Southwestern Energy Announces Third Quarter 2017 Financial And Operating Results
HOUSTON, Oct. 26, 2017 /PRNewswire/ -- Southwestern Energy Company (NYSE: SWN) today announced its financial and operating results for the quarter ended September 30, 2017, along with other recent developments. Highlights include:
-- Realized net income attributable to common stock of $43 million, or
$0.09 per diluted share, and adjusted net income attributable to common
stock of $29 million, or $0.06 per diluted share;
-- Achieved net cash provided by operating activities of $211 million and
net cash flow of $248 million, up 23% and 43%, respectively, compared to
the third quarter of 2016;
-- Total net production of 232 Bcfe, including 153 Bcfe from the
Appalachian Basin, an increase of approximately 10% and 26%,
respectively, compared to the third quarter of 2016, despite third party
gathering downtime in Northeast Appalachia;
-- Achieved record exit production rate from the Appalachian Basin of
almost 2.4 Bcfe per day, an increase of 42% compared to the third
quarter of 2016;
-- Realized C3+ NGL prices of $27.82 per barrel, or 58% of West Texas
Intermediate (WTI), and realized total NGL prices of $14.47 per barrel,
or 30% of WTI (net of transportation costs), up 75% and 106%,
respectively, compared to the third quarter of 2016;
-- Created incremental value of approximately $1.4 million per well from
reduced processing rates in the lean gas acreage of Southwest
Appalachia;
-- Commenced water infrastructure project in Southwest Appalachia that is
expected to reduce well costs by approximately $500,000 per well
beginning in late 2018;
-- Demonstrated repeated reservoir deliverability with second
Company-drilled Utica well results in line with the Company's first
Utica well;
-- Progressed Tioga County development with first four-well pad delivering
an initial production rate of over 80 MMcf per day;
-- Renegotiated Fayetteville firm transportation agreement, increasing
expected cash flow by approximately $45 million in 2018 while securing
flexible takeaway capacity at significantly reduced rates beyond 2020,
subject to FERC approval;
-- Brought two additional encouraging Moorefield delineation wells online
continuing to confirm our geologic and reservoir modeling of the play;
and
-- Improved debt maturity profile through notes offering and tender,
resulting in only $92 million in bond debt due prior to 2022.
"The execution of our strategy continued to deliver strong results in the third quarter," said Bill Way, President and Chief Executive Officer of Southwestern Energy. "Through technological advancements, strategic negotiation of transportation, processing and gathering agreements, and improving our debt maturity schedule, we are driving material shareholder value and positioning ourselves for additional value creation in 2018 and beyond."
Financial Results For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(in millions, except
per share amounts)
Operating income (loss) $110 $(725) $564 $(2,317)
Adjusted operating
income (non-GAAP
measure) $112 $94 $566 $81
Net income (loss)
attributable to common
stock $43 $(735) $548 $(2,514)
Adjusted net income
(loss) attributable to
common stock (non-
GAAP measure) $29 $12 $156 $(52)
Diluted earnings (loss)
per share $0.09 $(1.52) $1.10 $(6.02)
Adjusted diluted
earnings (loss) per
share (non-GAAP
measure) $0.06 $0.03 $0.31 $(0.12)
Net cash provided by
operating activities $211 $172 $789 $337
Net cash flow (non-
GAAP measure) $248 $173 $816 $434
Exploration and
Production Operating
Results For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Production
Fayetteville (Bcf) 78 90 241 289
Northeast Appalachia
(Bcf) 101 84 285 268
Southwest Appalachia
(Bcfe) 52 37 131 115
Other (Bcfe) 1 - 1 1
--- --- --- ---
Total production (Bcfe) 232 211 658 673
% Natural Gas 88% 90% 89% 90%
Average unit costs per
Mcfe
Lease operating
expenses $0.91 $0.86 $0.90 $0.87
General &
administrative
expenses(1) $0.23 $0.23 $0.22 $0.21
Taxes, other than
income taxes(2) $0.10 $0.10 $0.10 $0.09
Full cost pool
amortization $0.48 $0.35 $0.44 $0.40
(1) Excludes $2 million and $71
million of restructuring
charges for the three and nine
months ended September 30,
2016, respectively.
(2) Excludes $3 million of
restructuring charges for the
nine months ended September 30,
2016.
Realized Prices For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Natural Gas Price:
NYMEX Henry Hub
Price
($/MMBtu)(1) $3.00 $2.81 $3.17 $2.29
Discount to
NYMEX(2) (1.11) (1.03) (0.86) (0.82)
----- ----- ----- -----
Average realized
gas price per
Mcf, excluding
hedges $1.89 $1.78 $2.31 $1.47
Gain (loss) on
settled financial
basis derivatives
($/Mcf) 0.05 0.00 (0.04) 0.01
Gain (loss) on
settled commodity
derivatives
($/Mcf) 0.03 (0.05) (0.05) 0.03
---- ----- ----- ----
Average realized
gas price per
Mcf, including
hedges $1.97 $1.73 $2.22 $1.51
Oil Price:
WTI oil price
($/Bbl) $48.22 $44.94 $49.47 $41.33
Discount to WTI (7.73) (9.53) (7.99) (12.80)
----- ----- ----- ------
Average oil price
per Bbl $40.49 $35.41 $41.48 $28.53
NGL Price:
Average net
realized NGL
price per Bbl(3) $14.47 $7.04 $13.06 $6.11
Percentage of WTI 30% 16% 26% 15%
(1) Based on last day settlement prices
from monthly futures contracts.
(2) This discount includes a basis
differential, physical basis
sales, third-party transportation
charges and fuel charges and
excludes financial basis hedges.
(3) Includes the impact of
transportation costs and $0.02 per
Bbl of realized hedge gains for
the three and nine months ended
September 30, 2017 and $0.01 per
Bbl of realized hedge gains for
the three months ended September
30, 2016.
Third Quarter of 2017 Financial Results
E&P Segment - The operating income for the segment improved to $64 million for the third quarter of 2017, compared to an operating loss of $777 million during the third quarter of 2016 that included an $817 million impairment of natural gas and oil properties during this period last year. The increase in operating income was primarily due to the absence of impairments and restructuring charges and higher realized natural gas and liquids pricing, partially offset by higher operating costs.
Midstream Segment - Operating income for the segment, comprised of gathering and marketing activities, was $46 million for the third quarter of 2017, which included a $3 million gain on sale of equipment, compared to $52 million for the same period in 2016. The decrease in operating income was largely due to a decrease in volumes gathered resulting from lower production volumes in the Fayetteville Shale.
First Nine Months of 2017 Financial Results
E&P Segment - The operating income for the segment improved to $435 million for the first nine months of 2017, compared to an operating loss of $2.5 billion during the first nine months of 2016, which was primarily due to the $2.3 billion impairment of natural gas and oil properties and $74 million in restructuring charges during this period last year. The increase in operating income in 2017 was primarily due to the absence of impairments and restructuring charges and higher realized natural gas and liquids pricing, partially offset by higher operating costs.
Midstream Segment - Operating income for the segment, comprised of gathering and marketing activities, was $129 million for the first nine months of 2017, which included a $3 million gain on sale of equipment, compared to $169 million for the same period in 2016, which included $3 million in restructuring charges. The decrease in operating income was largely due to a decrease in volumes gathered resulting from lower production volumes in the Fayetteville Shale.
Capital Structure and Investments - At September 30, 2017, the Company had total debt of approximately $4.4 billion and $3.4 billion in net debt. In the third quarter, the Company completed a public offering of $650 million aggregate principal of its 7.50% senior notes due 2026 and $500 million aggregate principal of its 7.75% senior notes due 2027. The proceeds from this offering were used to repay $758 million of the Company's 2020 Notes and to repay the outstanding balance of $327 million on the Company's 2015 Term Loan. The Company now has only $92 million in bonds due prior to 2022. The undrawn revolver and the cash maintained on the balance sheet anchor the strong liquidity position the Company has built and intends to maintain as part of its disciplined financial plan.
During the first nine months of 2017, Southwestern invested a total of $946 million. This included approximately $921 million invested in its E&P business, $21 million invested in its Midstream segment and $4 million invested for corporate and other purposes. Of the $946 million, approximately $85 million was associated with capitalized interest and $77 million was associated with capitalized expenses.
Hedging Update
As of October 24, 2017, the Company had approximately 139 Bcf of its remaining 2017 forecasted gas production protected at an average swap or purchased put strike price of $3.01 per Mcf. Additionally, the Company had approximately 473 Bcf of its 2018 forecasted gas production protected at an average swap or purchased put strike price of $2.99 per Mcf, with upside exposure on approximately 62%, or 295 Bcf, of those protected volumes up to $3.39 per Mcf. The Company also had approximately 165 Bcf of its 2019 forecasted gas production protected at an average purchased put strike price or average swap price of $2.97 with upside exposure on approximately 66%, or 108 Bcf, of those protected volumes up to $3.32 per Mcf.
A detailed breakdown of the Company's natural gas derivative financial instruments as of October 24, 2017 is shown below. Please refer to the Company's 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 Swaps Sold Puts Purchased Sold Calls
(Bcf) Puts
---- ----
Financial
protection on
production
2017
----
Fixed price
swaps 73 $3.06 $ - $ - $ -
Two-way
costless
collars 32 - - 2.96 3.38
Three-way
costless
collars 34 - 2.29 2.97 3.30
---
Total 139
2018
----
Fixed price
swaps 178 $3.02 $ - $ - $ -
Two-way
costless
collars 23 - - 2.97 3.56
Three-way
costless
collars 272 - 2.40 2.97 3.37
---
Total 473
2019
----
Fixed price
swaps 57 $3.01 $ - $ - $ -
Three-way
costless
collars 108 $ - $2.50 $2.95 $3.32
---
Total 165
Sold call
options
2017 22 $ - $ - $ - $3.68
2018 63 - - - 3.50
2019 52 - - - 3.50
2020 54 - - - 3.65
2021 35 - - - 3.51
---
Total 225
Note: Amounts may not
sum due to rounding
As of October 24, 2017, the Company had also taken steps to mitigate the volatility of basis differentials by protecting basis on approximately 127 Bcf of its remaining 2017 forecasted natural gas production and 224 Bcf of its 2018 forecasted natural gas production at a basis differential to NYMEX natural gas prices of approximately ($0.53) per Mcf and ($0.29) per Mcf, respectively, which includes the impact of both physical and financial basis positions. A detailed breakdown of the Company's financial basis positions as of October 24, 2017 is shown below:
Financial basis positions Volume Basis
Differential
(excludes physical positions) (Bcf) ($/MMBTU)
---- ---------
2017
Dominion South 22.1 $(1.16)
TETCO M3 10.2 (0.48)
Transco Z6 Non-NY 0.3 0.47
--- ----
Total 32.6 $(0.93)
2018
Dominion South 18.5 $(1.17)
TETCO M3 7.3 1.08
Transco Z6 Non-NY 0.5 2.04
--- ----
Total 26.2 $(0.49)
E&P Operational Review
During the third quarter of 2017, Southwestern invested a total of approximately $320 million in the E&P business and participated in drilling 47 wells, completed 29 wells, and placed 37 wells to sales.
Three Months
Ended Sept
30, 2017 E&P
Division
Results Appalachia Fayetteville
----------
Northeast Southwest Shale
--------- --------- -----
Production
(Bcfe) (1) 101 52 78
Capital
investments
($ in
millions)
Exploratory
and
development
drilling,
including
workovers $104 $90 $20
Acquisition
and leasehold 3 15 1
Seismic and
other 4 2 5
Capitalized
interest and
expense 11 33 5
--- --- ---
Total capital
investments $122 $140 $31
Gross operated
well count
summary
Drilled 23 20 4
Completed 18 7 4
Wells to sales 15 18 3
Realized Price
NYMEX Henry
Hub Price
($/MMBtu) $3.00 $3.00 $3.00
Discount to
NYMEX
($/Mcf)(2) $(1.39) $(1.01) $(0.77)
------ ------ ------
Average
realized gas
price,
excluding
hedges
($/Mcf) $1.61 $1.99 $2.23
(1) Southwest Appalachia production
consist of 25 Bcf of natural gas,
3,799 MBbls of NGLs and 639 MBbls
of oil.
(2) This discount includes a basis
differential, physical basis
sales, third-party transportation
charges and fuel charges and
excludes financial basis hedges.
During the first nine months of 2017, Southwestern invested a total of approximately $921 million in the E&P business and participated in drilling 106 wells, completed 118 wells, and placed 130 wells to sales.
Nine Months
Ended Sept
30, 2017 E&P
Division
Results Appalachia Fayetteville
----------
Northeast Southwest Shale
--------- --------- -----
Production
(Bcfe) (1) 285 131 241
Gross operated
production as
of Sept 30,
2017 (MMcfe/
d) 1,408 958 1,232
Capital
investments
($ in
millions)
Exploratory
and
development
drilling,
including
workovers $315 $244 $73
Acquisition
and leasehold 12 46 1
Seismic and
other 9 3 6
Capitalized
interest and
expense 31 97 17
--- --- ---
Total capital
investments $367 $390 $97
Gross operated
well count
summary
Drilled 56 36 13
Completed 57 38 22
Wells to sales 60 46 23
Realized Price
NYMEX Henry
Hub Price
($/MMBtu) $3.17 $3.17 $3.17
Discount to
NYMEX
($/Mcf)(2) $(0.95) $(0.78) $(0.78)
------ ------ ------
Average
realized gas
price,
excluding
hedges
($/Mcf) $2.22 $2.39 $2.39
(1) SW Appalachia production consisted
of 60 Bcf of natural gas, 10,098
MBbls of NGLs and 1,673 MBbls of
oil.
(2) This discount includes a basis
differential, physical basis
sales, third-party transportation
charges and fuel charges and
excludes financial basis hedges.
Southwest Appalachia - The Company's net production from Southwest Appalachia was 52 Bcfe in the third quarter 2017, a 41% increase compared to the same quarter in 2016. Southwest Appalachia achieved record gross operated exit production rates of 958 MMcfe per day, a 54% increase compared to the third quarter of 2016. Southwestern brought online 18 wells in Southwest Appalachia in the third quarter, which included 17 Marcellus wells and one Utica well. The 17 Marcellus wells had an average lateral length of 6,958 feet and an average cost of $6.7 million per well. In Marshall County, Southwestern placed the four-well Gladys Briggs pad to sales in July with an average completed lateral length of 6,576 feet. The pad is currently producing at a rate of 58 MMcfe per day, comprised of 42% liquids, with an average flowing casing pressure of 2,250 psi. This productivity exceeds the Company's lean gas type curve and results in an estimated pad finding and development costs of less than $0.25 per Mcfe.
During the third quarter of 2017, two key commercial development opportunities that expand margins and create significant long-term value were finalized in Southwest Appalachia.
-- In Marshall and Wetzel counties of West Virginia, the Company dedicated
its dry gas Utica gathering rights to Williams Partners at competitive
long-term gathering rates and concurrently expanded its wet gas
Marcellus processing capacity optionality up to 660 net MMcf per day at
immediately reduced processing rates. This agreement also provides
connectivity options to several premium gas outlets and NGL hubs while
reducing gathering fees. This new agreement is expected to add
approximately $1.4 million in net present value per well for the
Company's lean gas wells.
-- Southwestern commenced a company-owned water infrastructure project in
its Panhandle acreage in West Virginia to more efficiently transport
water throughout the play. The project is expected to reduce completion
costs by $500,000 per well beginning in late 2018 and reduce the
break-even gas price by approximately $0.25 per Mcfe.
Southwestern continues to improve capital efficiency with drilling advancements, lowering costs and increasing recoveries. The Company set two drilling records in the third quarter. The first was on the John Hupp 3H in Brooke County, West Virginia, where 6,202 feet of lateral was drilled 100% in zone of a 15 foot target window, setting a new 24 hour drilling record. The second was on the William Rogers 405H well in Ohio County, West Virginia, which was drilled to a total depth of 13,927 feet in less than 10 days from rig release to rig release. These well results demonstrate how advanced technology is improving operational performance.
The Company's second Utica well, the Marlin Funka 9H was placed online in August 2017. The well had a lateral length of 4,572 feet and was flowing at a rate of 23 MMcf per day prior to being shut in to perform additional tests. The well is expected to flow between 16 and 20 MMcf per day as part of its pressure management program when it is brought back online in the fourth quarter. The Company is encouraged with the initial results and the repeated deliverability demonstrated by its first two wells of the estimated 1,400 locations in its portfolio.
Northeast Appalachia - The Company's net production from Northeast Appalachia was 101 Bcfe in the third quarter 2017, a 20% increase compared to the same quarter in 2016. Northeast Appalachia also achieved record gross operated exit production rates of 1,408 MMcfe per day, a 35% increase compared to the third quarter of 2016. In the third quarter of 2017, the Company placed 15 wells to sales, which had an average lateral length of 8,093 feet and an average cost of $7.2 million per well. The average rate for the first 30 days for the six wells that were online for at least 30 days was 15.7 MMcf per day.
The Company continued its delineation success utilizing enhanced completion designs in Tioga and western Susquehanna Counties, placing seven wells to sales with strong early results. For example, in Tioga County, the Company placed a four-well pad to sales with an average lateral length of approximately 7,500 feet and combined maximum rate of over 80 MMcf per day, flowing against 1,200 psi of line pressure. Additionally, the Company placed its first three-well pad to sales in the Susquehanna County acreage acquired in 2015 with an average lateral length of over 10,000 feet and combined maximum rate of over 62 MMcf per day. One of the wells on this pad utilized an advanced completion design and produced at 33 MMcf per day. The learnings from this well will be applied to future wells in this area.
The Company also generated an additional $0.09 per Mcf on its Northeast Appalachia volumes with its financial basis hedges in the third quarter as basis differentials widened as a result of increased production and delayed in-service dates on new takeaway projects. The current financial basis hedge position is expected to generate an additional $0.11 of benefit during the fourth quarter of 2017 based on current futures strip pricing, with the majority of protection being in October. The diversified firm transportation portfolio continues to position the Company to maximize realized pricing based on market dynamics, and the Company currently expects its 2018 price realizations in Northeast Appalachia to improve by over $0.25 per Mcf as additional infrastructure is placed into service.
Fayetteville Shale - During the third quarter of 2017, the Company placed three wells to sales, including two Moorefield delineation wells. The two Moorefield wells had an average lateral length of 7,495 feet and an average cost of $5.3 million per well. These two step-out wells incorporated learnings from previous well results, delivering an initial production rate of 5.4 MMcf per day and an average EUR of 5.5 Bcf. The Company plans to test two additional wells in the fourth quarter to further test the aerial extent of its Moorefield acreage.
Additionally, the Company successfully renegotiated its Fayetteville firm transportation agreement, subject to FERC approval, providing savings of approximately $70 million from 2017 through 2020, including $45 million in 2018. This agreement also secures flexible take-away capacity at reduced rates of approximately $0.10 per MMBtu after 2020, a reduction of over 60% compared to the current average rate of $0.26 per MMBtu. The Company is pursuing additional opportunities to further enhance margins and lower the break-even cost across the play.
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, 2017 and September 30, 2016, and as of September 30, 2017 and December 31, 2016, 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,
-------------------------
2017 2016
---- ----
(in millions)
Net income (loss)
attributable to common
stock:
Net income (loss)
attributable to common
stock $43 $(735)
Add back:
Participating securities -
mandatory convertible
preferred stock 2 (2)
Impairment of natural gas
and oil properties - 817
Restructuring charges - 2
(Gain) on certain
derivatives (31) (81)
Loss on early
extinguishment of debt(1) 59 57
Adjustments due to
inventory valuation and
other - (1)
Legal settlements 5 -
Adjustments due to
discrete tax items(1) (37) 256
Tax impact on adjustments (12) (301)
Adjusted net income
attributable to common
stock $29 $12
=== ===
(1) 2016 includes a $51 million loss
for the redemption of certain
senior notes and a $6 million
loss related to the unamortized
debt issuance costs and debt
discounts associated with the
extinguished debt which were
included in other interest
changes.
(2) Primarily relates to the
exclusion of certain discrete
tax adjustments associated with
the valuation allowance against
deferred tax assets. The
Company expects its 2017 income
tax rate to be 38.0% before the
impacts of any valuation
allowance.
9 Months Ended September
30,
-------------------------
2017 2016
---- ----
(in millions)
Net income (loss)
attributable to common
stock:
Net income (loss)
attributable to common
stock $548 $(2,514)
Add back:
Participating
securities - mandatory
convertible preferred
stock 59 -
Impairment of natural
gas and oil properties - 2,321
Restructuring charges - 77
(Gain) loss on certain
derivatives (350) 48
Gain on sale of assets,
net (3) (2)
Loss on early
extinguishment of
debt(1) 70 57
Adjustments due to
inventory valuation
and other (1) 3
Legal settlements 5 -
Adjustments due to
discrete tax items(2) (279) 903
Tax impact on
adjustments 107 (945)
--- ----
Adjusted net income
(loss) attributable to
common stock $156 $(52)
==== ====
(1) 2016 includes a $51 million loss
for the redemption of certain
senior notes and a $6 million
loss related to the unamortized
debt issuance costs and debt
discounts associated with the
extinguished debt which were
included in other interest
changes.
(2) Primarily relates to the
exclusion of certain discrete
tax adjustments associated with
the valuation allowance against
deferred tax assets. The
Company expects its 2017 income
tax rate to be 38.0% before the
impacts of any valuation
allowance.
3 Months Ended September
30,
-------------------------
2017 2016
---- ----
Diluted earnings (loss)
per share:
Diluted earnings (loss)
per share $0.09 $(1.52)
Add back:
Participating
securities -mandatory
convertible preferred
stock 0.00 (0.00)
Impairment of natural
gas and oil properties - 1.69
Restructuring charges - 0.01
(Gain) on certain
derivatives (0.06) (0.17)
Loss on early
extinguishment of
debt(1) 0.12 0.12
Adjustments due to
inventory valuation
and other - (0.00)
Legal settlements 0.01 -
Adjustments due to
discrete tax items(2) (0.07) 0.53
Tax impact on
adjustments (0.03) (0.63)
----- -----
Adjusted diluted
earnings per share $0.06 $0.03
===== =====
(1) 2016 includes a $51 million loss
for the redemption of certain
senior notes and a $6 million
loss related to the unamortized
debt issuance costs and debt
discounts associated with the
extinguished debt which were
included in other interest
changes.
(2) Primarily relates to the
exclusion of certain discrete
tax adjustments associated with
the valuation allowance against
deferred tax assets. The
Company expects its 2017 income
tax rate to be 38.0% before the
impacts of any valuation
allowance.
9 Months Ended September
30,
-------------------------
2017 2016
---- ----
Diluted earnings (loss)
per share:
Diluted earnings (loss)
per share $1.10 $(6.02)
Add back:
Participating
securities -mandatory
convertible preferred
stock 0.12 -
Impairment of natural
gas and oil properties - 5.56
Restructuring charges - 0.19
(Gain) loss on certain
derivatives (0.70) 0.12
Gain on sale of assets,
net (0.01) (0.01)
Loss on early
extinguishment of debt 0.14 0.14
Adjustments due to
inventory valuation
and other (0.00) 0.01
Legal settlements 0.01 -
Adjustments due to
discrete tax items(1) (0.56) 2.16
Tax impact on
adjustments 0.21 (2.27)
---- -----
Adjusted diluted
earnings (loss) per
share $0.31 $(0.12)
===== ======
(1) 2016 includes a $51 million loss
for the redemption of certain
senior notes and a $6 million
loss related to the unamortized
debt issuance costs and debt
discounts associated with the
extinguished debt which were
included in other interest
changes.
(2) Primarily relates to the
exclusion of certain discrete
tax adjustments associated with
the valuation allowance against
deferred tax assets. The
Company expects its 2017 income
tax rate to be 38.0% before the
impacts of any valuation
allowance.
3 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
Cash flow from
operating
activities:
Net
cash
provided
by
operating
activities $211 $172
Add back:
Changes in
operating
assets and
liabilities 37 -
Restructuring
charges - 1
--- ---
Net
Cash
Flow $248 $173
==== ====
9 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
Cash flow from
operating
activities:
Net
cash
provided
by
operating
activities $789 $337
Add back:
Changes in
operating
assets and
liabilities 27 50
Restructuring
charges - 47
--- ---
Net
Cash
Flow $816 $434
==== ====
3 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
Operating income
(loss):
Operating
income
(loss) $110 $(725)
Add back:
Impairment of
natural gas and
oil properties - 817
Restructuring
charges and
other charges - 2
Legal
settlements 5 -
Gain on sale of
assets, net (3) -
--- ---
Adjusted
operating
income $112 $94
==== ===
9 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
Operating income
(loss):
Operating
income
(loss) $564 $(2,317)
Add back:
Impairment of
natural gas and
oil properties - 2,321
Restructuring
charges and
other charges - 77
Legal
settlements 5 -
Gain on sale of
assets, net (3) -
--- ---
Adjusted
operating
income $566 $81
==== ===
3 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
E&P segment
operating
income (loss):
E&P
segment
operating
income
(loss) $64 $(777)
Add back:
Impairment of
natural gas and
oil properties - 817
Restructuring
charges and
other charges - 2
Legal
settlements 5 -
--- ---
Adjusted
E&P
segment
operating
income $69 $42
=== ===
9 Months Ended September 30,
----------------------------
2017 2016
---- ----
(in millions)
E&P segment
operating
income (loss):
E&P
segment
operating
income
(loss) $435 $(2,486)
Add back:
Impairment of
natural gas and
oil properties - 2,321
Restructuring
charges and
other charges - 74
Legal
settlements 5 -
--- ---
Adjusted
E&P
segment
operating
income
(loss) $440 $(91)
==== ====
September 30, December 31,
------------- ------------
2017 2016
---- ----
(in millions)
Net debt:
Total
debt $4,436 $4,653
Subtract:
Cash and cash
equivalents (989) (1,423)
---- ------
Net
debt $3,447 $3,230
====== ======
Southwestern management will host a teleconference call on Friday, October 27, 2017 at 10:00 a.m. Eastern to discuss its third quarter 2017 results. The toll-free number to call is 877-407-8035 and the international dial-in number is 201-689-8035. The teleconference can also be heard "live" on the Internet at http://www.swn.com.
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; 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; 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.
Cautionary Note to U.S. Investors - The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We use the term "EUR" in this release that the SEC's guidelines prohibit us from including in filings with the SEC. The quarterly reserves data included in this release are estimates we prepared that have not been audited by our independent reserve engineers. U.S. investors are urged to consider closely the oil and gas disclosures in our Form 10-K and other reports and filings with the SEC. Copies are available from the SEC and from the Southwestern Energy Company website.
OPERATING STATISTICS (Unaudited)
Southwestern Energy Company and Subsidiaries
For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
Exploration & Production
------------------------
Production
Gas production (Bcf) 205 189 587 605
Oil production (MBbls) 663 536 1,747 1,729
NGL production (MBbls) 3,810 3,068 10,134 9,580
Total production (Bcfe) 232 211 658 673
Commodity Prices
Average realized gas
price per Mcf, including
derivatives $1.97 $1.73 $2.22 $1.51
Average realized gas
price per Mcf, excluding
derivatives $1.89 $1.78 $2.31 $1.47
Average realized oil
price per Bbl $40.49 $35.41 $41.48 $28.53
Average realized NGL
price per Bbl $14.47 $7.04 $13.06 $6.11
Summary of Derivative Activity in
the Statement of Operations
Settled commodity amounts
included in "Gain
(Loss) on Derivatives"
(in millions) (1) $17 $(9) $(52) $22
Unsettled commodity
amounts included in
"Gain (Loss) on
Derivatives" (in
millions) $30 $81 $349 $(45)
Average unit costs per Mcfe
Lease operating expenses $0.91 $0.86 $0.90 $0.87
General & administrative
expenses (2) $0.23 $0.23 $0.22 $0.21
Taxes, other than income
taxes (3) $0.10 $0.10 $0.10 $0.09
Full cost pool
amortization $0.48 $0.35 $0.44 $0.40
Midstream
---------
Volumes marketed (Bcfe) 273 264 782 814
Volumes gathered (Bcf) 123 145 380 463
(1) Excludes $3 million amortization
of premiums paid related to
certain call options for the
three and nine months ended
September 30, 2017, which is
included in gain (loss) on
derivatives on the statements
of operations (unaudited).
(2) Excludes $2 million and $71
million of restructuring
charges for the three and nine
months ended September 30,
2016, respectively.
(3) Excludes $3 million of
restructuring charges for the
nine months ended September 30,
2016.
STATEMENTS OF OPERATIONS (Unaudited)
Southwestern Energy Company and Subsidiaries
For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
---- ---- ---- ----
(in millions, except share/per share amounts)
Operating Revenues
Gas sales $394 $340 $1,368 $906
Oil sales 27 19 73 50
NGL sales 55 22 132 59
Marketing 233 237 736 631
Gas gathering 28 33 85 106
--- --- --- ---
737 651 2,394 1,752
--- --- ----- -----
Operating Costs and Expenses
Marketing purchases 236 234 740 627
Operating expenses 170 139 481 455
General and administrative expenses 62 61 170 171
Restructuring charges - 2 - 77
Depreciation, depletion and
amortization 135 99 364 349
Impairment of natural gas and oil
properties - 817 - 2,321
Taxes, other than income taxes 24 24 75 69
--- --- --- ---
627 1,376 1,830 4,069
--- ----- ----- -----
Operating Income (Loss) 110 (725) 564 (2,317)
--- ---- --- ------
Interest Expense
Interest on debt 58 59 175 168
Other interest charges 2 8 7 12
Interest capitalized (29) (41) (85) (123)
--- --- --- ----
31 26 97 57
Gain (Loss) on Derivatives 45 71 295 (28)
Loss on Early Extinguishment of
Debt (59) (51) (70) (51)
Other Income (Loss), Net (2) 3 6 -
--- --- --- ---
Income (Loss) Before Income Taxes 63 (728) 698 (2,453)
Benefit for Income Taxes
Current (10) - (10) -
Deferred (4) (20) (4) (20)
--- --- --- ---
(14) (20) (14) (20)
--- --- --- ---
Net Income (Loss) 77 (708) 712 (2,433)
Mandatory convertible preferred
stock dividend 27 27 81 81
Participating securities -
mandatory convertible preferred
stock 7 - 83 -
--- --- --- ---
Net Income (Loss) Attributable to
Common Stock $43 $(735) $548 $(2,514)
=== ===== ==== =======
Earnings (Loss) Per Common Share
Basic $0.09 $(1.52) $1.11 $(6.02)
===== ====== ===== ======
Diluted $0.09 $(1.52) $1.10 $(6.02)
===== ====== ===== ======
Weighted Average Common Shares
Outstanding
Basic 499,812,926 482,485,150 496,458,435 417,222,661
=========== =========== =========== ===========
Diluted 502,290,779 482,485,150 498,527,671 417,222,661
=========== =========== =========== ===========
BALANCE SHEETS
(Unaudited)
Southwestern Energy
Company and
Subsidiaries
September 30, December 31,
2017 2016
---- ----
(in millions)
ASSETS
Current assets $1,476 $1,872
Property and equipment 25,454 24,489
Less: Accumulated
depreciation,
depletion and
amortization (19,904) (19,534)
------- -------
Total property and
equipment, net 5,550 4,955
Other long-term assets 176 249
--- ---
Total assets 7,202 7,076
===== =====
LIABILITIES AND EQUITY
Current liabilities 784 1,064
Long-term debt 4,396 4,612
Pension and other
postretirement
liabilities 46 49
Other long-term
liabilities 324 434
--- ---
Total liabilities 5,550 6,159
----- -----
Equity:
Common stock, $0.01
par value; September 15, 2017)
1,250,000,000 shares and 495,248,369 as of
authorized; issued December 31, 2016
509,142,659 shares as
of September 30, 2017
(does not include
3,346,703 shares
issued on October 16,
2017 on account of a
dividend declared on 5 5
Preferred stock, $0.01
par value, 10,000,000 and December 31,
shares authorized, 2016, conversion in
6.25% Series B January 2018
Mandatory
Convertible, $1,000
per share liquidation
preference, 1,725,000
shares issued and
outstanding as of
September 30, 2017 - -
Additional paid-in
capital 4,698 4,677
Accumulated deficit (3,013) (3,725)
Accumulated other
comprehensive loss (37) (39)
Common stock in
treasury; 31,269
shares as of
September 30, 2017
and December 31, 2016 (1) (1)
--- ---
Total equity 1,652 917
----- ---
Total liabilities and
equity $7,202 $7,076
====== ======
STATEMENTS OF CASH
FLOWS (Unaudited)
Southwestern Energy
Company and
Subsidiaries
For the nine months ended
September 30,
2017 2016
---- ----
(in millions)
Cash Flows From
Operating Activities
Net income (loss) $712 $(2,433)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 364 349
Impairment of natural
gas and oil properties - 2,321
Amortization of debt
issuance costs 7 12
Deferred income taxes (4) (20)
(Gain) loss on
derivatives, unsettled (350) 48
Stock-based
compensation 19 24
Restructuring charges - 30
Loss on early
extinguishment of debt 70 51
Other (2) 5
Change in assets and
liabilities (27) (50)
--- ---
Net cash provided by
operating activities 789 337
--- ---
Cash Flows From
Investing Activities
Capital investments (943) (391)
Proceeds from sale of
property and equipment 17 434
Other 5 -
--- ---
Net cash provided by
(used in) investing
activities (921) 43
---- ---
Cash Flows From
Financing Activities
Payments on short-term
debt (287) (1)
Payments on long-term
debt (1,139) (1,175)
Payments on revolving
credit facility - (3,268)
Borrowings under
revolving credit
facility - 3,152
Payments on commercial
paper - (242)
Borrowings under
commercial paper - 242
Change in bank drafts
outstanding - (19)
Proceeds from issuance
of long-term debt 1,150 1,191
Debt issuance costs (18) (17)
Proceeds from issuance
of common stock - 1,247
Preferred stock
dividend (8) (27)
Other - (4)
--- ---
Net cash provided by
(used in) financing
activities (302) 1,079
---- -----
Increase (decrease) in
cash and cash
equivalents (434) 1,459
Cash and cash
equivalents at
beginning of year 1,423 15
----- ---
Cash and cash
equivalents at end of
period $989 $1,474
==== ======
SEGMENT INFORMATION (Unaudited)
Southwestern Energy Company and Subsidiaries
Exploration Midstream
and Services
Production Other Eliminations Total
------------ ---------- ----- ------------ -----
(in millions)
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 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
Three months ended September 30,
2016
--------------------------------
Revenues $378 $682 $ - $(409) $651
Marketing purchases - 578 - (344) 234
Operating expenses 181 23 - (65) 139
General and administrative
expenses 50 11 - - 61
Restructuring charges 2 - - - 2
Depreciation, depletion and
amortization 83 16 - - 99
Impairment of natural gas and
oil properties 817 - - - 817
Taxes, other than income taxes 22 2 - - 24
Operating income (loss) (777) 52 - - (725)
Capital investments (1) 179 1 - - 180
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 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
Nine months ended September 30,
2016
-------------------------------
Revenues $998 $1,862 $ - $(1,108) $1,752
Marketing purchases - 1,533 - (906) 627
Operating expenses 586 71 - (202) 455
General and administrative
expenses 141 30 - - 171
Restructuring charges 74 3 - - 77
Depreciation, depletion and
amortization 300 49 - - 349
Impairment of natural gas and
oil properties 2,321 - - - 2,321
Taxes, other than income taxes 62 7 - - 69
Operating income (loss) (2,486) 169 - - (2,317)
Capital investments (1) 372 3 1 - 376
(1) Capital investments includes a
decrease of $2 million and an
increase of $27 million for the
three months ended September
30, 2017 and 2016,
respectively, and decreases of
$13 million and $24 million for
the nine months ended September
30, 2017 and 2016,
respectively, relating to the
change in capital accruals
between periods.
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SOURCE Southwestern Energy Company
