Continuing operational outperformance, with
cost savings driving cash flow higher
Southwestern Energy Company (NYSE: SWN) today announced
financial and operating results for the quarter ended March 31,
2019, the Company’s first quarter as a single-basin Appalachia
producer. These results include net income of $594 million, or
$1.10 per share, and adjusted net income of $145 million, or $0.27
per share. Unless otherwise noted, results are compared to the
first quarter of 2018, which included contribution from
Fayetteville Shale assets sold in December 2018.
- Appalachia production up 14 percent to
182 Bcfe, liquids up 33 percent to 71,740 barrels per day,
Appalachia revenue up 13 percent;
- Generated Adjusted EBITDA of $319
million, net cash provided by operating activities of $442 million
and net cash flow of $309 million;
- Invested capital totaling $325 million
in the quarter, consistent with front-loaded capital plan;
- Improved E&P margin by 14 percent
to $1.79 per Mcfe, as a result of improved differentials and lower
expenses;
- Realized a $46 million, or 32 percent,
reduction in general and administrative and interest savings in the
first quarter;
- Continued strength of balance sheet
with net debt to EBITDA of 1.7 times, excluding 2018 Fayetteville
EBITDA, liquidity in excess of $2 billion;
- Reduced well cost on wells to sales by
10 percent from 2018 full year average, on track to meet guidance
of $875 per lateral foot for the year; and
- Drilled five wells in excess of 15,000
feet, including an 18,683 foot state record lateral in
Pennsylvania.
“These results demonstrate the exceptional quality of our
Appalachia assets and the strength, resilience and operational
execution capabilities of our teams, who successfully navigate
through changing operating conditions,” said Bill Way, President
and Chief Executive Officer, Southwestern Energy. “Having
deleveraged the balance sheet with the monetization of
Fayetteville, ongoing operational improvements are driving costs
lower and production higher, proof points that we are well down the
transitional path back to free cash flow clearly outlined in our
strategy.”
Financial ResultsSouthwestern Energy reported net income
of $594 million or $1.10 per share for the first quarter of 2019,
including a $426 million non-cash deferred income tax benefit
resulting from the release of a tax valuation allowance previously
recorded against a deferred tax asset. The Company reported
adjusted net income of $145 million, excluding the deferred tax
benefit.
FINANCIAL STATISTICS For the
three months ended March 31, (in millions)
2019 2018 Net
income attributable to common stock
$ 594 $ 205
Adjusted net income attributable to common stock (non-GAAP)
$ 145 $ 162 Adjusted EBITDA (non-GAAP)
$
319 $ 396 Net cash provided by operating activities
$
442 $ 364 Net cash flow (non-GAAP)
$ 309 $ 358
Total capital investments (1)
$ 325 $ 338 (1)
Capital investments includes increases of $66 million and
$33 million for the three months ended March 31, 2019 and 2018,
respectively, relating to the change in capital accruals between
periods.
Weighted average realized pricing, excluding settled
derivatives, was $2.98 per Mcfe, 6 percent above the prior year.
Realized pricing for natural gas was $2.95 per Mcf and reflects a
discount to NYMEX of $0.20 per Mcf, $0.08 per Mcf better than the
first quarter 2018. Natural gas liquids realized pricing was $14.45
per barrel, or 26 percent of West Texas Intermediate (WTI), and
realized oil pricing was $45.48 per barrel, reflecting a $9.42 per
barrel discount to WTI.
As of March 31, 2019, the Company had $2.3 billion of
outstanding, long-term, fixed rate notes and had $2.2 billion of
liquidity, including cash of $366 million. There are no material
senior note maturities before 2025. The Company has no borrowings
under its $2.0 billion secured credit facility, and the borrowing
base was recently reaffirmed.
In the first quarter, the Company completed its $200 million
authorized share repurchase program, repurchasing a total of
approximately 44 million shares at an average price of $4.53 per
share, resulting in an 8 percent reduction in shares
outstanding.
Operational ResultsTotal production for the quarter was
182 Bcfe, or 2.0 Bcfe per day including natural gas production of
143 Bcf, oil production of 854 MBbls and natural gas liquids of 5.6
MMBbls. SWN invested $325 million in the first quarter, drilling 30
wells, completing 31 and placing 19 to sales.
Southwest Appalachia’s net gas production averaged
345 MMcf per day, with total liquids production averaging 71,680
barrels per day. The Company placed nine wells to sales in the
quarter, with a combined initial production rate of 99 MMcfe per
day, including 67% liquids, of which 4,800 barrels per day were
oil, all targeting the Marcellus super rich gas window. Well costs
on wells to sales were reduced 22 percent in the quarter compared
to fourth quarter 2018 with an average lateral length of 8,644
feet. The Company also drilled and cased an ultra-long lateral of
approximately 18,000 feet, a division record in West Virginia.
Northeast Appalachia’s net gas production averaged
1.24 Bcf per day. The Company placed 10 wells to sales in the first
quarter in Susquehanna and Tioga Counties. One of the wells in
Tioga County achieved a Company record initial production rate of
39 MMcf per day on an 11,130 foot lateral. The Company also drilled
a Pennsylvania state record lateral of 18,683 feet.
OPERATING STATISTICS For the three months
ended March 31,
2019 2018
Production Gas production
(Bcf)
143 197 Oil production (MBbls)
854 613 NGL
production (MBbls)
5,603 4,230 Total
production (Bcfe)
182 226
Division
Production Northeast Appalachia (Bcf)
112 108
Southwest Appalachia (Bcfe)
70 51 Fayetteville Shale (Bcf)
(1)
– 67
Average unit costs per Mcfe Lease
operating expenses
$ 0.90 $ 0.94 General &
administrative expenses
$ 0.19
(2)
$ 0.21 Taxes, other than income taxes
$ 0.10 $ 0.09
Full cost pool amortization
$ 0.57 $ 0.48 (1)
The Fayetteville Shale assets were sold on December 3, 2018.
(2) Excludes $3 million of restructuring charges (including
severance) for the three months ended March 31, 2019.
Realized Prices For the three months
ended March 31,
2019 2018
Natural Gas Price: NYMEX
Henry Hub price ($/MMBtu) (1)
$ 3.15 $ 3.00 Discount
to NYMEX (2)
(0.20 ) (0.28 ) Average
realized gas price per Mcf, excluding derivatives
$
2.95 $ 2.72 Loss on settled financial basis derivatives
($/Mcf)
(0.03 ) (0.11 ) Gain (loss) on settled
commodity derivatives ($/Mcf)
(0.08 )
0.06 Average realized gas price per Mcf, including
derivatives
$ 2.84 $ 2.67
Oil Price: WTI oil
price ($/Bbl)
$ 54.90 $ 62.87 Discount to WTI
(9.42 ) (6.86 ) Average oil price per Bbl,
excluding derivatives
$ 45.48 $ 56.01 Average oil
price per Bbl, including derivatives
$ 47.82 $ 56.01
NGL Price: Average net realized NGL price per Bbl, excluding
derivatives
$ 14.45 $ 15.42 Average net realized NGL
price per Bbl, including derivatives
$ 15.05 $ 15.43
Percentage of WTI
26 % 25 % Average net realized C3+
price per Bbl, excluding derivatives
$ 27.11 $ 36.01
Average net realized C3+ price per Bbl, including derivatives
$ 28.01 $ 36.00 Percentage of WTI
49 %
57
%
Total Weighted Average Realized Price: Excluding
derivatives ($/Mcfe)
$ 2.98 $ 2.81 Including
derivatives ($/Mcfe)
$ 2.92 $ 2.77 (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 March 31,
2019 E&P Division Results Appalachia
Northeast Southwest Gas Production (Bcf) 112 31
Liquids Production Oil (MBbls) – 849 NGL (MBbls) –
5,602 Production (Bcfe) 112 70 Gross operated production (MMcfe/d)
1,497 1,237 Net operated production (MMcfe/d) 1,227 767
Capital investments ($ in millions) Exploratory and
development drilling, including workovers $ 94 $ 154 Acquisition
and leasehold 2 5 Seismic and other 1 – Capitalized interest and
expense 9 39 Total capital investments $ 106 $ 198
Gross operated well activity summary Drilled 11 19
Completed 11 20 Wells to sales 10 9 Average well cost on
wells to sales (in millions) $ 7.8 $ 8.6 Average lateral length (in
ft) 7,502 8,644 Total weighted average realized price per
Mcfe, excluding derivatives $ 3.12 $ 2.76
Conference CallSouthwestern Energy will host a conference
call and webcast on Friday, April 26, 2019 at 9:30 a.m. Central to
discuss first quarter 2019 results. To participate, dial US
toll-free 877-883-0383, or international 412-902-6505 and enter
access code 6562032. The conference call will be 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 10130076. The replay will be available until May
17, 2019.
About Southwestern EnergySouthwestern Energy Company is
an independent energy company engaged in natural gas, natural gas
liquids and oil exploration, development, production and marketing.
For additional information, visit 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; 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; the risks related to the discontinuation of LIBOR
and/or other reference rates that may be introduced following the
transition, including increased expenses and litigation and the
effectiveness of interest rate hedge strategies; unexpected cost
increases; potential liability for remedial actions under existing
or future environmental regulations; failure or delay in obtaining
necessary regulatory approvals; potential liability resulting from
pending or future litigation; general domestic and international
economic and political conditions; the impact of a prolonged
federal, state or local government shutdown and threats not to
increase the federal government’s debt limit; 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
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended March 31, (in millions, except
share/per share amounts)
2019 2018
Operating Revenues: Gas sales
$ 430 $ 540 Oil
sales
39 35 NGL sales
81 65 Marketing
438 253
Gas gathering
– 24 Other
2 3
990 920
Operating
Costs and Expenses: Marketing purchases
441 255
Operating expenses
165 189 General and administrative
expenses
37 55 Restructuring charges
3 –
Depreciation, depletion and amortization
112 143 Taxes,
other than income taxes
19 23
777 665
Operating Income
213 255
Interest Expense:
Interest on debt
42 65 Other interest charges
1 2
Interest capitalized
(29
)
(28
)
14 39
Loss on Derivatives
(32
)
(7
)
Other Income (Loss), Net 1
(1
)
Income Before Income Taxes 168 208
Benefit
from Income Taxes: Current
– – Deferred
(426
)
–
(426
)
–
Net Income $ 594 $ 208
Participating securities - mandatory convertible preferred
stock
– 3
Net Income
Attributable to Common Stock $ 594 $ 205
Earnings Per Common Share Basic
$
1.10 $ 0.36 Diluted
$ 1.10
$ 0.36
Weighted Average Common Shares
Outstanding: Basic
539,721,751
571,297,804 Diluted
541,320,487
573,844,459
SOUTHWESTERN ENERGY COMPANY AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31,2019
December 31,2018
ASSETS (in millions) Current assets: Cash and cash
equivalents
$ 366 $ 201 Accounts receivable, net
390 581 Derivative assets
87 130 Other current assets
44 44 Total current assets
887 956 Natural gas and oil properties, using the full cost
method, including $1,673 million as of March 31, 2019 and $1,755
million as of December 31, 2018 excluded from amortization
24,486 24,180 Gathering systems
38 38 Other
509 487 Less: Accumulated depreciation, depletion and
amortization
(20,162
)
(20,049
)
Total property and equipment, net
4,871 4,656 Deferred tax
asset
426 – Other long-term assets
262
185 TOTAL ASSETS
$ 6,446 $ 5,797
LIABILITIES AND EQUITY Current liabilities: Current
portion of long-term debt
$ 52 $ – Accounts payable
626 609 Taxes payable
62 58 Interest payable
58 52 Derivative liabilities
50 79 Other current
liabilities
95 48 Total current
liabilities
943 846 Long-term debt
2,267 2,318
Pension and other postretirement liabilities
43 46 Other
long-term liabilities
256 225
Total long-term liabilities
2,566 2,589 Commitments and
contingencies Equity: Common stock, $0.01 par value; 1,250,000,000
shares authorized; issued 585,548,726 shares as of March 31, 2019
and 585,407,107 as of December 31, 2018
6 6 Additional
paid-in capital
4,717 4,715 Accumulated deficit
(1,548
)
(2,142
)
Accumulated other comprehensive loss
(36
)
(36
)
Common stock in treasury, 44,353,224 shares as of March 31, 2019
and 39,092,537 shares as of December 31, 2018
(202
) (181 ) Total equity
2,937
2,362 TOTAL LIABILITIES AND EQUITY
$
6,446 $ 5,797
SOUTHWESTERN
ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) For the
three months ended March 31, (in millions)
2019
2018
Cash Flows From Operating Activities: Net income
$ 594 $ 208 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation, depletion
and amortization
112 143 Amortization of debt issuance costs
1 2 Deferred income taxes
(426
)
– (Gain) loss on derivatives, unsettled
22
(2
)
Stock-based compensation
2 4 Other
1 3 Change in
assets and liabilities
136 6 Net
cash provided by operating activities
442 364
Cash
Flows From Investing Activities: Capital investments
(258
)
(302
)
Proceeds from sale of property and equipment
– 6 Other
– 2 Net cash used in investing
activities
(258
)
(294
)
Cash Flows From Financing Activities: Change in bank
drafts outstanding
3 – Purchase of treasury stock
(21
)
– Preferred stock dividend
– (27
)
Cash paid for tax withholding
(1
)
(1
)
Net cash used in financing activities
(19
)
(28
)
Increase in cash and cash equivalents
165 42 Cash and
cash equivalents at beginning of year
201
916 Cash and cash equivalents at end of period
$ 366 $ 958
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES SEGMENT
INFORMATION (Unaudited)
Exploration
and
Midstream Production Services Other
Eliminations Total (in millions)
Three months
ended March 31, 2019
Revenues
$
542
$
941
$
–
$
(493 )
$
990 Marketing purchases – 934 –
(493 ) 441 Operating expenses
166 (1 ) – – 165
General and administrative expenses 34 3
– – 37 Restructuring charges 3
– – – 3 Depreciation, depletion and
amortization 110 2 – – 112
Taxes, other than income taxes 19 – –
– 19 Operating income 210 3
– – 213 Capital investments (1)
325 – – – 325
Three months ended
March 31, 2018
Revenues
$
637
$
896
$
–
$
(613 )
$
920 Marketing purchases – 819 – (564 ) 255 Operating expenses 213
25 – (49 ) 189 General and administrative expenses 48 7 – – 55
Depreciation, depletion and amortization 117 26
(2)
– – 143 Taxes, other than income taxes 21 2 – – 23 Operating income
238 17 – – 255 Capital investments (1) 334 4 – – 338 (1)
Capital investments includes increases of $66 million and
$33 million for the three months ended March 31, 2019 and 2018,
respectively, relating to the change in capital accruals between
periods. (2) Includes a $10 million impairment related to certain
non-core gathering assets.
Hedging SummaryA detailed breakdown of Southwestern
Energy’s derivative financial instruments and financial basis
positions as of March 31, 2019 is shown below. Please refer to the
quarterly report on Form 10-Q 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
PurchasedPuts
Sold Calls
BasisDifferential
Natural Gas
2019
Fixed price swaps 195 $ 2.90 $ – $ – $ – $ – Two-way costless
collars 44 – – 2.78 2.92 – Three-way costless collars 101 – 2.46
2.88 3.22 – Total 340
2020
Fixed price swaps 24 $ 2.88 $ – $ – $ – $ – Three-way costless
collars 122 – 2.35 2.68 2.96 – Total 146
2021
Three-way costless collars 37 $ – $ 2.35 $ 2.60 $ 2.93 $ –
Basis swaps
2019
85 $ – $ – $ – $ – $ (0.50 )
2020
59 – – – – (0.44 ) Total 144
Weighted Average Price
per Bbl
Volume(MBbls)
Swaps Sold Puts
PurchasedPuts
Sold Calls
Oil
2019
Fixed price swaps (1) 921 $ 62.13 $ – $ – $ – Two-way costless
collars 248 – – 65.00 72.30 Three-way costless collars 412 – 45.00
55.00 63.67 Total 1,581
2020
Fixed price swaps 366 $ 65.68 $ – $ – $ – Two-way costless collars
366 – – 60.00 69.80 Total 732
Propane
2019
Fixed price swaps 2,028 $ 31.25 $ – $ – $ –
2020
Fixed price swaps 824 $ 27.35 $ – $ – $ – Two-way costless collars
366 – – 25.20 29.40 Total 1,190
Ethane
2019
Fixed price swaps 2,778 $ 13.90 $ – $ – $ –
2020
Fixed price swaps 732 $ 13.49 $ – $ – $ – (1)
Includes 206 MBbls of purchased fixed price oil swaps hedged at
$69.10 per barrel and 1,127 MBbls of sold fixed price oil swaps
hedged at $63.41 per barrel.
Financial basis positions
Volume
Basis Differential (excludes physical positions)
(Bcf) ($/MMbtu)
Q2 2019
TCO 2 $ (0.38) Dominion South 23 $ (0.54) TETCO M3 9 $ (0.43) Total
34 $ (0.50)
2019
TCO 4 $ (0.38) Dominion South 60 $ (0.54) TETCO M3 21 $ (0.43)
Total 85 $ (0.50)
2020
TCO 17 $ (0.51) Dominion South 18 $ (0.58) TETCO M3 24 $ (0.27)
Total 59 $ (0.44)
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.
3 Months Ended March 31, 2019
2018 (in millions)
Net income attributable to common
stock: Net income attributable to common stock
$
594 $ 205 Add back: Participating securities – mandatory
convertible preferred stock
– 1 Restructuring charges
3 – Gain on sale of assets, net
(2 ) (1 )
(Gain) loss on certain derivatives
22 (2 ) Impairment of
non-core gathering assets
– 10 Adjustments due to inventory
valuation and other
– 3 Adjustments due to discrete tax
items (1)
(466 ) (51 ) Tax impact on adjustments
(6 ) (3 ) Adjusted net income
attributable to common stock
$ 145 $ 162
(1) 2018 primarily relates to the exclusion of
certain discrete tax adjustments associated with the valuation
allowance against deferred tax assets. The Company expects its 2019
income tax rate to be 24.5%.
3 Months Ended
March 31, 2019 2018
Diluted earnings
per share: Diluted earnings per share
$ 1.10 $
0.36 Add back: Participating securities – mandatory convertible
preferred stock
– 0.00 Restructuring charges
0.00 –
Gain on sale of assets, net
(0.00 ) (0.00 ) (Gain)
loss on certain derivatives
0.04 0.00 Impairment of non-core
gathering assets
– 0.02 Adjustments due to inventory
valuation and other
– 0.00 Adjustments due to discrete tax
items (1)
(0.86 ) (0.09 ) Tax impact on adjustments
(0.01 ) (0.01 ) Adjusted diluted
earnings per share
$ 0.27 $ 0.28
(1) 2018 primarily relates to the exclusion of certain
discrete tax adjustments associated with the valuation allowance
against deferred tax assets. The Company expects its 2019 income
tax rate to be 24.5%.
3
Months Ended March 31, 2019 2018 (in millions)
Net
cash flow provided by operating activities: Net cash provided
by operating activities
$ 442 $ 364 Add back: Changes
in operating assets and liabilities
136 (6 ) Restructuring
charges
3 – Net cash flow
$
309 $ 358
3 Months Ended March 31, 2019 2018 (in millions)
EBITDA: Net income
$ 594 $ 208 Add back:
Interest expense
14 39 Income tax expense (benefit)
(426 ) – Depreciation, depletion and amortization
112 143 Restructuring charges
3 – Gain on sale of
assets, net
(2 ) (1 ) Loss on foreign currency
adjustment
– 3 (Gain) loss on certain derivatives
22
(2 ) Stock based compensation expense
2
6 Adjusted EBITDA
$ 319 $ 396
March 31, 2019 (in millions)
Total
debt $ 2,319 Subtract: Cash and cash equivalents
(366 ) Net debt
$ 1,953
March 31, 2019 (in millions) Net debt $ 1,953
Adjusted EBITDA (1) 1,131
Net debt to EBITDA
1.7x (1) Includes Adjusted EBITDA of $1,408
million for the twelve months ended March 31, 2019 less $277
million of EBITDA generated by Fayetteville E&P and Midstream
prior to the December 2018 divestiture.
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Investor ContactPaige PenchasVice President, Investor
Relations(832) 796-4068paige_penchas@swn.com
Media ContactJim SchwartzDirector, Corporate
Communications(832) 796-2716jim_schwartz@swn.com
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