Southwestern Earnings Outshine - Analyst Blog
03 Maggio 2013 - 9:47AM
Zacks
Independent natural gas operator, Southwestern Energy
Co. (SWN) reported first-quarter 2013 earnings of 42 cents
per share, surpassing the Zacks Consensus Estimate of 39 cents and
improving from the year-earlier profit of 30 cents. The growth was
backed by higher production, primarily at its Fayetteville shale
operations, as well as lower operating expense.
First-quarter revenue increased 12% to $733.6 million from the
year-ago level of $654.8 million and comfortably surpassed the
Zacks Consensus Estimate of $714.0 million.
Production and Realized Prices
During the reported quarter, the company’s oil and gas production
grew 10.8% year over year to 147.8 billion cubic feet equivalent
(Bcfe) – almost entirely gas – driven by the Fayetteville Shale
operations. Production from Southwestern’s Fayetteville Shale play
increased 2.7% from the year-earlier period to 118.9 Bcfe.
The company’s average realized gas price, including hedges, dropped
1.4% to $3.43 per thousand cubic feet (Mcf) from $3.48 per Mcf in
the year-ago period. Oil was sold at $106.93 per barrel, up 2.4%
from the year-earlier level of $104.39 per barrel. Natural gas
liquids (NGL) realized a price of $47.97 per barrel.
Segmental Highlights
Operating income for the Exploration and Production (E&P)
segment improved 53.4% year over year to $175.8 million in the
first quarter. The increase was attributable to an increased output
level and lower operating expenses, partially offset by lower gas
price realization.
On a per-Mcfe basis, lease operating expenses were 81 cents versus
83 cents in the prior-year quarter. On the other hand, general and
administrative expense per unit of production decreased 30% year
over year to 21 cents.
The Midstream Services segment’s operating income jumped 10.1% to
$76.3 million in the first quarter from $69.3 million in the
year-earlier quarter. The increase was driven by an improvement in
gathering revenues related to the Fayetteville and Marcellus Shale
plays.
Capex and Debt
The company’s total capital expenditure was approximately $518
million, of which $475 million was invested in E&P activities
and $39 million in the Midstream segment.
As of Mar 31, 2013, long-term debt was $1,703.4 million,
representing a debt-to-capitalization ratio of 35.6% (versus 35.5%
in the preceding quarter).
Hedging
As of Apr 30, 2013, Southwestern had approximately 240 Bcf of its
remaining 2013 expected gas production hedged at an average price
of $4.71 per Mcf. It has hedged approximately 233 Bcf of its 2014
expected gas production at an average price of 4.41 per Mcf.
Guidance
Southwestern has increased its production guidance for 2013 to
631–642 Bcfe from its earlier estimate of 628–640 Bcfe. The revised
outlook represents a 13% increase over the 2012 level.
Our Take
Southwestern’s industry-leading holdings in Northern Arkansas’
Fayetteville Shale play offer some of the highest quality natural
gas discoveries in North America in recent years. Marcellus and
Fayetteville shales also hold ample opportunity for newer natural
gas discoveries.
We see the company as well positioned for production growth given
its streamlined cost structure, upcoming drilling programs in the
Fayetteville and Marcellus shales, and a wide acreage in its New
Ventures, especially in the Brown Dense play.
However, we remain apprehensive about the weak natural gas scenario
in the U.S. given the continued oversupply and low demand. This
will likely hurt the performance of the company as well as of other
natural gas companies like Chesapeake Energy
Corporation (CHK) in the near term.
Other risk factors include weaker-than-expected commodity prices,
technological failures and the lack of a diversified asset
base.
The company holds a Zacks Rank #2 (Buy). However, there are other
stocks in the oil and gas sector – EPL Oil & Gas,
Inc. (EPL) and Harvest Natural Resources
Inc. (HNR) – which hold a Zacks Rank #1 (Strong Buy) and
are expected to perform better.
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
EPL OIL&GAS INC (EPL): Free Stock Analysis Report
HARVEST NATURAL (HNR): Free Stock Analysis Report
SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
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