Southwestern Energy sells natural assets in West Virginia for $450 million, will pay down debt

Southwestern Energy Co. on Thursday announced that it has entered into a definitive agreement with Antero Resources Corp. to sell approximately 55,000 net acres of dormant natural gas acreage in West Virginia.

The Houston, Texas-based driller, which is the largest stakeholder in Arkansas’ Fayetteville Shale Play, said it will use the $450 million in cash proceeds from the deal to reduce the principal balance of the company’s $750 million term loan due in November 2018. The divested properties are located in Doddridge, Harrison, Marion, Monongalia, Pleasants, Ritchie, Tyler and Wetzel counties in West Virginia, and are currently producing from the Marcellus Shale, company officials said.

Net production from this acreage is approximately 14 million cubic feet of gas equivalent per day (MMcfe) per day, primarily from non-operated wells. Proved reserves on this acreage were 11 billion cubic feet equivalent (Bcfe) as of Dec. 31, 2015, and Southwestern said it had no current plans to drill on these properties before 2023.

“This transaction is one step on delivering on the commitment we made to strengthen our balance sheet in 2016,” said Southwestern Energy President and CEO Bill Way. “We are bringing forward the value of acreage that is much longer dated in our development plans, enabling us to take action and proactively reduce outstanding debt.”

Way added: “Together with the progress we are making on margin enhancement, this sale further strengthens both the company’s financial flexibility and our bridge to value-added growth for shareholders.”

The Antero transaction is expected to close in the third quarter of 2016, subject to customary closing conditions and purchase price adjustments, officials said.

Shortly taking over as the Houston-based oil and gas company’s new chief executive at the beginning of the year, Way unveiled a new strategic plan for Southwestern that he said would create long-term value for our shareholders by reducing (drilling) activity to align with current commodity prices.

“We have a clear focus on identifying opportunities to further strengthen our balance sheet, enhancing operating margins through both revenue and cost improvements and optimizing cash flow throughout the company,” Way said on Feb. 25.

Under the new strategic initiatives, Way implemented a companywide workforce reduction that Southwestern said would create $150-$175 million in annual savings. The Fayetteville Shale leader has also renegotiated midstream agreements to get better prices for transporting natural gas liquids in key markets and has reduced its capital budget from $1.82 billion in 2015 to a dramatically lower $350-$450 million in 2016.

Since Way’s strategic plan is still in its infant stage, Southwestern was unable to avoid first quarter losses, which plunged by $1.13 billion in the first three months of this year. However, the company’s stock price has risen a whopping 120% since Way took over as CEO on Jan. 6, when Southwestern’s share price closed at $6.69.

At the close of business Thursday, Southwestern shares were up 4.4%, or 62 cents at $14.74 on the New York Stock Exchange.