Point72 Asset Management and Southwestern Energy
Point72 sold its stake in Southwestern Energy (SWN) during 4Q14. The fund held 2,124,400 shares of Southwestern Energy at the end of 3Q14. It accounted for 0.56% of the fund’s 3Q14 portfolio.
About Southwestern Energy
Southwestern Energy is an independent energy company. It operates in two segments:
- E&P – natural gas and oil exploration, development, and production
- Midstream Services – natural gas gathering and marketing businesses
It conducts substantially all of its business through subsidiaries.
In 2014, the E&P business generated 74% of the operating income. E&P accounted for 73% and 65% of the operating income in 2013 and 2012, respectively. Through eight separate transactions, the company added 400 million cubic feet equivalent per day of net production and 900,000 net acres into the portfolio for future development. Proved reserves grew 54% to 10.7 trillion cubic feet as of December 31, 2014.
Southwestern Energy narrowed its 2015 capital investments
The company reduced its capital expenditure by $600 million to $2 billion. Even with the reduced capital expenditure, Southwestern Energy is planning to grow production by 23% in 2015. Amid the lower oil prices, many oil companies reduced their capital spending. ConocoPhillips (COP) reduced its 2015 capital budget by 20%. ExxonMobil (XOM) cut its 2015 capital expenditure by 12%. It plans to increase production by 7%.
Southwestern Energy’s new initiatives
Southwestern Energy is focused on reducing costs. In 2014, the average completed well cost for operated wells was $6.1 million. In 2013, it had an average of $7 million. The company expanded the firm transportation portfolio to 1.4 billion cubic feet, or Bcf, per day. It generated additional revenue of $200 million as a result of “firm transportation and sales portfolio compared to selling directly into local production zone industries.”
4Q14 and full-year 2014 results
For 4Q14, the net income was $185 million, or $0.52 per diluted share. During 4Q14, gas and oil production increased 14% YoY (year-over-year) to 201 Bcfe (billions of cubic feet equivalent). However, natural gas prices were lower. The operating cost was higher due to the higher activity levels. This impacted the operating income. The operating income for E&P was $196 million—compared to $227 million in 4Q13.
Midstream Services’ operating income was $89 million—compared to $90 million in 4Q13.
For full-year 2014, Southwestern Energy reported an adjusted net income of $801 million, or $2.27 per diluted share. It was up 14%. Gas and oil production was 768 Bcfe. It was up 17% compared to 2013. It was mainly due to production growth at northeast Appalachia. It grew 69% to surpass the gross operated production of 1 Bcf per day.
You can gain exposure to Southwestern Energy by investing in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR Fund (XLE). Southwestern Energy accounts for 0.865% and 0.7178% of XOP and XLE, respectively. Southwestern Energy also accounts for 1.65% of the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).
In the next part of this series, we’ll discuss Point72’s position change in Qihoo 360 Technology.