Southwestern Accelerating Haynesville Natural Gas Development

 By Jamison Cocklin  March 1, 2022

Southwestern Energy Co. expects to spend more in the Haynesville Shale during 2022 after entering the play last year to become the nation’s second largest natural gas producer.

The Houston-based independent also became the Haynesville’s largest operator after acquiring Indigo Natural Resources LLC in September and completed the GEP Haynesville takeover at year’s end. As a result, the fourth quarter results did not include the GEP operations.

“Now that we have assumed operations, we see an opportunity to improve on the overall operational execution by leveraging our full field development expertise,” COO Clay Carrell said during a year-end call to discuss the financial results.

The company was still active in the play during the fourth quarter, when it turned 21 wells to sales. Carrell said last week that activity had picked up this year. The early data is encouraging, confirming the “Tier One reservoir quality” underlying the new properties in Louisiana. 

“Our new Haynesville assets complement our premium Appalachia position by deepening the company’s inventory, expanding market optionality and reach, including globally through the liquefied natural gas corridor, while lowering the risk profile of the enterprise,” said CEO Bill Way. 

Capital expenditures are set at $1.9-2.0 billion this year. About 55% of the budget is earmarked for the Haynesville, with the rest to be spent in the Appalachian Basin assets in Ohio, Pennsylvania and West Virginia. The company’s plans call for turning 70-75 wells to sales in the Haynesville and another 60-65 to sales in Appalachia. 

The company also said it would continue to spend on environmental, social and governance (ESG) initiatives after recently announcing plans to have a third party certify natural gas production in both plays. The company said it has budgeted up to $20 million for ESG and would prioritize emissions reductions and water conservation efforts.

Haynesville Growth

Overall, the company expects to produce 4.7 Bcfe/d this year, up 1.7 Bcfe from year-end 2020 before it entered the Haynesville. 

“We are focused on capturing the tangible benefits of scale and have already seen some early wins in the Haynesville, including operational personal execution improvements, commercial renegotiations and securing future capacity” on DT Midstream’s Leap gathering pipeline that moves natural gas to demand centers on the Gulf Coast, Carrell said. 

Last year, Southwestern generated $547 million in free cash flow (FCF), which is to be used to pay down debt toward a target of $3.0-3.5 billion. 

Since announcing its first Haynesville transaction last June, gas fundamentals have strengthened, which makes those assets more valuable and should help to continue generating ample FCF, Way said.

“The market fundamentals for natural gas should provide support for our expected free cash growth,” he added. “Consolidation and investor-driven producer discipline should continue to support the commodity market as well. At the same time, persistent power demand and stronger LNG and Mexico export demand are also expected to continue.”

Southwestern produced 4.2 Bcfe/d in the fourth quarter, up sharply from 2.8 Bcfe/d in the year-ago period because of the additional assets. Full-year production was 3.4 Bcfe/d, compared with 2.4 Bcfe/d in 2020. 

Revenue soared as well on higher commodity prices. The company reported $6.7 billion of revenue for 2021, compared to $2.3 billion in the prior year. Over the same time, average realized prices including derivatives surged 30% to $2.53/Mcfe. 

Fourth quarter net income was $2.4 billion ($2.31/share), compared with a net loss of $92 million (minus 14 cents) in the year-ago period. The 4Q2021 profits, however, were primarily related to a noncash change in unsettled derivatives. 

For the full year, Southwestern reported a net loss of $25 million (minus 3 cents), compared with a net loss of $3.1 billion (minus $5.42) in 2020. Last year’s results included a $944 million noncash loss on unsettled derivatives.   

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