Southwestern Energy (SWN) CEO Bill Way on Q4 2017 Results - Earnings Call Transcript
Start Time: 10:00 January 1, 0000 10:50 AM ET
Southwestern Energy Co. (NYSE:SWN)
Q4 2017 Earnings Call
March 02, 2018 10:00 AM ET
Executives
Michael Hancock - Director Investor Relations
Bill Way - President and Chief Executive Officer
Jennifer Stewart - Interim Chief Financial Officer
Clay Carrell - Chief Operating Officer
Analysts
Charles Meade - Johnson Rice
Arun Jayaram - JPMorgan
Michael McAllister - MUFG Securities
Brian Singer - Goldman Sachs
Drew Venker - Morgan Stanley
Jeffrey Campbell - Tuohy Brothers
Sean Sneeden - Guggenheim Securities
Greg Brody - Bank of America Merrill Lynch
Operator
Greetings, and welcome to the Southwestern Energy Company Fourth Quarter 2017 Earnings Teleconference Call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. In the interest of time, please limit yourself to two questions. Afterward, you may feel free to re-queue for additional questions. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce Mr. Michael Hancock. Thank you, Mr. Hancock, you may now begin.
Michael Hancock
Thank you, Tim. Good morning and welcome to Southwestern Energy’s fourth quarter and full year 2017 earnings call. Joining me today to discuss our results are Bill Way, President and CEO; Jennifer Stewart, Interim CFO; Clay Carrell, COO; along with other members of our management team.
Along with yesterday’s press release we also issued our 10-K which has been posted on our website. Before we get started, I’d like to point out that many of the comments during this teleconference are forward-looking statements that 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 of our Annual 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'll now turn the call over to Bill Way.
Bill Way
Thanks, Michael. Good morning, everyone. Thanks for joining us on our call today. Before we get started on 2017 results, I would like to talk about the management changes we’ve had since our last call.
Clay Carrell, our new COO, Julian Bott, our recently announced incoming CFO; and Paige Penchas, our new Vice President of Investor Relations are in the room with us today. And I want to tell you how excited we are about the extensive experience that each has gained throughout their careers in the energy industry and the diverse perspectives that they will bring to our leadership team.
I also want to take this opportunity to personally thank Jennifer Stewart and Michael Hancock for their outstanding work in serving their respective roles for company. I look forward to continue to work with them and the rest of the leadership team at SWN on a going forward. Jenifer and Michael will work in transition Julian and Paige over the coming weeks.
Following my remarks, this morning point Clayton Carrell will give a detailed summary of the operating highlights, and Jennifer Stewart will provide a financial review.
2017 with solid operational and financial year for Southwestern Energy where we met or exceeded every commitment we laid out in our 2016 -- our 2017 guidance. The results of our rigorous financial discipline and returns focused capital allocations are clear. We generated $1.1 billion in cash flow through production to 897 BCF equivalents; and recorded record reserves of 14.8 trillion cubic feet equivalent.
Building on the strength, confidence and performance of our high-quality asset portfolio, last month we announced the decision to reposition the company to compete and win. We are actively pursuing strategic alternatives for the Fayetteville Shale E&P and related midstream gathering assets and identifying and implementing structural process and organizational changes to improve cost and market leadership.
Our intention from these activities is to utilize the funds realized to reduce debt, supplement our highly economic Appalachia development capital, potentially return capital to shareholders and for other general corporate purposes. This next step in our strategy supports our drive to capture the highest value from our large-scale, high-quality Tier 1 assets, which we believe will deliver maximum long-term value for our shareholders.
We're successfully navigating through the continuing challenging commodity price environment, and we built strong momentum over the last two years by executing our multiphase strategy to improve the company's position in this sector.
In 2017, we intensely focused on our assets and expanded margins to enable SWN deliver growth within cash flow at realize natural gas prices well below $3. This second phase of our strategy is delivering real results and is ongoing.
Given the large scope and scale of our core assets, we're in the enviable position of being able to optimize and drive significant value from the existing portfolio we already own. It includes technical, operational and commercial excellence as measured by our team's impressive results, including improving cycle time, drilling longer laterals, material uplift of wells from significant improvement in track design and implementation. It also includes renegotiation of transportation and gathering agreements across our assets and dramatic water handling cost savings among others.
During 2017, we once again allocated capital to our highest return projects in Appalachia, which grew production 16% and increased reserves to over 11 Tcf in that area alone. To put this in perspective, 11.1 Tcf of in Appalachia reserves at a $2.98 per MMBtu SEC price compares to only 5.5 Tcf, just three years ago, when natural gas prices were much higher at $4.35 per MMBtu. In other words, we've doubled the reserve base in the Appalachia Basin with the $1.37 per MMBtu decrease in price, further demonstrating the economic resiliency and ability to transform our portfolio to compete in a lower commodity price environment. The strong depth and breadth in our Appalachia portfolio backed up with clear metrics and our significant growth in the Appalachian area has positioned the company to take the next step forward. The time is right to seek strategic alternatives for the Fayetteville assets and focus on additional growth, cash flow and the higher returns generated from the growing contribution natural gas liquids are contributing to our results to further strengthen our investment returns at even lower gas prices.
While Fayetteville has numerous additional economic development opportunities, the high bar has stepped by our Appalachia assets and our rigorous capital allocation discipline of investing in the highest return projects make it challenging for Fayetteville to compete for capital in our portfolio.
I will note here that the Fayetteville process and our work – our further work on cost reductions are moving forward. We have announced these two strategic actions early to provide additional context to our strong 2017 results and our 2018 objectives. However, we are very early in the process, and we will engage in further discussion on these two actions at the right time, and once we have completed our work. While these repositioning actions progress, we are laser-focused on creating value from all three of our large-scale high quality assets, and are well on our way to delivering the exciting plans we have for 2018, with the same vigor you come to expect from Southwestern Energy.
Our 2018 guidance demonstrates the benefits of our margin expansion mandate and the impact of our growing liquids portfolio. Liquid production is expected to grow approximately 30% compared to 2017, assuming the midpoint of guidance, helping deliver an over 5% increase in cash flow despite a $0.25 per Mcf decrease in the forecast of NYMEX gas prices.
Consistent with our rigorous and demonstrated capital discipline, our capital investment program of $1.2 billion, will be fully funded from cash flow. Our Appalachia assets in Pennsylvania and West Virginia are expected to generate almost $850 million in EBITDA for 2018, setting them up nicely to self fund the future growth within cash flow. In 2018, these assets are delivering more with less and are expected to generate almost 20% production growth from just $770 million of drilling and completion capital. This includes approximately 30% production growth in Southwest Appalachia alone.
Looking forward to the company’s Southwest Appalachia assets, providing growth, growing natural gas liquids rich production, and are capable of doubling production over the next four years with only $500 million per year of capital investment, excluding capitalized interest and expenses. While pipeline infrastructure continues to expand in Appalachia, SWN is well positioned to capture the resulting basis improvements today and well into the future. As a reminder, Southwestern has drilled in the Marcellus for more than eight years and was an early participant in the pipeline expansion in the area, locking in low cost firm transportation with ample capacity to grow our business and access multiple high value markets.
Our Northeast Appalachia business is solidly positioned to capture materially improving basis differentials with transportation costs essentially flat throughout the development. In 2018, we expect to realize a $0.25 per Mcf improvement in Northeast Appalachia differentials, and an over $0.10 per Mcf improvement in companywide differentials.
In Southwest Appalachia, we have sufficient outlooks to market our growing gas production even if pipeline projects are delayed. We continue to monitor additional pipeline capacity opportunities to access the growing gulf coast demand going forward.
As the impressive portfolio of natural gas pipelines are billed and expanded, we believe the availability and cost of future capacity will further improve over time and fully support future development. We are confident about the solid foundation we have in place and are excited about the momentum we have built. I would like to now turn over to Clay to provide some further specifics on the exiting road ahead for this company.
Clay Carrell
Thank you, Bill, and good morning, everyone. To begin with, I'm excited to be a part of a company that has a long-standing culture of operational excellence. A core tenant of my operating philosophy throughout my career has been a continuous improvement focus on operational and technical excellence, and that’s one of the key things that attracted me to Southwestern. I'm even more impressed now that I have the chance to see the team in action firsthand and get a deeper understanding of our asset base.
As Bill mentioned total production was 897 Bcfe in 2017, production from Appalachia accounted for 65% of our total production or 578 Bcfe, an increase of 16% compared to 2016. Further, our 2017 gross operating exit rate was 2.35 Bcfe per day in Appalachia, a 40% increase compared to December 2016.
Appalachia assets generated over $500 million in EBITDA in 2017. Underlying this cash flow growth is a higher natural gas liquids component and an intense focus on applying technology and improving well efficiency. So doing more with less and doing it better.
Our year-end 2017 proved reserves of 14.8 Tcfe reflect our meaningful improvements to economics across our portfolio. We were able to enhance the economics through innovative breakthroughs and drilling and completion techniques along with renegotiated pipeline gathering and processing agreements. Proved reserves were comprised of 75% natural gas and 25% liquids compared to 93% natural gas and 7% liquids in 2016, driven by a significant increase in liquids rich Southwest Appalachia proved reserves.
Operationally throughout 2017, we utilize latest generation technology that tested tighter stage and cluster spacing increased panel longer lateral lengths and optimize flow techniques across the portfolio. These improvements resulted in increased type curves and improved economics in both of our Appalachia assets. As an example, in Southwest Appalachia, we increase the stage density and sand loading by 20% and 14%, respectively, in 2017, and increased the average horizontal lateral length by over 2,000 feet or 41% compared to 2016. The results from these wells are outperforming historical offsets by approximately 30% on a per lateral foot basis. And you can see the uplift in the type curve shown in last night's press release.
Additionally, in Northeast Appalachia, increased drilling precision in the optimal landing zones and enhanced completion designs are yielding higher well productivity and higher well returns, as evidenced, by an approximately 75% increase in first year cumulative production and approximately 25% increase in EUR over the life of the well.
As mentioned in the past, we have tested new designs in multiple counties in our Northeast Appalachia acreage and are seeing the uplift across our position. We expect to capture this enhanced value on all of our future Northeast Appalachia development.
Our well productivity is translating into improving capital efficiency demonstrated by the continued improvement in proved developed F&D. In 2017, total company proved developed F&D costs were $0.72 per Ncfe, 4% better than 2016. Capital efficiency is expected to further improve in 2018 as we take the learnings to the next level of application and look for even more ways to capture additional value.
Beyond our technical and operating capability, we are delivering additional value through the Southwest Appalachia water project, which is expected to save approximately $500,000 per well beginning in late 2018. In 2017, we also expanded our testing of prospective acreage in each asset. In Southwest Appalachia, we expanded the rich gas footprint of our acreage, placing our northern most pad to sales in Brooke County, West Virginia. This four-well pad has produced approximately 8 Bcfe of cumulative production comprised of 68% liquids and have an average F&D cost of approximately $0.50 an Mcfe with a gas breakeven price of less than $1, based on current oil prices. Based on these results, we have added an additional 6,000 acres in Brooke County and plan to focus our 2018 activities in the rich gas window of the play, further enhancing our economics.
In Northeast Appalachia, the company commenced development of its acreage in Tioga County, with gross production increasing to 73 million cubic feet per day at year-end 2017. Southwestern holds approximately 28,000 acres in the Tioga area and has commissioned the installation of the first phase of a gas gathering and water distribution system throughout this acreage. In 2017, we placed eight wells to sales in this area and had an additional 11 wells in progress.
The first portion of development in Tioga has shown encouraging results in Tioga activity is planned to increase as part of the 2018 Northeast Appalachia program, as we continue to develop more pads further delineate the reservoir and continue to capture acreage.
In Fayetteville, we tested two concepts in 2017, which included further delineation in the Moorefield and redevelopment opportunities in the Fayetteville Shale. The result of our Moorefield tests have derisked approximately 36,000 productive net acres out of the prospective 100,000 acres in the play. Additionally, we identified a significant opportunity for additional future value through the redevelopment of the Fayetteville Shale utilizing the latest generation drilling and completion techniques supported by our internal Big Data analytics.
The redevelopment opportunities include both redrilling infield wells in older, lower performing areas of the field, and drilling normally spaced proved undeveloped locations again using the latest drilling and completion technology and in some cases extending lateral lengths. The company drilled its first redevelopment well, a redrill of an older vintage well in the second half of 2017, which resulted in a 40% improvement in initial production rates over offset well averages, which validated the results generated by the data analytics model. Based on this result the company is currently drilling additional redevelopment opportunities to further validate the improved performance predicted by the data analytics model across the field.
I’ll now turn it over to Jennifer Stewart to discuss some of the recent financial highlights.
Jennifer Stewart
Thank you, Clay, and good morning everyone. One of our key 2017 initiatives was to improve financial strength in order to increase our resilience and flexibility in a volatile commodity price environment. We delivered on that initiative. In 2017, we took several steps to further strengthen the balance sheet by investing within net cash flow, which was supplemented by the remaining $200 million from our 2016 equity offering. We reduced gross debt by $262 million and extended our debt maturity schedule resulting in no significant bond maturities prior to 2022.
Further, improvements in pricing and operational enhancements combined with our liability management actions implemented over the last two years, improved our net debt to EBITDA ratio 38% to from 4.5x at the end of 2016 to 2.8x at the end of 2017. We remain committed to continuing improvement of our debt metrics with our announced strategic alternatives where we stated our attention to accelerate the path to below 2x.
Additionally, in the fourth quarter, we received consent from the majority of our 2022 and 2025 bond holders, to align the covenants of those bonds with our 2020, 2026 and 2027 bonds as well as to amend certain covenants that created additional financial flexibility. In the fourth quarter of 2017, we generated approximately $322 million in net cash flow, a 53% improvement compared to the fourth quarter of 2016, due primarily to higher liquids pricing, which more than offset lower NYMEX natural gas prices.
Our focus on NGL rich gas development resulted in a 44% increase in liquids production capturing the benefits of improved liquids pricing. In Southwest Appalachia, this resulted in an over 80% increase in margins compared to a year ago. For the total company, liquids revenues provided a $0.19 per Mcfe price uplift compared to a $0.06 per Mcfe price uplift in 2016.
As part of our commitment to ensure cash flow and economic returns on our capital investments, we continue to add to our hedge portfolio. As of February 27, we had approximately 70% of our 2018 production hedged at an average swap or purchased put strike price of approximately $2.97 with upside exposure up to $3.39 per Mcf on approximately 53% of those protected volumes. The company also had approximately 215 Bcf of 29 production hedged at an average swap or purchased put strike price of approximately $2.96 with upside exposure up to $3.31 on approximately 57% of those protected volumes. Our 2018 and 2019 positions continue to be predominantly costless collars in order to retain upside exposure to expect an improvement in commodity price.
That concludes our prepared remarks. Operator, we’d now like to open up the call for questions.
Question-and-Answer Session
Operator
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]
Our first question comes from the line of Charles Meade of Johnson Rice. Please proceed with your question.
Bill Way
Good morning. How are you doing Charles?
Charles Meade
I'm doing well. Thank you. Bill, I wanted to ask about the Fayetteville Shale and the expectations that that you'd like to communicate for. Can you talk about what timeline we should be thinking about? And also could you maybe add some thoughts about sort of buyer would be -- you're going to be targeting for this?
Bill Way
Let me put in the room for all the callers a comment around this entire process and ask you to bear with us. We are early in this process. We announced the process in order to bring context to our 2017 and 2018 performance .We spoken about the fact that a major driver for this is repositioning the company to capture liquids in the Northeast and that the funds from any kind of monetization of that asset would go in the first instance to pay down debt, and then the other things that I mentioned on the call. It's critical for you to understand and I'll ask for your indulgence that timing and details and success cases and non-success cases and floor pricing and any other things that may come at an angle on this question, we're just not ready to talk about them. This is -- we got a process to get underway, which we have started. But I ask you to be patient with us and as we work through and achieve milestones, we'll be more than happy to communicate those. But for right now, I'm going to put that -- ask you to just be patient with us.
Charles Meade
Certainly. Understood, Bill. I just wondered to see what more you would be interested in sharing. And then, if I could actually ask this follow-up question on the Fayetteville, also, Clay, I was maybe interesting to hear a lot of what you guys are doing with that asset, even though you're going to be partying ways with it. Well, particularly, you talked about redrilling a previous well. And I wondered, if you could elaborate a little bit more on that. Was this rebuilding an old well that had a bad frac or maybe you had screen outs on several stages, what was the bigger set up for why you redrill an old well?
Clay Carrell
Yes, the idea was around, we've been developing, producing that field for many, many years, and the quality of drilling and completion techniques has continued to improve across all these shale plays. And so our team continued to look for ways to add value in that asset and identify through the help of this data analytics model where we put all 4,000 wells into the model and look for the different areas that had the best performance. We identified those that were the older generation fracs that had not performed up to the averages of some of the more recent wells around them. And that helped used identify the candidates to do as you said, essentially go, redrill a 100 foot away from an existing well that didn't perform like we now think. We can get out of the field based on our analytics mode. And it played out right in line with that analytics model. So we were really pleased with that result.
Bill Way
And Charles, to follow-up with that a bit, you'll note in our results, the strategy behind all the work that's going on in Fayetteville, right now, is for the company to capture all of the value and upside that is present in that world class asset and position it to get maximum value out going forward. And so transportation renegotiations, the incredible work the teams are doing around Moorefield, and the work -- very strong and encouraging work that they're doing around redevelopment and opportunities is all part of the drive to maximize the value of that asset in this entire process.
Charles Meade
That's helpful Bill. So if I understand the comments, this was kind of -- you pick one of your more productive areas of the field and then find the -- maybe the lowest performing well in that productive area and that's how you sorted the opportunity.
Bill Way
That's how we started the first one. We have some additional wells that have been approved. And those will be testing spacing, testing a number of other dimensions. The real nugget here is applying the latest technology that we've proven, that we -- that delivers increased value, that we've brought from the Appalachian basin back to the Fayetteville and drive additional results. And the uplift on the first well was very strong and encouraging.
Charles Meade
Thank you, Bill, for the detail.
Operator
Our next question comes from the line of Arun Jayaram of J.P. Morgan. Please proceed with your question.
Arun Jayaram
Yes, good morning. My only question regarding the Fayetteville, I just wondering if you could help us with kind of the year-end PV10 value, and maybe just to split, and I guess 298 gas, but the split between PDPs and maybe undrilled inventory at that time?
Bill Way
You're talking from PV10 value, Arun?
Arun Jayaram
Yes. And I don't know if you have that at this strip…
Bill Way
Yes, most of that's going to be -- most of that's going to be PDP. And we don't have to breakout today's strip. But it hadn't changed great deals of SEC price. So, but most of that value is PDP because those are out later in the development cycle, so it is jamming.
Clay Carrell
Yes, the PDP component of the Fayetteville is a little over $2 million.
Arun Jayaram
Great, okay, that's helpful. Thanks, Clay. And just my follow-up, Bill, you talked about potentially looking at ways to kind of renegotiate some of the transportation agreements were you successful in the Fayetteville. Could you just give us a little bit more color around that?
Bill Way
Sure. We previously announced, a couple of quarters ago, the Fayetteville has two major transportation routes out for Southwestern. And those agreements, there's two parts to it: One, we don't consume use all that transportation in our operations today; and two, they expire in '19 and '20, I believe. And so what the team did is take a look like they've done across the company at what options do we have? How do we get out from under some of the excesses that we have and how do we extend and lock-in a pathway to the growing Gulf Coast market? And so basically they did that. They went to the parties, one of them, in particular, wanted to engage us, so we engaged them. And basically, renegotiated, amended and extended the agreement, allowing for some near-term value, about $70 million to come back to us. And then a long-term transportation rate for 10 years to the Gulf Coast, which can be renewed and extended at a very-very favorable transportation rate.
Arun Jayaram
And is there opportunity to do something similar in Appalachia?
Clay Carrell
In the Northeast Appalachia, we've already got industry-leading portfolio of very low cost transport. And so, we've done some work in our history around this, and it’s paid us well. In the Southwest Appalachia Basin, we've been – our strategy has been very clear about committing to as much transportation as we needed to get the pipes built where we wanted them built and then begin to grow into those with a very clear expectation that has all of these pipelines come on and all of the transport comes into play that the opportunity for capacity to add on to our portfolio at a lower cost is certainly present. And we will phase that in as we develop our asset that we believe that there is more than enough capacity to allow us to grow very significantly in that basin. And we are not under a large amount of long term, very, very high cost transport that needs to be renegotiated. We took a different tact, and we think it’s going to pay off for us.
Arun Jayaram
Thanks a lot.
Operator
Our next question comes from the line of Michael McAllister of MUFG Securities. Please proceed with your question.
Q – Michael McAllister
My question is on the Fayetteville redevelopment program. Can you go into what you are doing in 2018? And is it being done with the budget of $25 million or $15 million or at the midpoint?
Clay Carrell
Yes. So, we've got a drilling rig running right now. And like Bill mentioned, we're further testing the different concepts that are part of this redevelopment opportunity in line with the model that we're using and those dollars are all included in the 2018 budget capital.
Q – Michael McAllister
So, it’s as high as 25 and that’s what they're working was in the Fayetteville?
Clay Carrell
That’s total capital. There’s some other capital that’s non-drilling and completion related in that total number, but that’s the total pool of money that we are currently working on.
Bill Way
And, as you think, about just that the kind of the broader sense, our capital allocation principles and practices to invest in the high PDI projects remains. The majority of our capital is allocated to the Northeast, but the terrific potential that we think could be unlocked if these tests actually come through is a game change – could be a game changer for just the whole view on Fayetteville from -- the breadth of the 900,000 acres we have. And so it’s very early days. We're doing this one test at a time, being very structured about it and very disciplined about it. All of the while honoring our capital allocation practices of targeting high value investments.
Q – Michael McAllister
I guess you are trying to get to the balance of that, because this -- if the goal is to find the strategic alternative for Fayetteville, I would almost put a little bit more capital and try to – as you're trying to sell this in some form. And you convey more upside by doing more capital there, might not be PV10, for you, because you have higher rates in other areas. But if you can create it, why wouldn’t you put a little bit more capital into it, and kind of accelerate that to show the ways of this field?
Clay Carrell
Yes, and we certainly discuss quite headline to your point. And so, just be straight-line is what I'll tell you. We are working this to pace, we've got the greater value of the enterprise, certainly in front of us mine and in mine. So just stating – we'll update you more as we go forward.
Q – Michael McAllister
Okay. Fair enough. That's great. Thanks.
Clay Carrell
Thank you.
Operator
Our next question comes from the line of Brian Singer of Goldman Sachs. Please proceed with your question.
Brian Singer
Wanted to start, and hopefully this will qualify that, okay, stay with the Fayetteville question. Can you just talk a little bit about the framework for how you would use the cash coming in? And you talk something in your opening comments, but wondered as you think about debt pay down and balance sheet specific leverage objectives. And then as you think about potentially accelerating to add or to accelerate exposure to Southwest PA liquids if acreage acquisitions would play into that?
Jennifer Stewart
Hi, this is Jennifer. And, yes, we did, we think, we in our 8-K that we announced, there are strategic alternatives for the sale of Fayetteville Shale in my prepared remarks. We said we're targeting debt to EBITDA of about two times or lower, actually two times. But really the decision on what debt we're going to address with any potential sales proceeds and that includes the decision of bank versus bond debt near or longer dated maturities? It's really going to be based on the amount of proceeds that we receive both and the market conditions at the time we get the processes. So, as of right now, it's just -- again, as Bill said, stay tuned on that.
Bill Way
And in terms of broader usage, we mentioned potential return to shareholders. Today we're prohibited under our agreements to be there. So we label this a debt reduction priority first. If we're going to go and be able to use funds for return to shareholders, we have to get an approval, we're in a better spot and we get some of data first, so we'll do that. Certainly, by doing this, it provides us with much greater flexibility, stronger balance sheet, and the -- the numbers that Jennifer talked about and the options that are available to us to look at are certainly there. We find a certain portion of acreage in and around our assets, the acreage that Clay talked about in Brooke County, we have a land budget within our overall capital budget to do with things like that, and we will continue to pursue that. But as we get the uses of funds or sources funds identified by a successful implementation of this plan, it will, as Jennifer said, bring more clarity to where exactly that will go.
Brian Singer
Great. Thank you. And then my follow-up is with regard to Southwest Appalachia. You raised your type curves and talked about further improvements in productivity and efficiency. Can you just talk recovery rate is, the increases in your reflective of greater cumulative recovery? Is that offset by fewer locations than where other's recovery rates now?
Clay Carrell
Yes, it's definitely improving recoveries because we are getting greater frac intensity in each of our stages. And so we believe we're in proven the recoveries and then that's translating to the greater EURs and its part of the ongoing continues improvement around the drilling and the completion designs.
Brian Singer
Thanks. Can you talk about your recover rates are or…
Bill Way
Yes, I think, right now, some of this work is our reliant. So what we try to do is get a plug history long enough to be able to both determine the EURs and determine recoveries. But it's all pointing in the right direction.
Brian Singer
Thank you.
Operator
Our next question comes from the line of Drew Venker of Morgan Stanley. Please proceed with your question.
Drew Venker
Good morning, everyone.
Bill Way
Good morning.
Drew Venker
Bill, hoping you could talk about pro forma, the Fayetteville sale. What kind of growth you think you could deliver, I guess, thinking beyond 2018 cause the metrics you talked about for this year is still going to be in the process and again in sale and then potentially don't pay down, and you're same at them, and that brings you growth rate that's, I think, really pretty high, but if you're spending to cash flow in 2019 and beyond, have you run through what those numbers might look like?
Bill Way
Yes, I mean, we model, obviously. We're going to continue to invest within cash flow. That's the objective. And so, with pricing and the volatility of that and the yet to be determined total amount, we would get for Fayetteville's kind of premature. The numbers that I said in my opening comments around the ability to grow at these cash flow numbers that the Appalachian Basin alone generates will be double digit growth and robust.
Drew Venker
That -- Bill, you meant for that number beyond 2018?
Bill Way
Right.
Drew Venker
Okay. And is there any significant amount of midstream EBITDA that would be left after you sold Fayetteville gathering?
Clay Carrell
We've got 25 meters Tiago placeholder from like marketing activities and things like that that's captured in that guidance we put out.
Drew Venker
Okay. And have you provided any updated drilling inventory for Appalachian? I'm sorry if I missed that.
Clay Carrell
We -- I think, that is going to be in the release of the presentation deck that'll come out after this call. But we've got future inventory in Southwest Appalachia around 3,700 future drilling locations in total, and then in Northeast Appalachia, it's over 400.
Drew Venker
Okay. And, Clay, how much of that in Southwest Appalachia is attributable to Marcellus? Or is that all Marcellus?
Clay Carrell
No, it’s not all Marcellus. About a little over 2,000 of that is Marcellus.
Drew Venker
Okay. Well, it's still quite a big number, okay. And then just on the corporate costs, you guys have talked about, doing a pretty high level and detailed review of the cost structure and the opportunities there, do you anticipate that G&A could be materially reduced whether or not you sold the Fayetteville or are there other costs that you guys are targeting?
Clay Carrell
Well, we're looking at all costs in the company. And whether that's G&A, LOE any other kind of costs along the dollar piece and transportation everything. So everything's on the table to evaluate our stated objective is to be top quartile in this scenario are the part of our business. And so as we dig into and evaluate all the dynamics or the dimensions of that project, we will bring those this cost segments to the table. We're not -- we haven't put any kind of number or range even in our own head so that we don't limit what we're looking at. We want to do a very rigorously benchmarked analysis, which is well underway against our peer group. And our stated objective is to be in that top quartile.
Drew Venker
Okay. Nice.
Operator
Our next question comes from the line of Jeffrey Campbell of Tuohy Brothers. Please proceed with your question.
Jeffrey Campbell
Good morning.
Clay Carrell
Hi Jeffrey.
Jeffrey Campbell
Just for variety of us, not ask a Fayetteville question. I thought the increased type curve based on the -- as completions are really quite noteworthy. I just want to ask first, is the ceiling on improved well performance starting to come in the view and after all 75% improvement so on? Second, do you expect to see similar percentage uplift in well performance on a percentage basis and other counties? Or is this uplift fairly you need to []
Bill Way
We believe the improved completion technology is going to lead similar improvements in performance across the acreage position. There’s varying development areas across our position, but we think we will be able to generate similar increases. And it, I think, the continued learning around the best way to frac these shale wells is going to continue to grow, and we're going to continue to see increases.
Clay Carrell
I don't know for six years, and we have had this question asked about some, we have a track record of getting into an area and applying learning, the capturing of learning and applying it is what really matters and have an asset we're at the ceiling, and we continue to say no and we've continued to demonstrate no. So the use of the data analytics models that we have, we've have two of the largest inventories of wells, ready one, and leveraging that and then reconfirming our engineers and scientists and operations folks continue to drive innovation. And it’s a really a delightful thing to watch.
Jeffrey Campbell
I appreciate that color. And let me just ask as a follow-up, apart from the enhanced completions themselves, do you still have upside with regard to longer laterals in the Northeast or where are you pretty much tapping the limit there?
Clay Carrell
Yes, we do. It’s obviously connected to the unit size or we have to renegotiate to extend units in. And so we have opportunities in all of the assets even in some of the areas in Fayetteville to extend lateral length. And we have some big objectives to do that. And for a group of people out from our commercial side of the company and land to help facilitate that where it might not be obvious in front of you by renegotiating the landside of the deal.
Bill Way
And some of that with partnering would offset operations.
Clay Carrell
Yes.
Jeffrey Campbell
Okay, guys. Thanks for the color. I appreciate it.
Operator
Our next question comes from the line of Sean Sneeden of Guggenheim Securities. Please proceed with your question.
Q – Sean Sneeden
Hi, thank you for taking the questions. I guess, just number one is on the term loan, Jennifer. Given the 2020 maturity, how you guys are thinking about that? Do you need to wait for, I guess, the Fayetteville sale to take place or do you think there’s more of near term refinancing event in that sense?
Jennifer Stewart
As of right now, we don’t have anything, there’s no concrete plans. We're waiting to see what how the Fayetteville progresses and what the proceeds are. And then, like I said for the previous caller, we have a lot of decisions to make on bank versus bond debt and with respect to bond debt, the nearer or longer debt maturities. And then we also, as part of the scripted remarks, we've built in a lot of flexibility up to now. And we really want to take advantage of that flexibility and then evaluate what options we have to make our capital structure more efficient. So we are going to put that across for a little bit and make our decisions at the right time based on market conditions and also the outlook from our outlook frequency?
Q – Sean Sneeden
Okay. That, I think that make sense. And so, really we should be thinking about more of a holistic review of the cap structure whenever you have a Fayetteville sale in hand that really kind fair in that sense?
Jennifer Stewart
That's right. Yes. Yes.
Q – Sean Sneeden
Okay. And then, Bill, I think, in your prepared remarks, you mentioned the Appalachian assets to generate these amount of cash as you scale up, and I guess, just longer term, and I think you talked a little bit about some of the previous questions. But just, is the thought process there to use the free cash flow return to shareholders through dividend or share buybacks. And I guess if so is that -- more do you think the balance sheet needs to be where the levers need to be in order to do that?
Bill Way
Again, we’re targeting debt to EBITDA less than two or at two. We are able to as we move forward in time once the transaction would occur to be able to fund from cash flow from those assets as they continue to improve and grow in scale. And then the third and probably large point that Jennifer mentioned is if we to be able to be free to return capital to shareholders we get covenants that we need to change and we think the best time to think about changes in those debt we've taken some of the risk and some of the debt off. And then go improve and get those clear to get those debt optional ties.
Q – Sean Sneeden
I think that makes sense. And then just one last one if you don’t mind, but you guys highlight that nice performance there and uplift in the Appalachian type curve. I just want to make sure the guidance you guys have out there, is that incorporating that current performance or you guys using more repeatedly outcome?
Bill Way
It includes the performance we put out. Once we can validate performance similarly what we put on these curves, we move our debt into that performance.
Q – Sean Sneeden
Okay, perfect. Thank you very much.
Operator
Our next question comes from the line of Greg Brody of Bank of America Merrill Lynch. Please proceed with your question.
Greg Brody
Hey, guys, just one follow-up, on the debt side, you mentioned that covenant restrictions that would prevent you from buying back equity. Is that at the -- what securities out of that? Is that term loan? Is that the bond as well?
Jennifer Stewart
Yes, the term loan, currently the way we negotiated our current bank facility prevent us from issuing dividends or buying back shares. We would anticipate that when we -- as I mentioned before when we're looking to streamline our capital structure and become more become more efficient with the capital structure that we would look to negotiate with our consortium of banks to have some type of outlet depending on certain credit metrics and utilization of whatever facility we use to be able to do a certain amounts of dividends or buybacks. But as of right now, our current credit facility prevents that.
Greg Brody
Could you just remind me how many types are new term loans?
Jennifer Stewart
Approximately 24.
Operator
Thank you. Ladies and gentlemen, we have reached the end of our allotted time for questions. I would now like to turn the floor back over to Mr. Way for closing comments.
Bill Way
I just want to thank everyone for being on the call today. We've got a great team, and I think you've seen results that continue to deliver on the commitments to drive long-term value for our shareholders and our company. We got more to do as we reposition the company to be top quartile performer in the U.S. shale business. We're focused on our high-value liquid rich investment opportunities within our existing position in the Appalachian basin. And we look forward to joining you again in the next call to discuss progress being made on the repositioning of our company and all of the exciting things to come around our existing assets. So thanks for being on the call, hope you have a great weekend. Take care. Bye.
Operator
This concludes today's conference. Thank for your participation. You may disconnect your lines at this time and have a wonderful rest of your day.
- Read more current SWN analysis and news
- View all earnings call transcripts