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SWN’s Survival Efforts Aligned with Low Commodity Prices

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Southwestern Energy’s focus on premier assets

Southwestern Energy (SWN) noted that its Northeast and Southwest Appalachia regions will be the growth drivers in the coming years. Its Fayetteville Shale exploration and production and midstream businesses will provide a cash flow base that it expects to fund the above-mentioned growth activity.

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SWN’s portfolio optimization

In February 2016, Southwestern Energy (SWN) negotiated a reduction in some of its existing gathering, processing, and transportation expenses for its natural gas, oil, and NGL (natural gas liquids) activities in West Virginia, effective from January 1, 2016, with Williams Companies (WMB). This is expected to reduce SWN’s costs by over $35 million in 2016.

Concurrently, SWN dedicated additional gathering rights for its wet gas Marcellus acreage to WMB. It also dedicated additional dry gas Utica gathering rights. The agreements enhance SWN’s ability to allocate future capital on either wet gas or dry gas, depending on project economics.

Enhancing SWN’s margins

Due to additional pipelines being placed into service, the Appalachian Basin revenues are expected to be higher in 2016. Discounts to NYMEX in 2016 are estimated to be $0.95 per Mcf and $0.70 per Mcf, in Northeast and Southwest Appalachia, respectively, compared to $1.04 per Mcf and $0.74 per Mcf, respectively, in 2015. This is expected to increase revenues by ~$35 million at the forecasted 2016 production volumes.

Layoffs at Southwestern Energy

Due to reduced activity, Southwestern Energy (SWN) recently announced layoffs, which should help create annual savings of $150 million–$175 million for the company. Other upstream companies that announced recent layoffs to save costs amid prevailing commodity prices include Chesapeake Energy (CHK) and Devon Energy (DVN). These companies make up ~5.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), as well as 0.07% of the SPDR S&P 500 ETF (SPY).

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