Southwestern Energy reports 2Q losses of $620 million, plans to kickstart drilling again in back half of 2016

Southwestern Energy Inc., which said it has upgraded its balance sheet and cash flow through several bank agreement extensions, still saw heavy second quarter losses as the Houston-based natural gas producer has essentially halted all development and drilling activities in the U.S.

For the period ended June 30, Southwestern reported a net loss of $620 million, or $1.61 per share, compared to a net loss of $815 million, or $2.13 per share, in the same period a year ago. Total revenues slumped 32% to $522 million, compared to $764 million a year ago.

On an adjusted basis, Southwestern reported losses of $37 million, or nine cents, per share in the second quarter. Wall Street analysts had expected the Houston driller to eke out earnings of one cents per share on sales of $563 million, according to Thomson Reuters.

Despite the dour results, Southwestern President and CEO Bill Way called the second quarter “a defining time” for the Texas driller “where we delivered on our strategic commitments of strengthening our balance sheet, enhancing margins and optimizing our portfolio.”

Way, who took over as Southwestern’s chief executive at the beginning of the year, continued: ““As promised, we took significant and deliberate steps this quarter to strengthen our balance sheet that, when combined with the continued outperformance by our assets, positions us to reinitiate drilling and completion activities and accelerate our path to value-adding growth. We are excited as we drive into the second half of the year and build momentum toward the future.”

Still, in the first half of 2016, Southwestern exploration and production operations reported losses of $1.7 billion, compared to losses of $1.6 billion year ago. Company officials attributed the huge losses primarily to decreases in realized oil and gas prices that Southwestern is able to negotiate in the competitive energy marketplace.

HOPE IN THE FAYETTEVILLE SHALE PLAY

Southwestern saw production of 199 billion cubic feet equivalent (Bcfe) in Arkansas’ Fayetteville Shale Play. However, Southwestern’s average realized gas price in the Arkansas shale play for the first six months of 2016 was $1.40 per thousand cubic feet (Mcf), down from $2.60 per Mcf in the six months of 2015.

Going forward, Way said Southwestern has strengthened the balance sheet and liquidity profile through a combination of extending bank agreements, successfully issuing equity, launching and concluding tender offers for debt and negotiating long-dated inventory monetization. Those actions, most of which are completed, will reduce or extend debt due prior to 2020 by approximately $1.8 billion. At the end of June, Southwestern had total debt of $5.8 billion,

Way also noted that the Texas natural gas producer has activated a plan to accelerate investment of an incremental $500 million into high-return projects within each of the company’s core assets, including the Fayetteville Shale. Nearly $375 million of that capital is expected to be invested by the end of 2016, officials said.

In a revised guidance, Southwestern said it has increased its production guidance by 45 Bcfe for fiscal 2016, based on the strong performance of the portfolio for the first six months and, to a lesser extent, improved commodity prices and the availability of capital from the company’s July equity offering. The revised total natural gas, NGL and oil production guidance for 2016 is raised to 865 to 875 Bcfe, an increase of approximately 5% over the company’s previous 2016 production guidance.

As part of this plan, the company reinitiated drilling with its first rig this week in Northeast Appalachia and intends to increase its company-wide rig count to five by the end of the third quarter. These five rigs are expected to be comprised of two in Northeast Appalachia, two in Southwest Appalachia and one in the Fayetteville play.

Additionally, Southwestern expects to complete approximately 90 to 100 wells in the second half of 2016, which includes new wells drilled and a portion of the inventory of previously drilled but uncompleted wells.

So far this year, Southwestern said it has only expended $13 million in the Arkansas shale play through the end of the second quarter. However, the former Fayetteville-based natural gas producer plans to spend another $73 million by the end of the year, part of the company’s $750 million capital spending program.

Southwestern reported its second quarter earnings on Thursday after the close of trade on the New York Stock Exchange. In Friday’s pre-market trading, the company shares were trending upward 3.7%, or 49 cents at $13.70. Over the past 52 weeks, the company’s stock has traded from a low of $5 a share to a high of $20.07 per share.