SM Energy Q4 Results - Feb 20

[dan_s]

DENVER, Feb. 19, 2020 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced operating and financial results for the fourth quarter and full year 2019, year-end reserves and the 2020 operating plan. Highlights include:

2019 Results:

Production beat. Fourth quarter 2019 production was 12.8 MMBoe (138.8 MBoe/d) at 48% oil, which exceeded the midpoint of fourth quarter guidance by 5% and was driven by 13% sequential growth in Midland Basin production. Full year 2019 production was 48.3 MMBoe (132.3 MBoe/d) at 45% oil. < Q4 production compares to my forecast of 134,000 Boepd.

Solid earnings, cash flows. Fourth quarter 2019 net loss was ($102.1) million; net cash provided by operating activities was $242.0 million; Adjusted EBITDAX was $286.2 million; and free cash flow was $68.8 million. Free cash flow for the second half of 2019 was $28.8 million. (Adjusted EBITDAX and free cash flow are non-GAAP measures defined and reconciled below.)

Capital on target. For the fourth quarter and full year 2019, costs incurred in oil and gas activities were $178.8 million and $1.04 billion, respectively, and total capital spend (a non-GAAP measure defined and reconciled below) was $184.9 million and $1.025 billion, respectively, in-line with expectations. Continued drilling and completion efficiencies during the fourth quarter allowed for more completions by year-end within the expected capital budget.

Net debt-to-Adjusted EBITDAX drops to 2.8 times. Full year 2019 cash provided by operating activities was $823.6 million and Adjusted EBITDAX was $993.4 million. Net debt at December 31, 2019 was $2.77 billion. (Net debt-to-Adjusted EBITDAX is a non-GAAP measure defined and reconciled below.)

Strong reserve adds. Net reserve additions before revisions for 2019 were 101.5 MMBoe. Year-end reserves were 462 MMBoe, 40% oil.

2020 Outlook:

Oil production growth of 5%-10%. This supports higher cash margins and cash flow.
Free cash flow. Nearly 20% lower capital budget year-over-year, at $825-850 million.
Improved net debt-to-Adjusted EBITDAX ratio . Free cash flow applied to absolute debt reduction.

President and Chief Executive Officer Jay Ottoson comments: "Our operations team delivered outstanding results throughout 2019, culminating in year-over-year Midland Basin production growth of 25% for both the fourth quarter and full year. We achieved a key milestone by generating free cash flow in the second half of the year, and we met or exceeded our objectives in every meaningful metric of our business, including top quartile industry benchmarks for environmental, health and safety performance. We were also successful in proving up additional investment opportunities on our existing acreage.

"This is an exciting time for our Company as we believe we are now on a positive trajectory of growing free cash flow and reducing debt, after a three-year program to transition our portfolio to top tier assets. Our 2020 operating plan prioritizes free cash flow and improved leverage metrics while positioning our Company to generate sustainable, moderate production growth within cash flow beyond 2020. Our organization and cost structure have been stream-lined to facilitate accomplishment of our strategic objectives, and our compensation plan design reinforces our focus on achieving high returns and outstanding safety and emissions performance. We believe that we are a premier operator of top tier assets, and that we will create differential value for our shareholders going forward."

[dan_s]

I have updated my forecast/valuation model for SM and posted it to the EPG website. Thanks to having 80% of their 2020 oil hedged at good prices, SM should be able to live within cash flow from operations and still grow oil production by 5% to 10% this year. Improving NGL prices really helps this company.