Southwestern Energy plans to double drilling in Moorefield Shale in north-central Arkansas

Fayetteville Shale leader Southwestern Energy Co. on Friday reported improved first quarter earnings as the independent natural gas driller announced plans to heighten drilling activity in the emerging Moorefield Shale play in north-central Arkansas.

For the period ended March 31, the Houston-based oil and gas firm reported first quarter earnings of $266 million, or 57 cents per share, compared to a huge loss of $1.1 billion, or $3.03 per share, in the same period a year ago. On an adjusted basis, Southwestern reported earnings of 18 cents per share on revenue of $846 million, up 46.1% from $579 million a year ago.

The improved first quarter results matched Wall Street’s forecast of 18 cents per share on revenue of nearly $770 million, according to Thomson Reuters. What stands out in the quarterly report is that Southwestern’s average natural gas prices on the New York Mercentile Exchange were $3.32 per million British thermal units (MMBtu), up 59% from Henry Hub prices of $2.09 per MMbtu in 2016.

“We are off to a very strong start in 2017, building upon the momentum from 2016 and continuing our practice of delivering on commitments,” said Southwestern President and CEO Bill Way. “We invested well within cash flow during the first quarter and delivered value-adding production growth within our guidance range. The results achieved this quarter demonstrate our position as a market leader, and we anticipate providing additional highlights of our operational excellence throughout the remainder of the year as we progress our development plan and multiple innovative initiatives being tested throughout the portfolio.”

One of the key areas where Southwestern has upped its capital spending and exploration is in the emerging Moorefield development of the Fayetteville Shale, located largely in the Arkoma Basin in White County. Over the past year or so, Southwestern Energy has been increasingly drilling test wells to assess the potential of the deep shale reservoir that sits beneath the larger Fayetteville Shale.

During the first quarter of 2017, Southwestern said it placed 12 Fayetteville Shale wells to sales, which included 7 wells from a Moorefield pad. These seven wells had an average lateral length of 6,442 feet and estimated ultimate recovery (EUR) of 6.5 billion cubic feet (Bcf) with an average cost of $3.8 million per well.

“These results confirm the (Southwestern’s) understanding of the play and demonstrate the Moorefield’s potential to improve economics in the (Fayetteville) play,” the Houston-based driller said. “(We) plan to place an additional 8 Moorefield wells to sales through the remainder of 2017.”

Southwestern’s Moorefield Shale assessment comes only days after BHP Billiton said it is reviewing a possible auction of its Fayetteville Shale assets, first purchased in 2011 for $4.75 billion. As a part of that review, BHP said it hopes to get a premium offer from its oil and gas assets in the Moorefield shale region.

In Southwestern’s Northeast Appalachia operation, the company placed 24 wells to sales that had an average lateral length of 5,836 feet and an average cost of $5.6 million per well. In Southwest Appalachia, Southwestern brought 13 wells online with an average lateral length of 7,819 feet and an average cost of $7.2 million per well.

Companywide, Southwestern said its exploration and production (E&P) segment improved to $225 million for the first quarter of 2017, compared to an operating loss of $1.2 billion during the first quarter of 2016. Last year’s poor results were primarily due to a $1.0 billion impairment of natural gas and oil properties and $61 million in restructuring charges a year ago. Beside the lack of impairments or restructuring charges in the first quarter of 2017, the increase in operating income was primarily due to higher realized natural gas and liquids pricing and lower operating costs partially offset by decreased production, company officials said.

During the first quarter of 2017, Southwestern invested a total of $290 million. The company’s budget included nearly $283 million invested in its E&P business, $6 million spent in the Midstream segment and $1 million for corporate and other purposes. Of the $290 million, approximately $28 million was associated with capitalized interest and $25 million with capitalized expenses. Southwestern’s total debt was approximately $4.6 billion in the first quarter. The former Fayetteville-based oil and gas giant said it plans to retire the remainder of the 2018 notes and also expects to pay the $40 million outstanding of its notes due in October 2017 when they mature.

As of April 25, the Texas driller had approximately 429 Bcf of its remaining 2017 forecasted gas production protected at an average swap or strike price of $3.03 per thousand cubic feet (Mcf). The company also had approximately 99 Bcf of its 2019 forecasted gas production protected at an average purchased put strike price of $2.95 with upside exposure up to $3.31 per Mcf.

Southwestern’s proved reserves increased to over 10 trillion cubic feet (Tcf) in the first quarter of 2017 based on average prices from the first day of each month from the previous 12 months for Henry Hub natural gas of $2.73 per MMBtu for natural gas, West Texas Intermediate oil of $44.10 per barrel of oil and $10.17 per barrel of total natural gas liquids.

At the close of business Friday on the New York Stock Exchange, Southwestern shares closed down 16 cents at $57.51 per share. The company’s stock has traded in the range of $7.02 on the low end and a high of $15.59 over the past 52 weeks.