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Southwestern Encouraged by Spate of Moorefield Shale, Appalachian Well Tests

After a slow 2016, Southwestern Energy Co. hit the gas pedal during the 2017 first quarter when it tested or made progress on a series of new wells from northern Pennsylvania to northern West Virginia and confirmed the economic viability of a new interval in the Fayetteville Shale of Arkansas.

The company placed seven Moorefield Shale wells to sales during the quarter that have an average lateral length of 6,442 feet and an average estimated ultimate recovery (EUR) of 6.5 Bcf. Southwestern said the wells were finished at a cost of $3.8 million each. The Moorefield, which sits below the Fayetteville, has direct access to the Gulf Coast markets and the ability to earn solid results for the company, management has said. The wells had an average initial production rate of 6.8 MMcf/d and an average 30-day rate of 5.1 MMcf/d.

"These results confirm the productivity of the targeted zone we have in the Moorefield and demonstrate this zone's potential to compete for capital within our portfolio," said John Bergeron, senior vice president of exploration and production operations. He added that the company has de-risked 15,000-20,000 acres out of an area that includes about 100,000 acres prospective for the interval, calling it “early days” in the Moorefield.

The Moorefield tests came in addition to seven delineation wells placed to sales in Susquehanna, Tioga and Wyoming counties that have now de-risked 40,000 net acres in northern Pennsylvania, Bergeron added during a call last week to discuss the company's first quarter results.

In Tioga County, where other operators have seen increasing success in both the Marcellus and Utica shales, Southwestern brought online two wells with an average 30-day rate of 13 MMcf/d. Another two wells were brought online on the western portion of Southwestern's Susquehanna County acreage, which was acquired in 2015, that are currently averaging 15 MMcf/d after nearly a month of production. Meanwhile, three wells placed to sales on the company's southern-most pad in Wyoming County are showing "encouraging results."

Southwestern is planning to continue tests throughout the year in the Appalachian Basin and the Fayetteville. The company'sfirst Utica well in Marshall County, WV, the O.E. Burge 501H, also appears to be "top quartile" for those targeting the deep Upper Point Pleasant formation. Management said that based on current assumptions, the EUR is in the range of 2.5-3 Bcf per thousand feet of lateral. The company is making progress on a second deep Utica well in Washington County, PA.

"We'll get that well done, drilled and then completed as we move through the year; get it flowing and analyze it in the exact same way that we've done this first one," CEO Bill Way said," which is, take our time, make sure we understand what's really going...and then go from there."

Southwestern spent much of 2016 in a defensive position. Its rigs were idled until the third quarter and management was focused on reducing debt and cutting spending as the commodities downturn persisted. It's been ramping back up since the end of last year. Year/year production dropped to 204 Bcfe in the first quarter from 237 Bcfe in the year-ago period. But it was up from 202 Bcfe in 4Q2016, representing the first sequential production growth for the company since late 2015.

The company also benefited from a "strengthening macro-environment" during the quarter, Way said. Its average realized natural gas price, including hedges, increased to $2.57/Mcf from $1.48/Mcf in 1Q2016. Excluding hedges, it was up to $2.73/Mcf from $1.44/Mcf during the same time. Year/year revenue was up to $846 million from $579 million in 1Q2016.

The company reported net income of $281 million (57 cents/share), compared to a net loss in the year-ago quarter of $1.2 billion (minus $3.03) that was primarily related to a $1 billion impairment of oil and gas properties.

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