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Southwestern Energy Announces First Quarter 2016 Financial And Operating Results

HOUSTON, April 21, 2016 /PRNewswire/ -- Southwestern Energy Company SWN, -1.20% today announced its financial and operating results for the quarter ended March 31, 2016 as well as an update to the progress made on the strategic initiatives disclosed in February 2016. First quarter highlights include:

  • Realized net cash (a non-GAAP measure reconciled below) of approximately $147 million, which exceeded capital investments by $25 million;
  • Recorded adjusted net loss attributable to common stock (a non-GAAP measure reconciled below) of $32 million, or $0.08 per diluted share, when excluding a non-cash ceiling test impairment of natural gas and oil properties and certain other items;
  • Exceeded guidance with natural gas and oil production of 237 Bcfe, including 134 Bcfe from the Appalachia Basin and 103 Bcf from the Fayetteville;
  • Identified operating cost reductions of over $40 million annually, with over $15 million realized in the first quarter, as a result of margin enhancement efforts in addition to previously announced cost reductions associated with midstream contracts and workforce reductions; and
  • Protected balance sheet with additional 2016 hedges; approximately 23% of expected gas production between April and October hedged utilizing fixed price swaps and put options with an average floor price of $2.42 per Mcf.

"We began the year by leveraging the momentum built by our operational teams in 2015 and are making good progress executing on our strategic initiatives to position the Company for long-term value creation," remarked Bill Way, President and Chief Executive Officer of Southwestern Energy. "While adjusting activity levels to align with the commodity prices, we exceeded guidance on production volumes and associated costs by continuing our laser focus on efficiency improvements. The actions we are taking to further strengthen our balance sheet, enhance operating margins and optimize cash flow will continue to provide benefits in the current environment, and will enable us to enhance shareholder value as commodity prices improve."

First Quarter of 2016 Financial Results

For the first quarter of 2016, Southwestern reported an adjusted net loss attributable to common stock (reconciled below) of $32 million, or $0.08 per diluted share and a net loss attributable to common stock of $1.2 billion, or $3.03 per diluted share. This compares to adjusted net income attributable to common stock of $84 million, or $0.22 per diluted share, and net income attributable to common stock of $46 million, or $0.12 per diluted share, in the first quarter of 2015.

Net cash (reconciled below) was $147 million for the first quarter of 2016, compared to $493 million for the same period in 2015. On a GAAP basis, net cash provided by operating activities was $92 million for the first quarter of 2016, compared to $541 million in the first quarter of 2015.

The first quarter of 2015 included the operating results from our gathering system in northeast Pennsylvania and our conventional E&P assets in East Texas and the Arkoma basin which were divested during the second quarter of 2015.

E&P Segment – The operating loss from the Company's E&P segment was $65 million for the first quarter of 2016 (reconciled below), when excluding the non-cash impairment and restructuring charges, compared to operating income of $78 million for the same period in 2015. The decrease was primarily due to lower realized natural gas prices along with decreases in our realized oil and NGL prices. On a GAAP basis, the operating loss from the Company's E&P segment was $1.2 billion for the first quarter of 2016, down from operating income of $78 million during the first quarter of 2015 primarily driven by the $1.0 billion non-cash impairment charge.

Net production totaled 237 Bcfe in the first quarter of 2016, up from 233 Bcfe in the first quarter of 2015. The quarter included 103 Bcf from the Fayetteville Shale, 94 Bcf from Northeast Appalachia and 40 Bcfe from Southwest Appalachia. This compares to 115 Bcf from the Fayetteville Shale, 83 Bcf from Northeast Appalachia and 30 Bcfe from Southwest Appalachia in the first quarter of 2015.

Including the effect of hedges, Southwestern's average realized gas price in the first quarter of 2016 was $1.48 per Mcf, down from $2.99 per Mcf in the first quarter of 2015. The Company's commodity hedging activities increased its average realized gas price by $0.04 per Mcf during the first quarter of 2016, compared to an increase of $0.36 per Mcf during the same period in 2015. As of April 19, 2016, the Company had approximately 107 Bcf of its remaining 2016 forecasted gas production protected at an average price of $2.43 per Mcf. A detailed breakdown of the Company's 2016 hedges is shown below:


2016 Gas Hedges


Q1


Q2


Q3


Q4


Total

Fixed Price Swaps (Bcf)


5



24



25



15



69

Fixed Price Swaps ($/Mcf)

$

2.60


$

2.47


$

2.47


$

2.53


$

2.49
















Put Options (Bcf)


-



26



13



4



43

Put Options ($/Mcf)

$

-


$

2.35


$

2.34


$

2.34


$

2.35
















Total (Bcf)


5



50



38



19



112

Total ($/Mcf)

$

2.60


$

2.41


$

2.42


$

2.49


$

2.44

Like most producers, the Company typically sells its natural gas at a discount to NYMEX settlement prices. This discount includes a basis differential, third-party transportation charges and fuel charges. Disregarding the impact of hedges, the Company's average price received for its gas production during the first quarter of 2016 was approximately $0.65 per Mcf lower than average NYMEX settlement prices, compared to approximately $0.35 per Mcf lower than average NYMEX settlement prices during the first quarter of 2015. As of March 31, 2016, we have attempted to mitigate the volatility of basis differentials by protecting basis on approximately 160 Bcf our remaining 2016 expected natural gas production through physical sales arrangements at a basis differential to NYMEX natural gas prices of approximately ($0.19) per Mcf.

Lease operating expenses per unit of production for the Company's E&P segment were $0.88 per Mcfe in the first quarter of 2016, compared to $0.92 per Mcfe in the first quarter of 2015. The decrease was primarily due to the successful renegotiation of our existing gathering and processing rates for our Southwest Appalachia production.

General and administrative expenses per unit of production were $0.19 per Mcfe in the first quarter of 2016, compared to $0.24 per Mcfe in the first quarter of 2015, down primarily due to a decrease in employee costs. This excludes the restructuring charges associated with the workforce reduction, which were $58 million for the E&P segment in the first quarter of 2016.

Taxes other than income taxes were $0.08 per Mcfe in the first quarter of 2016, compared to $0.12 per Mcfe in the first quarter of 2015. Taxes other than income taxes per Mcfe vary from period to period due to changes in severance and ad valorem taxes that result from the mix of the Company's production volumes and fluctuations in commodity prices.

The Company's full cost pool amortization rate decreased to $0.49 per Mcfe in the first quarter of 2016, compared to $1.15 per Mcfe in the first quarter of 2015. The amortization rate is impacted by the timing and amount of reserve additions, the costs associated with those additions, revisions of previous reserve estimates due to both price and well performance, write-downs that result from full cost ceiling tests, proceeds from the sale of properties that reduce the full cost pool and the levels of costs subject to amortization. The Company cannot predict its future full cost pool amortization rate with accuracy due to the variability of each of the factors discussed above, as well as other factors.

Midstream – Adjusted operating income (reconciled below) for the Company's Midstream segment, comprised of gathering and marketing activities, was $63 million for the first quarter of 2016, excluding the impacts from restructuring charges. This is down from $88 million for the same period in 2015. The decrease in operating income was largely due to a decrease in volumes gathered resulting from lower production volumes in the Fayetteville Shale and the sale of the Company's northeast Pennsylvania gathering assets. On a GAAP basis, operating income for its Midstream segment was $60 million for the first quarter of 2016, compared to $88 million for the same period in 2015.

Capital Structure and Investments – At March 31, 2016, the Company had approximately $4.8 billion in net long-term debt, including $1.55 billion of cash temporarily borrowed on its revolving credit facility for the final two days of the quarter. The $1.55 billion was repaid on April 1, 2016. The revolving credit facility remains unsecured with a maturity date of December 2018. The only financial covenant included in the Company's revolving credit facility, debt to book capitalization adjusted for ceiling test impairments, was 45% at March 31, 2016. This is well below the covenant limit of 60% despite the $1.55 billion temporary draw on the revolver at quarter-end to maximize secured debt capacity.

During the first quarter of 2016, Southwestern invested a total of $122 million. This is down from $518 million in the first quarter of 2015, excluding $653 million associated with the closing the Appalachia transactions that closed in December 2014 and January 2015. The $122 million includes approximately $120 million invested in its E&P business and $2 million invested in its Midstream segment.

E&P Operations Review

During the first quarter of 2016, Southwestern invested approximately $120 million in its E&P business, including $58 million in investment capital and $62 in capitalized interest and expenses. Consistent with guidance, the Company placed 12 wells to sales in the first quarter and expects to put 20 to 30 wells to sales during 2016.

In Northeast Appalachia, the Company completed 6 wells and placed 3 wells on production in the first quarter of 2016. This activity resulted in net gas production of 94 Bcf, up 13% from 83 Bcf in the first quarter of 2015. Gross operated production in Northeast Appalachia was approximately 1.2 Bcf...


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