Southwestern Energy Still Loves The Fayetteville

By Eric Fox | May 13, 2011 AAA

Southwestern Energy (NYSE:SWN) reported a 28% increase in production in the first quarter of 2011 and increased its production guidance for the rest of year as the company continues to see excellent results from its core shale play.
TUTORIAL: The Industry Handbook: The Oil Services Industry

Q1 Recap
Southwestern Energy reported production of 115 Bcfe in the first quarter of 2011, up 28% from 90 Bcfe in the same quarter of 2010. The company said that 88% of this production came from its properties in the Fayetteville Shale, which the company still favors despite weak fundamentals for natural gas. (For more, see Natural Gas Industry: An Investment Guide.)

Production Increase
Southwestern Energy also increased its production guidance for 2011, and now expects to grow production by 20% over 2010 using the midpoints of the revised guidance. The company anticipates production to be in a range between 483 Bcfe and 491 Bcfe for 2011, up from the previous range between 465 Bcfe and 475 Bcfe.

Fayetteville Shale
Southwestern Energy spent $330 million, or 70% of its capital budget, during the first quarter of 2011 to develop its properties in the Fayetteville Shale. The company placed 137 wells onto production here during the quarter and is operating 18 rigs in the play.

Southwestern Energy has been drilling wells in the Fayetteville Shale faster than planned so the company will drill 30 additional wells here during 2011 at a cost of $100 million.

While Southwestern Energy continues to see value in developing the Fayetteville Shale, other operators have been divesting assets here. Chesapeake Energy (NYSE:CHK) recently sold its properties here to BHP Billiton (NYSE:BHP) for $4.75 billion. (For more, see Unearth Profits In Oil Exploration And Production.)

Marcellus Shale
Southwestern Energy is also active in the Appalachian basin, where the company is developing the Marcellus Shale. During the first quarter of 2011, the company participated in 21 wells in Pennsylvania, and reported total production of 2.8 Bcfe.

Several of its recent Marcellus Shale wells had production rates above 6 million cubic feet per day, implying that some of its acreage may have a higher estimated ultimate recovery (EUR) than many expected.

New Ventures Group
Southwestern Energy is always looking for new plays and has a New Ventures Group dedicated to that task. In New Brunswick, Canada, the company has several million acres under lease and is starting a seismic survey in May 2011.

Other companies involved in exploring for oil and gas in New Brunswick include Apache Corporation (NYSE:APA), which began an 18 month exploration program at the end of 2009.

Southwestern Energy also has 620,000 net acres leased in new plays outside of New Brunswick, and the company plans to drill two exploratory wells on those properties during the second half of 2011.

Bottom Line
Southwestern Energy rode the Fayetteville Shale in the first quarter and raised production growth for 2011 as this core area continues to pay off for the company. (Find out how to invest and protect your investments in this slippery sector. For more, see Peak Oil: What To Do When The Wells Run Dry.)

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