trending Market Intelligence /marketintelligence/en/news-insights/trending/rzlj4v4s8qx8kaq50dg30a2 content esgSubNav
In This List

UPDATE: Southwestern to exit Fayetteville Shale business with $1.87B deal


Japan M&A By the Numbers: Q4 2023


See the Big Picture: Energy Transition in 2024


IR in Focus | Episode 10: Capital Markets Outlook


Infographic: The Big Picture 2024 – Energy Transition Outlook

UPDATE: Southwestern to exit Fayetteville Shale business with $1.87B deal

Southwestern Energy Co. is exiting the Fayetteville Shale in Arkansas and Oklahoma, a play it pioneered, with an agreement to sell its exploration and production and associated midstream gathering assets in the area to a private equity-backed company for $1.87 billion in cash. After the sale, Southwestern plans to focus on its Appalachian shale business.

The Fayetteville assets include about 915,000 net acres, 4,033 operated producing wells, 3.7 Tcf of proved reserves as of the end of 2017, 225 Bcf to 230 Bcf of expected 2019 production and related gathering infrastructure and compression facilities. The buyer, Flywheel Energy LLC, is backed through Kayne Anderson Capital Advisors LP's Kayne Private Energy Income Fund LP.

Under the deal, Flywheel Energy will also receive at closing natural gas hedge positions Southwestern already has or would enter into on behalf of Flywheel. Additionally, Flywheel would assume $564 million of contractual liabilities with regard to obligations retained by Southwestern, which would be responsible for up to $126 million of the liabilities related to unused transportation through 2020. The deal is scheduled to close in December, with an effective date of July 1.

Southwestern has been marketing the Fayetteville assets for months, and officially put the shale holdings on the block in February. Analysts who cover the company expected the sale price to be in the ballpark of $2 billion.

The sale is part of the company's repositioning to focus on "higher margin" Appalachian assets, Southwestern President and CEO Bill Way said in a Sept. 4 news release. Southwestern budgeted up to $600 million for the next two years for developing liquids-rich assets in its Southwest Appalachia position, with part of the proceeds from the sale to be reinvested into these assets. The increased investment in liquids would help Southwestern achieve self-funded production growth and shareholder value, the company said.

The company expects to deploy up to six rigs in 2019, targeting total production growth of 8% to 12% and liquids growth of 15% to 25%. For 2020, Southwestern expects production growth in the mid-teens.

In addition, Southwestern launched a conditional tender offer for up to $900 million of senior notes, as well as a share repurchase program of up to $200 million. At closing, the company expects to have about $2.3 billion in debt and it expects to realize a debt to EBITDA ratio of 2x by 2020.

J.P. Morgan Securities LLC is serving as Southwestern's financial adviser, while Latham & Watkins LLP is serving as legal adviser.

In connection with the Southwestern deal, Flywheel closed a $700 million equity commitment from Kayne Private Energy Income Funds and members of its management team. Kayne Private Energy Income Funds previously made an investment in Flywheel when it was known as Valorem Energy LLC in early 2017. Flywheel is a private exploration and production company with operations focused in the Rockies and Mid-Continent.

Wells Fargo Bank, N.A, along with Citibank, N.A. provided an underwritten debt commitment for debt financing as part of the deal. Wells Fargo Securities, LLC served as financial and technical advisor to Flywheel, while Vinson & Elkins LLP provided legal counsel. Mobius Risk Group served as marketing and derivates advisor to Flywheel and Alvarez & Marsal North America, LLC has been retained by Flywheel for transaction due diligence.

Pre-market, Southwestern stock was up nearly 5% to $5.88 per share.