Southwestern Energy Co. (NYSE: SWN) is trying to sell its way out of a rock and its slightly more valuable rocks.

Southwestern aims to divest Colorado assets while pursuing joint ventures for exploration projects. The company has said it might seek to divest some noncore assets, though executives were mum on the details in a February conference call.

"I'd rather talk to you about deals we have in hand or decisions we have made rather than to speculate on what we might or might not do," said Bill Way, president and CEO.

Speculation is over. The Houston company is actively marketing nearly 286 square miles of its Denver-Julesburg (D-J) Basin position.

The company has put a chunk of its assets in Colorado, more than 183,000 net leasehold acres, on the market through The Oil & Gas Asset Clearinghouse. A sale could redeploy much needed capital to its strongholds in the Appalachian Basin and Fayetteville Shale.

Challenges

So far, Southwestern has slashed its 2016 capital budget by more than half in hopes of aligning capex with cash flow. In the process it has deferred investment on 3.7 million net acres of exploration.

The company plans to idle its drilling rigs and frack fleets this year, operating zero rigs across its portfolio.

Southwestern faces challenges presented by a levered balance sheet and weak gas prices, Thomas R. Driscoll, managing director with Barclays Capital Inc., said in a March 1 report. The company is among the top four most levered names in Barclays’ coverage.

The company has about 5x net debt to forward EBITDA, compared with a group average of 3x assuming $58 per barrel of oil and $2.75 per million British thermal unit of gas, Driscoll said.

The company lowered its 2016 capital budget to $350 million to $400 million, down 80% from its 2015 capex of $1.8 billion.

Southwestern's Northeast and Southwest Appalachia areas will be the growth drivers with the Fayetteville E&P and midstream assets providing the base of cash flows to fund it, Driscoll said.

Company spending will manage its existing drilled but uncompleted well inventory. Its goal is to invest within cash flow based on strip pricing in 2016, Way said.

"Drawing on that liquidity to invest in wells that have marginal economics in today's price environment does not make sense to us," he said.

Cost Cutting

Southwestern’s available capacity on its unsecured revolving credit facility is $1.9 billion as of year-end 2015. The company has no major debt maturities until 2018.

Way recently succeeded Steve Mueller in his new role in January. He has been with the company since 2011, formerly as executive vice president and COO.

Shortly after his appointment, the company announced plans to decrease its workforce by nearly 40% and reduce staff by 1,100 employees. The reduction is primarily the result of the hold on drilling activity, Way said.

"When we looked at commodity prices and our current plans there just wasn't enough activity to support that size employee base," he said.

The company had 2,781 employees at the end of 2014, according to a report by Reuters.

As a bright spot, Southwestern has received some breathing room from midstream contracts in its Southwest Appalachia acreage.

In late February, the company said it negotiated lower rates to gather, transport and process natural gas for its production in West Virginia with Williams Cos. Inc. (NYSE: WMB). Southwestern expects to save $35 million in 2016 from the new terms.

As part of the agreement, Williams gains additional gathering rights to Southwestern's acreage in the Marcellus and Utica shales.

The move has reduced the company's ongoing annual cost structure by more than $200 million, Way said.

On The Market

Southwestern is offering about 183,034 net leasehold acres in the D-J Basin. The acreage is located in Adams, Arapahoe, Elbert, Morgan and Washington counties, Colo.

Area production and development opportunities include the Niobrara, Dakota, DJ Sand and Sussex formations.

Bids are due March 30. The sale is expected to have a March 1 effective date. Virtual data room is open. For information contact Denna Arias, Clearinghouse project manager, at 832-601-7605.

According to Southwestern's website, the company's exploration assets include:

  • About 376,000 net acres in Colorado's Sand Wash Basin;
  • About 304,000 net acres in Louisiana's Brown Dense Formation;
  • About 2.5 million net acres in New Brunswick in Canada; and
  • About 982,000 net acres in other undisclosed new ventures.

Emily Moser can be reached at emoser@hartenergy.com.