Southwestern Energy Co. (SWN) reported its first quarter 2010 earnings of 49 cents per share, beating the Zacks Consensus Estimate of 46 cents and the year-earlier earnings of 36 cents. Revenue rose nearly 24% to $668 million on the back of a 29% hike in gas sales.
However, the company slashed its annual production outlook to 393 billion cubic feet of natural gas equivalent (Bcfe) − 401 Bcfe, down from 400 Bcfe − 410 Bcfe.
Operational Performance
Total production was 90 Bcfe, up nearly 41% over the same period in 2009. Natural gas production was 89.7 Bcf, up by the same percentage point. Production from the company’s Fayetteville Shale play increased more than 50% to 75.5 Bcf.
Operating income for the E&P segment was $250.4 million, up 39% from the first quarter of 2009. The increase was primarily due to an increase in production volumes, partially offset by lower natural gas prices. The company’s average realized gas price in the quarter was $5.42 per Mcf (including hedges), down 9% year over year.
Operating income for the Midstream Services segment increased more than 37% from the year-earlier quarter to $37.6 million. The increase was driven by the improvement in gathering revenues from the Fayetteville Shale play.
On a per-Mcfe basis, lease operating expenses for the quarter was flat year over year at 78 cents. General and administrative expenses per unit of production in the reported quarter (29 cents) were down from the year-ago quarter (31 cents).
Liquidity
Net cash provided by operating activities before changes in operating assets and liabilities was $417.8 million in the reported quarter, up 12% from the year-ago quarter. At the end of the quarter, long-term debt was $1.02 billion, representing a debt-to-capitalization ratio of 28.5%.
Outlook
The company’s industry-leading holdings in Northern Arkansas’ Fayetteville Shale play make it one of the highest quality natural gas discoveries in North America in the recent years. With the impressive production results from this play along the company’s positive view, we believe that the company is in its initial phase of unlocking the true value of this play.
We are currently Neutral on Southwestern Energy.
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