Natural Gas Investing: This Is Why Southwestern Energy Company Is So Bullish on Natural Gas

By Matt

Southwestern Energy Company is really bullish on the future of natural gas in America. That's quite evident by the fact that the company recently spent well over $5 billion to acquire additional natural gas properties in the Marcellus Shale. It's even more evident by taking a glance at the company's three-year spending outlook, which will see the company invest another $9.1 billion to drill about 600 new wells each year for those three years. Southwestern Energy sees that capital driving profitable growth for its investors because of the bullish future it sees for natural gas.

One slide says it allIn discussing the company's growth plans, CEO Steve Mueller had a lot to say about why the company is so bullish on its natural gas business. He did note that natural gas supplies in the U.S. have been heading higher for years and that this has been viewed as being a problem because it's keeping prices down. That being said, he wanted investors to look past supply and look at demand. To get his point across, Mueller said, "Supplies are certainly increasing, but as shown on [the slide below], the demand growth has matched supply growth since the demand low in mid-2009."

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Source: Southwestern Energy Company Investor Presentation.

Mueller noted that it's not like America is currently oversupplied with natural gas. We still import natural gas from Canada to meet some of our demand, which has continued to increase as utilities are switching from coal to gas because of both its lower cost and better emissions profile. Mueller sees demand continuing to increase in the years ahead:

He notes that demand in the U.S. is expected to keep growing as new gas power plants come online, along with additional demand for gas from both exports and industrial users. This increase in demand has the potential to fuel strong returns for Southwestern Energy as it supplies low-cost gas to the nation.

How Southwestern Energy benefits from demand growthMueller noted that his company is one of the best when it comes to turning natural gas production growth into profitable growth for investors, even at lower natural gas prices. He pointed this out:

Source: Southwestern Energy Company Investor Presentation.

As that slide notes, Southwestern Energy earns some of the best returns in the energy industry. The company expects those returns to actually improve thanks to the addition of the liquids-rich Marcellus Shale and Utica Shale dry gas plays to its portfolio, which it recently acquired. The company sees those additions enhancing its ability to deliver profitable growth, which is why it is confidently investing billions of dollars over the next three years to bring additional gas production online as it seeks a greater share of the growing demand for natural gas.

Investor takeawaySouthwestern Energy sees strong demand for natural gas in the U.S. continuing through the end of the decade. The company plans to be a key supplier of this demand growth by plowing more than $9 billion into new natural gas wells over the next three years. It sees this as money well spent. Its returns on that capital should be exceptional since it can earn a lot of money drilling for natural gas because of its high-returning gas plays.

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