SM Energy sells Ark-La-Tex assets

[dan_s]

DALLAS, July 1, 2015 /PRNewswire/ -- Aethon Energy Management LLC ("Aethon" or the "Firm"), a Dallas-based private investment firm focused on onshore oil & gas, together with its partner, RedBird Capital Partners LLC ("RedBird"), today announced the acquisition of certain Ark-LA-Tex assets from SM Energy Company (SM). Terms of the negotiated transaction were not disclosed.

SM Energy's Ark-LA-Tex assets comprise approximately 76,300 net acres with current net production of 29 MMcfe/d, 98 percent of which is gas.

[bellwj]

I doubt this is the reason that SM has tanked so badly in the last six weeks--down 25%. Any thoughts on why the almost straight line dive since mid-May?

[dan_s]

This dip has nothing to do with the asset sale. That is non-core stuff and I'm glad to see them sell it to focus on their Eagle Ford acreage. Oil traders (who set the price of oil based on the trading of futures contracts on NYMEX) are worried about the Greek and Iran deals. Then today we got a bearish oil storage report, which I think has nothing to do with U.S. production and everything to do with the timing of tanker deliveries. Remember Tropical Storm Bill? It kept ships out at sea for a few days.

Back to SM Energy. I have a VERY HIGH level of confidence in my forecast model for SM. My operating cash flow per share forecast is $14.00 for 2015. I just checked First Call and their CFPS forecast is now $14.01.

SM's production did peak in the first quarter and will be on decline this year because of their reduced capital program. However, production will be up around 14% year-over year. See the bottom of my forecast model, which you can download from the website to Excel, and you will see how this is possible.

They have a lot of their production hedged at good prices.

SM is much too good of a company to be trading at less than 4X CFPS.