Independent natural gas operator, Southwestern Energy Company (SWN) reported third-quarter 2014 adjusted earnings of 50 cents per share, missing the Zacks Consensus Estimate of 52 cents. The bottom line also decreased from the prior-year quarter’s earnings of 51 cents.
Quarterly operating revenues of $928 million missed the Zacks Consensus Estimate of $988 million but increased considerably from $868 million in the third quarter of 2013.
Production and Realized Prices
During the reported quarter, the company’s oil and gas production grew 14% year over year to 172 billion cubic feet equivalent (Bcfe) driven by increased Fayetteville Shale activities. Production from Southwestern’s Fayetteville shale plays increased 2.4% from the year-earlier period to 126 Bcf. Moreover, output from the Marcellus shale plays soared 47.0% from the prior-year quarter to 66 Bcf.
The company’s average realized gas price, including hedges, fell 5.0% to $3.43 per thousand cubic feet (Mcf) from $3.61 per Mcf in the year-ago period. Oil was sold at $97.71 per barrel, down 8.4% from the year-earlier level of $106.72 per barrel. Natural gas liquids were sold at $35.57 per barrel.
Segmental Highlights
Operating income from the Exploration and Production (E&P) segment decreased 15.2% year over year to $189 million in the third quarter, owing to lower realized natural gas prices and higher operating costs. This was partially offset by the revenue impact of increased production.
On a per-Mcfe basis, lease operating expenses were 91 cents, higher than the prior-year quarter level of 87 cents. However, general and administrative expenses per unit of production decreased to 23 cents from 24 cents in the prior-year quarter.
The Midstream Services segment’s operating income increased 13.0% to $97 million in the third quarter from $86 million in the year-earlier quarter. Higher gas gathering volumes along with increased marketing margins prompted the improvement.
Capex and Debt
The company’s total capital expenditure during the first nine months of 2014 was approximately $1,713 million. This consists of $705 million in the Fayetteville Shale, $502 million in the Marcellus Shale, $247 million in the Niobrara, $97 million in the Brown Dense, $82 million for Drilling Rigs, $64 million in New Ventures, $7 million in E&P Services and $3 million in its Ark-La-Tex division.
As of Sep 30, 2014, long-term debt stood at $1,806.0 million, representing a debt-to-capitalization ratio of 30.0%.
Zacks Rank
Southwestern currently carries a Zacks Rank #3 (Hold). Meanwhile, one can consider better-ranked energy sector stocks such as Tallgrass Energy Partners LP (TEP), Delek Logistics Partners LP (DKL) and Enbridge Energy Management LLC (EEQ). All these stocks currently sport a Zacks Rank #1 (Strong Buy).
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