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Southwestern Energy Company (SWN - Analyst Report) has a planned capital investment program of nearly $2.3 billion for 2012. Of this total, approximately $2.0 billion will be spent on exploration and development activities with a special focus on Marcellus Shale in Pennsylvania.

Other companies such as ConocoPhillips (COP - Analyst Report) and EQT Corporation (EQT - Analyst Report) have also given more importance to their upstream segments in the guidance for 2012. Southwestern has allocated $210 million for its midstream activities and $90 million for corporate purposes. In 2011, the company had a capital budget of $2.1 billion, in total.

With enhanced spending on development activities, the U.S.player expects 2012 production in the range of 570–580 billion cubic feet of gas equivalent (Bcfe), reflecting an increase of 15% from the company’s expected 2011 level.

Of the total targeted gas production, about 60–65 billion cubic feet (Bcf) is estimated to come from the company’s activities in the Marcellus Shale, up significantly from the 2011 projected production of about 20–22 Bcf.

In 2012, Southwestern proposes to almost double its spending in Marcellus Shale from the last year level while slightly reducing the investments in Fayetteville Shale in Arkansas. New Ventures investments are expected to increase due to additional exploratory drilling activities.

The Brown Dense play in Arkansas and Louisiana, New Brunswick, Canada and a new oil play in 2012 are part of New Ventures that are expected to be developed in 2012.

Despite cutting on its outlays in the Fayetteville Shale, the major portion of Southwestern’s activities will remain in the region with plans to participate in approximately 580–590 gross wells in 2012. This compares with the participation in a total of 80–85 gross wells in the Marcellus play and up to 10 gross wells in New Ventures.

Southwestern holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the company.

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