On Mar 4, we maintained our long-tern Neutral recommendation
Southwestern Energy Company
). The company's strong acreage positions in the Fayetteville and
Marcellus shale plays remain subdued by its natural gas weighted
production as well as reserves profile. The stock retains a Zacks
Rank #3, which is equivalent to a short-term Hold rating.
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CHESAPEAKE UTIL (CPK): Free Stock Analysis
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SOUTHWESTRN ENE (SWN): Free Stock Analysis
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Reasons for Reiteration
Southwestern Energy is one of the largest producers of natural
gas in the U.S., with core Fayetteville Shale properties
spreading over 913,502 net acres. On Feb 20, the company reported
better-than-expected fourth-quarter 2012 earnings mainly on the
back of higher production, primarily at its Fayetteville shale
During the quarter, 111 Fayetteville wells came on-stream,
yielding a net of 125.1 billion cubic feet per day (Bcf/d), up
7.4% from the year-ago level. Notably, the costs also decreased
11.5% sequentially to $2.3 million per well. The average time to
drill also decreased sequentially to 5.7 days from 6.8 days. With
an efficient management team, the company's low-cost operations
exhibit a solid upside potential.
Southwestern also remains proactive in the development of the
fertile Marcellus play, where it held leases for approximately
176,298 net acres as of Dec 31, 2012. The quarterly production
from the region climbed 138.3% year over year. Southwestern has
almost doubled its expected gas production year over year to
160-165 gross Bcf for 2013. This will provide it exposure to a
play, where reserves increased over 40% at the end of 2012, with
a low cost structure and additional acreage.
Southwestern announced a tentative joint venture contract in the
New Ventures play that is expected to include a cash advance and
a 3-year drilling carry. The company also remains busy in testing
plays in DJ Basin (Marmaton) and Montata (Bakken/Three Forks).
However, taking into account the uncertain price fundamentals for
natural gas plus drilling challenges, we see little room for
The quarter's earnings surpassed expectations, but deteriorated
by a penny from the year-earlier quarter. The decline was
primarily due to the drop in natural gas prices.
Southwestern's year-end 2012 proved reserves decreased 31.8% and
almost 100% of the reserves were natural gas. The downward
revision was due to lower gas prices in 2012. The weak natural
gas scenario in the U.S. due to continued oversupply and low
demand also compels us to remain sidelined.
Over the last 7 days, we witnessed no earnings momentum for the
stock for the first quarter of 2013. The Zacks Consensus Estimate
is currently pegged at 37 cents per share, reflecting a
year-over-year increase of 20.1%.
Other Stocks to Consider
In the energy sector,
Atmos Energy Corporation
Chesapeake Utilities Corporation
The Laclede Group Inc.
) display better fundamentals and currently carry a Zacks Rank #2