Southwestern Energy Company (SWN) Q4 2022 Earnings Call Transcript

Southwestern Energy Company (NYSE:SWN) Q4 2022 Earnings Conference Call February 24, 2023 11:00 AM ET

Company Participants

Brittany Raiford - Director, Investor Relations

Bill Way - Chief Executive Officer

Clay Carrell - Chief Operating Officer

Carl Giesler - Chief Financial Officer

Conference Call Participants

Charles Meade - Johnson Rice

Umang Choudhary - Goldman Sachs

Doug Leggate - Bank of America

Arun Jayaram - JPMorgan

Neal Dingmann - Truist Securities

Jeoffrey Lambujon - Tudor, Pickering, Holt

Paul Diamond - Citi

Noel Parks - Tuohy Brothers

Gregg Brody - Bank of America

Operator

Good morning, ladies and gentlemen and convey you for opinionated by. Welcome to nan Southwestern Energy’s Fourth Quarter 2022 Earnings Call. [Operator Instructions] The telephone is being recorded. I will now move nan telephone complete to Brittany Raiford, Southwestern Energy’s Director of Investor Relations. You whitethorn begin.

Brittany Raiford

Thank you. Good greeting and invited to Southwestern Energy’s 4th fourth 2022 net call. Joining maine coming are Bill Way, Chief Executive Officer; Clay Carrell, Chief Operating Officer; and Carl Giesler, Chief Financial Officer.

Before we get started, I’d for illustration to constituent retired that galore of nan comments we make during this telephone are forward-looking statements that impact risks and uncertainties affecting outcomes. Many of these are beyond our power and are discussed successful much item successful nan consequence factors and nan forward-looking statements sections of our yearly study and quarterly reports and is revenge pinch nan Securities and Exchange Commission. Although we judge nan expectations expressed are based connected reasonable assumptions, they are not guarantees of early performance. Actual results aliases developments whitethorn disagree materially and we are nether nary responsibility to update them. We whitethorn besides mention to immoderate non-GAAP financial measures, which thief facilitate comparisons crossed periods and pinch peers. Earning non-GAAP measures we use, a reconciliation to nan nearest corresponding GAAP measurement tin beryllium found successful our net merchandise disposable connected our website.

I will now move nan telephone complete to Bill Way.

Bill Way

Thank you, Brittany and bully greeting everyone. Thanks for joining america this morning. 2022 was a defining twelvemonth for Southwestern Energy arsenic we continued executing connected our strategy and delivering beardown results, some financially and operationally. We prioritized indebtedness repayment, reducing indebtedness by complete $1 cardinal and lowering leverage to 1.3x. We complemented indebtedness simplification pinch $125 cardinal of stock repurchases during nan year. We successfully integrated nan transformative acquisitions we completed successful nan 2nd half of 2021, which expanded our plus guidelines into Haynesville to complement our high-quality Appalachia position. We expect that our large-scale integration and improvement expertise will alteration america to thrust further operational efficiencies conscionable arsenic we proceed to do successful Appalachia. We judge that these acquisitions widen nan longevity and amended nan resilience of our business pinch deepened high-quality inventory, standard costs economics and expanded optionality.

Most importantly, we now person much nonstop entree to nan increasing Gulf Coast market, including nan LNG corridor, wherever we are already nan largest supplier of earthy state to LNG exporters astatine 1.5 Bcf per day. We are strategically positioned to proviso expanding power request and capitalize connected longer word earthy state fundamentals arsenic well. Over nan past decade, U.S. earthy state retention capacity has remained level while U.S. earthy state proviso and request has much than doubled. The comparative contraction successful this balancing system for nan earthy state marketplace intends that smaller changes successful comparative proviso and request tin thrust quicker and much important changes successful pricing.

Over nan past fewer months, earthy state prices person fallen materially owed astatine slightest successful portion to unseasonably lukewarm weather, reducing request beneath greater state supply. Similar to nan crisp run-up successful earthy state prices during nan basking summertime of ‘22, we judge nan caller pullback besides reflects structurally accrued volatility successful nan earthy state market. This volatility highlights why hedging remains halfway successful our endeavor consequence guidance practice. With our improved financial strength, we expect to hedge much moderately going guardant successful statement pinch our framework.

Given nan existent marketplace and successful nan near-term, we person taken proactive steps to mean planned activity and associated afloat twelvemonth superior by reducing nan drilling programme by 2 rigs connected mean versus 2022. This is expected to consequence successful a 2% to 3% accumulation diminution astatine nan midpoint of guidance. With our planned 2023 activity levels astatine caller portion prices, we expect to money our superior programme done nett rate travel and sphere nan company’s productive standard to present resilient free rate travel longer term. We person further elasticity and optionality, including done our vertical integration business to set activity alternatively quickly. Any further accommodation will incorporated a multiyear outlook for commodity prices and ultimately, remainder connected what we judge will champion advancement our longer word business and financial objectives.

Consistent pinch our superior allocation strategy, prioritizing indebtedness reduction, we scheme to nonstop free rate travel generated this twelvemonth to indebtedness repayment. Returning superior to shareholders remains a halfway – remains halfway to our semipermanent shareholder worth proposition arsenic we attack our target indebtedness scope of $3.5 cardinal to $3 billion. Longer term, structurally constructive earthy state proviso and request dynamics should stay arsenic power information and world decarbonization thrust continued beardown earthy state powerfulness pain and LNG export growth. Beyond nan Freeport accommodation imminent returned to service, an further 6 Bcf per time of U.S. LNG export capacity is nether building pinch anticipated work dates arsenic soon arsenic precocious 2024.

SWN is good positioned to differentially use from these developments pinch our proximity to nan U.S. Gulf Coast and nonstop entree to nan increasing LNG corridor done our patient proscription portfolio, enabling transportation of earthy state from crossed our business. We judge nan actions we person taken complete nan past fewer years person amended positioned SWN to navigate nan existent commodity value volatility and turn nan semipermanent worth proposition for our shareholders.

Let maine now move nan telephone complete to Clay for an operational update.

Clay Carrell

Thank you, Bill and bully morning. In 2022, nan squad successfully integrated nan Haynesville assets from a taste and capacity standpoint and we delivered connected nan mixed business scheme objectives of nan company. This is accordant pinch our established way grounds successful Appalachia. We are carrying that momentum guardant into 2023 and expect to thrust further execution and capacity improvements.

During nan 4th quarter, we produced 427 Bcfe, including astir 100,000 barrels per time of liquids. We proactively mitigated nan effect of nan December wintertime upwind and unplanned midstream downtime safely and pinch minimal impacts to production. We placed 28 wells to income during nan quarter. This includes 15 successful Appalachia pinch mean lateral lengths of complete 16,000 feet and good costs of astir $850 per ft and 13 successful Haynesville pinch mean lateral lengths of conscionable complete 9,000 feet and good costs of astir $1,925 per foot. During nan quarter, we invested $537 cardinal of capital, bringing our afloat twelvemonth superior walk to $2.2 billion, accordant pinch nan guidance.

For nan afloat year, we produced 1.7 Tcfe aliases 4.7 Bcfe per time comprised of 88% earthy state and 12% liquids, which was supra nan midpoint of our updated guidance issued successful August and supra nan apical extremity of our original guidance issued successful February. The accumulation outperformance was driven by beardown good results and operational execution crossed nan portfolio that resulted successful much producing days during nan twelvemonth from accelerated turn-in lines. In our first twelvemonth successful nan Haynesville, we deed nan crushed running, delivering results supra expectations and achieving immoderate early operational wins. Most importantly, we delivered basin-leading good capacity arsenic evidenced by early clip accumulation information published by third-parties, confirming nan spot of our stacked Haynesville and Middle Bossier position. We besides improved upon nan anterior operators drilling rhythm times by astir 10% while extending lateral lengths to astir 9,000 feet.

On nan commercialized side, we executed respective cardinal agreements that reinforced semipermanent travel assurance and optionality crossed gathering, treating and long-haul transport. These agreements bolstered our LNG entree pinch an further mixed 800 cardinal cubic feet per time of proscription connected nan LEAP and momentum successful G3 pipelines that travel online by nan extremity of 2024. The worth of our assets is evident pinch year-end proved reserves of 21.6 Tcfe and nan associated pre-tax PV10 of $46.4 cardinal utilizing SEC pricing. This included 2.4 Tcfe of extensions and discoveries and 1.1 Tcfe of affirmative capacity revisions, which much than offset accumulation and changes successful nan 5-year improvement plan. We proceed to judge that nan value of our reserves and underlying inventory is simply a differentiator for nan company. Updated for nan existent commodity value situation utilizing 5-year portion prices astatine twelvemonth extremity 2022, nan pre-tax PV10 of our reserves was $26 billion.

Turning to 2023, arsenic Bill mentioned, our $2.2 cardinal to $2.5 cardinal superior programme reflects a proactive moderation of activity that is expected to consequence successful a 2% to 3% diminution successful production. For nan year, we expect to mean 10 to 11 rigs, which is 2 little rigs than 2022. This will see 7 to 8 rigs successful Haynesville and 3 successful Appalachia. We besides intend to tally 2 to 3 frac fleets successful Haynesville and 1 to 2 successful Appalachia. With our portfolio optionality and nan continued spot of liquids pricing, we shifted much activity into our liquids-rich acreage pinch astir 8 much wells placed to income than past year. This is expected to turn lipid volumes passim 2023 to an mean of 15,000 to 16,000 barrels per day.

The squad remains highly focused connected offsetting nan inflationary costs impacts by leveraging our strategical proviso concatenation efforts and delivering further operating and improvement efficiencies. We are targeting further drilling and completion rhythm clip improvements arsenic good arsenic ongoing completion creation and flow-back optimization. We are proud of nan results nan squad delivered successful 2022 and look guardant to continuing to present successful 2023.

Now I will move nan telephone complete to Carl.

Carl Giesler

Thank you, Clay. In 2022, nan institution generated astir $850 cardinal of free rate travel that supplemented pinch moving superior inflows helped repay much than $1 cardinal of debt, but besides returning $125 cardinal to shareholders. We ended nan twelvemonth pinch indebtedness of $4.4 cardinal and leverage 1.3x, down from 2.0x astatine nan opening of nan year. At nan extremity of December, we retired our Term Loan B utilizing a revolver and rate connected hand. Our in installments installation remains nan only unsecured constituent successful our superior building and callback that successful April of past year, we amended that installation to modulation to unsecured upon achieving finance grade. We besides precocious issued a redemption announcement for 2027 notes, which we intend to telephone astatine nan extremity of this month. We expect to usage rate connected manus to money mostly of that redemption for these higher coupon notes, which will further fortify nan equilibrium expanse and consequence successful accrued free rate flow.

Reducing indebtedness to a $3.5 cardinal to $3.0 cardinal target scope remains a priority. A beardown equilibrium expanse is foundational to our holistic attack to endeavor consequence management. Additionally, little indebtedness makes nan business much resilient done commodity value cycles. Earlier this month, S&P improved our outlook to affirmative and we remained 1 notch beneath finance people astatine each 3 agencies. We judge our ratings trajectory reflects nan strategical steps we person undertaken complete nan past fewer years, which person positioned america to amended navigate nan existent commodity value volatility. We person greater scale, a little ostentation adjusted endeavor costs structure, deeper and higher value halfway inventory arsenic good arsenic nan stronger equilibrium sheet.

With that, please unfastened nan telephone to questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first mobility comes from Charles Meade pinch Johnson Rice. Please spell ahead.

Charles Meade

Good morning, Bill, Clay, Carl and to nan full remainder of nan Southwestern squad there. Bill aliases Clay, this is – first 1 for you. And I want to inquire astir nan gait of activity and really you are going to driblet those rigs complete nan people of nan year? But possibly a amended measurement to attack it is looking astatine nan 1Q guide, I americium a small – I can’t rather understand why nan 1Q guideline benignant of dips from 4Q and is beneath nan wide ‘23 guideline because it implies your measurement is going to turn complete nan people of nan year. So however, you deliberation is nan correct measurement to explicate whether it’s from activity aliases whether immoderate – possibly immoderate circumstantial dynamics going connected successful 1Q. Can you thief capable successful that image for us?

Clay Carrell

Certainly. So traditionally, our accumulation profiles, arsenic we move from nan extremity of nan twelvemonth to nan first 4th of nan year, we typically person nan lowest accumulation 4th aliases a driblet location and that’s tied to nan small spot of front-end loading that we person and past immoderate backed disconnected activity arsenic you spell into Q4. And past we commencement nan twelvemonth up pinch nan afloat activity for nan caller twelvemonth and location is simply a small dip location and past location is immoderate beardown recovery. Additionally, erstwhile we deliberation astir Q4 2022 and 2022 successful general, we outperformed connected accumulation owed to nan ratio gains and we had accelerated turn-in lines and we proceed to unrecorded wrong nan updated guidance. So, location wasn’t accelerated turn-in lines astatine nan extremity of nan twelvemonth successful Q4 to bolster Q1. So that shape, not a astonishment to america and benignant of accordant pinch nan emblematic profiles that we have. The gait then, arsenic we move into 2023, is akin to past activity levels, a small spot higher successful nan first 2 quarters than nan backmost two, but getting person to immoderate level loading location arsenic we’re moving guardant and we look astatine nan 2023 program.

Charles Meade

Got it. So nan rig drops are going to beryllium more, I guess, much weighted to nan backmost half of nan year, if I understand you right, Clay?

Clay Carrell

Well, it will commencement showing up. We person sewage a mates that happened successful precocious March. And past location is 1 that will hap successful nan 2nd 4th and past nan run-rate will beryllium little successful nan 2nd half of nan year.

Charles Meade

Got it. Thank you. And past if I could inquire 1 much follow-up connected nan financial front, perhaps, for Carl. Carl, tin you springiness america – you guys person made a batch of advancement towards finance grade. And I deliberation a batch of equity investors, not to opportunity standing agencies aren’t important, but a batch of equity investors look astatine them arsenic benignant of a lagging parameter that is nan starring indication. Can you springiness america a refresher connected what achieving finance grade? How that’s going to alteration nan opportunity group for Southwestern, peculiarly if location has been immoderate displacement connected nan posture of LNG customers?

Carl Giesler

Yes, happy to. The benefits pursuing a fewer buckets, astir straight is financial. You evidently little your costs of indebtedness and moreover much important, astatine slightest wherever I sit, we grow our entree to capital. It’s conscionable a overmuch bigger market, finance people compared to non-investment people and that could beryllium important erstwhile you astir request it. Secondarily, you touched upon it is commercial. We deliberation being finance people will beryllium a differentiator arsenic group emotion to prosecute pinch producers successful semipermanent LNG constructs. It conscionable shows durability from nan correct manus broadside of nan equilibrium sheet. And past nan 3rd constituent which I don’t want to understate is really from a marketplace perspective. As you good know, nan marketplace is becoming progressively generalist and arsenic they look wherever to put nan marginal dollar successful nan state sector, we judge that being finance people will thief separate america successful a affirmative measurement from our peers.

Charles Meade

Got it. That’s adjuvant commentary. Thank you, Carl.

Carl Giesler

You bet.

Operator

The adjacent mobility comes from Umang Choudhary pinch Goldman Sachs. Please spell ahead.

Umang Choudhary

Hi, bully greeting and convey you for taking my questions. You highlighted a attraction connected conserving your equilibrium expanse and your maturation floor plan sounds for illustration its much backmost half weighted. I conjecture nan mobility is like, astatine what value would you look to further trim completions if we do spot a derating state prices successful nan backmost half? And connected that vein, what elasticity do you person pinch your non-operated rigs and crews to respond to those changes successful state prices?

Clay Carrell

Sure. So arsenic we deliberation astir nan – I’ll deed nan non-op broadside of it first. That’s chiefly successful Haynesville. We expect to spot a drop-off successful nan non-op activity arsenic we move guardant successful statement pinch our position that location will beryllium moderated drilling programme successful nan Haynesville crossed [Technical Difficulty]

Operator

I deliberation you mightiness person muted yourself by mistake.

Clay Carrell

Some of nan worth there. And for illustration each of our superior allocation decisions, they person to compete successful nan rack and stack, and we will make nan corresponding of nan due prime astir whether we participate and really we would participate going forward, if we did based connected nan economics of those wells. I deliberation connected your first mobility connected wherever we would possibly hold frac activity, it starts pinch – we’ve sewage immoderate bully optionality successful that abstraction because we ain nan 2 of our ain frac fleets. Secondly, we are – we will steadily beryllium watching wherever commodity prices are at, some successful nan existent period and successful nan twelvemonth and what we deliberation from a basal position to beryllium capable to make those decisions, and we will person those scenarios mapped out, if needed.

Bill Way

And a mates of points to adhd to that. We don’t build DUC inventories to effort to expect nan marketplace pricing. We only build DUC inventory for operational ratio to thrust improved performance. And connected nan wide plan, we intend to put wrong rate flow. And successful doing so, if location is adjustments that request to beryllium made to nan program, we surely are connected apical of that and would make them to beryllium capable to execute that objective.

Umang Choudhary

Got it. That’s helpful. I mislaid you successful nan early portion of your response, but I deliberation I travel you that you are seeing immoderate rig drops from nan non-operated side, and you will return a telephone successful position of – if we do spot further non-op activity, you will take to – you person nan action to participate successful them aliases not, which tin let you to conserve capital.

Clay Carrell

You sewage that right.

Umang Choudhary

Perfect. Okay. And past I conjecture connected nan Haynesville, specifically, I mean pinch nan integration process successful and you highlighted that you person operated these assets for a twelvemonth now, really – what are nan learnings which you person gleaned from that plus year-to-date to date? And past really are you reasoning astir – what are nan opportunities to further amended nan superior ratio of that asset?

Clay Carrell

Yes. So we’ve decidedly had bully learnings arsenic we’ve gone done nan afloat year. I deliberation nan squad has done a really bully job, continuing to spot improved good capacity and staying connected way connected that programme passim nan twelvemonth pinch work challenges and being a caller asset. Some of nan learnings are astir erstwhile location are – erstwhile location is immoderate non-productive time, nan appropriate, astir businesslike measurement to get backmost connected way and that reduces aliases it causes you to not person arsenic galore days worthy of hold and that cuts cost. We made advancement connected rhythm clip betterment connected nan drilling broadside and connected nan completion side. And we deliberation that location is further betterment opportunities location arsenic we move forward. We – relationship time, travel time, immoderate things we’re doing connected our completion designs wherever we are changing nan proppant loading and nan step-up successful nan proppant truthful that we are much efficaciously putting nan afloat occupation distant and not having immoderate surface outs and person to spell cleanable that retired pinch coil, which again besides adds time. And by eliminating each those, we proceed to shrink nan rhythm times. There is broader learnings that are much astir nan full improvement programme astir really we put nan accommodation together and heighten nan installation creation truthful that we seizure nan afloat scope of nan accumulation imaginable that each good brings. And if we’re seeing a good outperform that we’ve sewage nan capacity to use from that pinch our installation design, and past additionally, nan hydraulic modeling that we do crossed each nan midstream providers to make judge that erstwhile we bring caller wells on, we get nan afloat benefit, and we’re not backing disconnected different older wells erstwhile we bring those on. So those are a fewer examples.

Bill Way

Yes. And I’ll conscionable adhd 1 different one. As you good know, we person 7 high-spec drilling rigs, and much importantly, 7 teams of group who tally them. And they transitioned into Haynesville, nan learning that happened, nan expertise for our teams to complete our drill wells arsenic good arsenic nan contracted rigs that we person successful nan fleet gives america a batch much flexibility, gives america negotiating might. And it enables america to activity to effort to thrust costs retired and capacity in. So I deliberation it’s a wide – that’s a broader use that we anticipated happening that we’re delighted nan squad delivered.

Umang Choudhary

Very helpful. Thank you.

Operator

The adjacent mobility comes from Doug Leggate pinch Bank of America. Please spell ahead.

Doug Leggate

Hi, guys. Thanks for having on. Bill, I cognize you don’t person a cliff location anymore, but I would emotion to get your thoughts connected nan state marketplace generally. It speaks, I guess, to your thoughts astir it and nan value consequence management, you talked astir earlier, but I want to framework my mobility for illustration this. We person a small spot above-normal retention currently. We person a guardant curve, which is 50% higher, and we mislaid complete 400 Bcf of exports from Freeport. But I’ll opportunity again, you’ve only conscionable sewage somewhat supra storage. Do you deliberation nan dynamics of this state marketplace person shifted? And if so, why proceed to do swaps alternatively than colors successful your ERM?

Bill Way

I deliberation nan marketplace dynamics person shifted. You person overmuch greater structural volatility successful nan markets than we’ve had previously. And that impacts some really we hedge, really overmuch we hedge and hedging will stay portion of our endeavor consequence management. And location are a number of factors erstwhile we see hedges from a framework, whether it’s nan costs we’re trying to protect, nan fundamentals of nan commodities, nan economical thresholds we’re trying to scope aliases different objectives that we’re trying to meet. We usage a assortment of tools. It depends connected what clip of nan year. It depends connected shorter-term marketplace dynamics. We want to fastener successful nan protection that we judge we request successful definite markets successful definite circumstances, but we besides want to supply nan opportunity to summation nan upside by putting connected a measured – a number of colors. And past nan full process is dynamic, meaning that we will – we’ve converted collars to swaps wherever we spot nan request to do that. And we meet from a consequence position connected these each week to look to style wherever it’s due and cost-effective shape, nan devices we person because we judge that immoderate of our – portion of our investor worth proposition is getting immoderate of that – are providing that entree to higher pricing erstwhile should higher pricing count. We’ve precocious done a number of things astir our hedging. The institution is successful a overmuch stronger position from a equilibrium expanse position and nan expertise to propulsion backmost from high, precocious hedging numbers that astatine nan clip they were implemented had a batch much to do pinch our transformational maturation and a interest – a peculiar interest successful nan market. But protect hedging and perceived consequence to nan endeavor are awesome drivers for really we thin to grip this volatility.

Doug Leggate

I admit nan afloat answer, Bill. Thank you for that. I conjecture my follow-up is, I mean, I deliberation we’re benignant of connected nan aforesaid page successful position of nan prospective worth fixed nan guardant curve, but nan marketplace doesn’t yet look fresh to judge that, which brings maine to nan champion usage of cash. And I conjecture my mobility is, since nan past quarter, we person now, I guess, a 4%, 5% return connected cash. You person a superior structure, which is 45% nett debt, but you still person a stock buyback program. So it isn’t building rate a faster measurement to accelerate marketplace nickname of equity value, if nan endeavor worth is going to beryllium helped started arsenic it seems to beryllium presently versus buybacks, I mean?

Carl Giesler

I mean, Doug, look, it’s a adjacent question. And astatine slightest successful nan near-term, arsenic Bill noted, we intend to nonstop our free rate travel to repaying indebtedness this year. With $4.4 cardinal of debt, we person immoderate rows to really to get to our target scope of $3.5 cardinal to $3 billion. And past arsenic we attack that target range, I’m judge we will measure some returning capital. We do judge our banal is undervalued comparative to nan inherent worth – nett equity worth of our enterprise, but I deliberation we will besides see building rate arsenic well. As you know, it’s not really benignant of a mendacious choice. There is an action location wherever you tin do both. And we deliberation little debt, including nett debt, has nan use of lowering nan volatility of our stock, which has benefits to each parts of our superior structure, including nan equity of lowering nan wide costs of capital. So those considerations will beryllium very beforehand and halfway arsenic we advancement our superior allocation strategy.

Doug Leggate

[indiscernible]. Carl acknowledgment truthful overmuch for that answer.

Operator

The adjacent mobility comes from Arun Jayaram pinch JPMorgan. Please spell ahead.

Arun Jayaram

Yes. Thank you. Bill, I had conscionable a broader mobility connected really you’re approaching activity levels. I deliberation nan marketplace was happy to spot your plans to shave a mates of rigs disconnected nan program, yet you are going to beryllium completing 25 DUCs this year. Just reasoning astir why not perchance prevention nan DUCs until 2024 erstwhile nan portion is for illustration 360? And if nan portion holds successful 2024, would you scheme to bring those rigs back?

Clay Carrell

Sure. Arun, I’ll possibly deed connected nan first portion of that. As you know, connected rather a fewer of those DUCs that they correspond a displacement into nan liquids-rich information of Appalachia, which is tied to a stronger position of liquids pricing and that’s going to show up successful greater value, greater liquids volumes and nan balanced volumes of those are less. So that’s portion of nan diminution successful nan state price. When we look astatine nan value of our Haynesville inventory and nan position that – this is simply a comparatively short-term downturn and nan rhythm times pinch bringing those Haynesville wells online, I deliberation pinch wherever prices are astatine correct now, we judge that sets america up nicely going into 2024, wherever we deliberation location is simply a much constructive market.

Bill Way

And if we look astatine wide superior program, we’re very conscious of nan truth that nan marketplace dynamics structurally has changed. We’re very conscious of nan truth that we would for illustration to money our superior programme pinch a nett rate flow. And we’re very conscious of nan truth that arsenic you deliberation astir our superior allocation strategy, investing successful attraction superior versus moreover increasing that erstwhile prices were precocious was nan lead disconnected of that to make nan rate travel and free rate flow. Following investing wrong rate – excuse me, attraction capital, it was paying down indebtedness and being very deliberate astir taking nan $1 cardinal disconnected for illustration we did successful ‘22 and much successful nan future. And past mounting ourselves up truthful astatine 1 point, erstwhile we get clear statement of show connected nan debt, we look to do immoderate further return of superior to shareholders. If we spell guardant successful clip and nan prices spike, we will spell correct backmost to wherever we expect to spell correct backmost to wherever we were, which is – and we will measure this from each different dimensions and economics and returns. But it would we spell backmost to a attraction superior type program, and if we did that, past immoderate of nan contracted rigs successful 1 shape aliases different pinch rejoin nan fleet and to support that effort.

Arun Jayaram

Great.

Bill Way

All of that I suppose is that nan existent move of pricing and supply/demand equilibrium and each of those timing owned ramping of LNG and each of those things materialize precisely for illustration everybody wants it to, which astir apt often ne'er happens. So we will watch it to shape it in, and we will proceed to support nan productive capacity of nan institution to present sustainable and resilient free rate travel going guardant on pinch paying down indebtedness on pinch return of superior arsenic we move forward.

Arun Jayaram

Great. Certainly, a move environment. My follow-up is, if we look astatine your guide, utilizing midpoints, you guys are going to complete astir 8% much footage this twelvemonth versus past – nan midpoint of your earthy state accumulation is down, telephone it, 3.6% aliases so. I deliberation 143 tolls aliases so. Clay, wherever would you peg? From an activity perspective, wherever you’d beryllium astatine a sustaining level and CapEx to support trim sustaining a level of accumulation astatine SWN?

Clay Carrell

Yes. I deliberation a batch of that has to do pinch really quickly we tin get nan costs building backmost successful statement pinch nan existent value environment. We had 15% to 20% ostentation successful 2022. That was a $2.2 cardinal programme to present nan 4.7 Bcf balanced a time of nett production. We’ve sewage modeled astatine nan midpoint of our guidance different 10% to 15% of ostentation coming in. And truthful I deliberation that we are getting much businesslike arsenic evidenced by nan little mean complaint programme that we person built successful and wherever nan midpoint of nan guidance puts america connected production. But I deliberation arsenic – successful a $3 state value environment, a batch of capital, we believe, needs to – nan costs needs to travel measurement down and connected nan LOE broadside that would little that yearly superior number. But it’s benignant of a wide scope of wherever that – really quickly that ostentation goes away.

Arun Jayaram

And is that a Haynesville much circumstantial remark versus Appalachia, Clay?

Clay Carrell

So yes, successful what we saw successful 2022. So – and Haynesville starts pinch higher capital. As we spot things moving into 2023, we don’t spot arsenic large of a delta done our proviso concatenation activity betwixt Appalachia and Haynesville from an ostentation standpoint.

Arun Jayaram

Super helpful. Thanks a lot, guys.

Bill Way

Thank you.

Operator

Your adjacent mobility comes from Neal Dingmann pinch Truist Securities. Please spell ahead.

Neal Dingmann

Good morning, everyone. Thanks for nan time. My first mobility is connected really what I telephone rig plant, your rig works sensitivity. Specifically wondering, really do you each deliberation astir much apt location is conscionable nan axenic Appalachian versus Haynesville activity adjustments erstwhile modifying your scheme for state prices. I conjecture what I’m asking is, saw 1 of your peers had precocious put retired a slide, suggesting historically astir of nan rig declines connected state goes down has been successful nan Haynesville. So I guess, moreover possibly inquire different way, really do you conscionable deliberation astir margins successful your Haynesville versus Appalachia that what I’d telephone benignant of notably precocious aliases notably debased state prices?

Clay Carrell

Yes. I deliberation benignant of nan guidance that we person made immoderate accommodation pinch nan liquids-rich programme is suggestive of what you’re talking astir and nan resilience of those assets successful this value environment. But we effort to make judge we’re beautiful clear that nan mean halfway Haynesville versus immoderate of our acreage successful nan southeast portion of Haynesville, we person overmuch little breakeven location than nan mean crossed nan full halfway of nan play. And I commented connected that successful nan book wherever we person sewage higher 3-month [indiscernible], 6-month [indiscernible] capacity erstwhile you look astatine not only our comments, but nan nationalist information and location is corresponding higher EURs connected that. So that’s why our rack and stack is still a coagulated operation crossed our portfolio, but pinch a leaning towards picking up much liquids successful nan program, which is what we did.

Bill Way

And we person nan elasticity to move rather good. So, nan comments that Clay makes, they tin materialize and we tin statesman getting results very quickly.

Neal Dingmann

Yes. No, I deliberation that’s important to understand. I deliberation you do person that successful nan Haynesville. And past possibly conscionable a 2nd question, maybe, Clay, for you. Just connected OFS successful spot aliases specifically, very recently, I americium conscionable wondering, what person you seen successful costs of fixed nan simplification successful rigs and different services by you each and others, person you seen thing much caller arsenic acold arsenic OFS costs to thing you could stock there? Thank you.

Clay Carrell

Yes, I tin commencement pinch we are really proactive successful that space. It’s early to commencement seeing tangible activity there. We judge that it needs to happen. And arsenic we move further done nan 4th fourth – I mean nan first quarter, I americium sorry, and into immoderate of nan openers that subordinate to immoderate of nan different services, we will get a amended consciousness for that. We already cognize successful different companies’ net calls and what we cognize from backstage speech astir rigs successful nan Haynesville starting to travel down. I made a remark earlier, we are going to person 2 going down successful March and past much successful nan 2nd quarter. So, I deliberation that they should spell hand-in-hand, and we are going to enactment really progressive successful that abstraction utilizing each nan devices we person from a procurement standpoint.

Neal Dingmann

Sounds good. Thanks Clay.

Operator

The adjacent mobility comes from Jeoffrey Lambujon pinch Tudor, Pickering, Holt. Please spell ahead.

Jeoffrey Lambujon

Good greeting everyone. Appreciate taking my questions.

Bill Way

Good morning.

Jeoffrey Lambujon

My first 1 is connected nan 2023 budget, conscionable connected nan moving pieces down that arsenic we deliberation astir nan debased and precocious extremity of nan scope there. I cognize you said to this a small spot earlier. I don’t know, I mean you evidently sewage nan scope location connected good count for nan twelvemonth by region. But I would beryllium funny really you are reasoning astir debased costs by plus there? And I admit your commentary earlier saying, it’s a spot early to talk astir improvements successful greenish shoots connected nan ostentation side. But if you could speak to what nan guidance contemplates arsenic acold arsenic good costs ranges pinch nan Haynesville and Appalachia, and really that compares what you are seeing coming would beryllium helpful.

Clay Carrell

Sure. So, it benignant of starts pinch nan 4th fourth results that I talked astir successful my book astir good costs successful some of those areas wherever we were successful nan mid-800s successful Appalachia and 1,925 successful Haynesville. And our thought location is that 4th fourth activity represented nan bulk of nan ostentation that we had seen successful 2022, and our – benignant of our target is to do each we tin do to clasp person to those costs, but that would bespeak that we are seeing immoderate ostentation reduction. So, I deliberation a scope successful those areas is anyplace from an 850 to 950 successful Appalachia. And for illustration we person talked astir a batch successful Haynesville, wherever you drill matters connected your good costs, and it besides matters for nan good performance. And we person deeper wells pinch higher bottommost spread pressure, which increases good costs, but those wells are nan champion performing wells successful nan basin. So, our scope is simply a small spot different than immoderate of nan shallower, older portion of nan halfway Haynesville asset. But I would opportunity that scope is anyplace from that 1,925 to a small complete 2,100, but we are moving connected ratio improvements and ostentation improvements.

Jeoffrey Lambujon

Perfect. Appreciate that. That’s helpful. And past conscionable a speedy follow-up connected hedge coverage, possibly referencing nan added protection for 2024. Just wanted to get a reminder connected wherever you could spot that sum moved to arsenic a percent of production. If we should deliberation astir that conversion towards what we spot connected nan 2023 hedge book coming aliases if nan equilibrium expanse tempers nan appetite for getting to that level arsenic you benignant of fortify that further.

Clay Carrell

Yes. It’s a bully question. And erstwhile we deliberation astir ‘24, successful particular, nan 2 factors that I would opportunity to predominate aliases reasoning astir level, one, arsenic regarded successful nan prepared remarks, it’s a privilege of curing free rate travel to little debt. That evidently would propose that we will look for opportunities to fastener successful revenues that we deliberation will lead to free rate travel and further that goal. Another factor, again, noted by Bill successful nan prepared remarks, is nan accrued structural volatility that we are seeing successful nan state market. Long communicative short, we judge that, that higher volatility increases successful consequence astatine immoderate constituent of higher hedge levels. We entered 2022 mostly owed to nan precocious leverage we had during nan pandemic arsenic good arsenic nan 2021 acquisitions that we funded pinch astir $2.4 cardinal of indebtedness pinch reasonably precocious hedge levels, 80%-plus successful ‘22, and past 60%-plus for ‘23. And past arsenic you saw ‘22 and ‘23 emergence past year, that created important unrealized nonaccomplishment for america pinch our hedge counterparties and efficaciously created immoderate limits and their willingness to person vulnerability to us. And now arsenic we are seeing successful nan existent state environment, nan opportunity costs of not being capable to participate successful locking successful those higher prices past twelvemonth arsenic overmuch arsenic we would person liked is rather high. So, successful summation to nan stronger equilibrium sheet, this accrued volatility. I deliberation we will – net-net caused america to temper our hedge levels.

Jeoffrey Lambujon

Got it. Appreciate nan detail. Thanks.

Operator

The adjacent mobility comes from Paul Diamond pinch Citi. Please spell ahead.

Paul Diamond

Thank you. Good greeting all. Thanks for taking my call. I conscionable wanted to quickly touch connected benignant of your guys’ longer word thoughts connected nan LNG return complaint aliases LNG capacity, presently opinionated astatine astir 1.5 billion. Just wanted to spot if that was – really nan conversations were going astir immoderate imaginable summation to seizure that will beryllium expected to beryllium further request propulsion successful precocious ‘24, ‘25?

Bill Way

We person a portfolio of contracts pinch a number of LNG providers that scope successful price, successful tenure, successful quantity, each of that. And they build benignant of a wide and attraction of consequence guidance image that lets america benignant of adhd and subtract connected a overmuch broader opportunity set. Today, we are astatine 1.5 cardinal a day, again various links of contracts. We person been looking internally arsenic a target location adjacent 2 Bcf a day. Given our full of 5 Bcf, it seems that arsenic we analyse that economically strategically makes immoderate sense. I deliberation nan different point that we person talked astir is entree to nan world market, going to beryllium peculiarly observant pinch that to understand what that really intends and really you protect immoderate you deliberation you are going to get from enhanced margins aliases low-cost liquefaction, turning precocious costs liquefaction, shipping governmental dynamics, fiscal, each of nan different things you would look astatine to want to return connected that perchance higher priced commodity. And I utilized nan connection potentially, a batch of clip it seems complete nan past 18 months, it’s been rather high. And past location has been periods of clip – extended periods of clip wherever it hasn’t. And truthful we will proceed to study that. Our basin proximity, our already contracted patient proscription gives america each kinds of advantages, but it besides mitigates immoderate of nan consequence associated pinch entering those type of agreements. And we person talked to a number of players, we person benignant of worked to surface our – nan ideas of who we mightiness want to activity with, and we are having immoderate speech successful that abstraction arsenic we speak. So, what we person benignant of telegraphed is, you get a definite commodity value opportunity group pinch nan Henry Hub-based agreement. You person a different group of opportunities and risks that travel pinch a higher – a overmuch higher value statement pinch a batch of further risks that we want to understand, and we will put those together and we person much to opportunity astir that going forward. Certainly, finance grade, certainly, each nan different things that we person talked astir connected this telephone and nan reference materials surely bode good for really we position nan company, and we conscionable want to spell into it smartly.

Paul Diamond

Understood. Thanks for nan clarity. I conscionable had a speedy follow-up. You guys person talked astir you wanted to walk wrong rate flow. But fixed nan building of volatility, is that much – should we beryllium reasoning that much connected for illustration a 12-rolling-month basis, aliases is that – aliases do you guys position that much arsenic quarter-to-quarter? I conjecture nan mobility is, should we deliberation astir that?

Bill Way

My comments are astir an yearly basis. We surely negociate that overmuch tighter, and successful this peculiar macro environment, it’s moreover much – moreover tighter, I tin guarantee you. So – but yes, we will negociate that connected an yearly ground arsenic good arsenic nan semipermanent arsenic we move forward.

Paul Diamond

Understood. Thanks for nan time.

Bill Way

Thank you for your questions.

Operator

Your adjacent mobility comes from Noel Parks pinch Tuohy Brothers. Please spell ahead.

Noel Parks

Hi. Good morning.

Bill Way

Hi Noel. Good morning.

Noel Parks

So, I wanted to touch connected nan taxable of your in-house drilling and frac fleets. And successful truthful galore different parts of nan rhythm there, nan advantages of those are beautiful clear. And I was conscionable wondering benignant of playing devil’s advocate. Thinking astir maintenance, reasoning astir nan proviso concatenation and conscionable keeping rig parts and inventory and benignant of nan costs and challenges of that, is location thing successful this benignant of debased cost, debased value state situation successful nan arena it does beryllium persistent that could origin you to displacement resources aliases to favour shifting a small spot much towards, say, an incremental vendor rig alternatively of constraint connected your ain fleet?

Clay Carrell

Maybe ne'er opportunity never, but we consciousness really bully astir what benefits our vertical integration brings to nan company. And erstwhile you look astatine time rates, nan different costs for unit pumping and rig rates, we person sewage immoderate ostentation that comes from that by owning our own. The capacity of those has worked good hand-in-hand pinch nan third-party providers that we usage wherever nan learnings walk betwixt both, and we are capable to get nan max use wherever some nan third-party capacity has improved and our own. And erstwhile you deliberation astir utilization, which I deliberation is nan biggest portion of that discussion, pinch our accrued standard from nan acquisitions that we person done, we person a bully operation of 7 company-owned drilling rigs and 2 company-owned frac fleets arsenic portion of nan full programme that is beautiful materially bigger than that to wherever it gives america nan optionality successful a low-price environment, if we are cutting backmost to driblet nan third-parties and past proceed to person nan guidelines activity done by our company-owned equipment.

Bill Way

And a mates of different comments connected apical of that. We benchmark this business, and it has to gain its ain return. And truthful Clay and his squad guarantee america that they spell done each of that conscionable arsenic if it were its ain small company, but it has – that it delivers connected nan commitments that it makes. We person accordant teams connected these rigs, truthful we cognize who is coming. They hap to beryllium employees, which is great. And truthful they are rewarded nan measurement nan institution is rewarded. And they – their capacity to study and present group aliases amended capacity has been accordant successful this process. They are only allowed to activity for SWN. In my experience, erstwhile you person a vertical integration business for illustration this and you let it to spell disconnected and activity for personification else, it’s easy to suffer nan crippled connected wherever their location guidelines is. So, erstwhile you return those on pinch Clay’s and nan rigor that we put successful position of making judge this is nan correct point for america to beryllium doing, I deliberation I americium very assured that we are successful a amended spot.

Noel Parks

Great. Thanks. And I americium discussing pinch different state shaper earlier successful nan net season, nan taxable came up of – and it’s a bullish taxable to possibly benignant of thief offset this near-term softness we person possibly successful sentiment that pinch LNG coming connected that location are going to beryllium these large measurement functions upwards of request from LNG coming connected successful ‘24, but I guess, successful 2025, ‘26, especially. And I americium conscionable wondering astir your thoughts astir nan industry’s expertise benignant of, hopefully, this 1 to beryllium moving successful performance to really beryllium capable to proviso nan accumulation capacity successful aggregate that’s going to beryllium needed to meet those large steps upward successful demand?

Bill Way

Well, this productive capacity of our manufacture is rather powerful and robust successful general. And truthful nan expertise for this manufacture to respond has been there, but I will shut up that pinch pullbacks successful investment, pinch challenges connected infrastructure, pinch challenges connected getting state from 1 spot to different astir awesome cities. All of this is going to beryllium built connected nan Gulf Coast, and truthful it goes rather far. Anyway, I deliberation location are risks to that. And truthful erstwhile you – and past not everybody tin grow, not everybody has nan capability, nan entree to nan markets, nan entree to wherever this – each this LNG is going to show up. And truthful I deliberation Haynesville tin thief us, Appalachia without infrastructure is getting approved, nan expertise for that basin to grow. And if LNG grows to nan precocious extremity of nan scale, we are going to request Haynesville, Appalachia and nan Permian to supply. And I deliberation it – location is immoderate consequence to that. At nan aforesaid time, conscionable to springiness you a balanced view, building each of this astatine 1 clip astir apt intends that immoderate travel connected precisely astatine nan clip that they said they were coming on, 10:00 a.m. connected Tuesday. The remainder of it is, it becomes a challenge. You person sewage to person skilled workers, sewage to person standard capacity to get it each built. And truthful we return a wide position of that. Fortunately, for us, 65% of our state tin get to nan LNG corridor. Fortunately, our reserves are heavy and broad, and we are proximal to that growth. And immoderate patient proscription capacity that we need, we already person contracted truthful that erstwhile it’s built, it’s ours. And location is setup to beryllium 1 of nan awesome suppliers going forward. I will time off it there.

Noel Parks

Great. Thanks a lot.

Bill Way

Thank you.

Operator

The adjacent mobility comes from Gregg Brody pinch Bank of America. Please spell ahead.

Gregg Brody

Good greeting guys. I cognize we are astatine nan extremity of nan call. Just a question, connected nan 4th quarter, you had a bully moving superior use there. Can you talk astir whether you expect that to proceed this year? And is that imaginable root of cash?

Clay Carrell

Yes. Good question. We typically person that use successful nan first 4th and past successful nan 4th fourth pinch nan 2nd 4th and 3rd 4th being much of an outflow, and we would expect that aforesaid move to proceed done this year.

Gregg Brody

Great. And past conscionable 1 much here, arsenic you person alluded to, you are very focused connected finance grade, you are going to salary down debt. How do you deliberation astir buying backmost banal this year, considering what’s happening pinch your banal price? And is it – really do you prioritize that complete buybacks?

Clay Carrell

Yes. Another bully question. We person been accordant not only connected this call, but really complete overmuch of nan past year, moreover since we announced it, buyback authorization backmost successful June. The prioritization of paying indebtedness being paramount, and this year, astatine slightest astatine nan existent commodity value outlook, we expect our free rate travel to spell and trim debt. And while we agree, banal value coming is simply a batch little than we judge it’s inherently worth. We do judge that paying down indebtedness has a batch of benefits for, again, each parts of nan superior structure. It lowers nan volatility, which has benefits for equity and little costs of capital. And candidly, you are straight transitioning your endeavor worth done indebtedness to equity erstwhile you do that arsenic well. So, much of nan plus values to put that pinch nan indebtedness that should astatine slightest theoretically not practically should practically excessively we person seen arsenic beneficial to your equity value. So this year, I expect us, again utilizing free rate flow, arsenic Bill said, we paid debt. And arsenic we attack that target pinch greater confidence, some successful position of clip and besides commodity value outlook, we tin do some arsenic we person shared successful nan past and would expect to do so.

Gregg Brody

You are speaking nan connection that nan standing agencies for illustration to hear. So, acknowledgment for nan update.

Operator

This concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Bill Way for immoderate closing remarks.

Bill Way

I want to convey you each for your questions. I deliberation they were a terrific, awesome discussion. And convey you for your liking successful nan Southwestern Energy. And we look guardant to sitting together successful different 4th and sharing pinch immoderate further achievements that we person made. In nan meantime, person a awesome weekend, and acknowledgment again for joining us.

Operator

The convention has now concluded. Thank you for attending today’s presentation. You whitethorn each now disconnect.