Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Hedging | Capital Markets | Capital Expenditure | Drilling Activity | 2020 Guidance

Southwestern Energy Second Quarter 2020 Results

Share Print Bookmark    |    Thursday,July 30,2020

Southwestern Energy Co. reported its Q2 2020 results.

Highlights:

• Broad-based cost elimination with full year expense savings totaling $90 million, up $30 million since last quarter;
• Achieved record single-well cost of $505 per lateral foot; expect to average $650 per foot in the second half of the year;
• Revised annual capital guidance to $860 million - $915 million, lowering high end of range;
• Shallowed annual base decline to 23%;
• Delivered total production of 201 Bcfe; including 1.7 Bcf per day of gas and 79 MBbls per day of liquids;
• Realized $120 million in cash settlements from the hedging program across all commodities, a $0.60 per Mcfe benefit; reported weighted average realized price (excluding transportation) of $2.05 per Mcfe including derivatives; and
• Repurchased $27 million senior notes at a 24% discount; year-to-date senior note repurchases total $107 million at a 33% discount.

Bill Way, Southwestern Energy President and Chief Executive Officer, said: "Southwestern Energy again underscored its strength and resilience during the second quarter. We mitigated many of the far-reaching impacts of COVID-19 on the industry with operational agility and commercial flexibility to achieve results at or above our commitments. These actions support our return to a self-funded capital program in 2021.

"We delivered comprehensive cost reductions, improved our base decline and lowered well costs, all ahead of expectations. This progress, along with our dynamic hedge portfolio and returns-focused capital allocation practice, solidly moves us forward on our path to deliver sustainable long-term value," continued Way.

Updated Guidance

The Company revised its annual guidance to reflect lower costs across all categories and higher NGL price realizations as a percentage of WTI. Production guidance is also revised due to the shift in activity to high-rate, high-volume gas, resulting in a rebalance of production mix and well count.

Updated guidance noted in bold:

Financial Results

For the quarter ended June 30, 2020, Southwestern Energy recorded a net loss of $880 million, or ($1.63) per diluted share, including $655 million of non-cash impairments and a $229 million non-cash loss on unsettled mark-to-market derivatives. This compares to net income of $138 million, or $0.26 per diluted share in the second quarter of 2019. Adjusted net income (loss) (non-GAAP), which excludes the non-cash items noted above, was a $1 million loss, or ($0.00) per diluted share in the second quarter of 2020, compared to adjusted net income of $40 million, or $0.08 per diluted share for the prior year period. The decrease in adjusted net income (loss) was primarily related to a 47% decrease in average realized price, partially offset by $120 million in cash settled derivative gains in 2020 and a $31 million decrease in depreciation, depletion and amortization expense. Adjusted EBITDA (non-GAAP) was $106 million, net cash provided by operating activities was $94 million and net cash flow (non-GAAP) was $87 million.

As indicated in the table below, second quarter 2020 weighted average realized price (including transportation) was $1.65 per Mcfe including derivatives, down 24% from $2.17 per Mcfe in the prior year period. Settled derivatives provided a $0.60 per Mcfe uplift to realized price, but were more than offset by lower commodity prices, including a 35% decrease to NYMEX Henry Hub and 53% decrease in West Texas Intermediate (WTI), compared to prior year.

During the second quarter, the Company realized $120 million in cash settled derivative gains, bringing year-to-date cash settled derivative gains to $213 million. As of June 30, 2020, the fair value of unsettled derivatives for the remainder of 2020 was a $195 million asset. The Company has 385 Bcfe of its remaining expected 2020 production hedged with swaps and collars for approximately 90% of natural gas, 95% of oil and 60% of NGLs. In addition, the Company has 145 Bcf of natural gas financial basis hedges.

As of June 30, 2020, Southwestern Energy had total debt of $2.46 billion and a cash balance of $10 million, with a leverage ratio of 3.1x. During the quarter, the Company reduced senior notes by $27 million through open market repurchases at a 24% discount, bringing year-to-date senior notes reduction to $107 million, at a 33% discount. The Company's senior notes totaled $2.12 billion, with only $207 million due before 2025.

At the end of the second quarter, the Company had $1.26 billion undrawn commitment under its $1.8 billion revolving credit facility with $336 million borrowed and $209 million in outstanding letters of credit. Since April, the Company was able to convert $113 million in outstanding letters of credit to surety bonds.

Operational Results

Total production for the quarter ended June 30, 2020 was 201 Bcfe, comprised of 79% natural gas, 18% NGLs and 3% oil. Capital investments totaled $245 million for the second quarter, with 30 wells drilled, 31 wells completed and 31 wells placed to sales. During the quarter, the Company shifted activity to high-rate, high-volume natural gas wells, with over 80% of wells drilled in dry gas Northeast Appalachia and rich gas Southwest Appalachia. The Company has revised its well count guidance ranges to reflect the shift in activity, with full year capital investment estimated to be split evenly between Northeast Appalachia and Southwest Appalachia.

The Company continues to deliver well cost reductions ahead of expectations. In the second quarter, wells to sales averaged $691 per lateral foot, with an expected full year average of $690 per foot, compared to original guidance of $730 per foot. This incremental reduction is due to operational efficiencies, completion design optimization and deflationary service costs. Additionally, the Company expects to average $650 per foot for wells to sales in the second half of 2020.

Southwest Appalachia - In the second quarter, total production was 88 Bcfe, half of which was liquids production of 79 MBbls per day. The Company drilled nine wells, completed 17 wells and placed 20 wells to sales. The average lateral length of wells to sales was 11,469 feet, and included six wells in the rich area and 14 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 17.2 MMcfe per day, while 12 of the super rich wells were online for at least 30 days and had an average 30-day rate of 7.3 MMcfe per day, including 67% liquids. The production rates associated with the super rich wells were temporarily managed lower to mitigate condensate market constraints that existed early in the second quarter.

Northeast Appalachia - Second quarter production was 113 Bcf. There were 21 wells drilled, 14 wells completed and 11 wells put to sales with an average lateral length of 9,693 feet. Of the eight wells that were online for at least 30 days, six were Lower Marcellus, with an average 30-day rate of 14.8 MMcf per day. Second quarter wells to sales represented a different well mix compared to the first quarter, which was primarily located in the higher rate Tioga area. The two remaining wells were part of the Upper Marcellus testing and had an average 30-day rate of 8.3 MMcf per day.