SM Energy Update - July 19

[dan_s]

SM is one of the larger companies in our Small-Cap Growth Portfolio. I am updating my forecast/valuation model based on the press release below. In the last two weeks, three Wall Street Firms have published fresh reports on SM Energy. Their valuations are $15.00, $18.00 and $23.00. SM is up slightly today, trading at $9.68 as I post this. - Dan

SM ENERGY UPDATES 2019 GUIDANCE - PRODUCTION UP AND CAPITAL DOWN - AND REPORTS SECOND QUARTER PRODUCTION, PRICING AND CAPITAL EXPENDITURES
JULY 18, 2019

DENVER, July 18, 2019 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced certain operating and financial results for the second quarter of 2019, including production, realized pricing and total capital spend. In addition, for the full year, the Company is increasing its expected mid-point production guidance and lowering expected mid-point total capital spend (a non-GAAP measure defined and reconciled below). Highlights include:

Second quarter 2019 total production of 12.4 MMBoe (136.5 MBoe/d), up 16% sequentially, as performance from both the Permian and South Texas exceeded expectations. Commodity mix included 44% oil and 62% liquids. < Compares to my Q2 production forecast of 132.5 MBoe/day. - Dan.
Second quarter 2019 costs incurred in oil and gas activities of $269 million and total capital spend of $261 million. Total capital spend was below guidance, reflecting continued capital efficiencies.
Full year 2019 total production guidance further increased at the mid-point to 47.0 – 47.8 MMBoe, or 129 - 131 MBoe/d, while total capital spend guidance is reduced at the mid-point to $1,025 million, or approximately $70-80 million per month for the remainder of the year.
President and Chief Executive Officer Jay Ottoson comments: "Our performance in the first half of 2019 continued to demonstrate the quality of our assets and execution, with production higher than our recently increased guidance and capital invested lower than guided. During the quarter, we announced successful tests of several new intervals on our existing acreage. We now forecast higher second half production and lower full year total capital spend than we originally planned. We are well hedged for the remainder of 2019 and expect that our improving capital efficiency will allow us to achieve our second half objective of beginning to reduce debt while maintaining a steady pace of activity and strong exit rate production.

"During 2020, we expect to invest within our full-year discretionary cash flow, delivering moderate growth in production, higher margins, reduced debt and improved leverage metrics. At this point, we expect that our 2020 capital program will be very similar to our 2019 program and that spending will be evenly spread throughout the year. We currently have more than 50% of our expected oil production in 2020 hedged at prices over $55 per barrel.

"In summary, our results so far in 2019 and revised guidance indicate that we are on track to deliver on our business plan priorities: achieving growth within discretionary cash flow, de-levering our balance sheet, and proving up additional drilling inventory on our existing acreage."

UPDATED GUIDANCE

FULL YEAR 2019/GLIMPSE INTO 2020

Expected production of 47.0 - 47.8 MMBoe with approximately 44% oil in the commodity mix.
Expected total capital spend $1,000-1,050 million with the assumption that the capital program will be executed at a run rate of approximately $70-80 million per month for the remainder of 2019.
In 2020, the Company expects total capital spend to be similar to total capital spend in 2019, with a run rate of approximately $80-90 million per month, and to generate high-single digit corporate production growth and mid to high-teen Permian Basin production growth. Capital allocation between the Permian and South Texas is expected to be similar to 2019.
THIRD QUARTER 2019

Expected production of 12.0 -12.2 MMBoe with approximately 43% oil in the commodity mix. Production guidance for the second half of 2019 includes the effect of anticipated production shut-ins of up to 1.5 MMBoe due to offset operator activity, simops and other impacts. Production guidance also assumes ethane rejection (compared with ethane processing in the first half of 2019), which reduces overall barrel equivalent production volume. In South Texas, the Company plans to wrap-up 2019 planned net completions in the quarter, including two new Austin Chalk wells that are expected to start producing in the fourth quarter.