Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
Southwestern Energy Company (SWN)Stock (Energy Industry, Independent Oil & Gas Industry)
[edit] Business SegmentsThe primary focus of the company is the exploration and production (E&P) of natural gas and oil through three wholly owned subsidiaries; SEECO, SEPCO, and Diamond "M" production company.[1] Over the past three years, the E&P division's management has proved adept at replacing depleted reserves with a reserve replacement ratio in excess of 300%. [2] In order to more effectively market and distribute the products, the other business segments of Southwestern, Midstream Services and Natural Gas Distribution, engage in the marketing efforts and retail distribution to over 151,000 Arkansas customers. [edit] Financial and Operating MetricsAs mentioned above, the company has been shifting their emphasis towards lower risk drilling projects. Inherently, this implies a deemphasis on the more risky deepwater and "new venture" plays. Below is a break down, by gross acreage, of where the company held leases at the end of 2006. [3] Notice that under 10% of the properties are categorized as high risk.  Below are some relevant operating metrics for Southwestern Energy Company over the past three years.  As a company engaged in vertical integration, Southwestern Energy reports revenues for each of their segments. Below is the divisional breakdown for revenue and operating income. [4] Please note, not included are negative intersegment revenues (such as marketing expenses), which are ultimately discounted to avoid double counting. Also, note the relatively large difference in margins between divisions.
[edit] Trends & Drivers[edit] Rising Oil and Gas pricesThe company is highly dependent on favorable market prices for gas, which tend to fluctuate significantly over time.[5] Recently, rapidly increasing demand for energy coupled with constrained supply has led to high oil and gas prices, lifting the stock prices of oil & gas companies across the board. Countries like China, for instance, have (no pun intended) fueled much of this energy demand. The company's bottom line and margins generally benefit from increases in the prices of these commodities as operating expenses remain more or less fixed. Increases in the prices of oil and gas are not, however, without negative side effects. Because drilling for oil and gas becomes much more profitable when prices are on the rise, the company faces stiffer competition for the acquisition of land or mineral rights to oil- and gas-rich properties. These properties' market values rise in virtually direct proportion to the rise in the value of the commodities under them, which cuts into the company's possible return on investment. A similar phenomenon can occur in buying or leasing drilling equipment, as prices are driven by eager competitors bidding them up in order to drill for the commodities. Furthermore, the company usually hedges the prices at which it can sell oil & gas. By use of derivatives, the company attempts to lock in a price or a range of prices, which limits downside but also presents an opportunity cost if oil prices rise significantly over the lives of contracts.[6]
[edit] Hybrid and Alternative Energy TechnologyRising oil prices have led both consumers and companies to seek out alternative sources of energy and to invest in renewable energy such as nuclear, solar, wind, biofuels, and ethanol technologies. As global consumer demand shifts toward renewable energy sources and incentives to develop long-term solutions to the world's dependence on oil and gas become stronger due to recent environmental concerns over climate change, consumer consciousness and the entrepreneurial profit motive may adversely affect the oil and gas industry. With the advent of hybrid and fuel cell vehicles and the cost of gasoline becoming quite high, consumers have become less inclined to purchase gas guzzling SUVs as opposed to more fuel-efficient cars. As a result, the company stands to face long-term materially adverse effects if the oil and gas industry encounters a decrease in demand.
[edit] CompetitionAs sellers of commodity products, oil and gas companies operate in a highly competitive environment in which all firms are price-takers because they must sell their products at given market prices. Therefore, firms generally find competetive advantages through efficient, intelligent, and sometimes, innovative use of the drillbit. Furthermore, in order to remain competitive, it is also important for firms to earn high returns on investment through intelligent property acquisition and operational prowess. Southwestern Energy Company's business model differs from many of its competitors because they engage in both the upstream and downstream value chain. A quick look at the table below will show that SWN also has the lowest operating margin amongst some of its more upstream and oil focused competitors. Below is a table comparing several metrics from some of the main players in the independent oil & gas industry.[10]
 Southwestern Energy Company2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
[edit] Footnotes
Bold text ¥ |
The Shelf
|
Edit
History
Bookmark
