Southwestern Maintains Natural Gas Activity Cuts, Eyes ‘Strong Structural Support’ Longer Term

 By Christopher Lenton  May 2, 2023 naturalgasintel.com

Southwestern Energy Co. continues to focus on decreasing dry gas completion activity, which includes releasing a hydraulic fracturing fleet in the Haynesville Shale, while maintaining its liquids-rich activity level in West Virginia and Ohio.

“Despite the near-term commodity price weakness due to relatively high inventory levels following a record warm winter, we continue to see strong structural support for natural gas,” CEO Bill Way said Friday in an earnings call. “On the supply side, U.S. production has remained essentially flat since late last year and we have seen and expect to continue to see a decline in the gas-focused rig count. We believe that near-term activity reduction will result in lower natural gas production this year, further strengthening the longer-term fundamental outlook.”

Way added that with Port Arthur LNG sanctioned last month, “we now see nearly 9 Bcf/d of new LNG export capacity that is in-progress and with some starting to come online as early as late this year. Our favorable access to the Gulf Coast positions Southwestern Energy to supply growing demand from both Haynesville and Appalachia.” 

Way said the company is receiving “strong interest” and remains in active discussions for further liquefied natural gas supply agreements, “including proposals with internationally indexed pricing.”

The company plans to spend $2.2-2.5 billion this year, or roughly the same as it spent in 2022, to produce slightly less. Way said he saw spending being on the “low end” of this guidance. Most of the capital reduction is expected in the second half of the year.

Capital expenditure was $665 million in the first quarter compared to $554 million in the year-ago quarter.

Delayed Completions

Southwestern is delaying completion activities in its dry gas areas, “including the release of an additional frac fleet in the Haynesville beginning in mid-May, and the release of a frac fleet in Pennsylvania earlier than planned,” Way said.

However, Way added that the company has “built flexibility into the program to add back this activity later in the year, should prices or our expected cash flow improve.” 

Completion delays “are expected to result in a modest production impact in the second half of the year and a flatter quarterly production profile.”

Executives previously said production is expected to average 4.6 Bcfe/d this year, compared with 4.7 Bcfe/d in 2022.

The company produced 353 Bcf in the first quarter, compared to 376 Bcf in last year’s first quarter. 

In Appalachia, total production was 251 Bcfe. The company drilled 19 wells, completed 15 wells and placed 13 wells to sales with an average lateral length of 14,916 feet. In the Haynesville, total production was 160 Bcfe in the first quarter. There were 12 wells drilled, 21 wells completed and 23 wells placed to sales in the quarter with an average lateral length of 8,207 feet.

Way added, “If we see further commodity price reductions, then we will continue to be proactive in where we could take further adjustments… hopefully some of those capital improvements could come from further inflation moderation gains which wouldn’t impact activities.”

The CEO sees the natural gas rig count continuing to drop, especially in the Haynesville.

“Internally, we think maybe there’ll be a 15-20 rig drop for the full-year in the Haynesville… So we think it’s going to continue and it’s consistent with the way we thought about it and those drops are starting to show up now.” 

Southwestern reported first quarter net income of $1.94 billion ($1.76/share) compared to a loss of $2.68 billion (minus $2.40) in the same quarter last year. Average realized natural gas prices, including derivatives, were $2.90/Mcf in the first quarter compared to $3.00 in the first quarter last year.