Southwestern Energy Announces Second Quarter 2018 Results

Southwestern Energy Company (NYSE: SWN) today announced its second quarter financial and operating results. Unless noted, results are compared to the second quarter of 2017.

“This quarter’s strong performance reflects increased margins, improved capital efficiency, and higher production growth,” said Bill Way, President and Chief Executive Officer of Southwestern Energy. “Our strategy of delivering growing value from our high-return Appalachia assets, and shift towards greater liquids while achieving greater operational efficiencies, are creating enhanced returns for our shareholders. This is underscored by our assets’ projected ability to generate modest free cash flow in 2018 without raising capital guidance.”

Second Quarter Highlights

• Generated net cash provided by operating activities of $300 million and net cash flow of $280 million, up 13% and 12%, respectively
• Delivered on previously announced cost initiatives, saving over $110 million annually (beginning in 2019) through G&A and interest reductions
• Realized NGL and oil pricing, including hedges, of $15.05 and $59.22 per barrel, up 34% and 46%, respectively
• Increased margins in Southwest Appalachia by 76% to $1.60 per Mcfe
• Exceeded production guidance, reporting net production of 234 Bcfe, up 5%
• Delivered a 19% increase in Appalachia Basin net production of 167 Bcfe or 1.8 Bcfe per day, including 20% liquids production
• Produced 44% higher natural gas liquids and oil of 61,370 barrels per day
• Improved well development efficiency driven by leading operational execution, completing 56 wells, 13 ahead of original development plan
• Added extended lateral inventory in the Tioga development area through a joint development arrangement
• Reported net income attributable to common stock of $51 million, or $0.09 per diluted share, and adjusted net income attributable to common stock of $105 million, or $0.18 per diluted share

Full Year Update

• Maintaining full-year $1.15 - $1.25 billion capital investment guidance; second quarter capital investment of $403 million, consistent with front end loaded plan
• Expecting existing portfolio to generate modest cash flow above full year capital investment at current prices, with any excess cash applied to outstanding borrowings on the revolving bank facility
• Raising net production guidance to 955 - 970 Bcfe, up from 930 - 965 Bcfe (see Production Guidance table below)
• Increasing Appalachia Basin net production guidance to 695 - 707 Bcfe, up 21% (based on midpoints) compared to 2017

The Company will invest within its original full-year capital investment guidance of $1.15 to $1.25 billion. Capital investment for the second quarter totaling $403 million was consistent with the Company’s planned capital program, including $311 million related to drilling and completion operations, primarily in the Appalachia Basin. Improved operational efficiency gains and successful operational execution have positively affected the pace of activity. The Company has been able to accelerate completion of an additional 13 wells in the second quarter compared to the original plan, which will result in a production benefit throughout the year. The Company now expects to be toward the high end of its total 2018 well count guidance of 105 to 125 completed wells. The Company is progressing its previously announced water project in Southwest Appalachia, which is expected to be operational by year end with the majority of the capital to be invested during the second half of the year.

The Company is raising full-year net production guidance to 955 - 970 Bcfe, driven by liquids growth in Southwest Appalachia and production improvements in Northeast Appalachia. In Southwest Appalachia, the Company continues to focus on liquids production and has raised total NGL and oil barrels guidance by 5% (based on midpoints), or 2,700 barrels per day, compared to original guidance. Northeast Appalachia production is expected to increase by 15 Bcf (based on midpoints) due to the continued benefit from well outperformance, operational execution and gathering capacity improvements.

Production Guidance ⁽¹⁾

Second Quarter 2018 Financial Results

Southwestern Energy recorded net income attributable to common stock of $51 million or $0.09 per diluted share. Compared to the second quarter of 2017, net income attributable to common stock was lower primarily due to an unrealized marked to market loss (non-cash) on hedging positions of $56 million in 2018 compared to a $173 million gain in 2017.

Adjusted net income attributable to common stock was $105 million, or $0.18 per diluted share for the second quarter of 2018 and adjusted earnings before interest, taxes and amortization (“adjusted EBITDA”) was $317 million, a 13% increase compared to the second quarter of 2017. The primary components of adjusted EBITDA included $195 million from Appalachia operations, $56 million from Fayetteville operations, and $45 million from Midstream operations. The increase in adjusted EBITDA was primarily due to a 44% increase in liquids production along with stronger realized oil and NGL pricing and a 1% increase in gas production, partially offset by lower natural gas prices.

Weighted average realized pricing, including derivatives, transportation and the benefit of higher NGL and oil pricing, was $2.30 per Mcfe compared to a NYMEX gas price of $2.80 per Mcf. The Company was able to mitigate the effect of a $0.38 per Mcf lower NYMEX gas price compared to the same period in 2017 through improvement in differentials, growth in liquids pricing and production, along with a realized hedge gain of $0.09 per Mcfe in 2018.

At June 30, 2018, the Company had liquidity of $1.5 billion and debt of $3.6 billion. During the quarter, the Company’s credit ratings were upgraded one notch by S&P and Moody’s to BB and Ba2, respectively.

Southwestern Energy continues to execute a disciplined hedging program with physical, financial and basis hedges on its forecasted natural gas, natural gas liquids and oil production. In line with the Company’s focus on increased liquids exposure, the majority of hedging activity during the quarter was focused on ethane and propane fixed price swaps. A summary of the Company’s financial hedging position is provided in the attached financial tables. Additional information on physical derivatives, natural gas liquids and oil financial derivatives can be found in the 10-Q.

E&P Operational Review

Improvement in operational cycle times, increased gathering capacity and stronger well results drove higher net production volumes of 234 Bcfe, including 5,585 MBbls, or 61,370 barrels per day, from natural gas liquids and condensate. Liquids production exceeded the top end of guidance by 9%. Appalachia Basin production totaled 167 Bcfe, a 19% increase. The Company invested $396 million in E&P capital and drilled 37 wells, completed 56 wells and placed 45 wells to sales.

Northeast Appalachia – Total net production of 112 Bcf, or 1.2 Bcf per day, was 15% higher than the second quarter of 2017. The Company placed 17 wells to sales in the second quarter, 11 of which were online for at least 30 days and utilized the latest completion and flowback design and had an average 30-day rate of 17.2 MMcf per day.

The Company has expanded its core position in Tioga to 37,500 net acres. In July, the Company entered into a joint development agreement with a private firm, adding 23 future drilling locations with projected lateral lengths averaging 11,000 feet.

The Company is continuing to enhance returns in Tioga, by coupling additional cost savings with improving well results. In the second quarter, a three-well pad in Tioga utilized water from the previously announced water project and benefited from eight completion stages per day, reducing completion costs by 12% compared to the first development pad in that area. Eight wells were placed to sales and are outperforming historical offsets due to operational improvements including optimized completion designs, targeted drilling zones and the benefit of field-wide compression. Of note, a two-well pad had an average lateral length of 7,250 feet and an average 30-day rate of 23.9 MMcf per day, outperforming the initial Tioga development pad by 49%.

Southwest Appalachia – Total net production was 55 Bcfe, or 604 MMcfe per day, including 60% liquids. Natural gas liquids and oil production averaged 53,300 and 7,800 barrels per day, respectively, representing increases of 47% and 31% compared to the second quarter of 2017.

During the quarter, the Company continued to focus on the rich gas area in West Virginia, which provides some of the highest margins in the Company, bringing 26 wells online. Southwest Appalachia’s margin in the second quarter of 2018 was 76% higher, at $1.60 per Mcfe, compared to the same period in 2017. The margin improvement was primarily driven by higher liquids production and prices, which provided a $0.77 per Mcfe uplift in realized pricing. The weighted average realized price was $3.00 per Mcfe compared to a realized natural gas prices of $2.23 per Mcf.

The Company’s rich gas wells account for approximately 75% of the Company’s drilling efforts in Southwest Appalachia in 2018. Two wells on a recently developed pad are still producing 1,500 barrels of condensate per day after 90 days of production and are among the highest condensate producers reported in the Basin.

The Company continues to realize the benefits of improving capital efficiencies as evidenced by a three-well pad that was drilled and completed at approximately $940 per foot. The pad benefited from increased completion stages pumped per day and reduced cycle times, which decreased costs and accelerated production. The three wells averaged an extended lateral length of over 10,700 feet and proppant loading of 2,500 pounds per foot with an average cost of $10.1 million per well.

Fayetteville Shale – During the second quarter of 2018, the Company produced 67 Bcf of natural gas from the Fayetteville Shale, compared to 82 Bcf in the second quarter of 2017, while generating positive net cash provided by operating activities, net of capital investments, of $78 million for its E&P and midstream business.

The Company placed two redevelopment wells online in mid-April, which utilize advanced completion designs and optimized landing zones. These wells have been online over 90 days, and in addition the initial redevelopment well has been online over 275 days. All of these wells continue to outperform offset well EURs by 25% to 50%. In addition, the Company is continuing to focus on its base production optimization efforts to manage the impact of natural decline.

Conference Call

Southwestern management will host a conference call and webcast on Friday, August 3, 2018 at 9:00 a.m. Central to discuss second quarter 2018 results. To participate, dial US toll-free 877-883-0383, or international 412-902-6505 and enter access code 6510656. The conference call will webcast live at www.swn.com.

Southwestern Energy Company is an independent energy company whose wholly-owned subsidiaries are engaged in natural gas and oil exploration, development and production, natural gas gathering and marketing. Additional information on the Company can be found on our website: www.swn.com

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,” “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; changes in expected levels of natural gas and oil reserves or production, or the execution or realization of any specific strategic alternative, which the Company has previously announced it is exploring for its Fayetteville Shale assets; operating hazards, drilling risks, unsuccessful exploratory activities; 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; unexpected cost increases; potential liability for remedial actions under existing or future environmental regulations; potential liability resulting from pending or future litigation; and general domestic and international economic and political conditions; as well as changes in tax, environmental and other laws 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.

Hedging Summary

A detailed breakdown of the Company’s natural gas derivative financial instruments and financial basis positions as of July 31, 2018 is shown below. Please refer to our 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.

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, adjusted EBITDA and its E&P and Midstream segment operating income, 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.

See the reconciliations throughout this release of GAAP financial measures to non-GAAP financial measures for the three and six months ended June 30, 2018 and June 30, 2017, as applicable. Non-GAAP financial measures should not be considered in isolation or as a substitute for the Company's reported results prepared in accordance with GAAP.

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Southwestern Energy Company
Paige Penchas, 832-796-4068
Vice President, Investor Relations
paige_penchas@swn.com