Southwestern Energy Company (SWN)

SWN 
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Industry: Energy
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Southwestern Energy (SWN)

Q2 2013 Earnings Call

August 02, 2013 10:00 am ET

Executives

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

Analysts

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

David W. Kistler - Simmons & Company International, Research Division

Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

David Heikkinen

Biju Z. Perincheril - Jefferies LLC, Research Division

Daniel Harris - Fitch Ratings Ltd.

Gilbert K. Yang - DISCERN Investment Analytics, Inc

Andrew Coleman - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Southwestern Energy Second Quarter 2013 Earnings Teleconference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Mueller, President and CEO of Southwestern Energy. Thank you, Mr. Mueller. You may begin.

Steven L. Mueller

Thank you, and good morning, and thank all of you for joining us today. With me are Bill Way, our Chief Operating Officer; Craig Owen, our Chief Financial Officer; Jeff Sherrick, Senior VP of Corporate Development; and Brad Sylvester, our VP of Investor Relations. If you have not received a copy of yesterday's press release regarding our second quarter 2013 results, you could find a copy of all of this on our website at swn.com.

Also I'd like to point out that many of the comments during this conference -- 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.

I'm excited to begin this call today. And for those of you who know me, the word excited isn't often used. And we just had an excellent quarter. A combination of high production and high realized gas prices, or higher realized gas prices, resulted in records for adjusted earnings, EBITDA and cash flow in the second quarter.

Our production growth of 17% was primarily fueled by the strong oil performance from our Marcellus Shale properties combined with more overall wells placed on production. As a result, we've increased our production guidance for the second time this year. Additionally, our well counts and capital investments for the year have also been increased due to our recent acquisition and planned drilling on it, as well as faster drilling times and more efficiency.

I want to stop there for a second and remind you little bit about our overall philosophy. In the Marcellus, it's obviously the best economics we have in the company. And we try, as best we could, to put as much capital in that direction. And we announced last quarter the acquisition and didn't think we could spend much capital there this year. We've worked hard and build on more and more details about what we're doing there. But of that increase, there's about $140 million total, $93 million of acquisition and the rest in some activity we can do in that acreage.

And then when we talk about the Fayetteville Shale, we've always said that we wanted to keep it within cash flow, and we've been trying to do that for the last 2 or 3 years. And frankly, they have been so efficient. Rather than drop a rig in the drilled wells we said we were going to, we're going to keep one of the rig running, and with that one rig running, be able to drill faster this year and guarantee significant growth next year. Now that's all just part of our theme that we have for delivering more. As I said, we'll keep more -- 8 rigs running in the Fayetteville all year due to the increased capital budget. The one thing I didn't mention was when we started the year, we built our capital budget in Fayetteville to basically balanced. Running the 8 rigs for the whole year and adding wells, we'll actually have $100 million of cash flow from the Fayetteville come back to our company. That's a great example of adding more for Southwestern Energy.

In the Marcellus, we've learned a lot about productivity in our wells in northern Susquehanna County. And our production ramp out of that area has been tremendous, growing from 0 to over 100 million -- 180 million a day in just 7 months. And we've just looked at the wells drilled and the acreage that they are actually developing. It's less than 5% of that northeast corner of Range Trust area. But because of the geographic extent, and we'll continue drilling farther north through the rest of the year, we already think we derisked approximately 50% of our total position in Susquehanna north area. There's more to learn, obviously, and more to come from this area and the other counties as we start exploring some of the new acreage we've purchased earlier this year. But the Marcellus has obviously given us more.

I mentioned before that we're going to have higher cash flow from Fayetteville and we're going to increase our capital budget. I've talked in several calls and talked with many of you about the fact that before we raised our capital budget, we'd have to feel better about gas price. And obviously, we feel better about gas price, too. It's always a discussion point this time of the year. And especially in the heat of the summer, there is always the debate raging about what the gas price is going to be in the future.

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