uploads///SWN Production and Guidance

Why Southwestern Energy Finally Reduced Its Production Guidance


Mar. 17 2016, Published 2:51 p.m. ET

Southwestern Energy’s 4Q15 production costs

For 4Q15, Southwestern Energy’s (SWN) total production cost, which includes lease operating expenses, G&A (general and administrative) costs, production taxes, and full cost pool amortization expenses, totaled $1.98 per Mcfe (thousand cubic feet equivalent).

For 4Q15, excluding hedges, Southwestern Energy’s total average realized price for its production was ~$1.51 per Mcfe. This means that Southwestern Energy has a higher total production cost than its total average realized price.

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SWN’s production trend

As shown in the above chart, NYMEX natural gas (UNG) price peaked in 1Q14 whereas Southwestern Energy’s quarter-over-quarter production was still on an uptrend until 3Q15. Although natural gas prices have lost ~71% since their peak, Southwestern Energy’s quarterly production was at a two-year high as of 4Q15. This was because SWN’s operating margins were positive until 1Q15, and they were only slightly negative in 2Q15 and 3Q15.

Southwestern Energy’s 4Q15 production and 2016 guidance

For 4Q15, Southwestern Energy (SWN) reported total production of ~249 Bcfe (billion cubic feet equivalent). This is ~24% higher compared with 4Q14 production of ~201 Bcfe. Sequentially, SWN’s 4Q15 production was flat when compared with 3Q15.

  • For 1Q16, SWN expects total production in a range of 230 Bcfe to 235 Bcfe, a midpoint reduction of ~7% when compared with its 4Q15 production of 249 Bcfe.
  • For 2016, the company expects total production in a range of 815 Bcfe to 835 Bcfe, a midpoint reduction of ~15% when compared with 2015 production of ~976 Bcfe.

As we have seen above, SWN has higher production costs, and it finally reduced its production guidance due to the steep decline in operating margins per Mcfe of production.

Other upstream players

Among the other upstream companies, Diamondback Energy (FANG), Consol Energy (CNX), and Pioneer Natural Resources (PXD) have reported respective ~46%, ~35%, and ~7% year-over-year increases in their 4Q15 total production numbers. Energen Corporation (EGN) reported an ~11% year-over-year decrease in its 4Q15 total production.

Movements in natural gas prices also affect the VelocityShares 3x Long Natural Gas ETN (UGAZ) and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

Next, let’s look at how reduced production guidance can affect Southwestern Energy’s earnings.


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