The Fayetteville Shale, where Southwestern Energy Corp. is the dominant player, powered double-digit production growth and profits for the company in 2Q2007. Gross daily natural gas output from its Arkansas leasehold was up four-fold from a year ago, to 200 MMcf/d from 50 MMcf/d in 2Q2006.

Southwestern, which also has drilling activity ongoing in East Texas and the Arkoma Basin, reported a 57% jump in its oil and gas production in the quarter, to 25.8 Bcfe from 16.4 Bcfe a year ago. Most of the output was attributed to the Fayetteville Shale, where the company produced 10.7 Bcf, compared with 1.8 Bcf in 2Q2006. In 1Q2007, the play was responsible for 8.2 Bcf of Southwestern’s output.

“Although our results were primarily driven by the continued success of our development program in the Fayetteville Shale, we are also having very good results from our base activities in East Texas and the Arkoma Basin,” said CEO Harold M. Korell. “We are also gaining a better understanding of the Fayetteville Shale and are beginning to focus our drilling program in areas which have shown better results.”

At the end of June, Southwestern held more than 900,000 net acres in the Fayetteville Shale, including 699,000 net undeveloped acres, 76,000 net developed acres and 125,000 net acres held by conventional production. Southwestern had drilled and completed 303 operated wells in the play at the end of the quarter, including 246 horizontal wells. The company currently has 19 drilling rigs running there, and this year it expects to invest about $950 million, including capital investments related to gathering. All together, Southwestern expects to participate in about 400 horizontal wells in the play in 2007.

<>In the quarter, Southwestern’s net income jumped 29% to $47.6 million (28 cents/share) from $37.0 million (22 cents) in 2Q2006. Operating income rose to $146.8 million from $84.3 million. Average realized gas prices were $6.90/Mcf, including the effect of hedges, compared with $6.23 in 2Q2006. This year, Southwestern has hedged 75% of its expected gas production.Anadarko Petroleum Corp.’s domestic gas sales grew 65% in the second quarter from the year-ago period while realized gas prices increased 12.5%, contributing to a hefty revenue surge. However, net income was down for the quarter, $652 million ($1.39/share) versus $814 million ($1.76/share), a 20% decline blamed in large part on income taxes associated with divestitures as well as higher interest expense.

Revenue was up 83% to $3.3 billion from $1.8 billion in second quarter 2006 on higher commodity sales volumes. Analysts had expected earnings of 79 cents/share on revenue of $2.5 billion.

Anadarko has spent the past year digesting the acquisitions of Kerr-McGee Corp. and Western Gas Resources Inc. (see NGI, June 26, 2006), paring acquisition debt through divestitures and increasing its focus on natural gas (see NGI, April 23).

“We are pleased with our second quarter operating and financial results,” said CEO Jim Hackett. “Our retained properties are performing very well. Based on the demonstrated performance of the portfolio, combined with our expectations from Independence Hub [see NGI, July 23], we are raising the production guidance for our continuing portfolio again, to between 189 MMboe and 193 MMboe for the year — an increase of 3 MMboe from the previous midpoint.”

During the second quarter Anadarko sold nearly 1.8 Bcf/d at $7.10/Mcf including hedges. In second quarter 2006 the company sold 1.09 Bcf/d at $6.31/Mcf. For the first half of 2007 Anadarko has nearly doubled domestic gas sales volumes, to 2 Bcf/d from 1.09 Bcf/d in the year-ago period. However, realized prices were down at $6.18/Mcf from $6.94/Mcf in the year-ago period.

Income tax payments associated with divestitures were $1.1 billion during the second quarter. Interest expense was up sharply in the second quarter, $314 million compared to $51 million a year ago. For the first half of the year interest expense was $624 million, up from $104 million in the year-ago period.

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