Southwestern Energy Company (SWN)

SWN 
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Southwestern Energy Co. (SWN)

UBS Global Oil and Gas Conference

May 22, 2013 11:35 am ET

Executives

Robert Craig Owen - Chief Financial Officer and Senior Vice President

Analysts

William A. Featherston - UBS Investment Bank, Research Division

Presentation

William A. Featherston - UBS Investment Bank, Research Division

Very pleased to introduce the CFO from Southwestern Energy, Craig Owen. Craig?

Robert Craig Owen

Thank you, Bill, and definitely a pleasure to be here with you guys. I like to -- see if I can figure out the pointer here, here we go. Go through some slides and kind of tell you a little bit about Southwestern Energy and certainly have time for questions at the end.

Southwestern Energy is an independent natural gas company focused on oil, natural gas, exploration and production. We also have a sizable midstream business, focused on gathering and marketing. Our market cap is roughly $13 billion today.

This presentation does contain forward-looking statements. Here's the disclaimer. We think they are based on reasonable assumptions. Future results could be materially different from those forward-looking statements.

Okay, about Southwestern. We are focused on exploration and production of natural gas. As mentioned our E&P strategy is built on growth through the drill bit. Approximately 75% of our capital is devoted to developmental drilling. We have a track record of adding significant reserves at low cost. And our strategy is built on our Formula and what we refer to quite often as our Formula is the Right People doing the Right Things, wisely investing cash flow from underlying Assets will result in Value+ and that is our discipline. Our financial hurdles, our hurdle rate is what we referred to as PVI, 1.3 PVI so $1.30 of present value of future cash flows for every dollar of invested capital is what our hurdle rate is.

Our first quarter highlights. Production is up 11%, due to strong growth in both Fayetteville and Marcellus. We had record first quarter cash flow for our company. We are very active in 3 different New Ventures or exploration plays, Lower Smackover Brown Dense, the DJ Basin in Colorado and Bakken/Three Forks in Montana. With strong balance sheet of roughly 35% to 36% debt to cap at March 31. We have a $1.5 billion revolver with lightly drawn at $35 million at the end of the first quarter. And we have strong growth in low-cost operations for 2013 with about a $2 billion capital program driving a 13% production growth.

We do have a proven track record of substantial growth that we talked about. Production and EBITDA have both grown substantially, while in the last few years, average realized gas prices have dropped quite a bit. As you all know, we're 100% essentially natural gas company and we had the impact of those 12-month trailing reserve prices, natural gas prices, for reserve purposes had a significant impact on our reserves at year-end 2012 driving our reserves from just under 6 Tcf to just over 4 Tcf from 2011 to 2012. That was based on a $2.76 natural gas price, $ 2.76 natural gas price coming from $4.12 at the end of 2011. Certainly, the strip today in the last few months has certainly returning the gas prices to somewhat more normal levels, and we expect most of those reserves to come back over time.

Our areas of operation. Our anchor is our Fayetteville Shale operations, which is in Arkansas, northern Arkansas. That will be our production -- substantial piece of our production for many years to come. We have thousands of locations to drill. We'll talk about that in just a few minutes. But our growth for the company will be coming from our Marcellus acreage in Northeast Pennsylvania. We also have some conventional assets, conventional production in East Texas in the Arkoma basin as well. We have New Ventures activities, totaling 3.8 million net acres, 2.5 million of that is in Canada and the rest being either disclosed locations in the U.S. or undisclosed, about 400,000 net acres.

Our capital investments over the past few years have been in the ballpark or in the range of 2 million -- $2 billion, excuse me, to $2.1 billion, $2.2 billion. That is that plan for 2013 as well. You see that dark blue bar on the 2013 column is developmental drilling. What that $1.9 billion or $2 billion number for 2013 does not include is our recent acquisition of about $100 million of acreage in Marcellus from Chesapeake, which closed last week. So if you had that $100 million from that transaction, that makes our capital program roughly $2.1 billion. And that, again, is devoted to our Fayetteville Shale, primarily of $900 million and Marcellus of $800 million, inclusive of the Midstream capital as well in 2013.

Our Fayetteville Shale focus. This Is kind of a busy chart up here. But really represents the breadth of the Fayetteville Shale asset. We have over 900,000 net acres in Fayetteville Shale, the gray dots. These are all initial production rates as recorded by the Arkansas Oil and Gas Commission. The light gray dots on the slide represent those wells with IPs less than 3 million a day, the red dots greater than 3 million a day and the stars are greater than 5 million a day showing the blue stars being all again 5 million -- 5 million a day wells or greater, and the yellow stars being those 5 million a day wells drilled within the last year through March 31.

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