SM Energy (SM) Valuation Update - Dec 22
Posted: Sun Dec 22, 2024 1:56 pm
SM Energy is now one of the "Elite Eight" in our Sweet 16 Growth Portfolio and my Top Pick for 2025.
Harry van Neck recently moved SM up to the #1 most under-valued stock in his database of 82 energy companies.
SM closed at $36.59 on Friday, December 20th, down slightly YTD despite outstanding 2024 financial results.
I have updated my current valuation by $7 to $81 per share, primarily because 2025 is set up to be the most profitable year per share in the company's history.
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From SM Energy's Q3 2024 press release dated 10-31-2024
Portfolio expansion sets up for an exciting 2025 with significantly increased scale:
• Utah adds a third core area to the Company’s top-tier portfolio. On October 1, 2024, the Company
completed the previously announced $2.1 billion acquisition of an undivided 80 percent interest in the Uinta
Basin assets of XCL Resources (and affiliated entities) and Altamont Energy (the “Uinta Basin
Acquisitions”), adding high oil content production, approximately 63,300 net acres and multiple years of
incremental quality drilling inventory. This acquisition of low breakeven assets is expected to be accretive to
all financial metrics. < SM is going to report a BIG ( ~42,500 Boepd with ~37,250 BOPD) increase in production from Q3 to Q4 2024.
• Three recent wells in Utah reached peak 30-day initial production rates testing the Douglas Creek in the
Upper Cube. The test wells averaged 870 Boe/d per well at 94% oil.
• Increased scale supports an increased borrowing base and lender commitments under the Company’s
senior secured revolving credit facility. The borrowing base was increased to $3.0 billion and lender
commitments to $2.0 billion.
• Activity in the Klondike area of the Midland Basin includes the completion of eight wells that confirm oil
saturated sandstone and the conventional nature of the play, in-line with the Company’s geologic modeling.
Two Klondike wells with average lateral lengths of approximately 11,500 feet have reached peak 30-day
initial production rates, which averaged 918 Boe/d per well at 93% oil.
• Initial wells targeting the Woodford-Barnett in the Sweetie Peck area continue to perform well with
cumulative oil production exceeding the peer average in the area to date by more than 50%.
• In South Texas, the Company has successfully fulfilled its obligation under its drill-to-earn arrangement to
add 8,663 net acres in the northern, high oil/liquids content Austin Chalk.
President and Chief Executive Officer Herb Vogel comments: “2024 is proving to be a highly successful year for SM
Energy. Exceptional operational performance, magnified by increased top-tier portfolio scale and substantial oil
production growth, supports a strong balance sheet and upside value creation opportunity.
“Looking ahead, we are keenly focused on our Utah operations. Along with the investment community, we are
invigorated by the opportunity to unlock value in an overlooked basin, and we expect to deliver results attributable to
the crude profile, high margins and substantial scale that the Uinta Basin Acquisitions provide. In the fourth quarter,
we expect to sequentially grow our oil and total production volumes by around 40% and 25%, respectively, and
execute a smooth integration of the Utah operations. We will diligently work to develop a 2025-2027 operating plan
that will optimize capital efficiency and demonstrate the value of our expanded portfolio.
“We are very excited to be among the core operators in Utah. We welcome our new employees and look forward to
becoming actively involved in our new communities.”
Harry van Neck recently moved SM up to the #1 most under-valued stock in his database of 82 energy companies.
SM closed at $36.59 on Friday, December 20th, down slightly YTD despite outstanding 2024 financial results.
I have updated my current valuation by $7 to $81 per share, primarily because 2025 is set up to be the most profitable year per share in the company's history.
--------------------------------------------
From SM Energy's Q3 2024 press release dated 10-31-2024
Portfolio expansion sets up for an exciting 2025 with significantly increased scale:
• Utah adds a third core area to the Company’s top-tier portfolio. On October 1, 2024, the Company
completed the previously announced $2.1 billion acquisition of an undivided 80 percent interest in the Uinta
Basin assets of XCL Resources (and affiliated entities) and Altamont Energy (the “Uinta Basin
Acquisitions”), adding high oil content production, approximately 63,300 net acres and multiple years of
incremental quality drilling inventory. This acquisition of low breakeven assets is expected to be accretive to
all financial metrics. < SM is going to report a BIG ( ~42,500 Boepd with ~37,250 BOPD) increase in production from Q3 to Q4 2024.
• Three recent wells in Utah reached peak 30-day initial production rates testing the Douglas Creek in the
Upper Cube. The test wells averaged 870 Boe/d per well at 94% oil.
• Increased scale supports an increased borrowing base and lender commitments under the Company’s
senior secured revolving credit facility. The borrowing base was increased to $3.0 billion and lender
commitments to $2.0 billion.
• Activity in the Klondike area of the Midland Basin includes the completion of eight wells that confirm oil
saturated sandstone and the conventional nature of the play, in-line with the Company’s geologic modeling.
Two Klondike wells with average lateral lengths of approximately 11,500 feet have reached peak 30-day
initial production rates, which averaged 918 Boe/d per well at 93% oil.
• Initial wells targeting the Woodford-Barnett in the Sweetie Peck area continue to perform well with
cumulative oil production exceeding the peer average in the area to date by more than 50%.
• In South Texas, the Company has successfully fulfilled its obligation under its drill-to-earn arrangement to
add 8,663 net acres in the northern, high oil/liquids content Austin Chalk.
President and Chief Executive Officer Herb Vogel comments: “2024 is proving to be a highly successful year for SM
Energy. Exceptional operational performance, magnified by increased top-tier portfolio scale and substantial oil
production growth, supports a strong balance sheet and upside value creation opportunity.
“Looking ahead, we are keenly focused on our Utah operations. Along with the investment community, we are
invigorated by the opportunity to unlock value in an overlooked basin, and we expect to deliver results attributable to
the crude profile, high margins and substantial scale that the Uinta Basin Acquisitions provide. In the fourth quarter,
we expect to sequentially grow our oil and total production volumes by around 40% and 25%, respectively, and
execute a smooth integration of the Utah operations. We will diligently work to develop a 2025-2027 operating plan
that will optimize capital efficiency and demonstrate the value of our expanded portfolio.
“We are very excited to be among the core operators in Utah. We welcome our new employees and look forward to
becoming actively involved in our new communities.”