ARGUS Maintains a 'Neutral' Rating on Southwestern Energy (SWN), But May Be Takeover Target

September 2, 2008 2:44 PM EDT

ARGUS maintains a 'Neutral' rating on Southwestern Energy (NYSE: SWN), but sees positive upside potential.

ARGUS analyst says, "SWN shares may receive two forms of uplift from the Chesapeake Energy (NYSE: CHK) / BP (NYSE: BP) transaction that creates a 75%/25% joint-venture in the Fayetteville Shale play of Arkansas. First, the transaction highlights greater identification of what SWN’s acreage might be worth. Second, it shows that a “super major” oil company is enamored with the play, and this could result in another super-major looking to purchase SWN, the leader in the play outright. BP will pay CHK $1.9 billion to gain access to 25% of the latter company’s acreage—or 135,000 acres. This is equivalent to $14,074 an acre. With approximately 906,700 acres and the largest player in the Fayetteville shale, SWN’s position would be worth an estimated $13.0 billion or $37 a share based on the CHK/BP Joint Venture.....As SWN is 98% natural gas, we remain Neutral principally due to our concerns about the trends in natural gas prices. We forecast natural gas will average $7.50 per Mcf for 2009 which is well below consensus at $9.12."

Southwestern Energy Company is an independent energy company primarily engaged in the exploration for and production of natural gas within the United States.[SM]

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