Southwestern Energy Earnings 2018-09-30

SWN 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 swn-20180930x10q.htm SWN Q3 2018 10-Q 20180930 10Q Q3

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2018

Or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________

Commission file number: 001-08246

Southwestern Energy Company
(Exact name of registrant as specified in its charter)

Delaware				71-0205415
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

10000 Energy Drive Spring, Texas				77389
(Address of principal executive offices)				(Zip Code)

(832) 796-1000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒		Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐		Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class				Outstanding as of October 23, 2018
	Common Stock, Par Value $0.01				581,277,782

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SOUTHWESTERN ENERGY COMPANY

INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

PART I – FINANCIAL INFORMATION			Page

Item 1.	Financial Statements		3
	Consolidated Statements of Operations		3
	Consolidated Statements of Comprehensive Income (Loss)		4
	Consolidated Balance Sheets		5
	Consolidated Statements of Cash Flows		6
	Consolidated Statements of Changes in Equity		7
	Notes to Consolidated Financial Statements		9
		Note 1. Basis of Presentation	9
		Note 2. Assets Held for Sale	9
		Note 3. Reduction in Workforce	10
		Note 4. Revenue Recognition	11
		Note 5. Cash and Cash Equivalents	13
		Note 6. Natural Gas and Oil Properties	13
		Note 7. Earnings per Share	14
		Note 8. Derivatives and Risk Management	15
		Note 9. Reclassifications From Accumulated Other Comprehensive Income (Loss)	20
		Note 10. Fair Value Measurements	21
		Note 11. Debt	24
		Note 12. Commitments and Contingencies	27
		Note 13. Pension Plan and Other Postretirement Benefits	29
		Note 14. Stock-Based Compensation	29
		Note 15. Segment Information	32
		Note 16. Income Taxes	34
		Note 17. New Accounting Pronouncements	35
		Note 18. Condensed Consolidated Financial Information	36
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
	Results of Operations		45
	Liquidity and Capital Resources		53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		58
Item 4.	Controls and Procedures		60

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		60
Item 1A.	Risk Factors		60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		60
Item 3.	Defaults Upon Senior Securities		60
Item 4.	Mine Safety Disclosures		60
Item 5.	Other Information		60
Item 6.	Exhibits		61

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

All statements, other than historical fact or present financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements that address activities, outcomes and other matters that should or may occur in the future, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for our future operations, are forward-

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looking statements. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance. We have no obligation and make no undertaking to publicly update or revise any forward-looking statements, except as may be required by law.

Forward-looking statements include the items identified in the preceding paragraph, information concerning possible or assumed future results of operations and other statements in this Quarterly Report on Form 10-Q identified by words such as “anticipate,” “intend,” “plan,” “project,” “estimate,” “continue,” “potential,” “should,” “could,” “may,” “will,” “objective,” “guidance,” “outlook,” “effort,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “forecast,” “target” or similar words.

You should not place undue reliance on forward-looking statements. They are subject to known and unknown risks, uncertainties and other factors that may affect our operations, markets, products, services and prices and cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with forward-looking statements, risks, uncertainties and factors that could cause our actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:

the timing and extent of changes in market conditions and prices for natural gas, oil and natural gas liquids (“NGLs”) (including regional basis differentials);

our ability to fund our planned capital investments;

a change in our credit rating;

the extent to which lower commodity prices impact our ability to service or refinance our existing debt;

the impact of volatility in the financial markets or other global economic factors;

difficulties in appropriately allocating capital and resources among our strategic opportunities;

the timing and extent of our success in discovering, developing, producing and estimating reserves;

our ability to maintain leases that may expire if production is not established or profitably maintained;

our ability to consummate the closing of the sale of our Fayetteville Shale assets and to realize the expected benefits from acquisitions;

our ability to transport our production to the most favorable markets or at all;

availability and costs of personnel and of products and services provided by third parties;

the impact of laws and government regulation, including the ability to obtain and maintain permits, any increase in severance or similar taxes, and legislation and judicial or administrative decisions relating to hydraulic fracturing, climate change, other environmental matters and over-the-counter derivatives;

the impact of the adverse outcome of any material litigation against us or involving our industry;

the effects of weather;

increased competition and regulation;

the financial impact of accounting regulations and critical accounting policies;

the comparative cost of alternative fuels;

credit risk relating to the risk of loss as a result of non-performance by our counterparties; and

any other factors listed in the reports we have filed and may file with the Securities and Exchange Commission (“SEC”).

Should one or more of the risks or uncertainties described above or elsewhere in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS




SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the three months ended					For the nine months ended
	September 30,					September 30,
(in millions, except share/per share amounts)	2018		2017			2018		2017
Operating Revenues:
Gas sales	$	465	$	394		$	1,412	$		1,368
Oil sales		62		27			141			73
NGL sales		112		55			252			132
Marketing		287		233			805			736
Gas gathering		25		28			73			85
Other		–		−			4			–
		951		737			2,687			2,394
Operating Costs and Expenses:
Marketing purchases		288		236			808			740
Operating expenses		206		170			588			481
General and administrative expenses		51		62			165			170
Restructuring charges		2		–			20			–
Depreciation, depletion and amortization		151		135			436			364
Impairments		161		–			161			–
Taxes, other than income taxes		26		24			64			75
		885		627			2,242			1,830
Operating Income		66		110			445			564
Interest Expense:
Interest on debt		56		58			180			175
Other interest charges		2		2			6			7
Interest capitalized		(29)		(29)			(86)			(85)
		29		31			100			97

Gain (Loss) on Derivatives		(65)		45			(108)			295
Loss on Early Extinguishment of Debt		–		(59)			(8)			(70)
Other Income (Loss), Net		(1)		(2)			1			6

Income (Loss) Before Income Taxes		(29)		63			230			698
Benefit for Income Taxes:
Current		–		(10)			−			(10)
Deferred		–		(4)			−			(4)
		–		(14)			−			(14)
Net Income (Loss)	$	(29)	$	77		$	230	$		712
Mandatory convertible preferred stock dividend		–		27			−			81
Participating securities - mandatory convertible preferred stock		–		7			1			83
Net Income (Loss) Attributable to Common Stock	$	(29)	$	43		$	229	$		548

Earnings (Loss) Per Common Share
Basic	$	(0.05)	$	0.09	$		0.40	$	1.11
Diluted	$	(0.05)	$	0.09	$		0.39	$	1.10

Weighted Average Common Shares Outstanding:
Basic		581,171,753		499,812,926			577,912,421		496,458,435
Diluted		581,171,753		502,290,779			579,828,858		498,527,671

The accompanying notes are an integral part of these

consolidated financial statements.

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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

	For the three months ended				For the nine months ended
	September 30,				September 30,
(in millions)	2018		2017		2018		2017
Net income (loss)	$	(29)	$	77	$	230	$	712

Change in value of pension and other postretirement liabilities:
Amortization of prior service cost and net gain included in net periodic pension cost (1)		4		1		4		2

Comprehensive income	$	(25)	$	78	$	234	$	714

(1)

Net of $1 million in taxes for the three and nine months ended September 30, 2018. Net of less than $1 million in taxes for the three and nine months ended September 30, 2017. However, all deferred tax activity incurred in other comprehensive income was offset by a valuation allowance.

The accompanying notes are an integral part of these

consolidated financial statements.

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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	September 30,		December 31,
	2018		2017
ASSETS	(in millions)
Current assets:
Cash and cash equivalents	$	9	$	916
Accounts receivable, net		397		428
Derivative assets		104		130
Other current assets		41		35
Current assets held for sale		64		–
Total current assets		615		1,509
Natural gas and oil properties, using the full cost method, including $1,767 million as of September 30, 2018 and $1,817 million as of December 31, 2017 excluded from amortization		24,880		23,890
Gathering systems		38		1,315
Other		479		564
Less: Accumulated depreciation, depletion and amortization		(19,928)		(19,997)
Total property and equipment, net		5,469		5,772
Other long-term assets		194		240
Long-term assets held for sale		780		–
TOTAL ASSETS	$	7,058	$	7,521
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	563	$	533
Taxes payable		32		62
Interest payable		60		70
Dividends payable		–		27
Derivative liabilities		111		64
Other current liabilities		10		24
Current liabilities held for sale		116		–
Total current liabilities		892		780
Long-term debt		3,572		4,391
Pension and other postretirement liabilities		50		58
Other long-term liabilities		162		313
Long-term liabilities held for sale		177		–
Total long-term liabilities		3,961		4,762
Commitments and contingencies (Note 12)
Equity:
Common stock, $0.01 par value; 1,250,000,000 shares authorized; issued 586,195,162 shares as of September 30, 2018 and 512,134,311 as of December 31, 2017		6		5
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 6.25% Series B Mandatory Convertible, $1,000 per share liquidation preference, 1,725,000 shares issued and outstanding as of December 31, 2017, converted to common stock on January 12, 2018		–		–
Additional paid-in capital		4,714		4,698
Accumulated deficit		(2,449)		(2,679)
Accumulated other comprehensive loss		(40)		(44)
Common stock in treasury, 4,860,280 shares as of September 30, 2018 and 31,269 shares as of December 31, 2017		(26)		(1)
Total equity		2,205		1,979
TOTAL LIABILITIES AND EQUITY	$	7,058	$	7,521

The accompanying notes are an integral part of these

consolidated financial statements.

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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the nine months ended
	September 30,
(in millions)	2018		2017
Cash Flows From Operating Activities:
Net income	$	230	$	712
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		436		364
Amortization of debt issuance costs		6		7
Impairments		161		–
Deferred income taxes		–		(4)
(Gain) loss on derivatives, unsettled		113		(350)
Stock-based compensation		12		19
Loss on early extinguishment of debt		8		70
Other		7		(2)
Change in assets and liabilities:
Accounts receivable		(7)		3
Accounts payable		60		16
Taxes payable		–		(3)
Interest payable		(5)		(28)
Inventories		(9)		(1)
Other assets and liabilities		(41)		(14)
Net cash provided by operating activities		971		789

Cash Flows From Investing Activities:
Capital investments		(1,008)		(943)
Proceeds from sale of property and equipment		9		17
Other		4		5
Net cash used in investing activities		(995)		(921)

Cash Flows From Financing Activities:
Payments on short-term debt		–		(287)
Payments on long-term debt		(1,191)		(1,139)
Payments on revolving credit facility		(1,122)		–
Borrowings under revolving credit facility		1,482		–
Change in bank drafts outstanding		10		–
Proceeds from issuance of long-term debt		–		1,150
Debt issuance costs		(9)		(18)
Purchase of treasury stock		(25)		–
Preferred stock dividend		(27)		(8)
Cash paid for tax withholding		(1)		–
Net cash used in financing activities		(883)		(302)

Decrease in cash and cash equivalents		(907)		(434)
Cash and cash equivalents at beginning of year		916		1,423
Cash and cash equivalents at end of period	$	9	$	989

The accompanying notes are an integral part of these

consolidated financial statements.

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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

Common Stock

Preferred Stock

Additional

Accumulated Other

Common

Paid-In

Accumulated

Comprehensive

Stock in

Issued

Amount

Issued

Capital

Deficit

Income (Loss)

Treasury

Total

(in millions, except share amounts)

Balance at December 31, 2017

512,134,311

1,725,000

4,698

(2,679)

(44)

(1)

1,979

Comprehensive income:

Net income

–

208

–

208

Other comprehensive income

–

Total comprehensive income

–

208

Stock-based compensation

–

Conversion of preferred stock

74,998,614

(1,725,000)

(1)

–

Issuance of restricted stock

5,076

–

Cancellation of restricted stock

(160,168)

–

Performance units vested

214,866

–

Tax withholding – stock compensation

(338,808)

–

(1)

–

(1)

Balance at March 31, 2018

586,853,891

–

4,703

(2,471)

(44)

(1)

2,193

Comprehensive income:

Net income

–

Other comprehensive income

–

Total comprehensive income

–

Stock-based compensation

–

Issuance of restricted stock

307,743

–

Cancellation of restricted stock

(722,465)

–

Tax withholding – stock compensation

(9,068)

–

Balance at June 30, 2018

586,430,101

–

4,709

(2,420)

(44)

(1)

2,250

Comprehensive income:

Net income (loss)

–

(29)

–

(29)

Other comprehensive income

–

Total comprehensive income (loss)

−

–

(25)

Stock-based compensation

−

–

−

–

Issuance of restricted stock

30,924

–

Cancellation of restricted stock

(248,342)

–

Treasury stock

−

(25)

Tax withholding – stock compensation

(17,521)

–

Balance at September 30, 2018

586,195,162

−

4,714

(2,449)

(40)

(26)

2,205

The accompanying notes are an integral part of these

consolidated financial statements.

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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

(Unaudited)

Common Stock

Preferred Stock

Additional

Accumulated Other

Common

Paid-In

Accumulated

Comprehensive

Stock in

Issued

Amount

Issued

Capital

Deficit

Income (Loss)

Treasury

Total

(in millions, except share amounts)

Balance at December 31, 2016

495,248,369

1,725,000

4,677

(3,725)

(39)

(1)

917

Comprehensive income:

Net income

–

351

–

351

Other comprehensive income

–

Total comprehensive income

–

351

Stock-based compensation

–

Preferred stock dividend

2,751,410

–

Issuance of restricted stock

4,549,122

–

Cancellation of restricted stock

(113,185)

–

Performance units vested

121,208

–

Tax withholding – stock compensation

(59,455)

–

Balance at March 31, 2017

502,497,469

1,725,000

4,687

(3,374)

(39)

(1)

1,278

Comprehensive income:

Net income

–

284

–

284

Other comprehensive income

–

Total comprehensive income

–

285

Stock-based compensation

–

Preferred stock dividend

3,346,865

–

Issuance of restricted stock

353,803

–

Cancellation of restricted stock

(303,135)

–

Tax withholding – stock compensation

(1,729)

–

Issuance of stock awards

–

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$4.33	582	$2,520

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2018-03-01	Annual: 2018-03-01
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-04-27	Quarter: 2017-04-27
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-02-05	Earnings, Exhibits
8-K	2018-12-03	M&A, Officers, Other Events, Exhibits
8-K	2018-10-25	Earnings, Exhibits
8-K	2018-09-28	Officers, Regulation FD
8-K	2018-09-17	Enter Agreement, Regulation FD, Exhibits
8-K	2018-08-30	Enter Agreement, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-06-27	Exit Costs, Regulation FD
8-K	2018-05-25	Shareholder Vote, Other Events
8-K	2018-04-26	Earnings, Exhibits
8-K	2018-03-07	Officers, Exhibits
8-K	2018-02-26	Officers, Regulation FD, Exhibits
8-K	2018-02-08	Earnings, Regulation FD, Exhibits
8-K	2018-01-12	Regulation FD

E	Eni
PE	Parsley Energy
WPX	WPX Energy
MUR	Murphy Oil
BSM	Black Stone Minerals
PDCE	PDC Energy
NEXT	Nextdecade
PBT	Permian Basin Royalty Trust
CHKR	Chesapeake Granite Wash Trust
BRN	Barnwell Industries

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