Southwestern Energy Co. said Friday it would slash year/year spending by 20% in 2020, but annual production is still expected to climb by 10% over the same time, driven by investment in Southwest Appalachia, where it has focused in recent years.
The company released a capital expenditures (capex) forecast of $860-940 million and guided for overall production of 830-865 Bcfe. It expects to bring up to 110 wells to sales this year on liquids-rich acreage mostly in West Virginia. Oil and natural gas liquids (NGL) production is forecast to increase by 25% and 10%, respectively.
Southwestern cut well costs by 27% last year to $824 per lateral foot. The company expects well costs to average $730 per foot this year, another 10% reduction.
Such cost cutting measures have the company on track to be cash flow neutral by year’s end, CEO Bill Way said Friday during a call to discuss year-end results. That target was set in 2018 when the company became an Appalachian pure-play after divesting its massive position in the Fayetteville Shale of Arkansas.
Southwestern produced 208 Bcfe in the fourth quarter, down from 234 Bcfe in the year-ago period, when the Fayetteville was still on its books. Full-year production, however, increased by 11% from 2018 to 778 Bcfe, driven by a 31% increase from its Southwest Appalachia division, which accounted for 319 Bcfe of 2019 volumes. Production from Northeast Appalachia was 459 Bcf in 2019, flat when compared to the prior year.
Average realized prices declined by 18% year/year in 2019 to $2.18/Mcfe. But management said the company recorded the “tightest differentials” ever in Appalachia last year on liquefied petroleum gas. Those prices got a lift from Mariner East (ME) 2, which entered partial service early last year and has ramped up since. The pipeline moves butane, ethane and propane from across the Appalachian Basin to an export terminal near Philadelphia.
Range Resources Corp., which also reported earnings on Friday, said the same of ME 2, adding that export premiums helped strengthen liquids prices at a time when natural gas declined. Range realized an average price of $2.93/Mcfe in 2019, down from $3.39/Mcfe in the prior year.
Range said it would increase its capacity on ME 2 this year. The 275,000 b/d system has been plagued by a series of regulatory setbacks and has come online incrementally since last year. ME 2X, a third pipeline being built by an Energy Transfer LP affiliate adjacent to ME 2, is designed to move another 250,000 b/d of NGLs and is slated to enter service in mid-2020. The 70,000 b/d ME 1 is already online.
The slide in commodity prices found Range recording fourth quarter impairments of more than $2 billion for its proved and unproved properties in North Louisiana, where the Cotton Valley Sands Terryville Complex has continued to underperform. The company has not ruled out a sale of those assets and focuses primarily on the Marcellus Shale in southwest Pennsylvania, which was not impaired in the fourth quarter.
"Looking out through the balance of the year, with reducing rig counts and frack crews, along with the shift by most producers to spend at or below cash flow, and lower year-on-year capex guidance, we anticipate U.S. natural gas supply will decline year-over-year as we exit 2020 -- the first decline since the spring of 2016," said COO Dennis Degner.
Range, like all of the leading Appalachian operators, has cut its year/year spending forecast by nearly 30% to $520 million. The company’s well costs, which are among some of the lowest in Appalachia, are projected to average less than $610 per lateral foot this year. Drilling and completion expenses, a base decline rate of 20% and the company’s core Marcellus inventory, which accounted for 95% of its year-end proved reserves, will help Range weather the latest downturn, said CEO Jeff Ventura.
"This maintenance capital figure is sustainable, as the lateral footage Range is drilling, completing and turning in line for the year is all very similar, leaving us well positioned into 2021 and beyond with equal or better capital efficiencies," he said of the company’s 2020 budget plans.
Range produced 2.3 Bcfe in 2019, compared to 2.2 Bcfe/d in 2018. The company expects to keep 2020 production flat with last year’s volumes, even at a $520 million budget. Fourth quarter production also averaged 2.3 Bcfe/d, compared to 2.1 Bcfe/d in the year-ago period.
Range reported a fourth quarter net loss of $1.8 billion (minus $7.27/share), compared to a net loss of $1.76 billion (minus $7.15) in 4Q2018. For the full-year, the company lost $1.71 billion (minus $6.92), compared to a net loss of $1.75 billion (minus $7.10) in 2018.
Southwestern reported fourth quarter net income of $110 million (20 cents), compared to net income of $307 million (54 cents) in the year-ago period. For 2019, the company earned $891 million ($1.65) verus earnings of $535 million (93 cents) in 2018.
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