SM Energy (SM) Q2 Results - Aug 7

[dan_s]

You may have noticed that all of the Sweet 16, except for EQT (the only "gasser"), have beaten my Q2 forecasts. The Sweet 16 is a high-quality group of very profitable upstream companies.


SM Energy: Excellent operational execution supported strong second quarter results including:

Net production was 14.4 MMBoe, or 158.5 MBoe/d, at 46% oil or 72.7 MBbls/d, which exceeded guidance. Higher than expected oil production and total production were driven largely by better than expected performance from Midland Basin wells and higher than expected oil content from new South Texas wells. < Beat my Q2 production forecast of 157,000 Boepd.

Return of capital to stockholders during the quarter totaled $71.9 million through the repurchase of 1,058,956 shares of common stock and payment of the Company's $0.18 per share quarterly dividend on May 3, 2024. In June 2024, the Board approved an 11% increase in the Company's fixed quarterly dividend policy, from $0.18 to $0.20 per share, expected to commence in the fourth quarter 2024, and reloaded the Company's existing stock repurchase program to $500 million, following repurchases totaling $369.1 million in shares through the second quarter, and extended the program through December 31, 2027.

Net income was $210.3 million, or $1.82 per diluted common share, Adjusted net income was $1.85 per diluted common share, net cash provided by operating activities was $476.4 million and Adjusted EBITDAX was $485.9 million, all of which benefited from strong oil production and higher than expected oil and NGL prices. < Adjusted Net Income per share beat my forecast of $1.52.

Net cash provided by operating activities of $476.4 million before net change in working capital of $(50.2) million totaled $426.2 million < beat my forecast of $410.5 million.
and capital expenditures of $322.7 million adjusted for a change in capital expenditure accruals of $5.1 million were $327.8 million. Capital expenditures include approximately $12.0 million for an opportunistic bulk pre-purchase of pipe that was not considered in guidance.

Adjusted free cash flow was $98.4 million, up 45% from the first quarter 2024.

Uinta Basin Acquisition

Agreements to acquire assets totaling $2.1 billion expand the Company's top-tier portfolio of low breakeven assets, add approximately 63,300 net acres and 465 net locations, and are expected to be accretive on all key financial metrics:

On August 5, 2024, the Company exercised its option to acquire 80% of certain additional assets adjacent to the XCL Resources, LLC asset acquisition in the core of the Uinta Basin for approximately $70.0 million (together with the XCL Acquisition, the "Uinta Basin Acquisitions"). The assets include, net to the Company's 80% interest, approximately 26,100 net acres, approximately 1 MBoe per day production (based on September 2024 projection) that is 75% oil, and an estimated 75 net drilling locations (normalized to 10,000 feet).

As previously announced, the Company executed and delivered a Purchase and Sale Agreement to acquire an 80% undivided interest in the oil and gas assets of XCL Resources, LLC, and affiliated entities (the "XCL Acquisition").

The assets include, net to the Company's 80% interest, 37,200 net acres in the Uinta Basin, 43 MBoe/d net production (based on September 2024 projection) that is 88% oil, 107 MMBoe preliminary estimated net proved reserves and an estimated 390 net drilling locations (normalized to 10,000 feet). The transaction has a May 1, 2024, effective date and is expected to close on October 1, 2024. There can be no assurance that this transaction will close on time or at all.

In addition, the Company confirmed that two initial Woodford-Barnett wells at Sweetie Peck were successfully brought on-line during the second quarter. These wells, together with offset operator wells, indicate more than 20,000 net acres at Sweetie Peck that are prospective for Woodford-Barnett development (inclusive of the previously announced acreage additions to the west).

Subsequent to quarter-end, the Company issued and sold $750.0 million aggregate principal amount of 6.750% senior notes due 2029 and $750.0 million aggregate principal amount of 7.000% senior notes due 2032. The Company intends to use the net proceeds from the notes offering, together with cash on hand and borrowings under its Credit Agreement, to fund the Uinta Basin Acquisitions, redeem all of its outstanding 5.625% Notes due in 2025, and to pay related fees and expenses.

On July 25, 2024, the Company issued a notice of redemption to the holders of the 2025 Senior Notes, notifying such holders that the Company intends to redeem the $349.1 million aggregate principal amount outstanding of its 2025 Senior Notes on August 26, 2024.

President and Chief Executive Officer Herb Vogel comments: "Successful operational execution once again this quarter tops off a great first half of 2024. Second quarter results were driven by strong performance from both core areas. In the Midland Basin, well performance exceeded expectations, while in South Texas performance from recent, fully bounded wells is expected to deliver payout in approximately six months. In addition, preliminary results from two Woodford-Barnett test wells in the Sweetie Peck area look very strong.

"We are excited to significantly expand our top-tier portfolio through the acquisition of assets in the core of the Uinta Basin. The scale of the combined acquisitions, adding approximately 63,300 net acres and 465 net locations, positions the Company for substantial growth in oil rich production and Adjusted free cash flow plus extends the inventory runway. Purchased for less than a three-times Adjusted EBITDAX multiple, the acquisitions offer value creation opportunity and support the increased return of capital program."