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Southwestern Energy Co (SWN) Q1 2021 Earnings Call Transcript

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SWN earnings call for the period ending March 31, 2021.

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Southwestern Energy Co (SWN 2.71%)
Q1 2021 Earnings Call
Apr 30, 2021, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Southwestern Energy's First Quarter 2021 Earnings Call. [Operator Instructions] [Operator Instructions]

I would now like to turn the conference over to Brittany Raiford, Southwestern Energy's Director of Investor Relations. You may begin.

Brittany Raiford -- Director of Investor Relations

Thank you, Andrea. Good morning, and welcome to Southwestern Energy's First Quarter 2021 Earnings Call. Joining me today are Bill Way, President and Chief Executive Officer; Clay Carrell, Chief Operating Officer; Michael Hancock, Interim Chief Financial Officer; and Jason Kurtz, Head of Marketing and Transportation. Before we get started, I'd like to point out that many of the comments we make during this call 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 in the Forward-Looking Statements section of 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 and 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 comparisons across periods and with periods. 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.

Bill Way -- President and Chief Executive Officer

Thank you, Brittany, and good morning, everyone. We appreciate you joining us today, and I hope that all of you are safe and well. Southwestern Energy's returns-driven strategy focuses on creating sustainable value, protecting financial strength, consistently delivering leading operating and financial results and pursuing opportunities to capture the benefits of increasing scale. We made solid gains on our 2021 plan this quarter. The business generated $88 million in free cash flow and paid down debt as promised. We delivered production within guidance from our maintenance capital program, further lowered total costs, including well costs and delivered drilling and completions achievements, all while remaining financially disciplined. The continuous efforts to optimize our business performance are clearly evident in this first quarter results. Post hedge price realizations increased 18% compared to the first quarter of 2020, while our cash flow is up 85%, highlighting another benefit of increased scale and improving performance across the enterprise. The broader market dynamics have materially improved, and fundamentals for all commodities are indicating support for higher prices. Except for the record-setting weather in February, the U.S. experienced a relatively mild winter, yet natural gas storage balances remain near the five-year average, driven by decreased natural gas supply and strong export demand. In fact, LNG gas recently reached new highs of nearly 12 Bcf per day, and exports to Mexico have topped six Bcf per day.

The 2021 WTI strip price has improved over $8 per barrel since we set our guidance in February, with transportation demand improving and Opec-plus compliance shaping supply increases to better match demand recovery. The NGL landscape also remains promising with low propane storage levels and increased global demand for both ethane and propane. We positioned the company to take advantage of these supportive market fundamentals to capture additional value and greater free cash flow. So why invest in SWN? We think it's very straightforward. As I said earlier, the company is expected to generate meaningful free cash flow directed to debt reduction. We've got a strong balance sheet with ample liquidity and a leading debt maturity runway. Our Tier one assets across almost 800,000 acres in West Virginia, Pennsylvania, and Ohio are expected to produce more than one trillion cubic feet of clean natural gas and basin-leading liquids production this year. These assets offer flexibility from a diverse commodity profile, including prolific dry gas wells and the highest condensate yield acreage in the Appalachia Basin. We consistently exercised discipline in our capital allocation, investing in the highest return projects across our high-quality inventory that meet our rigorous internal hurdles. We're a cost-focused operator with top-quartile well cost, and we have realized broad reductions across all expense categories.

Our differentiated operating capabilities are consistently demonstrated by our highly talented people, operating company-owned drilling rigs, frac fleet and extensive water pipeline networks. Our production is marketed through a diverse and rightsized transportation portfolio with access to premium markets. And foundational to all of this, Southwestern Energy is also recognized for ESG leadership. Many of today's ESG headlines are, in fact, past achievements for SWN, including low GHG emissions and methane intensity, transparent chemical management and disclosure, responsible land use, water conservation and leading corporate governance standards. For example, we continue to join with local and stakeholders to always replace more freshwater back into the office than we consume in our operations in the areas where we work. We've replaced more than 14 billion gallons of freshwater to date. We demonstrated our commitment to the importance of ESG by adding methane intensity to our corporate compensation scorecard and increase the overall weighting on the scorecard of ESG-related metrics.

Each day, we take steps to strengthen our social license, to operate by committing ourselves to a higher standard of care for our employees, our communities and the environment. As we've done for years, we'll continue to progress our ESG efforts through actions that make a meaningful impact for our stakeholders, including the communities in which we're proud to work and live. And later this year, we'll publish our eighth annual corporate responsibility report, which will provide a comprehensive view of the company's efforts and achievements. Remaining at the core of our value proposition is a commitment to the right people doing the right things. Our success depends on the alignment of a fully engaged, diverse and inclusive workforce nurtured by our high-performing value-driven culture. So as you can see, there's plenty of proof points supporting SWN's value proposition for shareholders.

Now to get in a little more detail, I'd like to turn over the call to Clay to discuss some specific operating achievements in the quarter.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Thanks, Bill, and good morning. We continue to demonstrate leading operational execution leveraging technology, innovation and efficiencies to capture untapped resources, improve well performance and drive well cost down to enhance returns. We are building on our success, executing on our 2021 plan with production costs and activity levels on track in Q1. Let me give you some highlights from the quarter. We delivered total production of 269 Bcfe or three Bcfe per day, slightly above the midpoint of guidance. Gas production represented 79% of total production, with oil and NGLs making up the remaining 21% at approximately 103,000 barrels per day. During the quarter, we averaged five drilling rigs, two in Pennsylvania, two in West Virginia and one in Ohio with three frac crews. As planned, we invested $266 million of capital in Q1 and expect the second and third quarter expenditures to trend slightly lower before declining in Q4, similar to 2020. We brought 17 wells to sales in the quarter, drilled 23 and completed 29. Overall, costs on wells to sales came in as expected at $628 per foot with an average lateral length of approximately 13,000 feet. As a result of our vertical integration assets and teams, we have been able to methodically increase lateral lengths across the program and realize the improved returns and efficiencies that come with successfully drilling longer laterals. We remain on track to deliver our previously guided 10% reduction in well costs as well as the 15% increase in average lateral length.

The combination of our operational execution and Tier one assets continue to provide differentiated well performance across both our dry gas and liquids-rich areas in the basin. In Northeast Appalachia, we brought online a three well dry gas pad in Lycoming County, with an average initial production rate of 33 million cubic feet per day per well and an average lateral length of approximately 16,000 feet per well. In Southwest Appalachia, the condensate-rich acreage continues to impress. In the quarter, we brought online a 13,000-foot super-rich well with an average 30-day condensate rate of over 900 barrels per day. Further emphasizing the quality of this acreage at the end of last year, we brought online a seven-well pad that has continued to perform well, averaging 770 barrels per day per well in the first 90 days of production.

In Ohio, we drilled our first Utica dry gas wells in Monroe County since the acquisition. The drilling portion of the wells have gone as planned, and they are currently being completed. The pad is expected to be online in the second quarter, and we are on track to deliver the $100-per-foot well cost reduction that we previously guided. Innovation and technology continue to play a key role in our success. This quarter, we completed three more pads utilizing our SWN-owned frac fleet and the double-zipper frac design, averaging 12 stages per day and saving approximately $150,000 per well. We keep raising the bar on our operational performance and expect to continue that trend going forward. I believe we have a competitive advantage that comes from our Tier one acreage, vertically integrated assets and teams and our outperformance culture. I'm excited to see the teams deliver once again this year.

I'll now turn it over to Michael to discuss the financial highlights.

Michael Hancock -- Interim Chief Financial Officer

Thank you, Clay, and good morning, everyone. As Bill mentioned earlier, our plan is to generate material free cash flow, which will be used for debt reduction on our path to a sustainable two times leverage ratio. In the first quarter, we made meaningful progress toward that goal. We reported adjusted EBITDA of $382 million, net cash flow of $354 million and free cash flow of $88 million. Consistent with our commitment to reduced debt, we lowered the balance on our $2 billion revolver by $133 million this quarter, resulting in an outstanding balance of approximately $570 million. This reduction in debt, coupled with our growing EBITDA, resulted in a decrease to our leverage ratio of 0.5 times. We expect to further delever as we move through the year and progress toward our two times leverage goal.

During our regularly scheduled spring borrowing base redetermination, our revolving credit facility and commitments were unchanged at an elected $2 billion, maintaining strong liquidity with asset coverage that continue to exceed the borrowing base. Our quarterly financial results were ahead of consensus, and our weighted average realized price, including the impact of hedges, increased nearly $0.40 per Mcfe compared to a year ago. Despite the mild weather in the first quarter, our reported gas price differentials were better than planned, primarily due to our transportation to premium pricing locations. Looking ahead to the second quarter, we expect our realized gas differentials to be consistent with seasonal impacts in previous years, resulting in an $0.85 to $0.95 discount to NYMEX range, consistent with the assumptions built into our full year guidance. We expect to continue to benefit from our transportation portfolio throughout the year. And when combined with our basis hedges, we have over 80% of our natural gas production protected from widening differentials in the Appalachia Basin.

During the quarter, liquids prices continued to improve, driven by supportive supply and demand fundamentals. Looking forward, we believe NGL and oil prices will remain strong. And even with the improvement in WTI, we expect the second quarter NGL price realizations as a percentage of WTI and oil differentials to be in line with our guidance ranges. To sum it up, we're off to a good start to the year with another quarter of solid financial results. Supported by the macro environment and our continued execution, our 2021 plan is expected to even further solidify our strong financial foundation. That concludes our prepared remarks.

Andrea, could you please open the line for questions?

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Charles Meade of Johnson Rice. Please go ahead.

Charles Meade -- Johnson Rice -- Analyst

Good morning Bill, to you and the rest of Southwestern team there.

Bill Way -- President and Chief Executive Officer

Good morning Charles. How are you?

Charles Meade -- Johnson Rice -- Analyst

I wanted to ask a question on the optionality you guys have across the products on your acreage position. Are you seeing anything either spot prices or a forward curve that's leading you to kind of shift your capex one direction or the other? Or are we going to proceed with the mix that you guys contemplated at the beginning of the year?

Bill Way -- President and Chief Executive Officer

Yes. We set our -- the mix of our investment across the enterprise based-off of strip pricing for all commodities-plus basis. And we put that in our model. The good news that we've got is that at this point, investment in any of the areas across the enterprise is comparable in terms of returns, thus our investment in both dry gas and super-rich gas and in all three areas. We watch that continuously, but we're really looking more for trends a little longer term than just in the short term to be able to make those shifts. The good news also is that we have vertical integration, so we drill and complete many of our own wells. And therefore, we can move about the area at will as we see those trends changing. But for right now, I think the comparative nature of economics and returns says put about 50% of the investment in dry gas across the areas that have dry gas and put the other half in liquids rich and super-rich wells.

Charles Meade -- Johnson Rice -- Analyst

Got it. Thanks for that Bill. And then if I could drill down -- my second question, drill down a little bit more on your Northeast Pennsylvania position, I guess, as you call your Pennsylvania position. Can you give us a sense of your remaining inventory up there? And how that inventory splits between Lower Marcellus and Upper?

Clay Carrell -- Executive Vice President and Chief Operating Officer

Sure, Charles. So the lower core Marcellus opportunities that we consider economic in the current environment right now are pushing somewhere around 150 to 200 locations. We have an additional couple of hundred Upper Marcellus locations that we're methodically testing and working through. We talked about at the beginning of the year that we were going to do a couple more Upper Marcellus wells in 2021. And then there's Flat Castle, Utica inventory that came from the Montage asset that's a little further removed, but looks pretty interesting. That's kind of the opportunity set that is more in the front of the line right now in Northeast Appalachia.

Charles Meade -- Johnson Rice -- Analyst

Got it. Thanks for that Clay.

Operator

The next question comes from Neal Dingmann of Truist Securities. Please go ahead.

Neal Dingmann -- Truist Securities -- Analyst

Good morning guys. A couple of things. One, it looks like you're doing well and your free cash flow and could hit your goals. I think even, what, potentially before year-end. I'm just wondering, once you get to some levels that you're very comfortable with on the leverage side, kind of the tip question has been coming out. I'm just wondering not only what you might think about doing or how you would think about allocating the shareholder return, but maybe how aggressively out of the gate? Or is that something you would just sort of build into?

Michael Hancock -- Interim Chief Financial Officer

Yes. No -- this is Michael. I think the way you think about that is as you get to the two times -- kind of we've mentioned is your first step is you want to make sure that two times is sustainable, right? It's not just a blip on the radar. So we'll do that. Once you get comfortable that it is, then you're exactly right. Then all the options go on the table, you look at them. And there's plenty of variables that go into that decision, the macro fundamentals, your outlook, how your equity's performed, what you're bond trading levels are, all those types of things. We'll look at those at that time and see what we kind of view as the optimal long-term value for the shareholders at that point. But I think we want to get to that sustainable two times, and that conversation is right behind that.

Neal Dingmann -- Truist Securities -- Analyst

That makes a lot of sense -- good -- great details. And then just one follow-up. You all -- maybe even versus some others, it seems like your costs are really holding in well. And I'm just wondering anything you might be able to comment, I don't know, not just on OFS, but maybe other costs? And then are you seeing any type of product or personnel shortages out there? It doesn't seem like it but I thought I would ask.

Bill Way -- President and Chief Executive Officer

No. I think that we still are going to experience, we expect through the balance of the year, a little bit of deflationary trend before we expect to see sometime next year a slight uptick. Reminder that we -- a major expenditure of ours is drilling and completions. We own and operate all of our own rigs, and those people are SWN employees that we're thrilled to have. And so they're a part of the organization and the frac business as well. And so we are insulated from cost swings in that space. I think our procurement group has done a terrific job of really stretching out the horizon, contracting up longer-term expenditures where we can. Obviously, anything that requires additional resources, we've got to make sure that those are there and that they're competent to do what we need them to do. But we don't expect charges, and I think we're in a pretty good position from the standpoint of having a right-sized business and control over some major expenditures from vertical integration.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Yes. Just to add to that would be the self-sourcing of the sand that we do through our supply chain group, and that is also a big benefit for us.

Neal Dingmann -- Truist Securities -- Analyst

No, definitely noticeable in your cost that you kept them down. Thanks guys.

Operator

The next question comes from Holly Stewart of Scotia Howard Weil. Please go ahead.

Bill Way -- President and Chief Executive Officer

Hey Holly.

Holly Stewart -- Scotia Howard Weil -- Analyst

Good morning -- good morning gentlemen. Good morning Brittany. Maybe I'll start off here, Bill, on just the free cash flow guide. I mean I think based on our expectations at this point, you're pretty handily going to exceed that guidance. So is it just time that you need? Or I guess what do you need to see to gain comfort and sort of elevating that guidance level?

Michael Hancock -- Interim Chief Financial Officer

Yes. Hi Holly. It's Michael. I think the way we look at it, we kind of gave some calibration data points for everyone, right, with the $277 million and $50 oil, gives you about $275 million and then you get to $3 and $58 oil gives you more than $375 million. Obviously, prices have strengthened the business at conversation. So they changed price -- prices change daily. So obviously, it moves around. But you're exactly right. With what you've seen strengthened since then, you'd be on the upper end of that. So we'll continue to watch that as we move throughout the year, but you're right with your thinking.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. Okay. Great. And then maybe, Michael, another one for you. Just it looks like you paid down all that $133 million onto the revolver. I guess, as you move forward with additional free cash flow in 2021, how do you think about balancing that revolver versus the 22s?

Michael Hancock -- Interim Chief Financial Officer

Yes. I think the 22s, we've looked at before. They're funded, I'd say, with the free cash flow, right? So it's just a matter of when you want to take those out. And sometimes, we've tried to take those up before and haven't had a lot of luck on early. So I think we feel very comfortable. As you get the end of this year, into next year, we'll take those out in due time. If we're not -- we don't take out for that, we have plenty of the liquidity to do it. So I think the focus will be on the RBL right now and then 22 at this coming time.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. And maybe one more follow-up, if I could. Clay, you mentioned Flat Castle, and that was sort of a blast from the past from our Montage days. And I can't recall if you said how many uppers were in the well counts for this year. So just any color you can provide on just if there's a Flat Castle program in place for this year versus an upper well count?

Clay Carrell -- Executive Vice President and Chief Operating Officer

Sure. The upper that we planned in the budget was two straight Upper Marcellus wells, so continuing to progress the trend there. The thought on the Flat Castle was just with the new asset there as we continue to progress our resource to reserves effort. There's some interesting EURs there that our team is doing detailed studies on. And we don't have any wells planned there in the budget this year, but we're continuing to watch it. Just a final comment there is we've been maintaining flat production. It went up a little bit last year in Northeast up when we reallocated capital. But to stay flattish, we're somewhere around 30 wells a year. And so the -- we've got quite a bit of lower Marcellus to choose from in that mix and then sprinkling in the upper and continuing to progress the Flat Castle.

Holly Stewart -- Scotia Howard Weil -- Analyst

Okay. That's helpful. All right. Thank you guys.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

The next question comes from Arun Jayaram of JPMorgan. Please go ahead.

Arun Jayaram -- JPMorgan -- Analyst

Yes. Let me start with you, Clay. I was wondering if you could give us some thoughts on the Ohio Utica program this year. I think you're planning to do 12, 15 wells there. And just some thoughts on that program? What type of recoveries per 1,000 do you anticipate? And how does kind of capital efficiency here compare to SWN's assets in Northeast Up and Southwest Up?

Clay Carrell -- Executive Vice President and Chief Operating Officer

Sure. So we talked about we've drilled our first pad there. Our teams did a great job of using our drilling rigs, incorporating the improvements around efficiency and cycle time that we've been realizing on the existing assets and bringing those over into the Ohio Utica. And those wells have gone as expected with the reductions that we had modeled in. We're currently completing them. And we expect those that will come online in 2Q. Like you said, we've guided the 12 to 15 wells there this year. We get the incremental benefit from that program of now consistently drilling Utica wells and all the learning that's going to come from that. And we keep applying that to the understanding on the SWN legacy asset Utica and how we can keep bringing those costs down and keep working on the resource-to-reserves effort in the Utica also. So that's a nice additional benefit. With the high rate of these wells that they're going to have efficiencies that are maybe similar to our dry gas in Northeast Appalachia, but with a little bit higher cost, we've got them modeled at $725 a foot well cost, which is a little elevated over what we're seeing in Northeast Up because of them being deeper. But we cut $100 a foot out of what previous operators have been doing, and we expect to keep improving on that trend.

Arun Jayaram -- JPMorgan -- Analyst

Great. That's helpful. Perhaps, one for you, Bill. You and I have spoken a little bit about M and A recently, but I wanted to get your thoughts. The company has folded in Montage seamlessly, not really missing a beat there. As we think about the U.S. shale consolidation, last year was a big year for public -- to public partnerships, including what you guys did with Montage. More recently, we've seen a bit more news flow with the publics buying privates in Pioneer transacted, and we're hearing about more in terms of speculation around privates putting themselves up for sale. So I know you guys look at everything within the Appalachia Basin, but would love to get your thoughts on what you're seeing on the M and A front and perhaps your thoughts on potentially looking at consolidation within the basin or other, call it, natural gas plays such as the Haynesville?

Bill Way -- President and Chief Executive Officer

Yes. I appreciate your question. As you know, we continue to believe in consolidation, as we've talked about before. But we believe in it in accordance with our very well-established framework, and that framework leads off by doing the right deal the right way. And I'll use our Montage acquisition as evidence of that. That's a screen for how we look at any opportunity. And we continue to study ideas. We continue to think the consolidation that makes sense. And where you can bring those ideas into some kind of an opportunity and then get that opportunity done the right way and make the right deal for shareholders, then we'll consider it. Until then, I think that we'll watch the market. We'll watch our core competencies and capabilities and how we might leverage those and come back to you sometime in the forward world when we identify something that's of interest to us in that in line with all of that.

Arun Jayaram -- JPMorgan -- Analyst

Great. Thanks a lot.

Operator

The next question comes from Umang Choudhary of Goldman Sachs. Please go ahead.

Umang Choudhary -- Goldman Sachs -- Analyst

Hi, good morning and thank you for taking my question.

Bill Way -- President and Chief Executive Officer

Good morning.

Umang Choudhary -- Goldman Sachs -- Analyst

Wanted to follow up on your comments on consolidation. Can you remind us again what are the key considerations when you assess these opportunities with respect to either macro or with respect to the micro considerations?

Bill Way -- President and Chief Executive Officer

Yes. I mean obviously, we've got a very rigid framework, and that includes issues like I just spoke about in finding the right deal that can be done the right way, and we can bring the value to the shareholders. Certainly, synergies are important. But when you look at, at sort of the way we evaluate these, it's all of the major balance sheet metrics and being accretive to those. We're going to protect our balance sheet. We're going to look for and do and study deals that are accretive on each of the critical metrics that matter to shareholders. We're going to watch the contribution of any future debt to those kinds of things. And again, we've got an objective to get to a sustainable two times and where right positions well to do that. So we're not going to undo the progress that we've made in any respect. I think as you look at the macro, they've got to be strong returns, and we've got to have some -- an ability to hedge those returns to assure that the commitments that we made are delivered. The complementary nature of our existing business to opportunities and again, the critical skills that we believe we have that differentiate us from an operating perspective are important so that we can deliver the value we said that we're going to deliver. So kind of the right to own, meaning the right deal, done the right way and assuring execution of that deal. So that's the primary drivers that we look at.

Umang Choudhary -- Goldman Sachs -- Analyst

Thank you. That was really helpful. And a quick one for me. How do you define sustainable leverage of two times? Is it at a particular gas price or an oil price? And if yes, could you share that with us?

Bill Way -- President and Chief Executive Officer

Yes. I think it's not necessarily a definition-calculatable number. But I think as you look forward, you have to feel comfortable that it's sustainable with your expectations of the forward strip, right? And you can see what we're doing this year with strip around 275, 280 type number. I think to the extent that, that softened a bit, you'd obviously want to make sure you had a little bit of cushion there to get any kind of uptick from a blip on the commodity side. But it really revolves around that among. It's what your outlook is in your business plan, the EBITDA you plan to generate.

Umang Choudhary -- Goldman Sachs -- Analyst

Got it. That's helpful. Thank you.

Operator

Our next question comes from Noel Parks of Tuohy Brothers. Please go ahead.

Noel Parks -- Tuohy Brothers -- Analyst

Good morning.

Bill Way -- President and Chief Executive Officer

Good morning.

Noel Parks -- Tuohy Brothers -- Analyst

I wondered, you touched on a little bit in Monroe County, but you mentioned improving cycle time. But beyond that, could you just walk through what the components are of that $100-a-foot well cost improvement you're looking to realize out there? I'm assuming some of that might also be on the completion side.

Clay Carrell -- Executive Vice President and Chief Operating Officer

Yes, definitely. It's a combination of drilling completions and facilities just like we've driven the cost down in the SWN legacy assets. And it's more efficient drilling. The benefit of our supply chain on the cost side, the benefit of how we're going to complete the wells, the work we do on prefab and facilities so that we lower cost and then shortening the overall time frame to get the wells from spud to turn in line. So it's a combination of all the things that we've done on our legacy assets.

Noel Parks -- Tuohy Brothers -- Analyst

Great. Thanks. And I -- just turning a bit to a little bit of the macro environment. Actually, in some of that -- let me ask you about the Utica. You also mentioned that with what you're learning for the Montage assets that you're looking to apply some of that to the legacy Southwestern Utica. And you -- as best I can recall, you did pretty little with the Utica in the year or two before Montage. So do you have a sense of -- I don't know, is there may be a linchpin of improvement that could bring that legacy Utica much closer to being able to compete for capital?

Clay Carrell -- Executive Vice President and Chief Operating Officer

Yes. So I mean in general, we always talk about how we focus on our full inventory of opportunities and continue to bring that resource into the economic arena. And that's what I'm speaking of with the Utica. The learning lab of drilling wells right now in Ohio is benefiting the cost side of that. We've got significant Lower Marcellus opportunities that we're continuing to develop right now. So none of this legacy Utica is imminent by any means. It's just a way to keep improving the economics of the deeper inventory bench that we have.

Bill Way -- President and Chief Executive Officer

And I think some of -- a lot of our success in some of these newer areas, I believe, is supported by our team's disciplined and methodical approach to extending their knowledge, proving up the concept and then delivering exactly what they said. The analogy can be how we drilled these ultra-long laterals. We didn't go from 10,000 feet to 25,000 feet all in one go just to show that we can drill long laterals. There was a very methodical test approach, timely as well but disciplined that brought great success. So when we can learn out of a live reservoir, apply those learnings to ours, to the legacy, it's a great thing to do. The extensive inventory we have in Marcellus means there's no rush, and we can continue to build that position.

Noel Parks -- Tuohy Brothers -- Analyst

Thanks a lot.

Operator

[Operator Instructions] And the next question will come from Karl Blunden of Goldman Sachs. Please go ahead.

Joe Rokous -- Goldman Sachs -- Analyst

Hi, good morning. This is Joe Rokous on for Karl. You made good progress so far in 2021 toward your balance sheet targets. Just wondering if you would consider going significantly below that two turns target if the goal on the revolver balance is to actually bring that to 0?

Michael Hancock -- Interim Chief Financial Officer

Yes. I think on the first part of the question, the two times, yes, I think that's possible. You could -- I mean when we say sustainable times, it's for -- even when things get a little bit more challenging, you want to make sure you're controlling the balance sheet and keeping it strong. I think as you get to that two times, you reassess, as I mentioned earlier, on a bunch of different variables to see is it prudent to go a little lower? Is it prudent to start to return capital to shareholders? Is it a combination of both? So I think all that would be considered. What was the second part?

Joe Rokous -- Goldman Sachs -- Analyst

Just if the goal on the revolver balance is to actually bring that to 0?

Michael Hancock -- Interim Chief Financial Officer

Oh, yes, yes, yes. I think that's right. I mean it's -- we view the RBL as temporary debt that should be paid down with free cash flow. I think you've seen a lot of people go out there and extend theirs and refinance them with long-term notes and make it a little bit more permanent debt. We're not quite aligned with that thinking. We're in the -- we focused on strengthening the balance sheet, knocking out that temporary debt. And so I think that's what you'll see us focus on.

Joe Rokous -- Goldman Sachs -- Analyst

That makes sense. Thank you. And then just for my follow-up, I appreciate the commentary on the 22s. At what time do you start to think about the longer-dated notes?

Michael Hancock -- Interim Chief Financial Officer

Yes. I think it's something that -- I mean definitely, something we stay aware of. I mean we do work on it even now. When I go watching what we could do, what options are out there, the debt markets are much improved where they were when we went to the market in August. So it's something you look at. I think you balance refinancing things at an appropriate level, but not do it too early and obviously look at all the costs associated with that kind of activity. So definitely something we keep up to date with and something that we could look at doing. But the nice thing about our maturity runway is it gives us that flexibility to only do it if it's opportunistic.

Joe Rokous -- Goldman Sachs -- Analyst

Understood. I'll turn it over. Thank you.

Michael Hancock -- Interim Chief Financial Officer

Thank you.

Operator

The next question comes from Subhasish Chandra of Northland. Please go ahead.

Subhasish Chandra -- Northland -- Analyst

All right. Thanks. Good morning. I think you guys were one of the first companies to do a responsibly sourced gas deal, maybe it was with New Jersey Resources possibly for premium gas realizations. Could you comment on how that might have worked out if you see this as an emerging opportunity or still a bit of a science project out there? And just your thoughts in general on getting paid for your superior ESG achievements.

Bill Way -- President and Chief Executive Officer

Well, we certified our first wells a few years ago. We've executed several pilot agreements actually in several states. And coupled with our position in GHG and methane intensity along with our -- all of our other ESG positioning, whether it's chemical disclosures or leading practices in ESG, I think that its position us -- positions us well as a candidate for future transactions. We have a number of wells that are certified, and we've got a number of potential opportunities that we're working as we speak. And so when those are complete, we can talk a bit more about it. But we believe that it's the right thing to do, and it's completely aligned with our view on ESG, and that's not just a new practice. It's something we've been doing for years, and we'll continue it.

Subhasish Chandra -- Northland -- Analyst

Got it. And just a follow-up on that. So is there a commercial advantage in doing this as well? Are these deals being done, so you get a sort of premium netback?

Jason Kurtz -- Vice President of Marketing and Transportation

Yes. This is Jason. So I think -- yes, I think -- so that's the -- that's our goal is trying to figure out how to monetize our environmental-proven performance in extremely low methane emissions. So that's the goal of -- from a sales perspective and an opportunity that's out there.

Subhasish Chandra -- Northland -- Analyst

Okay -- Great. Thanks. Looking forward to the next transaction. Thank you.

Operator

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

Bill Way -- President and Chief Executive Officer

Thank you, and thank you to everybody who joined us today. I think we're off to a great start in the year -- of a year that looks quite promising and filled with opportunities as we move ahead. So thanks for your call. Thanks for being on the call. Thanks for your questions, and thanks for your support of Southwestern Energy. Have a great weekend. Take care.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Brittany Raiford -- Director of Investor Relations

Bill Way -- President and Chief Executive Officer

Clay Carrell -- Executive Vice President and Chief Operating Officer

Michael Hancock -- Interim Chief Financial Officer

Jason Kurtz -- Vice President of Marketing and Transportation

Charles Meade -- Johnson Rice -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Holly Stewart -- Scotia Howard Weil -- Analyst

Arun Jayaram -- JPMorgan -- Analyst

Umang Choudhary -- Goldman Sachs -- Analyst

Noel Parks -- Tuohy Brothers -- Analyst

Joe Rokous -- Goldman Sachs -- Analyst

Subhasish Chandra -- Northland -- Analyst

More SWN analysis

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