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Independent natural gas operator, Southwestern Energy Co. (SWN - Analyst Report) reported third-quarter 2013 earnings of 51 cents per share (excluding unrealized gain on derivative contracts), in line with the Zacks Consensus Estimate. Moreover, the figure improved 34.2% from the year-ago quarter’s adjusted profit of 38 cents per share.

Third-quarter revenues increased 25.5% to $868.4 million from the year-ago level of $691.7 million and comfortably surpassed the Zacks Consensus Estimate of $849.0 million.

The improvement came on the back of increased production from Marcellus shale operations as well as higher gas price realization.

Production and Realized Prices

During the reported quarter, the company’s oil and gas production grew 19.5% year over year to 172.4 billion cubic feet equivalent (Bcfe) – almost entirely gas – driven by increased Marcellus Shale operations. Production from Southwestern’s Fayetteville shale plays decreased 0.7% from the year-earlier period to 122.7 Bcfe. However, output from the Marcellus shale plays increased 196.0% from the prior-year quarter to 44.7 Bcfe.

The company’s average realized gas price, including hedges, jumped 5.6% to $3.60 per thousand cubic feet (Mcf) from $3.41 per Mcf in the year-ago period. Oil was sold at $106.72 per barrel, up 7.1% from the year-earlier level of $99.67 per barrel. Natural gas liquids (NGL) were sold at $42.05 per barrel.

Segmental Highlights

Operating income for the Exploration and Production (E&P) segment increased substantially 50.5% year over year to $222.7 million in the third quarter. Increased output level and improved gas price realization aided the results which were however partially offset by a rise in operating expenses.

On a per-Mcfe basis, lease operating expenses were 87 cents versus 79 cents in the prior-year quarter. On the other hand, general and administrative expense per unit of production increased 14.3% year over year to 24 cents.

The Midstream Services segment’s operating income increased 15.0% to $86.7 million in the third quarter from $75.5 million in the year-earlier quarter. Improvement in operations related to gathering from the Marcellus and Fayetteville shale plays aided the results.

Capex and Debt

The company’s total capital expenditure was approximately $1.8 billion, of which $1.6 billion was invested in E&P activities and $135 million in the Midstream segment.

As of Sep 30, 2013, long-term debt was $1,911.2 million, representing a debt-to-capitalization ratio of 35.0%.

Guidance

Southwestern has increased its production guidance for 2013 to 653–655 Bcfe from its earlier estimate of 643–651 Bcfe.

Zacks Rating

Southwestern currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, one can look at better performing oil and gas exploration and production firms like Matador Resources Company (MTDR - Snapshot Report), Northern Oil and Gas Inc. (NOG - Snapshot Report) and VOC Energy Trust (VOC - Snapshot Report) that offer value. All the stocks sport a Zacks Rank #1 (Strong Buy).
 

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