Southwestern Energy Company

morning, ladies and gentlemen, and thank you for standing by. Welcome to the Southwestern Energy's fourth quarter 2020 earnings call. Management will open up the call for a question and answer session following prepared remarks. In the interest of time, please limit yourself to two questions and re-enter the queue for any additional questions. This call is being recorded. I will now turn the call over to Brittany Rayford, Southwestern Energy's Director of Investor Relations. You may begin.

Thank you, Matthew. Good morning, and welcome to Southwestern Energy's fourth quarter 2020 earnings call. Joining me today are Bill Way, President and Chief Executive Officer, Clay Carroll, Chief Operating Officer, Michael Hancock, Interim Chief Financial Officer, and Jason Kurtz, Head of Marketing and Transportation. Before we get started, I'd like to point out that many of the comments we make 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 sections of our annual report 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 on development may differ materially, and we are under no obligation to update them. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website. I'll now turn over the call to Bill Way.

Thank you, Brittany, and good morning, everyone. We appreciate you joining our call today, and I hope that you're all safe and healthy as well. I also hope that our listeners today in Texas have recovered from the historic weather events that gripped the state's last week. Before we start, I want to sincerely thank all of you in the investment community for the outpouring of support over the loss of our dear friend and colleague, Julian Bott. We're so grateful for that outpouring, as is his family. Julian made a lasting impression on our lives and the company, and we will miss him greatly. We entered 2020 with a plan that we believed would further strengthen the company's current business in support of our strategy to deliver improving value for shareholders. No one could have predicted that 2020 would unfold how it did, but our strategy, business plan, and agility enabled the company to thrive during such a turbulent year. The resilience and commitment of the entire SWIN team provided the resolve necessary to execute that plan and deliver results that would stand out in any year regardless of of the unprecedented low commodity prices and global pandemic. This was all accomplished while achieving record safety and environmental performance. We also effectively implemented our COVID-19 management plan with protocols that shielded our people from exposure at work and shielded the company from any material business or operating impact. We often speak about our strong performance culture and the value it drives for shareholders. 2020 was filled with proof points of our culture, delivering impressive results across our four strategic pillars, those being creating sustainable value, progressing best-in-class execution, increasing scale, and protecting the company's financial strength. Guided by this strategy, we have deliberately repositioned the company over the past few years, and we continue to deliver on that path in the fourth quarter. So I offer my sincerest thanks to all of the people of SWIM who continuously step up, to do more with less, and consistently step forward to assure delivery on all of our commitments that we make. Well done to the entire team. So let me share some of the team's many accomplishments. Our fourth quarter results included production at the high end of guidance, resulting in free cash flow of $55 million during the quarter. We continue to highlight the strength of our dynamic hedging program, recording a gain of $362 million for the year and $52 million during the quarter, including natural gas basis hedges that protected the company from the widening differentials in Appalachia, being seen by many in the basin. We also reported improved NGL realizations, a trend we expect to continue in 2021. On the operational front, Clay will detail later the many milestones that we achieved last year, including further evidence of our relentless cost focus, One I'd like to highlight is a single new well record of $419 per lateral foot on a nearly 20,000-foot lateral in northeast Appalachia. The team continues to exceed the limits of what is thought possible by most people. In the fourth quarter, we closed on the acquisition of the Montage Resources, delivered the expected G&A savings, and immediately integrated the assets and our new colleagues into the company. As planned, we moved a rig to Ohio and we have successfully drilled our first dry gas Utica well on the acquired acreage. This acquisition is a testament to the company's rigorous and disciplined approach of doing the right kind of deal the right way and successfully executing on our strategy. And these are both examples of our track record as a proven consolidator. As proud as we are of SWIN's achievements in 2020, our team is focused on the road ahead and our 2021 guidance reinforces the company's key objectives. Remaining financially disciplined, optimizing free cash flow at maintenance capital investment levels, reducing debt, and achieving sustainable two times leverage. Our 2020 performance solidified the foundation on which we will deliver value from these objectives in 2021. Our plan optimizes free cash flow. Guidance is based on a $2.77 per MCF NYMEX gas price, resulting in projected free cash flow of over $275 million. An increase to a $3 gas price would result in free cash flow estimates in excess of $375 million, and these scenarios result in a reinvestment rate between 70% and 80%. Our maintenance capital program will hold fourth quarter 2021 production flat with our fourth quarter 20 levels, including the montage assets. True to our strategy, investments will be focused on the highest return projects at strip prices. And given the strength of our inventory, we expect to have activity in all of our core operating areas. Should commodity fundamentals improve further throughout the year, we'll capture that improvement in cash flow and further strengthen our balance sheet through additional debt reduction. Our goal to achieve two times leverage on a sustainable basis is unchanged. and we will continue to allocate free cash flow to debt reduction until we reach that goal, with expectations that will approach two times by the end of the year. We will continue to progress our best-in-class execution, including remaining a low-cost efficient operator. As we have done materially over the past two years, we expect to reduce well costs by an additional 10% in 2021. This includes immediate cost reductions that we expect to realize on the acquired Ohio Utica acreage thanks to our differentiated drilling and completion operations. We protect financial strength through our proactive risk management and rolling three-year hedging program, which provides downside risk protection to our cash flows. We have hedged a majority of our 2021 production and strategically retain upside participation through the use of collars. We've also protected most of the natural gas basis differentials against the risk of widening basis in the Appalachia Basin. An integral aspect of who we are as a company is embodied in our ongoing commitment to ESG excellence and transparency, as documented in our seventh annual corporate responsibility report. As we discussed before, we believe that natural gas is foundational to a low-carbon future, and we see SWIN as a leader in that effort. Our focus has been on reducing methane intensity, favoring this metric because it benefits the areas in which we operate. Water conservation is also a core part of our environmental and social effort. In 2020, we achieved our fifth consecutive year of freshwater neutrality, returning as much freshwater as we use back to the local watersheds in the communities where we work and live. And remaining at the core of our strategy is a commitment to the right people doing the right things. Our success depends on the alignment of a fully engaged, diverse, and inclusive workforce nurtured by our performance, high-performing, core value-driven culture. Let me now turn over to Clay for some operational updates.