SM Energy Q1 Results - April 30

SM Energy Q1 Results - April 30

Postby dan_s » Fri Apr 30, 2021 9:32 am

SM will suffer this year from their "Bad Hedges", but they should be able to remain free cash flow positive for the year.

> First quarter 2021 adjusted net loss was $5.7 million, or $0.05 per diluted common share, which compares to my forecast of a net loss of $33.5 million, or $0.29 per share.
> First quarter 2021 net cash provided by operating activities of $105.6 million before net change in working capital of ($51.4) million totaled $157.1 million, compares to my forecast of $150.0 million.
> First quarter 2021 production of 111,600 Boepd compares to my forecast of 119,000 Boepd. SM had quite a bit of production that was forced to shut-in during late February thanks to winter storm Uri.

Hedging during a pandemic is not a good idea, but SM's bankers forced them to lock in some low prices.

COMMODITY DERIVATIVES

Commodity hedge positions as of April 29, 2021:

OIL: Approximately 75-80% of expected 2Q-4Q oil production is hedged to WTI at an average price of $40.66/Bbl.

OIL, Midland Basin differential: Approximately 60-65% of expected 2Q-4Q Midland Basin oil production is hedged to the local price point at a positive $0.76/Bbl basis.

NATURAL GAS: Approximately 85% of expected 2Q-4Q natural gas production is hedged. 38,659 BBtu is hedged to HSC at an average price of $2.42/MMBtu, and 22,943 BBtu is hedged to WAHA at an average price of $1.82/MMBtu.

NGL hedges are by individual product and include propane and normal butane swaps for the remainder of 2021.
Dan Steffens
Energy Prospectus Group
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Re: SM Energy Q1 Results - April 30

Postby dan_s » Fri Apr 30, 2021 10:51 am

SM is trading at $16.26 today and my valuation is holding at $19.50, but I am going to drop SM from our Small-Cap Growth Portfolio.
Why?
> Their "Bad Hedges" will keep them from reporting any positive net income this year.
> They are outspending cash flow from operations in 1H 2021, which is a "no no" with the Wall Street Gang. They won't be getting any upgrades.
> If WTI stays over $60/bbl, SM should go free cash flow positive in 2H 2021 because their capex program is front end loaded this year. Their guidance is for production to increase over 20,000 Boepd from Q1 (reduced by weather related shut-ins) to Q3 and ramp to an exit rate over 140,000 Boepd.

For 2021 there are just better choices for us than SM. Small-Caps that are generating a lot of free cash flow should draw a lot more attention as we finally move beyond "Pandemic World".

My updated forecast/valuation model for SM has been posted to the EPG website. Take a look at my forecast for 2022 and you will see why we need to keep SM on the radar screen for a possible big rebound next year. After the "Bad Hedges" expire, their operating cash flow should increase to more than $1.2 Billion next year; up from approximately $740 million this year.
Dan Steffens
Energy Prospectus Group
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Re: SM Energy Q1 Results - April 30

Postby Fraser921 » Fri Apr 30, 2021 12:47 pm

Down 10 % leads the LOSER parade

Bad hedges matter, I guess
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Re: SM Energy Q1 Results - April 30

Postby dan_s » Sat May 01, 2021 10:22 am

Hedging when forced to is never a good idea. No one saw the pandemic coming, so I can't blame them too much.
Dan Steffens
Energy Prospectus Group
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