Will Natural Gas Prices Improve before Debt Impacts SWN?



Southwestern Energy’s liquidity profile

As we saw in the previous part, Southwestern Energy (SWN) was left with nearly no cash at the end of 2015. Currently, it has $1.9 billion available capacity on its unsecured revolving credit facility. As we noted earlier, SWN had $4.7 billion in long-term debt as of December 31, 2015.

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SWN and natural gas prices

Southwestern Energy (SWN) is relying on cash generated from operations to retire its debt. Therefore, a recovery in natural gas prices is imperative for the company. The positive thing for SWN is that it doesn’t have significant debt maturities until 2018.

SWN noted in its 4Q15 earnings presentation, “Future cash flows generated from our currently producing wells and our midstream assets more than exceeds our total debt obligations for the Company due to our large, high-quality asset base and cash flows from midstream.”

However, if natural gas prices don’t recover, SWN will either have to exercise the option of taking on more debt or sell off its assets.

Southwestern Energy’s hedge position

To protect its cash flows against lower commodity prices, Southwestern Energy has hedged 5% of its projected 2016 natural gas production volumes at ~$2.60 per Mcf (thousand cubic feet). It is currently assessing opportunities to hedge its oil and natural gas liquids volumes

Other companies that have hedged portions of their 2016 production include Newfield Exploration (NFX) and Cabot Oil & Gas (COG). However, Devon Energy (DVN) is not hedged in 2016. Together, NFX, COG, DVN, and CHK make up ~1.6% of the iShares Global Energy ETF (IXC).


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