Read: http://www.oilandgas360.com/sm-keeping-bakken-assets/
This will change my forecast.
SM decides not to sell Bakken assets
SM decides not to sell Bakken assets
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM decides not to sell Bakken assets
I have updated my forecast model for SM Energy and posted it to the EPG website.
No change in my valuation as higher cash flows from the retained Bakken assets more than offsets the increased interest expense. My valuation remains $42.00/share, which compares to First Call's price target of $35.55.
SM's share price should go up if they continue to report strong well results in the Permian Basin.
SM's production mix is approximately 46% natural gas, 30% crude oil and 24% NGLs. 45% of this year's estimated natural gas production is hedged at $3.95.
No change in my valuation as higher cash flows from the retained Bakken assets more than offsets the increased interest expense. My valuation remains $42.00/share, which compares to First Call's price target of $35.55.
SM's share price should go up if they continue to report strong well results in the Permian Basin.
SM's production mix is approximately 46% natural gas, 30% crude oil and 24% NGLs. 45% of this year's estimated natural gas production is hedged at $3.95.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM decides not to sell Bakken assets
SM Energy to record $150M-$200M non-cash on pulled asset sale
May 22, 2017 3:52 PM ET|About: SM Energy Company (SM)|By: Carl Surran, SA News Editor
SM Energy (SM -4.4%) sinks after disclosing it expects to record a pre-tax non-cash $150M-$200M impairment charge in Q2 related to a loss on the postponed sale of North Dakota assets.
SM announced last week that it postponed indefinitely the planned sale of its Divide County, N.D., assets, as valuations in the sales process did not reach its threshold to meaningfully reduce leverage.
SM expects no cash expenditures as a result of the impairment charge.
May 22, 2017 3:52 PM ET|About: SM Energy Company (SM)|By: Carl Surran, SA News Editor
SM Energy (SM -4.4%) sinks after disclosing it expects to record a pre-tax non-cash $150M-$200M impairment charge in Q2 related to a loss on the postponed sale of North Dakota assets.
SM announced last week that it postponed indefinitely the planned sale of its Divide County, N.D., assets, as valuations in the sales process did not reach its threshold to meaningfully reduce leverage.
SM expects no cash expenditures as a result of the impairment charge.
Re: SM decides not to sell Bakken assets
i don't believe the pullback today was due to that--hell pullback is lot of just plain ol' disinterest in e&p's. volume is low across the board.
Re: SM decides not to sell Bakken assets
key words are "non-cash". SM uses the "Successful Efforts" method of accounting. They have to mark-to-market individual assets. This does not mean the leasehold is gone. SM still owns the leasehold and all of the oil & gas it contains. Impairment charges are just timing differences on when non-cash charges are run through the income statement. IMHO GAAP rules for upstream oil & gas companies are extremely confusing and result in distortions to what is happening. This is why very few upstream companies trade anywhere close to book value.
Try to explain the accounting rules for derivatives to a non-accountant sometime.
Today was weird. Oil & gas prices up and energy equities down. Over short periods it is often difficult to figure out Wall Street.
OPEC decision is all that counts this week.
Try to explain the accounting rules for derivatives to a non-accountant sometime.
Today was weird. Oil & gas prices up and energy equities down. Over short periods it is often difficult to figure out Wall Street.
OPEC decision is all that counts this week.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM decides not to sell Bakken assets
I am long a number of smaller E & Ps (SM, SN, MTDR, etc). But I am watching SM price erosion with amazement. SM has very good hedges at good prices for their 2017 production and a decent mix of what appears to be about 50% oil, 30%NG, 20%NGL for 2017.
And their expected CF/Share is somewhere between $4-4.5/share. At current prices ($17/share) they are trading about 4XCF ! And their CF projections for 2018 are close to $5/share. This seems to make no sense to me. Is SM the bargain of the year or am I missing something? I have continued to invest in SM as it has dropped through, 22, 20 and now down to 17, yet their qtrly report was very good and they are executing to their plan. I see nothing in the E & P universe that is this cheap. I am wondering why someone like EOG (who has some similar assets but yet trades at about 11XCF) wouldn't buy SM outright for say $25/share adding assets that would immediately be acretive to EOG with its CF multiple. What am I missing?
I am currently selling SM Jan 15 strike puts for $2. to add to my 17.50 and 20.00 strike short puts. If put to me I will own a lot more SM shares but at what I think are firesale prices.
Appreciate some good comments and criticisms,
Thank you,
And their expected CF/Share is somewhere between $4-4.5/share. At current prices ($17/share) they are trading about 4XCF ! And their CF projections for 2018 are close to $5/share. This seems to make no sense to me. Is SM the bargain of the year or am I missing something? I have continued to invest in SM as it has dropped through, 22, 20 and now down to 17, yet their qtrly report was very good and they are executing to their plan. I see nothing in the E & P universe that is this cheap. I am wondering why someone like EOG (who has some similar assets but yet trades at about 11XCF) wouldn't buy SM outright for say $25/share adding assets that would immediately be acretive to EOG with its CF multiple. What am I missing?
I am currently selling SM Jan 15 strike puts for $2. to add to my 17.50 and 20.00 strike short puts. If put to me I will own a lot more SM shares but at what I think are firesale prices.
Appreciate some good comments and criticisms,
Thank you,
Re: SM decides not to sell Bakken assets
You are correct that SM is trading at a very low multiple of operating cash flow per share. I have updated my forecast model for SM and posted it to the EPG website.
Focus on the RED BOX, which is First Call's estimate of operating cash flow per share through 2020.
BofA Merrill Lynch initiated coverage on SM on 4/4/2017 with a BUY rating and a price target of $52.00. First Call's current price target is $33.73. My valuation is $40.00.
We will publish an updated profile on SM this month.
The only negative that I see today is that SM will report a big drop in production from Q1 to Q2 because of their Eagle Ford asset sale. From Q2 2017 through Q4 2018, I am expecting their production to ramp up about 5,000 BOE per quarter to an exit rate of close to 145,000 BOE per day by the end of 2018.
Focus on the RED BOX, which is First Call's estimate of operating cash flow per share through 2020.
BofA Merrill Lynch initiated coverage on SM on 4/4/2017 with a BUY rating and a price target of $52.00. First Call's current price target is $33.73. My valuation is $40.00.
We will publish an updated profile on SM this month.
The only negative that I see today is that SM will report a big drop in production from Q1 to Q2 because of their Eagle Ford asset sale. From Q2 2017 through Q4 2018, I am expecting their production to ramp up about 5,000 BOE per quarter to an exit rate of close to 145,000 BOE per day by the end of 2018.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group