Appalachian pure-play Southwestern Energy Co. plans to keep year/year production and spending flat in 2021 even as it assumes a larger asset base and entry into Ohio with its acquisition of Montage Resources Corp.
The exploration and production company laid out its vision for the year last week, joining peers in announcing a plan aimed at prioritizing free cash flow (FCF) generation, “disciplined investment” at maintenance levels and debt reduction.
“Our maintenance capital program will hold fourth quarter 2021 production flat with our fourth quarter 2020 level including the Montage assets,” said CEO Bill Way. “Due to our strategy, investments will be focused on the highest return projects at strip prices. And given the strength of our inventory, we expect to have activity in all of our core operating areas.”
In addition to its core areas in Northeast Pennsylvania and northern West Virginia, the company gained a foothold in Ohio with the acquisition of Montage, a tie-up that created Appalachia’s third largest oil and gas producer with more than 1 Tcfe of production anticipated this year. Way said the company moved a rig into Ohio and has since drilled its first dry gas Utica Shale well there.
Southwestern plans to spend $850-925 million this year and intends to exit 4Q2021 producing about 3.05 Bcfe/d. Management said the company would bring 75-90 wells to sales, including up to 15 in the Ohio Utica’s dry gas window. Capital investment would be split evenly between Southwestern’s dry and liquids-rich acreage across Ohio, Pennsylvania and West Virginia.
The company spent $899 million last year. This year’s budget is based on the assumption that Henry Hub prices will average $2.77/Mcf and West Texas Intermediate prices will average $50.00/bbl. The company expects to generate more than $275 million of FCF after having delivered $55 million in FCF in 4Q2020.
Southwestern produced 257 Bcfe in the fourth quarter, up from 208 Bcfe during the same period last year. Fourth quarter results included 49 days of production from Montage’s assets after the deal closed Nov. 13.
The company produced 880 Bcfe during 2020, up from 778 Bcfe in 2019. The company’s Northeast Appalachia assets accounted for 473 Bcfe of last year’s production, while its Southwestern Appalachia assets accounted for 407 Bcfe.
Southwestern reported a fourth quarter net loss of $92 million (minus 14 cents/share), compared with net income of $110 million (20 cents) in the year-ago period. The fourth quarter loss included a $335 million one-time impairment on oil and gas properties.
For the full year, net losses were $3.1 billion (minus $5.42/share), compared with net income of $891 million ($1.65) in 2019. The 2020 loss included impairments of $2.8 billion and $138 million of hedging losses, in addition to an $818 million change in the deferred tax provision.
Average realized prices for 2020, including derivatives, were $1.94/Mcfe, down from $2.42/Mcfe in 2019 as prices fell across all commodities last year.
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