Sept. 04–The natural gas producer Southwestern Energy said Tuesday it is selling its core shale assets in Arkansas for nearly $1.9 billion in cash to a private equity-backed startup as the Spring company focuses on drilling in Marcellus and Utica shale plays in the Northeastern and Appalachian regions.
Southwestern was founded in Arkansas and its move to unload the play in its native state is a sign of the difficulties that natural gas companies have faced in recent years. Associated gas produced along with crude in oil fields such as the Permian Basin in West Texas is flooding the market and holding down natural gas prices. Southwestern plans to use much of the proceeds from the sale to Flywheel Energy, of Oklahoma City, to pay down its debt.
“It’s challenging for gas-dedicated producers to compete,” said Ethan Bellamy, an energy analyst at Robert W. Baird & Co. “Gas-directed drillers have to be incredibly lean and efficient to compete today.”
Southwestern is selling 915,000 acres and more than 4,000 operating wells in the Fayetteville Shale, which stretches across the Arkansas border into Oklahoma, to Flywheel, which was founded last year with financial backing of the Los Angeles private equity firm Kayne Anderson Capital Advisors. The deal, which also includes pipelines, is expected to close in December.
“The sale of Fayetteville represents a pivotal and deliberate step toward fulfilling our promise to reposition Southwestern Energy to capture greater returns from our higher margin Appalachia assets,” said Southwestern President and Chief Executive Bill Way. “We are pleased with the process, the outcome and the resulting valuation of this significant asset.”
It’s been rough for natural gas producers in recent years. The previous industry leader, Oklahoma’sChesapeake Energy, is now trading for just over $4 a share. Ultra Petroleum of Houston filed for bankruptcy and, after emerging, is now moving its headquarters to Denver this fall. It’s stock is sitting just over $1 per share.
The nation’s new natural gas leader, Pittsburgh EQT Corp, is growing and turning small profits, but its stock is still down more than 50 percent from mid-2014.
Southwestern is making money, again, earning a $51 million profit in the second quarter, after posting multibillion-dollar losses as recently as 2016. Southwestern indicated in February that it was considering unloading its Arkansas holdings.
Southwestern was booming in 2014 when it moved from Houston to its swanky headquarters in Spring. The stock traded at nearly $50 a share then, but is now just above $5 per share after falling another 5 percent on Tuesday. The stock has traded below $10 since January 2017, and the company cut well more than 1,000 jobs in 2016.
For the better part of the last 15 years, much of Southwestern’s growth was focused in the natural gas shale play in Arkansas. In the last few years, Southwestern has expanded in the Appalachia shale plays, especially in Pennsylvania and West Virginia with plans to continue to home in on that region.
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