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Southwestern Energy (SWN)
Q1 2011 Earnings Call
April 29, 2011 10:00 am ET
Steven Mueller - Chief Executive Officer, President and Director
Greg Kerley - Chief Financial Officer, Executive Vice President and Director
Brian Singer - Goldman Sachs Group Inc.
Scott Hanold - RBC Capital Markets, LLC
Dan McSpirit - BMO Capital Markets U.S.
David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.
Hsulin Peng - Robert W. Baird & Co. Incorporated
Amir Arif - Stifel, Nicolaus & Co., Inc.
Gil Yang - BofA Merrill Lynch
Scott Wilmoth - Simmons
Rehan Rashid - FBR Capital Markets & Co.
Michael McAllister - Sterne Agee & Leach Inc.
Nicholas Pope - Dahlman Rose & Company, LLC
Previous Statements by SWN
» Southwestern Energy's CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Southwestern Energ CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Southwestern Energ Q2 2010 Earnings Call Transcript
Thank you and good morning. With me today are Greg Kerley, our CFO; and Brad Sylvester, VP of Investor Relations. If you have not received a copy of yesterday's press release regarding our first quarter 2011 results, you can find a copy on our website at www.swn.com. Also, I would like to point out that many of our 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 details 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 these expectations expressed are based on reasonable assumptions, they're not guarantees of future performance and actual results or developments may differ materially.
To begin, I'm excited that we continued to deliver top-tier results and am equally enthusiastic about the rest of 2011. We continue to maintain well cost while growing production, and yesterday, we increased our guidance for the rest of 2011 to take into account our first quarter results and a stronger production we are seeing from the Fayetteville and the Marcellus. We posted production growth of 28% during the quarter, fueled by our Fayetteville shale play, which grew by 34%, with production of 101 BcF. We also produced 7 Bcfe from our East Texas, 4.2 Bcf from the Arkoma Basin and 2.8 from the Marcellus Shale, which we kicked off in late 2010.
Now, I'll talk about each of our operating areas. We placed 137 operated wells on production at Fayetteville Shale during the first quarter, which resulted in gross operating production reaching 1.7 Bcf a day at March 31. Our operated horizontal wells had an average completed well cost of $2.8 million per well, with an average drill time of 8.4 days during the first quarter. We also placed 11 wells on production during the quarter that were drilled in 5 days or less. Due to our fast drilling times, we have increased our 2011 capital investments program by $100 million to a total of $2.0 billion for the company. As a result, we expect to drill at least 30 additional wells in the Fayetteville Shale this year than we had previously planned. Our average initial producing rates were approximately 3.2 million cubic foot per day, which is down from the fourth quarter, primarily due to location differences and the mix of wells and increased line pressures.
In March, we placed several wells on production in our most northern areas of the field, which encountered higher line pressures than the rest of the field. This had an effect of lowering initial pressure rates for those wells. We continue to test tighter well spacing and at March 31, we have placed over 764 wells on production that have well spacing of 700 feet or less, representing approximately 65-acre spacing. To date, we have concluded that approximately 30% of the roughly 600,000 net acres drilled to date to be developed at 30- to 50-acre spacing and approximately 70% can be developed at a maximum of 65-acre spacing. We are still refining our conclusions with the goal of determining individual spacing for each section. Interference testing is ongoing, field-wide geologic and production models continued to be refined and additional spacing tests that are being drilled by other operators in the field.
In northeast Pennsylvania, we have approximately 173,000 net acres prospective for the Marcellus Shale. We are very encouraged by what we've seen to date. At March 31, we have completed the 14 operated Marcellus Shale wells on 5 pads located in our Greenzweig area and Bradford County. Net production in the area was 2.8 Bcf in the first quarter compared to 0.8 Bcf in the fourth quarter of 2010.
In our Greenzweig area, our practice is to place several wells on production from a single pad at the same time and the results continue to be strong. Three wells that were placed on production in October 2010, are currently producing at an average rate of 6.3 million cubic foot per day per well; while 3 wells placed on production in November of 2010 are currently producing at an average rate of 4.3 million cubic foot per well; and 3 wells placed on production in February are currently producing at an average rate of 5.8 million cubic feet per day per well.
On April 18, we placed 3 additional horizontal wells on production at a gross rate of over 4 million cubic foot per day per well. These wells are still cleaning up and they're also flowing up casing. Rates will increase after the installation of production tubing. All of our wells are currently producing without the benefit of compression into line pressures of approximately 1,100 pounds and gross operating production from the area is currently 60 million cubic foot per day.