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Americas Energy CEO Series: Bill Way, Southwestern Energy President & CEO

Southwestern Energy is using the lessons learned in its operations in the northeastern portion of the Appalachian Basin as it continues plans to develop Utica Shale assets in the southwestern portion of the basin — a deeper, and in many aspects much trickier, region — the producer's CEO said Friday.

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"As we take the technical operating capabilities from the Marcellus into the higher-risk Utica, we apply them on a risk-based plan," President and CEO Bill Way said in an interview.

"This is high-pressure drilling and very deep," he said. "The technology, the capability, the use of our own rigs and our own people to carry the lessons from the Marcellus is very important."

In its recent third-quarter 2017 presentation, Southwestern outlined the results from its second company-drilled Utica well to be brought to sales. The well, drilled in Washington County, Pennsylvania, in the quarter, had a lateral length of 4,572 feet and had an average 60-day initial production rate of 17.7 MMcf/d.

Company officials said they were encouraged by the results of the first two Utica wells and expected that its operations in the play would compete for capital with Southwestern's other operations once the costs were reduced to the expected $12 million to $14 million per-well range.

"We tested two wells. They're very encouraging to us as they're top-quartile wells," Way said. In drilling in the Utica, the producer faces challenges such as drilling through coal seams and drilling very deep wells using managed-pressure drilling techniques.

Way said Southwestern has also made agreements with other Utica producers, which allows the operators to share data as together they try to unlock the vast resource of the play.

"They buy into a piece of our well bore and we buy into a piece of theirs and we learn from one another," Way said.

The southwest Appalachia Utica, the newest asset among Southwestern's portfolio of three core assets, had 677 Bcf of estimated gas reserves and production of 148 Bcfe in 2016. This compares with the company's Marcellus assets in northeastern Pennsylvania, with 1.57 Tcfe of reserves and 350 Bcf of production, and its legacy assets in the Fayetteville Shale of Arkansas, which boasted about 3 Tcfe of reserves and production of 375 Bcfe in 2016.

WATER PROJECT TO HELP PAVE WAY FOR UTICA DEVELOPMENT

Way said as one aspect of the company's Utica development plans, Southwestern last year started a water infrastructure project throughout its West Virginia Panhandle acreage in southwestern Appalachia. The project, which is expected to generate savings of about a half million dollars per well beginning in late 2018, will increase the producer's operational flexibility and will reduce its breakeven gas price economics by about 25 cents/Mcf.

"Our water transportation system is designed as a trunkline system with laterals connecting every pad in West Virginia," he said. Way added the system, which would source water from the Ohio River, would be built out in phases to provide fresh water for the company's well pads and hydraulic fracturing operations.

The system will also have the potential to later be expanded to carry wastewater away from the well pads, if that is required by regulators at a later date, he said.

Way said the producer also is looking forward to the expansion of the pipeline takeaway infrastructure coming into the Appalachian Basin, particularly in the southwest region of the basin.

"In the southwest Appalachia, where we've begun to ramp our newest business, we're excited that the infrastructure's being built," he said. "We took out our first initial tranche of 800 MMcf/d of capacity on Rover and the [TransCanada Mountaineer XPress] pipeline projects, both of which are moving ahead."

In the northeastern Appalachian Basin, conversely, Way said the producer has all the capacity it needs to build out its portfolio and access nine marketing hubs spread across the Southeast and into the high-value city-gate markets in the Northeast. "We market gas to every major consumer of gas," Way said.

Meanwhile, the company is working to lower its breakeven costs and taking other steps needed to ensure that its assets in the legacy Fayetteville Shale play can continue to "compete for capital as we allocate capital to the highest return projects," Way said.

MOOREFIELD INTERVAL OFFERS NEW POTENTIAL IN FAYETTEVILLE REGION

For example, last year Southwestern worked to expand its understanding of the potential 115,000-acre Moorefield interval in the Fayetteville play, "which appears to have better economics than the Fayetteville," itself, he said.

"Some of those wells are the best wells that we've drilled in the state to date."

In addition, Southwestern recently announced it had renegotiated its long-haul transportation agreements in the Fayetteville, reducing its exposure to unused demand fees in the near term; and unlocking reduced transportation fees in the longer term beginning in the forward years.

As a result, "we expect to save $70 million by 2020 with $45 million of that happening this year," Way said. "We've reduced the long-haul transportation rate for 2021 to 2030 by approximately 26 cents/Mcf taking that cost to 10 cents to get to the Gulf, a terrific rate."

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