Southwestern Energy Co. is taking a cautious approach as the year winds down, indicating Friday that it’s likely to spend less in 2020 as natural gas prices continue to flag. 

“To state the obvious, today’s commodity price environment is tough,” said CEO Bill Way.

The company generated more than $100 million in free cash flow last year. However, after divesting all of its Fayetteville Shale assets for $1.65 billion in late 2018, the company initiated a two-year plan to reinvest the proceeds in its Appalachian assets to return to cash flow neutrality by the end of next year. Way said Southwestern remains on track to do that despite weak natural gas prices.

While he said Friday that “it’s still too early to be definitive on specific 2020 targets,” he signaled a conservative approach.

“Capital investment will be limited to cash flow based on strip pricing at the time we set our plan, plus up to $300 million of the remaining monetized Fayetteville cash flow,” he said. “Should the strip at the time we set our budget in 2020 be lower than when we set the 2019 plan, I would expect a reduced capital program. Consistent with prior years, we expect a front-loaded program in 2020 as well.”

The forward curve has continued to decline for much of the year. In August, the company dropped four rigs and slashed the high-end of its full-year capital guidance range, saying spending would not exceed $1.15 billion this year. Friday’s remarks came as another Appalachian pure-play, Cabot Oil & Gas Corp., offered a grim outlook for the remainder of the year and highlighted a similar conservative approach. The same is expected for much of the upstream sector heading into 2020.

Way said when Southwestern sets its budget and begins to execute in 2020, things could change as prices dictate, but it would have to be a drastic swing, which seems unlikely at this point.

“If the forward curve were to increase temporarily, we would not expect to increase capital investment beyond the plan,” Way said. “Instead, we would evaluate options for the use of excess cash flow, including debt reduction, purchase of shares, or for other corporate purposes.”

The company produced 202 Bcfe in the third quarter, up about 8% from both the year-ago period and 2Q2019, excluding the Fayetteville assets. Year/year oil production was up 42% in the third quarter to 1.4 million bbl, while natural gas liquids (NGL) production was up 22% to 5.9 million bbl.

Southwestern continues to produce more liquids as it focuses on its assets in southwest Appalachia, where production came in at 913 MMcfe/d, or 27% higher than in the year-ago period. The division also brought online its fourth Upper Devonian Shale well, the first in its super-rich acreage, with results matching those of offset Marcellus wells. Production from northeastern Appalachia remained flat at about 1.3 Bcf/d.

Average realized prices, including hedges, slid to $2.16/Mcfe in the third quarter from $2.48/Mcfe at the same time last year, but Southwestern saw a 44 cent/Mcfe benefit from the impact of settled commodity derivatives. Earlier this month, the company also announced a series of financial measures to reinforce its balance sheet, bringing covered volumes to 360 Bcf of natural gas, 2.8 million bbl of oil and 7.1 million bbl of NGLs.

Southwestern reported third quarter net income of $49 million (9 cents/share), compared with a year-ago net loss of $29 million (minus 5 cents). Revenue declined to $636 million from $951 million.