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Southwestern Energy Second Quarter 2021 Results

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Southwestern Energy Co. reported its Q2 2021 results.

Highlights:

• Integration planning for scale-enhancing acquisition and Haynesville entry ahead of schedule; shareholder vote set for August 27^th;
• Implemented basin-wide project to certify and continuously monitor potential emissions from all Appalachia unconventional wells;
• Further reduced leverage ratio by 0.4x to 2.6x; sustainable 2x leverage expected in late 2021;
• Generated $270 million net cash provided by operating activities; invested $259 million consistent with our maintenance capital plan; expect free cash flow to ramp in second half 2021;
• Captured promised $100 per foot well costs savings on first three Ohio Utica wells;
• Reported total production of 276 Bcfe, or 3.0 Bcfe per day, including 2.4 Bcf per day of gas and 104 MBbls per day of liquids;
• Received weighted average realized price (excluding impact of transportation and hedges) of $2.92 per Mcfe; and
• Approximately 90% of remaining 2021 Appalachia natural gas basis protected; annual differential guidance range remains unchanged.

CEO Bill Way said: "Southwestern Energy meaningfully advanced its strategic value-creation objectives during the quarter. The Company announced a significant acquisition that we believe is highly accretive across both equity and credit metrics. The addition of Indigo further positions SWN as a leading natural gas company; it expands our investment opportunities across the nation's top two natural gas basins and enhances our margins while reducing basis volatility. Additionally, in alignment with our ESG strategy, we initiated the certification and continuous monitoring of all Appalachia unconventional wells. These two strategic actions enhance sustainable and responsible value creation for all stakeholders."

Q2 Financial Results

For the quarter ended June 30, 2021, Southwestern Energy recorded net loss of $609 million, or ($0.90) per diluted share, compared to a net loss in 2020 of $880 million, or ($1.63) per diluted share. The quarter ended June 30, 2021 included a $772 million loss on unsettled derivatives and the same period for 2020 included a $655 million non-cash impairment and a $229 million loss on unsettled derivatives.

Adjusted net income was $129 million, or $0.19 per diluted share, in the second quarter of 2021, compared to a loss of $1 million, or ($0.00) per diluted share, for the prior year period. The increase was primarily related to a 33% increase in the weighted average realized price including derivatives and a 37% increase in production volumes, largely due to the Montage acquisition. Adjusted EBITDA (non-GAAP) was $300 million, net cash provided by operating activities was $270 million and net cash flow (non-GAAP) was $272 million.

As indicated in the table below, second quarter 2021 weighted average realized price, including $0.37 per Mcfe of transportation expenses, was $2.55 per Mcfe excluding the impact of derivatives. Including derivatives, weighted average realized price (including transportation) for the quarter was up 33% from $1.65 per Mcfe in 2020 to $2.20 per Mcfe in 2021 primarily due to higher commodity prices including a 65% increase in NYMEX Henry Hub and a 137% increase in WTI. Second quarter 2021 weighted average realized price before transportation expense and excluding the impact of derivatives was $2.92 per Mcfe.

At quarter end, the Company had hedges in place for 88% of its remaining 2021 expected natural gas production, 71% of its 2021 expected natural gas liquids (NGLs) production and 89% of its 2021 expected oil production. The Company also has approximately 90% of its remaining 2021 expected natural gas production protected from the impact of widening basis differentials through transportation capacity and basis hedges.

As of June 30, 2021, Southwestern Energy had total debt of $3.0 billion and a leverage ratio of 2.6x, an improvement of 0.4x compared to last quarter. At quarter end, the Company had $568 million of borrowings under its revolving credit facility with $233 million in letters of credit and ample liquidity of $1.2 billion.

Operational Results

Total production for the quarter ended June 30, 2021 was 276 Bcfe, of which 79% was natural gas, 17% NGLs and 4% oil. Capital investments totaled $259 million for the second quarter, with 23 wells drilled, 19 wells completed and 31 wells placed to sales.

Southwest Appalachia - In the second quarter, total production was 153 Bcfe, with NGL production of 84 MBbls per day and oil production of 20 MBbls per day. The Company drilled 15 wells, completed 12 wells and placed 20 wells to sales with an average lateral length of 15,067 feet.

Nine of the wells to sales were located in the rich acreage with an average 30-day rate of 19 MMcfe per day, including 44% liquids, and eight of the wells to sales were located in the super rich acreage with an average 30-day rate of 13 MMcfe per day, including 67% liquids. The remaining three wells placed to sales this quarter were the Company's first dry gas Ohio Utica wells. These wells had an average lateral length of 13,781 feet and each had an average 30-day rate of 25 MMcf per day.

Northeast Appalachia - Second quarter 2021 production was 123 Bcf. The Company drilled eight wells, completed seven wells and placed 11 wells to sales with an average lateral length of 11,568 feet and an average 30-day rate of 14 MMcf per day.