Southwestern Energy said production from the Fayetteville Shale in in north-central Arkansas has reached 70 MMcf/d from 50 MMcf/d two months ago and should rise to 100 MMcf/d by the end of the year. The company reported slightly lower net income of $33.5 million, or $0.20 per diluted share, for the third quarter compared to $39.5 million, or $0.26, for 3Q2005.
Total oil and gas production for the quarter was up 19% to 19.3 Bcfe. But for the fourth quarter, Southwestern lowered its production outlook to a range of 20.4 to 21.4 Bcfe to reflect a shortage of pressure pumping equipment and crews in the Arkoma Basin and the pending sale of its South Louisiana properties. It also cut its full year production guidance to a range of 72.0 to 73.0 Bcfe. The revised guidance still represents an increase of 18-20% compared to 2005.
“Several positive events have occurred in the Fayetteville Shale play during the third quarter,” said CEO Harold M. Korell. “We have proven up more of the acreage, successfully testing an additional four pilot areas, one of which extends our productive region by approximately six miles to the northeast. In addition, our horizontal wells continue to perform well.”
Southwestern said it increased its projected capital investments for 2006 to $925 million, up 11% from the capital program announced in December 2005. The increased amount includes projected capital expenditures of $865 million for the company’s E&P segment, up from $770.3 million. The increase is attributable to the Fayetteville Shale play and is primarily related to changes during the year in the company’s fracture stimulation practices, higher service costs, increased outside-operated activity and costs related to previously disclosed purchases of land drilling rigs.
Through Oct. 19, Southwestern has drilled and completed a total of 128 wells in the Fayetteville Shale play, of which 76 are designated as horizontal wells. The wells are located in 25 separate pilot areas located in eight counties in Arkansas. Of the 76 horizontal wells, 71 are currently producing. In addition, 97 wells were in the drilling or completion phase on Oct. 19.
Southwestern produced 3.8 Bcf in the third quarter from the Fayetteville Shale, up from 1.8 Bcf in the second quarter.
As of Oct. 19, Southwestern had 14 drilling rigs running in its Fayetteville Shale play area. The company expects five rigs to be delivered in the fourth quarter for a total of 19 rigs drilling in the play by year-end 2006. The company holds 887,000 net acres in the play area. By the end of 2006, it expects to have effectively tested a substantial portion of its Fayetteville Shale acreage.
“As our drilling programs in East Texas and the conventional Arkoma Basin have continued their solid performance, our activities in the Fayetteville Shale play are expanding,” said Korell. “We currently have 14 rigs running in the play area, and have tested four new pilot areas that provide additional data confirming the viability of an even larger portion of our sizeable acreage position. We also continue to be encouraged by the production performance of our horizontal wells. Despite the recent retreat in commodity prices, we remain positive about the long-term outlook for natural gas and believe that the low gas prices we experienced during the third quarter are not sustainable over an extended period of time.”
Net income for the nine months ended Sept. 30 was $128.9 million, or $0.75 per diluted share, up 30% from $98.9 million, or $0.65 per diluted share, for the same period in 2005. Net cash was $304.8 million, up 39% from the same period in 2005.
Southwestern’s average realized gas price was $6.23/Mcf, including the effect of hedges, in the third quarter, compared to $6.98/Mcf in the same quarter last year. For the fourth quarter, the company has hedged 60-65% of its expected gas production. Assuming current Nymex gas futures prices for the remainder of 2006, the company expects the average price received for its gas production for the fourth quarter to be 45-55 cents/Mcf below the Nymex Henry Hub price.
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