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Southwestern Reports Soaring Appalachia NGL Production, Prices

Record natural gas liquids production in Southwest Appalachia and soaring prices in Northeast Appalachia during the third quarter demonstrated two highly competitive divisions that the company will be even more focused on after the sale of its Fayetteville Shale assets is completed by year’s end.

“We have some highly competitive projects in both areas so our focus in Appalachia is to look at the portfolio of projects from each one and handpick the best of the best and put them in our drilling schedule,” said Jason Kurtz, vice president of marketing and transportation, of the basin’s changing dynamics.

Higher oil prices have more Northeast operators focused on NGLs. Southwestern produced a record 67,100 b/d of liquids during the third quarter, including 56,300 b/d of NGLs and 10,800 b/d of oil. Total NGL production skyrocketed, going from 3.8 million bbl in the year-ago period to 5.2 million bbl in the third quarter.

“Cash flow was more than 40% higher than the same period a year ago,” CEO Bill Way said on Friday during a conference call with analysts to discuss third quarter earnings. “Results benefited from our liquids volume growth as prices improved and the company reported its highest liquids revenue and liquids production quarter in its history, thanks to the strong performance of our Appalachian assets.”

Southwestern reported third quarter production of 252 Bcfe, compared to 232 Bcfe in the year-ago period. Appalachian production increased 22% year/year and accounted for the bulk of the quarter’s volumes at 187 Bcfe. The fourth quarter will be Southwestern’s last operating its Fayetteville properties, which are on schedule to be sold by the end of the year for $1.9 billion. Year/year production there dropped again in the third quarter going from 78 Bcf to 65 Bcf.

Revenue still saw a sharp increase during the period on the company’s Appalachian performance, coming in at $951 million compared to $737 million in 3Q2017. NGL revenue more than doubled over that time, going from $55 million to $112 million.

Kurtz noted that the Rover, Nexus and Atlantic Sunrise pipelines have all recently come online, which has also opened space on existing pipelines and provided opportunities to sell into better markets. Southwestern joined some of its peers last week in reporting an improving outlook for Appalachian prices.

The company’s weighted average realized price was 24% higher in the third quarter at $2.51/Mcfe. Increasing demand and tight fractionation capacity also drove year/year realized NGL prices 34% higher to $19.43.

In Northeast Appalachia, meanwhile, Southwestern said more takeaway pushed up prices by 30% to $2.09/Mcf in the third quarter, while average prices were $3.62/Mcf in Southwest Appalachia, a 72-cent uplift compared to the New York Mercantile Exchange benchmark price of $2.90/Mcf during the period.

On the operational front, COO Clay Carrell said the company’s first Upper Devonian Shale well in West Virginia was drilled and brought online during the third quarter. Early results show 45% liquids and it’s performing inline with Southwestern’s rich Marcellus wells, he said.

The company also drilled two record laterals of 15,559 feet in West Virginia and 16,272 feet in Pennsylvania.

Southwestern reported a net loss of $29 million (minus 5 cents/share) for the third quarter, compared to net income of $43 million (9 cents) in 3Q2017. The loss included a $161 million non-cash impairment that was primarily related to the company’s Fayetteville midstream assets.

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