Independent natural gas operator, Southwestern Energy Company (SWN) announced that it will purchase oil and gas assets including approximately 46,700 net acres in northeast Pennsylvania from WPX Energy Inc (WPX) for about $300 million. The acreage is currently producing approximately 50 million net cubic feet of gas per day from 63 operated horizontal wells.
Also as part of the transaction, Southwestern will assume firm transportation capacity of 260 million cubic feet of gas per day predominantly on the Millennium pipeline. The transaction is however conditional upon receiving a waiver from the Federal Energy Regulatory Commission regarding the transfer of firm transportation capacity and is currently expected to close in the first quarter of 2015. Southwestern intends to use its revolving credit facility to finance the acquisition.
Southwestern Energy Company is an independent energy company with wholly-owned subsidiaries engaged in natural gas and oil exploration and production and natural gas gathering and marketing. Going forward, we believe the company is well positioned for production growth, given its streamlined cost structure, upcoming drilling programs in the Fayetteville and Marcellus shales, and wide acreage in New Ventures, especially in the Brown Dense play.
Southwestern boasts a strong balance sheet with significant liquidity and financial flexibility. Moreover, the company’s continuous endeavor in focusing on return on investment and its large drilling inventory, uniquely position it to create significant value for shareholders. Southwestern remains focused on generating economic returns.
On the flip side, natural gas accounts for almost all of the company’s reserves and production. Its results are thus vulnerable to the outlook for natural gas. Moreover, an oversupplied U.S. natural gas market, coupled with lower demand, provides little space for Southwestern to flourish. A volatile macro backdrop also adds to our negative sentiment, as it might lead the company to perform below expectations.
Southwestern Energy currently carries a Zacks Rank #3 (Hold). Better-ranked players in the energy sector include Murphy USA Inc. (MUSA) and Sandridge Mississippian Trust II (SDR). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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