Updating my forecast model now.
SM Energy Company ("SM Energy" or the “Company”) (SM) announces today fourth quarter and full year 2015 financial and operating results, year-end 2015 reserves and the Company’s 2016 operating plan. Highlights include:
• Proved reserves: 471 MMBoe at year-end 2015, including +208 MMBoe additions and revisions driven by well performance and successful resource expansion in the Eagle Ford and Bakken/Three Forks
• 2016 operating strategy: preserve the Company's strong balance sheet and liquidity by optimizing capital efficiency; plan delivers projected total debt:adjusted EBITDAX of less than 4 times through 2017
• 2015 financial results: adjusted net loss of $35.9 million, or $0.53 per diluted common share, and adjusted EBITDAX of $1,125 million (see GAAP reconciliation below)
• Previously reported 2015 results: record production of 64.2 MMBoe and year-end liquidity of $1.3 billion with debt:adjusted EBITDAX of 2.3 times
President and Chief Executive Officer Jay Ottoson comments: “In 2015, we delivered record production with a capital program cut in half from 2014. We aggressively applied new drilling and completion techniques and tested expansions of our core programs that added more than 200 MMBoe of proved reserves, delivered significant growth in inventory, and furthered the upside potential of core assets.
“Our 2016 plan includes capital expenditures of approximately $705 million, a more than 45% cut from 2015. While a portion of our capital will be spent in the Eagle Ford in order to hold acreage, we will be completing a number of drilled and uncompleted wells in both the Eagle Ford and Bakken/Three Forks, and to the maximum extent possible we will be shifting our drilling and completion activity to our highly productive Midland Basin shale development. We will focus on continuing to improve the performance and economics of our portfolio and position the Company for significant value growth as product prices recover."
2016 OPERATING PLAN AND GUIDANCE
SM Energy's operating plan demonstrates the quality and optionality of the Company's asset base. Key assumptions in the Company's 2016 operating plan include:
• Total capital before acquisitions of approximately $705 million, weighted to 1H16
• Williston - drill approximately 20 wells and complete approximately 50 wells (gross)
• Permian - drill approximately 20 wells and complete approximately 24 wells (gross)
• Eagle Ford - drill approximately 15 wells and complete approximately 40 (gross, operated)
• Divest several non-core PDP assets by year-end for expected proceeds of at least $100 million
• Average commodity price projections: 2016 - WTI oil $37.50, Henry Hub natural gas $2.30, NGLs $15.50; 2017 - WTI oil $45.00, Henry Hub natural gas $2.75, NGLs $18.00
The 2016 capital program is designed to optimize cash flow while keeping total expenditures below projected EBITDAX. The program is expected to result in total production for 2016 of 51-55 MMBoe. Production guidance reflects planned divestitures and reduced activity in dry natural gas programs, as well as a projected increase in the percentage of oil in the production mix in the second half of the year due to production growth from the Permian and Williston basins. Given the Company's commodity price assumptions, and additional cost guidance below, the Company projects debt:adjusted EBITDAX at year-end 2016 of approximately 3.5 times and year-end 2017 of less than 4.0 times. The Company has 2016 hedges in place for: more than 30% of projected oil production at an average price of $88.01/Bbl WTI; more than 55% of projected natural gas production at an average price of $3.61/MMBtu; and approximately 60% of projected NGL production, specifically ethane and propane. Assuming similar production in 2017, the Company has hedges in place for more than 50% of natural gas production at $4.26 per MMBtu.
SM Energy (SM)
SM Energy (SM)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: SM Energy (SM)
I have updated my forecast model for SM and it will be posted to the EPG website later today.
SM generated $13.48 cash flow per share in 2015. It should generate over $7.00 CFPS in 2016, $470 to $500 million, per my forecast. See current First Call CFPS forecast on the spreadsheet.
Daily production is going to fall in 2016 to around 145,000 boepd, which is the reason for the share price drop.
Capital budget for 2016 is $705 million. It should be covered by cash flow from operations, cash on hand and non-core asset sales of $100 million.
SM's all-in cash expenses of production are ~$11.50/boe
Stifel report sent to me this morning below:
Slowing Eagle Ford for Permian Restart as 4Q15 Earnings Short
4Q15 Earnings Summary
4Q15 EPS/CFPS of ($0.90)/$2.55 compares to our estimates of ($0.43)/$2.71 and
consensus of ($0.59)/$2.59. EPS missed our forecast on production expense
(+7%), non-cash G&A(+34%), and exploration expense (+90%) (Figure 1).
Pre-released 4Q15 production (1/20/16) of 162 MBoe/d was 1.5% above our prior
estimate, 1.3% below consensus, and at the high end of implied 4Q15 guidance of
155-162 MBoe/d. 4Q15 realized price of $28.45/Boe was 3.3% above consensus.
2016 Plan Forecasts Production Decline
The 2016 budget of $705mn is down 46% from 2015 and 12%-30% from 10/28/15
preliminary guidance of $800-$1,000mn. 2016 production guidance of 51-55
MMBoe is 11% below consensus at the midpoint and implies volumes decline 18%
y/y. Guidance includes anticipated divestitures of $100mn although production
from these properties was not disclosed. At YE15, SM operated 6 rigs (down from
9 in 3Q15) while it currently operates 4: 1 Eagle Ford, 2 Bakken/TF, and 1 Permian
Basin. Later this year, management plans to move the Eagle Ford rig to the
Permian where SM is focused on the Wolfcamp B and Lower Spraberry.
Looking for EF Pilot Update on Call
Eagle Ford (EF) pilot tests #1-#5 are flowing back, but early results were not
disclosed. We look for much of tomorrow's call to center on these pilots, which
have the potential to double SM's EF shale drilling inventory. In the Bakken/TF
play, the DUC inventory at YE15 remained essentially unchanged from 11/28/15 at
40 as SM drilled 13 and completed 11 wells in 4Q15. In the Midland Basin, SM
commenced drilling in January 2016.
Balance Sheet
A $2.0B credit facility (with commitments of $1.5B) had $202mn drawn at YE15
providing liquidity of $1.3B. We project debt/TTM EBITDA to increase to 3.7x at
YE16 from 2.2x at YE15 and estimate 2016 interest coverage at a comfortable
5.7x. SM's first debt maturity is in 2021.
Reiterate Buy
Despite strong 4Q15 pre-released production (high end of guidance), the stock is
likely to underperform on the incremental EPS miss. The shares have declined
61% YTD, comparable to E&P companies that are experiencing severe financial
stress. SM's well economics are challenged at current NYMEX strip prices and
debt/EBITDA could approach 4x at YE16 if prices decline further although interest
coverage estimates suggests to us that SM is much better positioned than
distressed small and mid-cap peers.
SM generated $13.48 cash flow per share in 2015. It should generate over $7.00 CFPS in 2016, $470 to $500 million, per my forecast. See current First Call CFPS forecast on the spreadsheet.
Daily production is going to fall in 2016 to around 145,000 boepd, which is the reason for the share price drop.
Capital budget for 2016 is $705 million. It should be covered by cash flow from operations, cash on hand and non-core asset sales of $100 million.
SM's all-in cash expenses of production are ~$11.50/boe
Stifel report sent to me this morning below:
Slowing Eagle Ford for Permian Restart as 4Q15 Earnings Short
4Q15 Earnings Summary
4Q15 EPS/CFPS of ($0.90)/$2.55 compares to our estimates of ($0.43)/$2.71 and
consensus of ($0.59)/$2.59. EPS missed our forecast on production expense
(+7%), non-cash G&A(+34%), and exploration expense (+90%) (Figure 1).
Pre-released 4Q15 production (1/20/16) of 162 MBoe/d was 1.5% above our prior
estimate, 1.3% below consensus, and at the high end of implied 4Q15 guidance of
155-162 MBoe/d. 4Q15 realized price of $28.45/Boe was 3.3% above consensus.
2016 Plan Forecasts Production Decline
The 2016 budget of $705mn is down 46% from 2015 and 12%-30% from 10/28/15
preliminary guidance of $800-$1,000mn. 2016 production guidance of 51-55
MMBoe is 11% below consensus at the midpoint and implies volumes decline 18%
y/y. Guidance includes anticipated divestitures of $100mn although production
from these properties was not disclosed. At YE15, SM operated 6 rigs (down from
9 in 3Q15) while it currently operates 4: 1 Eagle Ford, 2 Bakken/TF, and 1 Permian
Basin. Later this year, management plans to move the Eagle Ford rig to the
Permian where SM is focused on the Wolfcamp B and Lower Spraberry.
Looking for EF Pilot Update on Call
Eagle Ford (EF) pilot tests #1-#5 are flowing back, but early results were not
disclosed. We look for much of tomorrow's call to center on these pilots, which
have the potential to double SM's EF shale drilling inventory. In the Bakken/TF
play, the DUC inventory at YE15 remained essentially unchanged from 11/28/15 at
40 as SM drilled 13 and completed 11 wells in 4Q15. In the Midland Basin, SM
commenced drilling in January 2016.
Balance Sheet
A $2.0B credit facility (with commitments of $1.5B) had $202mn drawn at YE15
providing liquidity of $1.3B. We project debt/TTM EBITDA to increase to 3.7x at
YE16 from 2.2x at YE15 and estimate 2016 interest coverage at a comfortable
5.7x. SM's first debt maturity is in 2021.
Reiterate Buy
Despite strong 4Q15 pre-released production (high end of guidance), the stock is
likely to underperform on the incremental EPS miss. The shares have declined
61% YTD, comparable to E&P companies that are experiencing severe financial
stress. SM's well economics are challenged at current NYMEX strip prices and
debt/EBITDA could approach 4x at YE16 if prices decline further although interest
coverage estimates suggests to us that SM is much better positioned than
distressed small and mid-cap peers.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group