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Southwestern Energy (SWN)
Q1 2013 Earnings Call
May 03, 2013 10:00 am ET
Steven L. Mueller - Chief Executive Officer, President and Director
William J. Way - Chief Operating Officer and Executive Vice President
Robert Craig Owen - Chief Financial Officer and Senior Vice President
David W. Kistler - Simmons & Company International, Research Division
Amir Arif - Stifel, Nicolaus & Co., Inc., Research Division
Scott Hanold - RBC Capital Markets, LLC, Research Division
Brian Singer - Goldman Sachs Group Inc., Research Division
Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division
Arun Jayaram - Crédit Suisse AG, Research Division
Raymond J. Deacon - Brean Capital LLC, Research Division
Dan McSpirit - BMO Capital Markets U.S.
Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division
Biju Z. Perincheril - Jefferies & Company, Inc., Research Division
Nicholas P. Pope - Cowen Securities LLC, Research Division
Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division
Previous Statements by SWN
» Southwestern Energy Management Discusses Q4 2012 Results - Earnings Call Transcript
» Southwestern Energy Management Discusses Q3 2012 Results - Earnings Call Transcript
» Southwestern Energy Management Discusses Q2 2012 Results - Earnings Call Transcript
Steven L. Mueller
Thank you, and good morning to all of you and thank you for joining us. With me today are Bill Way, our Chief Operating Officer; Craig Owen, our Chief Financial Officer; Jeff Sherrick, our Senior VP of Corporate Development;
and Brad Sylvester, our VP of Investor Relations.
If you've not received a copy of yesterday's press release regarding the first quarter 2013 results, you can find a copy on our website, www.swn.com.
Also I'd like to point out that many of the comments during this teleconference are forward-looking statements that involve risks and uncertainties affecting outcomes, many of which are beyond our control and are discussed in more detail in the Risk Factors and the Forward-Looking Statements section of our annual and quarterly filings with the Securities and Exchange Commission. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results or developments may differ materially.
Now let's get on with the call. It was a very good quarter. Our production grew year-over-year 11%, and our costs continued to decrease, resulting in the strongest cash flow in a first quarter of our company's history. Since the end of the first quarter, gas prices have improved, and our production in Marcellus has started to grow dramatically. As a result, we have raised our production guidance in the latter half of the year.
Earlier this week, we announced the acquisition of 162,000 additional acres in the Marcellus. Because it will take time to fully understand all the infrastructure needs, our acquisition analysis assumed little activity on the acreage in 2013. Be assured we will quickly analyze how best to integrate this acreage into our current program, and we'll update you later in the year regarding how we'll make changes to our Marcellus because of this acquisition.
Many have asked over the past several weeks if due to the recent run-up in gas prices we will increase our capital program. We certainly are encouraged by the increasing better gas fundamentals. But except for this acquisition, we do not currently plan to accelerate our activity levels. So while we're enjoying the recent increase in gas prices and the growing production, we will continue to be disciplined in our capital investments, focused on lowering our cost, focused on delivering more throughout the rest of the year.
I will now turn the call over to Bill for more details on the operations, and then to Craig for a recap of our financial results.
William J. Way
Thank you, Steve, and good morning, everyone. We achieved several key milestones in the first quarter, which I want to share with you this morning. As Steve said, we grew our production by 11% compared to the same period in 2012. In addition, we continued to improve drilling times, lower our cost, and we're seeing PUD reserves begin to return to books -- up to our books due to price.
Our strong focus on health, safety and the environment resulted in continued improvement in HSE performance. We did experience some early challenges during the quarter specifically due to the timing of getting wells online in our Marcellus area. Typical minor bottlenecks created by rapid activity are now behind us as a result of the efforts of our team in Pennsylvania, and our operational ramp is already showing results.
Since I mentioned Marcellus, let me begin there. We got off to a slower start than we had planned due to various timing and logistical delays for getting wells connected to sales. This was especially troublesome in January where we only put -- were able to put 2 wells on production. However, we adjusted and quickly resumed our ramp-up of the business and brought on to sales 19 additional wells by the end of the quarter. We're hitting our full stride, and we're back on pace in terms of production growth. Our gross operated production is continuing to ramp up and has already reached 400 million cubic feet per day. We are on plan to surpass 500 million cubic feet per day of gas by the end of the year.
Our Marcellus business will continue to grow in line with available gas transportation infrastructure, and we currently have agreements in place that increases our firm transportation capacity out of the area to 757 million cubic feet per day of gas by 2015.
Back on the operations side, as we move into new areas, we continue to experiment with our stage counts and lateral lengths to optimize our wells. We've averaged 17 stages per well in the first quarter compared to an average of 12 stages in 2012. We completed tests on our Blaine-Hoyd well in southern Bradford County this quarter that included 32 stages in that completion. This well had a peak 24-hour rate of 23.9 million cubic feet of gas per day and compares to nearby wells that were placed on production in 2013 with an average peak 24-hour rate of 10.1 million cubic feet of gas per day, average lateral length of 4,229 feet and with 17 stages flowing up tubing only. We know some shale formations have experienced long-term effects producing with such high early drawdowns, so we'll continue to evaluate the technical and economic impacts of high-density, high-rate production in the Greenzweig area as well as Susquehanna and Lycoming counties. While I realize that each area is different geologically, we will continue to experiment with our fracture stimulations, lateral lengths and flow techniques to optimize our wells throughout the rest of 2013. We have 18 more tests planned in this year.