Southwestern Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Southwestern Energy (SWN)

Q1 2012 Earnings Call

May 04, 2012 10:00 am ET


Steven L. Mueller - Chief Executive Officer, President and Director

Gregory D. Kerley - Chief Financial Officer, Executive Vice President and Director


Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Biju Z. Perincheril - Jefferies & Company, Inc., Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

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

Arun Jayaram - Crédit Suisse AG, Research Division

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

Michael Schmitz - Ladenburg Thalmann & Co. Inc., Research Division

Robert L. Christensen - The Buckingham Research Group Incorporated

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

Jack N. Aydin - KeyBanc Capital Markets Inc., Research Division

David Snow



Greetings, and welcome to the Southwestern Energy First Quarter 2012 Earnings Teleconference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Steve Mueller, President and CEO. Thank you. Mr. Mueller, you may begin.

Steven L. Mueller

Thank you. And good morning, and thank you for joining us. With me today are Bill Way, our Chief Operating Officer; Greg Kerley, our Chief Financial Officer; Jeff Sherrick, Senior VP of Corporate Development; and Brad Sylvester, our VP of Investor Relations.

If you've not received a copy of yesterday's press release regarding our first quarter 2012 results, you can find a copy on our website at Also, I'd like to point out that many of the 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 detail in the risk factors and the forward-looking statement sections 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.

Let's begin. We had a good quarter. Production grew 16%, costs remained low, our balance sheet was strengthened, and we have improving results in our Brown Dense play in Southern Arkansas and Northern Louisiana.

Stopping at that summary -- stopping that summary at that point to acknowledge the elephant in the room: the gas price clouds casting dark shadows over our entire gas industry investments. We continue to respond to the current prices. Only the best economic wells are being drilled in the Fayetteville Shale project, and we have continued to add firm capacity in the Marcellus to ensure getting the gas to the most liquid points of sales.

In addition, we have revisited our capital budget again and are moving at least $50 million from our development activities in midstream to accelerate drilling and leasing in our New Ventures projects. Our goal is to understand the potential for both the Brown Dense and Colorado plays by year end. Our simple machine continues to perform, and we're excited about how 2012 is unfolding.

Moving to our operating areas. We placed 146 operated wells on production on the Fayetteville Shale during the first quarter. After announcing this play almost 8 years ago, we surpassed the milestone of 2 Bcf a day gross operated production in April, and on May 2, we surpassed the milestone of cumulative gross production from the play of 2 Tcf of natural gas. My heartfelt thanks and admiration go out to many of the -- to the many employees of Southwestern Energy who, over the years, have made and continue to make this possible.

Our operated horizontal wells had an average initial production rate of 3.3 million cubic foot per day and average completed well costs of $2.8 million per well with an average drilling time of 7.3 days during the quarter. We are -- we placed -- we also placed 26 wells on production during the quarter that were drilled in 5 days or less.

Looking ahead, we will continue to target the best wells in the field and expect our initial producing rates will increase over the next several quarters as we continue to high-grade our drilling program in the Fayetteville Shale.

Also in April, we placed the initial orders for 2 fracture stimulation spreads that will be operated by the new subsidiary called SWN Well Services. Delivery date is expected in the fourth quarter, and initially, the equipment will work in the Fayetteville Shale. Each crew will be able to frac between 100 and 120 wells per year, and savings of approximately $200,000 per well are expected on the wells frac-ed with SWN's equipment.

In Pennsylvania, we have 24 operated Marcellus Shale wells located in Bradford County that are producing, and net production from the area was 9.3 Bcf in the first quarter of 2012, which is up from 2.8 Bcf in the first quarter of 2011. Gross operated production was approximately 122 million cubic feet of gas per day at March 31.

We also began selling gas from our Price area in Susquehanna County earlier this week. Our first well, the North Price #5H, was put to sale on Tuesday, and everything looks very encouraging. The rate yesterday was 3.9 million cubic foot per day on a 16/64" choke with 3,000 pounds flowing pressure and 3,300 pounds casing pressure. The casing pressure is indicative of very little drawdown at these rates, so we will proceed with opening the well up slowly over the next few weeks. Now that this line is in place, we will begin to see other wells in the area placed on production throughout the rest of the year.

In April, we entered into a new 15-year firm transportation agreement on the Constitution Pipeline, with a total capacity scaling up to 150 million cubic foot per day. This project is expected to be in service by the second quarter of 2015. With this announcement, we currently have firm transportation and sales agreements in place for 325 million cubic foot per day at the end of this year, 2012; 517 million cubic foot per day by the end of 2013; 557 million cubic foot per day by the end of 2014; and 770 million cubic foot by the end of 2015.

Finally, the Bluestone pipeline is progressing well, and we believe the north end of the line, which will transport gas from our Range Trust area in Susquehanna County, will now be in service no later than September of this year. The southern end of the pipeline is on scale -- on schedule to transport gas from our Price area in November.

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