Southwestern Energy Company (SWN) and Boardwalk Pipeline Partners, LP (BWP) have entered into an agreement through their subsidiaries − Southwestern Energy Production Company and Boardwalk Field Services, LLC − to facilitate the development of Southwestern’s gas wells in the Marcellus shale.
The parties plan for a gas-gathering system in Susquehanna and Lackawanna Counties, Pennsylvania, through a 15-year definitive gas gathering agreement. The system is expected to have a delivery capacity of 275,000 dekatherms per day (267 million cubic meters per day) upon completion. The project is expected to cost approximately $90 million.
Boardwalk will enjoy the operatorship of the system, which will take years to get geared up and will be interconnected with the Tennessee Gas Pipeline Company in Susquehanna County, Pennsylvania. The project comprises about 26 miles (41.8 kilometers) of 12-inch high-pressure gas pipeline, a low-pressure in-field gathering pipeline, compression and dehydration.
Boardwalk is involved in the transportation, storage and gathering of natural gas and operates approximately 14,200 miles of pipeline. It also has underground storage fields with an aggregate working gas capacity of approximately 167 billion cubic feet (Bcf).
Southwestern Energy is one of the largest producers of natural gas in the U.S. Its industry leading presence in the Fayetteville shale and its emerging position in the Marcellus Shale provide ample opportunities for newer natural gas discoveries. For the development of the Marcellus Shale, Southwestern aims to invest approximately $265 million in 2011 (versus $118 million in 2010) and drill 40 to 45 wells (versus 21 wells last year). We believe that the Marcellus Shale holds a lot of growth prospects, with production expected to accelerate in the coming quarters.
However, considering the weak natural gas scenario in the U.S. arising from continued oversupply and low demand, we remain apprehensive about Southwestern’s performance in the near term and maintain our long-term Neutral recommendation for the stock. The company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating and competes with Nicor Inc. (GAS)
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