Global oil and gas volume grew 16.3% to 73.8 billion barrels of oil equivalent, or boe, in 2010 and is expected to grow at the rate of 24.4% to reach 91.8 billion boe by 2015. In addition, natural gas production reached an all-time high of 3.929 trillion cubic feet in 2012. This momentum is going to help Southwestern Energy Company (NYSE:SWN), which is seeking growth by enhancing its drilling activities and expanding in high quality natural gas fields.
Let’s find out how these strategic moves will help the company.
Enhancing production from Fayetteville shale region
Southwestern Energy Company (NYSE:SWN) is currently generating 80% of its total production from the Fayetteville Shale region, located in Northern Arkansas, which offers superior quality natural gas. The geography of this region allows for easy gas extraction, which helps the company explore additional natural gas from Fayetteville. The company plans to increase Fayetteville Shale production by spending $900 million in this region this year.
It will use around $830 million to drill around 390 wells. By drilling these wells, the company is expecting to raise its operating production from Fayetteville by 4% to the overall production range of 631 billion cubic feet equivalent per day, or Bcfepd – 642 Bcfepd in 2013. This represents year-over-year production growth of 13%.
Further, the company has around 6,000 well locations in this region ready for drilling activities and it plans to drill nearly 400 wells to 450 wells per year. It currently holds more than 900,000 acres from which it is producing two bcfepd. The company placed 102 wells in the first quarter at the cost of $2.1 million per well, its lowest cost ever. It is expected to use same methodology to drill its future wells, reducing the drilling time from 5.4 days to 5 days. It anticipates the average initial production rate of these new wells to be around 3.3 million cfepd, and the reduced cost will enable the company to beat its hurdle rate.
Betting on Marcellus Shale region
In the first quarter ended in March 2013, Southwestern Energy Company (NYSE:SWN) reported a production increase of approximately 11% from the Marcellus Shale region, where Range Resources Corp. (NYSE:RRC) has a strong presence and is continuing to perform well. To deepen it foothold and compete with the region’s competitors, Southwestern Energy Company (NYSE:SWN) acquired 162,000 Marcellus Shale acres in Northeastern Pennsylvania from Chesapeake Energy Corporation (NYSE:CHK) for $93 million in the middle of the second quarter.