HOUSTON, Feb. 23, 2017 Southwestern Energy Company (NYSE:
SWN) today announced its total capital investment program in 2017
is planned to be approximately $1.175 to
$1.275 billion, funded by expected cash flow and
$200 million remaining from its 2016
equity raise. With this investment, Southwestern is targeting
total net gas and liquids production of 890 to 910 Bcfe in 2017, an
increase over the company's 2016 production of 875 Bcfe and an
increase of approximately 20% when comparing 2017 exit production
rates to 2016 exit production rates. As part of this plan,
the Company's Appalachian area annual production volumes are
expected to grow approximately 17% (using midpoints) over 2016 and
approximately 40% based on exit production rates. Assuming a
capital budget based on current strip pricing in both 2017 and
2018, the Company anticipates delivering double-digit production
growth in 2018.
"We are attacking 2017 with even more vigor and commitment than
ever before," remarked Bill Way,
President and Chief Executive Officer of Southwestern Energy.
"With capital discipline as a foundation, we are able to capitalize
on the improved commodity price environment and return to
value-added growth in 2017 and beyond. We have many new ideas
we are testing, allowing us to further improve on our operational
excellence from our premier portfolio of assets and transportation
capacity."
As we navigate the current commodity market turbulence, we will
leverage our improving financial strength, capital efficiency and
operational excellence while focusing on economic value
creation. Details on these initiatives, and the expected
results associated with this plan, are described below.
- Financial strength. The Company will continue its
disciplined approach of investing within cash flow (supplemented by
the remaining $200 million from its
2016 equity offering) and utilizing strip prices when making
economic decisions. This includes mitigating the volatility of
changing commodity prices through a proactive risk management
strategy, which includes hedge protection on approximately 70% of
its projected 2017 natural gas volumes while retaining upside
through the choice of hedging tools. Additionally, the Company
plans to opportunistically reduce debt to further strengthen its
balance sheet.
- Capital efficiency. The Company's assets provide great
optionality to maximize capital efficiency and generate
sustainable, long-term returns. Capital can be allocated based on
economic return to projects targeting rich gas, lean gas or dry
gas, and to Appalachia or non-Appalachia projects. For example, the
increase in expected liquids price realizations has significantly
improved the multi-year economic forecasts of the Company's wet gas
development activity in Southwest Appalachia, and accordingly the
Company is targeting this area with 2017 activity. On average,
every $2.50 per barrel increase in
NGL prices reduces the breakeven gas price by approximately
$0.50 per Mcf in the liquids-rich
window. With the activity in this core area driving increasing
value realizations, Southwest Appalachia production is expected to
increase by approximately 20% (using midpoints) in 2017 compared to
2016. The potential and efficiency of the portfolio has been
demonstrated through a decrease in proved developed finding and
development costs each of the last three years. This improving
trend is expected to continue with the allocation of capital to the
highest return assets in the portfolio.
- Operational excellence. In 2017, the Company plans to
continue testing several new ideas and further enhance its
technical capabilities to drive additional improvements in well
productivity. Southwestern's innovative culture is expected to
drive additional value from our broad asset base and has been
demonstrated by its ability to exceed margin and well productivity
targets. The Company is currently testing tighter completion stage
spacing, increased proppant loading, optimized flow techniques and
additional targeted intervals, among other innovations. Results
from these tests and early stage concepts are anticipated
throughout the year. These enhancements, when coupled with the
Company's focus on operational efficiency, are expected to result
in even better well performance and improved margins, unlocking
material value for shareholders when applied to our vast resource
of future drilling locations.
The following tables provide detailed information and guidance
for 2017 based on an average natural gas price of $3.25 per Mcf and an average oil price of
$55.00 per barrel.
|
|
|
2017
Guidance
|
in millions
(except per share amounts, production and well
count)
|
$3.25 /
$55.00
|
Capital
investments:
|
|
Discretionary
capital
|
$750 -
$830
|
Capitalized interest and
expenses
|
$225 -
$245
|
Subtotal capital investments
|
$975 -
$1,075
|
Capital earmarked from
July 2016 equity offering
|
$200
|
Total
capital investments
|
$1,175 -
$1,275
|
|
|
Net cash flow
(1)
|
$1,075 -
$1,125
|
|
|
Net income
(2)
|
$308 -
$368
|
Net income
attributable to preferred stock (2)
|
$25 - $35
|
Mandatory convertible
preferred stock dividend
|
$108
|
Net income
attributable to common stock (2)
|
$175 -
$225
|
|
|
Diluted earnings
per common share
|
$0.35 -
$0.45
|
|
|
Adjusted EBITDA
(1)
|
$1,175 -
$1,225
|
|
|
Production
(Bcfe)
|
890 –
910
|
Wells
drilled
|
110 – 130
|
Wells
completed
|
140 – 160
|
Wells placed to
sales
|
150 – 170
|
Ending DUC
inventory
|
55 – 65
|
|
|
(1)
|
This represents a
Non-GAAP measure; see "Explanation and Reconciliation of Non-GAAP
Financial Measures" below.
|
(2)
|
Assumes 38% income
tax rate and no unsettled derivative gain/losses.
|
Estimated Production and Capital Investments in 2017
|
|
|
|
|
|
2017
Guidance
|
|
Production
|
|
Capital
|
|
(Bcfe)
|
|
($ in
millions)
|
Northeast
Appalachia
|
400 – 408
|
|
$
|
405 – 425
|
Southwest
Appalachia
|
174 – 180
|
|
|
400 – 420
|
Fayetteville
Shale
|
315 – 320
|
|
|
105 – 120
|
Midstream
Services
|
|
|
|
15 – 20
|
New Ventures &
other E&P
|
1 – 2
|
|
|
15 – 25
|
Corporate
|
|
|
|
10 – 20
|
Capitalized
interest
|
|
|
|
115 – 125
|
Capitalized
expense
|
|
|
|
110 – 120
|
Total
|
890 - 910
|
|
$
|
1,175 -
1,275
|
Estimated Production by Quarter in 2017
|
|
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
2nd
Quarter
|
|
3rd
Quarter
|
|
4th
Quarter
|
|
Total
Year
|
Guidance:
|
|
|
|
|
|
|
|
|
|
Natural
Gas (Bcf)
|
183 – 186
|
|
199 – 203
|
|
206 – 210
|
|
210 – 215
|
|
798 – 814
|
Oil
(MBbls)
|
455 – 505
|
|
525 – 575
|
|
730 – 780
|
|
760 – 810
|
|
2,470 –
2,670
|
NGLs
(MBbls)
|
2,850 –
2,950
|
|
3,050 –
3,150
|
|
3,510 –
3,610
|
|
3,550 –
3,650
|
|
12,960 –
13,360
|
Total
Production (Bcfe)
|
203 –
207
|
|
220 -
225
|
|
231 -
236
|
|
236 -
242
|
|
890 –
910
|
|
|
Estimated E&P
Pricing Deductions in 2017
|
|
Avg gas discount to
NYMEX including transportation(1)
|
$0.80 - $0.96 per
Mcf
|
Avg oil discount to
WTI including transportation
|
$8.00 - $10.00 per
Bbl
|
Avg NGL realization
including transportation
|
20% - 25% of
WTI
|
|
|
Estimated E&P
Operating Expenses in 2017 (per Mcfe)
|
|
Lease operating
expenses
|
$0.89 -
$0.94
|
General &
administrative expense
|
$0.20 -
$0.24
|
Taxes, other than
income taxes
|
$0.09 -
$0.11
|
|
|
Other Items in
2017
|
|
Midstream EBITDA ($
in millions)
|
$210 -
$225
|
Interest expense -
net of capitalization ($ in millions)
|
$125 -
$135
|
Income tax rate
(~100% Deferred)(2)
|
38.0%
|
|
|
(1)
|
Excludes
impact of financial basis hedges
|
(2)
|
Assumes no
impact from valuation allowance
|
Operational Update
During 2017, the Company plans to invest $1.1 billion to $1.2 billion in its E&P
business, which includes $810 million to
$860 million for drilling and completion activities,
$220 million to $240 million for
capitalized interest and expenses and $115
million to $130 million for land, seismic and other
items. This program includes drilling 110 to 130 wells, to
completing 140 to 160 wells and placing 150 to 170 wells to
sales. In Southwest Appalachia, the Company plans to
primarily focus its activity in the rich gas window of the play
while further testing its Utica acreage with two additional
wells. For the Marcellus wells, the Company expects the
average 2017 completed well cost to be $6.6
million per well with approximately 7,400 foot average
horizontal lateral length. In Northeast Appalachia, the 2017
program plans to primarily focus on its core area in Susquehanna
County while further delineating its Tioga County acreage. For the
Northeast Appalachia wells, the Company expects the average 2017
completed well cost to be $6.3
million per well with approximately 7,200 foot average
horizontal lateral length. In Fayetteville, the Company plans
to complete 14 to 16 Moorefield wells with an expected average
completed well cost of $4.9 million
for an average lateral length of approximately 7,900 feet and 15 to
17 Fayetteville Shale wells with an expected average completed well
cost of $3.9 million for an average
lateral length of approximately 6,600 feet. A summary of each
area's gross well counts is provided in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
DUC Inventory
|
|
Drilled
|
|
Completed
|
|
To
Sales
|
|
Ending DUC
Inventory
|
NE
Appalachia
|
|
46
|
|
52 - 60
|
|
61 - 69
|
|
67 - 75
|
|
28 - 33
|
SW
Appalachia
|
|
40
|
|
42 - 50
|
|
50 - 58
|
|
52 - 60
|
|
27 - 32
|
Fayetteville
|
|
13
|
|
16 - 20
|
|
29 - 33
|
|
31 - 35
|
|
-
|
Total Well
Count
|
|
99
|
|
110 -
130
|
|
140 -
160
|
|
150 -
170
|
|
55 -
65
|
Hedging Update
As of February 21, 2017, the
Company had approximately 560 Bcf of its 2017 forecasted gas
production protected at an average swap or purchased put strike
price of $3.02 per Mcf.
Including the protected volumes, the Company retained upside
exposure on approximately half of its forecasted 2017
volumes. Additionally, the Company had approximately 272 Bcf
of its 2018 forecasted gas production protected at an average swap
or purchased put strike price of $2.97 per Mcf, with upside exposure on
approximately 82%, or 222 Bcf, of those protected volumes to
$3.38 per Mcf. The Company also had
approximately 80 Bcf of its 2019 forecasted gas production
protected at an average purchased put strike price of $2.93 with upside exposure to $3.34 per Mcf.
A detailed breakdown of the Company's natural gas derivative
financial instruments as of February 21,
2017 is shown below. Please refer to our annual report
on Form 10-K 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
(Bcf)
|
|
Swaps
|
|
Sold
Puts
|
|
Purchased
Puts
|
|
Sold
Calls
|
Financial
protection on production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
swaps
|
322
|
|
$
|
3.07
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
Two-way costless
collars
|
103
|
|
|
–
|
|
|
–
|
|
|
2.94
|
|
|
3.38
|
Three-way costless
collars
|
135
|
|
|
–
|
|
|
2.29
|
|
|
2.97
|
|
|
3.30
|
Total
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed price
swaps
|
50
|
|
$
|
3.02
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
Two-way costless
collars
|
14
|
|
|
–
|
|
|
–
|
|
|
3.00
|
|
|
3.46
|
Three-way costless
collars
|
208
|
|
|
–
|
|
|
2.37
|
|
|
2.96
|
|
|
3.37
|
Total
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-way costless
collars
|
80
|
|
$
|
–
|
|
$
|
2.50
|
|
$
|
2.93
|
|
$
|
3.34
|
Total
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold call
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
86
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
3.25
|
2018
|
63
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.50
|
2019
|
52
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.50
|
2020
|
32
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3.75
|
Total
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Amounts may not
sum due to rounding
|
(1) Includes
positions settled since January 1, 2017
|
As of February 21, 2017, the
Company had also taken steps to mitigate the volatility of basis
differentials by protecting basis on approximately 303 Bcf of its
2017 forecasted natural gas production at a basis differential to
NYMEX natural gas prices of approximately ($0.60) per Mcf, which includes the impact of
both physical and financial basis hedges. A detailed
breakdown of the Company's financial basis positions as of
February 21, 2017 is shown below:
|
|
|
|
|
|
|
|
|
|
Financial basis
positions
(excludes physical
positions)
|
|
Dominion
South
|
|
TETCO
M3
|
|
Total
|
|
Volume
(Bcf)
|
Basis Diff
($/MMBTU)
|
|
Volume
(Bcf)
|
Basis Diff
($/MMBTU)
|
|
Volume
(Bcf)
|
Basis Diff
($/MMBTU)
|
|
|
|
|
|
|
|
|
|
|
2017(1)
|
|
95
|
($1.11)
|
|
58
|
($0.54)
|
|
153
|
($0.89)
|
2018
|
|
18
|
($1.19)
|
|
2
|
$0.79
|
|
20
|
($0.95)
|
|
(1) Includes
positions settled since January 1, 2017
|
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/$55.00
|
$900 -
$950
|
$3.00/$55.00
|
$975 -
$1,025
|
$3.25/$55.00
|
$1,075 -
$1,125
|
$3.50/$55.00
|
$1,155 -
$1,205
|
$3.75/$55.00
|
$1,195 -
$1,245
|
$3.25/$65.00
|
$1,130 -
$1,180
|
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 2017 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.
|
|
|
|
|
2017
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$3.25 Gas / $55.00
Oil
|
|
|
(in
millions)
|
Cash flow from
operating activities:
|
|
|
Net cash provided by
operating activities
|
|
$1,075 -
$1,125
|
Add back
(deduct):
|
|
|
Change
in operating assets and liabilities
|
|
-
|
Net cash
flow
|
|
$1,075 -
$1,125
|
|
|
|
Consolidated
Adjusted EBITDA
|
|
2017
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$3.25 Gas / $55.00
Oil
|
|
|
(in
millions)
|
Adjusted net income
attributable to common stock
|
|
$175 -
$225
|
Add back:
|
|
|
Mandatory convertible preferred stock dividend
|
|
108 - 108
|
Participating securities – mandatory convertible preferred
stock
|
|
25 - 35
|
Net income
attributable to SWN
|
|
$308 -
$368
|
|
|
|
Add back:
|
|
|
Provision for income taxes
|
|
191 – 229
|
Interest
expense
|
|
125 – 135
|
Non-cash
stock based compensation
|
|
20 – 30
|
Depreciation, depletion and amortization
|
|
495 – 515
|
Adjusted
EBITDA(1)
|
|
$1,175 -
$1,225
|
|
(1) Calculated
consistently with provisions of the Company's principal credit
agreements.
|
|
|
|
Midstream Adjusted
EBITDA
|
|
2017
Guidance
|
|
|
NYMEX Price
Assumption
|
|
|
$3.25 Gas / $55.00
Oil
|
|
|
(in
millions)
|
Adjusted net income
attributable to common stock
|
|
$85 - $105
|
Add back:
|
|
|
Mandatory convertible preferred stock dividend
|
|
-
|
Participating securities – mandatory convertible preferred
stock
|
|
-
|
Net income
attributable to SWN
|
|
$85 - $105
|
|
|
|
Add back:
|
|
|
Provision for income taxes
|
|
52 – 64
|
Interest
expense
|
|
2 – 5
|
Non-cash
stock based compensation
|
|
2 – 5
|
Depreciation, depletion and amortization
|
|
58 - 64
|
Adjusted
EBITDA
|
|
$210 -
$225
|
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; natural disasters; 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
increases in service or other costs related to drilling and
completion activities; 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.
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/southwestern-energy-pivots-to-value-adding-growth-and-announces-guidance-for-2017-300412901.html
SOURCE Southwestern Energy Company