Southwestern Energy Co. executives spent the bulk of a March 2 earnings conference call not talking about the biggest issue on the Appalachian shale driller's plate: a potential $2 billion-plus sale of operations in Arkansas' Fayetteville Shale, cash the company said it will use to take a bite out of its $4.4 billion in long-term debt and allow for some cash to flow to shareholders.
CEO William Way pleaded for patience regarding any new details on Southwestern's plans to sell the Fayetteville assets, a shale gas play Southwestern pioneered in the early days of the shale revolution. "Bear with us," Way said. "It's critical for you to understand, and I'll ask for your indulgence, the timing and details and success cases and nonsuccess cases and floor pricing and any other things that you may come at on an angle on this question — we're just not ready to talk about them."
Southwestern is prevented from paying a dividend or buying back stock by its term loan agreement with 24 banks, interim CFO Jennifer Stewart said, but that could be renegotiated with less debt on the balance sheet.
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Southwestern beat Wall Street's fourth-quarter 2017 earnings expectations and made good on promises to get spending near cash flows. Driven by higher dry gas production and a 47% year-over-year increase in NGL volumes, Southwestern posted fourth-quarter adjusted profits of $63 million, or 12 cents per share, compared to $39 million, or 8 cents per share, in the fourth quarter of 2016. Analysts surveyed by S&P Global Market Intelligence were looking for 9 cents per share in adjusted fourth-quarter earnings.
Southwestern's beleaguered stock, which has lost 51% over the past 12 months, perked up on the news, gaining 11.9% to $4.15 per share in afternoon trading.
"Importantly, the company reported that capital efficiency metrics across the portfolio continue to move higher," veteran shale oil and gas analyst Rehan Rashid of B. Riley FBR Inc. told his clients March 2. "Operating results reported this quarter continue to indicate that the Appalachian assets are undergoing a step change improvement in capital efficiency and growth rate."
Dumping the Fayetteville assets and pushing harder in Appalachia are key to Southwestern's future growth, Rashid said.
"Our investment thesis centers around our take that the planned divestiture of Fayetteville has positive balance sheet implications," he said. "Divestiture should allow investors to shift focus from the underperforming Fayetteville assets towards material progress made within the Appalachia assets. Operating results reported this quarter continue to indicate that the Appalachian assets are undergoing a step change improvement in capital efficiency and growth rate."
Southwestern added 2 Bcfe to its type curves, production models that predict how much gas and liquids that wells in a particular geology will recover throughout their useful life, in liquids-rich southwestern Appalachia. NGL production increased 15% in 2017, Southwestern reported, while NGL prices nearly doubled to average $14.48 per barrel,including hedges.
Companywide, Southwestern's total fourth-quarter production increased 18% to 2.6 Bcfe/d, while its dry gas production increased 15% to 2.3 Bcf/d. Southwestern realized $2.12/Mcf for its fourth-quarter gas production, including hedges, a 2% increase over the same period a year prior.

