Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Southwestern Energy Second Quarter 2019 Earnings Conference Call. Management will open up the call for question-and-answer session following prepared remarks. In the interest of time, we do ask you please limit yourself to two questions and re-queue for additional questions. I will now turn the call over to Paige Penchas, Southwestern Energy's Vice President of Investor Relations. You may begin.

Thank you, Jamie. Good morning and welcome to Southwestern Energy's Second Quarter 2019 Earnings Call. Joining me today are Bill Way, President and Chief Executive Officer; Clay Carrell, Chief Operating Officer, Julian Bott, Chief Financial Officer; and Jason Kurtz, Head of Marketing and Transportation. Along with yesterday's press release, we also issued our 10-I, which is available in the Investor Relations section of our website at www.swn.com. Before we get started, I'd like to point out that many of the comments during this call are forward-looking statements that involve risks and uncertainties affecting outcomes. Many of these are beyond our control and are discussed in more detail in the Risk Factors and the forward-looking statement section of our annual and quarterly filings with the Securities and Exchange Commission. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance, and actual results or developments may differ materially. We may also refer to some non-I financial measures, which help facilitate comparisons across periods and with peers. For any non-I measures we use, a reconciliation to the nearest corresponding I measure can be found in our earnings release available on our website. I'll now turn the call over to Bill Way.

Thank you, Paige. Good morning everyone. We really appreciate you all joining us for the call today. Foundational to who we are at Southwestern Energy we once again delivered strong operational performance for the quarter, reporting solid results across the business and honoring the specific commitments that we have made to investors. We remain committed to responsible returns focused capital allocation, our clear and deliberate path to free cash flow and preserving our strong balance sheet. While the backdrop of equity and commodity markets is clearly challenged, we have and will continue to prudently manage risks, lower costs, and capture strategic organic and inorganic opportunities along the way to build long-term value. We note the efforts across the industry to exercise capital discipline in a volatile commodity business and to take steps to improve balance sheets. This is nothing new here at SWN and we've been doing this for years. As clearly evidenced by our strategic actions we have taken, this discipline is part of the bedrock of our management approach. It's when our fully funded capital program undrawn $2 billion revolver, strong leverage ratio, and no material maturities prior to 2025 altogether mean that we already have a strong balance sheet which underpins our resilience in this current market. We remain sharply focused on both cash flow neutrality and our leverage ratio. We are well down our announced path to replace the EBITDA we monetize in our Fayetteville sale last year, through prudent development of our liquids rich Appalachia assets. Lowering, drilling and completion costs and reducing cycle times without sacrificing well performance are all key to this plan. There is one thing SWN is known for its operational out performance. By combining our leading fully integrated field development capabilities, and our large-scale high-quality acreage position, the company is…

Thanks, Bill and good morning. Let me start by recognizing our operating and asset teams for their outperformance in the quarter and for continuing the operational momentum that we've been building for some time now. From technical enhancements to operational excellence, from supply chain to marketing, we delivered industry-leading execution and achieved greater efficiencies. All of these teams working together drove costs lower, enhanced margins, and improved production performance on both new and existing wells. Total production for the quarter was above the midpoint of guidance at 186 Bcfe, including 21% liquids. Liquids production increased 15% compared to the second quarter last year to 70,700 barrels per day, consisting of 60,400 barrels a day of NGLs and 10,300 barrels a day of condensate. Our condensate production increased 30% compared to prior year quarter and is our highest value commodity accounting for 12% of total reserves this quarter. During the quarter we captured greater value through ethane rejection, resulting in slightly lower ethane volumes. Consistent with our front-end loaded capital program, we invested $368 million in the second quarter and have already begun our planned activity reduction for the second half of the year. In the second quarter, we averaged six drilling rigs and four frac crews, and are currently utilizing four drilling rigs and three frac crews. As Bill mentioned, we plan to operate two drilling rigs and one frac crew by the end of the third quarter. Capital will be decline in the second half and will not exceed $1.15 billion total for the year. We continue to enhance our technical operational capabilities across drilling completions and facilities. These improvements have lowered costs and improve cycle times, which allows us to get wells online faster. As a result, we had more wells to sales in the first half of…

Thank you, Clay and good morning everyone. The company continues to deliver solid operational and financial results on its transition back to generating free cash flow following last year deleveraging initiative with the Fayetteville monetization. Adjusted EBITDA for the quarter was 186 million and 505 million for the first six months of 2019 compared to 713 million in 2018, principally driven by the loss of the Fayetteville EBITDA. Year-to-date E&P margins including interests are $28 per Mcfe or $0.11 higher than the first six months of 2018. Higher Appalachia production volumes and our lower cost structure more than offset lower commodity prices. Our weighted average realized price including derivatives was $2.61 per Mcfe excluding transportation or $2.17 per Mcfe including transportation. We continue to realize the benefits of a leading low-cost firm transportation portfolio, which is well-positioned to capture the improving basis differentials in the base and provide the company with market access to premium Northeast hubs and Gulf Coast pricing locations. We are updating our guidance for natural gas differentials which include all transportation costs to $0.60 to $0.70 per Mcf, a $0.10% improvement from the guidance issued in February. This is having a positive impact on realized gas prices. For example, in Northeast Appalachia, our realized gas price during the second quarter of 2019 was $0.01 higher than the second quarter of 2018 despite a $0.16 decline in NYMEX. In current environment, we see these tightened differentials continuing as we move through the rest of this year and into 2020. Whilst our differentials include some new unutilized contractual pipeline capacity on MXP, the approximate $0.10 contribution is short-term and manageable as we grow into capacity. From a cost structure perspective, we are enhancing margins and lowering the company's fully burdened breakeven prices. Gross G&A was reduced 49 million…

Ladies and gentlemen at this time we’ll begin the question and answer session. [Operator Instructions] Our first question today comes from Holly Stewart from Scotia Howard Weil. Please go ahead with your question.

Good morning gentlemen Paige. Bill recognizing it earlier and appreciate the comments on planning a - on hedge basis but is there kind of any color you can provide on the activity set as you kind of move toward 2020 with those two rigs running?

Yeah, we are in the planning stages and because our capital program is built off of the cash flow that’s generated our commodity prices in the year, that’s certainly impacts that answer. But what I can tell you for 2020 is that as we close out 2019 in the capital program that we described we will begin the process of ramping back to a nominal amount of rigs and frac fleets commensurate with our estimates of the budget, and we’ll make adjustments to that as we finalize that budget after in January-February time period. That budget will be benefited by the lowering cost structure productivity gains and all of the things that have happened this year, and in years passed it will be coupled with the cash flows generated from strip pricing at the time as I said, any hedging benefit that we have that is locked in. And then we’ll take that capital or available cash flow to determine how much of it and what priority we want to invest based of economics and then take the prioritized list of projects and set them up to be funded. So, the other piece of color I can give you is that we will likely to continue our practice of slightly front end loading first half of the year to assure delivery and capture value just as we’ve done over the last several years and so the shape of the activity will be settled to where we are today for this year.

Okay, that’s helpful. And then maybe just sort of along the same lines, I think it was the 4Q call that you talked about some other strategic contract renegotiations that were still ongoing it seems that we’ve heard a few producers at least talk about the potential of some midstream contract renegotiations I think your Southwest was done until at some point in 2017, but is there anything that you can highlight from just a strategic level that you’re still sort of working toward to get those top floor?

We look across the entire enterprise and where it makes sense to go back and take another look at an agreement. These are long-term relationships that we have that are critically important to us, but where we have the opportunity to add additional acreage or adjust the contracts to the, the particular commodity market that we're in whether we look at some of the new well inventory that is being generated in our resource to reserves efforts and being able to commit those to the agreements, were able to exchange those commitments for some, some opportunities for us to get a better deal on the contract on our side. And so, we've got a number of those discussions that are underway as we typically do. We bring those results out when they're done. But you know, there is a continuous effort, whether it's a contract for gathering or transportation, there is always an optimization effort going on. And whether it's a strategic sourcing, procurement, any of those, there's constant effort to find greater value for us and again, as we bring those folks and get them concluded will bring them out on the table for you guys. Thank you.

Our next question comes from Drew Veenker [ph] from Morgan Stanley. Please go ahead with your question. Our next question actually is from Noel Parks from Coker & Palmer park. Please go ahead with your question.

Hi. Good morning.

Good morning.

I was wondering with your company owned rigs. Could you just refresh my memory on sort of the age of those rigs as wondering, you know, as you look at planning activity levels going forward, the journey dying downtime for maintenance or refurbishment scheduled ahead.

Sure. Noel, this place the rigs are vintage 2013 age, we've continued to apply upgrades to those rigs to where they are super spec, state-of-the-art horizontal along lateral shale rigs. And when we start bringing down rigs like we've started, that is the opportunity for us to both do maintenance and upgrades that we think are beneficial as we move forward with the program and to keep getting the execution that we're getting out of that program.

Okay, and just for perspective in the accounting of that spending, does that just show up as regular going and completion cap spend?

Yes, it did. It gets applied to the wells...

Because you'll see them live on the guidance and some other E&P. It shows up there on the on the table.

Okay, great. And, you know, even though the spot has been so tough for gas lately, with a few exceptions, we look out to the longer dated strip. It really has, for the past year, though 2020 gotten a little weak, kind of been in that 250, 275 range. And do you have a sense of where -- if a longer day to strip weekend where it might be enough to really spur some plants or curtailed activity more?

Well, I think I think how we how we invest in a given year, there's a couple of different things that happen. One, whatever the strip is at the time, we put in our company's model, and it generates cash flow. Among the myriad of things that we could do with that cash flow, debt reduction. This year, we did share - last year, we did share repurchases, capital investment, we prioritized those, and then we prioritized the economics of the program. And so, if, and then in 2019, and 2020. Some of the funds that we monetized that are Fayetteville are included in that which we've disclosed previously. And so, we take that budget and we set it and then we continuously monitor. So, to your point, if the gas prices fall, our commodity prices fall in the in the year, we put it through our model, and if and when it affects cash flow this year, for example, we're pretty heavily hedged. But if it affects cash flow, then we pull back on the capital investment. It's just a practice that we have been doing for some time. If we see a short-term spike, gas goes to -- pick a number for the winter months, we don't just turn on another rig. We take that cash flow into the company and again it evaluates the use of that it could be pay down some debt it could be for other uses. And that's all done in a rigorous economic evaluation. The wells themselves or they broaden the investments themselves must meet certain returns metrics as well. So, we are looking at multiple years. And that's how we prioritize them. This is to force rank or economic. So yes, there is adjustment. Yes, it does move. We want to be, we want to keep that look live by using strip pricing. And you want to keep that live by looking at how the cash was generated is funding the project.

Great, thanks a lot.

Our next question comes from Brian Singer from Goldman Sachs. Please go ahead with your question.

Thank you. Good morning. I wanted to follow up on some of the comments you're just making. Can you just talk philosophically, with regards to your willingness less let production decline in pursuit of free cash flow? And then how much capital and rig activity at the cost reductions that you've highlighted keeping production flat on an annual basis?

Yeah, I mean, philosophically, what we're trying to do is look at two things, generating free cash flow, and achieving a two times debt leverage, which we've talked about continuously. And the biggest leverage of that is to, looking at ways whether it's cost reductions, productivity improvements, investing in high value Appalachia wells, to drive the EBIT aside of that debt to EBITDA equation because there's more leverage in in that in terms of results. And so, this isn't a production driven exercise. It really is how do we, because we drive EBITDA from a number of places. We have the very lucrative investments in water, we have very lucrative investments in some of the other projects. And so, it's about driving EBITDA and production will be what where the production will be that results from that. When I when we look at maintenance capital for the for the company, it's right around $550 million before CI&E, that's drilling completions capital. And so, again, we look at that. We've talked about becoming free cash flow neutral at the stroke of a pen. We can just stop, but we are looking at both getting the free cash flow neutral and maintaining our debt leverage, both of which we believe are important for going forward plans that we have.

Great. Thanks. And then my follow-up is with regard to opportunities to add inorganically or organically inventory. Can you talk about your thoughts on consolidation and Southwestern's role or potential role there? And then you made a comment and it may have just been converting prove locations into or unbooked locations and to prove locations, but you made a comment on adding new well inventory and wanted to see if there is anything going on the exploratory front or just adding inventory to your overall locations within Appalachia?

Well, I'll start with our inventory. We've got a deep and robust inventory. And we also have a significant amount of resource that's attached to both those reserves and that inventory. And it's incumbent upon us and we call it organic growth because we already own it. It's incumbent upon us to continue to test intervals such as the Upper Devonian, the Upper Marcellus, and others, using today's technology that we apply consistently, these ultra-long laterals, a number of things like that and where we can convert resource into reserves that type of organic growth is a terrific thing to do and as part of, of what we do all the time. And so, where you see us go back into areas that we've been in before and been in a while and come back and in effect retests are getting some promising results on that in a number of areas. We also recognize the fact that in upper Devonian and it's in a new area and spans a great deal of acreage in West Virginia. We're in the test program trying to understand that as well. And so, once we as we further test that, be able to bring those reserves into the picture, as well. So, we have what we call a science budget, we test acreage, we need real acreage we test new capabilities, all in the name of continuing down that path. In the area of consolidation there is a lot of discussion about that. And as I've said before, where it makes economic sense, we believe that consolidation should occur. And then there's likely certain situations that make sense at all different levels. And what I mean by all different levels that all different sizes of enterprises, we're in this for the shareholder. And so,…

Great. Thank you for that.

Our next question comes from Marshall Carver from Heikkinen Energy Advisors. Please go ahead with your question.

From the dropping to two rigs in the fourth quarter, or in the second half of this year, is that a reduction in the plan tills, or the plan well to be drilled this year, all those targets the exact same as they were?

This, what we're doing is exactly what we planned, it’s in the program exactly. The front-end loading and then the face down the number wells we deliver to sales. Everything is as we said it would be including, we talked about how much all that will cost at the end of the day. And we put that number out. We won't go over the number that we laid out, if something changes, and we need to make an adjustment to that we will, but we honor the commitments we made around capital like everything else.

Thank you. And as a follow-up. You've talked in the past about not wanting to drill a well unless it meets a minimum return metric. What would your minimum return metric be?

What we've typically talked about Marshall is a PBI metric and we've targeted greater than a 1.3 PBI.

So, $30 for every dollar invested at a 10% discount rate.

Okay, thank you.

That’s a threshold amount.

Our next question comes from Sean Sneeden from Guggenheim, please go ahead with your question.

Good morning and thank you for taking the questions. Bill, maybe for you. Can you talk a little bit about what gives you confidence around in free cash flow by the end of 2020? And I guess specifically, can you give us a sense of just anecdotally, how much of that is driven by cost reductions versus your view or expectations of gas and really NGL markets improving and normalizing more towards global LPG markets?

Yes, I'll tell you straight up. The first thing that gives me great confidence in me to do that is, is the hundreds and hundreds of people that work for our company across this country who continue to deliver exactly what we keep telling you about -- with all of you about that which is operational efficiency gains, lower cost structure, productivity gains on wealth, performance, and the like. The fact that we have a deep and robust inventory, high value, very predictable investment opportunities, an execution capability that continues to deliver out performance are very close and rigorous planning and implementation of capital allocation at strip pricing our risk management program, there's just a number of pieces and it's pretty much it's the things that we talked about integrated together and then rigorously managed with a lot of discipline and being willing to make adjustments as necessary to compensate for swings and changes in market dynamics. And so, you know, as we as we look at our program, our prioritization of projects and again, lateral length increases, efficiency increases. That gives me a great deal of confidence. Gas, prices, commodity prices are any company's largest swing impacts is the largest and we understand that and as you become more and more efficient, which is where we are our breakeven numbers, and our minimum required return members are in some cases below $2. And so, in super rich condensate light and wells, and so the opportunity set that we get to play with, and all of this execution is what gives me confidence and gives the leadership team the confidence to continue down this path.

Got it? That's, that's helpful. So, it's really kind of all the above type of strategy of, kind of continued cost reductions beyond what you've laid out and, continued productivity gains. And that kind of a fair way to summarize that?

It is. Oftentimes we have folks come talk to us and they bring a single metric and single metric rarely is this is the, you know, the ticket to get something done. I think it's a completely integrated, very collaborative, well executed plan that brings in all of those risks and opportunities is the way to go. And our people deliver it every day.

That makes sense. Maybe just as a follow-up, you know, I guess you guys highlighted U.S. LPG markets have somewhat, you know, decoupled from global prices and, you know, sounds like you think that ends up normalizing you towards the end of the year. But I guess, just kind of curious, you just kind of giving how U.S. markets have progressed here today. Has that shaped your views differently, if at all around to potentially marketing your own kind of 33 plus volume?

Well, I think that you know, certainly the markets waiting for the promises to be delivered in the industry. So, if you're going to put three or four crackers on a five, when they're on, then the market is adjusting, and it appears to be a bit more real time. We think that the fundamentals for NGLs, even as difficult as it is, right now, the evidence of demand the evidence of through all these factors the evidence of demand in re-linking NGLs to the export market by additional capacity. The investments are being made; the contracts are being let the opportunities is there. We'll market our NGLs if we can add value or as we add can add greater value to that process than someone else can and that's our objective. And so, we built that capability in house and we will continue to head in that direction. Our marketing team has deep experience in the nuances and the capture of opportunities and managing risks in the gas side. And their capability to understand very quickly and build on that in the liquid side is.

Great. Appreciate the comments, guys. Thanks.

And ladies and gentlemen at this time and showing additional questions, I'd like to turn the conference call back over to management for any closing remarks.

Thank you. Thank you all for joining. I appreciate all the questions and the continued dialogue. You know, as we continue to deliver quarter after quarter success. As we talked about today, we're confident about our future, we're confident about our ability to move forward and a clear path that has multiple levers and multiple opportunities and risk to work together on they work together to continue to deliver on every commitment that we've made. We believe is strength, resilience and the capabilities of our people, and we celebrate the fact that we have them because they deliver over and over consistently quarter on quarter on the very commitments that we make. So, we absolutely appreciate them. We will continue to execute with the same relentless determination as we always have with returns at the center of every decision that we make and then everything we do. And as I've said before, we're moving from strength to strength earning the confidence of all stakeholders. So, we just want to say thank you very much for joining our call and for your interest in the company and we look forward to sharing more results going forward. Hope you have a great weekend. Thanks.

Ladies and gentlemen that does conclude today's conference call. We thank you for joining. You may now disconnect your lines.