Southwestern Energy (SWN) 28 Feb 202019 Q4 Earnings call transcript

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Southwestern Energy Fourth Quarter and Year-end 2019 Earnings Call [Operator Instructions] This call is being recorded. [Operator Instructions]

I will now turn the call over to Paige Penchas, Southwestern Energy's Vice President of Investor Relations.

You may begin.

Drew. you, Thank welcome year and Energy's quarter fourth Good earnings to call. fiscal XXXX and morning Southwestern

Joining are Bott; Clay and Carrell, and me Executive Kurtz, Transportation. Chief Chief today Jason Operating Bill Way, Officer; of Julian Head Chief Officer; and Financial Marketing President Officer;

is our Along which website and at our earnings Investor the yesterday's release, we www.swn.com. in with filed Relations also guidance XX-K, available section of

filings statements this control and are the out and get risks that to many and call statements in started, are with detail comments the beyond discussed the we affecting forward-looking Before uncertainties sections Factors Securities more point our during involve these and the Commission. quarterly outcomes. and I'd Exchange of of report Risk annual in forward-looking in like Many are our and

of believe reasonable are refer the not peers. facilitate and with materially. We expressed they may are across financial developments which periods differ to future non-GAAP expectations and we may based performance also assumptions, measures, Although on some actual comparisons or results help guarantees

any a website. the measure corresponding GAAP on in reconciliation be release use non-GAAP found measures nearest can our our to earnings For we available

Way. will call I the to over turn Bill now

joining the and Thank several intentional everyone We've distraction. thank specific sheet pursue over high-grade you, actions broad fortify our without enhancing to of the a proactive environments. range portfolio, that the to and opportunities several commodity taken to and cost, balance value Paige. Company's very call. affording augment ability over economic the reduce us you Good time been years for We've last morning and the resilience across

our and some of ahead look achieved provide our teams to reflections on last plans. like and Company results would year go-forward the the I successful Today, at

a performance the even Energy's plan plan, two-year Southwestern the changing and strong and the industry of faces team that and to completion quarterly forward resistant, an in our today. agile to are reflects talented back cash transition a yearly portfolio neutrality exceptionally is driving flow Company and the environment continued

million the of fourth grew decline Company's by For outperformed decreased expectations forward. we the million XXXX, condensate going $XXX our XX% We which flow XX% $XXX production and by base production was of to rate from generating cash quarter.

we lateral XX% costs by efficiency, foot. capital reduced per $XXX to Regarding well

well Importantly, including to and flowback Pennsylvania dry liquids average and cost well well includes this in drilling, all and both completions cost wells performance. in sales Virginia all gas and without rich West sacrificing both

how well Clay is in going XXXX on to even lower cost you give we're to in further details more minutes. few going a

cost reduced improvements including another cost G&A addition structure earlier this by million. and $XXX total G&A Company's capital In $XX to interest the year. implemented we million reduction We

we Company the the and We have prices. can every look changed commodity fundamentally process every thrive way cost so lower in at that

efficiencies, well improve continue are operational efforts in to positioned We opportunities. our to take costs undeterred are advantage to of value-enhancing and reduce

At no available billion cost our XXXX EBITDA maturities year-end risk. looming we had high with debt of thus liquidity no material and times refinancing $X to before under net and bank X.X $X.X debt billion of facility

Fitch faces, our subject with capital support of to base, asset was with neutrality and and downgrades, sector. to rare to with transition a our SWN reposition XXXX current gas the the has in no free Fayetteville, goal challenges natural this the made that set Company changes cash sold S&P back two ratings we with has credit along the commodity Even confidence in also to which Company its journey. we our Moody's, have strategy. flow years, the price year maintained disciplined industry goal, allocation we first been the transformational on When our in the pursuit high-quality

and rate dry our guidance. our right-sized I'd Tier to rich now plan. wells large inventory of from allows more natural liquids capacity our X and like XXXX (X:XX:XX)and us with capital operational less our transportation outperformance, do gas The supports firm transition to for high both address condensate gains and efficiency gas

We are XXXX reducing XX% versus our capital by XXXX. investment program

million midpoint, in invest our of is which completion We expect and operations $XXX Appalachia principally our being to drilling million in superrich invested acreage. $XXX at Southwest

True capital strategy, projects internal investment our incremental pricing. rates must on returns to our philosophy exceed disciplined and hurdle strip at allocation

expect Additionally, curve will be capital will the to if capital were use our guidance, flow, but above would in strip reduce instead we If to the lower This our excess prices increase, fall cash debt. forward flow different. year and results no lower we investment. not cash to increase

to upside protection that flow Company's rolling opportunity is market the retaining and hedging program provide Our cash fundamentals the for while the three-year suggest. designed capture well-established to

We are our oil XX% our price production XXX% of well of hedged commodity in from and gas protected XXXX volatility. with

such, we basis much risk through our management mitigated have of that discipline To risk clear, As you've commodity the to be and capital hedging. around and allocation remains know unchanged. the come

we free ability and over this on generate positions in plan a an believe to more So provide us reduce flow levels to self-fund for and debt mean beyond, and return overall the shareholders. capital with to comment cash what plan will time investment does opportunity moment. that ultimately an to XXXX Clay

Now anyone want their value development company for increasingly for works to in they our must commitment a to and energy safety, let's in, emphasizing care no I relentless thank turn ESG. employees important condition started the service is a the Responsible hurt. go one day who focus each to core Company of and of in that our other words, environment focus on day our of that should the gets to include home investors. in our

company's recorded the we the rate in injury XXXX history. lowest During recordable

as providing as effort among work contractors is behalf team at This as SWN. at environment. who safe company nurturing employees together well one on very safety our all the best includes a working work Our and

our and greater stewardship where freshwater amounts environmental to consume. participation operate commitment we well active areas by is Our we to return demonstrated ongoing in than

are reducing results we liquids positioned and producer, gas well a future demonstrated energy a carbon leading in emissions. As in low natural with gas

core leak are and that has a for detection facilities a emissions on these gas we're we've fraction been very, XXX% of leak years rates many and our proud national very technology loss average the operating of advanced of accomplishments. philosophy greenhouse Minimizing and have

Let to color some to on Clay operational additional provide this achievements. me over our turn

Bill. Thanks,

operational few, reduction that of fourth continued well for XXXX and we quarter are our We achieved quarter record range. guidance expectations. ahead beat results beat high-end and and at the costs production guidance fourth production target outperformance of the high-end year and results full and a our our the the the known the well year Our equivalent quarter. well for condensate we annual of To low finished in name with cost we delivered

to into continue are XXXX. embrace teams carrying and outperformance Our they culture our this momentum

record All of accomplished care this with was performance for the while environment. demonstrating safety

highlights XXXX. few a with start me from Let

in was the barrels to inventory production full excluding Investing compared barrels per XX% XXXX day. increasing quarter of almost XXX a were led average, highest condensate approximately Total XX,XXX year production, value when production. per Fayetteville up total and barrels condensate XX,XXX XX,XXX to a to XX% day XX% Bcfe, in XX% our Liquids increase. the of day over production for

is cost relentless. focus Our

we to XX% reduction. $XXX well mentioned, a lateral reduced cost of Bill an foot, average As total per

$XXX a We foot low per an also well on of set lateral. lateral cost new record XX,XXX foot

implementation will logistics, application integrated self-sourced pipeline result realized and achieved reduced completed lengths to improving. our by benefits reduction talented keep systems, planning, people. an well to leading cost We exceed lateral Supporting sand, cycle we increased I this the fully and of approach, times our water room have of technology we others and highly exceptional sourcing, this through discuss integrated So to approach target.

this me let to core Tcfe of on leasing. contributors Tcfe to touch Now, increased of X% reserves. year-end our X from proved acreage We were reserve mostly revisions positive over performance increase reserve over Tcfe. additions, and Primary XX.X new X

we reductions our pricing. resource proved of offset resource. of Tcfe developed economic future result XXX cost which we by at and a year-end, drilling with X,XXX F&D had strip reserves, to reserves our Consistent $X.XX consumption our and maintained to of we over total our locations, an current are increased XX At As XX% Mcfe. lowered efforts,

installing Lastly, forecasted contributor wellhead the per production compressors base for across the over This company the acreage was by XX%. we pressures base to shallowing decline our uplift. portions lower of to in key strategically pad feet realizing cubic million decline XX Appalachia production our of Northeast to day production the reduced asset

are delivering high-end clear on our and outperformance can above-target of outcomes examples these of and All culture focusing together working how results. teams achieve experienced

touch a plan. Now I XXXX of will on few operational our key components

on As Bill investment expect Even mentioned, wells year to many by XXXX. capital as with we almost reduction, will XX%. sales in that bring as to reduce we full

wells included greater year's by will Additionally, sales feet to than ultra this long average XX% to length feet XX lateral approximately on over program. the in XX,XXX laterals which are our with XX,XXX grow

in capital acreage will with projects approximately Similar rich Our in capital gas dry include activity to Virginia of highest-return investment front-half one-third going West liquids investment prior to the plans years, our two-thirds loaded. our Pennsylvania. be and

As are in quarters running year. our of and planned, half rigs crews will to frac of online three Virginia. currently rigs in six the frac crews the the with West majority and two capital and with second second the wells this four in profile, we Corresponding come production third increasing

of will total This in midpoint. Bcfe production plan XXX result at investment

increase to and barrels development NGLs We our and expect is The the Appalachia Northeast resulting will barrels per increase increase rich XX,XXX of condensate acreage with almost associated production day. XX% XX% flat. XX,XXX production to gas approximately to day liquids to per primarily be natural

superrich area acreage XX% production In rapidly be XX% to come be quarters and our from our the of Southwest quarter, the driver completions development the grow our down Timing wells half will rich the second in main in year. in and sales will and the the from with first will first condensate of of rich of condensate Appalachia, volumes of to the more two volumes acreage. flat then

we will compression in and invest pad continue project. our Lower inventory Northeast In expand Appalachia, Marcellus our to

and will Marcellus tests. drill In we addition, between four two Upper

longer wells cost in We the additional well continued will trending well similar operational have $XXX pursuing are foot of completion throughout enhancements The design lateral reductions cost for of a and our execution continued per averaging to by being XX% XXXX reduction and profile down These to sales. profile driven XXXX cost improvements. reductions laterals, efficiency are year.

other than culture a The cost on building efficiencies. with liquids the the and greater the production will similar of associated look and LOE sharing more In by reductions outperformance rate operational increased to and year. will increased be XXXX. as forward momentum of fourth XXXX, and throughout costs project compression LOE further revenues are we our quarter have achievements run offset the

With that, the highlights. over Julian I'll turn to financial the to call review

morning good everyone. And Clay. you, Thank

we million, $XXX of expenditures share, million. the fourth $XX flow As yesterday reported, adjusted or cash and income quarter of net $X.XX capital million per of disclosed net for $XXX

capital price earnings $XXX expenditures the net benefits share, the For $X.XX hedging gains net per had in strategy million. we commodity or weighted substantial resulted within flow year, X% realized core our income a of $XXX reflected of This totaling billion. year, and Disciplined $X.XX were where the are despite million, management the part in adjusted prices. average in was million remaining risk cash prior was and decrease our our XXXX with hedging settled $XXX

hedging XXXX. continue We Approximately portfolio is floor the XXXX XX% our of $X.XX expect of hedged in to pricing protect of realized MMBtu through production the price our from to April remainder at gas per a year. expected

hedged, of for have and primarily propane. For we NGLs approximately with ethane production our XX% swaps

of all a forecasted and XX% of gain. sizable this $XX.XX. price experienced production revenues protected declines essentially have year-to-date, should mark-to-market at hedged have total, the we have we we floor an price given our projected year's XXXX In average approximately oil Finally, of

production In entering Bcf average we XXX our $X.XX an for also basis at basis to risk, expected of managed financial into risk by addition NYMEX. hedges hedging our gas to commodity XXXX discount locational

which our the protection provided to access is markets Hub correlated Coast pricing. the Additional Henry are Gulf highly through to

fourth the XXXX. XXXX, $X.XX MMBTU to the markets. of quarter $X.XX $X.XX $X.XX fourth full weather at portfolio to to quarter $X.XX the with differential year compared a for the transportation witnessed to we including quarter, the a allowed to per as us the expected NYMEX Northeast in expect of quarter for the of year discount Looking pricing a warm NYMEX. $X.XX to diversified for improvement discount transportation be gas in discount we our the $X.XX our during first access to Despite third premium and compares to This

to NGL WTI of to front, to while midpoint QX, been full of XX%, range. prices look expect percentage as a year be as volatile the guidance On is we have that XX% our around we

the Our percentage at in NGL differentials the throughout typically summer. can of vary lower a WTI percentage a year winter and trading the in higher

in the structure XXXX. additional leading to We gross continue realized significant our cost decreasing down XXXX. We to savings. Mcfe, taken to to by XXXX, further $XXX and have our permanent In already unfortunate but improvement of in G&A from we per for make $XX annualized $X.XX necessary an reduce year to cost in a the million guidance G&A actions full G&A million, midpoint interest $X.XX

average XXXX, notes, repurchased with XX% weighted and challenging we an $X.X X.X%. we During All these on of markets senior of leaving XXXX the at in and average of of market. we notes senior notes a of discount interest $XX billion million the notes and remaining are in dependent senior million this $XXX XXXX million not retired for but beyond that capital of total outstanding feel refinancing rate fortunate mature our $XX a of

only billion $XXX with $XX letters credit of had we year, the outstanding. of revolver of liquidity million of of At on our and million the borrowings end $X.X

times net for balance is as strength we the focused sheet, and XXXX, was plan which our year-end we Our to remain debt on EBITDA of X.X long-term sharply at success. maintaining critical to our

XX% reduction meet cost this and track goal cash of by flow our end free neutral to mindful XXXX, adjust are you efficiencies, our of benefits. flow as with These our already changes align are pricing year, plans ongoing strip current well still will program Bill, the including the continue in of from appropriately pricing. by on impact operational We to of reductions, driven becoming the heard cash have plans, environment capital and outperformance hedge the to from we to volatile

our remarks. concludes That prepared

Drew, could questions? please So, the open for line you

Charles [Operator from Yes. of Johnson Meade question go ahead. first Instructions] Rice. comes The Please

to Bill morning, Good team you and there. your

morning, Charles. Good

your Appalachia play. gas I – about wondered I dry if if we ask question could Northeast could a

any So a level just why back third you're there kind maintenance the you about third why get you've than just us choosing of more allocate rig to bare that there. CapEx like would pulling CapEx give of your CapEx your can reasoning and got keeping of one of a going a running of instead more? But

improved and cost about. lowered others and talked everything have we've productivity, our Clay So efficiencies and as

with in We we're The are holding and But PA. in flat. that Northeast suggesting. drilled drilling we you're compete our core the exactly acreage doing We're wells the of production flat other holding are it as investments.

your flow Okay, prepared got And about it. free comments cash then remarks your going to in positive. back

the Again, a to XXXX cash guys positive free XQ were see. But flow flow you right I I actually think this that the are in we Bill you So – free now? positive thing timeline reach to and that heard is current – positive. that what where what's was on say plan two-year cash

from we We're to get on our cash Fayetteville and the to the and track track. sale a on two right was of and third flow take right objective there are years our of

commodity And so this year, objective. by price the end we this that will reach expect of in to we

for you Thank right. All that.

question Campbell ahead. next Brothers. The go from comes Please of Jeffrey Tuohy

morning. Good

morning. Good

how managed of you wondering is decline pull to rate and back X% as to I'm allowing you XXXX? think capital in of are the much kind I first meaningfully still is corporate question grow my current

Clay. this Yes, is

talked pad part been get greater in the our we Appalachia. the as from we and we base Northeast when decline cash our flow focus dropped that X% by percentage talked As that approximately compression about we've year-over-year greater about of has and shallow project we of

company, as achieve factors whether times, a you ability capital cycle of our it's of and the maintenance would one lower number that's of to that's both those whether cost this. across contribute efficiencies And G&A, things entire to all and understand and

various you is recently for bearing they place work going to what larger likely Okay. reduced that regarding a rerating called as permanent adjustments peer reorganized mind in ask or it capital of workforce to tied in this primarily tough to and your noted that its wanted a forward. investment Do see a its a as had G&A the future? into question G&A, And downturn I the remain you largely

at we return at it a and do of is set to look look the through, at of to efficiency where of that. efficient we when way that, look Yes, and more any other we to better, a G&A determine different, exactly the aspects that cost go cost number there

designed of into budget in built sustainable in been we we into Our cost couple have XXXX in ones reductions in and the into the years both XXXX over XXXX so to XXXX are – the the our last did they budget, ones the be did on. and

we continue. that And expect so durable and through are will they time that

the I you. appreciate Thank great. color. Okay,

Trotsenko Jane from comes question Stifel. Please next go ahead. of The

the realizations unusual Hi, this Jane. that? consensus there Natural to exceeded is expectations. quarter explain price behalf meaningfully on William anything way [indiscernible] asking of gas Was last

that a Hey, of area that city-gate that's a markets. we associated you And up moves this – in it where and diversified function about with time those really have premium our frame, lot usually is portfolio and the priced QX. Appalachia get in Jason. premium XX% December portfolio to exposure XX% has realized of November price Northeast to whenever is into of the No, there that some XX% markets of of

it. comment the it Mariner – how up Appalachian quarter? achieve you for projects for your and are pricing Got higher are basin to relative players? you And the NGL East what XQ helping To on to can pricing the extent NGL Thanks. shapes last

seen continue XXXX and helping own right. experienced in we that tightest of improve highest Mariner basin clearing asset project in is exactly the perspective the to area, into East LPGs an XXXX. is the barrels LPG in since we say from the The on I – that differentials Northeast. we've that differentials What that's which So out the the expect is would we

Thanks. Great.

Please go SunTrust. ahead. from next The comes of question Fitzpatrick Welles

Hey. Good morning.

Hi, Welles.

a doing you in XQ. something Is your that that work compression guidance side midstream helpful. There drives step-up? obviously the like is timing just on or There quarterly huge a guys that up the well are is very step is recent –

needed Yes, go. we move in or place we have to everything gas anywhere need we liquids to

of capital coming quarter and moving is through. loading and those program being online complete simply them of front-end of the and investment with So the in the two them then the this second wells first quarters the as highest quarter you the phasing drill sort

production we're part edge phasing. it's of from at, up you'll but go where the So see – all

Not to last all year. dissimilar that

That's exactly right.

laterals summer, guess to makes new, West that Yes, you guess my Okay. follow-on, in was allowing about that's push add can it guys allow pooling can those talk last new; Obviously it – And But acreage and I which is out co-tenancy it's process? unitization you the new I to sense. law I Virginia. great. then not the you but a guess the you quasi to it's for almost a talk inexpensively does via

West comment co-tenancy we still pooling a bigger realize right was a your around I'll step is but ways last can accomplished. Virginia and is Yes, comment go that It a worked that operators being could get is us. helped benefit in on we where be direction, The by that that. will in the to and if

for guessing. I'm frame on early Too a that, time Okay.

Yes, we'll in and out to we our to continue the the area state in forward. with – and the continue work colleagues work that

Yes, trades the is lot. that's lateral main and helping acquisitions us we're and way links adding lease a

so guys, much. you, Thank

from ahead. next Sachs. Karl Blunden Goldman of Please question go The comes

with bank stay commodity compliance like in especially different you question. that comfort that that And and the I group. credit being One around question in about your low good to over taking environment, a relying the Hi, morning. in for you about investor time, talk a covenant the we price comes leverage the ask conversations good up markets; with in you Could or have myself certainly have right covenant today? net it's comments the now. – options thing not meeting have capital on Thanks recognize is your

is absolutely, Hi, Sure, this Karl. Julian.

commodity pricing covenant these X is standard most that today. the sustained I times. And is across at obviously it where long-term So X lower think prices have depend scenarios our part times, are on surpass it pretty that the goes, and industry. for we which Where could we levels below well does

sustained additional this that flow through as manage would low and premature consider. us we've it's adjustments and to also asset for key focus cost But would stated is returning to for we've monetizing clearly the flow. cash those the a also have Could goal potential it we something sales plan pricing to when we But had free scenarios at continually the to we is business point, to and be cash are make those leverage structure. if said us

So we'd retain from cash to like those assets. that flow

bank That some with group down be for see of makes should just recently, that you And guess line? the we sense. temporary supportive as – the an indicator could redetermination, I example. as supportive been banks follow-up, Is the your need a flexibility has that base borrowing too if do right,

But we regulators. greatly all good I borrowing are have think at We very have them. of and, bank very I very – XX have and a they them. months been the relationships mean look, with last the Well, relationship from under by group we and they Clearly working and their we XX-plus the with maturity a are value supportive. management believe supportive. and they have own good we They we come pressures with them yes, working base favorable extended redetermination them

much. Thanks That's Okay. very helpful.

for This concludes to conference I closing the Bill back Way question-and-answer to our remarks. would turn any over like session.

dialog. for you all Thank you, Drew. your questions the and Thank

the highly clear, that to Energy very this, see of out positioned is and but And previous and there, to we to across to through Let confident they team quarter in people talented committed innovating as this continue our can ahead. deliver continue multiple and that and that tough We've executing on to be country got and realize plans. outperform. this delivering you quarters it market an we a manage challenges exceptionally any it's market lie Southwestern are

progress good you us for So thank today. in and weekend. our the more plans sharing to forward calls a Have we joining coming on look we

concluded. for presentation. attending is conference now The today’s Thank you

disconnect. now may You