SFY beats our Q2 forecast

[dan_s]

Productions right on target but EPS and CFPS came in well above what I was expecting. I will take a hard look at SFY (which is now in our Small-Cap Growth Portfolio) this afternoon. - Dan
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Swift Energy Company (NYSE: SFY) announced today earnings of $6.7 million for the second quarter of 2013, or $0.15 per diluted share, an increase of 122% when compared to second quarter 2012 earnings of $3.0 million, or $0.07 per diluted share, and a decrease of 7% when compared to earnings of $7.2 million in the first quarter of 2013.

[I was expecting $0.10 EPS]

Adjusted cash flow (cash flow before working capital changes, a non-GAAP measure - see page 6 for reconciliation to the GAAP measure) for the second quarter of 2013 was $72.8 million, or $1.67 per diluted share, virtually unchanged when compared to $72.7 million, or $1.69 per diluted share, for the second quarter 2012, and $72.6 million, or $1.67 per diluted share, for the first quarter of 2013.

[I was forecasting $1.55 CFPS] < this is much more important than EPS.

Swift Energy produced 2.78 million barrels of oil equivalent (“MMBoe”) during the second quarter of 2013, a 5% decrease from second quarter 2012 production of 2.92 MMBoe, and down 1% compared to first quarter 2013 production of 2.82 MMBoe.

Terry Swift, CEO of Swift Energy commented, “Our performance in the prolific Eagle Ford shale trend in South Texas continues to improve according to our plans. When compared to 2012, our 2013 South Texas well results have delivered higher initial production rates, larger estimated ultimate recoveries (“EURs”) and lower costs. Additionally, during July our average daily production rate in our South Texas core area was approximately 10% higher than our second quarter 2013 average production rate. Based on this performance, and following an extensive asset review, we plan to sell our Central Louisiana assets to increase our focus and build upon the operational success of our more predictable assets in South Texas. We expect a disposition of these assets to occur within the next 6-12 months.

“In conjunction with these asset sales, we’ve also recently committed to accelerating our activity in South Texas during the second half of 2013 and now expect to keep two drilling rigs active and maintain the momentum we have established.

“This will increase our expected 2013 South Texas capital expenditures by approximately $50 million which will be funded initially through our credit facility. We expect this additional spending to afford more consistent levels of production and predictable production growth in 2014.”

[dan_s]

I think the stock was down today because the market over-reacted to a slight dip in production (which was expected by me) and this statement:
"The Company had previously announced that it was contemplating joint ventures or strategic partnerships in South Texas. After a strategic review of all the Company’s assets as well as evaluating potential partners interested in developing the Company’s acreage while experiencing continual improvement of the performance of these assets, it has been determined that a joint venture is not the most attractive option for financing the development of the Company’s South Texas operations. Instead, the Company believes that the disposition of its Central Louisiana assets is the preferable course of action in order to fund the acceleration of this development."

I am still working on the forecast model and will post it tonight, but the numbers look good and production is going to bounce back strong in Q3. July production up almost 10% from Q2 daily average already.

[bearcatbob]

I think the stock was down today because the market over-reacted to a slight dip in production (which was expected by me) and this statement:
"The Company had previously announced that it was contemplating joint ventures or strategic partnerships in South Texas. After a strategic review of all the Company’s assets as well as evaluating potential partners interested in developing the Company’s acreage while experiencing continual improvement of the performance of these assets, it has been determined that a joint venture is not the most attractive option for financing the development of the Company’s South Texas operations. Instead, the Company believes that the disposition of its Central Louisiana assets is the preferable course of action in order to fund the acceleration of this development."

I am still working on the forecast model and will post it tonight, but the numbers look good and production is going to bounce back strong in Q3. July production up almost 10% from Q2 daily average already.

Imagine - a negative response to a company finding success that makes them want to change their plans to take advantage of that success.

[dan_s]

SFY has over 500 low risk HZ drilling locations in the Eagle Ford. The Eagle Ford has MUCH BETTER economic returns and much lower risk than what SFY has in Louisiana. The market should love the announced sale of their Central Louisiana assets to focus on the Eagle Ford. I think it is a very smart move.

The market just over-reacted to the sale announced today. Q2 results were actually quite good.

Based on my forecast model, SFY will generate ~$7.00 cash flow per share this year. This stock is trading for less than 2X CFPS. That is ridiculous for a profitable company with this much upside in the Eagle Ford.

Another way to look at this company: The PV10 of their proven reserves s/b close to $3 Billion at year-end (assuming oil & gas prices hold near current levels) and their net debt is approximately $1.1 Billion. The current market cap is under $550 million. The math on this one makes no sense to me.

First Call's price target is $21/share. I think that is too low and should go up with more focus on the Eagle Ford.