Independent natural gas operator, Southwestern Energy Co. (NYSE: SWN) reported robust first-quarter 2014 results, owing to a significant increase in production along with higher natural gas prices.
Southwestern reported adjusted earnings of 66 cents per share, surpassing the Zacks Consensus Estimate of 63 cents and the prior-year quarter's earnings of 42 cents.
Quarterly operating revenues of $1,112.8 million comfortably beat the Zacks Consensus Estimate of $970.0 million and increased considerably from $733.7 million in the first quarter of 2013.
Production and Realized Prices
During the reported quarter, the company's oil and gas production grew 23.0% year over year to 182.0 billion cubic feet equivalent (Bcfe) – almost entirely gas – driven by increased Marcellus Shale activities. Production from Southwestern's Fayetteville shale plays increased marginally 0.4% from the year-earlier period to 119.4 Bcf. Moreover, output from the Marcellus shale plays soared 146.8% from the prior-year quarter to 58.0 Bcf.
The company's average realized gas price, including hedges, rose 22.5% to $4.19 per thousand cubic feet (Mcf) from $3.42 per Mcf in the year-ago period. Oil was sold at $100.43 per barrel, down 6.1% from the year-earlier level of $106.93 per barrel. Natural gas liquids (NYSE: NGL) were sold at $50.16 per barrel.
Segmental Highlights
Operating income from the Exploration and Production (E&P) segment increased 100.3% year over year to $352.1 million in the first quarter. Improved output level and natural gas prices aided the results, partially offset by higher operating expenses.
On a per-Mcfe basis, lease operating expenses were 93 cents versus 81 cents in the prior-year quarter. On the other hand, general and administrative expenses per unit of production increased to 25 cents from 21 cents in the prior-year quarter.
The Midstream Services segment's operating income increased 8.0% to $82.6 million in the first quarter from $76.3 million in the year-earlier quarter. Higher gas gathering volumes along with increased marketing margins brought forth the improvement.
Capex and Debt
The company's total capital expenditure in first-quarter 2014 was approximately $542.0 million, of which $499.0 million was spent on E&P activities and $39 million was expended in the Midstream segment.
As of Mar 31, 2014, long-term debt stood at $1,827.4 million, representing a debt-to-capitalization ratio of 32.5%.
Zacks Rating
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 oil and gas exploration and production sector like Athlon Energy Inc. (NYSE: ATHL), RSP Permian Inc. (NYSE: RSPP) and Clayton Williams Energy Inc. (NASDAQ: CWEI). All the stocks sport a Zacks Rank #1 (Strong Buy).
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