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SOUTHWESTERN ENERGY CO (SWN)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 was resilient operationally amid low gas prices: net income was $45M; adjusted net income $106M; adjusted EBITDA $513M; free cash flow $23M, with production of 425 Bcfe and capital investments of $454M .
  • Realized pricing improved sequentially vs Q2 (weighted average including derivatives $2.43/Mcfe vs $2.33/Mcfe), but remained far below prior year levels given a 69% YoY drop in Henry Hub and a 10% YoY decline in WTI .
  • Debt held at $4.1B; net debt/Adjusted EBITDA 1.6x. Management expects debt to remain around $4.1B through year-end, noting working capital reversals increased revolver borrowings in Q3 .
  • Guidance: Q4 gas production 344–361 Bcf; total 400–420 Bcfe; updated full‑year oil differential improved to $10–$13/Bbl discount to WTI (from $12–$15) — a positive for oil/liquids realizations .
  • Strategic catalyst: positioning as a leading supplier to Gulf Coast LNG, added capacity already in service and more expected by next year; management highlighted LNG-driven demand into 2024 and moderated hedging to preserve torque to higher gas prices .

What Went Well and What Went Wrong

What Went Well

  • Disciplined execution with free cash flow generation despite weak prices; Q3 FCF of $23M with adjusted EBITDA of $513M and production of 425 Bcfe .
  • Liquids performance supported realizations: Q3 liquids were ~14% of production, with average realized NGL price (incl. derivatives) $21.41/Bbl and oil $56.60/Bbl .
  • Strategic LNG positioning and market access: “Southwestern Energy is well positioned…with its deep inventory, firm transportation portfolio and market access to benefit from the expected growing demand from LNG facilities along the Gulf Coast,” said CEO Bill Way . Management reiterated being one of the largest suppliers to LNG exporters, with expanded capacity in service and more coming .

What Went Wrong

  • Sharp YoY price compression reduced realized pricing: total weighted average realized price including derivatives fell to $2.43/Mcfe (from $3.06/Mcfe in Q3’22) driven by a 69% YoY drop in Henry Hub and 10% drop in WTI .
  • Working capital reversals offset free cash flow, contributing to a small increase in revolver borrowings and keeping quarter-end debt at $4.1B .
  • Unit costs ticked up: LOE rose to $1.06/Mcfe (from $1.00 in Q2 and $1.02 in Q3’22), and DD&A amortization increased to $0.78/Mcfe (from $0.77 in Q2 and $0.66 in Q3’22) .

Financial Results

Sequential comparison (Q1→Q3 2023)

MetricQ1 2023Q2 2023Q3 2023
Operating Revenues ($USD Billions)$2.118 $1.269 $1.443
Net Income ($USD Billions)$1.939 $0.231 $0.045
Diluted EPS ($USD)$1.76 $0.21 $0.04
Adjusted Diluted EPS (non-GAAP) ($USD)$0.31 $0.09 $0.10
Adjusted EBITDA (non-GAAP) ($USD Billions)$0.799 $0.484 $0.513
Free Cash Flow (non-GAAP) ($USD Millions)$99 $(142) $23

Year-over-year comparison (Q3 2022 → Q3 2023)

MetricQ3 2022Q3 2023
Operating Revenues ($USD Billions)$4.541 $1.443
Diluted EPS ($USD)$0.40 $0.04
Adjusted Diluted EPS (non-GAAP) ($USD)$0.32 $0.10
Adjusted EBITDA (non-GAAP) ($USD Billions)$0.824 $0.513
Free Cash Flow (non-GAAP) ($USD Millions)$222 $23

Segment/Division operational breakdown

MetricAppalachia (Q3 2023)Haynesville (Q3 2023)
Natural gas production (Bcf)205 163
Oil (MBbls)1,303 6
NGL (MBbls)8,226 2
Production (Bcfe)262 163
D&C + workovers capex ($MM)$181 $187
Total capex ($MM)$233 $208

KPIs and realized pricing

KPI / PriceQ1 2023Q2 2023Q3 2023
LOE ($/Mcfe)$1.05 $1.00 $1.06
G&A ($/Mcfe)$0.10 $0.09 $0.10
Taxes other than income ($/Mcfe)$0.16 $0.14 $0.15
DD&A amortization ($/Mcfe)$0.75 $0.77 $0.78
Weighted avg realized price incl. derivatives ($/Mcfe)$3.18 $2.33 $2.43

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Oil discount to WTI incl. transportation ($/Bbl)FY 2023$12.00 – $15.00 $10.00 – $13.00 Lowered discount (improved realizations)
Natural gas discount to NYMEX incl. transportation ($/Mcf)Q4 2023n/a$0.58 – $0.70 New Q4 range
NGL realization (% of WTI incl. transportation)Q4 2023n/a22% – 30% New Q4 range
Gas production (Bcf)Q4 2023n/a344 – 361 New Q4 range
Liquids share of production (%)Q4 2023n/a~14.0% New Q4 range
Total production (Bcfe)Q4 2023n/a400 – 420 New Q4 range

Note: In August, SWN reduced full‑year capital investment guidance by ~$200M (~10%), citing activity reductions, moderating inflation, and efficiencies .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
LNG demand and Gulf Coast connectivityHighlighted “differentiated access to premium markets,” portfolio optionality; delaying dry gas completions; debt redemption and positive ratings outlook . Reduced 2023 capital; closed sale of non‑core PA Utica assets and applied $123M to debt reduction .“Largest current supplier of natural gas to LNG exporters”; increased capacity already in service with more expected next year; well‑positioned to supply next wave of LNG facilities .Strengthening LNG narrative; tangible capacity additions.
Hedging postureHedging used for risk management; ongoing basis hedges noted in guidance .Ending year near mid‑range of 40–60% for 2024; base ~20% for 2025; more moderate go‑forward hedging to preserve torque .Moderating hedging to increase operating leverage to prices.
Capital program pacing and volumesFront‑end loaded capital; moderation of activity to align capex with cash flow . FY capex guidance reduced ~10% .Front‑end loaded program; Q&A discussed potential to add a rig in back half if conditions warrant; flat volumes base case .Flexible cadence; optionality to add activity late‑year.
Balance sheet/working capitalDebt reduction priority; redeemed 7.75% notes due 2027 .Q3 FCF positive but working capital reversals increased revolver borrowings; ending debt ~$4.1B expected to hold through year‑end .Stable leverage; near‑term WC noise.
ESGReleased Corporate Responsibility report; reductions in Scope 1 GHG and methane intensity (’22 vs ’21) .Continued sustainability messaging in Q3 release .Ongoing execution and reporting.

Management Commentary

  • CEO positioning and strategy: “As we look ahead to next year, Southwestern Energy is well positioned with its deep inventory, firm transportation portfolio and market access to benefit from the expected growing demand from LNG facilities along the Gulf Coast” — Bill Way, President & CEO .
  • LNG and market access: Management underscored being the largest current supplier of natural gas to LNG exporters, with added capacity in service and more expected next year .
  • Capital and FCF dynamics: “Consistent with our front‑end weighted development program, capital investment stepped down during the third quarter, which helped to generate modestly positive free cash flow…free cash flow was more than offset by typical seasonal working capital reversals” — CFO commentary .
  • Hedging tone: Plan to end 2024 near mid‑range hedge coverage (40–60%) and establish a base 20% for 2025, largely via three‑way collars, to balance protection with operating torque .

Q&A Highlights

  • Capital cadence and potential rig adds: Base case front‑end loaded capital program with roughly flat YoY volumes; optionality to add a rig (or two) in the back half of the year to bias toward the high end of capex if warranted .
  • Balance sheet trajectory: Debt ended at ~$4.1B and expected to hold through year-end; WC reversals drove revolver usage despite positive FCF .
  • LNG linkage and basis: Continued focus on advantaged markets along the Gulf Coast with firm transport and basis management supporting realizations .

Estimates Context

  • S&P Global consensus estimates for Q3 2023 (EPS, revenue, EBITDA, # of estimates) were unavailable due to missing CIQ mapping for SWN in our SPGI data integration. As a result, beat/miss vs Wall Street consensus cannot be assessed at this time (values not retrievable; S&P Global data unavailable).
  • If/when SPGI mapping is restored, we will update comparisons vs consensus for EPS, revenue and EBITDA.

Key Takeaways for Investors

  • LNG demand narrative is a key medium‑term catalyst; SWN’s firm transport and existing LNG connectivity provide a structural advantage as new Gulf Coast facilities come online in 2024 .
  • Moderated hedging should increase sensitivity to higher gas prices, enhancing operating torque if Henry Hub tightens with LNG pull-through .
  • Near‑term headwinds from low gas prices and WC reversals persist; FCF generation and capex discipline remain critical (Q3 FCF: $23M; capex: $454M) .
  • Improving liquids realizations (lower oil discount to WTI) and NGL value serve as partial offsets to weak gas pricing .
  • Balance sheet stable at $4.1B debt; leverage 1.6x net debt/Adj. EBITDA. Watch for debt trajectory and revolver usage through year‑end .
  • Production steady (Q3 425 Bcfe; Q2 423; Q1 411), with dual‑basin optionality; potential late‑year rig adds could bias volumes/capex higher if macro warrants .
  • Without consensus access, focus on internal KPIs: realized price trends, unit costs, and segment activity to gauge margin trajectory .

Source Notes

  • Q3 2023 earnings 8‑K and press release: full financials, operations, pricing, hedging, guidance .
  • Prior quarters’ earnings press releases: Q2 2023 ; Q1 2023 .
  • Earnings call transcript references (Q3 2023): .
  • No additional stand‑alone press releases found for Q3 2023 beyond earnings materials [List: 0 results].