Southwestern Energy Company announced financial and operating results for the third quarter ended September 30, 2020.
- Increasing 2021 free cash flow estimate due to improved current strip and continuing capital and operational efficiencies; investment to be limited to maintenance capital;
- At-market acquisition of Montage Resources expected to close following Montage shareholder vote on November 12; on track for $30 million acquisition synergies;
- Borrowing base reaffirmed at $1.8 billion; increases to $2.0 billion following acquisition closing; asset coverage from combined portfolio exceeds borrowing base;
- Peer leading maturity runway maintained through equity and senior notes issuance; Montage senior notes called subject to closing;
- Continuous innovation driving record low single-well cost of $491 per lateral foot; second half average expected to be below $650 per lateral foot;
- Total production of 221 Bcfe; includes 1.9 Bcf per day of gas and 87 MBbls per day of liquids;
- Realized $97 million in cash derivative settlements bringing year-to-date total to $310 million from rigorous hedging program; and
- Published 7th Annual Corporate Responsibility report for 2019. Key environmental highlights include:
Reported lowest GHG intensity among AXPC peers in annual EHS Survey
Methane intensity 85% better than the target set by ONE Future
Fresh water neutral for the fourth year in a row; 100% of fresh water usage offset through recycling and conservation projects
“We have executed a disciplined repositioning strategy back to free cash flow in 2021 by decreasing debt, maintaining strong liquidity and leading maturity runway, reducing structural costs and improving capital efficiency,” said Bill Way, Southwestern Energy President and Chief Executive Officer.
“Further building on the Company’s strengths, our attention is focused on optimizing free cash flow generation and further debt reduction. These plans are underpinned by a returns-driven investment strategy at maintenance capital benefiting from innovation and technology to drive further well performance improvements and cost efficiencies, all while dynamically hedging, realizing the full synergies of a value-adding acquisition and driving enhanced returns for shareholders,” continued Way.
For the quarter ended September 30, 2020, Southwestern Energy recorded a net loss of $593 million, or ($1.04) per diluted share, including $361 million of non-cash impairments and a $289 million non-cash loss on unsettled mark-to-market derivatives due to rising prices in future periods. This compares to net income of $49 million, or $0.09 per diluted share in the third quarter of 2019.
Adjusted net income (non-GAAP), which excludes the non-cash items noted above, was $47 million, or $0.08 per diluted share in the third quarter of 2020, compared to adjusted net income of $44 million, or $0.08 per diluted share for the prior year period, as decreased revenues due to lower prices were offset by decreased depreciation, depletion and amortization expense. Adjusted EBITDA (non-GAAP) was $154 million, net cash provided by operating activities was $153 million and net cash flow (non-GAAP) was $135 million.
(1) Capital investments on the cash flow statement include decreases of $7 million and $53 million for the three months ended September 30, 2020 and 2019, respectively, and increases of $1 million and $52 million for the nine months ended September 30, 2020 and 2019, respectively, relating to the change in accrued expenditures between periods.
As indicated in the table below, third quarter 2020 weighted average realized price, including $0.35 per Mcfe of transportation expenses, was $1.34 per Mcfe before the impact of derivatives, down 22% from $1.72 per Mcfe in the prior year period. The decrease was primarily due to an 11% decrease in NYMEX Henry Hub and a 27% decrease in West Texas Intermediate (WTI). Third quarter 2020 weighted average realized price before transportation expenses was $1.69 per Mcfe.
The Company realized $97 million in cash-settled derivative gains during the third quarter, a $0.44 per Mcfe uplift, bringing year-to-date gains to $310 million. Included in the third quarter settled derivative gains is a $20 million gain related to natural gas basis hedges, which protected the Company from widening basis differentials in the Appalachia basin.
During the third quarter, the Company completed two capital market transactions related to the announced acquisition of Montage Resources. Net proceeds of $152 million from the issuance of 63.25 million shares of common stock and $350 million of 8.375% Senior Notes due 2028 will be used to fund a redemption of outstanding Montage Senior Notes due 2023 upon the anticipated close of the acquisition in the fourth quarter.
As of September 30, 2020, Southwestern Energy had total debt of $2.47 billion and a cash balance of $95 million, with a leverage ratio of 3.2x. At the end of the third quarter, the Company had no borrowings under its revolving credit facility with $203 million in outstanding letters of credit. In October, the Company announced its borrowing base had been reaffirmed at $1.8 billion, with commitments to increase to $2.0 billion upon the closing of the Montage acquisition.
Total production for the quarter ended September 30, 2020 was 221 Bcfe, comprised of 78% natural gas, 18% NGLs and 4% oil. Capital investments totaled $223 million for the third quarter, with 16 wells drilled, 25 wells completed and 30 wells placed to sales. Third quarter wells to sales averaged $664 per lateral foot. During the quarter, the Company continued to progress operational efficiencies and drive further cost reductions, including averaging 15 stages completed per day on a 7-well pad. As a result of these improvements, the Company is on track to deliver well costs below the targets announced in the second quarter.
Southwest Appalachia – In the third quarter, total production was 100 Bcfe, with liquids production of 87 MBbls per day. The Company drilled seven wells, completed 12 wells and placed 12 wells to sales. The average lateral length of wells to sales was 13,206 feet, and included six wells in the rich area and six wells in the super rich area. All six of the rich wells were online for at least 30 days and had an average 30-day rate of 25.0 MMcfe per day, and all six of the super rich wells were online for at least 30 days and had an average 30-day rate of 14.5 MMcfe per day, including 63% liquids.
Northeast Appalachia – Third quarter production was 121 Bcf. There were nine wells drilled, 13 wells completed and 18 wells put to sales with an average lateral length of 9,455 feet. The 17 wells that were online for at least 30 days were all Lower Marcellus wells, with an average 30-day rate of 15.0 MMcf per day.