If you believe – as I do – that natural gas prices are heading much higher over the next three to five years, then at least a handful of natural gas companies should stand out as bargains right now. One such company is Southwestern Energy Company (NYSE:SWN), a well-managed, low-cost, natural gas producer with operations focused mainly in the Marcellus and Fayetteville shales. Let’s take a closer look at why the company might be a good investment right now.
Low costs and strong growth
Houston-based Southwestern Energy Company (NYSE:SWN) is about as close as you can come to a pure-play natural gas producer. As a result, the company’s share price closely tracks the price of gas, which has seen a general upward trend since mid-2012. Not surprisingly, Southwestern Energy Company (NYSE:SWN) shares are up nearly 50% since bottoming out in June last year.
Southwestern Energy Company (NYSE:SWN)’s advantage over other gas producers is its extremely low cost of production and a disciplined management team focused on organic growth through the drillbit. The company, which boasts 4 trillion cubic feet of reserves, has delivered consistent growth in both production and reserves over the past five years, which have grown by an annual average of 38% and 23%, respectively.
Along with competitor Ultra Petroleum Corp. (NYSE:UPL), which had one of the lowest all-in costs per Mcfe in the industry last year, Southwestern Energy Company (NYSE:SWN) also boasts one of industry’s most appealing cost structures, with all-in cash operating costs coming in at $1.18 per Mcfe in the first quarter, down from $1.28 per Mcfe in the year-ago quarter. That means Southwestern Energy Company (NYSE:SWN) can drill profitably even when the vast majority of gas producers are taking losses on gas drilling.
Strong prospects in the Marcellus
For the remainder of the year, the company’s capital spending will remain heavily weighted toward low-risk developmental drilling, mainly in the Fayetteville and Marcellus shales – two of the lowest-cost shale gas plays in the country. The Marcellus should be an especially promising source of future growth for the company.
Though Southwestern got off to a slower than anticipated start in the play due to logistical hurdles earlier in the quarter, it ended the quarter strong and is back on track to grow its production, hoping to surpass 500 MMcf of natural gas per day by the end of the year.