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SWN Reported "In Line" 4Q08 Results; Provides Further Positive Results In The Fayetteville Shale

  • The 4Q Numbers:
    • Production: 57.6 Bcfe (626 MMcfepd)
      • 44.1 Bcfe (479 MMcfepd) from the Fayetteville Shale
    • Revenues reported of $500 mm vs $540 mm expected
      • Fayetteville shale price realizations averaged $1.80 per Mcf below NYMEX prior to the completion of the Boardwalk pipeline in late December. This was expected.
    • EPS reported of $0.30 vs $0.31 expected
    • CFPS reported of $0.82 vs $0.82 expected
  • 2008 Reserves:
    • F&D of $1.53 per Mcfe (very good)
    • F&D of $1.21 per Mcfe in the Fayetteville alone (even better)
    • Reserve growth of 51% to 2.185 Tcfe.
  • Operations:
    • Fayetteville Shale:
      • YE 08 Production: 720 MMcfepd gross
      • As of Feb 15, 2009:750 MMcfepd gross
  • Hedges: 48% of expected production with an average floor price of $8.48.
  • Balance Sheet:
    • 23% debt to total cap
    • $1B revolver, untapped at present
    • "nearly $200 mm cash on hand
  • Fayetteville Shale Well Update
    • Fayetteville wells now seen at average of 1.9 Bcfe estimated ultimiate recovery, up from prior 1.5 Bcfe previous estimate at YE07.
    • 2H08 wells cost $3 mm apiece, have gross reserves of 2.2 Bcfe each, for a straight up F&D cost of $1.36
    • Including improved well performance they scored F&D in the Fayetteville of $1.21 per Mcfe last year.
    • IPs are trending up with long lateral lengths.
      • 1Q08: Lateral length of 3,301′ with initial production of 2.3 MMcfepd
      • 4Q08: Lateral length of 3,850′ with an IP of 3.347 MMcfepd
    • 4Q08 wells cost $3.1 mm a pop with that 3,850′ lateral and took 13 days to drill (this was 17 days a year ago)
    • Closer Perforation Cluster Spacing test resulted in 20 to 25% better IPs. Will use on all wells going forward
    • They see completed well costs falling to an average of $2.9 mm in 2009 due to lower service costs and efficiencies (sounds a bit conservative given their past and the speed of the fall).
    • 875,000 net acres so lots and lots and lots of potential locations.
    • 26% HBP, average remaining leases have 5 years remaining and a 15% royalty burden.
    • 22 rigs running (1 more than last I’d heard).
  • East Texas Update
    • Their first Horizontal Haynesville well has been drilled, completed and is currently testing so hopefully we get a little flavor on the call.
    • Second well is drilling and will be completed in 2Q09
    • "the company may invest more capital in the Haynesville/Bossier Shale than previously planned"
    • They also had good results from their horizontal James Lime program,
  • Guidance:
    • 2009 Production: 280 to 284 Bcfe (767 to 778 MMcfepd) or up 45% (on the mid) over 2008 volumes of 194.6 Bcfe. This is the same as the prior guidance from the December operations updated reviewed here.
      • Fayetteville forecast to be
    • 2009 Capital Budget: $1.9 B
      • This is less than the prior budget by $100 mm as they plan to release 4 additional rigs over the course of the year.
      • $1.6 B goes to E&P vs 1.78 B in the old budget
      • $1.3 B goes to the Fayetteville vs $1.5 B in the old budget
  • Conference Call: 10 am EST.