ERF Enerplus Corporation

Independent natural gas operator, Southwestern Energy Company (SWN) recently completed the acquisition of approximately 162,000 net acres in the Marcellus Shale in Pennsylvania from Chesapeake Energy Corporation (CHK). The company financed the acquisition value of approximately $93 million solely from its revolving credit facility.  

Southwestern boasts a strong balance sheet with significant liquidity and financial flexibility. Moreover, the company’s continuous endeavor of focusing on return on investment, coupled with its large drilling inventory, uniquely positions it to create significant value for shareholders. Southwestern remains focused on generating economic returns. It is committed to projects returning at least 1.3x the present value index (PVI) and intends to only drill projects that reach that return threshold.

Houston-based Southwestern Energy Company is an independent energy company whose wholly owned subsidiaries are engaged in oil and gas exploration and production, natural gas gathering and marketing. The company is one of the largest producers of natural gas in the U.S., with core Fayetteville Shale properties spreading over 913,502 net acres.

Earlier, Southwestern’s year-end 2012 proved reserves decreased 31.8% and almost 100% of the reserves were natural gas. The decline was due to lower gas prices in 2012. The weak natural gas scenario in the U.S. due to continued oversupply and low demand also compels us to remain sidelined.

Southwestern’s industry-leading holdings in Northern Arkansas’ Fayetteville Shale play offer some of the highest quality natural gas discoveries in North America in recent years. Marcellus and Fayetteville shales also hold ample opportunities for newer natural gas discoveries.

We see the company as well positioned for production growth given its streamlined cost structure, upcoming drilling programs in the Fayetteville and Marcellus shales, and a wide acreage in its New Ventures, especially in the Brown Dense play.

However, we remain apprehensive about the volatile natural gas scenario in the U.S. given the continued oversupply and low demand. Other risk factors include weaker-than-expected commodity prices, technological failures and the lack of a diversified asset base.

The company holds a Zacks Rank #3 (Hold). However, there are other stocks in the oil and gas sector – Enerplus Corporation (ERF) and EPL Oil & Gas, Inc. (EPL) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

 
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
 
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SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
 
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