$70 million savings via smaller contract
Southwestern Energy (ticker: SWN) announced that it has renegotiated its Fayetteville transportation agreement, updating terms.
The new agreement, negotiated with Boardwalk Pipeline Partners’ (ticker: BWP) Texas Gas Transmission, is effective November 1, 2017. Southwestern anticipates that the agreement will provide significant savings. The previous/current transportation contract is larger than Southwestern needs, meaning the company must pay for higher volumes than it will use.
According to Southwestern’s most recent investor presentation, the company’s gross operated Q2 production was 1,288 MMcf/d, 851 MMcf/d net. The current agreement call for 2 Bcf/d of committed volumes in both 2017 and 2018, higher than needed. The renegotiated contract, by contrast, commits only 1.88 Bcf/d in 2017 and 1.3 Bcf in 2018. This is more in line with expected Fayetteville production, as Southwestern is focusing on its Appalachian properties for growth.
While the reservation rate is several cents higher per MMBTU in the new contract, this is outweighed by the downsizing of committed volumes, meaning Southwestern does not need to pay as much. About $70 million will be saved from 2017 through 2020, including $45 million in 2018 alone.
Southwestern President and CEO commented “We are very excited about this new agreement and the opportunity to continue our long-standing relationship with an exceptional company like Texas Gas. This agreement further enhances our margins and reduces excess demand capacity while securing option capacity for future development. It also provides the flexibility to ramp activity in the Fayetteville and Moorefield area as economics dictate at competitive transportation rates without incurring additional liabilities during times of decreased activity.”
