Behind Southwestern Energy’s Production Costs and Margins in 4Q16



Southwestern Energy’s production costs and margins

Excluding hedges, in 4Q16, Southwestern Energy (SWN) reported a positive cash margin as well as a positive total margin.

Its profit of $0.07 per Mcfe (thousand cubic feet equivalent) on natural gas (UNG) hedges increased its cash margin and its total margin by $0.07 per Mcfe apiece.

By comparison, upstream peers ConocoPhillips (COP), Marathon Oil (MRO), and EOG Resources (EOG) all have positive cash margins. Including hedging benefits, ConocoPhillips reported a cash margin of ~$14 per boe (barrel of oil equivalent), whereas Marathon Oil reported a cash margin of ~$13 per boe.

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We should note here that production cash cost is determined by adding LOE (lease operating expenses) to production and ad valorem taxes, transportation expenses, G&A (general and administration) cash expenses, and interest expenses.

By contrast, total production cost is determined by adding cash costs to DD&A (depletion, depreciation, and amortization).


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