The business model that Southwestern Energy Company (SWN) follows in the Fayetteville Shale is sometimes referred to as a manufacturing or assembly line model. An exploration and production company finds a development play where it knows hydrocarbons are present, and figures out the geology and technology required to develop it. The company must then continue this development more efficiently and less expensively over time.
Southwestern Energy Company successfully implemented this strategy in the Fayetteville Shale, and released several data points to demonstrate this efficiency.
The company said that its average completed well cost in the Fayetteville Shale was $2.9 million each during the second quarter of 2009, compared to $3.1 million in the first quarter of 2009. The average horizontal lateral length was 4,123 feet, and the average time to drill a well to total depth was 11 days. This compares to average laterals of 3,874 feet and 12 days to drill in the first quarter of 2009.
These statistics are interesting, because longer laterals probably require more hydraulic fracturing, which would increase the average cost to drill. Southwestern Energy Company is obviously benefiting from a fall in service costs, but is also gaining efficiency as it cut one day from its average drilling time. ___________________________________________________________________
Do you use technical analysis to find the proper entry point before you buy a stock? Then Click Here for a free Trend Analysis.