Energy Prospectus

SM Energy Reports 2015 Production, Realized Prices and Year-End Credit Metrics

BUSINESS WIRE 7:00 AM ET 1/20/2016

DENVER--(BUSINESS WIRE)-- SM Energy Company(SM) announces today certain year-end 2015 results with highlights that include:

64.2 MMBoe full year production, at the high end of guidance range and up 21% year-over-year adjusted for Mid-Continent natural gas assets sold
14.9 MMBoe fourth quarter production; oil component increased sequentially to 29%
Better positioned for 2017 with sizable increase in natural gas hedges at an average price of $4.26 per MMBtu; achieved by rolling future year positions into 2017
Well hedged for 2016—applying fourth quarter 2015 production equivalents, the Company has hedges in place for approximately 50% of natural gas, 48% of NGLs (including nearly 90% of propane volumes) and 32% of oil
$1.3 billion liquidity ($202 million year-end outstanding on credit facility); 2016 strategy to spend within adjusted EBITDAX and maintain strong balance sheet and liquidity
Debt:adjusted EBITDAX is estimated to be 2.3 times at year-end 2015—top tier among peers
Strong fourth quarter pre-hedge price realizations, including an average WTI oil differential of ($7.09) per barrel and natural gas realizations at 104% of NYMEX
President and Chief Executive Officer Jay Ottoson comments: “SM Energy enters 2016 in a solid position. We have a particularly strong balance sheet, exemplified by low debt:adjusted EBITDAX, have nearly 44% of 2016 production hedged (assuming flat fourth quarter 2015 production as a benchmark) at average pricing in excess of $88/per barrel oil and $3.60 per MMBtu natural gas, and have ample liquidity of $1.3 billion. As we have indicated previously, we are planning a 2016 capital program with total spending within adjusted EBITDAX. Operationally, we continue to make better wells for lower costs, and our production performance reflects continued strong well performance from our programs in the Eagle Ford and Bakken/Three Forks.”

complete story here--
http://finance.yahoo.com/news/sm-energy ... 00475.html

SM's 4th quarter cash flow from operations will be approximately $150 million.

Based on today's press release, their 2016 cash flow from operations should be $600 to $700 million.

< 50% of 2016 gas hedged at ~$3.40
< 32% of 2016 oil hedged at ~$88
< 48% of 2016 NGL hedged at ~$15

Unless you believe oil is going to stay at $30/bbl FOREVER, this stock is grossly oversold.

I've seen SM mentioned in some articles that say it has a liquidity problem. I sure do not see that. In addition to the cash flow from operations above, the company has $1.3 Billion remaining on their bank credit facility and they should not need to draw against it in 2016.

From today's press release: "The Company ended 2015 with long-term debt of $2.55 billion, including $2.35 billion principal balance of senior notes and $0.20 billion drawn on its revolving credit facility. The Company’s revolving credit facility has a borrowing base of $2.0 billion and aggregate commitments of $1.5 billion, which the Company expects will provide substantial liquidity."

As I have posted here before, SM is a bit "off the radar screen" of the Wall Street gang. I think they are looking at total debt without looking at the make-up of the debt. All debt is not the same. Most of their senior notes are not due until 2020.

I have updated my SM Energy forecast model and it will be available on the website later today.

Although the company has not issued production guidance for 2016, based on the comments below, I am assuming that production remains flat to Q4 at ~162,000 boepd.

President and Chief Executive Officer Jay Ottoson comments: “SM Energy enters 2016 in a solid position. We have a particularly strong balance sheet, exemplified by low debt:adjusted EBITDAX, have nearly 44% of 2016 production hedged (assuming flat fourth quarter 2015 production as a benchmark) at average pricing in excess of $88/per barrel oil and $3.60 per MMBtu natural gas, and have ample liquidity of $1.3 billion. As we have indicated previously, we are planning a 2016 capital program with total spending within adjusted EBITDAX. Operationally, we continue to make better wells for lower costs, and our production performance reflects continued strong well performance from our programs in the Eagle Ford and Bakken/Three Forks.”

I have gone over the income statement line-by-line, trying to err on the conservative side. My CFPS forecast for 2016 is now $8.94, compared to First Call's CFPS forecast of $10.77.

My valuation is $55.70/share, compared to First Call's price forecast of $31.43/share.