uploads///SWN Q Pre Production

Understanding Southwestern Energy’s Two-Year Low Production

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Production guidance

In July 2016, Southwestern Energy (SWN) increased its fiscal 2016 production guidance to a range of 865–875 Bcfe (billion cubic feet equivalent), which represents a midpoint of increase of 45 Bcfe (or ~5%) over its old production guidance range of 815–835 Bcfe. SWN is maintaining that increased guidance now.

In the first nine months of 2016, SWN reported production of 673 Bcfe, meaning its 4Q16 production should be in a range of 192–202 Bcfe.

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Reasons for lower production

On a YoY (year-over-year) basis, the midpoint of Southwestern Energy’s 4Q16 production guidance is lower by ~21%, when compared with 4Q15. Sequentially, Southwestern Energy’s production guidance is about 7% lower than it was in 3Q16.

The primary reason for such a steep decline in production is the lower capital spending resulting in reduced activity levels (drilling and completion activities) in 1H16.

How SWN plans to take advantage of higher natural gas prices?

But in response to the higher natural gas (UNG) prices, Southwestern Energy decided to increase its activity levels from 3Q16. For fiscal 2016, SWN increased the number of wells to be brought on production to a range of 120–130 Bcfe, which would be a midpoint increase of 100 wells over its original operational guidance. In 4Q16, SWN plans to bring 52 wells on production.

Although Southwestern Energy started to increase its activity levels and spend more capital in 2H16, the benefits of that should be seen in 2017. SWN expects production growth trajectory to start from 1Q17.

SWN’s peer Consol Energy (CNX), which also operates in the Marcellus Shale, reported higher production of 101.1 Bcfe in 4Q16, up from 95.5 Bcfe in 4Q15.

In the next part, we’ll take a look at capital expenditures.

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