30
Apr

Shale Play: NFX & SWN Head To Head – An Addendum

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This addendum should be read in conjunction with these two pieces:

At first it seems an odd comparison...

  • One, Southwestern Energy, is a small gassy, rapidly growing thoroughbred of an E&P focused on a tremendous resource play in the Arkoma Basin.
  • The other, Newfield Exploration, is a more geographically diversified (US onshore, Gulf of Mexico shelf and deepwater, UK North Sea, Mayalsia and offshore China), mid cap E&P encumbered by high decline rates and increasing operating costs (actually that describes just about everybody) but which is in latter stages of a process to reinvigorate the company.
  • I like both here but think analysts are giving Newfield the short end of the stick despite SIZE resource potential.

nfx-vs-swn-1.JPG

...But both companies are going to be very active in their respective shale plays this year, spending large percentages of Capex devoloping long term resource plays. NFX has tested several wells with uncharacteristically large initial production rates in the Woodford from it's relative small sample of wells lending it the potential for increasing estimates later this year.

nfx-vs-swn-2.JPG

And while I think (SWN) deserves a lot of credit for it's rapid growth expectations, I think analysts and investors aren't giving (NFX) enough credit for it's increasing reserve life and reserve per share metrics.
nfx-vs-swn-3.JPG

In fact, SWN now outsizes Newfield and on trailing basis is valued at 3x Newfield's TEV to EBITDA multiple!  total company reserves are more than double those at Southwestern.  Given SWN's growth rate I wouldn't expect it's multiple to contract much this year but I'd hope investors take more note of NFX's reinvigorated growth profile.

6 Responses to “Shale Play: NFX & SWN Head To Head – An Addendum”

  1. 1
    zman Says:

    EOG reports $1.11 beat over first call $1.02

    21% YoY production growth, strong in the Barnett.

    On target for it’s previously stated goal of 10% production growth 2007.

  2. 2
    zman Says:

    Lehman reiterated NFX at equal-weight today. yawn.

  3. 3
    T-Tupp Says:

    i notice you not usually factor in cash multiples, vs. P/E info, in your fundies….. is there a reason? is it beacuse these guys are growth co’s?

  4. 4
    zman Says:

    Tupp – Anything in particular you’d like to see? I usually look at P/CF or TEV to EBITDA to compare.

  5. 5
    T-Tupp Says:

    p/cf– is not that the industry norm with high non cash expenses in this sector?

  6. 6
    zman Says:

    yup – op cash flow or ebitda cash flow multiple. I look at that as a basic comparison. For instance it’s at the bottom of the SWN / NFX piece above on a trailing basis.

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