WN Easily Beats The Street On Volumes & Cost Controll; Spend Less, Produce More

The 1Q09 Numbers:

• Production of 63.9 Bcfe (710 MMcfepd)  vs the guidance range of 60 to 61 Bcfe
  • up 64% from 1Q08
  • up 11% from 4Q08
  • 79% of production came from the Fayetteville Shale
  • 99.6% of production was natural gas
• Revenues of $540.8 mm vs $450 mm expected (in part due to higher production but not as big a blow out on this line as it looks, a lot of the variance to analyst numbers is in the marketing component).
• LOE of $0.79 per Mcfe vs $0.78 per Mcfe in 1Q08 and down from $0.87 last quarter (good to see them getting this back down). Guidance: none in the PR but this much better than the $0.90 - $0.95 mentioned as the go forward rate on the last conference call.
  
• G&A per Mcfe of $0.31, down from $0.41 at 4Q08 and again, well below what management indicated was likely on the last call.
• EPS of $0.36 (excluding a non cash impairment charge) vs $0.31 expected
  • ceiling test write down of $908 mm due to the 35% drop in natural gas prices since year end (non-event in my book).
• CFPS of $1.09 vs $0.85 expected
  

Operational Update Highlights:

• Fayetteville Shale:
  
  • Gross production at 850 MMcfepd, up over 100% from 1Q08 levels and up 13% since last report (mid February).
    
  • Transportation Issues: Laterals to the Boardwalk Pipeline (taking gas East) were placed in service April 1
    • The issue:  too much gas, up until now not enough pipeline capacity get it out of the area.
    • Sees initial break in issueswith Boardwalk coming to an end by the end of the third quarter (this is the only bugaboo with the quarter…that this might be longer than most people have been thinking).
      
    • Differentials are improving:
      • 4Q08 saw a $1.80 per Mcf spread to NYMEX
      • By 1Q09 this was down to $1.08 (they had hedged basis for 1Q09 for $1)
    • SWN has hedged basis at 25 cents differential to NYMEX for 64% of 2Q volumes and it sees the differential in 2Q and on to be less than 2H08 and 1Q09. They hedged basis for 3Q and 4Q for just under half of expected volumes at $0.25 and $0.20 respectively.
  • Drilling Results:
    • Completed Well Cost: $3.1 mm
    • Lateral lengths:  average 3,874'
    • 12 days to drill about flat with prior wells
      
    • IP - lower, for the first time in recent memory, than the prior quarter (ok, this might qualify as a second minor  bugaboo, explicable, one time so forgivable).