SM Energy (SM) Q2 Results - Aug 4

[dan_s]

SM's Q2 results beat my forecast and they've raised production guidance for 2H 2022. Higher than expected natural gas and NGL prices are more than offsetting the recent dip in the oil price. The management team has done a great job of getting their balance sheet in good shape and it should be in great shape heading into 2023. My valuation of SM will be going up.

DENVER, Aug. 3, 2022 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced operating and financial results for the second quarter 2022 and provided certain third quarter and full year 2022 guidance.

Highlights include:

Leverage ratio target met, net debt target fast approaching. The Company remains ahead of schedule to meet its key strategic leverage targets of 1.0 times net-debt-to-adjusted EBITDAX and $1.0 billion principal amount of debt net of cash, an inflection point the Company expects to meet in the fourth quarter 2022.

Well performance remains robust. Production in the second quarter 2022 was 13.3 MMBoe (146.6 MBoe/d) and was 46% oil. < Beat my Q2 forecast of 146,000 Boepd (44.9% oil).

Production met the top end of guidance, supported by base well performance in both the Midland Basin and South Texas that met the high end of expectations. As a result of strong well performance, the Company is increasing production guidance for 2022 to 54-55 MMBoe, or 148-151 MBoe/d, up 4% at the mid-point.

Bottom line profitability. Net income in the second quarter 2022 was $323.5 million, or $2.60 per diluted common share, and Adjusted net income was $2.19 per diluted common share. < Adjusted Net Income compares to my forecast of $248 million ($2.04 per share).

Cash flow generation at record high. For the second quarter 2022, net cash provided by operating activities of $542.6 million before net change in working capital of $(28.2) million totaled $514.4 million. < Compares to my forecast of $493.6 million operating CF.

Second quarter 2022 Adjusted EBITDAX was $559.7 million, a one-quarter record high for the Company, and free cash flow was $276.6 million. For the first half of 2022, net cash provided by operating activities of $884.7 million before net change in working capital of $109.7 million totaled $994.4 million, and free cash flow was $590.9 million.

Senior secured revolving credit facility increased and extended. The initial borrowing base is increased to $2.5 billion and lender commitments increased to $1.25 billion. The term is five years, subject to certain early maturity events, as discussed in the Company's second quarter 2022 Form 10-Q.

President and Chief Executive Officer Herb Vogel comments: "We enjoyed a successful first half of 2022 by executing on our core strategic objectives. Our leverage ratio is now at 0.7 times and we have reduced the principal amounts of outstanding debt by $551.4 million, funded with $590.9 million in free cash flow generated in the first half of 2022. We expect to reduce net debt to around $1.0 billion in the coming months, and we look forward to the next phase of shareholder value creation. < Dividends should start in Q4.

"Operational results continue to meet or exceed the high end of expectations, supported by strong well performance in both the Midland Basin and South Texas. Higher than expected production and continued strength in commodity prices are significantly boosting cash flows, resulting in a lower than expected reinvestment rate for the year of approximately 45%, despite the effects of inflation."