Energy Prospectus

SM Energy Reports First Quarter of 2016 Results - Initial Permian Wells Exceed Expectations

• 13.4 MMBoe production; production mix includes 31% oil
• $182.3 million adjusted EBITDAX
• $1.0 billion liquidity and flexibility following bank redetermination and new covenants
• 1,255 net acres added at Sweetie Peck in the Permian Basin, increasing net acreage position to 16,443
• Initial Permian wells significantly exceeding type curve expectations for both Lower Spraberry and Wolfcamp B intervals

Updating my forecast model now.

FINANCIAL POSITION AND LIQUIDITY

At the end of the first quarter of 2016, the outstanding principal balance on the Company’s long-term debt was $2.60 billion, comprised of $2.30 billion in senior notes and $0.29 billion drawn on its senior secured credit facility. During the quarter, the Company repurchased $46.3 million aggregate principal amount of senior notes in open market transactions for $29.9 million. As previously announced, the Company amended its senior secured credit facility by adding two covenants including a maximum senior secured debt-to-adjusted EBITDAX (trailing 12 months) ratio of 2.75 times and a minimum adjusted EBITDAX (trailing 12-months)-to-interest ratio of at least 2.0 times; the Company ended the first quarter of 2016 at 0.3 times and 7.9 times, respectively. The amendment also deleted the total debt-to-adjusted EBITDAX covenant. For purposes of peer comparison, at the end of the first quarter of 2016, the Company’s total debt-to-adjusted EBITDAX ratio was 2.6 times.

As previously reported, the Company’s senior secured credit facility has a borrowing base and lender commitments of $1.25 billion, providing liquidity of approximately $1.0 billion.

Included in the 2016 operating plan are expected divestitures of several non-core properties. All of the properties have proved developed producing (PDP) wells, with a combined PDP value of approximately $100 million. The Company has initiated the marketing process for these properties with the expectation of closing the transactions before year-end.

Cash flow from operations plus proceeds from the asset sale should cover this year's capital expenditure budget. - Dan

Zacks reported the average equivalent price BOE received INCLUDING HEDGES was $26.74. This number closely represents oil's low. Does this indicate they had few hedges, or what is it I am missing? Kindly clarify, thanks.

You can find a table of their hedges in the press release

SM received $147 million in CASH settlements on their hedges in Q1.

boe = barrel of oil equivalent. Since SM produces a lot of gas, the realized price per boe come down.

Realized prices during the 1st quarter were:
$3.02/mcf for natural gas
$49.94/bbl for crude oil
$13.54/bbl for NGLs

I have updated my forecast model for SM and it will be posted to the EPG website later today.

My valuation increases by $4.20/share to $48.00.

Remember:
Q1 is low point for the year
GAAP accounting rules cause very confusing earnings reports for upstream companies. Stay focused on Cash Flow From Operations.
SM is now on track to generate $600 to $650 million cash flow from operations this year, more than $9.00/share.

SM is now getting very good well results in the Permian Basin.