Looks like another company doing good in th Haynesville play is getting noticed by the popular media. Looks like they deserve it.

http://www.chron.com/disp/story.mpl/business/steffy/6806673.html


By LOREN STEFFY
HOUSTON CHRONICLE
Jan. 9, 2010,

There's no Emerald City, no Googleplex, no sprawling corporate campus. There's just an office suite in a nondescript mid-rise on Beltway 8 in north Houston.

Yet from this workaday headquarters has sprung one of the best-performing stocks of the past decade.

Houston-based Southwestern Energy led the Standard & Poor's 500 Index, racking up a stunning 5,776 percent return between 2000 and 2009, compared with a 24 percent decline for the index.

The little-known natural gas company rocketed past tech highfliers such as Apple, which posted a mere 720 percent return during the decade, and Google, which clocked in at 505 percent since going public in 2004.

“The company has essentially transformed itself from a sleepy, midstream pipeline company into a dominant, low-cost producer of natural gas,” said John Lutz, an analyst with Frost Investment Advisors in San Antonio.

82 cents to $48.20
Southwestern's shares climbed to $48.20 at the end of 2009 from 82 cents at the start of 2000, generating an average return of more than 50 percent a year.

David Heikkinen, an analyst with Houston's Tudor Pickering Holt & Co., began following Southwestern in February 2001, when its market value was just $254 million. As of Thursday's close, it was worth more than $17.5 billion.

Southwestern, whose financial performance in 2008 put it atop the Chronicle's list of top 100 public companies last year, began in 1929 as a pipeline and gas utility in northwestern Arkansas owned by Southern Union Gas in Dallas.

Ahead of the boom
In the late 1970s, the company, then known as Arkansas Western Gas, shed its utility operations and became Southwestern Energy. In 2000, it bought about 11,000 acres in the Overton Field in East Texas, about 20 miles southeast of Tyler and not far from where Dad Joiner in 1930 discovered what was then the world's largest oil field. It moved to Houston in 2001 and began buying property in Arkansas' prolific Fayetteville Shale two years later, long before the shale gas boom.

“They figured out the Fayetteville shale before anybody,” Heikkinen said. “They got in early enough, and they benefited from the escalation of gas prices.”

Natural gas prices began the decade at about $1.80 per million British thermal units and climbed to a high of more than $15 by 2005. As gas prices rose, so did leasing costs, but by then, Southwestern already had locked up almost 600,000 acres in the Fayetteville at rock-bottom prices.

As a result, its assets are concentrated in a few highly productive areas, which has kept drilling costs low while enabling the company to increase production tenfold in the past decade.

The past year has been difficult for many shale plays. Drilling in shale formations is expensive, and falling natural gas prices turned some projects into money losers. Larger producers, like Chesapeake Energy, are courting joint venture partners with deep pockets to raise capital for new drilling.

Last week, for example, Chesapeake sold a stake in its Barnett Shale field near Fort Worth to France's Total for more than $2 billion. Earlier, it sold 25 percent stake of its own Fayetteville holdings to BP for $1.9 billion.

Southwestern doesn't need additional capital because it's able to fund its drilling operations with cash flow, Heikkinen said.

Tough act to follow
The architect of Southwestern's phenomenal growth, Harold Korell, retired as CEO in May and the board chose President Steven Mueller as his successor. Heikkinen described it as a seamless transition, but it's unlikely Mueller will preside over the same stellar performance that marked Korell's tenure.

“We obviously won't see anything close to the returns of the past decade, but I still think the stock can outperform the industry looking out over the next five to 10 years,” Lutz said.

It's developing properties in other shale plays, such as the Marcellus formation in Pennsylvania and New York, but with higher lease costs and lower gas prices, Southwestern probably won't replicate the good timing it had in the Fayetteville.

So what, then, does it do for an encore? Given its techlike returns, maybe it can develop an app for the iPhone.
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