures between periods.

For the quarter ended September 30, 2023, Southwestern Energy recorded net income of $45 million, or $0.04 per diluted share, including a loss on mark-to-market of unsettled derivatives. Excluding this and other one-time items, adjusted net income (non-GAAP) was $106 million, or $0.10 per diluted share, and adjusted EBITDA (non-GAAP) was $513 million. Net cash provided by operating activities was $477 million, net cash flow (non-GAAP) was $477 million and free cash flow (non-GAAP) was $23 million.

As of September 30, 2023, Southwestern Energy had total debt of $4.1 billion and net debt to adjusted EBITDA (non-GAAP) of 1.6x. At the end of the quarter, the Company had $388 million of borrowings under its revolving credit facility and no outstanding letters of credit. Subsequent to quarter end, the Company’s elected commitments and borrowing base were reaffirmed as part of its regularly scheduled fall redetermination at the elected $2.0 billion and $3.5 billion, respectively.

As indicated in the table below, third quarter 2023 weighted average realized price was $2.05 per Mcfe, excluding the impact of derivatives and net of $0.24 per Mcfe of transportation expenses. Including derivatives, weighted average realized price for the third quarter was down 21% from $3.06 per Mcfe in 2022 to $2.43 per Mcfe in 2023 primarily due to lower commodity prices including a 69% decrease in NYMEX Henry Hub and a 10% decrease in WTI.

Realized Prices

 

For the three months ended

 

For the nine months ended

(includes transportation costs)

 

September 30,

 

September 30,

 

 

2023

 

2022

 

2023

 

2022

Natural Gas Price:

 

 

 

 

 

 

 

 

NYMEX Henry Hub price ($/MMBtu) (1)

 

$

2.55

 

 

$

8.20

 

 

$

2.69

 

 

$

6.77

 

Discount to NYMEX (2)

 

(0.89

)

 

(0.78

)

 

(0.59

)

 

(0.62

)

Average realized gas price, excluding derivatives ($/Mcf)

 

$

1.66

 

 

$

7.42

 

 

$

2.10

 

 

$

6.15

 

Gain on settled financial basis derivatives ($/Mcf)

 

0.13

 

 

0.10

 

 

0.01

 

 

0.06

 

Gain (loss) on settled commodity derivatives ($/Mcf)

 

0.34

 

 

(4.71

)

 

0.23

 

 

(3.38

)

Average realized gas price, including derivatives ($/Mcf)

 

$

2.13

 

 

$

2.81

 

 

$

2.34

 

 

$

2.83

 

Oil Price:

 

 

 

 

 

 

 

 

WTI oil price ($/Bbl) (3)

 

$

82.26

 

 

$

91.56

 

 

$

77.39

 

 

$

98.09

 

Discount to WTI (4)

 

(11.17

)

 

(7.22

)

 

(10.79

)

 

(7.39

)

Average realized oil price, excluding derivatives ($/Bbl)

 

$

71.09

 

 

$

84.34

 

 

$

66.60

 

 

$

90.70

 

Average realized oil price, including derivatives ($/Bbl)

 

$

56.60

 

 

$

49.06

 

 

$

57.21

 

 

$

52.29

 

NGL Price:

 

 

 

 

 

 

 

 

Average realized NGL price, excluding derivatives ($/Bbl)

 

$

20.53

 

 

$

33.33

 

 

$

21.19

 

 

$

37.50

 

Average realized NGL price, including derivatives ($/Bbl)

 

$

21.41

 

 

$

26.55

 

 

$

22.28

 

 

$

27.64

 

Percentage of WTI, excluding derivatives

 

25

%

 

36

%

 

27

%

 

38

%

Total Weighted Average Realized Price:

 

 

 

 

 

 

 

 

Excluding derivatives ($/Mcfe)

 

$

2.05

 

 

$

7.33

 

 

$

2.45

 

 

$

6.32

 

Including derivatives ($/Mcfe)

 

$

2.43

 

 

$

3.06

 

 

$

2.65

 

 

$

3.11

 

(1)

Based on last day settlement prices from monthly futures contracts.

(2)

This discount includes a basis differential, a heating content adjustment, physical basis sales, third-party transportation charges and fuel charges, and excludes financial basis derivatives.

(3)

Based on the average daily settlement price of the nearby month futures contract over the period.

(4)

This discount primarily includes location and quality adjustments.

Operational Results

Total net production for the quarter ended September 30, 2023 was 425 Bcfe, of which 86% was natural gas, 12% NGLs and 2% oil. Capital investments totaled $454 million for the third quarter of 2023 with 24 wells drilled, 25 wells completed and 23 wells placed to sales.

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

 

 

2023

 

2022

 

2023

 

2022

Production

 

 

 

 

 

 

 

 

Natural gas production (Bcf)

 

368

 

 

389

 

 

1,086

 

 

1,148

 

Oil production (MBbls)

 

1,310

 

 

1,173

 

 

4,169

 

 

3,806

 

NGL production (MBbls)

 

8,228

 

 

7,788

 

 

24,715

 

 

22,445

 

Total production (Bcfe)

 

425

 

 

443

 

 

1,259

 

 

1,306

 

 

 

 

 

 

 

 

 

 

Average unit costs per Mcfe

 

 

 

 

 

 

 

 

Lease operating expenses (1)

 

$

1.06

 

 

$

1.02

 

 

$

1.04

 

 

$

0.98

 

General & administrative expenses (2)

 

$

0.10

 

 

$

0.08

 

 

$

0.10

 

 

$

0.08

 

Taxes, other than income taxes

 

$

0.15

 

 

$

0.17

 

 

$

0.15

 

 

$

0.15

 

Full cost pool amortization

 

$

0.78

 

 

$

0.66

 

 

$

0.77

 

 

$

0.65

 

(1)

Includes post-production costs such as gathering, processing, fractionation and compression.

(2)

Excludes $27 million in merger-related expenses for the nine months ended September 30, 2022.

Appalachia – In the third quarter, total production was 262 Bcfe, with NGL production of 90 MBbls per day and oil production of 14 MBbls per day. The Company drilled 12 wells, completed 15 wells and placed 15 wells to sales with an average lateral length of 16,231 feet.

Haynesville – In the third quarter, total production was 163 Bcfe. There were 12 wells drilled, 10 wells completed and 8 wells placed to sales in the quarter with an average lateral length of 9,082 feet.

E&P Division Results

For the three months ended September 30, 2023

 

 

For the nine months ended September 30, 2023

 

 

Appalachia

 

 

Haynesville

 

 

Appalachia

 

 

Haynesville

 

Natural gas production (Bcf)

 

205

 

 

 

163

 

 

 

597

 

 

 

489

 

Liquids production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil (MBbls)

 

1,303

 

 

 

6

 

 

 

4,146

 

 

 

21

 

NGL (MBbls)

 

8,226

 

 

 

2

 

 

 

24,707

 

 

 

7

 

Production (Bcfe)

 

262

 

 

 

163

 

 

 

770

 

 

 

489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital investments (in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drilling and completions, including workovers

$

181

 

 

$

187

 

 

$

619

 

 

$

838

 

Land acquisition and other

 

21

 

 

 

2

 

 

 

74

 

 

 

5

 

Capitalized interest and expense

 

31

 

 

 

19

 

 

 

91

 

 

 

58

 

Total capital investments

$

233

 

 

$

208

 

 

$

784

 

 

$

901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross operated well activity summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drilled

 

12

 

 

 

12

 

 

 

51

 

 

 

42

 

Completed

 

15

 

 

 

10

 

 

 

58

 

 

 

49

 

Wells to sales

 

15

 

 

 

8

 

 

 

56

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total weighted average realized price per Mcfe, excluding derivatives

$

1.91

 

 

$

2.28

 

 

$

2.46

 

 

$

2.43

 

Wells to sales summary

 

For the three months ended September 30, 2023

 

Gross wells to sales

 

Average lateral length (ft)

Appalachia

 

 

 

Super Rich Marcellus

 

6

 

18,198

Rich Marcellus

5

 

12,791

Dry Gas Utica(1)

2

 

14,813

Dry Gas Marcellus

2

 

20,353

Haynesville

8

 

9,082

Total

23

 

 

(1)

Ohio Utica

Fourth Quarter 2023 Guidance

Based on current market conditions, Southwestern expects fourth quarter production and price differentials to be within the following ranges. Additionally, the Company updates full year oil differential guidance to $10 to $13 per barrel discount to WTI.

PRODUCTION

For the quarter ended December 31, 2023

Gas production (Bcf)

344 – 361

Liquids (% of production)

~14.0%

Total (Bcfe)

400 – 420

 

 

PRICING

 

Natural gas discount to NYMEX including transportation (1)

$0.58 – $0.70 per Mcf

Oil discount to West Texas Intermediate (WTI) including transportation

$11.50 – $13.50 per Bbl

Natural gas liquids realization as a % of WTI including transportation

22% – 30%

(1)

Includes impact of transportation costs and expected $0.06 – $0.09 per Mcf gain in Q4 2023 from financial basis hedges.

Conference Call

Southwestern Energy will host a conference call and webcast on Friday, November 3, 2023 at 10:00 a.m. Central to discuss third quarter 2023 results. To participate, dial US toll-free 877-883-0383, or international 412-902-6506 and enter access code 4941446. The conference call will webcast live at www.swn.com.

A replay will also be available on SWN’s website at www.swn.com following the call.

About Southwestern Energy

Southwestern Energy Company (NYSE: SWN) is a leading U.S. producer and marketer of natural gas and natural gas liquids focused on responsibly developing large-scale energy assets in the nation’s most prolific shale gas basins. SWN’s returns-driven strategy strives to create sustainable value for its stakeholders by leveraging its scale, financial strength and operational execution. For additional information, please visit www.swn.com and www.swncrreport.com.

Forward Looking Statement

This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. These statements are based on current expectations. The words “anticipate,” “intend,” “plan,” “project,” “estimate,” “continue,” “potential,” “should,” “could,” “may,” “will,” “objective,” “guidance,” “outlook,” “effort,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “forecast,” “model,” “target”, “seek”, “strive,” “would,” “approximate,” and similar words are intended to identify forward-looking statements. Statements may be forward looking even in the absence of these particular words.

Examples of forward-looking statements include, but are not limited to, the expectations of plans, business strategies, objectives and growth and anticipated financial and operational performance, including guidance regarding our strategy to develop reserves, drilling plans and programs (including the number of rigs and frac crews to be used), estimated reserves and inventory duration, projected production and sales volume and growth rates, projected commodity prices, basis and average differential, impact of commodity prices on our business, projected average well costs, generation of free cash flow, our return of capital strategy, including the amount and timing of any redemptions, repayments or repurchases of our common stock, outstanding debt securities or other debt instruments, leverage targets, our ability to maintain or improve our credit ratings, our ability to achieve our debt reduction plan, leverage levels and financial profile, our hedging strategy, our environmental, social and governance (ESG) initiatives and our ability to achieve anticipated results of such initiatives, expected benefits from acquisitions, potential acquisitions, divestitures, potential divestitures and strategic transactions, the timing thereof and our ability to achieve the intended operational, financial and strategic benefits of any such transactions or other initiatives. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. All forward-looking statements speak only as of the date of this news release. The estimates and assumptions upon which forward-looking statements are based are inherently uncertain and involve a number of risks that are beyond our control. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance, and we cannot assure you that such statements will be realized or that the events and circumstances they describe will occur. Therefore, you should not place undue reliance on any of the forward-looking statements contained herein.

Factors that could cause our actual results to differ materially from those indicated in any forward-looking statement are subject to all of the risks and uncertainties incident to the exploration for and the development, production, gathering and sale of natural gas, NGLs and oil, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, the costs and results of drilling and operations, lack of availability of drilling and production equipment and services, the ability to add proved reserves in the future, environmental risks, drilling and other operating risks, legislative and regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, the quality of technical data, cash flow and access to capital, the timing of development expenditures, a change in our credit rating, an increase in interest rates, our ability to achieve our debt reduction plan, our ability to increase commitments under our revolving credit facility, our hedging and other financial contracts, our ability to maintain leases that may expire if production is not established or profitably maintained, our ability to transport our production to the most favorable markets or at all, any increase in severance or similar taxes, the impact of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally, the effects of weather or power outages, increased competition, the financial impact of accounting regulations and critical accounting policies, the comparative cost of alternative fuels, credit risk relating to the risk of loss as a result of non-performance by our counterparties, including as a result of financial or banking failures, impacts of world health events, including the COVID-19 pandemic, cybersecurity risks, geopolitical and business conditions in key regions of the world, our ability to realize the expected benefits from acquisitions, divestitures, and strategic transactions, our ability to achieve our GHG emission reduction goals and the costs associated therewith, and any other factors described or referenced under Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and under Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

We have no obligation and make no undertaking to publicly update or revise any forward-looking statements, except as required by applicable law. All written and oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in millions, except share/per share amounts)

 

2023

 

2022

 

2023

 

2022

Operating Revenues:

 

 

 

 

 

 

 

Gas sales

 

$

627

 

 

$

2,884

 

 

$

2,323

 

 

$

7,061

 

Oil sales

 

94

 

 

100

 

 

281

 

 

 

349

 

NGL sales

 

169

 

 

260

 

 

523

 

 

 

842

 

Marketing

 

553

 

 

1,298

 

 

1,707

 

 

 

3,371

 

Other

 

 

 

(1

)

 

(4

)

 

 

(1

)

 

 

1,443

 

 

4,541

 

 

4,830

 

 

 

11,622

 

Operating Costs and Expenses:

 

 

 

 

 

 

 

 

Marketing purchases

 

545

 

 

1,289

 

 

1,693

 

 

 

3,366

 

Operating expenses

 

444

 

 

423

 

 

1,280

 

 

 

1,206

 

General and administrative expenses

 

46

 

 

41

 

 

133

 

 

 

120

 

Merger-related expenses

 

 

 

 

 

 

 

 

27

 

Depreciation, depletion and amortization

 

338

 

 

298

 

 

979

 

 

 

861

 

Taxes, other than income taxes

 

63

 

 

76

 

 

189

 

 

 

198

 

 

 

1,436

 

 

2,127

 

 

4,274

 

 

 

5,778

 

Operating Income

 

7

 

 

2,414

 

 

556

 

 

 

5,844

 

Interest Expense:

 

 

 

 

 

 

 

 

Interest on debt

 

61

 

 

77

 

 

184

 

 

 

218

 

Other interest charges

 

3

 

 

3

 

 

9

 

 

 

10

 

Interest capitalized

 

(28

)

 

(30

)

 

(87

)

 

 

(89

)

 

 

36

 

 

50

 

 

106

 

 

 

139

 

 

 

 

 

 

 

 

 

 

Gain (Loss) on Derivatives

 

93

 

 

(1,903

)

 

1,811

 

 

 

(6,709

)

Loss on Early Extinguishment of Debt

 

 

 

 

 

(19

)

 

 

(6

)

Other Income (Loss), Net

 

2

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

66

 

 

461

 

 

2,243

 

 

 

(1,011

)

Provision for Income Taxes:

 

 

 

 

 

 

 

 

Current

 

 

 

11

 

 

 

 

 

41

 

Deferred

 

21

 

 

 

 

28

 

 

 

 

 

 

21

 

 

11

 

 

28

 

 

 

41

 

Net Income (Loss)

 

$

45

 

 

$

450

 

 

$

2,215

 

 

$

(1,052

)

 

 

 

 

 

 

 

 

 

Earnings (Loss) Per Common Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

 

$

0.41

 

 

$

2.01

 

 

$

(0.94

)

Diluted

 

$

0.04

 

 

$

0.40

 

 

$

2.01

 

 

$

(0.94

)

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

Basic

 

1,101,231,113

 

 

1,110,259,907

 

 

1,100,895,642

 

 

 

1,113,705,502

 

Diluted

 

1,104,027,634

 

 

1,112,522,861

 

 

1,102,867,675

 

 

 

1,113,705,502

 

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

September 30,

December 31,

2023

2022

ASSETS

 

(in millions)

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

26

 

 

$

50

 

Accounts receivable, net

 

602

 

 

1,401

 

Derivative assets

 

336

 

 

145

 

Other current assets

 

78

 

 

68

 

Total current assets

 

1,042

 

 

1,664

 

Natural gas and oil properties, using the full cost method

 

37,349

 

 

35,763

 

Other

 

555

 

 

527

 

Less: Accumulated depreciation, depletion and amortization

 

(26,381

)

 

(25,387

)

Total property and equipment, net

 

11,523

 

 

10,903

 

Operating lease assets

 

163

 

 

177

 

Long-term derivative assets

 

153

 

 

72

 

Other long-term assets

 

92

 

 

110

 

Total long-term assets

 

408

 

 

359

 

TOTAL ASSETS

 

$

12,973

 

 

$

12,926

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

1,317

 

 

$

1,835

 

Taxes payable

 

135

 

 

136

 

Interest payable

 

26

 

 

86

 

Derivative liabilities

 

219

 

 

1,317

 

Current operating lease liabilities

 

44

 

 

42

 

Other current liabilities

 

17

 

 

65

 

Total current liabilities

 

1,758

 

 

3,481

 

Long-term debt

 

4,114

 

 

4,392

 

Long-term operating lease liabilities

 

116

 

 

133

 

Long-term derivative liabilities

 

186

 

 

378

 

Other long-term liabilities

 

262

 

 

218

 

Total long-term liabilities

 

4,678

 

 

5,121

 

Commitments and contingencies

 

 

 

 

Equity:

 

 

 

 

Common stock, $0.01 par value; 2,500,000,000 shares authorized; issued 1,163,077,745 shares as of September 30, 2023 and 1,161,545,588 shares as of December 31, 2022

 

12

 

 

12

 

Additional paid-in capital

 

7,185

 

 

7,172

 

Accumulated deficit

 

(324

)

 

(2,539

)

Accumulated other comprehensive income (loss)

 

(9

)

 

6

 

Common stock in treasury, 61,614,693 shares as of September 30, 2023 and December 31, 2022

 

(327

)

 

(327

)

Total equity

 

6,537

 

 

4,324

 

TOTAL LIABILITIES AND EQUITY

 

$

12,973

 

 

$

12,926

 

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For the nine months ended

 

 

September 30,

(in millions)

 

2023

 

2022

Cash Flows From Operating Activities:

 

 

 

 

Net income (loss)

 

$

2,215

 

 

$

(1,052

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

Depreciation, depletion and amortization

 

979

 

 

861

 

Amortization of debt issuance costs

 

5

 

 

8

 

Deferred income taxes

 

28

 

 

 

(Gain) loss on derivatives, unsettled

 

(1,562

)

 

2,524

 

Stock-based compensation

 

7

 

 

4

 

Loss on early extinguishment of debt

 

19

 

 

6

 

Other

 

3

 

 

2

 

Change in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

799

 

 

(602

)

Accounts payable

 

(362

)

 

506

 

Taxes payable

 

(2

)

 

28

 

Interest payable

 

(33

)

 

(22

)

Inventories

 

(15

)

 

(8

)

Other assets and liabilities

 

(42

)

 

(59

)

Net cash provided by operating activities

 

2,039

 

 

2,196

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

Capital investments

 

(1,833

)

 

(1,623

)

Proceeds from sale of property and equipment

 

123

 

 

15

 

Net cash used in investing activities

 

(1,710

)

 

(1,608

)

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

Payments on current portion of long-term debt

 

 

 

(205

)

Payments on long-term debt

 

(437

)

 

(71

)

Payments on revolving credit facility

 

(3,044

)

 

(10,341

)

Borrowings under revolving credit facility

 

3,182

 

 

10,061

 

Change in bank drafts outstanding

 

(50

)

 

62

 

Proceeds from exercise of common stock options

 

 

 

7

 

Purchase of treasury stock

 

 

 

(100

)

Debt issuance/amendment costs

 

 

 

(14

)

Cash paid for tax withholding

 

(4

)

 

(4

)

Net cash used in financing activities

 

(353

)

 

(605

)

 

 

 

 

 

Decrease in cash and cash equivalents

 

(24

)

 

(17

)

Cash and cash equivalents at beginning of year

 

50

 

 

28

 

Cash and cash equivalents at end of period

 

$

26

 

 

$

11

 

 

Hedging Summary

A detailed breakdown of derivative financial instruments and financial basis positions as of September 30, 2023, including the remainder of 2023 and excluding those positions that settled in the first, second and third quarters, is shown below. Please refer to the Company’s quarterly report on Form 10-Q to be filed with the Securities and Exchange Commission for more information on the Company’s commodity and basis protection.

 

 

 

Weighted Average Price per MMBtu

 

Volume (Bcf)

 

Swaps

 

Sold Puts

 

Purchased Puts

 

Sold Calls

Natural gas

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

179

 

$

3.28

 

$

 

$

 

$

Two-way costless collars

32

 

 

 

 

 

 

2.88

 

 

3.29

Three-way costless collars

47

 

 

 

 

2.08

 

 

2.50

 

 

2.91

Total

258

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

528

 

$

3.54

 

$

 

$

 

$

Two-way costless collars

44

 

 

 

 

 

 

3.07

 

 

3.53

Three-way costless collars

77

 

 

 

 

2.46

 

 

3.19

 

 

3.99

Total

649

 

 

 

 

 

 

 

 

 

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Two-way costless collars

73

 

$

 

$

 

$

3.50

 

$

5.40

Three-way costless collars

106

 

 

 

 

2.50

 

 

3.75

 

 

5.69

Total

179

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas financial basis positions

 

Volume

 

Basis Differential

 

 

(Bcf)

 

($/MMBtu)

Q4 2023

 

 

 

 

Dominion South

 

33

 

 

$

(0.75

)

TCO

 

20

 

 

$

(0.61

)

TETCO M3

 

15

 

 

$

(0.18

)

Trunkline Zone 1A

 

3

 

 

$

(0.29

)

Total

 

71

 

 

$

(0.57

)

2024

 

 

 

 

 

 

 

Dominion South

 

46

 

 

$

(0.71

)

2025

 

 

 

 

 

 

 

Dominion South

 

9

 

 

$

(0.64

)

Call Options – Natural Gas (Net)

 

Volume

 

Weighted Average Strike Price

 

 

(Bcf)

 

($/MMBtu)

2023

 

15

 

 

$

2.97

 

2024

 

82

 

 

 

6.56

 

2025

 

73

 

 

 

7.00

 

2026

 

73

 

 

 

7.00

 

Total

 

243

 

 

 

 

 

 

 

 

Weighted Average Price per Bbl

 

Volume (MBbls)

 

Swaps

 

Sold Puts

 

Purchased Puts

 

Sold Calls

Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

733

 

$

67.34

 

$

 

$

 

$

Two-way costless collars

147

 

 

 

 

 

 

70.00

 

 

80.58

Three-way costless collars

291

 

 

 

 

34.36

 

 

46.05

 

 

55.96

Total

1,171

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

1,571

 

$

71.06

 

$

 

$

 

$

Two-way costless collars

512

 

 

 

 

 

 

70.00

 

 

85.63

Total

2,083

 

 

 

 

 

 

 

 

 

 

 

 

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

41

 

$

77.66

 

$

 

$

 

$

Ethane

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

2,254

 

$

10.99

 

$

 

$

 

$

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

3,429

 

$

10.84

 

$

 

$

 

$

Propane

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

1,782

 

$

30.44

 

$

 

$

 

$

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

3,254

 

$

31.78

 

$

 

$

 

$

2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

63

 

$

26.46

 

$

 

$

 

$

Normal Butane

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

198

 

$

40.96

 

$

 

$

 

$

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

329

 

$

40.74

 

$

 

$

 

$

Natural Gasoline

 

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

171

 

$

63.74

 

$

 

$

 

$

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swaps

329

 

$

64.37

 

$

 

$

 

$

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, the results of the Company’s 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 the Company may present from time to time are free cash flow (deficit), net debt, adjusted net income, adjusted diluted earnings per share, adjusted EBITDA and net debt to adjusted EBITDA, all of which exclude certain charges or amounts. Management presents these measures because (i) they are consistent with the manner in which the Company’s position and performance are measured relative to the position and 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.

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2023

 

2022

 

2023

 

2022

Adjusted net income:

(in millions)

Net income (loss)

$

45

 

 

$

450

 

 

$

2,215

 

 

$

(1,052

)

Add back (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger-related expenses

 

 

 

 

 

 

 

 

 

 

27

 

(Gain) loss on unsettled derivatives (1)

 

69

 

 

 

14

 

 

 

(1,562

)

 

 

2,524

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

19

 

 

 

6

 

Other (2)

 

3

 

 

 

 

 

 

10

 

 

 

1

 

Adjustments due to discrete tax items (3)

 

6

 

 

 

(100

)

 

 

(488

)

 

 

285

 

Tax impact on adjustments

 

(17

)

 

 

(4)

 

 

 

353

 

 

 

(616

)

Adjusted net income

$

106

 

 

$

360

 

 

$

547

 

 

$

1,175

 

(1)

Includes ($4) million of non-performance risk adjustment to derivative activities for the nine months ended September 30, 2023, and ($2) million and $7 million of non-performance risk adjustment to derivative activities for the three and nine months ended September 30, 2022, respectively.

(2)

Includes $2 million and $7 million for the three and nine months ended September 30, 2023, respectively, of G&A related to the development of enterprise resource technology, expensed in the period incurred per GAAP.

(3)

The Company’s 2023 income tax rate is 23.0% before the impacts of any valuation allowance.

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2023

 

2022

 

2023

 

2022

Adjusted diluted earnings per share:

 

Diluted earnings (loss) per share

$

0.04

 

 

$

0.40

 

 

$

2.01

 

 

$

(0.94

)

Add back (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger-related expenses

 

 

 

 

 

 

 

 

 

 

0.02

 

(Gain) loss on unsettled derivatives (1)

 

0.07

 

 

 

0.01

 

 

 

(1.42

)

 

 

2.27

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

0.02

 

 

 

0.00

 

Other (2)

 

0.00

 

 

 

 

 

 

0.01

 

 

 

0.00

 

Adjustments due to discrete tax items (3)

 

0.01

 

 

 

(0.09

)

 

 

(0.44

)

 

 

0.25

 

Tax impact on adjustments

 

(0.02

)

 

 

(0.00

)

 

 

0.32

 

 

 

(0.55

)

Adjusted diluted earnings per share

$

0.10

 

 

$

0.32

 

 

$

0.50

 

 

$

1.05

 

(1)

Includes ($4) million of non-performance risk adjustment to derivative activities for the nine months ended September 30, 2023, and ($2) million and $7 million of non-performance risk adjustment to derivative activities for the three and nine months ended September 30, 2022, respectively.

(2)

Includes $2 million and $7 million for the three and nine months ended September 30, 2023, respectively, of G&A related to the development of enterprise resource technology, expensed in the period incurred per GAAP.

(3)

The Company’s 2023 income tax rate is 23.0% before the impacts of any valuation allowance.

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2023

 

2022

 

2023

 

2022

Net cash flow:

(in millions)

Net cash provided by operating activities

$

477

 

 

$

797

 

 

$

2,039

 

 

$

2,196

 

Add back (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

(32

)

 

 

(345

)

 

 

157

 

Merger-related expenses

 

 

 

 

 

 

 

 

 

 

27

 

Net cash flow

$

477

 

 

$

765

 

 

$

1,694

 

 

$

2,380

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2023

 

2022

 

2023

 

2022

Free cash flow (deficit):

(in millions)

Net cash flow

$

477

 

 

$

765

 

 

$

1,694

 

 

$

2,380

 

Subtract:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital investments

 

(454

)

 

 

(543

)

 

 

(1,714

)

 

 

(1,672

)

Free cash flow (deficit)

$

23

 

 

$

222

 

 

$

(20

)

 

$

708

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2023

 

2022

 

2023

 

2022

Adjusted EBITDA:

(in millions)

Net income (loss)

$

45

 

 

$

450

 

 

$

2,215

 

 

$

(1,052

)

Add back (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

36

 

 

 

50

 

 

 

106

 

 

 

139

 

Income tax expense

 

21

 

 

 

11

 

 

 

28

 

 

 

41

 

Depreciation, depletion and amortization

 

338

 

 

 

298

 

 

 

979

 

 

 

861

 

Merger-related expenses

 

 

 

 

 

 

 

 

 

 

27

 

(Gain) loss on unsettled derivatives (1)

 

69

 

 

14

 

 

(1,562

)

 

 

2,524

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

19

 

 

 

6

 

Other

 

2

 

 

 

 

 

 

4

 

 

 

1

 

Stock-based compensation expense

 

2

 

 

 

1

 

 

 

7

 

 

 

4

 

Adjusted EBITDA

$

513

 

 

$

824

 

 

$

1,796

 

 

$

2,551

 

(1)

Includes ($4) million of non-performance risk adjustment to derivative activities for the nine months ended September 30, 2023, and ($2) million and $7 million of non-performance risk adjustment to derivative activities for the three and nine months ended September 30, 2022, respectively.

 

 

12 Months Ended September 30, 2023

Adjusted EBITDA:

 

(in millions)

Net income

 

$

5,116

 

Add back (deduct):

 

 

 

 

Interest expense

 

 

151

 

Income tax expense

 

 

38

 

Depreciation, depletion and amortization

 

 

1,292

 

Gain on unsettled derivatives (1)

 

 

(4,110

)

Loss on early extinguishment of debt

 

 

27

 

Stock-based compensation expense

 

 

7

 

Other

 

7

 

Adjusted EBITDA

 

$

2,528

 

(1)

Includes ($11) million of non-performance risk adjustment for the twelve months ended September 30, 2023.

 

 

 

September 30, 2023

Net debt:

 

(in millions)

Total debt (1)

 

$

4,131

 

Subtract:

 

 

Cash and cash equivalents

 

26

 

Net debt

 

$

4,105

 

(1)

Does not include $17 million of unamortized debt premium and issuance expense.

 

 

September 30, 2023

Net debt to Adjusted EBITDA:

 

(in millions)

Net debt

 

$

4,105

 

Adjusted EBITDA

 

$

2,528

 

Net debt to Adjusted EBITDA

 

1.6x

 

Investor Contact Brittany Raiford Vice President, Investor Relations (832) 796-7906 brittany_raiford@swn.com

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