Capital expenditure guidance
In July 2016, Southwestern Energy (SWN) increased its fiscal 2016 capital program to a range of $725 million–$775 million, which represents a midpoint of increase of $375 million (or ~100%) over its previous guidance. Southwestern Energy plans to fund its capital expenditure, or capex, by utilizing operating cash flow and part of the ~$500-million proceeds from an equity offering done in July 2016.
Southwestern Energy plans to invest maximum capital in Northwest Appalachia followed by Southwest Appalachia and Fayetteville shale. In 3Q16, Southwestern Energy increased its rig count to five from zero in 2Q16.
As of 3Q16, SWN has two rigs in Northeast Appalachia, two rigs in Southwest Appalachia and one rig in Fayetteville Shale. Southwestern Energy had planned to drill 55–60 wells by the end of 2016, which would bring its DUC (drilled but uncompleted) inventory to 55–60.
Other upstream players
In order to take advantage of higher energy (USO) (UNG) prices, S&P 500 (SPY) (SPX-INDEX) upstream companies Occidental Petroleum (OXY), Devon Energy (DVN), and Pioneer Natural Resources (PXD) have also increased their fiscal 2016 capital guidance.
Now let’s take discuss how SWN’s increased capital spending could affect its cash flows.