An investor's guide to Southwestern Energy Company

An investor's guide to Southwestern Energy Company (Part 1 of 5)

Southwestern is among the largest US oil and natural gas producers

Brief history and overview of Southwestern Energy

Headquartered in Houston, Texas, Southwestern Energy Corporation (SWN) is one of the largest independent natural gas and oil producers in the United States. As of January 16, 2014, the company had a market cap of $14 billion. Last-12-months revenue as of September 30,2013, was $3.23 billion, and last-12-months EBITDA as of the same date was $1.94 billion.

SWN Areas of OperationEnlarge Graph

Southwestern’s operations focus on two major shale plays: the Fayetteville Shale in Arkansas and Oklahoma (part of the Arkoma Basin) and the Marcellus Shale in Pennsylvania. As of year-end 2012, SWN had 4,018 bcfe (billions of cubic feet equivalent) of reserves, 75% of which were located in the Fayetteville Shale and 20% of which were located in the Marcellus Shale, while the remaining 5% was located in the Ark-La-Tex region of Eastern Texas. The company also has significant acreage in four new venture plays.

Southwestern recorded 172.4 bcfe of production during 3Q13, which was virtually all natural gas (over 99%), making the company the fifth largest natural gas producer in the U.S. as of 3Q13.

Business segments

SWN principally has two reportable business segments: Exploration and Production (E&P) and Midstream Services.

E&P Services (72% of 3Q 2013 total revenue)

The E&P segment is the major source of earnings for SWN. The segment focuses on the exploration and production of oil and natural gas. The majority of Southwestern’s operations focus on the Fayetteville Shale in Arkansas and the Marcellus Shale in Pennsylvania.

SWN Total ProductionEnlarge Graph

From 2007 through 2012, the company has successfully grown production nearly fivefold—mostly through its Fayetteville operations, where it has been able to produce natural gas very efficiently and at a low cost relative to other operators. Southwestern has also grown its reserves greatly, though reserves declined somewhat in 2012 compared to 2011, since most of the company’s reserves are natural gas and since natural gas prices were significantly depressed through 2012. This caused some negative revisions to the company’s reserve calculations.

SWN Average Realized Gas PriceEnlarge Graph

Low natural gas prices through 2012 also affected the company’s EBITDA. Despite growing production from 2012 over 2011, lower realized natural gas prices caused EBITDA to fall year-over-year.

SWN Adjusted EBITDAEnlarge Graph

Midstream Services (28% of 3Q 2013 total revenue)

SWN’s midstream services segment generates revenue through marketing both company- and third party–produced natural gas volumes. SWN also generates revenue from gathering fees associated with the transportation of natural gas through its subsidiary, DeSoto Gathering Company, mainly supporting SWN E&P operations in the Fayetteville Shale play in Arkansas and the Marcellus Shale play in Pennsylvania.

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