Southwestern Energy Company’s (SWN) stocks took a tumble during the noon of Monday, 13 June 2016 despite increasing by upto almost 3% during the early morning trade.
“We are bringing forward the value of acreage that is much longer dated in our development plans, enabling us to take action and proactively reduce outstanding debt,” Bill Way, Southwestern’s CEO and president, said in a statement.
After going up by almost 2.8% during the early morning session, the stock suddenly dipped by just under 3% during noon.
The company released a statement detailing the sell-off of 55,000 net acres in West Virginia for $450 million. The cash proceeds expected from the deal are set to reduce to reduce the principal balance of the company’s $750 million term loan, which is due in November 2018.
Bill Way explained “This transaction is one step on delivering on the commitment we made to strengthen our balance sheet in 2016. We are bringing forward the value of acreage that is much longer dated in our development plans, enabling us to take action and proactively reduce outstanding debt. Together with the progress we are making on margin enhancement,this sale further strengthens both the Company’s financial flexibility and our bridge to value-added growth for shareholders.”
The affected properties are located in Doddridge, Harrison, Marion, Monongalia, Pleasants, Ritchie, Tyler and Wetzel Counties and are currently producing from the Marcellus Shale. Net production from this acreage is approximately 14 MMcfe per day, primarily from non-operated wells, and proved reserves on this acreage were 11 Bcfe as of December 31, 2015. The Company has, in any event, no current plans to drill on these properties before 2023.
After the Thursday 9th market close, the company announced the transaction, resulting in the stock moving swiftly downward, shedding 10,72% and settling at $13,16. The shift was also fueled by the this week’s drop in WTI and Brent crude oil prices, which fell 3,13% and 2,86% respectively.
A prominent ratings agency has moved the status of Southwestern Energy to Hold, largely on the basis of; diminishing investor returns when compared to other stocks as a result of : below par return on equity, poor profit margins, thin operating cash flow reserves, and high debt management risk.
Plummeting Performance against Same Period Last Year, a downward jump, upward of 1550% took net income from $78m to -$1,132m, significantly under performing against the S&P 500, and the Oil, Gas & Consumable Fuels sector.
Significantly below the industry average, the Southwestern Energy Company net profit margin is -195,5%, against a low gross margin of 24,35%.
Higher than the industry average, the debt to equity ratio is very high at 5.61, and although the company seems to have the ability to cover short-term cash needs, the debt equity ratio suggests increased risk associated with the management of debt levels.
While many experts were saw this coming, the investors may have been a bit surprised at this sudden dip after it rose during the morning session. Most analysts have given “Hold” rating to this stock, however, risk takers are encouraged to buy this stock as it does display a lot of potential.