Southwestern Energy (NYSE: SWN) will take advantage of its strong cash flow in 2010 to continue its Fayetteville Shale program, move further to develop its acreage in other domestic shale plays and secure additional infrastructure to deliver its high-growth production.
The company had a spectacular 2009, growing production by 50% from 195 Bcfe in 2008 to 297-300 Bcfe in 2009. Southwestern Energy is sure to continue this excellent production growth in 2010 as the company has 879,000 net acres in the Fayetteville Shale on which to develop. This is the core area that the company was built on, and Southwestern Energy will continue to put capital to work here. (For more, check out Oil And Gas Industry Primer.)

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Haynesville Shale
In 2010, investors should expect Southwestern Energy to accelerate its development of the Haynesville Shale. The company entered the area in 2000 through an acquisition, and it has a decent size position in East Texas of 32,800 net acres under lease. Southwestern Energy spent 2009 drilling in the James Lime formation, but it also drilled five horizontal wells in the Haynesville Shale.

The acreage is in the sweet spot of the play, near wells drilled by competitors Chesapeake Energy (NYSE: CHK), Petrohawk Energy (NYSE: HK) and Devon Energy (NYSE: DVN), the latter of which came in at 30.7 million cubic feet equivalent of natural gas per day, the highest initial production rate of any well in the Haynesville Shale. Southwestern Energy will also allocate capital to expand its acreage position here before all the good areas are locked up.

Marcellus Shale
Southwestern Energy will also expand development of its properties in the Marcellus Shale, where the company has built up 174,000 net acres in Pennsylvania, which is currently ground zero for this hot shale play. The company has drilled only one horizontal and three vertical wells here through December 2009, but should ramp up quickly in 2010.

So far, the company is concentrated in Susquehanna County in Northeastern Pennsylvania near acreage held by Cabot Oil & Gas (NYSE: COG). Cabot has drilled nearly two dozen successful wells here, and Southwestern Energy should also find success.

Capital Structure
Southwestern Energy has always been under-leveraged relative to some of its peers, and 2010 will be no different despite its aggressive plans. The company plans to stay within its 29-31% targeted debt to capitalization levels.

Southwestern Energy encountered problems during 2009 with third-party pipeline curtailments in the Fayetteville Shale, and it will use 2010 to build out its own infrastructure and secure contracts with third parties.

Perceptions Should Change
Southwestern Energy has always been known as a one-trick pony due to its concentration of reserves and production in the Fayetteville Shale. This perception should change rapidly in 2010 as the company moves aggressively into the Haynesville and Marcellus Shales. (For more, see Peak Oil: What To Do When the Wells Run Dry.)

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Tickers in this Article: SWN, CHK, HK, DVN, COG

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