Strategic consolidation of large-scale core
Haynesville assets; Creates the largest dual-basin natural gas
producer
Southwestern Energy Company (NYSE: SWN) (the “Company” or
“Southwestern”) today announced that it has entered into a
definitive agreement with the third largest private Haynesville
producer – GEP Haynesville, LLC (“GEP”) under which it will acquire
GEP for approximately $1.85 billion. The transaction is expected to
close by year-end 2021, subject to customary closing conditions.
Transaction highlights include:
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20211104005628/en/
(Graphic: Business Wire)
“This strategic move positions Southwestern as the largest
producer in the Haynesville and enhances our leading presence in
the top two premier natural gas basins in the US. The Company’s
increased scale from both a reserves and production perspective is
expected to deliver higher margins, enhanced economic returns and
improved per-share cash flow metrics. The transaction adds
significant high-return locations to our development inventory
while expanding access to premium Gulf Coast markets,” said Bill
Way, Southwestern Energy President and Chief Executive Officer.
Way continued, “This transaction reflects the Company’s strict
adherence to our rigorous acquisition framework and will build on
our leading execution in the integration and development of large
scale assets. The financing and hedging strategy for the deal
aligns with our commitment to financial strength and disciplined
enterprise risk management. Combined with our other strategic
actions, this transaction further expands the sustainable value
being generated for our shareholders.”
Transaction and Timing
The total consideration of $1.85 billion will be comprised of
$1.325 billion in cash and approximately $525 million in
Southwestern common shares.
The stock consideration consists of approximately 99 million
shares of Southwestern Energy common stock, calculated utilizing
the 30-day volume-weighted average price of $5.285 as of November
2, 2021.
The Company expects to finance the $1.325 billion cash
consideration in a manner that affords near-term and efficient debt
reduction, extends its maturity runway and lowers its cost of
debt.
The acquisition valuation compares favorably to other recent
natural gas transactions, with the $1.85 billion purchase price
representing 2.9x estimated 2022 EBITDA using a $4 per Mcf NYMEX
Henry Hub price, which is below today’s strip prices.
The transaction was unanimously approved by each of Southwestern
Energy’s and GEP Haynesville’s boards of directors. It is expected
to close by year-end 2021, subject to regulatory approvals and
customary closing conditions.
Outlook
Once the transaction is closed, the Company will produce
approximately 4.7 Bcfe per day. Within Southwestern’s balanced
portfolio, approximately 65% of its daily natural gas production
will be marketed to growing demand centers along the Gulf Coast,
positioning the Company to efficiently capture natural gas price
improvement and expand margins.
As of September 30, 2021, the Company had total debt of $4.2
billion. After the financing of the $1.325 billion cash
consideration for this transaction, the Company anticipates its
year-end 2021 debt balance to be approximately $5.4 billion with a
leverage ratio of approximately 2.0x.
Southwestern expects to continue utilizing free cash flow to
reduce debt to maintain a sustainable target leverage range of 1.0x
to 1.5x. Consistent with this target leverage range, the Company is
targeting total debt of $3 billion to $3.5 billion. The Company
believes this target range of leverage and total debt balances cost
of capital efficiency with the preservation of the Company’s
financial strength through commodity price cycles. As it approaches
its total debt target, the Company intends to initiate a program to
return capital to shareholders.
The Company will protect its financial strength by executing a
comprehensive hedge plan designed to safeguard cash flow for debt
reduction, consistent with the Company’s established enterprise
risk management policy. GEP has existing 2022 hedge positions for
approximately 35% of its expected 2022 production at an average
price of $2.89 per Mcf. GEP does not have existing hedge positions
beyond 2022, providing an opportunity to protect returns and cash
flow well above valuation prices.
The Company will release formal 2022 guidance at the beginning
of next year. In 2022, Southwestern Energy expects to continue with
maintenance capital investment, averaging approximately 4.7 Bcfe
per day of production. At $4 per Mcf NYMEX Henry Hub and $67 per
barrel WTI, the Company expects to generate approximately $1
billion of free cash flow.
Upon closing, Southwestern expects to realize at least $25
million in annual synergies, driven by G&A and other
operational savings. The Company expects further value enhancing
opportunities through operating economies, marketing synergies,
contract optimization, and reduced cost of capital given its
improved financial and business risk profile.
Advisors
Goldman Sachs & Co. LLC served as the exclusive strategic
advisor to Southwestern. JP Morgan, Bank of America, Citigroup, RBC
and Wells Fargo served as financing advisors and provided $1.325
billion committed financing in connection with the transaction.
Intrepid Partners, LLC also provided a fairness opinion to
Southwestern. Credit Suisse Securities (USA) LLC served as the
exclusive strategic and financial advisor to GEP. Skadden, Arps,
Slate, Meagher & Flom LLP served as legal advisor to
Southwestern, and Kirkland & Ellis LLP served as legal advisor
to GEP.
Conference Call
Southwestern Energy will host a conference call on Thursday,
November 4, 2021 at 10:00 a.m. Central to discuss this transaction
and its third quarter 2021 results. To participate, dial US
toll-free 877-883-0383, or international 412-902-6506 and enter
access code 7695937. A live webcast will be available at
ir.swn.com.
About Southwestern Energy
Southwestern Energy Company (NYSE: SWN) is a leading U.S.
producer of natural gas and natural gas liquids focused on
responsibly developing large-scale energy assets in the nation’s
most prolific shale gas basins. SWN’s returns-driven strategy
strives to create sustainable value for its stakeholders by
leveraging its scale, financial strength and operational execution.
For additional information, please visit www.swn.com and
www.swn.com/responsibility.
About GEP Haynesville
GEP Haynesville, LLC, a joint venture formed by the principals
of GeoSouthern Haynesville, LP and a private equity firm, and based
in the Woodlands, Texas, is a leading energy company focused on the
development of natural gas properties in the stacked Haynesville
and Middle Bossier shale plays in North Louisiana.
Forward-Looking Statements
Certain statements and information herein may constitute
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act, as amended. The words “believe,” “expect,”
“anticipate,” “plan,” "predict," “intend,” "seek," “foresee,”
“should,” “would,” “could,” “attempt,” “appears,” “forecast,”
“outlook,” “estimate,” “project,” “potential,” “may,” “will,”
“likely,” “guidance,” “goal,” “model,” “target,” “budget” and other
similar expressions are intended to identify forward-looking
statements, which are generally not historical in nature.
Statements may be forward looking even in the absence of these
particular words. Examples of forward-looking statements include,
but are not limited to, statements regarding the proposed
acquisition of GEP Haynesville, LLC (the “Proposed Transaction”),
expected synergies and other benefits from and costs in connection
with the Proposed Transaction, estimated financial metrics giving
effect to the Proposed Transaction, including the estimate of
additional year-end 2021 reserves and related pricing assumptions,
our financial position, business strategy, production, reserve
growth and other plans and objectives for our future operations,
and generation of free cash flow. These forward-looking statements
are based on our current expectations and beliefs concerning future
developments and their potential effect on us. The forward-looking
statements contained in this document are largely based on our
expectations for the future, which reflect certain estimates and
assumptions made by our management. These estimates and assumptions
reflect our best judgment based on currently known market
conditions, operating trends, and other factors. Although we
believe such estimates and assumptions to be reasonable, they are
inherently uncertain and involve a number of risks and
uncertainties that are beyond our control. As such, management’s
assumptions about future events may prove to be inaccurate. For a
more detailed description of the risks and uncertainties involved,
see “Risk Factors” in our most recently filed Annual Report on Form
10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and other SEC filings. We do not intend to publicly
update or revise any forward-looking statements as a result of new
information, future events, changes in circumstances, or otherwise.
These cautionary statements qualify all forward-looking statements
attributable to us, or persons acting on our behalf. Management
cautions you that the forward-looking statements contained herein
are not guarantees of future performance, and we cannot assure you
that such statements will be realized or that the events and
circumstances they describe will occur. Factors that could cause
actual results to differ materially from those anticipated or
implied in the forward-looking statements herein 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 and the impact of
reduced demand for our production and products in which our
production is a component due to governmental and societal actions
taken in response to COVID-19 or other public health crises and any
related company or governmental policies and actions to protect the
health and safety of individuals or governmental policies or
actions to maintain the functioning of national or global economies
and markets; differences between the prices used to estimate
additional year-end 2021 reserves, as compared to actual pricing we
will use to calculate reserves, which differences could result in a
different reserve figure as compared to the estimate; 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 the London Interbank Offered Rate; 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 recent acquisitions or the
Proposed Transaction; costs in connection with the Proposed
Transaction; the consummation of or failure to consummate the
Proposed Transaction and the timing thereof; integration of
operations and results subsequent to the Proposed Transaction; our
ability to transport our production to the most favorable markets
or at all; 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 SEC that are incorporated by reference
herein. All written and oral forward-looking statements
attributable to us are expressly qualified in their entirety by
this cautionary statement.
Use of Non-GAAP Information
This news release contains non-GAAP financial measures, such as
net cash flow, free cash flow, net debt and adjusted EBITDA,
including certain key statistics and estimates. We report our
financial results in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
However, management believes certain non-GAAP performance measures
may provide users of this financial information additional
meaningful comparisons between current results and the results of
our peers and of prior periods. Please see the Appendix for
definitions of the non-GAAP financial measures that are based on
reconcilable historical information.
Use of Projections
The financial, operational, industry and market projections,
estimates and targets in this news release are forward-looking
statements that are based on assumptions that are inherently
subject to significant uncertainties and contingencies, many of
which are beyond SWN's and GEP’s control. The assumptions and
estimates underlying the projected, expected or target results are
inherently uncertain and are subject to a wide variety of
significant business, economic, regulatory and competitive risks
and uncertainties that could cause actual results to differ
materially from those contained in the financial, operational,
industry and market projections, estimates and targets, including
assumptions, risks and uncertainties described in "Forward-looking
Statements" above.
Explanation of Non-GAAP Financial
Measures
EBITDA is defined as net income (loss) plus interest, income tax
expense (benefit), depreciation, depletion and amortization,
expenses associated with the restructuring charges, impairments,
legal settlements and gains (losses) on unsettled derivatives less
gains (losses) on sale of assets and gains on early extinguishment
of debt over the prior 12-month period. Net cash flow is defined as
cash flow from operating activities before changes in operating
assets and liabilities. Free cash flow is defined as net cash flow
less accrual-based capital expenditures and estimate free cash flow
for future periods is based on strip pricing as of September 22,
2021. Southwestern has included information concerning Net debt /
EBITDA because it is used by certain investors as a measure of the
ability of a company to service or incur indebtedness and because
it is a financial measure commonly used in the energy industry. Net
debt / EBITDA should not be considered in isolation or as a
substitute for net income, net cash provided by operating
activities or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of
the Company's profitability or liquidity. Net debt / EBITDA, as
defined above, may not be comparable to similarly titled measures
of other companies. These adjusted amounts are not a measure of
financial performance under GAAP.
The Company does not provide a reconciliation to estimated Free
Cash Flow because the Company does not provide the GAAP financial
measures of net income or loss or net cash provided by operating
activities on a forward-looking basis because it is unable to
predict, without unreasonable effort, certain components thereof
including, but not limited to capital expenditures, production and
realized prices for production. These items are inherently
uncertain and depend on various factors, many of which are beyond
the Company’s control. As such, any associated estimate and its
impact on GAAP performance and cash flow measures could vary
materially based on a variety of acceptable management
assumptions.
1 Estimated year-end 2021 proved reserves utilizing nine months
of historical prices and three months of strip prices as of October
4, 2021.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211104005628/en/
Brittany Raiford Director, Investor Relations (832) 796-7906
brittany_raiford@swn.com
Southwestern Energy (NYSE:SWN)
Historical Stock Chart
From Apr 2024 to May 2024
Southwestern Energy (NYSE:SWN)
Historical Stock Chart
From May 2023 to May 2024