Southwestern Energy Might Have Difficulty With One Of Its Debt Covenants At The End Of The Year

In my two most recent articles, I described how anyone considering an oil and gas investment right now must answer two questions:

1. Is it cheap?
2. Is it likely to survive the current downturn, especially without diluting investors?

In an earlier article, I answered the first question for Southwestern Energy (SWN). I described how the company looks cheap when you compare its enterprise value to the value of its underground oil and natural gas reserves.

In my last article, I began answering the second question for Southwestern. I looked at how the company’s hedging contracts might affect its estimated 2020 revenues. By estimating the company’s revenues for this year, we can see if the company will earn enough to service its debts.

There are two areas of concern here:

1. Will the company have enough earnings to cover its interest expenses?
2. Will the company have enough earnings to meet its debt covenants?

If Southwestern can answer “yes” to both questions, it is likely to survive the current downturn, at least through the end of 2020. If the answer to either question is “no,” the company’s survival will be in the hands of its creditors. (Read More)

A Look At Southwestern Energy's 2020 Hedges

In my last article, I described how anyone considering an oil and gas investment right now must answer two questions:

1. Is it cheap?
2. Is it likely to survive the current downturn, especially without diluting investors?

In that article, I answered the first question for Southwestern Energy (SWN). I described how the company looks cheap when you compare its enterprise value to the value of its underground oil and gas reserves.

To answer the second question for Southwestern, we need to know if the company will earn enough this year to service its debts. There are two areas of concern here:

1. Will the company have enough earnings to cover its interest expenses?
2. Will the company have enough earnings to meet its debt covenants?

If Southwestern can answer “yes” to both questions, it is likely to survive the current downturn, at least through the end of 2020. If the answer to either question is “no,” the company’s survival will be in the hands of its creditors.

To calculate Southwestern’s 2020 earnings, we need to look at the company’s price hedges. Those hedges are meant to protect the company from oil and gas price declines, and may be key to giving the company enough earnings to service its debts. Only if we know the impact of those hedges on the company’s revenues will we be able to calculate the company’s earnings. (Read More)

A Look At Southwestern Energy's Reserves

With the recent fall in oil and gas prices, many investors are looking for bargains in the industry. One company that has drawn interest is Southwestern Energy (SWN).

For an oil and gas company such as Southwestern to be a good investment right now, I think it must answer two questions:

1. Is it cheap?
2. Is it likely to survive the current downturn, especially without diluting investors?

Answering the first question tells an investor if they might earn above average returns by investing in the company. Answering the second tells an investor how likely it is they will earn those returns, rather than losing most or all of their money.

To answer the first question for Southwestern, we will compare the company’s enterprise value to the value of its underground oil and gas reserves. (Read More)