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Text: Although we believe the expectations expressed are based on reasonable assumptions, they are not guarantees of future performance and actual results on developments may differ materially and we are under no obligation to update them.
We may also refer to some non-GAAP financial measures which help facilitate comparison across periods and with peers.
We really appreciate you joining us on the call today for our discussion.
We delivered another strong quarter, both financially and operationally.
In addition, we financed, closed and integrated the Indigo acquisition, a transformative opportunity that positions us well in the two premier US natural gas basins.
By way of one example we just surpassed 4 trillion cubic feet of responsible natural gas production in our Pennsylvania asset in Northeast Appalachia which continues to deliver great value to the Company.
Our strategy is comprised of four interdependent pillars including creating sustainable value, protecting financial strength and progressing our leading operational execution.
Results delivered by our teams in these first three pillars allow us to execute the fourth pillar, capturing the tangible benefits of scale.
Our strategic intent is to be the preferred investment vehicle for institutional investors to gain exposure to responsible natural gas development.
The acquisition of GEP announced earlier today directly supports that intent.
It also meets all the criteria of our disciplined acquisition framework as any deal must.
GEP brings large scale core Haynesville assets with stacked pay Haynesville and Middle Bossier inventory.
The 226,000 net effective acres are adjacent to SWN's newest operations in the Haynesville.
The addition of GEP increases SWN's total production to 4.7 billion cubic foot a day [Phonetic] equivalent per day, including 1.7 Bcf per day from Haynesville making us the largest operator in the Haynesville.
It will also increase SWN's expected year end 2021 SEC proved reserves to approximately 21 trillion cubic feet equivalent.
The transaction had 700 economic locations to our high quality inventory with the scale adding acquisitions, well cost reductions, performance enhancements and commodity price improvement.
The Company now has approximately 6800 economic locations across the enterprise.
Given the strength and complementary nature of our portfolio, we expect to have investment activity across all of our operating areas in 2022 as part of our maintenance capital program.
With the expanded exposure to LNG -- the LNG corridor and the growing demand centers along the Gulf Coast, this acquisition will further improve the Company's overall basis differentials and increase our margins.
The access to high value global markets will supplement our premium Appalachia outlets [Phonetic].
As part of our leading ESG practices, we plan to implement a responsibly sourced gas program in the Haynesville.
Beyond the clear ESG sustainability benefits, we believe that responsibly sourced gas will ultimately lead to enhanced margins and improved economics from greater access to global markets.
Turning to the terms of the deal, the $1.85 billion total consideration is comprised of $1.325 billion in cash and approximately $525 million of SWN stock.
The cash portion will be debt financed and the equity portion will consist of 99 million shares of SWN stock calculated per the agreed 30 day VWAP of $5.28 per share as of November 3.
The purchase price implies an enterprise value to projected '22 EBITDA of 2.9 times, a meaningful discount to where SWN currently trades and at a discount compared to other recent natural gas consolidation transactions.
Given this attractive valuation, we expect that the transaction to be immediately accretive to SWN's margins, returns and key per share metrics.
Cash flow per share, free cash flow per share and earnings per share all increased by approximately 15%.
Included in these accretion estimates are the already identified $25 million of synergies in 2022.
We expect our synergy capture to increase to $50 million per year starting in '23.
The integration of GDP will be enhanced by our recent experience integrating Indigo as well as with a six-month transition services agreement negotiated with the seller.
We expect to close the deal by year end subject to customary closing conditions, including regulatory approvals.
Before I get to some operational details related to the acquisition, I want to touch on the third quarter results for our team hit the ground running in Haynesville and continue to deliver in Appalachia.
In 3Q, which included 30 days of Haynesville, we reported total production of 310 Bcfe at the top end of our guidance range.
We exited the quarter producing 4 Bcfe per day including 1 Bcf per day in Haynesville.
Total production included 106,000 barrels per day of NGLs and oil which is flat with the previous two quarters.
During 3Q, we averaged four drilling rigs in Appalachia and there were six rigs running in the Haynesville with two completion crews in each area.
We have now been operating the Haynesville for two months.
Our new employees in Houston and Louisiana have been integrated into the business and operations have been running smoothly.
Our initial focus in Haynesville has been to leverage the operational expertise that our combined teams bring to the table.
In September, we brought our first five wells online, all of which were in the Middle Bossier with an average initial production rate of 24 million cubic feet per day and an average c lat of approximately 6300 feet.
These results are indicative of the quality of our existing Haynesville position and with today's GEP acquisition announcement, we increased the scale of that high quality position.
As Bill mentioned earlier, the proximity of the GEP acreage to our existing Haynesville position will allow for operating economies, marketing synergies and contract optimization realizing the benefit of our enhanced scale.
GEP is currently running four rigs and one completion crew and expect to exit the year running three rigs.
We will issue formal 2022 guidance early next year and maintain our commitment to maintenance capital program with investment of approximately 1.9 billion holding production flat.
I'll close by acknowledging the continued high-end performance of our technical and operating teams who are driving improved performance through efficiency gains, innovation and knowledge transfer.
We have established a track record of leading operational execution in Appalachia and we expect to do the same in Haynesville as we move forward with our 2022 development plan.
During the quarter, we generated $105 million of free cash flow.
We expect our free cash flow to materially increase in the fourth quarter.
We ended the third quarter with $4.2 billion in total debt, reducing our leverage by 0.4 times to 2.2 times.
Turning to today's announcement, we plan to finance the acquisition in the manner that A, protects our financial strength; while B, minimizing equity dilution.
From a debt perspective, the deal is essentially leverage neutral with our expected year end leverage near 2.0 times.
And as Bill referenced and I'll discuss further, we have a clear and appropriately de-risked path to materially lower total debt and leverage ratios.
From an equity perspective, the transaction should drive immediate double-digit accretion across key [Indecipherable] maintenance.
Given our increased scale, with the current commodity price outlook, we would expect approximately $2.3 billion in free cash flow over the next two years.
We intend to apply our disciplined hedging approach to the acquired production.
We should go a long way to safeguarding this expected cash flow.
Using this cash for debt repayment, we'll reduce our total debt to approximately $3 billion, our leverage ratio to near 1.0 times, our debt would then be at the low end of our announced $3.0 billion to $3.5 billion target range and our leverage ratio at the lower end of our newly announced 1.0 times to 1.5 times target range.
We added the absolute debt range to the updated leverage target range to provide better clarity to the market about how we're thinking about the right hand side of our balance sheet.
Importantly, as we approach our total debt and leverage targets, we would look to initiate a return of capital program.
The Company's hedging strategy remains a core part of our enterprise risk management process.
We would like to clarify the execution of some aspects of our hedging approach.
Given the Company's improved financial strength, going forward, we will target hedging at a level sufficient to cover the Company's expected costs and capital program assuming conservative pricing on unhedged production.
In general, with this dynamic construct, where hedging levels will shift to lower or higher inversely with commodity prices, and directly changes to our cost structure and capital investment.
We believe our hedging approach protects the Company's financial strength while retaining appropriate exposure to potential commodity price upset.

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qtrly reported total production of 310 bcfe, or 3.4 bcfe per day, including one month of haynesville production.

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