SM Energy Issues Q1 Yield & Spending Update, Guides Q2 & '18

SM Energy Company SM released production, realized prices and total capital spending view for the first quarter of 2018. The company’s efficiency and exceptional performance in Midland Basin resulted in impressive production.

Production

Total production for the first quarter of 2018 was 10.14 million barrels of oil equivalent (MMBoe), of which 42% was oil. Excluding assets sold or pending sale, production was 9.3 MMBoe. These comprise the sale of Powder River Basin assets that closed in March 2018 and announced asset sales in Divide County, ND as well as Upton County, TX (third-party operated) that are projected to close in the second quarter of 2018.

During the quarter, volumes from Permian surpassed expectations and increased 18% compared with the fourth quarter of 2017. This was mainly due to better than expected production from new wells. Volumes from Eagle Ford fell sequentially as anticipated, thanks to no new completions between October 2017 and January 2018 as well as earlier reported downtime at a third party pipeline during February 2018.

Production for 2018 is estimated to fall 1.2 MMBoe, of which 81% is oil and 19% is natural gas. This is due to the asset sales in North Dakota and Texas. Assets sold and pending sale have 77% oil production. First quarter production was 0.1 MMBoe above the guidance, with a higher weighting of oil production. The production guidance for 2018 has been revised to 40.9-44.9 MMBoe from 42-46 MMBoe. Of the total revised production, 40% will be oil.

For second-quarter 2018, production is estimated in the range of 9.7-10.1 MMBoe, of which 40% will be oil. SM Energy intends to complete 36 net wells in the Permian Basin and 9 net wells in the Eagle Ford during the second quarter. Majority of the Permian Basin,and all of the Eagle Ford are expected to be operational during May and June.

Costs Incurred and Capital Spending

During the first quarter, SM Energy incurred total costs of $372 million. Total capital spend during the same period was $367 million. This was slightly higher than the initial budget due to increased ownership interests in certain RockStar wells, as a result of land trades and unitizations. In the same period, the company drilled 33 net wells as well as completed about 17 net wells in the Permian and drilled 8 net wells and completed 5 net wells in the Eagle Ford.

Capital spending for the second quarter of 2018 is expected to be same as the first quarter of 2018. In spite of similar spending, it includes nearly double the number of net well completions. As mentioned earlier, the company's 2018 capital expenditure program is weighted to the first half of the year.

Prices Realized

During the first quarter, the average realized price was $37.76 per Boe, before the effect of hedges. This is the highest level achieved in the last 14 quarter. Including the effect of realized hedges, the average price was $35.34 per Boe. Including the effect of realized hedges, average realized price for oil, natural gas and natural gas liquids was $56.39 per barrel, $3.39 per thousand cubic feet (Mcf) and $19.44 per barrel, respectively.

Liquidity

As of Mar 31, 2018, SM Energy’s cash balance was $643.3 million. As of the end of the first quarter, the company's undrawn credit facility plus cash on hand provided was $1.6 billion in liquidity.

Price Performance

SM Energy’s shares have lost 19% in the last three months versus the industry’s 6.3% decline.

 

Zacks Rank & Key Picks

SM Energy carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Nine Energy Service, Inc NINE, Baytex Energy Corp BTE and SunCoke Energy Inc SXC. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nine Energy Service, based in Houston, TX, is engaged in delivering onshore completion and production services to unconventional oil and gas resource development. The company posted an average positive earnings surprise of 6.25% in the preceding quarter.

Baytex Energy is a conventional oil and gas income trust focused on maintaining its production and asset base through internal property development and delivering consistent returns to its unitholders.. It pulled off an average positive earnings surprise of 77.3% over the last three quarters.

SunCoke Energy produces metallurgical coke in the United States. The company delivered an average positive earnings surprise of 130.6% in the last four quarters.

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