Q2 2022 Southwestern Energy Co Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the southwestern Energy's second quarter 2022 earnings call.
Management will open the call for a question and answer session. Following prepared remarks in the interest of time, please limit yourself to two questions and re queue for additional questions. This call is being recorded I would now like to turn the conference over to Brittany Rayford Southwestern Energy's director of Investor Relations you may begin.
Thank you Paul Good morning, and welcome to southwestern Energy second quarter 2022 earnings call. Joining me today are Bill way, President and Chief Executive Officer, Clay Carroll, Chief Operating Officer, Carl Giesler, Chief Financial Officer, and Jason Kurtz head of marketing and transportation.
Before we get started I'd like to point out that many of the comments we make during this call are forward looking statements that involve risks and uncertainties affecting outcomes. Many of these are beyond our control and are discussed in more detail in the risk factors and forward looking statements sections of our annual report and quarterly report as filed 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 and developments may differ materially we are under no obligation to update them we.
We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers.
For any non-GAAP measures, we use a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website I will now turn the call over to delay.
Thank you Britney and good morning, everyone.
Western energy is well positioned as a leading natural gas producer in the two premier U S natural gas basins.
We are executing on our deliberate strategy to grow resilient free cash flow as evidenced by our second quarter and year to date results.
I'm, particularly pleased with the successful integration of our Haynesville business and its contribution to the company's results.
In June we progressed, our capital allocation strategy complementary continued debt repayment with a share repurchase authorization of up to $1 billion through the end of 2023, which is nearly 15% of our current market capitalization.
This share repurchase program underscores management's confidence in our long term free cash flow generation capability of our business.
Additionally, due to its flexibility we expect to execute the program consistent with our strategic financial objectives of reducing debt and returning to investment grade.
This program also directly allows the company to capitalize on the significant disconnect. We see between the current enterprise value and the intrinsic value of our business as reflected in our second quarter PV 10 reserve value of $31 billion at recent strip prices.
Regarding the current macro environment, we believe natural gas supply and demand dynamics have strengthened near and long term supporting our growing free cash flow generation.
On the supply side capital disciplined producer consolidation.
Service market tightness and infrastructure capacity constraints continue to moderate production growth on.
On the demand side global de Carbonization, and energy security priorities have accelerated the demand for clean burning reliable U S natural gas.
Domestically strong industrial and residential power generation demand.
Some less sensitive to natural gas pricing given continued coal power capacity retirements.
The net effect, we believe is that the U S. Natural gas market continues to move from structural oversupply to a more balanced market with the potential for further excess demand, especially in the Gulf Coast region.
As a key differentiator for swim is our proximity and firm transportation to the long term demand growth along the Gulf coast as.
As the largest producer in Haynesville with complementary firm transportation from Appalachia, 65% of our total production reaches this market.
Approximately 12 Bcf per day of liquid faction is currently in service, which could more than double with FERC approved projects, including approximately seven Bcf per day that is already under construction.
Today southwestern energy is one of the largest suppliers of natural gas to existing LNG exporters at one 5 billion cubic feet per day.
As natural gas transitions from a regional to a global price linked commodity we believe we will differentially benefit as the Haynesville and Gulf Coast Garner premium pricing relative to other basins.
We are evaluating on a risk adjust based on adjusted basis potential opportunities to benefit from global pricing by leveraging our approximate reliable long term supply capability to help enable liquefaction projects to achieve that.
Okay.
Hedging remains core to <unk> enterprise risk management practice, ensuring recovery of the Companys cost and capital expenditures with our improved financial position, however, and the supportive fundamental outlook for natural gas prices and expect our future hedging levels to migrate lower within our approved ranges and with preference for using colors.
As our hedges settle a reinvestment rate, but more clearly reflect the inherent cash generation capability of our asset base, the resulting perspective rate of change in our free cash flow profile differentiates win as an investment opportunity.
We're highly encouraged by the high level of performance across our portfolio and are increasing our full year production guidance and updating other key metrics included in that update is an increase of R. 22 capital investment by approximately 10% to offset inflationary impacts and further strengthen the continuity of our opera.
<unk> activity as we head into our 2023 maintenance capital investment program.
This approach increases cumulative free cash flow generation accelerating debt reduction and the return of capital to shareholders.
As a core aspect of how we operate it's win at the end of this year Haynesville production will join Appalachia as fully certified responsibly sourced gas.
Additionally, our ninth annual corporate responsibility report will be released this fall and highlights ESG achievements for the company.
This report will also include a longer term ghd emissions reduction goal and the specific path for the company to achieve it with that I'll turn the call over to clay for an operational update.
Thanks, Bill and good morning.
Strategic execution is a key pillar of our strategy and I will highlight a few proof points that support the company's sustained performance in this aspect of our business.
The way through the year, our development program is on track and performance continues to exceed expectations.
For the quarter, we delivered net production of 438 Bcf or four eight Bcf per day, including $4. Two Bcf per day of natural gas and 100000 barrels per day of liquids production.
Production surpassed the high end of guidance, primarily due to well performance and cycle time improvements.
Overall, we placed 42 wells to sales during the quarter.
In Appalachia, we placed 23 wells to sales with an average lateral length of approximately 14000 feet.
Our rich and Super rich areas accounted for 13 of those wells, increasing liquids volumes quarter over quarter and enhancing margins.
Marcellus and Utica dry gas acreage in Ohio, and Pennsylvania accounted for the remaining Appalachia turn in lines.
In Haynesville the team placed 19 wells to sales with an average lateral length of approximately 9500 feet.
Among them is an over 13000 foot lateral which is currently producing in line with expectations at greater than 40 million cubic feet per day from the middle Bossier interval, which highlights the strength of our stacked pay position in the Haynesville.
Operational execution and cycle times in the Haynesville continued to improve.
In Desoto East.
We have realized drilling time improvements of over 15% year to date.
Including a recent well with a spud to rig release of less than 30 days.
On average across the field, we are delivering a 10% drilling time improvement compared to plan driven by the application of new technologies and learnings from wells earlier this year.
Overall, we are continuing to see strong initial production rates and improving well performance.
Our integrated development approach ensures necessary gathering and firm transportation capacity is in place providing flow assurance and market Optionality.
As Bill mentioned, we are updating select 2022 guidance, including increasing our full year production guidance to reflect both the strong performance in the first half of the year and our updated expectations for the second half.
From an activity standpoint, we expect to average 9% to 10 rigs and 4% to five frac crews during the second half of the year consistent with our planned development program.
Third quarter capital is expected to be in line with our first and second quarter investment levels.
And full year capital investment is expected to be in the range of $2 1 billion to $2 2 billion.
We continue to realize cost and operational execution benefits from our vertical integration that are partially offsetting industry cost pressures.
Where you're adding a second swing operated Frac fleet in Appalachia in the third quarter, displacing a third party stem provider and delivering surety of service cost reductions and operational efficiencies.
We are also repositioning a third schwinn owned rig two haynesville late in the fourth quarter, which we expect to further improve performance compress cycle times and reduce costs.
In addition to our vertical integration, our proactive planning purchasing direct sourcing and key service provider relationships are ensuring availability of the goods and services required to deliver our plan. Both this year and next.
Now I'll turn the call over to Karl to provide a financial update.
Thank you clay and good morning.
This quarter, we generated approximately 170 million of free cash flow and further improved our leverage ratio to one six times.
We expect to achieve the top end of our one five to 1.0 times target leverage range in the third quarter.
Our debt balance temporarily grew quarter over quarter by about $150 million.
This increase reflects a hedge related working capital draw caused by the sharp rise in natural gas prices between April and June .
Recall that like most producers we pay hedge settlements early in the production month before receiving the more than offsetting corresponding physical sales proceeds later the following month.
Accordingly, our quarter end debt balance included credit facility borrowings of $406 million.
By the end of July we had repaid our revolver in full demonstrating the short duration of that hedge related working capital draw.
Looking forward due to strong operational performance and given the current commodity price outlook free cash flow should approximate 1 billion 2022, and as our hedges shuttle to pillar $2 billion per year, starting in 2023.
We will prioritize allocation of this free cash flow to debt retirement in the near term before shifting more heavily towards share repurchases.
At current strip, we expect to be able to reach the $3 5 billion top end of our target debt range by the end of next year, while also completing the share repurchase authorization.
This capital allocation strategy is consistent with our strategic objective of returning to investment grade.
In May Moody's upgraded swing to be a one now placing us one notch below investment grade at both Moody's and S&P.
We believe our materially improved business and financial risk profile already is or as close to investment grade.
We plan to continue to manage the enterprise consistent with returning to investment grade.
Ultimate timing of that return, however, rests with the credit agencies.
This concludes our prepared remarks, please open the line for questions.
And we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and then the interest of time, please limit yourself to two questions and re queue for additional questions.
Our first question today will come from Scott Hanold with RBC. Please go ahead.
Thanks, Good morning.
Could you all talk about obviously, having good exposure in the Gulf Coast, where were their Med Center is can you give us your most recent thoughts on <unk>.
Capital allocation between Appalachia, and the Haynesville and you know how you think about that going into 2023, considering what what you see as the gas market dynamics at this point.
Yeah.
Bill and Clay car may have a couple of comments.
When we take a look at an annual plan.
Youll plan is racked and stacked for the.
Development locations that we have economics of run prioritized and we prioritize development based on that obviously taken into account.
All the other midstream another other factors.
Factors in that.
Today, we're at $55, 45% to 55% Haynesville, 45% in Appalachia, we haven't done the granular work on twenty-three yet it shouldn't materially differ from that.
And we'll update you if it if it does.
Okay understood.
<unk>.
Go ahead.
Just a quick add to that.
Competitive economics, the portfolio's got liquids rich West, Virginia that are benefiting from both higher natural gas and liquids pricing, obviously, the haynesville performance higher rates sustained profile, we really like the portfolio across the position and the complementary nature.
Did <unk> got in the Haynesville and looked back at Appalachia, the complementary nature of all of these means and has resulted in fact, we have activity in across the board in every major.
Development area so.
That's part of the analysis as well.
Understood.
And then a little bit about the strategy with the free cash flow.
With regards to buybacks and debt reduction and your goal to get to investment grade and if I'm hearing you right like debt reduction is still the priority, but but you'll.
It's early on are you still looking you know you did some buybacks how aggressive could you get with buybacks you know and in the more near term.
You know versus you know that you know just leaning into debt reduction a little bit harder. So I just wanted to get a sense of your appetite it at these <unk>.
Rice levels to get more aggressive.
With the the buybacks right now.
Got it. Thank you for the question it's a good one.
Yeah, as Bill and we all have maintained pretty consistently debt reduction maintained remains our priority.
And so that will guard.
Primary allocation of free cash flow that said, we fully expect to continue to steadily repurchase shares with an increasing as our hedges roll off and our free cash flow picks up.
That all being said if commodity prices get to a situation, where we feel comfortable that we'll be able to achieve our debt objectives.
Reasonable timeframe consistent with returning to investment grade, it's absolutely possible that we could pick up our share repurchase pace.
Okay.
Thanks for that.
And our next question will come from Austin L. Cohen with Johnson Rice. Please go ahead.
Good morning, Bill and to the rest of the team good morning.
This quarter's volume beat did it come from the Haynesville production or Appalachia production.
Or a combination of both.
Yes, so mainly Appalachia this quarter Q1 was Haynesville haynesville.
Haynesville delivered on its forecast in Q2, but Appalachia.
Is the bigger driver of it and a lot of it had to do with the improved liquids performance.
That area and that was driven by the mix of wells that came online in the second quarter.
And the cycle time improvements that we had were those wells came online earlier than what we had originally forecasted.
I appreciate it and then this is maybe a question for Carl but once you achieve your debt target and complete your buyback authorization around next year year and what.
What do you expect to do with the free cash flow after that.
Yes.
That's a good question, we've been consistent in our capital allocation strategy number one is ensuring maintenance production.
Number two is reducing our debt to our balance sheet objectives, both leverage and obviously quantum of debt and then three as return of capital.
And as soon as long as we're doing the first have done the second.
Imagine our board will continue to authorize us to return capital.
Got you I appreciate the color that's all from me.
And our next question will come from Neal Dingmann with Truth Securities. Please go ahead.
Morning, a little bit different take on shareholder return specifics I'm just wondering.
I'll consider reinvesting more back in the business if some reasonably priced capacity were to open up or do you all consider a better value creation.
Given the current share price just the shareholder return that you've talked about.
Yes, I think in the near term certainly our priorities are really clear around debt reduction around return of capital to shareholders and around.
Maintenance capital investment I think it's.
When those objectives are met I think we have to take a look at the opportunities in front of us what makes sense.
Given.
Both the changing commodity environment and objectives of the company.
Make some decisions at that point.
Yes, I agree with that Bill I think that makes sense and then maybe just a follow up on LNG, specifically could you all speak I know there is a number of potential opportunities given your unique position that you have down there in the base and I'm just wondering how do you think about are there.
Or opportunities you see near term and wonder how you would think about structuring any deal you might see in order to capture likely future upside. Thank you.
Yeah.
Yes. So this is Jason I'll make a couple of comments and Bill may have something that is that he wants to add but I think you know as Bill said as Bill said earlier, we are a major supplier to.
All of the LNG facilities in the Gulf Coast right now approximately one five Bcf a day go into those facilities and you are correct there.
Were in multiple conversations with multiple different.
Opportunities or suppliers and we definitely have the structural advantage to supply the LNG with the Haynesville and then we also have the ability to back that up with transport. We have that comes out of the Appalachia to the Gulf coast as well. So we're really evaluating all of these transactions on a risk adjusted approach and that takes time because these are these are large.
Large transactions.
And I think the important.
Big piece of that answer is really looking at these on a risk adjusted basis. Some of the agreements that have been in place or have had resulted in negative margins for.
A number of years.
And they've switched recently with the the big swing in gas prices, but we've looked at opportunities where the off takers are in now areas of conflict. So you'd have additional risk there. So.
As Jason said, we're in conversation with them with most of the players.
Our plans are to triangulate around a couple of ideas that you know our vast resource and transportation network could support helping them over the F. I D.
Decision point, and then do a bit of a risk based approach on.
How much better is the margin with all of the risks versus a margin or a premium price margin.
Against Henry hub and make a decision based on that.
No great details definitely some great opportunities guys. Thank you Yep alright.
And our next question will come from Doug Leggate with Bank of America. Please go ahead.
Hey, thanks.
Good morning, Bill Bill I Wonder if I could start with your hedging philosophy, obviously risk management, you've told me. Many many times as part of your deed, new DNA, but for obvious reasons, we'd love.
GCU has less hedging today, but suddenly not the case, how do we think about how you.
Hedging factors into your go forward philosophy as you right size the balance sheet.
Yeah, when I look at hedging today, when one comment I'll make.
Is that that very hedging practice supported and enabled the company.
To transform itself from a single basin company in Appalachia to the Delaware Basin.
Gas leader.
With connections to all of the growing demand centers. So.
I I don't want to lose sight of that piece. There is there are benefits to this having said that.
With that transformation and with the strength of the company.
And the support it fundamental outlooks expect as I said in my opening remarks expect future, having hedging levels to go to migrate lower within our approved ranges and <unk>.
And.
The company is now in the place where it can confidently do that and you should expect that.
To become more and more visible going forward and in the near term any hedges that are done we'd probably preference collars, which gives you continued access to some of the upside that you.
Speak up so.
That's where we sit today.
Okay. We wouldn't we wouldn't expect to see you buy your own hedges like some of your peers have done.
Okay.
Doug It's a good question and something that we'll evaluate obviously have competing capital priorities with progressing or debt repayment and trying to return to investment grade share repurchase.
You know there is some.
The unique opportunity to take advantage of that and what we think is a.
You know really attractive and.
Got a opportunistic level will clearly consider that.
Were pretty steadfast in.
Moving forward, we think we have good cash flow profile as is particularly as our incumbent hedges roll off and we move into 2023.
And so while we'll look at that I don't know, if we're spending too much time waiting for that to happen.
I appreciate the answers on that guys. Thanks, I know, it's not an easy one bill.
Bill My my follow up is really just to ask you to spell something out for folks. So maybe I've missed the change of taking place in the portfolio because it seems to me that the backend of the gas curve has moved up quite substantially we think can volume discussed sustainable discounted cash flow basis, but in order to have sustainability, you need inventory depth ones.
Those hedges roll off so when you sit here today, what do you think your sustainable economic inventory is across the two basins and I'll leave it there.
Yes, I wanted to have clients spend a couple of minutes.
And put some detail on the table for this.
<unk> got more than 6000 development locations.
With the portfolio that we now hold.
And the strength of those and the economics generated by those are quite impressive.
Why don't you.
To put that break down together for Appalachia, Haynesville and the company sure. So Doug I know, there's a IR deck.
<unk> went out and a lot of the information or the high level summary is on page 12 of that deck for Appalachia inventory in on 13 for Haynesville.
But as Bill mentioned, starting point 6600 future drilling locations at a pace right now of about 135 wells being drilled per year.
In Appalachia, we've got 14 years of below $2 50 breakeven inventory, that's a combination of high rate low cost natural gas wells.
And significant liquids rich opportunities in West, Virginia, So very solid long life inventory in Appalachia that get some exposure to multiple multiple commodities in the haynesville, we have 20 years.
$2 50 or below breakeven inventory.
And that inventory has.
It's all dry gas.
Mix between our Haynesville and our middle Bowser.
Profile of those Haynesville wells as we've talked about before really high initial rates.
We're getting close to 45% of the EUR recovered in the first year. The production profile has a flatter profile than other areas and the economics associated with that inventory is outstanding.
But between the two areas.
It's pushing on 1920 years.
$2 50, and below breakeven inventory in the current commodity price and cost structure.
The environment that we're in right now so you can see a really robust inventory complementary.
Two the two areas.
We're pretty excited about it.
Thanks, Fellas, most about them sure.
Sure.
And our next question will come from Arun Jairam with J P. Morgan. Please go ahead.
Yeah, Good morning Bill.
Bill I wanted to get your perspective on how tightness.
And the oil services market may influence.
Your.
Activity levels.
You know next year, obviously, you're you're vertically integrated to some extent, but historically.
Southwestern has done a little bit more activity in the first half you had a little bit of a are shaping in terms of spending and thoughts about potentially shifting to more of a level loaded program.
Because you know I'd like to keep experienced crews and things like that so wanted to get your thoughts on that and then.
Clay could you just talk about.
Cycle Times, you mentioned in your prepared remarks, I'd love to get a sense of.
For every rig line in the Marcellus our Appalachia, you know how many wells to sales do you expect typically and the same thing in the Haynesville.
Yeah.
I appreciate the questions.
As far as far as the tightness in the oilfield services side, Yeah, we've seen it I think.
A great outcome for us as is the planning that was put into it.
Both the acquisition of services the clear plans that we had on how we would implement those.
And.
Really making the company.
As efficient as it could be which is a benefit to anybody that comes to work for us.
Not having any company induced downtime or nonproductive time, which makes it more efficient for for our service providers that work for US we do frontload the business.
I think.
We've moderated that a little bit because we want to make sure a continuity of of goods and services continues as you. If you were to ramp down and ramp back up in fact, some of the capital that we're going to.
Deploy in the latter part of this year is specifically related to.
Making sure that we retain the strength of the continuity of that activity level 'twenty two to 'twenty, three and get a great running start on the 23.
Our vertical integration teams continue to excel at at what they do and and give our contracting partners a clear understanding of what we know.
It takes to drill a well from the very detailed part of the drilling all the way through completions et cetera, and so theres a constant learning that goes on between our teams in the contracting teams, we only drill and complete for ourselves. So we're not a competitive threat, we actually are we.
We think it can be a competitive enabler for improved cycle times improved quality of drilling them in attracting talent to come to us. So we have seven rigs seventeens of people that are dedicated those rigs.
There is a consistency that that brings and it turns into quality of the wells quality of timing and quality of the efficiency, which is helping us.
With a lower cost than what the industry might be seen because of.
That consistency of the teams.
Aruna.
And the cycle times, Yeah go ahead yeah.
So.
At a high level.
The cycle times are shorter.
In Appalachia than they are in the Haynesville the haynesville.
Has the longer drilling times and completion times.
Due to the higher pressures and the greater depth of those wells.
We've made improvements in both of those you mentioned my answer a little while ago around.
Turn in lines being faster on some southwest Appalachia Wells, we've commented on spud to rig release improvements in the Haynesville that are that are moving some of those wells.
From as high as 55 days back in the acquisition model to down around 30 days spud to rig release now but.
But in general when we think about the number of wells per rig line.
In Haynesville, where drove an eight.
To get all the wells drilled we need we get about eight to nine wells drilled per rig line in the Haynesville and then in Appalachia, It's somewhere in the 15 to 17 wells drilled per rig line in those areas and the focus.
All the time is to continue to look for ways to compress those cycle times and bring those wells online quicker and that's that's the go forward approach that we're working on.
And just to clarify when you say eight to nine wells is that to sales or is that just for the drilling.
Drilling the drilling piece of it to sales a lot has to do with that.
The number of Ducks that you come into a year with again, we don't build dogs, we try to maintain the right amount of dogs for us to be as efficient as we can be but that's why I gave you the drilling metric because the sales can be a little bit lumpy.
Depending upon what you are coming into the year with.
Okay great.
Hmm.
And my follow up Karl I was wondering if you could help us think about how south westerns.
Cash tax rate could evolve it and maybe you could do this a little bit of a teach in on what the a M. T could mean for you guys as well as your ability to use Nols given some of the M&A activity that you've done.
And the Haynesville.
Thank you very much.
Yeah I think.
I'll deal with the cash taxes upfront this year, we're anticipating cash taxes, roughly 25 to 30.
All the way up to $75 million to $80 million, depending on how prices behave.
And then going forward beginning in 2023. This is already accounted for in the cash flow numbers without it had in our prepared remarks, we're expecting $200 million to $300 million of cash taxes, beginning in 2023, obviously dependent on commodity prices I'll tell you that as we've talked about before on these calls.
<unk>.
When we did the indigo create a roughly $50 million of limit on our ability to use Nols that has increased our cash taxes.
And so that's why we're at these ranges.
And I think that should provide some reasonable guidance to what our cash tax payments are going forward.
And just how does the M. A M T potentially impact that.
We're still evaluating it we're not sure it's going to have a material impact from what we've already described.
Great. Thanks, a lot.
Okay.
Our next question will come from C best genre with benchmark. Please go ahead.
So bill you know it seems that.
Other than southwestern every haynesville public or private or nearly every is.
Is potentially for sale.
This might be a strange question to ask but do you feel at this point you have optimal scale to deliver on that LNG vision.
Near term and long term.
Capturing the benefits of increased scale as part of our core strategy.
And accessing LNG opportunities like you talk about would be one of those benefits.
I think that we're going to keep looking at M&A activity alright opportunities study them within.
Within our two basins.
I think given the recent transactions.
Later than 6000 development locations, the quality of our assets and all the other corporate objectives around debt and investment grade and returning capital we've raised the bar, which makes M&A more challenging.
When you look at the capability of the company.
And the one five Bcf a day of gas, we already moved into the LNG space.
And the.
The overall company gas production.
Production rate of just under five Bcf a day.
I'm, assuming that that we can work terms and do those on a risk adjusted basis, we have the capacity to enter into additional.
Ideas around LNG.
And that's the part that we're exploring now whether they're domestically prize store internationally price is.
As a part of that so.
The presence.
Our vast inventory along with a.
Transportation network in the gathering network already in place so that we can assure flow and assure that we can meet our contractual obligations today and going forward I think we're well positioned to to look to look at additional opportunities.
Thanks.
And then my follow up I guess is you know some pipelines that recently implemented.
Archie.
Pricing pools have you seen that play out.
And any materiality and are you seeing price premiums.
Yes.
We've been doing our ESG and enter into contract since 2017, So let me get Jason to get you a bit of an update on where we're what we're seeing.
Yeah, I would say I think you're probably referring to Tennessee, and the new filing that they recently came out with I think that is very new right now and so there's a lot of people that are just just now beginning to look at that that potential opportunity in getting the different pool set up that are required to be able to transact there. So.
No transactions have happened on the new the new pooling agreement yet to my to my knowledge, but we have other other opportunities as Bill said since 2017 that we've been that we've been working direct with different suppliers that are interested in buying.
RFG.
Got it.
Thanks, everybody.
Yeah.
And our next question will come from Omar <unk> with Goldman Sachs. Please go ahead.
Hi, Good morning, and thank you for taking my questions. I guess the first question was really on the Haynesville can you walk us through some of the latest.
Productivity or cost trends in the Haynesville basin as you'll get some more time to operate those assets.
Sure.
As you know.
The benefit of the deeper depths as higher bottom hole pressure and then it also has higher bottom hole temperatures and those those bottom hole temperatures.
Or where you have potentially shorter tool life and it can cause you to have shorter laterals. So a big thing we've been focused on is reducing the bottom hole temperatures in maintaining the drilling mud properties and keeping those bottom hole.
Temperatures as low as we can and then also.
Maintaining the the whole stability.
Managed pressure drilling techniques and so early in the year, we had drilled some wells in that area.
Right after closing and as we've been talking about.
Our expectation was to really learn and optimize as we started drilling wells and so then we moved into other areas of the field as planned and then now we've come back to the deepest hottest areas and the things I mentioned are causing us now to get long.
<unk> tool run times.
We're able to drill longer laterals.
We're able to reduce the time to get the wells drilled which is <unk>.
Providing some well cost savings so that's kind of the.
The driver the benefits, we're seeing on the drilling side in the Haynesville area.
Great and anything on the productivity front in the Haynesville are you seeing some.
I'll take that as you get the confidence on that program.
Yes, so we've been commenting on the Ips the initial production rates from the wells.
We're turning to sales.
And for the second quarter in a row, our wells to sales in the Haynesville have averaged about 34 million a day of gross production rate and that's elevated from.
The prior.
Operators in the public data and part of that is.
Gaining a better understanding of the subsurface.
Continuing to optimize the flow back and how much pressure differential we're willing to see when we're flowing back those wells.
And then also the the profile over time and in continuing to shallow that decline on the profile over time. So we've been extremely pleased with the production performance in the Haynesville.
The Ips have ranged from 25 million a day to as high as 50 million a day in different areas of the field and so we think thats part of it.
Uh huh.
Tier one high quality inventory that we have and it's showing up in the production performance and it's occurring in both our Haynesville wells in the Middle Bossier Wells.
That's great to hear and maybe if you can on the follow up maybe if again tied to the to your plans for growth.
For the remainder of this year from that asset and heading into next year and then also maybe if you can touch on the any.
Any midstream issues, which you're seeing which could limit that grow.
Great.
I've got a friend comes online.
Yeah, So I'll hit on the.
The first part of that are adjacent can cover the second so.
We're in a maintenance capital program as we came into the year, we talked about.
A small amount of growth in the Haynesville.
But at the enterprise level, we were going to stay in that maintenance capital program flat production.
You can see from the production rates, we are realizing the growth in the Haynesville that we had planned for 2022, we've talked about some additional lease capacity.
We agreed on earlier in the year that is going to cause a similar amount of growth potential in 2023 in the Haynesville and we haven't finalized all of the 2023 plans, yet, but we expect to stay at that enterprise level maintenance.
<unk> capital program with some incremental growth in the Haynesville similar to what we did in 2022.
Yeah, I think clay covered it real well, but I mean I'll just add you know part of our M&A framework and just the integrated planning process at southwestern just ensures that any asset that we buy or operate that it has adequate midstream and pipeline capacity and we have a continuous planning period very integrated with <unk>.
<unk> midstream and the division to continually ensure that we have the capacity to move our product from the wellhead all the way through to the marketplace.
That's really helpful. Thank you so much.
And our next question will come from Nicholas Pope with Seaport Research. Please go ahead.
Good morning, everyone.
Good morning.
I was hoping we could dig a little bit more into the.
Comments are clay just made on the.
On the Haynesville I mean looking at lateral links it looks like you all are up 50% kind of on <unk>.
Ink from when you first took over Haynesville and last year.
And as you look at cost.
Should we think about it on a as it you know.
Dollar for what kind of lateral foot right now and because it looks like.
Just kind of tracking that metric and havent seen significant inflation.
Inflation outside of just the longer wells and so trying to pinpoint a little bit on just what well costs in haynesville.
Have tracked as you've kind of gone over the last four quarters of this of this operation and kind of where they are right now like total drilling complete costs right now in these kind of 10000 foot.
Lateral sure sure so to start with our our lateral progression is methodical just like we did in the Appalachia and we're going to average for the year somewhere around 9000 feet.
And the previous operator had anywhere from 5500 to 9000 feet, but have a lower average than that in the in the upper seven thousands to maybe 8000. So we are progressing lateral links.
There's a big economic benefit tied to that but but we're doing it in a methodical constructive way to make sure that.
The execution is there when you talk about well cost per foot.
We're staying steady and the <unk> hundred to <unk> hundred dollars per foot range.
Throughout the year now inflation is.
<unk> been coming at us in that area, but then as we've had these execution improvements they are partially offsetting that increase in the well cost there and remember part of why our wells have the strongest EUR is in some of.
The strongest.
Returns is because we're in the deepest hottest highest pressure part of the Haynesville that has incremental cost versus other parts of the haynesville, but those are more than offset from an economic standpoint by the well performance.
Got it.
That's exactly what it looked like to me that that number there that 1600 17 underfoot.
I think it's impressive so that's all I had I just wanted to clarify I really appreciate the time. Thanks. Thank you. Thank you.
And our next question will come from Noel Parks with Tuohy Brothers. Please go ahead.
Hi, good morning.
Hum.
Just wanted to check I just from a comment that there was in the release about the Capex budget.
It seemed like there was an implication that some of the increase.
Does too.
But if you're going to benefit our 2023 maintenance Capex program, Alright, I just wanted to check on that and.
You'll get a sense of what that might involve.
Sure no.
What our intention was is that the this incremental capital since we're seeing higher than expected inflation was to allow us to maintain the planned activity levels through the fourth quarter.
So that.
The 2023 program.
Stays.
Strengthened on track for us to come into the year with.
High quality service providers with the third party equipment that we need so that.
<unk> 2023, we hit the ground running as we enter the year and that we.
We're maintaining all of those goods and services like you mentioned in this environment.
And the quality that we've seen as we've moved through the year so far.
Gotcha and.
The benefit from that capital Y. We're why we're focused on 2023 as the cycle times that we talked about earlier, the fourth quarter activity isn't going to add well counts and production to 2022, it's going to.
Come online early at the start of 2023, which helps us.
Maintaining that flat production profile in 2023.
Okay.
Okay.
Gotcha.
Okay. Thanks, Thanks, a lot thanks for the clarification and.
One thing I was wondering.
In Q2, only in control of your own rigs and sooner.
Sundar another frac spread.
I just was wondering about maintenance and weather.
Just as far as as parts and.
Any other upgrades you need to make over time.
Our supply chain issues affecting any of the and the component parts that you need.
And if so I'm just wondering if that's something you see.
You hit.
On an improving path or what areas or theres still pressure or.
Maybe even getting a little tighter.
Sure so the maintenance of our vertical integration.
As an important part of why they execute like they do and we have been able to stay ahead of any supply chain issues that.
That we need there to replace any parts and if we're doing any upgrades the upgrades that we do when we do them. They involve third parties, who we don't have to maintain all of that equipment ahead of time, they have it and so our process of making sure that the rigs.
And the Frac fleets are performing at the level, we need safely.
And Dependably that process is working well for us and we haven't.
Add any delays or any problems.
In the current environment tied to that.
Okay, great. Thanks, a lot.
And this will conclude our question and answer session I'd like to turn the conference back over to Bill way for any closing remarks.
I appreciate you orchestrating our conference on behalf of all of US at southwestern energy. Thanks, a lot for your interest in the company.
<unk> share in some of our achievements on this call today have a great weekend and we look forward to speaking to you again soon.
No.
And this concludes the southwestern energy second quarter 2022 earnings call. You May now disconnect your lines at this time.
Okay.
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Yes.
Yeah.
Okay.
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