Independent natural gas operator Southwestern Energy Co. (SWN) has lowered its 2013 capital investment budget to roughly $2.0 billion as compared to $2.1 billion in 2012. The company expects lower costs and drilling time in its Fayetteville operations with a boost in production in the Marcellus Shale in 2013, accompanied by additional wells in Colorado and Montana and in one new project next year.
Southwestern has allocated approximately $1.8 billion for its upstream activities, $160 million for its midstream operations, and $40 million for corporate matters. Another natural gas producer, Range Resources Corp. (RRC) has also lowered its capital budget for 2013 over 2012.
The U.S. player projects the production of gas and oil to be in the range of 628–640 billion cubic feet of gas equivalent (Bcfe) for 2013, a rise of 11–13% over 2012 production figures.
Southwestern has reduced its expected gas production from the Fayetteville Shale to 475 to 480 billion cubic feet (Bcf) in 2013 compared to 484 to 486 Bcf in 2012. In addition, the company has plans to drill roughly 385 to 390 wells in Fayetteville Shale in 2013. The estimated per well cost in this shale has declined to $2.7 million compared to $2.8 million in 2012.
On the flip side, from the activities in the Marcellus Shale, Southwestern has almost doubled its expected gas production to 160 to 165 gross Bcf in 2013 as compared to 2012. In this shale the company plans to drill nearly 86 to 88 wells next year. Estimated per well cost has, however, increased to $7.1 million compared to $6.3 million in 2012.
Brown Dense project is a part of the company’s New Venture, wherein it has planned to drill 7 to 9 wells in the next year.
Based in Houston, Texas, Southwestern engages in the exploration, development and production of natural gas and crude oil in the United States. It enjoys strong acreage positions in the Fayetteville and Marcellus Shales, which offer ample opportunities for newer natural gas discoveries.
The company’s effort to build its New Ventures acreage outside New Brunswick is an added positive. Brown Dense is expected to be a key play in its portfolio. However, we prefer to stay on the sidelines, considering the weak natural gas scenario in the U.S. arising from continued oversupply and low demand.
Southwestern holds a Zacks #2 Rank, which translates into a Buy rating for a period of one to three months. For the long term, we maintain a Neutral rating on the company.
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