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Southwestern (SWN) Acquires Montage, Combined Output to Rise

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Southwestern Energy Company (SWN - Free Report) has completed the acquisition of Montage Resources last Friday, in turn boosting its footprint in the Appalachian Basin. Following the transaction, the company provided its guidance that includes 49 days of Montage Resources’ production.

While the basic guidance for fourth quarter and full-year 2020 remained intact, the inclusion of Montage Resources’ production boosted output capacity. For fourth-quarter 2020, the combined entity is expected to produce 251-258 billion cubic feet equivalent (Bcfe) compared with stand-alone estimate of 225-234 Bcfe. Natural gas production for the fourth quarter is estimated at 200-205 Bcf compared with 177-184 Bcf for the stand-alone company. Crude oil and natural gas liquids production is also expected to show similar patterns.

Shareholders of Montage Resources received 1.8656 Southwestern shares for each Montage Resources share held, per the deal announced in August. The move is expected to create the third-largest producer in the Appalachian Basin that will have a production capacity 3 Bcfe/d. The combined company is expected to have 208,894 net acres in Northeast Appalachia and 577,293 net acres in Southwest Appalachia. At 2019-end, the combined entity had total proved reserves of 15,451 Bcfe.

The acquisition enabled the combined company to save $30 million per annum in general and administrative expenses. It is likely to enhance free cash flow and improve the combined company’s returns. Notably, Southwestern Energy beat earnings estimates for the third quarter on the back of higher gas equivalent production, partially offset by lower average realized commodity prices. Importantly, improving operational and capital efficiencies enabled the company to raise 2021 free cash flow estimate to $300 million.

Price Performance

Southwestern stock has jumped 23.1% in the year-to-date period against 42.1% decline of the industry it belongs to.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Matador Resources Company (MTDR - Free Report) , Antero Resources Corporation (AR - Free Report) and Global Partners LP (GLP - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matador Resources’ bottom line for 2021 is expected to surge 187% year over year.

Antero Resources’ bottom line for 2021 is expected to rise 30.5% year over year.

Global Partners’ bottom line for 2020 is expected to rise 150.5% year over year.

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