Energy Prospectus

SPRING, Texas – April 25, 2019...Southwestern Energy Company (NYSE: SWN) today announced financial and operating results for the quarter ended March 31, 2019, the Company’s first quarter as a single-basin Appalachia producer. These results include net income of $594 million, or $1.10 per share, and adjusted net income of $145 million, or $0.27 per share. Unless otherwise noted, results are compared to the first quarter of 2018, which included contribution from Fayetteville Shale assets sold in December 2018.

Adjusted Net Income compares to my forecast of $95 million, or $0.17 EPS.

I am updating my forecast/valuation model now.

This is a BIG DEAL:
In the first quarter, the Company completed its $200 million authorized share repurchase
program, repurchasing a total of approximately 44 million shares at an average price of
$4.53 per share, resulting in an 8 percent reduction in shares outstanding.

Adjusted Net Income beat my forecast primarily because their realized natural gas price (including cash settlement of hedges during the quarter) was much higher ($2.92/mcf) than what I was using in my forecast model. It was offset a bit by lower NGL prices. Oil prices were slightly higher, but crude oil is only 2.8% of SWN's production.

Before SWN's very good Q1 results:
In the last 3 months, 5 ranked analysts set 12-month price targets for SWN that range from $3.00 to $7.30. The average price target among the analysts is $5.26.

It is a good bet that analysts will be raising their valuation of SWN after they digest the impact of the Q1 results and how the company's hedges lock in very good and very predictable cash flow from operations. SWN's balance sheet is now in good shape after the cash from the sale of their Fayetteville assets deleveraged the balance sheet. Based on my forecast model, SWN's cash flow from operations s/b $1.90 to $2.00 per share this year, which compares to First Call's forecast (pre q1 results) of $1.75.

Cash flow from operations should exceed their D&C budget by approximately $100 million.

The only negative in Q1 was the dip in NGL prices, which should drift higher with oil prices.

My valuation of SWN increases to $9.80/share.