SM Energy Update - Sept. 26

[dan_s]

DENVER, Sept. 24, 2019 /PRNewswire/ -- SM Energy Company (NYSE: SM) today announces that its Board of Directors has approved a semi-annual cash dividend of $0.05 per share of common stock outstanding. The dividend will be paid on November 6, 2019, to stockholders of record as of the close of business on October 25, 2019. The Company currently has approximately 112.9 million shares of common stock outstanding.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America. SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at www.sm-energy.com.
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I would rather see SM paying down more debt than paying out a small dividend ($22.6 million per year), but the Wall Street Gang seems to prefer dividends and stock buybacks.

SM has a lot of production hedged so the GAAP rules for mark-to-market adjustments on derivatives causes very misleading quarterly earnings reports.
For example:
2017 Actuals: A loss of $1.44 per share with $3.97 operating cash flow per share with 122,113 Boepd of production.
2018 Actuals: Earnings of $4.53 per share with $6.30 operating cash flow per share with 120,213 Boepd of production < Sold large package of Eagle Ford assets in 1Q 2018 caused dip and they booked a $297.6 million MTM gain on their hedges.
2019
Q1 Actuals: A loss of $1.58 per share with $1.23 operating cash flow per share with 118,700 Boepd of production
Q2 Actuals: Earnings of $0.45 per share with $1.94 operating cash flow per share with 136,517 Boepd of production (43.7% crude oil, 37.9% natural gas & 18.4% NGLs)
Q3 Estimate: Adjusted Earnings (non-GAAP) s/b a loss of ~$0.15 with operating cash flow per share of $1.65 with ~132,000 Boepd of production
Q4 Estimate: Adjusted Earnings (non-GAAP) s/b net income of ~0.03 with operating cash flow per share of $1.85 with ~135,500 Boepd of production

GAAP accounting rules for upstream oil & gas companies that hedge a lot of production are EXTREMELY MISLEADING, primarily because if oil & gas prices decline reported net income goes UP. Try explaining that to a room full of investors that didn't major in accounting.

Focus on production growth and operating cash flow and you will understand why SM is worth keeping in our Small-Cap Growth Portfolio. If WTI averages $55/bbl in 2020 the company should generate over $7.00 operating cash flow per share, so today's share price of $10.32 looks cheap. On 9/20/2019 Stifel's price target was $21.00.