sm
Posted: Thu Jan 11, 2018 3:58 pm
I guess the market did not like its asset sale. Went from up over $1 today to down .23. Bummer.
Oil prices pulled back late in the day as the shorts moved back in. That probably had more to do with the selloff. I see that SM is back up in after-hours trading.
BTW SM Energy (SM) is no longer in our Sweet 16. I moved it to the Small-Cap Growth Portfolio. Just to make that clear to others visiting here.
Back to the asset sale announced on January 9:
> $500 million sales proceeds will be used to reduce debt and provided more than enough liquidity to fund a more aggressive D&C program in the Permian Basin where they are getting great results. I expect to SM to announce a capital program close to $Billion this year. If oil stays at $60, most of the budget will be funded by cash flow from operations.
> Here is the best news: 3 or 4 more horizontal wells in the Permian Basin should more than replace the production they just sold.
> This deal will cause my valuation of SM to go up. (a) A stronger balance sheet justifies an 8X multiple of operating cash flow to value the stock and (b) adding another operated rig or two in the Permian Basin should increase production in 2H 2018 and in 2019.
Also... SM produces a lot of NGLs and NGL prices should be going up a lot this year. Super cold in the Midwest has drawn down propane inventories a lot. The current storm hitting the region will cause shortages. When I was at Hess we were a major seller of propane in Minnesota. Lots of people up there heat their homes and cook with propane.
Sanchez Energy (SN) is another small-cap that should get a big revenue boost from increasing NGL prices.