Replies to post #757 on EcoSphere Technologies Inc. (fka ESPHQ)

[Rainman21]

Southwestern Energy Taps Gas From Shale
By JASON WOMACK
Natural-gas producer Southwestern Energy Co. is navigating the rough-and-tumble commodity markets by doing more with less.
The Houston-based energy company has managed to boost its natural-gas output and post big returns, attracting investors even as natural-gas prices have languished. Southwestern has increased production while streamlining its operations and cutting costs. The company's shares have climbed nearly 50% this year.
Southwestern's underscores how the advent of new natural gas-rich fields known as shales are changing the way investors and the energy industry assess risk associated with natural-gas drilling. Companies such as Southwestern are driving costs down and improving results as they learn to unlock vast amounts of gas trapped inside these dense rock formations.
This year, the company plans to drill 600 wells in Arkansas's Fayetteville Shale, a field Southwestern discovered and the cornerstone of its natural-gas production growth. Southwestern has doubled its Fayetteville output over the past year, reaching the daily production milestone of a billion cubic feet of natural gas in July. That is enough gas to heat about 3.3 million homes for a day, according to the U.S. Energy Information Administration.
Southwestern has been able to book profits by locking in prices on future production. During the second quarter, Southwestern received an average price of about $5 per thousand cubic feet of natural gas, even though market prices were lower. The company says it needs a price of $4.50 per thousand cubic feet to achieve a 20% return on its investment.
While that second-quarter gas price was significantly lower than the same period a year earlier, Southwestern was able to partially offset the difference through higher production.
"These shale plays are resetting the economic breakeven for the industry, and Southwestern is one of the companies driving that change," said Dan McSpirit, an analyst with BMO Capital Markets.
Steven Mueller, chief executive of Southwestern Energy, said in an interview that natural-gas producers are on a steep learning curve not unlike the early days of the oil boom, when wildcatters discovered huge new deposits of hydrocarbons. "You have to keep fine-tuning to learn how to get the most production," Mr. Mueller said.
Southwestern, which celebrated the five-year anniversary of its first production from the Fayetteville Shale last week, began by drilling straight down into the rock formation and over time improved its technique. It now drills more than three-quarters of a mile in distance laterally through layers of rock, which it says has allowed the company to triple its average output per well.
The time it takes to drill a well has also declined to 11 days from 17 days over the past few years. The company can now keep up its drilling pace with fewer rigs, while keeping the cost of drilling more intricate wells relatively flat.
Other natural-gas producers have had similar results. Devon Energy Corp. reported that it drilled a well in nine days in Texas's Barnett Shale during the second quarter, a feat that used to take weeks. The company also posted record production of 1.2 billion cubic feet of natural gas a day from the mammoth gas field.
The efficiency gains made by energy producers in the these shales highlight how U.S. natural-gas production has avoided the sharp declines seen in domestic drilling activity. "The shale producers are increasing production and making money," said Rusty Braziel, managing director Bentek Energy, a natural-gas research firm. "It's the most important trend the natural gas industry has seen in a long time."
The number of rigs drilling for natural gas in the U.S. is down by more than half from a year ago and now stands at 712 rigs, according to data released Friday by oilfield services company Baker Hughes Inc. Producers have scaled back drilling programs as they cope with falling natural-gas prices.
Natural-gas prices reached a 7½-year low last month, a decline of more than 80% from their 2008 summer highs. Prices have exhibited strength in recent weeks as traders bought back previously sold contracts in anticipation of increased winter heating demand and an improving economy that could revive demand among industrial gas users.
In trading on the New York Mercantile Exchange Tuesday, natural gas for November delivery fell 10.7 cents to $4.88 per million British thermal units.
Natural-gas producers such as Southwestern Energy tend to follow commodity prices, but Southwestern's shares have performed well after what has proven to be a volatile summer for natural-gas prices.
"It's not just a pure commodity play. It's a growth and cost-control story," said Russell Croft, co-portfolio manager of the Croft Value Fund, which counts Southwestern among its top holdings.
Southwestern holds more than 875,000 acres in the Fayetteville Shale, enough to give the company a decade or more of drilling opportunities. "I have no idea what we will be able to do 10 years from now. But it will be better than what we are doing now," Southwestern's Mr. Mueller said.