Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Southwestern Energy Fourth Quarter and Year-end 2019 Earnings Call [Operator Instructions] This call is being recorded. [Operator Instructions] I will now turn the call over to Paige Penchas, Southwestern Energy's Vice President of Investor Relations. You may begin.

Thank you, Drew. Good morning and welcome to Southwestern Energy's fourth quarter and fiscal year 2019 earnings call. Joining me today are Bill Way, President and Chief Executive Officer; Clay Carrell, Chief Operating Officer; Julian Bott; Chief Financial Officer; and Jason Kurtz, Head of Marketing and Transportation. Along with yesterday's earnings and guidance release, we also filed our 10-K, which is available in the Investor Relations section of our website at www.swn.com. Before we get started, I'd like to point out that many of the comments during this call are forward-looking statements and 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 statements sections in 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 or developments may differ materially. 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, Paige. Good morning everyone and thank you for joining our call. We've been very proactive and intentional over the last several years to augment the Company's resilience across a broad range of economic and commodity environments. We've taken several specific actions over that time to high-grade the portfolio, fortify the balance sheet and reduce cost, affording us the ability to pursue value enhancing opportunities without distraction. Today, I would like to provide some reflections on the successful results of the Company and our teams achieved last year and look ahead at our go-forward plans. Southwestern Energy's continued strong quarterly and yearly performance is driving the Company forward to the completion of our two-year transition plan back to cash flow neutrality and reflects a plan, a portfolio and an exceptionally talented team that are agile and resistant, even in the changing environment the industry faces today. For 2019, we outperformed our expectations by generating cash flow of $913 million of which $246 million was from the fourth quarter. We grew condensate production by 38% and decreased the Company's base production decline rate to 25% going forward. Regarding capital efficiency, we reduced well costs by 27% to $824 per lateral foot. Importantly, this average well cost includes all wells to sales in both liquids rich and dry gas in both Pennsylvania and West Virginia and all well cost including drilling, completions and flowback without sacrificing well performance. Clay is going to give you more details on how we're going to lower well cost even further in 2020 in a few minutes. In addition to capital cost improvements we reduced the Company's total cost structure including G&A and interest by $122 million. We implemented another $40 million G&A reduction earlier this year. We have fundamentally changed the way we look at…

Thanks, Bill. Our fourth quarter results continued the operational outperformance that we are well known for and we finished 2019 with results ahead of our guidance and expectations. To name a few, we beat our annual well cost reduction target and achieved record low well costs in the fourth quarter. We beat the high-end of condensate production for the year and the quarter and delivered full year equivalent production at the high-end of our guidance range. Our teams continue to embrace our outperformance culture and they are carrying this momentum into 2020. All of this was accomplished with record safety performance while demonstrating care for the environment. Let me start with a few highlights from 2019. Total production was 778 Bcfe, up 11% compared to 2018 when excluding Fayetteville production. Liquids were approximately 23% of total production, increasing 20% to almost 78,000 barrels per day. Investing in our highest value condensate inventory led to condensate production of over 16,000 barrels a day in the quarter and 13,000 barrels per day for the full year average, a 38% increase. Our cost focus is relentless. As Bill mentioned, we reduced total well cost to an average of $824 per lateral foot, a 27% reduction. We also set a new record low well cost of $605 per lateral foot on an 18,000 foot lateral. So we have room to keep improving. We achieved this result and others I will discuss through an integrated approach to planning, sourcing, logistics, application of leading technology and exceptional implementation by highly talented people. Supporting this fully integrated approach, we self-sourced sand, realized the benefits of our completed water pipeline systems, increased lateral lengths and reduced cycle times to exceed our well cost reduction target. Now, let me touch on reserves. We increased our year-end proved reserve 7%…

Thank you, Clay. And good morning everyone. As disclosed yesterday we reported, adjusted net income for the fourth quarter of $99 million, or $0.18 per share, net cash flow of $246 million and capital expenditures of $207 million. For the year, adjusted net income was $328 million, or $0.61 per share, net cash flow was $913 million and capital expenditures were $1.14 billion. Disciplined hedging and risk management are a core part of our strategy with the benefits reflected in our 2019 earnings where we had settled hedging gains totaling $180 million. This resulted in our weighted average realized price remaining within 3% of the prior year, despite the substantial decrease in commodity prices. We expect our hedging portfolio to continue to protect our realized pricing in 2020. Approximately 83% of 2020 expected gas production is hedged at a floor price of $2.47 per MMBtu from April through the remainder of the year. For NGLs we have approximately 51% of our production hedged, primarily with swaps for ethane and propane. Finally, we have hedged essentially all of our 2020 forecasted oil production at an average floor price of $56.56. In total, we have protected approximately 90% of this year's projected revenues and given the price declines experienced year-to-date, we should have a sizable mark-to-market gain. In addition to hedging our commodity risk, we also managed locational risk by entering into financial basis hedges for 222 Bcf of our expected 2020 gas production at an average $0.33 basis discount to NYMEX. Additional protection is provided through our access to the Gulf Coast markets which are highly correlated to the Henry Hub pricing. Looking at 2020, we expect a discount to NYMEX of $0.63 to $0.73 per MMBTU for the year including transportation with the first quarter expected to be $0.42 to…

Yes. [Operator Instructions] The first question comes from Charles Meade of Johnson Rice. Please go ahead.

Good morning, Bill to you and your team there.

Good morning, Charles.

I wondered if we could – if I could ask a question about your dry gas Northeast Appalachia play. So you've got about a third of your CapEx going there. But can you give us the reasoning why that would get any more CapEx than just kind of a bare maintenance level like of just keeping one rig running and why you're choosing to allocate a third of your CapEx there instead of pulling back more?

So we've lowered our cost and improved productivity, efficiencies and everything as Clay and others have talked about. We are holding production flat in Northeast PA. The wells that we drilled are in the core of the acreage and compete with our other drilling investments. But we're doing exactly as you're suggesting. We're holding it flat.

Okay, got it. And then going back to your comments in your prepared remarks about free cash flow positive. So you guys actually were free cash flow positive in 4Q 2019 and that was a positive thing to see. But what is the – I think I heard you say Bill that this two-year plan to reach free cash flow positive. Again, what's the current – where are we on that timeline right now?

We're right on track and our objective was to take two years to get there from the sale of the Fayetteville and a third of our cash flow and we are right on track. And so by the end of this year, we will in this commodity price we expect to reach that objective.

All right. Thank you for that.

The next question comes from Jeffrey Campbell of Tuohy Brothers. Please go ahead.

Good morning.

Good morning.

I think my first question is I'm kind of wondering how much of the current corporate decline rate is allowing you to pull back capital meaningfully as you are and still managed to grow 9% in 2020?

Yes, this is Clay. As we talked about that has been part of our focus and we get greater cash flow from greater percentage of our base when we shallow the decline and we've dropped that by approximately 5% year-over-year as we talked about the pad compression project in Northeast Appalachia.

And that's one of a number of factors as you would understand whether it's lower cost across the entire company, both capital and maintenance and G&A, whether that's efficiencies and cycle times, all of those things contribute to our ability to achieve this.

Okay. And I wanted to ask a question regarding the G&A, bearing in mind that a larger peer recently noted that it had reorganized and reduced its workforce for what they called a permanent rerating of its capital investment going forward. Do you see your various G&A adjustments as tied to primarily a tough downturn or is this likely to largely remain in place as you work into the future?

Yes, when we look at G&A and we look at any cost we go through, look at the efficiency of that, the return of that cost is there a different, better, more efficient way to do it and a number of other aspects to determine exactly where to set that. Our reductions in cost over the last couple of years have been designed to be sustainable and they are built into our budget both in – the ones we did in 2019 into the 2020 budget, the ones we did in 2018 into the 2019 and so on. And so they are durable through time and we expect that that will continue.

Okay, great. Thank you. I appreciate the color.

The next question comes from Jane Trotsenko of Stifel. Please go ahead.

Hi, this is William [indiscernible] asking on behalf of Jane. Natural gas price realizations last quarter meaningfully exceeded consensus expectations. Was there anything unusual the way to explain that?

Hey, this is Jason. No, really that's a function of the diversified portfolio that we have in the Northeast Appalachia area where about 25% of – 25% to 30% of that portfolio has exposure to city-gate premium priced markets. And whenever you get into that November and December time frame, there is a lot of premium associated with some of those markets and it usually moves our realized price up in Q4.

Got it. Thanks. And can you comment on NGL pricing and how it shapes up for your 1Q relative to the last quarter? To what extent are you – the Mariner East projects are helping to achieve higher basin NGL pricing for the Appalachian players?

So that's exactly right. The Mariner East project is clearing barrels out of the area, which is helping improve differentials in the Northeast. What I would say from an LPG perspective is that in 2019 we experienced the highest – the tightest differentials that we've seen on LPGs in the basin since we own the asset and we expect that to continue into 2020.

Great. Thanks.

The next question comes from Welles Fitzpatrick of SunTrust. Please go ahead.

Hey. Good morning.

Hi, Welles.

There is a – obviously the quarterly guidance is very helpful. There is a huge step up in 3Q. Is that just well timing or are you guys doing something on the midstream side like your recent compression work that drives that step-up?

Yes, we have everything we need in place to move gas or liquids anywhere we needed to go. So this is simply the front-end loading of the capital program and the phasing of those wells coming online as you drill and complete them in the first two quarters with the second quarter being the sort of highest investment quarter and then moving them through. So you'll see production go – edge up from where we're at, but it's all part of the phasing.

Not all that dissimilar to last year.

That's exactly right.

Okay. Yes, that makes sense. And then my follow-on, can you talk to the new – and I guess it's not new, I guess it was last summer, but the co-tenancy law in West Virginia. Obviously that's allowing you guys to push out those laterals which is great. But can you talk about does it allow you to add acreage inexpensively via the new; I guess it's a unitization almost a quasi for pooling process?

Yes, I'll comment on that. The co-tenancy helped us. It was a step in the right direction, but your last comment around pooling that still is a ways to go and is being worked by operators in West Virginia and that will be where we could realize a bigger benefit is if we can get that accomplished.

Okay. Too early for a time frame on that, I'm guessing.

Yes, we continue to work with the state and our colleagues in the – out in the area and we'll continue to work that forward.

Yes, the main way we're adding lateral links is lease acquisitions and trades and that's helping us a lot.

Thank you, guys, so much.

The next question comes from Karl Blunden of Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for taking the question. And certainly recognize your comments about not being relying on the capital markets; it's a good thing right now. One question that I ask myself and comes up in credit investor conversations is around the covenant – the net leverage covenant you have with the bank group. Could you talk about your comfort in meeting that or different options you have to stay in compliance with that over time, especially in a low commodity price environment, like we have today?

Sure, absolutely, Karl. Hi, this is Julian. So our covenant is 4 times, which I think is pretty standard across the industry. And obviously we are well below that today. Where that goes, it does depend on commodity prices for the most part and we have scenarios where sustained long-term pricing at these lower levels it could surpass 3 times. But as we've said continually leverage is a key focus for us and if we had those sustained low pricing scenarios we would have to make additional adjustments to the business plan and also to the cost structure. Could also manage it through potential asset sales and those are something we would consider. But at this point, it's premature for us to be monetizing cash flow when we've clearly stated that the goal is returning to free cash flow. So we'd like to retain that cash flow from those assets.

That makes sense. And I guess just as a follow-up, your bank group has been supportive recently, right, with the borrowing base redetermination, for example. Is that – should we see that as an indicator of the banks could be supportive too if you do need some temporary flexibility down the line?

Well, I mean – look, we have a 26-plus bank group and we have very good relationships with all of them. We value them greatly and they have been very supportive. Clearly they come under their own pressures from management and the regulators. But I think we are favorable working with them. They extended the maturity by 12 months at the last borrowing base redetermination and, yes, we believe we have a very good working relationship with them and they are supportive.

Okay. That's helpful. Thanks very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Way for any closing remarks.

Thank you, Drew. Thank you all for your questions and the dialog. Let it be clear, we realize that it's a tough market out there, but we are very confident that Southwestern Energy is positioned to manage through this market and any challenges that lie ahead. We've got an exceptionally highly talented team of people across the country committed to innovating and executing and delivering on our plans. And as you can see in this quarter and multiple quarters previous to this, they continue to deliver and continue to outperform. So we look forward to sharing more progress on our plans in the coming calls and we thank you for joining us today. Have a good weekend.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.