We reaffirmed our Neutral recommendation on
Southwestern Energy Company
) on Dec 23, 2013. 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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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 Nov 1, the company reported
better-than-expected third-quarter 2013 earnings mainly on the
back of higher production, primarily at its Marcellus shale
operations as well as higher gas price realization.
During the reported quarter, the company's oil and gas production
grew 19.5% year over year to 172.4 billion cubic feet equivalent
(Bcfe) - almost entirely gas - driven by increased Marcellus
Shale operations. Production from Southwestern's Fayetteville
shale plays decreased 0.7% from the year-earlier period to 122.7
Bcfe. However, output from the Marcellus shale plays increased
196.0% from the prior-year quarter to 44.7 Bcfe. Southwestern has
also increased its production guidance for 2013 to 653-655 Bcfe
from its earlier estimate of 643-651 Bcfe.
The company's average realized gas price, including hedges,
jumped 5.6% to $3.60 per thousand cubic feet (Mcf) from $3.41 per
Mcf in the year-ago period. Oil was sold at $106.72 per barrel,
up 7.1% from the year-earlier level of $99.67 per barrel. Natural
gas liquids (NGL) were sold at $42.05 per barrel.
Southwestern boasts a strong balance sheet with significant
liquidity and financial flexibility. Moreover, the company's
continuous endeavor of focusing on return on investment, coupled
with its large drilling inventory, uniquely positions it to
create significant value for shareholders. Southwestern remains
focused on generating economic returns. It is committed to
projects returning at least 1.3x the present value index and
intends to only drill projects that meet the return threshold.
However, taking into account the uncertain price fundamentals for
natural gas and drilling challenges, we see little scope for
Other Stocks to Consider
Stocks in the sector that are currently performing well include
Blueknight Energy Partners, L.P.
Harvest Natural Resources Inc.
Clayton Williams Energy, Inc.
). All these sport a Zacks Rank #1 (Strong Buy).