SM Energy Upgrade - Dec 22

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

SM Energy Upgrade - Dec 22

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SM Energy Company (SM, $5.57, Buy; Target $8.00) - Raising Target Price - Michael S. Scialla, energy sector analyst at Stifel
December 22, 2020
"We are raising our target price to $8 from $5 based on a slightly more aggressive development pace, an improving financial outlook and emerging Austin Chalk potential. While the early stage play has yet to be fully delineated, the Chalk appears to be competitive with SM's Howard County assets, where its wells rank near the high end of our Midland Basin peer group. In addition, a strong hedge position and a deep inventory of DUCs should insulate the 4Q20 and 2021 capital plans from a potential oil price decline."

December 11, 2020 from TipRanks: "Susquehanna analyst Biju Perincheril raised the price target on SM Energy (NYSE: SM) to $7.00 (from $2.50) while maintaining a Neutral rating."
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My valuation is $8.00
SM's production is expected to be down from Q3 to Q4, but with 90% of oil hedged at $55/bbl and gas & NGL prices up operating cash flow should be good.
SM can and must generate steady FCF from operations.
Production mix is good: 48% crude oil, 37% natural gas & 15% NGLs
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: SM Energy Upgrade - Dec 22

Post by dan_s »

Details from the Stifel report:

SM estimates that its three most recent Austin Chalk wells have a breakeven oil price range of $17-$31/Bl, suggesting the play is competitive with
its Midland Basin assets. Three wells completed in 2020 and four in 2019 are outperforming our type curve while older vintages are lagging (Figure
5). Assuming an EUR of 133 Boe/ft (40% oil, 60% liquids), we estimate 100 locations could be worth $3/share to our NAV estimate. At a recent
conference, management indicated an Austin Chalk inventory of 100 to 400 locations. While this appears optimistic based on a few strong wells,
it is important to note that these wells are spread across the company's acreage. Equally important, SM has data from hundreds of penetrations
through the formation with its Eagle Ford wells.

During 3Q20, the company placed two (two net) wells on production in South Texas, where it is operating one rig and two completion crews. SM
recently announced that it had entered into a JV agreement whereby a third party will fund the majority of completion costs for six DUC wells to
earn a 50% working interest in the wells. The program includes co-development of three Lower Eagle Ford and three Austin Chalk wells. SM will
continue to operate and will retain a 50% working interest in the wells.

In addition, the company's South Texas production will benefit from a $5/Bl improvement in condensate realizations vs benchmark pricing beginning
in 4Q20, while natural gas transportation costs will decrease by $0.25/Mcf in 2021 and another $0.35/Mcf in 2023.
Dan Steffens
Energy Prospectus Group
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