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Shares of Southwestern Energy (NYSE: SWN) fell sharply on Friday, and were down more than 11% by 3:00 p.m. EST. Fueling today's sell-off was the company's fourth-quarter results and 2017 guidance.
On the one hand, Southwestern Energy's fourth-quarter results marked quite a turnaround for the company. That's after it reported adjusted net income of $39 million, or $0.08 per share, which was a significant improvement from last year's $6 million loss. However, analysts were expecting $0.04 per share more. The culprit was the company's declining production, which fell during the quarter due to its decision to limit drilling activities last year because of lower gas prices and balance sheet issues.
Image source: Southwestern Energy.
Those two factors also caused the company to report a decline in proved oil and gas reserves. Southwestern ended 2016 with 5,253 billions of cubic feet equivalent (Bcfe) of proved reserves, down from 6,215 Bcfe at the end of 2015. On a more positive note, the company did partially offset that decline with upward performance revisions and successful development activity in Northeast and Southwest Appalachia, as well as in the Fayetteville Shale.
Southwestern Energy also released its 2017 capital investment budget and guidance. The company anticipates spending between $1.175 billion to $1.275 billion, which it expects to fund with cash flow and the $200 million remaining from its 2016 equity raise. That money will enable it to drill enough new wells to produce between 890 to 910 Bcfe in 2017, up from 875 Bcfe in 2016.
Further, production by the fourth quarter of 2017 will be 20% higher than the same period of 2016. That said, this growth is coming at a time when gas prices are plunging due to tepid demand and rising supplies.
Southwestern Energy just didn't give investors what they wanted to see this quarter. Not only were earnings below expectations, but it released a growth-focused capex budget that it hasn't completely funded with cash flow. The concern is that the company will waste money growing production in a market that could be growing oversupplied due to another warmer-than-normal winter. If that's the case, Southwestern Energy's stock could have further to fall.
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