KLR Makes Valuation Call On Southwestern Energy, Downgrades To Hold

Southwestern Energy Company SWN's stock has appreciated 25 percent since late April and now trades at a slight premium to its gas-dominant peer group.

KLR’s John Gerdes downgraded the rating on the company from Accumulate to Hold, while maintaining the price target at $13.

Southwestern To Sell Wells

Gerdes mentioned the company intends to put up 20-30 well for sale in 2016. At the end of 2015, Southwestern Energy had 50 wells in Fayetteville, 40 in Southwest Marcellus and 35 in Northeast Marcellus.

The production estimate for 2016 is 3 percent above the guidance.

Capital Yield

Southwestern Energy’s mid-cycle capital yield is 120-125 percent, as compared to the industry median of 130 percent and the gas-dominant peer median of 140 percent.

According to the KLR report, “Southwestern is optimizing its completion techniques to include higher sand loading and managed flowback to increase condensate recovery. Marcellus wet gas wells average ~9 Mmcfepd the first 90 days and should recover ~12 Bcfe for a cost of ~$6.5 million.”

The company plans to complete its first Marshall County operated Utica test in early 2017, at an expected cost of $16 million.

Pointing to the “uncertain development future of the Fayetteville wells, Gerdes said that these wells “commenced production at 4+ Mmcfpd and should recover ~3 Bcf for a cost of ~$2.8 million.”