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Southwestern Energy Announces Third Quarter 2015 Financial And Operating Results

HOUSTON, Oct. 22, 2015 /PRNewswire/ -- Southwestern Energy Company (SWN) today announced its financial and operating results for the quarter ended September 30, 2015. Third quarter highlights include:

  • Record production of 249 Bcfe, up 27% compared to year-ago levels;
  • Total Appalachia net production of 130 Bcfe, comprised of 93 Bcf from Northeast Appalachia (a 41% increase compared to year-ago levels) and 37 Bcfe from Southwest Appalachia;
  • Strong operational performance in Southwest Appalachia demonstrated by latest well results;
  • Adjusted net income attributable to common stock (a non-GAAP measure reconciled below) of $3 million, or $0.01 per diluted share when excluding a non-cash ceiling test impairment of natural gas and oil properties and certain other items; and
  • Net cash provided by operating activities before changes in operating assets and liabilities (a non-GAAP measure reconciled below) of approximately $330 million.

"During the third quarter, we once again delivered excellent operational results while managing through the challenging commodity price environment," remarked Steve Mueller, Chairman and Chief Executive Officer of Southwestern Energy. "Our acquired acreage in Southwest Appalachia continues to provide exciting results, which we feel only scratches the surface of its potential considering we have been operating these assets for less than ten months. As we look forward, our disciplined approach to investing and our low costs will continue to differentiate our portfolio of high quality assets during these difficult times."

Third Quarter of 2015 Financial Results

For the third quarter of 2015, Southwestern reported adjusted net income attributable to common stock of $3 million, or $0.01 per diluted share, when excluding a non-cash ceiling test impairment of natural gas and oil properties of $2.8 billion ($1.7 billion net of taxes) and certain other items typically excluded by the investment community in published estimates, which in aggregate decreased net income by $1.8 billion or $4.63 per share (diluted). Including these items, the net loss attributable to common stock for the third quarter of 2015 was $1.8 billion, or $4.62 per diluted share (reconciled below). For the third quarter of 2014, Southwestern reported adjusted net income attributable to common stock of $178 million, or $0.50 per diluted share, when excluding a $54 million ($33 million net of taxes) gain on derivative contracts that have not been settled. Including this gain, Southwestern reported net income attributable to common stock of $211 million, or $0.60 per diluted share, in the third quarter of 2014 (reconciled below).

Net cash provided by operating activities before changes in operating assets and liabilities (reconciled below) was $330 million for the third quarter of 2015, compared to $504 million for the same period in 2014. On a GAAP basis, net cash provided by operating activities was $287 million for the third quarter of 2015, compared to $580 million in the third quarter of 2014.

The third quarter of 2014 includes 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. See "Divestitures" below for additional information.

E&P Segment – The operating loss from the company's E&P segment was $71 million for the third quarter of 2015 (reconciled below), when excluding the non-cash impairment, compared to operating income of $189 million for the same period in 2014. The decrease was primarily due to lower realized natural gas prices and increased operating costs and expenses from higher activity levels, partially offset by the revenue impacts of higher production volumes. On a GAAP basis, the operating loss from the company's E&P segment was $2.9 billion for the third quarter of 2015, down from operating income of $189 million during the third quarter of 2014.

Net production totaled 249 Bcfe in the third quarter of 2015, up 27% from 196 Bcfe in the third quarter of 2014. The quarter included 118 Bcf from the Fayetteville Shale, 93 Bcf from Northeast Appalachia and 37 Bcfe from Southwest Appalachia. This compares to 126 Bcf from the Fayetteville Shale and 66 Bcf from Northeast Appalachia in the third quarter of 2014.

Including the effect of hedges, Southwestern's average realized gas price in the third quarter of 2015 was $2.21 per Mcf, down from $3.43 per Mcf in the third quarter of 2014. The company's commodity hedging activities increased its average realized gas price by $0.44 per Mcf during the third quarter of 2015, compared to an increase of $0.22 per Mcf during the same period in 2014. As of September 30, 2015, the company had approximately 60 Bcf of its remaining 2015 forecasted gas production hedged at an average price of $4.40 per Mcf.

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 third quarter of 2015 was approximately $1.00 per Mcf lower than average NYMEX settlement prices, compared to approximately $0.85 per Mcf lower during the third quarter of 2014. As of September 30, 2015, the company had protected approximately 82 Bcf of its remaining 2015 expected gas production from the potential of widening basis differentials through hedging activities and sales arrangements at an average basis differential to NYMEX gas prices of approximately ($0.17) per Mcf.

Lease operating expenses per unit of production for the company's E&P segment were $0.92 per Mcfe in the third quarter of 2015, compared to $0.91 per Mcfe in the third quarter of 2014. The increase was primarily due to higher operating costs in Southwest Appalachia associated with liquids production.

General and administrative expenses per unit of production were $0.20 per Mcfe in the third quarter of 2015, compared to $0.23 per Mcfe in the third quarter of 2014, down primarily due to the increase in production volumes.

Taxes other than income taxes were $0.10 per Mcfe in the third quarter of 2015 and 2014. 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 $0.98 per Mcfe in the third quarter of 2015, compared to $1.09 per Mcfe in the third quarter of 2014. The amortization rate is impacted by the timing and amount of reserve additions and 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 Services – Operating income for the company's Midstream Services segment, which is comprised of gathering and marketing activities, was $68 million for the third quarter of 2015, down 30% from $97 million for the same period in 2014. The decrease in operating income was largely due to the 2015 divestiture of the gathering system in northeast Pennsylvania. At September 30, 2015, the company's midstream segment was gathering approximately 2.1 Bcf per day through 2,037 miles of gathering lines in the Fayetteville Shale.

First Nine Months of 2015 Financial Results

For the first nine months of 2015, Southwestern reported adjusted net income attributable to common stock, which includes a $14 million impact from a theoretical income allocation to preferred stock, of $77 million, or $0.20 per diluted share, when excluding a non-cash ceiling test impairment of natural gas and oil properties of $4.4 billion ($2.7 billion net of taxes) and certain other items typically excluded by the investment community in published estimates, which in aggregate decreased net income by $2.6 billion or $6.89 per share (diluted). Including these items, the net loss attributable to common stock for the first nine months of 2015 was $2.5 billion, or $6.65 per diluted share (reconciled below). For the first nine months of 2014, Southwestern reported adjusted net income attributable to common stock of $616 million, or $1.75 per diluted share, when excluding a $7 million ($4 million net of taxes) loss on derivative contracts that have not been settled. Including this loss, Southwestern reported net income attributable to common stock of $612 million, or $1.74 per diluted share, for the first nine months of 2014 (reconciled below).

Net cash provided by operating activities before changes in operating assets and liabilities (reconciled below) was $1.2 billion for first nine months of 2015, compared to $1.7 billion for the same period in 2014. On a GAAP basis, net cash provided by operating activities was $1.2 billion for the first nine months of 2015, compared to $1.8 billion for the first nine months of 2014.

E&P Segment – The operating loss from the company's E&P segment was $97 million for the first nine months of 2015 (reconciled below), when excluding the non-cash impairment, compared to operating income of $817 million for the same period in 2014. The decrease was primarily due to lower realized natural gas prices and increased operating costs and expenses from higher activity levels, partially offset by the revenue impacts of higher production volumes. On a GAAP basis, the operating loss from the company's E&P segment was $4.5 billion for the first nine months of 2015, down from operating income of $817 million during the first nine months of 2014.

Net production totaled 727 Bcfe in the first nine months of 2015, up 28% from 567 Bcfe in the first nine months of 2014. The first nine months of 2015 included 354 Bcf from the Fayetteville Shale, 263 Bcf from Northeast Appalachia and 103 Bcfe from Southwest Appalachia. This compares to 369 Bcf from the Fayetteville Shale and 185 Bcf from Northeast Appalachia in the first nine months of 2014.

Including the effect of hedges, Southwestern's average realized gas price in the first nine months of 2015 was $2.47 per Mcf, down from $3.79 per Mcf in the first nine months of 2014. The company's commodity hedging activities increased its average realized gas price by $0.42 per Mcf during the first nine months of 2015, compared to a decrease of $0.12 per Mcf during the same period in 2014. Disregarding the impact of hedges, the average price received for the company's gas production during the first nine months of 2015 was approximately $0.75 per Mcf lower than average monthly NYMEX settlement prices, compared to approximately $0.64 per Mcf during the first nine months of 2014.

Lease operating expenses per unit of production for the company's E&P segment were $0.92 per Mcfe in the first nine months of 2015, compared to $0.91 per Mcfe in the first nine months of 2014. The increase was primarily due to higher operating costs in Southwest Appalachia associated with liquids production.

General and administrative expenses per unit of production were $0.22 per Mcfe in the first nine months of 2015, compared to $0.24 per Mcfe in the first nine months of 2014, down primarily due to the increase in production volumes.

Taxes other than income taxes were $0.11 per Mcfe during the first nine months of 2015 and 2014.

The company's full cost pool amortization rate decreased to $1.08 per Mcfe in the first nine months of 2015, compared to $1.10 per Mcfe in the first nine months of 2014.

Midstream Services – Operating income, excluding the gain on sale of assets divested, for the company's Midstream Services segment was $234 million for the first nine months of 2015, down 14% from $272 million for the same period in 2014 (reconciled below). The decrease in operating income was largely due to the 2015 divestiture of the gathering system in northeast Pennsylvania. On a GAAP basis, operating income for the Midstream Services segment was $511 million for the first nine months of 2015, compared to $272 million for the first nine months of 2014.

Capital Structure and Investments – At September 30, 2015, the company had approximately $4.7 billion in long-term debt, including a combined $800 million borrowed on its revolving credit facility and commercial paper program.

During the first nine months of 2015, excluding the $617 million of acquisition costs and post-closing adjustments for the Appalachia transactions that closed in December 2014 and January 2015, Southwestern invested a total of $1.4 billion. This is down from $1.8 billion in the first nine months of 2014 and included approximately $1.4 billion invested in its E&P business, $45 million invested in its Midstream Services segment and $10 million invested for corporate and other purposes.

Divestitures

The company divested its gathering system in northeast Pennsylvania and its conventional E&P assets in East Texas and the Arkoma basin in the second quarter of 2015.

The northeast Pennsylvania gathering system generated operating income of $13 million for the nine months ended September 30, 2015, compared to operating income of $8 million and $27 million for the three and nine months ended September 30, 2014. For the nine months ended September 30, 2015, this gathering system generated net cash provided by operating activities of $15 million. For the three and nine months ended September 30, 2014, this gathering system generated net cash provided by operating activities of approximately $10 million and $32 million, respectively.

The conventional E&P assets in East Texas and the Arkoma basin had production of 6 Bcfe during the first nine months of 2015. This compares to 4 Bcfe and 12 Bcfe for the three and nine months ended September 30, 2014. For the three months...


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