Southwestern resumes gas drilling, boosts spending

OREANDA-NEWS. July 25, 2016. Southwestern Energy will restart its drilling program to exploit higher natural gas prices after taking steps this year to shore up its balance sheet.

The US independent doubled its planned 2016 spending to \\$725mn-\\$775mn and raised its full year production guidance to about 2.4 Bcf/d of natural gas equivalent (cfe/d), up by 5pc from its previous outlook. Gas production for 2016 should be flat with prior-year levels, the company said.

"We are reinitiating economic drilling and completion activity in each of our operating areas," chief executive Bill Way said during a conference call today.

Southwestern's return to drilling highlights the efforts by large natural gas producers to cut costs and raise cash as prompt-month gas prices collapsed to a 13-year low below \\$1.65/mmBtu. Prices have since rebounded to near \\$2.70/mmBtu and the 2017-calendar strip is averaging above \\$3/mmBtu, allowing producers to lock in prices on future output.

Southwestern during the quarter sold \\$450mn in assets in the Marcellus shale, negotiated new gas gathering agreements as well as reduced service costs, extended debt maturities and tapped the equity markets.

The company has also worked since it suspended drilling operations late last year to coax more gas from each of its producing wells.

Southwestern said it has locked in prices on 2016 output of 93 Bcf at a floor of \\$2.57/1,000 cf and 2017 production of 228 Bcf at \\$3.01/1,000 cf.

North American independent Encana said this week it would drill eight more wells and lift its 2016 spending by \\$200mn because of higher energy prices and recent divestitures.

Southwestern plans to add one to two rigs a month until its rig count reaches five by the end of the third quarter. The company will stay focused on the Marcellus shale, adding two rigs each in the northeast and southwest portions of that field. It plans to add one rig to Arkansas' Fayetteville shale.

Output during the second quarter was 2.5 Bcfe/d, down by 8pc from a year earlier. Southwestern reported a second quarter net loss, including one-time items, of \\$34mn, compared with a year-earlier loss of 9mn. The company's realized gas prices during the quarter, including the effect of derivatives, was \\$1.32/1,000 cf, a year-over-year decline of 41pc.