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Southwestern Energ Q2 2010 Earnings Call Transcript

Southwestern Energ Q2 2010 Earnings Call Transcript

Southwestern Energ (SWN)

Q2 2010 Earnings Call

August 06, 2010 10:00 am ET


Steven Mueller - Chief Executive Officer, President and Director

Greg Kerley - Chief Financial Officer and Executive Vice President


Brian Singer - Goldman Sachs Group Inc.

Dan McSpirit - BMO Capital Markets U.S.

Jack Aydin - KeyBanc Capital Markets Inc.

Amir Arif - Stifel, Nicolaus & Co., Inc.

Marshall Carver - Capital One Southcoast, Inc.

David Kistler - Simmons & Company

David Heikkinen - Tudor, Pickering & Co. Securities, Inc.

Scott Hanold - RBC Capital Markets Corporation


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Greetings, and welcome to the Southwestern Energy Company Second Quarter Earnings Conference call. [Operator Instructions] It is now my pleasure to introduce your host, Steve Mueller, President and Chief Executive Officer for Southwestern Energy Company.

Steven Mueller

Thank you, and good morning, and thanks to all of you for joining us. With me today are Greg Kerley, our CFO; and Brad Sylvester, our Vice President of Investor Relations. If you've not received a copy of yesterday's press release regarding our second quarter results, you can call (281) 618-4847 to have a copy faxed to you.

Also, I'd like to point out that many of the comments during the conference are forward-looking statements that involve risks and uncertainties affecting outcomes, many of which are beyond our control and are discussed in more detail on the risk factors and the forward-looking statement sections of our annual and quarterly filings with the Securities and Exchange Commission. Although we believe these expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially.

To begin, we had a very good second quarter in 2010 and made progress on many fronts. Our operations in Fayetteville Shale are on track as evidenced by the 32% growth in company production compared to last year and by a 9% sequential growth. The previously announced sale of a portion of our Haynesville and Middle Bossier properties in East Texas closed for approximately $355 million. And finally, because of our improving results in Fayetteville, our production guidance is unchanged for the third and fourth quarters of 2010, and our capital investment program also remains unchanged at approximately $2.1 billion.

Now to talk about each of the operating areas. Last week, our gross operating productions in the Fayetteville Shale exceeded 1.4 Bcf per day, up from 990 million cubic foot per day a year ago. During the second quarter of 2010, our horizontal wells had an average completed well cost of $3.1 million per well, average horizontal length of 4,532 feet and an average time to drill to a total depth of 13 days from re-entry to re-entry.

In the second quarter, we had 22 wells with drill times of over 20 days, most of which were first wells in sections that were in the deeper southern areas of the play. On a flip side, we placed three wells on production during the quarter, with average times to drill to a total depth of five days or less from re-entry to re-entry.

In July of 2010, our average time to drill to total depth improved to 10 days from re-entry to re-entry, and we set a new record by drilling a well with a total footage of 6,600 feet in four days. Because of our recent faster drilling times, we are dropping a horizontal rig in August, reducing our horizontal rig count to 15 rigs in the Fayetteville Shale.

Our Fayetteville Shale wells placed on production during the second quarter of 2010 averaged initial production rates of 3,449,000 cubic foot per day, up 8% compared to the first quarter. Results for the second quarter included 75 wells placed on production, which were first wells in the section. We also placed nine wells on production with initial rates over 6 million cubic foot per day.

We continue to test tighter well spacing and at June 30 had placed over 430 wells on production that have well spacing of 700 feet or less, representing approximately 65 acre spacing or less. Recent information from these larger groups of wells indicate interference of 5% to 8% compared to earlier estimates of 10% to 15% from a smaller well set.

As you recall from last quarter, our 2010 drilling program includes testing over 44 different pilots, with well spacing that will range from 200 to 450 feet apart. Within these pilots, approximately 67% of the wells have been spud, and 23% of those wells have been placed on production. Because of the small number of wells and the short time on production of the completed wells, no conclusions can be made yet about any new spacing.

Switching to East Texas. As I've previously noted, on June 30, we closed the sales of certain oil and gas properties, leases and gathering equipment in Shelby and San Augustine counties for $355.8 million. The sale included only the producing rights to the Haynesville and Middle Bossier Shale intervals in approximately 20,000 net acres. We retained the drilling and producing rights, covered all the depths in the acreage including our James Lime and Pettet drilling programs. We still have approximately 10,500 net acres with Haynesville and Middle Bossier potential and drilled two wells on this acreage in the second quarter.

The Timberstar Blackstone A1-H well targeting the Haynesville Shale formation has been drilled and is currently being completed, and the Harris B-1H well, targeting the Middle Bossier Shale formation, has been drilled and is scheduled to be completed later this year. A third well, the Crest C-1H is currently drilling and will be completed in December.

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