This addendum should be read in conjunction with these two pieces:
At first it seems an odd comparison…
- One, Southwestern Energy, is a
smallgassy, 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.
…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.
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.
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.
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