SWN 1Q09 Pre Call Notes: #’s Easily Beat The Street, Guidance Going Up

SWN Easily Beats The Street On Volumes & Cost Controll; Spend Less, Produce More

The 1Q09 Numbers:

  • Production of 63.9 Bcfe (710 MMcfepd)  vs the guidance range of 60 to 61 Bcfe
    • up 64% from 1Q08
    • up 11% from 4Q08
    • 79% of production came from the Fayetteville Shale
    • 99.6% of production was natural gas
  • Revenues of $540.8 mm vs $450 mm expected (in part due to higher production but not as big a blow out on this line as it looks, a lot of the variance to analyst numbers is in the marketing component).
  • LOE of $0.79 per Mcfe vs $0.78 per Mcfe in 1Q08 and down from $0.87 last quarter (good to see them getting this back down). Guidance: none in the PR but this much better than the $0.90 - $0.95 mentioned as the go forward rate on the last conference call.
  • G&A per Mcfe of $0.31, down from $0.41 at 4Q08 and again, well below what management indicated was likely on the last call.
  • EPS of $0.36 (excluding a non cash impairment charge) vs $0.31 expected
    • ceiling test write down of $908 mm due to the 35% drop in natural gas prices since year end (non-event in my book).
  • CFPS of $1.09 vs $0.85 expected

Operational Update Highlights:

  • Fayetteville Shale:

    • Gross production at 850 MMcfepd, up over 100% from 1Q08 levels and up 13% since last report (mid February).
    • Transportation Issues: Laterals to the Boardwalk Pipeline (taking gas East) were placed in service April 1
      • The issue:  too much gas, up until now not enough pipeline capacity get it out of the area.
      • Sees initial break in issueswith Boardwalk coming to an end by the end of the third quarter (this is the only bugaboo with the quarter...that this might be longer than most people have been thinking).
      • Differentials are improving:
        • 4Q08 saw a $1.80 per Mcf spread to NYMEX
        • By 1Q09 this was down to $1.08 (they had hedged basis for 1Q09 for $1)
      • SWN has hedged basis at 25 cents differential to NYMEX for 64% of 2Q volumes and it sees the differential in 2Q and on to be less than 2H08 and 1Q09. They hedged basis for 3Q and 4Q for just under half of expected volumes at $0.25 and $0.20 respectively.
    • Drilling Results:
      • Completed Well Cost: $3.1 mm
      • Lateral lengths:  average 3,874'
      • 12 days to drill about flat with prior wells
      • IP - lower, for the first time in recent memory, than the prior quarter (ok, this might qualify as a second minor  bugaboo, explicable, one time so forgivable). This was foretold on the last conference call and is attributable to the delay of the Boardwalk pipeline which resulted in completion delays and a backlog of lower rate wells which were turned to sales after higher rate wells.  However, when looked at on a monthly basis, and taking into acount the timing of the aforementioned lateral additions to the pipeline system (average initial production):
        • Jan 09 IP: 2.806 MMcfepd
        • Feb 09 IP: 2.749 MMcfepd
        • March 09 IP: 3.375 MMcfepd
        • April 09 IP: 3.763 MMcfepd
  • East Texas:

    • First of 2 JV E. Tx Haynesville well IPs at 7.2 MMcfepd, second well has been drilled and will be completed this quarter.
    • They did not reiterate their current 40 well program here but did threaten to up, not cut, spending on the play.
  • New Ventures:
    • Still no numbers in print on their Marcellus wells.

Capex: Cutting by $100 mm to $1.8 billion.

  • They spent $450 mm in the first quarter (82% Fayetteville, 8% E. Texas, with the balance spent on Arkoma (non-Fayetteville and New Ventures)
  • 600 wells planned this year vs 620 as of last notice.

Balance Sheet: 24% debt to cap (this gets inflated by the ceiling test write down) but it is still more than manageable

Guidance: All production guidance ranges going up:

  • 2Q09: 67 to 68 increases to 70 to 71 Bcfe
  • 3Q09: 74 to 75 increases to 75 to 76 Bcfe
  • 4Q09: 79 to 80 increases to 80 to 81 Bcfe
  • 2009 up 3% on the mid point to a range of 289 to 292 Bcfe

    • that's up 49% YoY on the mid.
    • My sense is that these are all ranges they feel they can handily beat. No word in the press release on the number of drilled but not completed wells. -

Nutshell: Obviously strong results, big guidance, the capex reduction we were looking for, improved local pricing for gas, non-wow results in their first Haynesville well (but its E. Texas and there's probably not much in the stock for that extension of the Haynesville yet) and a hiccup in the Fayetteville in terms of quarter after quarter improvement in well results that is apparently readily explicable. Look for prying questions on that last one on the call tomorrow.

Conference Call: 10 AM EST.

2 Responses to “SWN 1Q09 Pre Call Notes: #’s Easily Beat The Street, Guidance Going Up”

  1. 1
    Wyoming Says:

    Drug it from the previous thread, never said I was not dense:

    Scuttle butt is XTO to drop 3 to 4 rigs in the Barnett and Williams to go to 1. Barnett rig count already down 64% from peak. Gas prices dropped below $2 at the wellhead. Some amazing deals on some of the services, 50% drop from an already 50% drop in Coiled Tubing for instance. Hearing some stories on the pressure pumping side to drop a jaw too.

  2. 2
    Wyoming Says:

    Is SWN hedged at all?

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