Southwestern Energy Company (SWN) recently made its first exploration outside the United States. The company will invest approximately $47 million over the next three years for the development of properties in the province of New Brunswick, Canada.
The Department of Natural Resources has accepted the company’s bids for exclusive licenses to search and conduct an exploration program covering over 2.52 million acres in the province.
Management termed this venture as the “beginning of an exciting new chapter” for the company. It also stated that upstream activity in this area will be significantly increased over the next few years if the testing results confirm economic advantage.
This new development initiative, along with Southwestern’s industry leading holdings in Northern Arkansas’ Fayetteville Shale gives the company one of the highest quality natural gas discoveries in North America in recent years. In addition, the company’s expected drilling program in the Marcellus Shale play in Pennsylvania will add a feather to its cap, in our view.
We believe that the company is in its initial phase of unlocking the true value of the Fayetteville Shale play. Its expectation of 36% overall volume growth this year highlights the quality of its asset base.
However, Southwestern’s production is weighted toward natural gas, and it has very limited hedging exposure for this year. While we expect a tentative natural gas market in 2010, the company’s gas-weighted production profile and feeble price protection are our recent set of concerns. Our Neutral recommendation remains unchanged at this stage.
Read the full analyst report on “SWN”
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