Energy Prospectus

August 24: Simmons upgrades SM Energy (SM) to overweight from neutral, calling its recently-announced acquisition of nearly $1B in assets in west Texas's oil-rich Permian basin "transformational." The purchase "provides the company ample inventory to start closing the valuation gap with peers." The company's stock is up 30% since Aug. 1. CEO Jay Ottoson told WSJ last week its move into the Permian reflects the company's belief the oil bust is ending: "In the bottom of the cycle you want to build assets, to add assets with higher quality than you already have, and actually stretch the balance sheet a little bit to gain a competitive advantage."

August 15: PIPER JAFFRAY UPGRADES SM ENERGY TO OVERWEIGHT

August 10: KeyBanc upgraded SM Energy Co (NYSE: SM) to Overweight from Sector Weight with a $40 price target. The analysts believe the company's Rock Oil acquisition and its prospective ability to accelerate activity across its collective Permian position via future asset sales should drive both stronger overall returns and growth across the its asset portfolio. According to the analysts, SM Energy currently has around 10 years of low-risk Permian inventory (assuming it ramps to 7 rigs in 2018 and 8 rigs by 2020). They estimate that more than 50 percent of CapEx could be allocated to the Permian in 2017-18, which could drive 15 percent (vs prior +2 percent) oil growth in 2017 and 20 percent (vs prior -1 percent) in 2018.

Next Step – Sale of Eagle Ford non-operated assets
• Proceeds expected to exceed funding gap by a wide margin
• Non-op includes production of 27,350 Boe/d (2Q16) and associated midstream assets
• Provides flexibility for 2017 program

I expect this sale to draw even more attention to SM when it is announced late this quarter. It will cause more analyst to think of SM as a "Permian Company" and when they compare it to the other Permian companies they will see how undervalued it is.

We will be sending out an updated profile on SM late today. I have increased my valuation to $52/share.

--Analyst Actions: Williams Capital Initiates Coverage on SM Energy Company with Buy Rating and $57 PT
MIDNIGHT TRADER 7:26 AM ET 8/29/2016
08:26 AM EDT, 08/29/2016 (MT Newswires) --

My current valuation of SM is $52.00, but there is definitely upside to that number because it trades at a much lower multiple of operating cash flow per share than the other Permian Basin companies. I am eager to see the sales price for their non-operated Eagle Ford package.

SM also produces a lot of natural gas and NGL. Prices for those commodities are going up regardless of what oil prices do.

I should have mentioned SM in my weekly podcast.

--Analyst Actions: Seaport Global Lifts SM Energy to Buy vs Neutral; Shares Up 4%
MIDNIGHT TRADER 8:59 AM ET 8/30/2016
09:59 AM EDT, 08/30/2016 (MT Newswires) --