Appalachian pure-play Southwestern Energy Co. (SWN) said Wednesday that the company would reduce its rig count from six to two in the coming weeks as part of plans announced earlier this year to cut spending and better control costs.
The company also cut the high end of its full-year capital guidance range, saying spending would not exceed $1.15 billion in 2019, down from $1.18 billion previously. The moves come at a time when other operators in the Appalachian Basin are cutting spending and activity on low natural gas prices.
SWN’s full-year guidance of 750-785 Bcfe remains unchanged. The range implies an annual growth rate of about 9%, which isn’t likely to change much next year, said CEO Bill Way.
While 2019 and 2020 spending are expected to be fully funded within cash flow and supplemented by cash from the $1.85 billion sale of the company’s Fayetteville Shale assets last year, until the company has a clearer picture on hedging and commodity prices, it won’t release details about next year’s budget.
“What I can tell you for 2020 is as we close out 2019…we will begin the process of ramping back to a nominal amount of rigs and frack fleets commensurate with our estimates of the budget,” Way said. “We’ll make adjustments to that after we finalize the budget in the January to February time period.”
He added that SWN is likely to spend most of its budget during the first half of 2020 as it’s done in recent years to help meet annual targets.
As to whether the company would consider letting production decline to generate more free cash flow, Way said that is an option, but didn’t offer any firm position on the question from financial analysts as investors search for even more clarity on returns going forward.
The company announced plans when the year started to slash spending, lower well costs and grow production modestly. Way said next year’s operations and budget should benefit from the gains SWN has made during the first six months of this year, when overall costs were down by $100 million compared to the same time last year.
Management also said the company is on track to average a goal of $875 per lateral foot on its wells this year. During the second quarter, average well costs came in at $866. Lateral lengths increased 30% year/year during the period, while water infrastructure, sand savings and other drilling and completion efficiencies helped drive down costs.
SWN produced 186 Bcfe during the second quarter, an 11% increase from the year-ago period, adjusted for the Fayetteville sale, and a 2% increase from 1Q2019. SWN continues to focus on natural gas liquids (NGL) development. Way said the company’s super-rich acreage in southwest Appalachia predominantly drove second quarter gains as year/year condensate production increased by 30%.
Overall, the Southwest Appalachia division produced 73 Bcfe in the second quarter, up from 55 Bcfe in the year-ago period. Volumes from the Northeast Appalachia division stayed flat year/year at 113 Bcf.
Second quarter liquids production came in at 70,700 b/d, down from 71,780 b/d in 1Q2019. Management said NGL production was lower as ethane was rejected on lower demand.
Average realized prices, including hedges and transportation costs, slid to $2.17/Mcfe in the second quarter from $2.30/Mcfe in the year-ago period.
SWN reported second quarter net income of $138 million (26 cents/share), compared to net income of $51 million (9 cents) at the same time last year. Revenue declined to $667 million from $816 million over the same time, reflecting the Fayetteville sale.
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