New report on SM from Stifel

[dan_s]

Stifel's price target is $48/share (using today's oil and gas prices).

Comments from their report.

Raising NAV Estimate on Positive EF Tests
Five of nine Eagle Ford ("EF") spacing test pilots are online. A 14-well, Lower EF pilot on SM's eastern block shows no signs of interference from wells spaced 450-ft apart after ~130 days of production. Accordingly, we are reducing our spacing assumption to 65 acres from 95 on the eastern area and raising our NAV estimate to $66/share from $59. Pilot #3, located on the southern block, in the dry gas portion of the play, is also showing positive early results from 5 wells staggered between the Upper and Lower EF 312-ft apart. Success at this pilot could have
broad implications for all of SM's EF leasehold.

Divide County Bakken Wells Outperforming
Nine Bakken wells in Divide County continue to outperform SM's 340 MBoe Three Forks type curve after 11 months of production. Two significant southern step-out Bakken wells were recently completed, but no rates were released.

Midland Basin Comps Favorable
SM's 3Q15 presentation shows that its 19 Wolfcamp B wells 24-hr IP average rate (normalized to 7,500-ft lateral) of ~1,700 Boe/d ranks at the top of its competitors in the Midland Basin. Landing zone and completion optimization led to a 50% improvement in the 300-day recovery rate.

I am updating my SM forecast model and will post it to the EPG website this afternoon. My valuation will be over $80/share as SM continues to beat my production forecast and they are on-pace to generate close to $14.00/share of cash flow from operations in 2015. - Dan