Southwestern Energy posts $1.13 billion 1Q loss, still beats Wall Street expectations

by Wesley Brown (wesbrocomm@gmail.com) 14 views 

Southwestern Energy Corp. losses in the first quarter topped a billion dollars as the Houston-based driller adjusted its operations to weather the current industry downturn that has halted the company’s drilling activity due to depressed natural gas prices.

For the period ended March 31, the former Fayetteville-based oil and gas firm reported a net loss of $1.13 billion, or $3.03 per share, compared to earnings of $46 million, or 12 cents in the same period a year ago. Total revenue declined 38% to $579 million, compared to $933 million a year ago.

When adjusting for impairment charges and pretax costs, Southwestern reported losses of $32 million, or eight cents per share. That was slightly better than Wall Street expectations of 21 cents per share loss on revenue of $530 million, according to Thomson Reuters. Southwestern President and CEO Bill Way, who took over the reins of the company in January, offered an upbeat assessment of the company’s operations in the face of disappointing results.

“We began the year by leveraging the momentum built by our operational teams in 2015 and are making good progress executing on our strategic initiatives to position the Company for long-term value creation,” Way said in a statement. “While adjusting activity levels to align with the commodity prices, we exceeded guidance on production volumes and associated costs by continuing our laser focus on efficiency improvements.”

Still, in Southwestern’s all-important exploration and production operations, the oil and gas giant reported an operating loss of $65 million for the first quarter of 2016, when excluding the non-cash impairment and restructuring charges, compared to operating income of $78 million for the same period in 2015.

However, despite scant drilling activity, Southwestern still saw new production of 237 billion cubic feet equivalent (Bcfe) in the first quarter of 2016, up from 233 Bcfe in the first quarter of 2015. The quarter included 103 Bcf from the Fayetteville Shale, 94 Bcf from Northeast Appalachia and 40 Bcfe from Southwest Appalachia. This compares to 115 Bcf from the Fayetteville Shale, 83 Bcf from Northeast Appalachia and 30 Bcfe from Southwest Appalachia in the first quarter of 2015.

Including the effect of hedges, Southwestern’s average realized gas price in the first quarter of 2016 was $1.48 per thousand cubic feet (Mcf), down from $2.99 per Mcf in the first quarter of 2015. Southwestern’s commodity hedging activities increased its average realized gas price by four cents per Mcf during the first quarter of 2016, compared to an increase of 36 cents per Mcf during the same period in 2015. As of April 19, 2016, the Fayetteville Shale operator had approximately 107 Bcf of its remaining 2016 forecasted gas production protected at an average price of $2.43 per Mcf.

During the first quarter, Southwestern said it invested approximately $120 million in its E&P business, including $58 million in investment capital and $62 in capitalized interest and expenses. Consistent with guidance in February, the Houston-based independent placed only 12 wells to sales in the first quarter and expects to put 20 to 30 wells to sales during 2016.

Southwestern’s gross operated gas production in the Fayetteville Shale was approximately 1.6 Bcf per day in the first quarter.  The natural gas driller only completed three wells in the Arkansas play and placed nine wells on production in the first quarter of 2016 and expects to place an additional 6 wells on production in the second quarter in this operating area. Still, despite production from wells already online, there were no drilled wells in the Fayetteville Shale in the first quarter, according to Baker Hughes.

SOUTHWESTERN STRATEGIC INITIATIVE CALLS FOR CONTINUING REVIEW OF OPERATIONS

Going forward, Southwestern said it plans to build on the company’s strong liquidity to further strengthen its balance sheet. The Houston oil and gas giant also said that it is aggressively pursuing enhancing its already thin margins is also a key focus of the company’s management team. In the first quarter, Southwestern officials said more than $40 million in savings for 2016 through a review of operational processes, vendor usage and contracts terms.

In late January, Southwestern announced that it was laying off 1,100 workers companywide, including 600 jobs tied to its Fayetteville Shale operations. Those job cuts were expected to save the company between $150 to $170 million in yearly costs.

At Thursday’s closing bell, Southwestern stock closed down 13 cents, or 1.2% at $10.67 as more than 21 million shares traded hands on the Nasdaq Stock Exchange. Over the past 52 weeks, Southwestern shares traded in the range of a $29.61 high and a low of $5.

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