Southwestern Energy Company

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Southwestern Energy's first quarter 2023 earnings call. Management will open the call for a question and answer session following prepared remarks. In the interest of time, please limit yourself to two questions and re-queue for 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. Good morning, and welcome to Southwestern Energy's first quarter 2023 earnings call. Joining me today are Bill Way, Chief Executive Officer, Clay Carroll, Chief Operating Officer, and Carl Giesler, Chief Financial Officer. 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 risk 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 reports as filed with the Securities and Exchange Commission. Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance. Actual results or developments 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 will now turn the call over to Bill Way.

Thank you, Brittany, and good morning, everyone. Thank you for joining today. At Southwestern Energy, our approach to sustainable value creation is clear and consistent. Apply capital and cost discipline to a portfolio of advantaged assets in the two premier natural gas basins in the United States. We are focused on large-scale core tier one natural gas and gas liquid assets where we can leverage our operating and commercial strengths and safely and responsibly deliver lower carbon natural gas to premium markets and generate superior economic value for our shareholders. Southwestern Energy's strong first quarter performance reflects the quality of our dual-basin scale, portfolio optionality, and differentiated market access. We delivered above-target operational results with production at the high end of guidance and generated approximately $100 million of free cash flow to repay debt, consistent with the priority of debt reduction in our disciplined capital allocation strategy. Additionally, we are driving improvement in capital efficiency. In the first quarter, we continued to improve cycle times, yielding approximately 100 additional producing days during the quarter. Our strategic supply chain sourcing group has been successful in offsetting a portion of the inflationary cost pressure we expected at the beginning of this year. These efforts, in addition to our continued capital efficiency improvement drive, allows us to optimize our capital spend to align with cash flow while minimizing the impact to both production this year and the ongoing productive capacity of our business going forward. We are increasingly confident that the high service cost environment will continue to subside over the coming quarters, further strengthening our long-term free cash flow outlook. Despite the near-term commodity price weakness due to relatively high inventory levels following a record warm winter, we continue to see strong structural support for natural gas. On the supply side, U.S. production has remained essentially flat since late last year, and we have seen and expect to continue to see a decline in the gas-focused rig account and associated . We believe that near-term activity reduction will result in lower natural gas production this year, further strengthening the longer-term fundamental outlook. On the demand side, with Freeport back at full capacity, LNG exports have returned to record levels of approximately 14.6 BCF per day, supplementing persistently strong power burn. Flow assurance to markets of our choice is a critical pillar of our strategy. We have transportation agreements in place to deliver 65% of our total natural gas production to the growing Gulf Coast Demand Center, where we are currently the largest supplier of natural gas directly to LNG facilities at 1.5 BCF a day. With Port Arthur LNG reaching FID last month, we now see nearly nine BCF per day of new LNG export capacity that is in progress, and with some starting to come online as early as late this year. Our favorable access to the Gulf Coast positions Southwestern Energy to supply growing demand from both Hainesville and Appalachia. Given this positioning, we continue to receive strong interest and remain in active discussions for further LNG supply agreements. including proposals with internationally indexed pricing. As we shared in our guidance in February, we adjusted activity in response to lower long near-term natural gas prices by removing capital from our program and increasing our level of liquids-rich development this year. Guided by our discipline capital allocation strategy and our priority of funding development within cash flow, we continue to moderate our planned activity. These prudent adjustments are primarily focused on decreasing dry gas completion activity, including releasing a frack fleet in Haynesville, while maintaining our higher liquids-rich activity level in West Virginia and Ohio. This capital and operational flexibility highlights the strategic value of the optionality within both our development plan and our asset portfolio, as well as the logistical agility of our vertically integrated business model. With this flexibility, we can quickly respond to commodity price signals throughout the year while preserving the productive capacity of our business going forward. The highly successful Hainesville integration and first-year results clearly support confidence in our ability to execute on the company's multi-year strategy to create long-term shareholder value. We continue to capture the tangible benefits of our larger-scale dual-basin portfolio