Southwestern Energy Swings To Loss On Weak Gas Prices, Cuts Capex Spending Again

Sliding natural gas prices pushed Southwestern Energy Co. into the red during the second quarter as the Fayetteville Shale leader continues to face difficult headwinds in its money-losing exploration and production business.

For the period ended June 30, Southwestern reported a net loss of $815 million, or $2.13 per diluted share, compared to net income of $207 million, or 59 cents a year ago. Including adjustments for asset impairment costs, Southwestern saw a loss of $9 million or two cents per share.

Overall, the Houston-based oil and gas firm saw revenue of $764 million, 26.5% below revenues of $1.04 billion in the second quarter of 2014. Wall Street had expected the Houston-based oil and gas driller to report second quarter earnings of six cents per share on revenue of $790 million, according to a survey of analysts by Thomson Reuters.

Despite the austere quarterly results, Southwestern Chairman and CEO Steve Mueller remained positive as the company’s low-cost oil and gas portfolio faces industry-wide difficulties with commodity prices continuing to deteriorate.

“The second quarter presented challenges to the energy industry, but just as we have done historically, Southwestern Energy delivered another strong quarter,” Mueller said. “We have increased guidance on our already record production levels, reduced our 2015 capital investments, added new economic locations and after only seven months, are operationally performing alongside the best in our industry in our newest acquisition in southwest Appalachia.”

Mueller continued: “Our low cost structure and our unique portfolio continues to demonstrate our ability to thrive in an environment where many in the industry are focusing on how to survive. The operational momentum that we have built in 2015 is setting up an enduring future of delivering significant returns for our shareholders.”

Southwestern other second quarter highlights include:

· Record production of 245 billion cubic feet equivalent (Bcfe), including 2 Bcfe associated with the East Texas and Arkoma assets that were divested during the second quarter;
· Total Appalachia net production of 122 Bcfe, comprised of 87 Bcf from Northeast Appalachia (a 43% increase compared to year-ago levels) and 35 Bcfe from Southwest Appalachia;
· Increased 2015 production guidance to 973 Bcfe to 982 Bcfe, including 6 Bcfe associated with the asset divestiture noted above, while decreasing 2015 capital expenditures guidance to $1.875 billion;
· Expanded firm transportation and sales portfolio in Southwest Appalachia, bringing long-term takeaway capacity to approximately 800 million cubic feet per day and additional firm sales enabling robust growth in 2016 and 2017;
· Early well results in Southwest Appalachia significantly outperforming offset wells;
· Favorable results from test wells in unproven acreage of Northeast Appalachia; Adjusted net loss attributable to common stock (a non-GAAP measure reconciled below) of $9 million, or $0.02 per diluted share when excluding a non-cash ceiling test impairment of natural gas and oil properties and certain other items; and
· Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure reconciled below) of approximately $339 million.

Including the effect of hedges, Southwestern’s average realized gas price in the second quarter of 2015 was $2.23 per thousand cubic feet (Mcf), down from $3.77 per Mcf in the second quarter of 2014. The company’s commodity hedging activities increased its average realized gas price by 47 cents per Mcf during the second quarter of 2015, compared to a decrease of 17 cents per Mcf during the same period in 2014. As of July 23, 2015, the company had nearly 121 Bcf of its remaining 2015 forecasted gas production hedged at an average price of $4.40 per Mcf.

Like most producers, Southwestern sells its natural gas at a discount to the New York Mercantile Exchange. In today’s session, natural gas futures rose 1.3 cents to $2.789 per million British thermal units.

During the first six months of 2015, Southwestern invested a total of $971 million, down 25% from $1.3 billion in the first six months of 2014. Going forward, Southwestern said the company has adjusted its capital spending for the remainder of 2015 to “maintain its commitment to financial discipline.”

Excluding the $615 million of acquisition costs and post-closing adjustments for the Appalachia transactions that closed in December 2014 and January 2015, the company’s capital budget was cut to $1.9 billion, down from its prior estimate in February of $2 billion.

To date, Southwestern has allotted $343 million for its Fayetteville Shale operations, where the independent driller had 319 operated horizontal wells in production and 35 operated horizontal wells in progress. In March, Southwestern announced plans to cut its capex spending in the Arkansas shale play by 40%.

At the close of business Monday, Southwestern’s shares were trading at $18.33, down 22 cents or 1.19%. The company’s shares have traded in the range of $18.16 and $41.55 over the past 52 weeks.