From Stifel's Morning Report 4-18-2019
SM Energy Company (SM, $17.58, Buy; Target $38.00) - 1Q19 Pre-released Production In line - Michael S. Scialla - We view the release as neutral. On the positive side, 1Q19 capex was 2% below Street consensus, and we are raising our 1Q19 CFPS estimate 1% to $1.41, 3% above consensus. On the negative side, the post-hedge composite realized price was 1% below our forecast.
SM Energy Update - April 18
SM Energy Update - April 18
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Update - April 18
I have updated my forecast/valuation model for SM and posted it to the EPG website. My valuation (based on the mid-point of the company's 2019 production forecast of 127,400 Boepd (43.5% crude oil)) stays at $25.00/share.
DENVER, April 17, 2019 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced certain operating and financial results for the first quarter of 2019, including production, realized pricing and total capital spend. Highlights include:
10.7 MMBoe (118.7 MBoe/d) total production came in at the mid-point of guidance. Permian production was up 34% year-over-year.
45% oil in the commodity mix; 63% liquids.
Costs incurred in oil and gas activities of $322 million and total capital spend of $316 million (a non-GAAP measure, reconciled below).
President and Chief Executive Officer Jay Ottoson comments: "Successful execution at the Merlin Maximus development underpins our full year objective of approximately 20% growth in Permian production. In addition, with over 60% liquids production and more than one-half of total production for the quarter from our Permian assets, we continue marching towards higher overall operating margins and cash flow."
At 10.7 MMBoe/118.7 MBoe/d, first quarter production was at the mid-point of guidance. As previously reported, first quarter production volumes met expectations despite impacts totaling (0.2) MMBoe in March from severe weather and from third-party processing plant delays in reaching full capacity following a force majeure event.
Realized pricing during the first quarter of 2019 benefited from improved regional oil differentials in the Permian Basin, which were offset by lower regional natural gas prices and a lower realized NGL uplift from Permian production impacted by force majeure events. For the next two quarters, the Company expects pricing for both oil and natural gas in the Permian Basin to be volatile as a result of tight pipeline capacity. The Company sells its Permian oil and natural gas production to purchasers (that are obligated to take forecast volumes) who own or have access to firm transportation. In addition, the Company has put in place Midland-Cushing basis hedges for approximately 60-65% of Permian oil production and has hedged Waha gas prices for approximately 85% of Permian natural gas production through the next two quarters.
> Permian volumes were up 34% year-over-year and flat sequentially.
> At the Merlin Maximus development, all 25 wells were drilled and completed as planned. 24 of the 25 wells (one well was intentionally shut-in to monitor sub-surface pressure) are on production as scheduled and the development is expected to reach peak production around mid-year.
> SM's realized prices (post-hedge) were $49.19/bbl of crude oil, $2.55/mcf of natural gas and $19.67/bbl for NGLs. < Lower gas price and higher liquids prices than my forecast.
FINANCIAL POSITION, LIQUIDITY AND TOTAL CAPITAL SPEND
On March 31, 2019, the outstanding principal amount of the Company's long-term debt was $2.5 billion in senior notes plus $172.5 million in senior convertible notes, with $46.5 million drawn on the Company's senior secured credit facility.
Costs incurred in oil and gas activities for the first quarter of 2019 were $322 million. Total capital spend (a non-GAAP measure defined as costs incurred less asset retirement obligations, capitalized interest and proved property acquisitions) for the quarter was $316 million. During the first quarter, the Company drilled 28 net wells and completed 27 net wells in the Permian, and drilled seven net wells and completed two net wells in its South Texas region.
MY TAKE: SM continues to outspend their cash flow from operations, which is frowned upon by the Wall Street Gang these days. Their D&C spending is front-end loaded this year and they should be able to "live within cash flow" by 2020 assuming WTI oil price stays over $60/bbl. First Call's target price is reasonable and should go up with the price of oil.
DENVER, April 17, 2019 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced certain operating and financial results for the first quarter of 2019, including production, realized pricing and total capital spend. Highlights include:
10.7 MMBoe (118.7 MBoe/d) total production came in at the mid-point of guidance. Permian production was up 34% year-over-year.
45% oil in the commodity mix; 63% liquids.
Costs incurred in oil and gas activities of $322 million and total capital spend of $316 million (a non-GAAP measure, reconciled below).
President and Chief Executive Officer Jay Ottoson comments: "Successful execution at the Merlin Maximus development underpins our full year objective of approximately 20% growth in Permian production. In addition, with over 60% liquids production and more than one-half of total production for the quarter from our Permian assets, we continue marching towards higher overall operating margins and cash flow."
At 10.7 MMBoe/118.7 MBoe/d, first quarter production was at the mid-point of guidance. As previously reported, first quarter production volumes met expectations despite impacts totaling (0.2) MMBoe in March from severe weather and from third-party processing plant delays in reaching full capacity following a force majeure event.
Realized pricing during the first quarter of 2019 benefited from improved regional oil differentials in the Permian Basin, which were offset by lower regional natural gas prices and a lower realized NGL uplift from Permian production impacted by force majeure events. For the next two quarters, the Company expects pricing for both oil and natural gas in the Permian Basin to be volatile as a result of tight pipeline capacity. The Company sells its Permian oil and natural gas production to purchasers (that are obligated to take forecast volumes) who own or have access to firm transportation. In addition, the Company has put in place Midland-Cushing basis hedges for approximately 60-65% of Permian oil production and has hedged Waha gas prices for approximately 85% of Permian natural gas production through the next two quarters.
> Permian volumes were up 34% year-over-year and flat sequentially.
> At the Merlin Maximus development, all 25 wells were drilled and completed as planned. 24 of the 25 wells (one well was intentionally shut-in to monitor sub-surface pressure) are on production as scheduled and the development is expected to reach peak production around mid-year.
> SM's realized prices (post-hedge) were $49.19/bbl of crude oil, $2.55/mcf of natural gas and $19.67/bbl for NGLs. < Lower gas price and higher liquids prices than my forecast.
FINANCIAL POSITION, LIQUIDITY AND TOTAL CAPITAL SPEND
On March 31, 2019, the outstanding principal amount of the Company's long-term debt was $2.5 billion in senior notes plus $172.5 million in senior convertible notes, with $46.5 million drawn on the Company's senior secured credit facility.
Costs incurred in oil and gas activities for the first quarter of 2019 were $322 million. Total capital spend (a non-GAAP measure defined as costs incurred less asset retirement obligations, capitalized interest and proved property acquisitions) for the quarter was $316 million. During the first quarter, the Company drilled 28 net wells and completed 27 net wells in the Permian, and drilled seven net wells and completed two net wells in its South Texas region.
MY TAKE: SM continues to outspend their cash flow from operations, which is frowned upon by the Wall Street Gang these days. Their D&C spending is front-end loaded this year and they should be able to "live within cash flow" by 2020 assuming WTI oil price stays over $60/bbl. First Call's target price is reasonable and should go up with the price of oil.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy Update - April 18
Helpful Hint:
Some of my forecast models don't fit in the on-line viewer on the EPG website. Therefore, I recommend that you download them to Excel for viewing. Plus, the models are all "macro-driven", so once you have them in Excel you can play with the assumptions at the bottom to see how production volumes and/or commodity price changes impact EPS, CFPS and the stock valuation.
For example: SM is a highly leveraged company with a relatively low amount of common stock outstanding. It is also, high leveraged to liquids prices. So, if crude oil goes to $75/bbl in 2020 then their EPS and CFPS will go WAY UP.
Some of my forecast models don't fit in the on-line viewer on the EPG website. Therefore, I recommend that you download them to Excel for viewing. Plus, the models are all "macro-driven", so once you have them in Excel you can play with the assumptions at the bottom to see how production volumes and/or commodity price changes impact EPS, CFPS and the stock valuation.
For example: SM is a highly leveraged company with a relatively low amount of common stock outstanding. It is also, high leveraged to liquids prices. So, if crude oil goes to $75/bbl in 2020 then their EPS and CFPS will go WAY UP.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group