Southwestern Energy’s EBITDA trend
EBITDA, or earnings before interest, tax, depreciation, and amortization, is a major financial metric, as it’s an indicator of the earnings power of a company’s assets. SWN’s EBITDA declined in 2012 compared to 2011, primarily due to lower natural gas prices. Southwestern produces almost 100% natural gas, and therefore revenues are directly affected by changes in natural gas prices.
Despite higher production in 2012 (565 bcfe) compared to 2011 (500 bcfe), SWN realized EBITDA of $1.6 billion compared to $1.8 billion the year prior. SWN’s realized average gas price (that is, the average price it received for all of its natural gas production) in 2012 was $3.44 per mcf, compared to $4.19 per mcf in 2011. Generally, natural gas prices were much lower in 2012 compared to the year prior. NYMEX natural gas prices averaged $2.83 per MMBtu (millions of British thermal units) in 2012 compared to $4.03 per MMBtu in 2011.
Note that SWN received average gas prices much higher than Henry Hub, as it had positive cash flow from natural gas hedges. This means that SWN could have entered into options and swaps agreements before 2012 to protect itself from downside against natural gas prices, thus allowing the company to realize higher revenues than it would have otherwise. SWN notes that excluding benefits from hedges, it would have realized an average gas price of $2.34 per mcf. Hedges in 2012 gave SWN a $621 million uplift in EBITDA ([$3.44 hedged price – $2.34 unhedged price] * 564.5 bcf of production).
For FY2013, sell-side analysts anticipate EBITDA of nearly $2.0 billion. Part of the contribution is from higher production (653 to 655 bcfe in 2013 versus 565 in 2012). Plus, NYMEX gas prices through 2013 averaged $3.73 per MMBtu compared to $2.83 per MMBtu in 2012. However, SWN won’t get as much benefit from hedges in 2013. For the first nine months of 2013, SWN only received a $216 million benefit from hedges (per 3Q13 10-Q, [$3.63 hedged prices – $3.18 unhedged price] * 479.4 bcf of production).