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Southwestern Energy Tests First Utica Shale Well in West Virginia

Southwestern Energy Co. is gearing back up for 2017, preparing to deploy more capital, keep rigs running and further delineate its position in Appalachia and Arkansas after a slow 2016 in which its rigs were idled for most of the year and the balance sheet was the primary focus.

Its first Utica Shale test has given the company "confidence to continue to press forward" earlier than expected with up to two more tests this year. While he didn't share details, CEO Bill Way said the O.E. Burge 501H Utica well in Marshall County, WV, hit initial benchmarks the company had set. As a result, it started drilling a second test this month in Washington County, PA, outside of its core in West Virginia and Northeast Pennsylvania, but in an area where other operators have had success in the deep Utica.

"We can bring wells on -- especially wells like this -- that are heavily laden with different testing protocols," Way told analysts on Friday during a year-end earnings call. "And we can surge flow wells and it all looks great, but we don't do that. We want to have enough credible information from ramping a well to getting all the technical data so we can give you a solid picture.

"The other piece of this is we have a lot of activity going on around us," he added of the northern West Virginia and southwest Pennsylvania Utica tests so far. "Studying that, learning from that, helps us to take that further step...You can take some confidence in the fact that we're going to go do another [Utica test]."

Heading beyond another core in Northeast Pennsylvania, the company placed its first two wells to sales in January in Tioga County, PA, where operators have seen increasing success in both the Marcellus and Utica in the north-central part of the state. "The well results confirm the productivity of this acreage, and we'll have additional activity in this area throughout 2017," said Senior Vice President of Exploration and Production John Bergeron, who stopped short of giving more details about the Tioga tests.

As it has in Appalachia, the company will continue to tinker with different completion designs in the Fayetteville Shale this year and test new intervals in the play as well. Tests in the Moorefield Shale, which sits below the Fayetteville, will continue as well. The company drilled eight Moorefield wells in the fourth quarter.

Southwestern, one of the nation's largest natural gas producers, spent 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. The company produced 875 Bcfe last year, compared to 976 Bcfe in 2015. Fourth quarter production declined on reduced activity to 202 Bcfe from 249 Bcfe in 4Q2015.

The company put five rigs back to work in Appalachia and Arkansas in the third quarter and it will keep those running throughout this year. While it's only forecasting 3% year/year production growth in 2017, this year's plans would set it up for double digit production growth in 2018. The company plans to spend $1.175-2.275 billion this year, compared to the $648 million it spent in 2016.

Southwestern's average realized gas price, including hedges, was $1.64/Mcf in 2016, compared to $2.37/Mcf in the prior year.

The company reported a 2016 net loss of $2.8 billion (minus $6.32/share) -- including a $2.3 billion asset impairment charge -- compared to a net loss of $4.7 billion (minus $12.25) on an even steeper impairment in 2015. Full-year revenue slid from $3.1 billion in 2015 to $2.4 billion.

For the fourth quarter, Southwestern reported a net loss of $237 million (minus 48 cents) on revenues of $684 million, compared to a net loss of $2.1 billion (minus $5.58) on revenues of $687 million in 4Q2015.

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