UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 8-K
________________________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 30, 2020
________________________________________________________________
(Exact name of registrant as specified in its charter)
________________________________________________________________
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
(Address of principal executive offices)(Zip Code)
(832 ) 796-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
________________________________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
The information in this report provided under Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section, and shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
SECTION 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On July 30, 2020, Southwestern Energy Company (the "Company") issued a press release announcing the Company's financial results for the three months ended June 30, 2020 (Exhibit 99.1). The press release is being furnished as Exhibit 99.1.
SECTION 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | ||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SOUTHWESTERN ENERGY COMPANY | ||||||||||||||
Dated: July 30, 2020 | By: | /s/ JULIAN M. BOTT | ||||||||||||
| Name: | Julian M. Bott | |||||||||||||
| Title: | Executive Vice President and | |||||||||||||
| Chief Financial Officer | ||||||||||||||
NEWS RELEASE
SOUTHWESTERN ENERGY ANNOUNCES SECOND QUARTER 2020 RESULTS
Further strengthened financial resilience through comprehensive cost reductions and leading operational achievements; lowered annual cost guidance across all categories
SPRING, Texas – July 30, 2020...Southwestern Energy Company (NYSE: SWN) today announced financial and operating results for the second quarter ended June 30, 2020.
•Broad-based cost elimination with full year expense savings totaling $90 million, up $30 million since last quarter;
•Achieved record single-well cost of $505 per lateral foot; expect to average $650 per foot in the second half of the year;
•Revised annual capital guidance to $860 million – $915 million, lowering high end of range;
•Shallowed annual base decline to 23%;
•Delivered total production of 201 Bcfe; including 1.7 Bcf per day of gas and 79 MBbls per day of liquids;
•Realized $120 million in cash settlements from the hedging program across all commodities, a $0.60 per Mcfe benefit; reported weighted average realized price (excluding transportation) of $2.05 per Mcfe including derivatives; and
•Repurchased $27 million senior notes at a 24% discount; year-to-date senior note repurchases total $107 million at a 33% discount.
“Southwestern Energy again underscored its strength and resilience during the second quarter. We mitigated many of the far-reaching impacts of COVID-19 on the industry with operational agility and commercial flexibility to achieve results at or above our commitments. These actions support our return to a self-funded capital program in 2021,” said Bill Way, Southwestern Energy President and Chief Executive Officer.
“We delivered comprehensive cost reductions, improved our base decline and lowered well costs, all ahead of expectations. This progress, along with our dynamic hedge portfolio and returns-focused capital allocation practice, solidly moves us forward on our path to deliver sustainable long-term value,” continued Way.
Financial Results
For the quarter ended June 30, 2020, Southwestern Energy recorded a net loss of $880 million, or ($1.63) per diluted share, including $655 million of non-cash impairments and a $229 million non-cash loss on unsettled mark-to-market derivatives. This compares to net income of $138 million, or $0.26 per diluted share in the second quarter of 2019. Adjusted net income (loss) (non-GAAP), which excludes the non-cash items noted above, was a $1 million loss, or ($0.00) per diluted share in the second quarter of 2020, compared to adjusted net income of $40 million, or $0.08 per diluted share for the prior year period. The decrease in adjusted net income (loss) was primarily related to a 47% decrease in average realized price, partially offset by $120 million in cash settled derivative gains in 2020 and a $31 million decrease in depreciation, depletion and amortization expense. Adjusted EBITDA (non-GAAP) was $106 million, net cash
provided by operating activities was $94 million and net cash flow (non-GAAP) was $87 million.
| FINANCIAL STATISTICS | For the three months ended | For the six months ended | |||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income (loss) | $ | (880) | $ | 138 | $ | (2,427) | $ | 732 | |||||||||||||||
| Adjusted net income (loss) (non-GAAP) | $ | (1) | $ | 40 | $ | 55 | $ | 185 | |||||||||||||||
| Diluted earnings (loss) per share | $ | (1.63) | $ | 0.26 | $ | (4.49) | $ | 1.35 | |||||||||||||||
| Adjusted diluted earnings per share (non-GAAP) | $ | (0.00) | $ | 0.08 | $ | 0.10 | $ | 0.34 | |||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 106 | $ | 186 | $ | 312 | $ | 505 | |||||||||||||||
| Net cash provided by operating activities | $ | 94 | $ | 101 | $ | 254 | $ | 543 | |||||||||||||||
| Net cash flow (non-GAAP) | $ | 87 | $ | 173 | $ | 278 | $ | 482 | |||||||||||||||
Total capital investments (1) | $ | 245 | $ | 368 | $ | 482 | $ | 693 | |||||||||||||||
(1)Capital investments includes an increase of $39 million for the three months ended June 30, 2019, and increases of $8 million and $105 million for the six months ended June 30, 2020 and 2019, respectively, relating to the change in capital accruals between periods. There was no change in the capital accrual for the three months ended June 30, 2020.
As indicated in the table below, second quarter 2020 weighted average realized price (including transportation) was $1.65 per Mcfe including derivatives, down 24% from $2.17 per Mcfe in the prior year period. Settled derivatives provided a $0.60 per Mcfe uplift to realized price, but were more than offset by lower commodity prices, including a 35% decrease to NYMEX Henry Hub and 53% decrease in West Texas Intermediate (WTI), compared to prior year.
During the second quarter, the Company realized $120 million in cash settled derivative gains, bringing year-to-date cash settled derivative gains to $213 million. As of June 30, 2020, the fair value of unsettled derivatives for the remainder of 2020 was a $195 million asset. The Company has 385 Bcfe of its remaining expected 2020 production hedged with swaps and collars for approximately 90% of natural gas, 95% of oil and 60% of NGLs. In addition, the Company has 145 Bcf of natural gas financial basis hedges.
As of June 30, 2020, Southwestern Energy had total debt of $2.46 billion and a cash balance of $10 million, with a leverage ratio of 3.1x. During the quarter, the Company reduced senior notes by $27 million through open market repurchases at a 24% discount, bringing year-to-date senior notes reduction to $107 million, at a 33% discount. The Company’s senior notes totaled $2.12 billion, with only $207 million due before 2025.
At the end of the second quarter, the Company had $1.26 billion undrawn commitment under its $1.8 billion revolving credit facility with $336 million borrowed and $209 million in outstanding letters of credit. Since April, the Company was able to convert $113 million in outstanding letters of credit to surety bonds.
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| Realized Prices | For the three months ended | For the six months ended | ||||||||||||||||||||||||
| (includes transportation costs) | June 30, | June 30, | ||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Natural Gas Price: | ||||||||||||||||||||||||||
NYMEX Henry Hub price ($/MMBtu) (1) | $ | 1.72 | $ | 2.64 | $ | 1.83 | $ | 2.89 | ||||||||||||||||||
Discount to NYMEX (2) | (0.74) | (0.84) | (0.57) | (0.52) | ||||||||||||||||||||||
| Realized gas price per Mcf, excluding derivatives | $ | 0.98 | $ | 1.80 | $ | 1.26 | $ | 2.37 | ||||||||||||||||||
Gain (loss) on settled financial basis derivatives | (0.05) | (0.03) | 0.03 | (0.03) | ||||||||||||||||||||||
Gain on settled commodity derivatives | 0.57 | 0.17 | 0.43 | 0.04 | ||||||||||||||||||||||
| Realized gas price per Mcf, including derivatives | $ | 1.50 | $ | 1.94 | $ | 1.72 | $ | 2.38 | ||||||||||||||||||
| Oil Price, per Bbl: | ||||||||||||||||||||||||||
WTI oil price | $ | 27.85 | $ | 59.81 | $ | 37.01 | $ | 57.36 | ||||||||||||||||||
| Discount to WTI | (12.16) | (10.26) | (9.46) | (9.75) | ||||||||||||||||||||||
| Realized oil price, excluding derivatives | $ | 15.69 | $ | 49.55 | $ | 27.55 | $ | 47.61 | ||||||||||||||||||
| Realized oil price, including derivatives | $ | 41.64 | $ | 51.60 | $ | 44.08 | $ | 49.80 | ||||||||||||||||||
| NGL Price, per Bbl: | ||||||||||||||||||||||||||
| Realized NGL price, excluding derivatives | $ | 6.43 | $ | 10.51 | $ | 7.29 | $ | 12.50 | ||||||||||||||||||
| Realized NGL price, including derivatives | $ | 8.22 | $ | 12.62 | $ | 9.50 | $ | 13.84 | ||||||||||||||||||
| Percentage of WTI, excluding derivatives | 23 | % | 18 | % | 20 | % | 22 | % | ||||||||||||||||||
| Total Weighted Average Realized Price: | ||||||||||||||||||||||||||
Excluding derivatives ($/Mcfe) | $ | 1.05 | $ | 1.99 | $ | 1.37 | $ | 2.48 | ||||||||||||||||||
Including derivatives ($/Mcfe) | $ | 1.65 | $ | 2.17 | $ | 1.90 | $ | 2.54 | ||||||||||||||||||
(1)Based on last day monthly futures settlement prices.
(2)This discount includes a basis differential, a heating content adjustment, physical basis sales, third-party transportation charges and fuel charges, and excludes financial basis derivatives.
Operational Results
Total production for the quarter ended June 30, 2020 was 201 Bcfe, comprised of 79% natural gas, 18% NGLs and 3% oil. Capital investments totaled $245 million for the second quarter, with 30 wells drilled, 31 wells completed and 31 wells placed to sales. During the quarter, the Company shifted activity to high-rate, high-volume natural gas wells, with over 80% of wells drilled in dry gas Northeast Appalachia and rich gas Southwest Appalachia. The Company has revised its well count guidance ranges to reflect the shift in activity, with full year capital investment estimated to be split evenly between Northeast Appalachia and Southwest Appalachia.
The Company continues to deliver well cost reductions ahead of expectations. In the second quarter, wells to sales averaged $691 per lateral foot, with an expected full year average of $690 per foot, compared to original guidance of $730 per foot. This incremental reduction is due to operational efficiencies, completion design optimization and deflationary service costs. Additionally, the Company expects to average $650 per foot for wells to sales in the second half of 2020.
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| For the three months ended | For the six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Production | |||||||||||||||||||||||
Gas production (Bcf) | 158 | 148 | 314 | 291 | |||||||||||||||||||
Oil production (MBbls) | 1,083 | 937 | 2,482 | 1,791 | |||||||||||||||||||
NGL production (MBbls) | 6,111 | 5,497 | 12,239 | 11,100 | |||||||||||||||||||
Total production (Bcfe) | 201 | 186 | 402 | 368 | |||||||||||||||||||
| Average unit costs per Mcfe | |||||||||||||||||||||||
Lease operating expenses | $ | 0.91 | $ | 0.90 | $ | 0.94 | $ | 0.90 | |||||||||||||||
General & administrative expenses (1) | $ | 0.14 | $ | 0.19 | $ | 0.13 | $ | 0.19 | |||||||||||||||
| Taxes, other than income taxes | $ | 0.05 | $ | 0.09 | $ | 0.06 | $ | 0.10 | |||||||||||||||
| Full cost pool amortization | $ | 0.38 | $ | 0.55 | $ | 0.46 | $ | 0.56 | |||||||||||||||
(1)Excludes restructuring charges (including severance) of $2 million for the three months ended June 30, 2020 and 2019, and $12 million and $5 million for the six months ended June 30, 2020 and 2019, respectively.
Southwest Appalachia – In the second quarter, total production was 88 Bcfe, half of which was liquids production of 79 MBbls per day. The Company drilled nine wells, completed 17 wells and placed 20 wells to sales. The average lateral length of wells to sales was 11,469 feet, and included six wells in the rich area and 14 wells in the super rich area. All six of the rich wells were online for at least 30 days and had an average 30-day rate of 17.2 MMcfe per day, while 12 of the super rich wells were online for at least 30 days and had an average 30-day rate of 7.3 MMcfe per day, including 67% liquids. The production rates associated with the super rich wells were temporarily managed lower to mitigate condensate market constraints that existed early in the second quarter.
Northeast Appalachia – Second quarter production was 113 Bcf. There were 21 wells drilled, 14 wells completed and 11 wells put to sales with an average lateral length of 9,693 feet. Of the eight wells that were online for at least 30 days, six were Lower Marcellus, with an average 30-day rate of 14.8 MMcf per day. Second quarter wells to sales represented a different well mix compared to the first quarter, which was primarily located in the higher rate Tioga area. The two remaining wells were part of the Upper Marcellus testing and had an average 30-day rate of 8.3 MMcf per day.
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| E&P Division Results | For the three months ended June 30, 2020 | For the six months ended June 30, 2020 | |||||||||||||||||||||
| Northeast | Southwest | Northeast | Southwest | ||||||||||||||||||||
Gas production (Bcf) | 113 | 45 | 227 | 87 | |||||||||||||||||||
| Liquids production | |||||||||||||||||||||||
Oil (MBbls) | — | 1,079 | — | 2,474 | |||||||||||||||||||
NGL (MBbls) | — | 6,110 | — | 12,237 | |||||||||||||||||||
Production (Bcfe) | 113 | 88 | 227 | 175 | |||||||||||||||||||
Gross operated production June 2020 (MMcfe/d) | 1,475 | 1,569 | |||||||||||||||||||||
Net operated production June 2020 (MMcfe/d) | 1,203 | 973 | |||||||||||||||||||||
Capital investments ($ in millions) | |||||||||||||||||||||||
| Drilling and completions, including workovers | $ | 107 | $ | 87 | $ | 186 | $ | 197 | |||||||||||||||
| Land acquisition and other | 4 | 7 | 5 | 13 | |||||||||||||||||||
| Capitalized interest and expense | 4 | 29 | 10 | 59 | |||||||||||||||||||
| Total capital investments | $ | 115 | $ | 123 | $ | 201 | $ | 269 | |||||||||||||||
| Gross operated well activity summary | |||||||||||||||||||||||
| Drilled | 21 | 9 | 36 | 32 | |||||||||||||||||||
| Completed | 14 | 17 | 24 | 29 | |||||||||||||||||||
| Wells to sales | 11 | 20 | 16 | 27 | |||||||||||||||||||
Average well cost on wells to sales (in millions) | $ | 6.2 | $ | 8.2 | $ | 6.6 | $ | 8.9 | |||||||||||||||
Average lateral length (in ft) | 9,693 | 11,469 | 9,475 | 11,981 | |||||||||||||||||||
| Total weighted average realized price per Mcfe, excluding derivatives | $ | 1.03 | $ | 1.08 | $ | 1.37 | $ | 1.37 | |||||||||||||||
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Updated Guidance
The Company revised its annual guidance to reflect lower costs across all categories and higher NGL price realizations as a percentage of WTI. Production guidance is also revised due to the shift in activity to high-rate, high-volume gas, resulting in a rebalance of production mix and well count. Updated guidance noted in bold:
| 1st Quarter Actual | 2nd Quarter Actual | 3rd Quarter | 4th Quarter | Total Year | |||||||||||||||||||||||||
| Production | |||||||||||||||||||||||||||||
Natural Gas (Bcf) | 156 | 158 | 170 – 177 | 177 – 184 | 661 – 675 | ||||||||||||||||||||||||
Oil/Condensate (MBbls) | 1,399 | 1,083 | 1,300 – 1,400 | 1,275 – 1,375 | 5,057 – 5,257 | ||||||||||||||||||||||||
NGLs (MBbls) | 6,128 | 6,111 | 6,350 – 6,625 | 6,750 – 7,025 | 25,339 – 25,889 | ||||||||||||||||||||||||
Total Production (Bcfe) | 201 | 201 | 216 – 225 | 225 – 234 | 843 – 861 | ||||||||||||||||||||||||
Total Production (MMcfe/d) | 2,213 | 2,203 | 2,347 – 2,446 | 2,446 – 2,543 | 2,303 – 2,352 | ||||||||||||||||||||||||
CAPITAL BY DIVISION (in millions) | |||||
| Northeast Appalachia | $330 – $345 | ||||
| Southwest Appalachia | $365 – $380 | ||||
| Other | $25 – $30 | ||||
| Capitalized interest | $85 – $95 | ||||
| Capitalized expense | $55 – $65 | ||||
| Total Capital Investments | $860 – $915 | ||||
PRODUCTION BY DIVISION (Bcfe) | |||||
| Northeast Appalachia | 471 – 480 | ||||
| Southwest Appalachia | 372 – 381 | ||||
| PRICING | |||||
| Natural gas discount to NYMEX including transportation | $0.63 – $0.73 per Mcf | ||||
| Oil discount to West Texas Intermediate (WTI) including transportation | $9.50 – $11.50 per Bbl | ||||
| Natural Gas Liquids realization as a % of WTI including transportation | 19% – 24% | ||||
| EXPENSES | |||||
| Lease operating expenses | $0.90 – $0.94 per Mcfe | ||||
| General & administrative expense | $0.11 – $0.15 per Mcfe | ||||
| Taxes, other than income taxes | $0.05 – $0.07 per Mcfe | ||||
| Interest expense - net of capitalization | $78 – $88 MM | ||||
| Income tax rate (~100% deferred) | 23.5% | ||||
| WELL COUNTS | |||||||||||||||||||||||
| Drilled | Completed | Wells To Sales | Ending DUC Inventory | ||||||||||||||||||||
| Northeast Appalachia | 45 – 50 | 40 – 45 | 40 – 45 | 5 – 10 | |||||||||||||||||||
| Southwest Appalachia | 45 – 50 | 50 – 55 | 50 – 55 | 15 – 20 | |||||||||||||||||||
Total Well Count | 90 – 100 | 90 – 100 | 90 – 100 | 20 – 30 | |||||||||||||||||||
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Conference Call
Southwestern Energy will host a conference call on Friday, July 31, 2020 at 9:30 a.m. Central to discuss second quarter 2020 results. To participate, dial US toll-free 877-883-0383, or international 412-902-6506 and enter access code 6529300. A live webcast will be available at ir.swn.com and a replay will be archived following the call.
To listen to a replay of the call, dial 877-344-7529, International 412-317-0088, or Canada Toll Free 855-669-9658. Enter replay access code 10145880. The replay will be available until August 31, 2020.
About Southwestern Energy
Southwestern Energy Company is an independent energy company engaged in natural gas, natural gas liquids and oil exploration, development, production and marketing. For additional information, visit our website www.swn.com.
Investor Contact
Paige Penchas
Vice President, Investor Relations
(832) 796-4068
paige_penchas@swn.com
Forward Looking Statement
This news release contains forward-looking statements. Forward-looking statements relate to future events and anticipated results of operations, business strategies, and other aspects of our operations or operating results. In many cases you can identify forward-looking statements by terminology such as “anticipate,” “intend,” “plan,” “project,” “estimate,” “continue,” “potential,” “should,” “could,” “may,” “will,” “objective,” “guidance,” “outlook,” “effort,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “forecast,” “model,” “target” or similar words. Statements may be forward looking even in the absence of these particular words. Where, in any forward-looking statement, the Company expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, there can be no assurance that such expectation or belief will result or be achieved. The actual results of operations can and will be affected by a variety of risks and other matters including, but not limited to, changes in commodity prices (including geographic basis differentials); changes in expected levels of natural gas, natural gas liquids and oil reserves or production; impact of reduced demand for our products and products made from them due to governmental and societal actions taken in response to the COVID-19 pandemic; operating hazards, drilling risks, unsuccessful exploratory activities; natural disasters and epidemics; limited access to capital or significantly higher cost of capital related to illiquidity or uncertainty in the domestic or international financial markets; international monetary conditions; the risks related to the discontinuation of LIBOR and/or other reference rates that may be introduced following the transition, including increased expenses and litigation and the effectiveness of interest rate hedge strategies; unexpected cost increases; potential liability for remedial actions under existing or future environmental regulations; failure or delay in obtaining necessary regulatory approvals; potential liability resulting from pending or future litigation; general domestic and
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international economic and political conditions, including the impact of COVID-19; the impact of a prolonged federal, state or local government shutdown and threats not to increase the federal government’s debt limit; as well as changes in tax, environmental and other laws, including court rulings, applicable to our business. Other factors that could cause actual results to differ materially from those described in the forward-looking statements include other economic, business, competitive and/or regulatory factors affecting our business generally as set forth in our filings with the Securities and Exchange Commission. Unless legally required, Southwestern Energy Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
###
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| SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES | ||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| For the three months ended | For the six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| (in millions, except share/per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Operating Revenues: | ||||||||||||||||||||||||||
| Gas sales | $ | 164 | $ | 275 | $ | 412 | $ | 705 | ||||||||||||||||||
| Oil sales | 19 | 47 | 71 | 86 | ||||||||||||||||||||||
| NGL sales | 40 | 58 | 90 | 139 | ||||||||||||||||||||||
| Marketing | 187 | 287 | 426 | 725 | ||||||||||||||||||||||
| Other | — | — | 3 | 2 | ||||||||||||||||||||||
| 410 | 667 | 1,002 | 1,657 | |||||||||||||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||||||||||||
| Marketing purchases | 201 | 293 | 449 | 734 | ||||||||||||||||||||||
| Operating expenses | 182 | 169 | 375 | 334 | ||||||||||||||||||||||
| General and administrative expenses | 32 | 40 | 58 | 77 | ||||||||||||||||||||||
| Loss on sale of operating assets | — | 3 | — | 3 | ||||||||||||||||||||||
| Restructuring charges | 2 | 2 | 12 | 5 | ||||||||||||||||||||||
| Depreciation, depletion and amortization | 84 | 115 | 197 | 227 | ||||||||||||||||||||||
| Impairments | 655 | 6 | 2,134 | 6 | ||||||||||||||||||||||
| Taxes, other than income taxes | 10 | 17 | 23 | 36 | ||||||||||||||||||||||
| 1,166 | 645 | 3,248 | 1,422 | |||||||||||||||||||||||
| Operating Income (Loss) | (756) | 22 | (2,246) | 235 | ||||||||||||||||||||||
| Interest Expense: | ||||||||||||||||||||||||||
| Interest on debt | 40 | 41 | 80 | 83 | ||||||||||||||||||||||
| Other interest charges | 3 | 2 | 5 | 3 | ||||||||||||||||||||||
| Interest capitalized | (21) | (28) | (44) | (57) | ||||||||||||||||||||||
| 22 | 15 | 41 | 29 | |||||||||||||||||||||||
| Gain (Loss) on Derivatives | (109) | 152 | 230 | 120 | ||||||||||||||||||||||
| Gain on Early Extinguishment of Debt | 7 | — | 35 | — | ||||||||||||||||||||||
| Other Income (Loss), Net | — | (6) | 1 | (5) | ||||||||||||||||||||||
| Income (Loss) Before Income Taxes | (880) | 153 | (2,021) | 321 | ||||||||||||||||||||||
| Provision (Benefit) for Income Taxes | ||||||||||||||||||||||||||
| Current | — | — | (2) | — | ||||||||||||||||||||||
| Deferred | — | 15 | 408 | (411) | ||||||||||||||||||||||
| — | 15 | 406 | (411) | |||||||||||||||||||||||
| Net Income (Loss) | $ | (880) | $ | 138 | $ | (2,427) | $ | 732 | ||||||||||||||||||
| Earnings (Loss) Per Common Share | ||||||||||||||||||||||||||
| Basic | $ | (1.63) | $ | 0.26 | $ | (4.49) | $ | 1.36 | ||||||||||||||||||
| Diluted | $ | (1.63) | $ | 0.26 | $ | (4.49) | $ | 1.35 | ||||||||||||||||||
| Weighted Average Common Shares Outstanding: | ||||||||||||||||||||||||||
| Basic | 541,079,192 | 539,005,941 | 540,693,841 | 539,362,984 | ||||||||||||||||||||||
| Diluted | 541,079,192 | 539,947,053 | 540,693,841 | 540,624,742 | ||||||||||||||||||||||
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| SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| (Unaudited) | ||||||||||||||
| June 30, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | (in millions) | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 10 | $ | 5 | ||||||||||
| Accounts receivable, net | 250 | 345 | ||||||||||||
| Derivative assets | 466 | 278 | ||||||||||||
| Other current assets | 44 | 51 | ||||||||||||
| Total current assets | 770 | 679 | ||||||||||||
| Natural gas and oil properties, using the full cost method, including $1,423 million as of June 30, 2020 and $1,506 million as of December 31, 2019 excluded from amortization | 25,739 | 25,250 | ||||||||||||
| Other | 512 | 520 | ||||||||||||
| Less: Accumulated depreciation, depletion and amortization | (22,825) | (20,503) | ||||||||||||
| Total property and equipment, net | 3,426 | 5,267 | ||||||||||||
| Operating lease assets | 153 | 159 | ||||||||||||
| Deferred tax assets | — | 407 | ||||||||||||
| Other long-term assets | 206 | 205 | ||||||||||||
| Total long-term assets | 359 | 771 | ||||||||||||
| TOTAL ASSETS | $ | 4,555 | $ | 6,717 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 426 | $ | 525 | ||||||||||
| Taxes payable | 48 | 59 | ||||||||||||
| Interest payable | 48 | 51 | ||||||||||||
| Derivative liabilities | 282 | 125 | ||||||||||||
| Current operating lease liabilities | 34 | 34 | ||||||||||||
| Other current liabilities | 37 | 54 | ||||||||||||
| Total current liabilities | 875 | 848 | ||||||||||||
| Long-term debt | 2,440 | 2,242 | ||||||||||||
| Long-term operating lease liabilities | 113 | 119 | ||||||||||||
| Pension and other postretirement liabilities | 37 | 43 | ||||||||||||
| Other long-term liabilities | 267 | 219 | ||||||||||||
| Total long-term liabilities | 2,857 | 2,623 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
| Common stock, $0.01 par value; 1,250,000,000 shares authorized; issued 586,593,540 shares as of June 30, 2020 and 585,555,923 shares as of December 31, 2019 | 6 | 6 | ||||||||||||
| Additional paid-in capital | 4,730 | 4,726 | ||||||||||||
| Accumulated deficit | (3,678) | (1,251) | ||||||||||||
| Accumulated other comprehensive loss | (33) | (33) | ||||||||||||
| Common stock in treasury, 44,353,224 shares as of June 30, 2020 and December 31, 2019 | (202) | (202) | ||||||||||||
| Total equity | 823 | 3,246 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 4,555 | $ | 6,717 | ||||||||||
10
| SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES | ||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| (Unaudited) | ||||||||||||||
| For the six months ended | ||||||||||||||
| June 30, | ||||||||||||||
| (in millions) | 2020 | 2019 | ||||||||||||
| Cash Flows From Operating Activities: | ||||||||||||||
| Net income (loss) | $ | (2,427) | $ | 732 | ||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||
| Depreciation, depletion and amortization | 197 | 227 | ||||||||||||
| Amortization of debt issuance costs | 4 | 2 | ||||||||||||
| Impairments | 2,134 | 6 | ||||||||||||
| Deferred income taxes | 408 | (411) | ||||||||||||
| Gain on derivatives, unsettled | (17) | (96) | ||||||||||||
| Stock-based compensation | 2 | 4 | ||||||||||||
| Gain on early extinguishment of debt | (35) | — | ||||||||||||
| Loss on sale of assets | — | 3 | ||||||||||||
| Other | — | 10 | ||||||||||||
| Change in assets and liabilities: | ||||||||||||||
| Accounts receivable | 94 | 221 | ||||||||||||
| Accounts payable | (121) | (129) | ||||||||||||
| Taxes payable | (11) | (6) | ||||||||||||
| Interest payable | (1) | 1 | ||||||||||||
| Inventories | 6 | 4 | ||||||||||||
| Other assets and liabilities | 21 | (25) | ||||||||||||
| Net cash provided by operating activities | 254 | 543 | ||||||||||||
| Cash Flows From Investing Activities: | ||||||||||||||
| Capital investments | (472) | (586) | ||||||||||||
| Proceeds from sale of property and equipment | 2 | 26 | ||||||||||||
| Net cash used in investing activities | (470) | (560) | ||||||||||||
| Cash Flows From Financing Activities: | ||||||||||||||
| Payments on long-term debt | (72) | — | ||||||||||||
| Payments on revolving credit facility | (919) | — | ||||||||||||
| Borrowings under revolving credit facility | 1,221 | — | ||||||||||||
| Change in bank drafts outstanding | (8) | (7) | ||||||||||||
| Purchase of treasury stock | — | (21) | ||||||||||||
| Cash paid for tax withholding | (1) | (1) | ||||||||||||
| Net cash provided by (used in) financing activities | 221 | (29) | ||||||||||||
| Increase (decrease) in cash and cash equivalents | 5 | (46) | ||||||||||||
| Cash and cash equivalents at beginning of year | 5 | 201 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 10 | $ | 155 | ||||||||||
11
Hedging Summary
A detailed breakdown of derivative financial instruments and financial basis positions as of June 30, 2020, including the remainder of 2020 and excluding those positions that settled in the first and second quarters, is shown below. Please refer to the Company’s quarterly report on Form 10-Q to be filed with the Securities and Exchange Commission for complete information on the Company’s commodity, basis and interest rate protection.
| Weighted Average Price per MMBtu | |||||||||||||||||||||||||||||
| Volume | Sold | Purchased | Sold | ||||||||||||||||||||||||||
| (Bcf) | Swaps | Puts | Puts | Calls | |||||||||||||||||||||||||
| Natural gas | |||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Fixed price swaps | 218 | $ | 2.39 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Two-way costless collars | 44 | — | — | 2.12 | 2.34 | ||||||||||||||||||||||||
| Three-way costless collars | 59 | — | 2.18 | 2.57 | 2.96 | ||||||||||||||||||||||||
| Total | 321 | ||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Fixed price swaps | 36 | $ | 2.53 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Two-way costless collars | 55 | — | — | 2.34 | 2.76 | ||||||||||||||||||||||||
| Three-way costless collars | 306 | — | 2.16 | 2.49 | 2.85 | ||||||||||||||||||||||||
| Total | 397 | ||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Two-way costless collars | 29 | $ | — | $ | — | $ | 2.10 | $ | 2.83 | ||||||||||||||||||||
| Three-way costless collars | 99 | — | 2.08 | 2.45 | 2.85 | ||||||||||||||||||||||||
| Total | 128 | ||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||
| Three-way costless collars | 9 | $ | — | $ | 2.16 | $ | 2.59 | $ | 3.36 | ||||||||||||||||||||
12
| Weighted Average Price per Bbl | |||||||||||||||||||||||||||||
| Volume | Sold | Purchased | Sold | ||||||||||||||||||||||||||
| Oil | (MBbls) | Swaps | Puts | Puts | Calls | ||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
Fixed price swaps (1) | 1,107 | $ | 72.54 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Two-way costless collars | 502 | — | — | 56.83 | 59.78 | ||||||||||||||||||||||||
| Three-way costless collars | 895 | — | 43.54 | 52.57 | 57.55 | ||||||||||||||||||||||||
| Total | 2,504 | ||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Fixed price swaps | 2,328 | $ | 53.72 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Three-way costless collars | 1,445 | — | 43.52 | 53.25 | 58.14 | ||||||||||||||||||||||||
| Total | 3,773 | ||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Fixed price swaps | 438 | $ | 51.74 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Three-way costless collars | 666 | — | 42.50 | 53.20 | 58.00 | ||||||||||||||||||||||||
| Total | 1,104 | ||||||||||||||||||||||||||||
| Ethane | |||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Fixed price swaps | 5,230 | $ | 8.61 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Fixed price swaps | 5,889 | $ | 7.12 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Fixed price swaps | 136 | $ | 7.35 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Propane | |||||||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Fixed price swaps | 2,748 | $ | 23.01 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Two-way costless collars | 184 | — | — | 25.20 | 29.40 | ||||||||||||||||||||||||
| Total | 2,932 | ||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Fixed price swaps | 4,298 | $ | 19.99 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Fixed price swaps | 105 | $ | 19.43 | $ | — | $ | — | $ | — | ||||||||||||||||||||
(1)Includes 790 MBbls of purchased fixed price oil swaps at $36.64 per barrel and 1,897 MBbls of sold fixed price oil swaps at $57.60 per barrel.
13
| Natural gas financial basis positions | Volume | Basis Differential | ||||||||||||
| (Bcf) | ($/MMBtu) | |||||||||||||
| Q3 2020 | ||||||||||||||
| Dominion South | 41 | $ | (0.53) | |||||||||||
| TCO | 18 | $ | (0.46) | |||||||||||
| TETCO M3 | 22 | $ | (0.42) | |||||||||||
| Total | 81 | $ | (0.48) | |||||||||||
| Q4 2020 | ||||||||||||||
| Dominion South | 35 | $ | (0.51) | |||||||||||
| TCO | 11 | $ | (0.43) | |||||||||||
| TETCO M3 | 18 | $ | (0.10) | |||||||||||
| Total | 64 | $ | (0.38) | |||||||||||
| 2021 | ||||||||||||||
| Dominion South | 71 | $ | (0.47) | |||||||||||
| TCO | 22 | $ | (0.36) | |||||||||||
| TETCO M3 | 57 | $ | 0.36 | |||||||||||
| Total | 150 | $ | (0.14) | |||||||||||
| 2022 | ||||||||||||||
| Dominion South | 69 | $ | (0.51) | |||||||||||
| TCO | 17 | $ | (0.37) | |||||||||||
| TETCO M3 | 36 | $ | (0.41) | |||||||||||
| Total | 122 | $ | (0.46) | |||||||||||
Explanation and Reconciliation of Non-GAAP Financial Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, management believes certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results, the results of its peers and of prior periods.
One such non-GAAP financial measure is net cash flow. Management presents this measure because (i) it is accepted as an indicator of an oil and gas exploration and production company’s ability to internally fund exploration and development activities and to service or incur additional debt, (ii) changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the Company may not control and (iii) changes in operating assets and liabilities may not relate to the period in which the operating activities occurred.
Additional non-GAAP financial measures the Company may present from time to time are net debt, adjusted net income, adjusted diluted earnings per share and adjusted EBITDA, all which exclude certain charges or amounts. Management presents these measures because (i) they are consistent with the manner in which the Company’s position and performance are measured relative to the position and performance of its peers, (ii) these measures are more comparable to earnings estimates provided by securities analysts, and (iii) charges or amounts excluded cannot be reasonably estimated and guidance provided by the Company excludes information regarding these types of items. These adjusted amounts are not a measure of financial performance under GAAP.
14
| 3 Months Ended June 30, | 6 Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Adjusted net income (loss): | (in millions) | ||||||||||||||||||||||
| Net income (loss) | $ | (880) | $ | 138 | $ | (2,427) | $ | 732 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Restructuring charges | 2 | 2 | 12 | 5 | |||||||||||||||||||
| Impairments | 655 | 6 | 2,134 | 6 | |||||||||||||||||||
| Loss on sale of assets | — | 3 | — | 3 | |||||||||||||||||||
| (Gain) loss on derivatives, unsettled | 229 | (118) | (17) | (96) | |||||||||||||||||||
| Gain on early extinguishment of debt | (7) | — | (35) | — | |||||||||||||||||||
| Non-cash pension settlement loss | — | 4 | — | 4 | |||||||||||||||||||
| Other (gain) loss | (1) | 3 | (1) | 1 | |||||||||||||||||||
Adjustments due to discrete tax items (1) | 207 | (23) | 881 | (489) | |||||||||||||||||||
| Tax impact on adjustments | (206) | 25 | (492) | 19 | |||||||||||||||||||
| Adjusted net income (loss) | $ | (1) | $ | 40 | $ | 55 | $ | 185 | |||||||||||||||
(1)2020 primarily relates to the recognition of a valuation allowance. 2019 primarily relates to the release of the valuation allowance. The Company expects its 2020 income tax rate to be 23.5% before the impacts of any valuation allowance.
| 3 Months Ended June 30, | 6 Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Adjusted diluted earnings (loss) per share: | |||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | (1.63) | $ | 0.26 | $ | (4.49) | $ | 1.35 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Restructuring charges | 0.01 | 0.00 | 0.02 | 0.01 | |||||||||||||||||||
| Impairments | 1.21 | 0.01 | 3.95 | 0.01 | |||||||||||||||||||
| Loss on sale of assets | — | 0.00 | — | 0.01 | |||||||||||||||||||
| (Gain) loss on derivatives, unsettled | 0.42 | (0.22) | (0.03) | (0.18) | |||||||||||||||||||
| Gain on early extinguishment of debt | (0.01) | — | (0.07) | — | |||||||||||||||||||
| Non-cash pension settlement loss | — | 0.01 | — | 0.01 | |||||||||||||||||||
| Other (gain) loss | (0.00) | 0.01 | (0.00) | 0.00 | |||||||||||||||||||
Adjustments due to discrete tax items (1) | 0.38 | (0.04) | 1.63 | (0.91) | |||||||||||||||||||
| Tax impact on adjustments | (0.38) | 0.05 | (0.91) | 0.04 | |||||||||||||||||||
| Adjusted diluted earnings (loss) per share | $ | (0.00) | $ | 0.08 | $ | 0.10 | $ | 0.34 | |||||||||||||||
(1)2020 primarily relates to the recognition of a valuation allowance. 2019 primarily relates to the release of the valuation allowance. The Company expects its 2020 income tax rate to be 23.5% before the impacts of any valuation allowance.
| 3 Months Ended June 30, | 6 Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net cash flow: | (in millions) | (in millions) | |||||||||||||||||||||
| Net cash provided by operating activities | $ | 94 | $ | 101 | $ | 254 | $ | 543 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Changes in operating assets and liabilities | (9) | 70 | 12 | (66) | |||||||||||||||||||
| Restructuring charges | 2 | 2 | 12 | 5 | |||||||||||||||||||
| Net cash flow | $ | 87 | $ | 173 | $ | 278 | $ | 482 | |||||||||||||||
15
| 3 Months Ended June 30, | 6 Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Adjusted EBITDA: | (in millions) | ||||||||||||||||||||||
| Net income (loss) | $ | (880) | $ | 138 | $ | (2,427) | $ | 732 | |||||||||||||||
| Add back (deduct): | |||||||||||||||||||||||
| Interest expense | 22 | 15 | 41 | 29 | |||||||||||||||||||
| Provision (benefit) for income taxes | — | 15 | 406 | (411) | |||||||||||||||||||
| Depreciation, depletion and amortization | 84 | 115 | 197 | 227 | |||||||||||||||||||
| Restructuring charges | 2 | 2 | 12 | 5 | |||||||||||||||||||
| Impairments | 655 | 6 | 2,134 | 6 | |||||||||||||||||||
| Loss on sale of assets | — | 3 | — | 3 | |||||||||||||||||||
| (Gain) loss on derivatives, unsettled | 229 | (118) | (17) | (96) | |||||||||||||||||||
| Gain on early extinguishment of debt | (7) | — | (35) | — | |||||||||||||||||||
| Non-cash pension settlement loss | — | 4 | — | 4 | |||||||||||||||||||
| Other (gain) loss | — | 4 | (1) | 2 | |||||||||||||||||||
| Stock-based compensation expense | 1 | 2 | 2 | 4 | |||||||||||||||||||
| Adjusted EBITDA | $ | 106 | $ | 186 | $ | 312 | $ | 505 | |||||||||||||||
| June 30, 2020 | ||||||||
| Net debt: | (in millions) | |||||||
Total debt (1) | $ | 2,457 | ||||||
| Subtract: | ||||||||
| Cash and cash equivalents | (10) | |||||||
| Net debt | $ | 2,447 | ||||||
(1)Does not include $17 million of unamortized debt discount and issuance expense.
| June 30, 2020 | ||||||||
| Net debt to EBITDA: | (in millions) | |||||||
| Net debt | $ | 2,447 | ||||||
Adjusted EBITDA (1) | $ | 780 | ||||||
| Net debt to EBITDA | 3.1x | |||||||
(1)Adjusted EBITDA for the twelve months ended June 30, 2020.
16
