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Southwestern Energy Announces Second Quarter 2022 Results

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Disciplined capital allocation strategy further enhancing shareholder value

SPRING, Texas, August 04, 2022--(BUSINESS WIRE)--Southwestern Energy Company (NYSE: SWN) today announced financial and operating results for the second quarter ended June 30, 2022.

  • Generated $427 million net cash provided by operating activities, $1.2 billion net income and $368 million adjusted net income (non-GAAP)

    • $822 million Adjusted EBITDA (non-GAAP) and $169 million free cash flow (non-GAAP)

  • Reported total net production of 438 Bcfe, or 4.8 Bcfe per day, including 4.2 Bcf per day of natural gas and 100 MBbls per day of liquids

  • Invested $585 million of capital and placed 42 wells to sales, including 23 in Appalachia and 19 in Haynesville

  • Announced a share repurchase program of up to $1 billion to complement continued prioritization of debt repayment

  • Upgraded to Ba1 by Moody’s in May; now rated one notch below investment grade by both Moody’s and S&P

"During the second quarter, Southwestern Energy continued to execute on our plan while complementing our debt repayment priority with a share repurchase program. We believe this program will narrow the disconnect between our enterprise value and our inherent asset value, as reflected in our second quarter PV-10 reserve value of $31 billion1 at strip prices. This program also underscores the free cash flow generation capability of our dual-basin assets and firm transportation portfolio providing market optionality, including being one of the nation’s largest suppliers of natural gas to LNG," said Bill Way, Southwestern Energy President and Chief Executive Officer.

"The Company remains on track to deliver all of its 2022 operating and financial objectives. We are increasing our full-year production guidance and updating other key metrics primarily to reflect the current cost environment. The approximately 10% increase to our 2022 capital investment strengthens the delivery of our 2023 maintenance capital program and increases estimated cumulative free cash flow. We expect at current strip prices we can achieve our target debt range and also return nearly 15% of our market capitalization to shareholders by the end of next year," continued Way.

1 A non-GAAP measure. Unaudited pre-tax PV-10 value of reserves based on five-year strip prices as of June 30, 2022.

Financial Results

For the three months ended

For the six months ended

June 30,

June 30,

(in millions)

2022

2021

2022

2021

Net income (loss)

$

1,173

$

(609

)

$

(1,502

)

$

(529

)

Adjusted net income (non-GAAP)

$

368

$

129

$

815

$

325

Diluted earnings (loss) per share

$

1.05

$

(0.90

)

$

(1.35

)

$

(0.78

)

Adjusted diluted earnings per share (non-GAAP)

$

0.33

$

0.19

$

0.73

$

0.48

Adjusted EBITDA (non-GAAP)

$

822

$

300

$

1,727

$

682

Net cash provided by operating activities

$

427

$

270

$

1,399

$

617

Net cash flow (non-GAAP)

$

754

$

272

$

1,615

$

626

Total capital investments (1)

$

585

$

259

$

1,129

$

525

Free cash flow (non-GAAP)

$

169

$

13

$

486

$

101

(1)

Capital investments include an increase of $34 million and a decrease of $9 million for the three months ended June 30, 2022 and 2021, respectively, and increases of $77 million and $29 million for the six months ended June 30, 2022 and 2021, respectively, relating to the change in capital accruals between periods.

For the quarter ended June 30, 2022, Southwestern Energy recorded net income of $1.2 billion, or $1.05 per diluted share, primarily due to the mark-to-market impact of unsettled derivatives. Excluding this and other one-time items, adjusted net income (non-GAAP) was $368 million, or $0.33 per diluted share, and adjusted EBITDA (non-GAAP) was $822 million. Net cash provided by operating activities was $427 million, net cash flow (non-GAAP) was $754 million and free cash flow (non-GAAP) was $169 million.

The Company primarily utilized free cash flow generated in the second quarter of 2022 to reduce the balance of its revolving credit facility and repurchase $45 million of senior notes due 2027 and 2028, which was more than offset by seasonal working capital adjustments. As of June 30, 2022, Southwestern Energy had total debt of $5.1 billion and net debt to adjusted EBITDA (non-GAAP) of 1.6x. At the end of the quarter, the Company had $406 million of borrowings under its revolving credit facility and $109 million in outstanding letters of credit. In May 2022, the Company received an upgrade to its long-term debt issuer rating from Moody’s to Ba1, placing the Company one notch below an investment grade credit rating by both Moody’s and S&P.

On June 21, 2022, the Company announced a program to repurchase up to $1 billion of its outstanding common stock through the end of 2023. During the second quarter, the Company repurchased approximately 2.8 million shares for a total cost of approximately $20 million at an average price of $7.10 per share.

As indicated in the table below, second quarter 2022 weighted average realized price, including $0.25 per Mcfe of transportation expenses, was $6.69 per Mcfe excluding the impact of derivatives. Including derivatives, weighted average realized price (including transportation) for the second quarter was up 38% from $2.20 per Mcfe in 2021 to $3.04 per Mcfe in 2022 primarily due to higher commodity prices including a 153% increase in NYMEX Henry Hub and a 64% increase in WTI. Second quarter 2022 weighted average realized price before transportation expense and excluding the impact of derivatives was $6.94 per Mcfe.

Realized Prices

For the three months ended

For the six months ended

(includes transportation costs)

June 30,

June 30,

2022

2021

2022

2021

Natural Gas Price:

NYMEX Henry Hub price ($/MMBtu) (1)

$

7.17

$

2.83

$

6.06

$

2.76

Discount to NYMEX (2)

(0.69

)

(0.91

)

(0.56

)

(0.74

)

Realized gas price per Mcf, excluding derivatives

$

6.48

$

1.92

$

5.50

$

2.02

Gain on settled financial basis derivatives ($/Mcf)

0.06

0.03

0.04

0.11

Loss on settled commodity derivatives ($/Mcf)

(3.86

)

(0.06

)

(2.70

)

(0.02

)

Average realized gas price, including derivatives ($/Mcf)

$

2.68

$

1.89

$

2.84

$

2.11

Oil Price:

WTI oil price ($/Bbl) (3)

$

108.41

$

66.07

$

101.35

$

61.96

Discount to WTI (4)

(8.12

)

(8.57

)

(7.81

)

(8.92

)

Average realized oil price, excluding derivatives ($/Bbl)

$

100.29

$

57.50

$

93.54

$

53.04

Average realized oil price, including derivatives ($/Bbl)

$

56.94

$

38.37

$

53.73

$

37.70

NGL Price:

Average realized NGL price, excluding derivatives ($/Bbl)

$

40.07

$

23.24

$

39.72

$

23.05

Average realized NGL price, including derivatives ($/Bbl)

$

29.23

$

15.87

$

28.22

$

15.99

Percentage of WTI, excluding derivatives

37

%

35

%

39

%

37

%

Total Weighted Average Realized Price:

Excluding derivatives ($/Mcfe)

$

6.69

$

2.55

$

5.80

$

2.58

Including derivatives ($/Mcfe)

$

3.04

$

2.20

$

3.14

$

2.36

(1)

Based on last day settlement prices from monthly futures contracts.

(2)

This discount includes a basis differential, a heating content adjustment, physical basis sales, third-party transportation charges and fuel charges, and excludes financial basis derivatives.

(3)

Based on the average daily settlement price of the nearby month futures contract over the period.

(4)

This discount primarily includes location and quality adjustments.

Operational Results

Total net production for the quarter ended June 30, 2022 was 438 Bcfe, of which 87% was natural gas, 11% NGLs and 2% oil. Capital investments totaled $585 million for the second quarter of 2022 with 41 wells drilled, 35 wells completed and 42 wells placed to sales.

For the three months ended

For the six months ended

June 30,

June 30,

2022

2021

2022

2021

Production

Natural gas production (Bcf)

383

219

759

433

Oil production (MBbls)

1,363

1,831

2,633

3,493

NGL production (MBbls)

7,738

7,666

14,657

15,244

Total production (Bcfe)

438

276

863

545

Average unit costs per Mcfe

Lease operating expenses (1)

$

0.97

$

0.94

$

0.96

$

0.94

General & administrative expenses (2,3)

$

0.07

$

0.11

$

0.08

$

0.12

Taxes, other than income taxes

$

0.15

$

0.10

$

0.14

$

0.09

Full cost pool amortization

$

0.65

$

0.34

$

0.64

$

0.34

(1)

Includes post-production costs such as gathering, processing, fractionation and compression.

(2)

Excludes $2 million and $27 million in merger-related expenses for the three and six months ended June 30, 2022, respectively.

(3)

Excludes $3 million and $4 million in merger-related expenses for the three and six months ended June 30, 2021, respectively, and $1 million and $7 million in restructuring charges for the three and six months ended June 30, 2021, respectively.

Appalachia – In the second quarter, total production was 269 Bcfe, with NGL production of 85 MBbls per day and oil production of 15 MBbls per day. The Company drilled 18 wells, completed 17 wells and placed 23 wells to sales with an average lateral length of 13,897 feet.

Haynesville – In the second quarter, total production was 169 Bcf. There were 23 wells drilled, 18 wells completed and 19 wells placed to sales in the quarter with an average lateral length of 9,450 feet.

E&P Division Results

For the three months ended
June 30, 2022

For the six months ended
June 30, 2022

Appalachia

Haynesville

Appalachia

Haynesville

Natural gas production (Bcf)

214

169

424

335

Liquids production

Oil (MBbls)

1,354

7

2,617

11

NGL (MBbls)

7,738

14,657

Production (Bcfe)

269

169

528

335

Capital investments (in millions)

Drilling and completions, including workovers

$

203

$

311

$

384

$

590

Land acquisition and other

12

6

33

12

Capitalized interest and expense

29

18

62

39

Total capital investments

$

244

$

335

$

479

$

641

Gross operated well activity summary

Drilled

18

23

36

38

Completed

17

18

34

38

Wells to sales

23

19

34

40

Total weighted average realized price per Mcfe, excluding derivatives

$

6.62

$

6.81

$

5.87

$

5.69

Wells to sales summary

For the three months ended June 30, 2022

Gross wells to sales

Average lateral length

Appalachia

Super Rich Marcellus

3

15,606

Rich Marcellus

10

11,774

Dry Gas Utica(1)

3

13,138

Dry Gas Marcellus

7

16,524

Haynesville(2)

19

9,450

Total

42

(1)

Ohio and Pennsylvania Utica.

(2)

Includes wells drilled and completed by prior operators.

2022 Guidance

In the table below, the Company provides third quarter and updated full year 2022 guidance reflecting current market conditions. Bold indicates updated full year guidance.

3rd Quarter

Total Year

PRODUCTION

Gas production (Bcf)

378 – 390

1,510 – 1,535

Liquids (% of production)

11.5% – 12.0%

~12.0%

Total (Bcfe)

429 – 444

1,715 – 1,745

Total (Bcfe/day)

~4.7

~4.7

CAPITAL BY DIVISION (in mill...