Energy Prospectus

I am glad I added SM to the Sweet 16 last year. I love companies that beat their own guidance. This one definitely has double digit growth locked in. I am working on the forecast model and will post it to the website shortly. Here are some highlights.
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SM Energy Reports Results for Fourth Quarter and Full Year of 2012 and Provides Operational Update

•Record proved reserves of 1,761 BCFE (293 MMBOE) at year-end 2012, up 40% from 2011; liquids account for 53% of total proved reserves at year-end 2012
•Drilling finding and development costs decrease to $1.74 per MCFE for 2012; drilling reserve replacement increases to 411% for same period
•Annual production increases 29% to a record 218.9 BCFE (36.5 MMBOE); record quarterly production of 60.7 BCFE exceeds guidance of 57.5 - 60.5 BCFE
•Fourth quarter GAAP net loss of $67.1 million or $1.02 per diluted share; adjusted net income of $30.4 million, or $0.45 per diluted share [This is way over what I had in my forecast. - dan]
•Quarterly cash flow from operations (GAAP) of $268.4 million; quarterly EBITDAX of $298.2 million, a 14% sequential increase over third quarter

Sweet 16 Growth Portfolio: An updated Net Income & Cash Flow Forecast model for SM Energy (SM) has been posted under the Sweet 16 Tab. I have increased my Fair Value Estimate to $85/share.

You can see how I calculate Fair Value at the bottom of the forecast model spreadsheet.

This one is definitely a "keeper".

Here is why I really like SM Energy:

Huge upside in both the Eagle Ford and the Bakken. They have proved up a lot of leasehold in both plays and are now moving to low risk development drilling from pads, which will significantly reduce their completed well costs.

Cash Flow per share:
2010 = $7.65
2011 = $11.86
2012 = $13.79
2013 E = $17.15 (based on company guidance with $85 WTI oil, $3.50 NG and $35 NGLs)
2014 E = $20.06

PLUS: This company under-promises and over-delivers on guidance.

IMHO a company with this much going for it should be selling for AT LEAST 6X CFPS. Do the math and you can see why I'm so bullish on SM Energy. It does have a lot of natural gas production, so this is a very low risk way to add some exposure to natural gas. For example, if NG goes to $5/mcf in 2014 their CFPS will top $23.