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Inside Southwestern Energy’s Realized Price Effectiveness

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What is realized price effectiveness?

Realized price effectiveness is defined as an excess or a shortfall of realized price-to-cost items, scaled by the cost item. In other words, realized price effectiveness tells us how much higher or lower company’s realized price is in comparison with production costs.

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SWN’s realized price

For 4Q16, Southwestern Energy’s realized price, excluding hedging profits, was $2.07 per Mcfe (thousand cubic feet equivalent)—much better than $1.55 per Mcfe in 4Q15. SWN’s realized price is calculated by scaling SWN’s oil and gas revenue by total production.

Cash cost

Notably, Southwestern Energy’s production cash cost has increased on a YoY (year-over-year) basis. For 4Q16, Southwestern Energy’s production cash cost was $1.32 per Mcfe, which was higher than its $1.08 per Mcfe in 4Q15. SWN’s production cash cost includes production operating expenses, production and ad valorem taxes, G&A (general and administration) cash expenses, and interest cash expenses.

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Total production cost

Southwestern Energy’s total production cost has improved on a YoY basis. For 4Q16, Southwestern Energy’s total production cost was $1.75 per Mcfe, which was better than its $1.95 per Mcfe in 4Q15. SWN’s total production cost includes production cash costs and DD&A (depletion, depreciation, and amortization) expenses.

Realized price effectiveness

For 4Q16, Southwestern Energy reported positive realized price effectiveness in terms of cash cost as well as total production cost. Upstream peers Murphy Oil (MUR), Encana (ECA), and Range Resources (RRC) have also reported negative 4Q16 realized price effectiveness in total production costs.

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