SM Energy Company

SM Energy Company

SM·NYSE

$34.29

+0.94%
EnergyOil & Gas Exploration & Production

SM Energy Company, an independent energy company, engages in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in the state of Texas. As of February 24, 2022, it had 492.0 million barrels of oil equivalent of estimated proved reserves. It also has working interests in 825 gross productive oil wells and 483 gross productive gas wells in the Midland Basin and South Texas. The company was formerly known as St. Mary Land & Exploration Company and changed its name to SM Energy Company in May 2010. SM Energy Company was founded in 1908 and is headquartered in Denver, Colorado.

At a Glance

Live Snapshot
Market Cap$8.22B
EPS5.6500
P/E Ratio6.07
Earnings Date07/30/2026

Earnings Call Transcript

SM • 2024 • Q2

Jennifer Martin Samuels
Good afternoon and welcome to SM Energy’s Second Quarter 2024 Results Webcast. Before we get started on our prepared remarks, I remind you that our discussion today will include forward-looking statements. I direct you to Slide 2 of the accompanying slide deck, Page 6 of the accompanying earnings release, and the risk factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. We will also discuss non-GAAP measures and metrics. Definitions and reconciliations of non-GAAP measures and metrics, to the most directly comparable GAAP measures, and discussion of forward-looking non-GAAP measures, can be found in the back of the slide deck and earnings release. Today’s prepared remarks will be given by our President and CEO, Herb Vogel, and our CFO, Wade Pursell. I will now turn the call over to Herb.
Herb Vogel
Thank you, Jennifer. Good afternoon and thank you for your interest in SM Energy. We had a terrific second quarter and have enjoyed excellent operational performance year-to-date. We have also successfully been expanding our top-tier portfolio while managing a very strong balance sheet. Turning to Slide 4. Every quarter I speak to progress we are making on our core objectives for the year. I’ll start with our objective to expand our high-quality portfolio with low breakevens. Today we announced that we are exercising our option to acquire 26,100 net acres adjacent to the XCL acquisition in Utah, commonly referred to as the Altamont acquisition, for approximately $70 million. Combined with the XCL acquisition, we are adding 63,300 net acres in the core, over-pressured oil window of the Uinta Basin, including approximately 44,000 Boe per day of high oil content production and an initial estimate of 465 net locations. Assuming PDP valued at $35,000 per Boe per day, we paid around $1.25 million per location, based on our preliminary counts, including Altamont. This is highly accretive to financial metrics including NAV. Second, production performance exceeded the mid-point of guidance by about 2,500 Boe per day with higher oil content, successfully demonstrating our core objective to focus on operational execution. In addition, we turned-in-line our first Woodford-Barnett test wells in the Midland Basin and are very pleased with early results and the potential to add more than 20,000 prospective net acres in this deeper formation. More about that in a minute. The third core objective is return of capital. We repurchased more than 1 million shares in the second quarter and, in combination with our sustainable dividend, returned approximately $72 million to stockholders. Our Board authorized an 11% increase in the quarterly dividend to $0.20 per share and reloaded the share repurchase authorization to $500 million through 2027, so we are positioned to continue our return of capital program in the coming years. It was a very successful quarter, and I’d like to thank everyone on the SM Energy team for a lot of hard work and outstanding results. Let’s look at some detail behind these highlights, turning to Slide 5. Starting with expanding our high-quality portfolio, we have added significant scale over the past year-plus. Summing the Sweetie Peck extension, Klondike, South Texas drill-to-earn extension, XCL and Altamont acquisitions, we have added more than 90,000 net acres, that’s nearly 40% growth in core acreage, and added, preliminarily, 465 drilling locations from XCL and Altamont alone, and this is just the beginning. The bottom of the chart includes a timeline for your reference. The Uinta acquisitions have an effective date of May 1st and, pending approvals, we anticipate closing October 1st. Turning now to slide 6 and the Uinta Basin. We have a very high bar in evaluating acquisitions to ensure value creation, and the Uinta acquisitions met all of our strategic objectives, listed here on the left side. These top tier assets: immediately compete for capital; extend our high-quality inventory by three-plus years, including our preliminary estimates for Altamont; will increase 2025 oil production an estimated 45% versus a stand-alone scenario; and are accretive to all key financial metrics at a purchase price of less than 3 times the projected 2025 adjusted EBITDAX contribution. Continuing with more about the Uinta on Slide 7. We showed this slide when we announced the XCL acquisition, and I am showing it again to reiterate the quality of the assets and the upside potential of the XCL acquisition that is expected by our differential geosciences and engineering team. These charts show comparisons of Uinta Upper and Lower Cube cumulative oil production performance based on normalized lateral lengths. The left graph compares average oil production from both cubes in the Uinta to SM’s average cumulative well performance in Midland and South Texas, demonstrating the competitive performance of the Uinta that translates into competitive returns. The right-side graph compares cumulative oil production performance of both Uinta cubes to top basins in the industry. Again, this highlights the quality of the Uinta, including the prospectivity of the Upper Cube. We did our homework and look forward to demonstrating this value as we develop this asset. And Tim Rezvan did some further research into the results in the area and agrees, as quoted here “we believe there are sufficient data points to acknowledge that the Uinta is a prolific, stacked-pay oil play. We come away impressed by the overall rock quality of the Uinta”. Let me just say, “We agree!” Moving on to the Midland Basin and Slide 8. We have been tight-lipped about our activity in the greater Sweetie Peck area for some time as we added acreage. Now that production data is public, we are pleased to report today early data related to our first Woodford-Barnett test wells in the area that just reached peak IP30. Our first two tests have impressive results with one 10,200 foot lateral reaching peak IP30 averaging 1,622 Boe per day and a shorter 5,900 foot lateral reaching peak IP30 averaging 830 Boe per day. The graph on the left compares these initial results, based on normalized lateral lengths, to peer wells in the same formation. These initial results compare favorably to peers in the area. Based on our two new wells, and existing peer wells in the surrounding acreage, we have confidence in the prospectivity of the Woodford-Barnett and believe our greater Sweetie Peck position may have more than 20,000 net acres prospective in this formation. Moving now to Slide 9. Again, we update this slide that compares the performance of SM wells in both the Midland Basin and the high-liquids area of the South Texas Austin Chalk to our peers, looking at cumulative oil production normalized to 10,000 foot laterals. This underscores the superior performance of SM Energy wells. SM average well performance in Midland remains about 30% better than the peer average. As a reminder, we co-develop, so the SM averages include multiple zones, same for our Austin Chalk well performance, which is 35% better on average. And, as we have pointed out, the oil cumulative curves for Midland and Austin Chalk are similar, leading to comparable returns. Turning specifically to the Austin Chalk on slide 10. New Briscoe C wells continue very strong performance, including fully bounded tests at 625 foot spacing. Outperformance and positive spacing tests in the Austin Chalk continue to provide upside, and we look forward to results in the new, drill-to-earn acreage to the west expected in the fourth quarter. The quotation here from Enverus emphasizes the upside potential from successful spacing tests, saying: “SM’s Briscoe C spacing pilot in the Austin Chalk is performing in line with more conservatively spaced offsets and could add over 60 locations to our existing inventory”. In summary, the combination of outstanding performance year-to-date; the pending close of the Uinta acquisitions that add substantial scale in terms of production, inventory and cash flow; as well as continued strong performance and expansion of our assets in Midland and South Texas. We are positioned for enhanced scale, a great second half of 2024 and an exciting 2025. We are truly hitting on all cylinders. I’ll now turn it over to Wade to discuss financial results and recent financing activity. Wade?
Transcript from August 7, 2024

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