Southwestern Energy Earnings 2019-06-30

SWN 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934

For the quarterly period ended June 30, 2019

☐ 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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.01	SWN	New York Stock Exchange

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 August 2, 2019
Common Stock, Par Value $0.01		541,316,769

Table of Contents

SOUTHWESTERN ENERGY COMPANY

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019



PART I – FINANCIAL INFORMATION			Page

Item 1.	Financial Statements		3
	Consolidated Statements of Operations		3
	Consolidated Statements of Comprehensive Income		4
	Consolidated Balance Sheets		5
	Consolidated Statements of Cash Flows		6
	Consolidated Statements of Changes in Equity		7
	Notes to Consolidated Financial Statements		8
		Note 1. Basis of Presentation	8
		Note 2. Divestitures	8
		Note 3. Restructuring Charges	9
		Note 4. Leases	9
		Note 5. Revenue Recognition	11
		Note 6. Cash and Cash Equivalents	14
		Note 7. Natural Gas and Oil Properties	14
		Note 8. Earnings per Share	14
		Note 9. Derivatives and Risk Management	15
		Note 10. Reclassifications From Accumulated Other Comprehensive Income (Loss)	22
		Note 11. Fair Value Measurements	22
		Note 12. Debt	26
		Note 13. Commitments and Contingencies	28
		Note 14. Income Taxes	29
		Note 15. Pension Plan and Other Postretirement Benefits	30
		Note 16. Stock-Based Compensation	30
		Note 17. Segment Information	33
		Note 18. New Accounting Pronouncements	34
		Note 19. Condensed Consolidated Financial Information	35
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
	Results of Operations		44
	Liquidity and Capital Resources		51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		56
Item 4.	Controls and Procedures		56

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		57
Item 1A.	Risk Factors		57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		57
Item 3.	Defaults Upon Senior Securities		57
Item 4.	Mine Safety Disclosures		57
Item 5.	Other Information		57
Item 6.	Exhibits		58

Table of Contents

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-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; an increase in interest rates and any adverse impacts from the discontinuation of LIBOR;


•	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 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 government regulation, including changes in law, the ability to obtain and maintain permits, any increase in severance or similar taxes, and legislation or regulation relating to hydraulic fracturing, climate and over-the-counter derivatives;


•	the impact of the adverse outcome of any material litigation against us or judicial decisions that affect us or our industry generally;


•	the effects of weather;


•	increased competition;


•	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 update publicly 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.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	For the three months ended June 30,						For the six months ended June 30,
(in millions, except share/per share amounts)	2019			2018			2019			2018
Operating Revenues:
Gas sales	$	275		$	407		$	705		$	947
Oil sales	47			44			86			79
NGL sales	58			75			139			140
Marketing	287			265			725			518
Gas gathering	—			24			—			48
Other	—			1			2			4
	667			816			1,657			1,736
Operating Costs and Expenses:
Marketing purchases	293			265			734			520
Operating expenses	169			193			334			382
General and administrative expenses	40			59			77			114
Loss on sale of operating assets	3			—			3			—
Restructuring charges	2			18			5			18
Depreciation, depletion and amortization	121			142			233			285
Taxes, other than income taxes	17			15			36			38
	645			692			1,422			1,357
Operating Income	22			124			235			379
Interest Expense:
Interest on debt	41			59			83			124
Other interest charges	2			2			3			4
Interest capitalized	(28		)	(29		)	(57		)	(57		)
	15			32			29			71

Gain (Loss) on Derivatives	152			(36		)	120			(43		)
Loss on Early Extinguishment of Debt	—			(8		)	—			(8		)
Other Income (Loss), Net	(6		)	3			(5		)	2

Income Before Income Taxes	153			51			321			259
Provision (Benefit) for Income Taxes
Current	—			—			—			—
Deferred	15			—			(411		)	—
	15			—			(411		)	—
Net Income	$	138		$	51		$	732		$	259
Participating securities - mandatory convertible preferred stock	—			—			—			2
Net Income Attributable to Common Stock	$	138		$	51		$	732		$	257

Earnings Per Common Share
Basic	$	0.26		$	0.09		$	1.36		$	0.45
Diluted	$	0.26		$	0.09		$	1.35		$	0.44

Weighted Average Common Shares Outstanding:
Basic	539,005,941			581,159,200			539,362,984			576,255,744
Diluted	539,947,053			582,878,106			540,624,742			578,222,740

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	For the three months ended June 30,				For the six months ended June 30,
(in millions)	2019		2018 ⁽¹⁾		2019		2018⁽¹⁾
Net income	$	138	$	51	$	732	$	259

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

Comprehensive income	$	142	$	51	$	736	$	259


(1)	In 2018, deferred tax activity incurred in other comprehensive income was offset by a valuation allowance.


(2)	Primarily related to settlement of pension assets in the second quarter of 2019. Net of $1 million in taxes for the three and six months ended June 30, 2019.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2019			December 31, 2018
ASSETS	(in millions)
Current assets:
Cash and cash equivalents	$	155		$	201
Accounts receivable, net	358			581
Derivative assets	209			130
Other current assets	42			44
Total current assets	764			956
Natural gas and oil properties, using the full cost method, including $1,678 million as of June 30, 2019 and $1,755 million as of December 31, 2018 excluded from amortization	24,823			24,180
Other	555			525
Less: Accumulated depreciation, depletion and amortization	(20,279		)	(20,049		)
Total property and equipment, net	5,099			4,656
Deferred tax assets	410			—
Other long-term assets	272			185
TOTAL ASSETS	$	6,545		$	5,797
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	52		$	—
Accounts payable	585			609
Taxes payable	52			58
Interest payable	53			52
Derivative liabilities	67			79
Other current liabilities	103			48
Total current liabilities	912			846
Long-term debt	2,267			2,318
Pension and other postretirement liabilities	39			46
Other long-term liabilities	245			225
Total long-term liabilities	2,551			2,589
Commitments and contingencies (Note 13)
Equity:
Common stock, $0.01 par value; 1,250,000,000 shares authorized; issued 585,478,345 shares as of June 30, 2019 and 585,407,107 shares as of December 31, 2018	6			6
Additional paid-in capital	4,720			4,715
Accumulated deficit	(1,410		)	(2,142		)
Accumulated other comprehensive loss	(32		)	(36		)
Common stock in treasury, 44,353,224 shares as of June 30, 2019 and 39,092,537 shares as of December 31, 2018	(202		)	(181		)
Total equity	3,082			2,362
TOTAL LIABILITIES AND EQUITY	$	6,545		$	5,797

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	For the six months ended June 30,
(in millions)	2019		2018
Cash Flows From Operating Activities:
Net income	$	732	$	259
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	233		285
Amortization of debt issuance costs	2		4

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$4.16	541	$2,250

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
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
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-08-06	Earnings, Exhibits
8-K	2019-06-20	Officers, Regulation FD
8-K	2019-05-21	Officers, Shareholder Vote, Other Events, Exhibits
8-K	2019-04-25	Earnings, Exhibits
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

AIG	American International Group	44,210
OTEX	Open Text	10,830
HRB	H&R Block	5,450
CCMP	Cabot Microelectronics	3,320
TITN	Titan Machinery	378
MEIP	MEI Pharma	208
KGJI	Kingold Jewelry	56
NVUS	Novus Therapeutics	32
RVRA	Riviera Resources	0
IGXT	Intelgenx Technologies	0

EX-10.2	swn-20190630xex102.htm
EX-10.3	swn-20190630xex103.htm
EX-10.4	swn-20190630xex104.htm
EX-31.1	swn-20190630xex311.htm
EX-31.2	swn-20190630xex312.htm
EX-32.1	swn-20190630xex321.htm
EX-32.2	swn-20190630xex322.htm
EX-95.1	swn-20190630xex951.htm