Southwestern Energy cuts losses at $735 million as drilling activity, well production ramps up

Even as Southwestern Energy posted a major production milestone in the Fayetteville Shale, the Texas driller continued to operate in the red in the third quarter as drilling activity ramped up and more wells were placed into market to increase cash flow.

For the period ended Sept. 30, the Houston-based oil and gas company reported Thursday (Oct. 20) a net loss attributable of $735 million, or $1.52 per share, an improvement over a net loss of $1.8 billion, or $4.62 per share, in the third quarter of 2015. After adjustments, Southwestern reported net income of $12 million, or three cents per share, slightly better than net income of $3 million, or one cent in the same period a year ago.

Third quarter revenues came in at $651 million, down 13.1% from $749 million a year ago. Wall Street analysts had expected the independent oil and gas company to report third quarter earnings of seven cents per share on revenue of $630 million, according to Thomson Reuters.

“As operations ramp up, we are also enhancing our laser focus on growing margins, evidenced this quarter by a reduction of lease operating expenses per unit for the fifth consecutive quarter. As we look forward to 2017, our capital rigor and commitment to balance sheet strength will remain central to delivering value-adding growth from our vast portfolio,” noted Bill Way, president and CEO of Southwestern Energy.

During the quarter, Southwestern’s losses primary came from its exploration and production (E&P) operations, which includes its natural gas assets in Arkansas’ Fayetteville Shale play and oil and gas fields in the Northeast and Southwest Appalachian region. The operating loss from the company’s E&P segment was $777 million for the third quarter, compared to an operating loss of $2.9 billion during the third quarter of 2015.

Net production also fell 15.3% as a result of limited drilling and completion activity to 211 billion cubic feet equivalent (Bcfe) in the third quarter of 2016, down from 249 Bcfe in the third quarter of 2015. The quarter included 90 Bcf from the Fayetteville Shale, 84 Bcf from Northeast Appalachia and 37 Bcfe from Southwest Appalachia.

Southwestern, which moved its headquarters from Fayetteville to Houston in 2001, also achieved a monumental milestone in the Fayetteville Shale during the quarter, surpassing 5 trillion cubic feet of cumulative production since its inception in the Arkansas shale play.

“After over a decade of development, this asset continues to account for approximately two percent of the nation’s natural gas supply and remains a significant value creator for the company,” Southwestern said.

In the third quarter, Southwestern said it invested $17 million, drilling 1 well, completing 8 wells and placing 6 wells to sales. Net gas production in the unconventional shale play was 90 Bcf in the third quarter of 2016, compared to 118 Bcf in the third quarter of 2015.

Gross operated gas production in the Fayetteville Shale was 1,443 million cubic feet (MMcf) per day for the three-month period ended Sept 30.  Southwestern said it plans to place 22 wells into production in the fourth quarter of this year. The six wells in this operating area placed on production in the third quarter had an average initial production rate of 6,701 thousand cubic feet (Mcf) per day.

Similar to the other operating areas, Southwestern said is testing increased fracking volumes that are more than two times greater than historical well completions in the Fayetteville Shale. Southwestern also said it is continuing testing surrounding the relatively new Moorefield Shale within the Arkansas play as it progresses its efforts to lower the breakeven prices in that operating area. The Moorefield Shale in located in the southern flank of the unconventional Arkansas play in White and Cleburne counties.

Company-wide as of Sept. 30, Southwestern said it had 101 wells that were either waiting on completion or waiting to be placed to sales, including 37 in Northeast Appalachia, 36 in Southwest Appalachia and 28 in Fayetteville. The company expects to exit 2016 with approximately 85 drilled but uncompleted wells, returning to a normal maintenance level for efficient operations of approximately 60 by early 2017.