Operational outperformance captures increasing
value from high quality liquids portfolio
Southwestern Energy Company (NYSE: SWN) today announced
financial and operating results for the quarter ended September 30,
2018. Unless noted, results are compared to the third quarter of
2017.
Highlights
- Generated positive net cash flow after
capital investment; full year capital guidance unchanged
- Reported net cash provided by operating
activities of $307 million and net cash flow of $355 million, 45%
and 43% higher, respectively
- Produced 252 Bcfe, including a 22%
increase in Appalachia to 187 Bcfe
- Achieved record liquids production of
67.1 MBbls per day including 56.3 MBbls per day of NGLs and 10.8
MBbls per day of oil
- Captured $2.51 per Mcfe weighted
average realized price, excluding hedges, with a 37% increase in
Appalachia to $2.63 per Mcfe
- Drilled two record laterals of 15,559
feet in West Virginia and 16,272 feet in Pennsylvania
- Initiated share repurchase program,
spending $25 million for 4.8 million shares
- Credit facility confirmed at $2.0
billion after Fayetteville sale
- Reported net loss attributable to
common stock of $29 million, or $0.05 per diluted share, and
adjusted net income attributable to common stock of $146 million,
or $0.25 per diluted share
Bill Way, President and Chief Executive Officer of Southwestern
Energy said, “This quarter’s cash flow was more than 40% higher
than the same period last year. Results benefited from our returns
focused growth of liquids as prices improved, from our leading low
cost gas transportation portfolio as regional basis tightened and
from operational achievements made by our leading operational team.
In addition to building on our operational and financial momentum,
we took another deliberate step in our strategy to reposition the
Company by signing an agreement to sell the Fayetteville Shale
assets.”
Way continued, “In addition to delivering strong quarterly
results, we initiated the share repurchase program with an initial
$25 million repurchase of shares and we completed a conditional
$900MM debt tender that will significantly reduce near term debt
maturities and leverage. Clearly, our team is executing and our
strategy is working.”
Third Quarter 2018 Financial
Results
FINANCIAL STATISTICS (Unaudited) For the three months ended
For the nine months ended September 30, September 30,
2018
2017
2018 2017
Financial Results (in millions, except
per share amounts) Net income attributable to common stock
$
(29 ) $ 43
$ 229 $ 548 Adjusted net
income attributable to common stock (non-GAAP)
$ 146
$ 29
$ 414 $ 156 Adjusted EBITDA (non-GAAP)
$
377 $ 269
$ 1,090 $ 899 Net cash provided by
operating activities
$ 307 $ 211
$ 971
$ 789 Net cash flow (non-GAAP)
$ 355 $ 248
$
993 $ 816 Total capital investments
$ 298 $
331
$ 1,039 $ 946
Southwestern Energy generated record Appalachia production and
benefited from higher realized pricing from gas, liquids and oil
compared to the prior year. Including a non-cash impairment of $161
million, related to Fayetteville assets, primarily midstream, which
were reclassified as held for sale, the Company reported a net loss
attributable to common stock of $29 million or $0.05 per diluted
share.
Adjusted net income attributable to common stock was $146
million, or $0.25 per diluted share for the quarter. Adjusted
earnings before interest, taxes, depreciation and amortization
(“adjusted EBITDA”) was $377 million, a 40% increase compared to
2017, primarily due to a 9% increase in production along with
stronger realized gas, oil and NGL prices. The primary components
of adjusted EBITDA included $276 million from Appalachia
operations, $59 million from Fayetteville operations and $49
million from Midstream operations.
Improved Appalachia gas basis differentials and higher NGL
prices drove Company-wide weighted average realized price 24%
higher to $2.51 per Mcfe, compared to NYMEX gas price of $2.90 per
MMbtu, excluding a hedging loss of $0.03 per Mcfe. Weighted average
realized price includes transportation costs and basis
differentials for gas, liquids and oil.
Increasing demand and tight fractionation capacity drove
realized NGL prices 34% higher to $19.43 per barrel, including the
impact of ethane and propane hedges. Realized oil price, including
financial derivatives, of $59.96 per barrel was 48% higher and
includes transportation costs, which remain in line with original
guidance. Realized natural gas price for the Company, including
hedges, was 10% higher at $2.16 per Mcf reflecting a 32%
improvement in basis differentials, which were $0.76 per Mcf in the
quarter compared to $1.11 per Mcf for the same period a year
ago.
During the quarter, the Company announced the sale of
Fayetteville Shale E&P and midstream assets for $1.865 billion
subject to customary closing adjustments. Proceeds from the
Fayetteville Shale will be used to reduce debt, continue a share
repurchase program and continue development of its liquids-rich
Appalachia assets. Upon the completion of the transaction, which is
expected by year end 2018, the Company will retire $900 million in
senior notes, as previously announced, reduce borrowings under the
credit facility and will hold the remainder of proceeds in cash and
short-term equivalents. The investments in Appalachia assets will
be made in accordance with the Company’s strict capital allocation
and internal return metrics.
Pursuant to the previously announced $200 million share
repurchase program, the Company repurchased 4.8 million shares
during the quarter at an average price of $5.18 per share.
At September 30, 2018, the Company reported liquidity of $1.5
billion including unused revolver capacity net of outstanding
revolver borrowings and letters of credit. In October 2018, the
Company’s bank group confirmed the borrowing base, adjusted for the
sale of the Fayetteville assets, will be in excess of the Company’s
$2.0 billion commitment under its credit facility.
A summary of the Company’s hedging position is provided in the
attached financial tables. Additional information on physical basis
sales, natural gas liquids and oil financial derivatives can be
found in the 10-Q.
E&P Operational
ReviewSouthwestern Energy’s net production for the third
quarter was 9% higher at 252 Bcfe.
Appalachia Basin production was 22% higher at 187 Bcfe and was
comprised of 20% liquids or 6,169 MBbls (67.1 MBbls per day) and
80% or 150 Bcf of natural gas (1.6 Bcf per day).
The Company invested $295 million in E&P capital, including
$26 million related to the Southwest Appalachia water project, and
drilled 22 wells, completed 23 wells and placed 35 wells to
sales.
OPERATING STATISTICS For the three months For the nine
months ended ended September 30, September 30,
2018 2017
2018 2017
Production Gas production (Bcf)
215
205
613 587 Oil production (MBbls)
998 663
2,334 1,747 NGL production (MBbls)
5,181 3,810
14,272 10,134 Total production (Bcfe)
252 232
712 658
Division Production Northeast
Appalachia (Bcf)
121 101
341 285 Southwest Appalachia
(Bcfe)
66 52
172 131 Fayetteville Shale (Bcf)
65 78
199 241
Average unit costs per
Mcfe Lease operating expenses
$ 0.92 $ 0.91
$ 0.93 $ 0.90 General & administrative
expenses(1)
$ 0.18 $ 0.23
(2)
$ 0.19
(3)
$ 0.22
(2)
Taxes, other than income taxes(1)
$ 0.09 $ 0.10
$ 0.08 $ 0.10 Full cost pool amortization
$
0.52 $ 0.48
$ 0.50 $ 0.44
(1) Excludes restructuring charges
(2)
Excludes $11 million of legal settlement
charges for the three and nine months ended September 30, 2017.
(3)
Excludes $8 million of legal settlement
charges for the nine months ended September 30, 2018.
COMMODITY PRICES For the three months ended For the nine
months ended September 30, September 30,
2018 2017
2018 2017
Natural Gas Price: NYMEX Henry Hub Price
($/MMBtu) (1)
$ 2.90 $ 3.00
$ 2.90 $
3.17 Discount to NYMEX (2)
(0.76 ) (1.11 )
(0.62 ) (0.86 ) Average realized gas price per Mcf,
excluding derivatives
$ 2.14 $ 1.89
$
2.28 $ 2.31 Gain (loss) on settled financial basis
derivatives ($/Mcf)
(0.03 ) 0.05
(0.04
) (0.04 ) Gain (loss) on settled commodity derivatives
($/Mcf)
0.05 0.03
0.07 (0.05 )
Average realized gas price per Mcf, including derivatives
$
2.16 $ 1.97
$ 2.31 $ 2.22
Oil Price:
WTI oil price ($/Bbl)
$ 69.50 $ 48.20
$
66.75 $ 49.47 Discount to WTI
(8.30 ) (7.71 )
(7.24 ) (7.99 ) Average oil price per Bbl, excluding
derivatives
$ 61.20 $ 40.49
$ 59.51 $
41.48 Average oil price per Bbl, including derivatives
$
59.96 $ 40.49
$ 58.69 $ 41.48
NGL
Price: Average net realized NGL price per Bbl, excluding
derivatives
$ 21.60 $ 14.45
$ 17.65 $
13.04 Average net realized NGL price per Bbl, including derivatives
$ 19.43 $ 14.47
$ 16.75 $ 13.06
Percentage of WTI
31 % 30 %
26 % 26 %
Average net realized C3+ price per Bbl, excluding derivatives
$ 36.94 $ 27.82
$ 35.43 $ 26.53 Average
net realized C3+ price per Bbl, including derivatives
$
34.43 $ 27.82
$ 34.21 $ 26.53 Percentage of
WTI
53 % 58 %
53 % 54 %
Total
Weighted Average Realized Price: Excluding derivatives ($/Mcfe)
$ 2.51 $ 2.03
$ 2.51 $ 2.37 Including
derivatives ($/Mcfe)
$ 2.48 $ 2.09
$
2.51 $ 2.29 (1) Based on last
day monthly futures settlement prices
(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.
Three Months
Ended September 30, 2018 E&P Division Results
Appalachia Fayetteville Northeast
Southwest Shale Production (Bcfe) 121 66 65 Gas
Production (Bcf) 121 29 65 Liquids Production (MBbls) – 6,169 –
NGL (MBbls)
– 5,180 – Oil (MBbls) – 989 – Gross operated production as of
September 2018 (MMcfe/d)
1,534
1,191 1,036 Net operated production as of September 2018 (MMcfe/d)
1,261 739 707
Capital investments ($ in millions)
Exploratory and development drilling, including workovers $ 85 $
112 $ 1 Acquisition and leasehold 5 5 – Seismic and other 1 1 1
Capitalized interest and expense 9 38
3 Total capital investments $ 100 $ 156 $ 5
Gross operated well activity summary Drilled 9 13 –
Completed 10 13 – Wells to sales 18 17 – Average completed
well cost (in millions) $ 7.0
(1)
$ 8.6
(1)
$ – Average lateral length (in ft) 6,960 6,994
(2)
–
Realized Natural Gas Price NYMEX Henry Hub Price
($/MMBtu) $ 2.90 $ 2.90 $ 2.90 Discount to NYMEX (3) (0.81 )
(0.62 ) (0.75 ) Average realized gas price per Mcf,
excluding derivatives $ 2.09 $ 2.28 $ 2.15
Total weighted average realized price per Mcfe, excluding
derivatives $ 2.09 $ 3.62 $ 2.15 (1)
Average completed well cost includes Marcellus wells only and
amounts for delineation and science
(2)
Average lateral length includes Marcellus
wells only
(3)
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
Southwest Appalachia – Total net production of 66 Bcfe,
was 27% higher than the prior year quarter and was comprised of 52%
liquids. NGL and oil production averaged 56.3 MBbls per day and
10.8 MBbls per day, totaling 67.1 MBbls per day liquids.
Weighted average realized price on a natural gas equivalent
basis was $3.62 per Mcf, a $0.72 per Mcfe uplift compared to a
NYMEX gas price of $2.90 per Mcf.
The Company placed 16 Marcellus wells to sales with an average
lateral length of 6,994 feet. Fourteen wells were located in the
super rich acreage and online for at least 30 days, had an average
30-day rate of 7.9 MMcfe per day with a 43% NGL, 23% oil and 34%
gas mix. Two wells in the rich acreage were online for at least 30
days and had an average 30-day rate of 13.4 MMcfe per day with a
44% NGL and 56% gas mix.
During the quarter, the Company drilled a West Virginia state
record well lateral of 15,559 feet in the super rich area, which is
expected to be online early next year.
The first Upper Devonian well was drilled in the Company’s
liquids-rich acreage and brought online in the third quarter. This
well continues to show encouraging, early results with 45% liquids.
The Company plans to bring additional Upper Devonian wells online
in the fourth quarter to support its ongoing delineation
program.
Northeast Appalachia – Total net production of 121 Bcf,
or 1.3 Bcf per day, was 20% higher than the third quarter of 2017.
The Company placed 18 wells to sales with an average lateral length
of 6,960 feet, 14 of which were online for 30 days and had an
average 30-day rate of 13.7 MMcf per day. This includes four short
laterals associated with a “wine rack” test.
The longest lateral in the Company’s history, the Mitchell South
2H well, was successfully drilled at 16,272 feet, and is expected
to be online in the fourth quarter.
Realized price, which includes transportation costs, was $2.09
per Mcf, a 30% improvement due to tightening basis differentials
driven by takeaway capacity going in-service to markets outside of
the area. In addition to the ongoing benefit of regional basis
improvements, the Company maintains a leading low cost firm
transportation portfolio to premium markets that supply low cost
natural gas to northeast US markets.
Conference CallSouthwestern Energy will host a conference
call and webcast on Friday, October 26, 2018 at 9:00 a.m. Central
to discuss third quarter 2018 results. To participate, dial US
toll-free 877-883-0383, or international 412-902-6505 and enter
access code 3794459. The conference call will webcast live at
www.swn.com.
To listen to a replay of the call, dial 877-344-7529,
International 412-317-0088, or Canada Toll Free 855-669-9658. Enter
replay access code 10124794. The replay will be available until
November 20, 2018.
About Southwestern EnergySouthwestern 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 our website:
www.swn.com.
Forward Looking StatementThis 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
(including geographic basis differentials); changes in expected
levels of natural gas and oil reserves or production, or the
Company’s ability to consummate the closing of the sale of its
Fayetteville Shale assets; 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
cost increases in service or other costs related to drilling and
completion activities; potential liability for remedial actions
under existing or future environmental regulations; failure to
obtain necessary regulatory approvals; 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, including court
rulings, 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.
SOUTHWESTERN ENERGY COMPANY AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) For the three months ended For the nine months
ended September 30, September 30,
2018 2017
2018 2017
(in millions, except share/per share amounts)
Operating
Revenues Gas sales
$ 465 $ 394
$
1,412 $ 1,368 Oil sales
62 27
141 73 NGL sales
112 55
252 132 Marketing
287 233
805
736 Gas gathering
25 28
73 85 Other –
–
4 –
951 737
2,687
2,394
Operating Costs and Expenses Marketing
purchases
288 236
808 740 Operating expenses
206 170
588 481 General and administrative expenses
51 62
165 170 Restructuring charges
2 –
20 – Depreciation, depletion and amortization
151 135
436 364 Impairments
161 –
161 – Taxes, other
than income taxes
26 24
64 75
885
627
2,242 1,830
Operating Income 66 110
445 564
Interest Expense
Interest on debt
56 58
180 175 Other interest charges
2 2
6 7 Interest capitalized
(29
) (29 )
(86 ) (85 )
29 31
100 97
Gain (Loss) on Derivatives
(65 ) 45
(108 ) 295
Loss on Early
Extinguishment of Debt – (59 )
(8 ) (70 )
Other Income (Loss), Net – (2 )
2 6
Income Before
Income Taxes (29 ) 63
230 698
Provision
(Benefit) for Income Taxes Current
– (10 )
– (10
) Deferred
– (4 )
–
(4 )
– (14 )
– (14 )
Net Income $ (29
) $ 77
$ 230 $ 712
Mandatory convertible preferred stock dividend
– 27
–
81 Participating securities - mandatory convertible preferred stock
– 7
1
83
Net Income Attributable to Common Stock
$ (29 ) $ 43
$ 229
$ 548
Income Per Common Share Basic
$ (0.05 ) $ 0.09
$ 0.40
$ 1.11 Diluted
$ (0.05 ) $ 0.09
$ 0.39 $ 1.10
Weighted
Average Common Shares Outstanding Basic
581,171,753 499,812,926
577,912,421 496,458,435 Diluted
581,171,753 502,290,779
579,828,858 498,527,671
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30,2018
December 31,2017
ASSETS (in millions) Current assets: Cash and cash
equivalents
$ 9 $ 916 Accounts receivable, net
397 428 Derivative assets
104 130 Other current
assets
41 35 Current assets held for sale
64
– Total current assets
615 1,509
Natural gas and oil properties, using the full cost method,
including $1,767 million as of September 30, 2018 and $1,817
million as of December 31, 2017 excluded from amortization
24,880 23,890 Gathering systems
38 1,315 Other
479 564 Less: Accumulated depreciation, depletion and
amortization
(19,928 ) (19,997 ) Total
property and equipment, net
5,469 5,772 Other long-term
assets
194 240 Long-term assets held for sale
780 –
TOTAL ASSETS
$ 7,058 $ 7,521
LIABILITIES AND EQUITY Current liabilities: Accounts payable
$ 563 $ 533 Taxes payable
32 62 Interest
payable
60 70 Dividends payable
– 27 Derivative
liabilities
111 64 Other current liabilities
10 24
Current liabilities held for sale
116 –
Total current liabilities
892 780 Long-term debt
3,572 4,391 Pension and other postretirement liabilities
50 58 Other long-term liabilities
162 313 Long-term
liabilities held for sale
177 –
Total long-term liabilities
3,961 4,762 Equity:
Common stock, $0.01 par value;
1,250,000,000 shares authorized; issued 586,195,162 shares as of
September 30, 2018 and 512,134,311 as of December 31, 2017
6 5 Preferred stock, $0.01 par value, 10,000,000 shares
authorized, 6.25% Series B Mandatory Convertible, $1,000 per share
liquidation preference, 1,725,000 shares issued and outstanding as
of December 31, 2017, converted to common stock on January 12, 2018
– – Additional paid-in capital
4,714 4,698
Accumulated deficit
(2,449 ) (2,679 ) Accumulated
other comprehensive loss
(40 ) (44 ) Common stock in
treasury; 4,860,280 shares as of September 30, 2018 and 31,269
shares as of December 31, 2017
(26 ) (1
) Total equity
2,205 1,979 TOTAL
LIABILITIES AND EQUITY
$ 7,058 $ 7,521
SOUTHWESTERN ENERGY COMPANY AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the nine months ended September 30, 2018
2017 (in millions)
Cash Flows From Operating Activities: Net
income
$ 230 $ 712 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation,
depletion and amortization
436 364 Amortization of debt
issuance costs
6 7 Impairments
161 – Deferred income
taxes
– (4 ) (Gain) loss on derivatives, unsettled
113 (350 ) Stock-based compensation
12 19 Loss on
early extinguishment of debt
8 70 Other
7 (2 ) Change
in assets and liabilities
(2 ) (27 )
Net cash provided by operating activities
971
789
Cash Flows From Investing
Activities: Capital investments
(1,008 ) (943 )
Proceeds from sale of property and equipment
9 17 Other
4 5 Net cash used in investing
activities
(995 ) (921 )
Cash
Flows From Financing Activities: Payments on short-term debt –
(287 ) Payments on long-term debt
(1,191 ) (1,139 )
Payments on revolving credit facility
(1,122 ) –
Borrowings under revolving credit facility
1,482 – Change in
bank drafts outstanding
10 – Proceeds from issuance of
long-term debt – 1,150 Debt issuance costs
(9 ) (18 )
Purchase of treasury stock
(25 ) – Preferred stock
dividend
(27 ) (8 ) Cash paid for tax withholding
(1 ) – Net cash used in
financing activities
(883 ) (302 )
Decrease in cash and cash equivalents
(907 )
(434 ) Cash and cash equivalents at beginning of year
916 1,423 Cash and cash equivalents at
end of period
$ 9 $ 989
SOUTHWESTERN ENERGY
COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited)
ExplorationandProduction
MidstreamServices
Other
Eliminations
Total
(in millions)
Three months
ended September 30, 2018
Revenues $ 633 $ 912 $
– $ (594 ) $ 951
Marketing purchases – 833 – (545
) 288 Operating expenses 232 23
– (49 ) 206 General and
administrative expenses 44 7 – –
51 Restructuring charges 2 – –
– 2 Depreciation, depletion and amortization
140 11 – – 151
Impairments 15 145 1 –
161 Taxes, other than income taxes 25 1
– – 26 Operating income (loss)
175 (108 ) (1 ) –
66 Capital investments (1) 295 –
3 – 298
Three months ended
September 30, 2017
Revenues $ 470 $ 734 $ – $ (467 ) $ 737 Marketing purchases – 645 –
(409 ) 236 Operating expenses 210 18 – (58 ) 170 General and
administrative expenses 54
(2)
8 – – 62 Depreciation, depletion and amortization 120 15 – – 135
Taxes, other than income taxes 22 2 – – 24 Operating income 64 46 –
– 110 Capital investments (1) 320 9 2 – 331
Nine months ended
September 30, 2018
Revenues $ 1,790 $ 2,605
$ – $ (1,708 ) $
2,687 Marketing purchases – 2,368
– (1,560 ) 808 Operating
expenses 660 76 – (148 )
588 General and administrative expenses 145
(2)
20 – – 165 Restructuring charges
18 2 – – 20 Depreciation,
depletion and amortization 383 53
(3)
– – 436 Impairments 15
145 1 161 Taxes, other than income
taxes 59 5 – – 64
Operating income (loss) 510 (64 )
(1 ) – 445 Capital investments
(1) 1,025 9 5 – 1,039
Nine months ended
September 30, 2017
Revenues $ 1,559 $ 2,414 $ – $ (1,579 ) $ 2,394 Marketing purchases
– 2,141 – (1,401 ) 740 Operating expenses 591 68 – (178 ) 481
General and administrative expenses 147
(2)
23 – – 170 Depreciation, depletion and amortization 317 47 – – 364
Taxes, other than income taxes 69 6 – – 75 Operating income 435 129
– – 564 Capital investments (1) 921 21 4 – 946 (1)
Capital investments include decreases of $31 million and $2 million
for the three months ended September 30, 2018 and 2017,
respectively, and an increase of $21 million and a decrease of $13
million for the nine months ended September 30, 2018 and 2017,
respectively, relating to the change in capital accruals between
periods. (2) Includes $8 million of legal settlement charges for
the nine months ended September 30, 2018 and includes $11 million
of legal settlement charges for the three and nine months ended
September 30, 2017, respectively. (3) Includes a $10 million
impairment related to certain non-core gathering assets.
Hedging Summary
A detailed breakdown of the Company’s derivative financial
instruments and financial basis positions as of September 30, 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.
Financial protection on
production Weighted Average Price per MMBtu
Volume Sold Purchased Sold (Bcf)
Swaps Puts Puts Calls Natural
Gas
2018
Sold fixed price swaps 42 $ 2.91 $ – $ – $ – Two-way costless
collars 6 – – 2.90 3.27 Three-way costless collars 72 – 2.40 2.97
3.37 Total 120
2019
Sold fixed price swaps 156 $ 2.92 $ – $ – $ – Two-way costless
collars 53 – – 2.80 2.98 Three-way costless collars 163 – 2.47 2.89
3.26 Total 372
2020
Sold fixed price swaps 2 $ 2.77 $ – $ – $ – Three-way costless
collars 47 – 2.43 2.80 3.09 Total 49
Financial protection
on production Weighted Average
Volume Strike Price per (Bcf) Bbl
Propane
2018
Sold fixed price swaps 778 $ 34.86
2019
Sold fixed price swaps 1,506 $ 32.63
Ethane
2018
Sold fixed price swaps 1,389 $ 13.30
2019
Sold fixed price swaps 3,322 13.38
Other
Derivative Contracts Weighted Average Volume
Strike Price per (Bcf) MMBtu Purchased Call
Options - Natural Gas
2020
68 $ 3.63
2021
57 3.52 Total 125
Sold Call Options - Natural Gas
2018
16 $ 3.50
2019
52 3.50
2020
136 3.39
2021
114 3.33 Total 318
Financial basis positions
Volume Basis Differential (excludes physical
positions)
(Bcf) ($/MMbtu) Q4 2018 Dominion
South 10 $ (0.64 ) TETCO M3 6 (0.41 ) Total 16 $ (0.55 )
2019 Dominion South 12 $ (0.54 ) TETCO M3 16 0.98 TCO 4
(0.38 ) Total 32 $ 0.23
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 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 the Company may present
from time to time are net debt, adjusted net income, adjusted
diluted earnings per share, adjusted EBITDA and its E&P and
Midstream segment operating income, all 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.
See the reconciliations throughout this release of GAAP
financial measures to non-GAAP financial measures for the three and
nine months ended September 30, 2018 and September 30, 2017, as
applicable. 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.
3 Months Ended September 30, 2018
2017 (in millions)
Net income attributable to common
stock: Net income (loss) attributable to common stock $ (29 ) $
43 Add back: Participating securities - mandatory convertible
preferred stock – 2 Impairment 161 – Restructuring charges 2 –
(Gain) loss on certain derivatives 59 (31 ) Loss on early
extinguishment of debt – 59 Legal settlement charges – 5
Adjustments due to discrete tax items (1) 8 (37 ) Tax impact on
adjustments (55 ) (12 ) Adjusted net income
attributable to common stock $ 146 $ 29 (1)
Primarily relates to the exclusion of certain discrete tax
adjustments associated with the valuation allowance against
deferred tax assets. The Company expects its 2018 income tax rate
to be 24.5% before the impacts of any valuation allowance.
9 Months Ended September 30, 2018
2017 (in millions)
Net income attributable to common
stock: Net income attributable to common stock $ 230 $ 548 Add
back: Participating securities - mandatory convertible preferred
stock (1 ) 59 Impairments 171 – Restructuring charges 20 – (Gain)
loss on certain derivatives 113 (350 ) Gain on sale of assets, net
(1 ) (3 ) Loss on early extinguishment of debt 8 70 Legal
settlement charges 8 5 Adjustments due to inventory valuation and
other 1 (1 ) Adjustments due to discrete tax items (1) (56 ) (279 )
Tax impact on adjustments (79 ) 107 Adjusted
net income attributable to common stock $ 414 $ 156
(1) Primarily relates to the exclusion of certain
discrete tax adjustments associated with the valuation allowance
against deferred tax assets. The Company expects its 2018 income
tax rate to be 24.5% before the impacts of any valuation allowance.
3 Months Ended September 30,
2018 2017 Diluted earnings per share: Diluted
earnings per share $ (0.05 ) $ 0.09 Add back: Participating
securities - mandatory convertible preferred stock – – Impairments
0.28 – Restructuring charges – – (Gain) loss on certain derivatives
0.10 (0.06 ) Loss on early extinguishment of debt – 0.12 Legal
settlement charges – 0.01 Adjustments due to inventory valuation
and other – – Adjustments due to discrete tax items (1) 0.01 (0.07
) Tax impact on adjustments (0.09 ) (0.03 ) Adjusted
diluted earnings per share $ 0.25 $ 0.06 (1)
Primarily relates to the exclusion of certain discrete tax
adjustments associated with the valuation allowance against
deferred tax assets. The Company expects its 2018 income tax rate
to be 24.5% before the impacts of any valuation allowance.
9 Months Ended September 30, 2018
2017 Diluted earnings per share: Diluted earnings per
share $ 0.39 $ 1.10 Add back: Participating securities - mandatory
convertible preferred stock – 0.12 Impairments 0.30 – Restructuring
charges 0.04 – (Gain) loss on certain derivatives 0.19 (0.70 ) Gain
on sale of assets, net – (0.01 ) Loss on early extinguishment of
debt 0.01 0.14 Legal settlement charges 0.01 0.01 Adjustments due
to inventory valuation and other – – Adjustments due to discrete
tax items (1) (0.10 ) (0.56 ) Tax impact on adjustments
(0.13 ) 0.21 Adjusted diluted earnings per share $
0.71 $ 0.31 (1) Primarily relates to
the exclusion of certain discrete tax adjustments associated with
the valuation allowance against deferred tax assets. The Company
expects its 2018 income tax rate to be 24.5% before the impacts of
any valuation allowance.
3 Months Ended
September 30, 2018 2017 (in millions)
Net cash
flow provided by operating activities: Net cash provided by
operating activities $ 307 $ 211 Add back: Changes in operating
assets and liabilities 46 37 Restructuring charges 2
– Net cash flow $ 355 $ 248
9 Months Ended
September 30, 2018 2017 (in millions)
Net cash
provided by operating activities: Net cash provided by
operating activities $ 971 $ 789 Add back: Changes in operating
assets and liabilities 2 27 Restructuring charges 20
– Net cash flow $ 993 $ 816
3 Months Ended
September 30, 2018 2017 (in millions)
EBITDA: Net income $ (29 ) $ 77 Add back: Interest expense
29 31 Income tax benefit – (14 ) Depreciation, depletion and
amortization 151 135 Impairments 161 – Restructuring charges 2 –
Gain on sale of assets, net – – Loss on early extinguishment of
debt – 59 Legal settlement charges – 5 (Gain) loss on certain
derivatives 59 (31 ) Stock based compensation expense 4
9 Adjusted EBITDA $ 377 $ 271
9 Months Ended September 30, 2018
2017 (in millions)
EBITDA: Net income $ 230 $ 712 Add
back: Interest expense 100 97 Income tax benefit – (14 )
Depreciation, depletion and amortization 436 364 Impairments 161 –
Restructuring charges 20 – Gain on sale of assets, net (1 ) (3 )
Loss on early extinguishment of debt 8 70 Legal settlement charges
8 5 (Gain) loss on certain derivatives 113 (350 ) Adjustments due
to inventory valuation and other 2 (1 ) Stock based compensation
expense 13 22 Adjusted EBITDA $ 1,090
$ 902
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Southwestern Energy CompanyPaige Penchas, 832-796-4068Vice
President, Investor Relations
Southwestern Energy (NYSE:SWN)
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