Feeling the continued pressure of dismal commodity prices and its own balance sheet, Southwestern Energy Co. (NYSE: SWN) appears to have moved into jettison mode.
The Houston company is offering up large chunks of acreage throughout several states on the market through The Oil & Gas Asset Clearinghouse. A new offering includes nearly 43,000 net acres in Montana’s Bakken Shale and another 126,000 net acres in North Louisiana and Mississippi.
The move follows the marketing of more than 183,000 net leasehold acres in Colorado’s Denver-Julesburg Basin announced earlier this month. In all, the company is marketing about 550 square miles, about a third the size of Rhode Island.
A sale could redeploy much needed capital to the company’s strongholds in the Appalachian Basin and Fayetteville Shale.
Southwestern might look to unload even more of its portfolio as the company has said it might seek to divest some noncore assets. However, 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.
The company has deferred investment on 3.7 million net acres of exploration and scrapped its drilling program.
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.
So far in 2016, Southwestern has slashed its capital budget by more than half in hopes of aligning capex with cash flow.
Southwestern’s 2016 capital budget is $350 million to $400 million, down 80% from its 2015 capex of $1.8 billion. The company’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.
The company plans to idle its drilling rigs and frack fleets this year, operating zero rigs across its portfolio. Instead, it will focus on its existing drilled but uncompleted well inventory. Its goal is to spend 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.
On March 16, the company said it elected to maintain its quarterly dividend of $15.625 per share to its preferred stock. Instead of cash, though, the dividend will be paid with common shares.
The announcement comes two weeks after Fitch Ratings downgraded the operator's long-term issuer default rating from "BBB-" to "B+" with a "Negative" outlook.
The common stock dividend should save the company $108 million in cash based on the fourth-quarter 2015 cash dividend of $27 million, said Kevin Smith, senior vice president at Raymond James, in a report.
“The decision is dilutive to Southwestern's common shares, but should aid in keeping liquidity on the balance sheet assuming the operator continues to pay out this dividend in common shares instead of cash going forward,” Smith said.
Smith also noted concerns in the company's leverage and ability to remain viable over the long term, specifically into 2018.
Southwestern’s latest offering consists of about 42,967 net leasehold acres in the Bakken Shale. The acreage is located in Roosevelt, Sheridan and Daniels counties, Mont.
Area production and development opportunities include the Bakken, Three Forks, Nisku, Ratcliffe, Red River and Mississippian formations.
The company is also offering about 125,661 net leasehold acres in North Louisiana and Mississippi. The acreage is located in East Carroll, West Carroll and Richland parishes, La., and Issaquena, Charkey and Yazoo counties, Miss.
Area production and development opportunities include the Brown Dense, Rodessa, Hosston and Smackover formations.
Emily Moser can be reached at firstname.lastname@example.org.