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Southwestern Says Goodbye to Fayetteville in $1.9B Sale

Southwestern Energy Co. marked the end of an era on Tuesday when it announced it has completed the $1.865 billion sale of its Fayetteville Shale assets in Arkansas to privately held Flywheel Energy LLC.

After customary adjustments, Southwestern said it took in $1.65 billion net. As previously announced, the company plans to use the windfall to retire $900 million of senior notes; pay off its revolving credit facility; repurchase the remainder of its $200 million share buybacks; and reinvest some of the profits into the Appalachian Basin. Southwestern now is an Appalachian pure-play, where it works in the Marcellus and Utica shales. The 4Q2018 production guidance has been cut by 19 Bcf as a result of the sale.

Southwestern started marketing the Fayetteville properties at the beginning of the year and, to replace the cash flow generated by the Fayetteville assets, the company set out a plan to allocate $600 million over the next two years to its liquids-rich Appalachian assets, depending on market conditions.

“This strategic transaction represents a further significant step in the transformation of the company,” CEO Bill Way said. “We’re now better positioned to leverage our leading technical and operating capabilities to drive greater value from our highly attractive and significant asset base in Appalachia, pay down debt and create even greater financial flexibility.”

As Southwestern has continued to build its Appalachian assets in recent years, the Fayetteville’s profile continued declining. In the third quarter, Southwestern produced 252 Bcfe, driven by year/year gains from both its Northeast and Southwest Appalachia divisions as production in Arkansas again dropped from 78 Bcf in 3Q2017 to 65 Bcf in 3Q2018.

Southwestern gave rise to the Fayetteville, which in turn built the company’s brand as one of the nation’s leading independent unconventional natural gas producers.  The Houston-based company lays claim to the first successful gas production from the formation, becoming one of its most dominant players over the years. It spent $11 million for 343,000 acres in 2003 to enter the play.

Flywheel is backed by Kayne Private Energy Income Funds. Kayne Anderson Capital Advisors LP in 2016 formed the fund to partner with companies and acquire mature, long-life oil and gas assets throughout North America.

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