Energy Prospectus

SM Energy Reports Results for the Third Quarter of 2012; Provides Operations Update
•Record quarterly production of 57.0 BCFE or 9.5 MMBOE, an average of 620 MMCFE/d; above quarterly guidance range of 565 - 603 MMCFE/d
•Full-year production guidance increased to 215.5 - 218.5 BCFE
•Quarterly GAAP net loss of $38.3 million or $0.58 per diluted share; adjusted net income of $9.7 million or $0.14 per diluted share
•Quarterly EBITDAX of $260.9 million; 22% sequential growth over second quarter

Several upgrades today. My Fair Value Estimate will be going up for SM. First Call's Target Price is $73.61/share and you can expect that to go up.

I will have my updated forecast model posted shortly. My new Fair Value per share will be at the bottom.

This is why all the analysts are excited about SM Energy:

For the third quarter of 2012, SM Energy met or beat guidance on all metrics. Production was approximately 6% above the midpoint of third quarter guidance, primarily driven by growth in the Company's operated Eagle Ford shale program as the Company's third party midstream provider alleviated infrastructure constraints on its midstream gathering system. LOE was lower than guidance primarily due to the operated Eagle Ford shale program, where cost saving initiatives and the installation of a water recycling facility have driven costs below the Company's earlier forecast. For transportation costs, the Company was below guidance due to anticipated third party field compression and oil gathering facilities not coming online during the third quarter as planned.

I just checked with First Call. For SM Energy, EPS forecasts for 2013 range from $0.37 to $3.63. No wonder investors are confused!

This happens because firms reporting to First Call use vastly different commodity price decks and some of the forecasts are very old. Also, it is clear to me, that some of the analysts do not understand the different accounting rules for Full Cost and Successful Efforts companies. This is why I try to get you guys to focus on CFPS. EPS are all but useless for these companies.

Here is the main reason I choose SM for the Sweet 16. It has double digit production growth locked in. In fact, production will be up 27% this year and at least 22% next year. Plus, it has rapidly increasing cash flow per share:
CFPS
2010A = $7.65
2011A = $11.86
2012E = $13.49 < per my forecast (First Call says CFPS should be $12.43 this year but they are wrong)
2013E = $17.73
2014E = $22.60

You can download my updated forecast model from the website. Just click on the SM logo under the Sweet 16 Tab (available to members only).