Southwestern to boost 2017 capex 66% to $1.3 billion, Fayetteville Shale spending jumps 44%

by Wesley Brown (wesbrocomm@gmail.com) 84 views 

Southwestern Energy Co. announced plans to invest between $1.175 billion to $1.275 billion in fiscal 2017, a 66% boost from the company’s rebooted $770 million spending program in 2016 that was part of newly-installed CEO Bill Way’s restructuring plans.

The robust 2017 spending program was announced after the Fayetteville shale operator reported a net loss of $237 million, or 48 cents per share, compared to a net loss of $2.1 billion or $5.58 a year ago. Adjusted earnings were $39 million or 8 cents per share. Revenues were flat compared to a year ago at $684 million.

For the full year, Southwestern reported a net loss of $2.8 billion, or $6.23 per share. Revenues fell 32% to nearly $1.3 billion, compared to $1.9 billion in the same period of 2015. Wall Street had expected the Texas driller to report fourth quarter earnings of 12 cents per share on revenue of $646 million, according to Thomson Reuters.

Despite not meeting Wall Street estimates, Southwestern said it is boosting spending in 2017 to increase total net gas and liquids production of 890 to 910 billion of cubic feet equivalent (Bcfe) in 2017, an 4% improvement over the company’s 2016 production of 875 Bcfe and a surge of nearly 20% when comparing 2017 exit production rates with a year ago.

“We are attacking 2017 with even more vigor and commitment than ever before,” Way said in the report. “With capital discipline as a foundation, we are able to capitalize on the improved commodity price environment and return to value-added growth in 2017 and beyond.  We have many new ideas we are testing, allowing us to further improve on our operational excellence from our premier portfolio of assets and transportation capacity.”

In Arkansas, the Houston-based oil and gas producer said it will earmark spending of $105 million to $120 million to boost overall output to between 315 and 320 Bcfe in the Fayetteville Shale where the company’s drilling rig count never rose above 2 rigs in 2016. That production output is well below production levels of 375 Bcfe in 2016, but the capital budget will spike 44% over year ago’s capex.

In late July, when Southwestern Energy’s rig count was zero, company officials told Talk Business & Politics that the company planned to return employees laid off earlier in the year. In that revised 2016 guidance, Southwestern upped its capital spending nearly 94% from a range $360 million to $400 million to $725 million to $775 million.

The vigorous 2017 program includes drilling 110 to 130 wells, completing between 140 to 160 wells and targeting another 150 to 170 for marketed sales. The Texas driller said it plans to drill 16-20 wells in the Arkansas shale play, completing another 29 to 33, and placing 31 to 35 into sales.

Still, Southwestern’s Appalachian operations with get the lion’s share of company spending in 2017 of between $805 million and $845 million. Annual production volumes there are expected to grow approximately 17% 2016 and approximately 40% based on exit production rates.

“Assuming a capital budget based on current strip pricing in both 2017 and 2018, the company anticipates delivering double-digit production growth in 2018,” Southwestern said.

At the close of business Thursday, Southwestern Energy shares (NYSE: SWN) were down 22 cents at $8.35 per share. Over the past 52 weeks, the company’s shares have traded in the range of $5.30 and $15.59.

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