Independent natural gas operator, Southwestern Energy Co. (SWN) reported robust second-quarter 2014 results courtesy of record production volumes.
Southwestern reported adjusted earnings of 59 cents per share, beating the Zacks Consensus Estimate by a penny. The bottom line also increased more than 9% from the prior-year quarter’s earnings of 54 cents.
Quarterly operating revenues of $1,035 million beat the Zacks Consensus Estimate of $1,005 million and increased considerably from $862 million in the second quarter of 2013.
Production and Realized Prices
During the reported quarter, the company’s oil and gas production grew 18.1% year over year to 189 billion cubic feet equivalent (Bcfe) – almost entirely gas – driven by increased Marcellus Shale activities. Production from Southwestern’s Fayetteville shale plays increased 3% from the year-earlier period to 124 Bcf. Moreover, output from the Marcellus shale plays soared 79.4% from the prior-year quarter to 61 Bcf.
The company’s average realized gas price, including hedges, fell 2.6% to $3.77 per thousand cubic feet (Mcf) from $3.87 per Mcf in the year-ago period. Oil was sold at $103.27 per barrel, up 4% from the year-earlier level of $99.31 per barrel. Natural gas liquids were sold at $37.78 per barrel.
Operating income from the Exploration and Production (E&P) segment increased 8.7% year over year to $275 million in the second quarter, owing to improved output level, partially offset by increased operating expenses and reduced natural gas prices.
On a per-Mcfe basis, lease operating expenses were 90 cents, higher than the prior-year quarter level of 85 cents. However, general and administrative expenses per unit of production decreased to 23 cents from 24 cents in the prior-year quarter.
The Midstream Services segment’s operating income increased 27.4% to $93 million in the second quarter from $73 million in the year-earlier quarter. Higher gas gathering volumes along with increased marketing margins prompted the improvement.
Capex and Debt
The company’s total capital expenditure in the second quarter was approximately $721 million, of which $676 million was spent on E&P activities and $36 million was expended in the Midstream segment.
As of Jun 30, 2014, long-term debt stood at $1,838 million, representing a debt-to-capitalization ratio of 31.3%.
Southwestern expects 2014 production between 758 Bcfe and 764 Bcfe, higher than the prior projection of 740–752 Bcfe. The company increased its guidance on the back of this quarter’s record output.
Southwestern currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.
Meanwhile, one can look at better-ranked players in the same industry like Callon Petroleum Company (CPE), Midstates Petroleum Company Inc. (MPO) and VOC Energy Trust (VOC). All these stocks sport a Zacks Rank #1 (Strong Buy).