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Southwestern Energy Third Quarter 2021 Results

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   |    Thursday,November 04,2021

Southwestern Energy Co. announced financial and operating results for the third quarter ended September 30, 2021.


  • Established scale positions in the two premier US natural gas basins by expanding operations into the Haynesville with the closing and integration of Indigo Natural Resources;
  • Generated $213 million net cash provided by operating activities, $396 million net cash flow (non-GAAP), and $105 million of free cash flow (non-GAAP);
    - On track to exceed $475 million in free cash flow in 2021
  • Improved leverage ratio by 0.4x to 2.2x and expect to reduce leverage to approximately 2x by year-end;
  • Issued $1.2 billion of 5.375% senior notes due 2030, extending maturity runway and lowering cost of debt; received credit rating upgrade to BB by S&P;
  • Reported total production of 310 Bcfe, or 3.4 Bcfe per day, including one month of Haynesville production; total 2.7 Bcf per day of gas and 106 MBbls per day of liquids;
  • Achieved record SEC proved reserves (unaudited) of approximately 18.5 Tcfe; and
  • Received weighted average realized price (excluding impact of transportation and hedges) of $4.08 per Mcfe.

CEO Bill Way said: "Disciplined execution and financial strength defined the quarter for Southwestern Energy. Our team delivered financial and operating results which exceeded expectations, including the successful establishment of operations in Haynesville. Our team's proven capabilities in large scale consolidation and development are capturing the tangible benefits of scale from core positions in the two premier US gas basins. Our strategy continues to differentiate SWN and strengthen our position as a preferred investment opportunity for institutional investors seeking exposure to responsible natural gas development."

Finance Update

The Company prioritizes protecting its financial strength and will continue the allocation of free cash flow to debt reduction and disciplined risk management. Given the current commodity price outlook and successful recent strategic actions, the Company has reduced its sustainable leverage target from 2x to a target range of 1.0x to 1.5x.

Within its disciplined risk management policy, the Company will target a level of hedges that protects the funding for capital investments and other financial priorities, including debt repayment. This approach to hedging safeguards the Company's financial strength while also retaining meaningful exposure to potential commodity price upside.

For the quarter ended September 30, 2021, Southwestern Energy recorded a net loss of $1.86 billion, or ($2.36) per diluted share, compared to a net loss in 2020 of $593 million, or ($1.04) per diluted share. The quarter ended September 30, 2021 included a $2,011 million loss on unsettled derivatives, and the same period for 2020 included a $361 million non-cash impairment and a $289 million loss on unsettled derivatives.

Adjusted net income was $188 million, or $0.24 per diluted share, in the third quarter of 2021, compared to $47 million, or $0.08 per diluted share, for the prior year period. The increase was primarily related to a 40% increase in the weighted average realized price, including derivatives, and a 40% increase in production volumes, largely due to the Indigo and Montage acquisitions. Adjusted EBITDA (non-GAAP) was $426 million, net cash provided by operating activities was $213 million, net cash flow (non-GAAP) was $396 million and free cash flow (non-GAAP) was $105 million.

As indicated in the table below, third quarter 2021 weighted average realized price, including $0.34 per Mcfe of transportation expenses, was $3.74 per Mcfe, excluding the impact of derivatives. Including derivatives, weighted average realized price (including transportation) for the quarter was up 40% from $1.78 per Mcfe in 2020 to $2.49 per Mcfe in 2021, primarily due to higher commodity prices, including a 103% increase in NYMEX Henry Hub and a 72% increase in WTI, partially offset by the impact of settled derivatives. Third quarter 2021 weighted average realized price before transportation expense and excluding the impact of derivatives was $4.08 per Mcfe.

As of September 30, 2021, Southwestern Energy had total debt of $4.2 billion and a leverage ratio of 2.2x, an improvement of 0.4x compared to the previous quarter. At quarter end, the Company had $665 million of borrowings under its revolving credit facility with $159 million in letters of credit. The letters of credit decreased $74 million due to the Company's September 1st S&P upgrade to BB credit rating.

During the quarter, the Company issued $1.2 billion of 5.375% senior notes due 2030 and utilized the proceeds to refinance higher coupon senior notes due 2025 and 2026 and to repay a portion of its revolver. The issuance extended the weighted average time to maturity of its senior notes to greater than 6 years and improved the weighted average cost of debt to approximately 6%.

Operational Results

Total production for the quarter ended September 30, 2021 was 310 Bcfe, of which 81% was natural gas, 16% NGLs and 3% oil. Capital investments totaled $291 million for the third quarter, with 17 wells drilled, 23 wells completed and 24 wells placed to sales.

Appalachia - In the third quarter, total production was 280 Bcfe, with NGL production of 87 MBbls per day and oil production of 19 MBbls per day. The Company drilled 15 wells, completed 19 wells and placed 19 wells to sales with an average lateral length of 14,147 feet. During the third quarter, Appalachia well costs averaged under $630 per lateral foot for wells placed to sales, including approximately $550 per lateral foot in dry gas Marcellus. In the fourth quarter, the Company expects to average 2 rigs and 2 completion crews on its Appalachia properties, with activity in both dry gas and liquids rich areas.

Haynesville - The Company closed on the acquisition of its Haynesville assets on September 1, 2021, and as such, third quarter results include 30 days of production and activity. Production was 30 Bcf, or 1.0 Bcf per day. The Company drilled two wells, completed four wells and placed five wells to sales. All five wells placed to sales were in the highly economic Middle Bossier with an average initial production rate of 24 MMcf per day and an average lateral length of 6,326 feet. The Company expects to maintain the current rig and completion crew activity through the fourth quarter, placing 10 to 13 wells to sales.


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