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 SM Energy Reports Third Quarter 2018 Results: Great Wells, High Margins And Solid Cash Flow Growth
   Thursday, November 01, 2018 5:00:00 PM ET

DENVER, Nov. 1, 2018 /PRNewswire/ -- SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the third quarter of 2018. Highlights include:

  • New RockStar wells demonstrate excellent performance from 3 intervals. 25 new RockStar wells had average 30-day IP rates of 1,300 Boe/d per well and averaged 88% oil.
  • Production exceeded guidance range. 130.2 MBoe/d average production, 42% oil; Midland Basin production from retained assets was up 26% sequentially and 108% year-over-year.
  • Big revenue growth and high margins. Production revenue was up 56% year-over-year driven by a 48% increase in oil production and a 39% increase in the realized price per Boe; operating margin (pre-hedge) averaged $25.16 per Boe, up 86% year-over-year.
  • High margins translated into solid cash flows. Net cash provided by operating activities (GAAP) was $229.7 million and adjusted EBITDAX was $256.1 million (adjusted EBITDAX is a non-GAAP measure, see below for additional information); adjusted EBITDAX increased 56% year-over-year.
  • Strengthening debt metrics. Net debt-to-adjusted EBITDAX (trailing twelve months) dropped to 2.9 times, meeting the Company's year-end objective of less than 3.0 times (Net debt-to-adjusted EBITDAX is a non-GAAP measure, see below for additional information.)


MANAGEMENT COMMENTARY

President and Chief Executive Officer Jay Ottoson comments: "In the first nine months of 2018, we met or exceeded our plan objectives for production growth, capital efficiency and debt reduction while maintaining our planned level of drilling and completion activity. Our exceptional operational execution and prudent balance sheet management position our Company to meet our targeted total capital spend-to-cash flow neutrality by mid-year 2019 and competitive growth in cash flow per debt-adjusted-share."

SUMMARY WELL RESULTS

Results from 25 new RockStar wells, having an average 10,021 foot lateral, that have reached their 30-day peak IP rates include:

  • Successful results across three intervals with 17 Wolfcamp A wells averaging 1,341 Boe/d per well, 3 Wolfcamp B wells averaging 1,228 Boe/d per well and 5 Lower Spraberry wells averaging 1,198 Boe/d per well.
  • Successful results across the acreage position including 10 of the 25 wells located in the eastern portion of the RockStar area.
  • 23 of the 25 wells are half or fully bounded.
  • Given results from all 14 wells at Kramer-Costanza, the development on three pads averaged 30-day peak IP rates of 1,300 Boe/d per well and 87% oil.

In 2018 year-to-date, the Company has reported results for all 2018 RockStar wells with 30-day peak IP rates. This has included 84 wells located across the acreage position in three intervals. These wells have average 30-day rates of more than 1,300 Boe/d per well, at an average 88% oil, and have average lateral lengths of 10,070 feet.

THIRD QUARTER 2018 RESULTS

As previously announced, third quarter production and realized prices were strong. Production was 12.0 MMBoe, or 130.2 MBoe/d, exceeding the Company's expectations primarily due to strong well performance and increased processed NGL volumes. Realized pricing (before the effects of hedges) averaged $38.26 per Boe, benefiting from high benchmark oil and NGL prices and despite an increased Midland-WTI differential. For the first nine months of 2018, production was 32.6 MMBoe, or 119.4 MBoe/d and realized pricing (before the effects of hedges) averaged $38.15 per Boe.

Third quarter of 2018 net loss was ($135.9) million, or ($1.21) per diluted common share, compared with a loss of ($89.1) million, or ($0.80) per diluted common share, in the third quarter of 2017. Third quarter of 2018 net loss includes a net derivative loss of ($178.0) million and loss on extinguishment of debt of ($26.7) million. For the first nine months of 2018, net income was $198.7 million, or $1.75 per diluted common share.

Third quarter of 2018 net cash provided by operating activities (GAAP) was $229.7 million.

Adjusted net income, adjusted net income per diluted common share, adjusted EBITDAX and net debt-to-adjusted EBITDAX are non-GAAP measures. Please reference the reconciliations to the most directly comparable GAAP financial measures at the end of this release.

Third quarter of 2018 adjusted net loss was ($1.0) million, or ($0.01) per diluted common share, compared with an adjusted net loss of ($27.5) million, or ($0.25) per diluted common share, in the third quarter of 2017. The calculation of adjusted net income excludes non-recurring items and items difficult to estimate, in order to present results that can be more consistently compared with prior periods and peer results. Specifically, third quarter adjustments remove the loss on extinguishment of debt, non-cash derivative losses and abandonment and impairment charges. Third quarter adjusted net income does not adjust for a $9.0 million (tax adjusted) out of period DD&A expense or $5.2 million (tax adjusted) non-recurring contingent liability expenses. In addition, third quarter DD&A expense increased in total and on a per unit basis compared with the prior year period and sequentially due to higher Permian volumes, which have higher depletion rates, as well as capital spend on facilities/Midland water management system in the first half of the year. For the first nine months of 2018, adjusted net income was $23.2 million, or $0.20 per diluted common share.

Third quarter of 2018 adjusted EBITDAX was $256.1 million, up a significant 56% from $164.3 million in the third quarter of 2017. The increase in adjusted EBITDAX was primarily driven by the 12% increase in total production and 86% increase in the operating margin per Boe (pre-hedge). For the first nine months of 2018, adjusted EBITDAX was $691.2 million.

COMMODITY DERIVATIVES              

For the fourth quarter of 2018, the Company currently has commodity derivatives in place for approximately 85% of expected oil production and 70% of expected natural gas production (NGLs are hedged by product). Additionally for the fourth quarter of 2018, the Company has Midland-NYMEX WTI basis hedges in place for approximately 70-75% of expected Midland oil production based on current Company estimates.

GUIDANCE UPDATE

The Company previously announced that fourth quarter production would be affected by a force majeure incident at a third-party gas processing facility, as well as regional storms. Subsequent to that announcement, the RockStar area was further impacted by heavy rains associated with Hurricane Willa and also experienced isolated curtailments related to a leak at a third-party oil pipeline used by one of the Company's purchasers. The effect on fourth quarter production related to the temporary shut-in of some wells and delayed installation of pipeline connections on certain new wells is now estimated to be 0.6 MMBoe. While the Company expects that these matters are being resolved or mitigated, it expects certain effects to last through year-end.

Expected full year 2018 production guidance is narrowed to a range of 43.9-44.3 MMBoe (120.3-121.4 MBoe/d) from 43.5-45.0 MMBoe (119.2-123.3 MBoe/d) and is expected to average approximately 42% oil in the commodity mix. This includes the estimated effects of the temporary issues discussed above.

  • This implies a fourth quarter production guidance range of 11.3-11.7 MMBoe, or 122.8-127.2 MBoe/d.
  • Fourth quarter production is expected to approximate 42% oil in the commodity mix.
  • The Company expects to process ethane, where possible, each month during the fourth quarter.

Total capital spend (before acquisitions) is a non-GAAP measure, see below for additional information. The Company is unable to present a quantitative reconciliation of this forward-looking, non-GAAP financial measure without unreasonable effort because acquisition costs are inherently unpredictable.

Expected full year 2018 total capital spend guidance is unchanged at $1.31 billion and expected full year net well completions are unchanged at 103 in the Permian and 25 in the Eagle Ford.

  • This implies expected total capital spend in the fourth quarter of 2018 of approximately $240-250 million.
  • The Company is currently running six rigs and three completion crews in the Midland Basin and one rig and one completions crew in the Eagle Ford.
  • During the fourth quarter, the Company expects to complete approximately 20 net wells in the Midland Basin and 14 gross wells (of which 8 will be part of its Eagle Ford JV) and approximately 6 net wells in the Eagle Ford.

Full year 2018 guidance is updated for LOE, which is now expected to approximate $4.75/Boe for the full year (down from approximately $5.00/Boe) and for DD&A/Boe, which is now expected to range between $15.00-$15.25 (increased from a range of $13.00-$15.00/Boe) to include increased rates in the second half of 2018. Other guidance line items remain unchanged.

SCHEDULE FOR THIRD QUARTER REPORTING

This release is accompanied by an investor presentation and pre-recorded call with transcript all posted to the Company's website. Please visit the Company's website at ir.sm-energy.com to access this additional third quarter detail.

Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time on November 2, 2018 for the third quarter 2018 financial and operating results Q&A session. This discussion will be accessible via webcast (available live and for replay) on the Company's website at ir.sm-energy.com  or by telephone at:

  • Live (conference ID 6519928) - Domestic toll free/International: 844-343-4183/647-689-5129
  • Replay (conference ID 6519928) - Domestic toll free/International: 800-585-8367/416-621-4642

The call replay will be available approximately one hour after the call until November 9, 2018.

UPCOMING CONFERENCE PARTICIPATION

  • November 6, 2018 - Baird 2018 Global Industrial Conference. President and Chief Executive Officer Jay Ottoson will present at 8:30 a.m. Central time. This event will be webcast. An investor presentation for this event will be posted to the Company's website on November 6, 2018.
  • November 15, 2018 - BAML 2018 Global Energy Conference. Executive Vice President and Chief Financial Officer Wade Pursell will present at 9:45 a.m. Eastern time. This event will be webcast.
  • December 4, 2018 - BAML Leveraged Finance Conference. Executive Vice President and Chief Financial Officer Wade Pursell will present at 11:30 a.m. Eastern time. This event will be webcast. An investor presentation for this event will be posted to the Company's website on December 4, 2018.
  • December 5, 2018 - Capital One Securities 13th Annual Energy Conference. President and Chief Executive Officer Jay Ottoson will present at 1:30 p.m. Central time. This event will be webcast.

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. The words "anticipate," "budget," "estimate," "expect," "forecast," "guidance," "plan," "project," "will" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, which may cause SM Energy's actual results to differ materially from results expressed or implied by the forward-looking statements. Forward-looking statements in this release include, among other things: guidance for production volumes and total capital spend for the fourth quarter and full year 2018 and projected effects on production volumes from regional storms and from a force majeure event at a third-party gas processing facility and an event at a third-party pipeline. General risk factors include the availability, proximity and capacity of gathering, processing and transportation facilities; the volatility and level of oil, natural gas, and natural gas liquids prices and related differentials, including any impact on the Company's asset carrying values or reserves arising from price declines; uncertainties inherent in projecting future timing and rates of production or other results from drilling and completion activities; the imprecise nature of estimating oil and natural gas reserves; uncertainties inherent in projecting future drilling and completion activities, costs or results; the uncertain nature of joint venture or similar efforts and the ability to complete any such transactions; the uncertain nature of expected benefits from the actual or expected joint venture or similar efforts; the availability of additional economically attractive exploration, development, and acquisition opportunities for future growth and any necessary financings; unexpected drilling conditions and results; unsuccessful exploration and development drilling results; the availability of drilling, completion, and operating equipment and services; the risks associated with the Company's commodity price risk management strategy; uncertainty regarding the ultimate impact of potentially dilutive securities; and other such matters discussed in the Risk Factors section of SM Energy's 2017 Annual Report on Form 10-K, as such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this announcement. Although SM Energy may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America.  SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at www.sm-energy.com

SM ENERGY INVESTOR CONTACT
Jennifer Martin Samuels, jsamuels@sm-energy.com , 303-864-2507

 


































































































































































































































































































































 






































































































































 




































































































































































































































































































 























































































































































































































































































 






































































































































































































 




























































































































































































Additional non-GAAP Measures Defined:

The Company defines Total capital spend as costs incurred, less ARO, capitalized interest and acquisitions.  Total capital spend is presented because management believes that it provides useful information to investors in the analysis of SM Energy and is widely used by professional research analysts and others in the valuation, comparison and investment recommendations of companies in the oil and gas exploration and production industry. Total capital spend should not be used in isolation or as a substitute to costs incurred or other capital spending measures under GAAP. Total capital spend may not be comparable to similarly titled measures of other companies.

The Company defines Net debt as the total principal value of outstanding senior notes, senior convertible notes plus balances drawn on the revolving credit facility (also referred to as total funded debt) less cash and cash equivalents. The Company presents this metric to help evaluate its capital structure and financial leverage and believes that it is widely used by professional research analysts, including credit analysts, and others in the evaluation of total leverage.









The Company defines Net debt-to-adjusted EBITDAX as Net Debt (defined above) divided by adjusted EBITDAX (reconciled below) for the prior twelve-month period. The Company presents this metric to show trends that investors may find useful in understanding the Company's ability to service its debt.  This metric is widely used by professional research analysts, including credit analysts, in the valuation and comparison of companies in the oil and gas exploration and production industry. A variation of this calculation is a financial covenant under the Company's credit agreement for its revolving credit facility beginning in the fourth quarter of 2018. Please see below for a reconciliation of trailing twelve months adjusted EBITDAX to net income (GAAP).








































 

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SOURCE SM Energy Company



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