SM Energy reports second quarter 2023 results: Strong operational execution and increased return of capital; closed transactions adding 22,800 net midland acres

Oil and Gas 360

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Publisher’s Note: SM Energy will be a presenter at EnerCom Denver – The Energy Investment Conference. Investors, analysts, and energy industry professionals can still register to attend at www.enercomdenver.com

DENVER, Aug. 2, 2023 /PRNewswire/ — SM Energy Company (the “Company”) (NYSE: SM) today announced operating and financial results for the second quarter 2023 and provided certain full year and third quarter 2023 guidance.

Highlights include:

• Solid profitability. In the second quarter 2023, net income was $149.9 million, or $1.25 per diluted common share, down from $2.60 per diluted common share in the prior year period, predominantly due to lower commodity prices. Adjusted net income⁽¹⁾ was $1.28 per diluted common share. Net cash provided by operating activities was $383.3 million and Adjusted EBITDAX⁽¹⁾ was $390.2 million.
• Operational execution and well performance. Production for the second quarter 2023 was 14.1 MMBoe, or 154.4 MBoe/d, at 42% oil, exceeding guidance. As previously reported, production exceeded expectations driven by higher oil, natural gas and NGL volumes from both new and existing wells in the Company’s South Texas program.
• Increased capital returns to stockholders. The Company repurchased and retired 2,550,706 shares of its common stock during the second quarter. In combination with the $0.15 per share quarterly dividend paid May 5, 2023, return of capital to stockholders totaled $86.8 million in the quarter. Since announcing the return of capital program in September 2022, the Company has repurchased approximately 5.3 million shares and returned approximately $221 million to stockholders, inclusive of dividends and common stock repurchases.
• Acreage acquisitions support growth in production and inventory. The Company acquired approximately 20,000 net acres located in Dawson and north Martin Counties, Texas for $90.6 million, net of purchase price adjustments and closing conditions. The acquisition was funded with cash and includes approximately 1,250 Boe/d net production that is approximately 90% oil, plus undeveloped acreage. The Company plans to add a rig to this location in the fourth quarter. The Company also leased an additional 2,800 net acres near its first quarter leasehold acquisition of 6,300 net acres in the Midland Basin, for which the location and purchase price are undisclosed.
• Reduced expected 2023 capital expenditures. Second quarter capital expenditures of $309.3 million, adjusted for a decrease in capital accruals of $42.7 million, totaled $266.7 million.⁽¹⁾ As previously announced, cost deflation and lower facilities expenditures result in a $50 million reduction to the Company’s expected full year capital expenditures, net of the cost of adding a fourth rig to the Midland Basin in the fourth quarter.
• Stewardship and social impact recognition. SM Energy ranked second for lowest methane intensity among Permian Basin operators by Basinwide Independent Methane Emissions Insights, and SM Energy received the Mile High United Way Community Champion award recognizing the Company for engaging with the Mile High United Way year-round to inspire employees to give, volunteer, advocate and lead.

President and Chief Executive Officer Herb Vogel comments: “We put forth three core strategic objectives for 2023: deliver increased return of capital to stockholders; focus on operational execution, including ESG stewardship; and continue to build top-tier inventory. The SM Energy team is exceeding expectations on all fronts. As a result, we recently increased 2023 production guidance and lowered 2023 capital expenditure guidance, and we expect to continue to build inventory in 2023 and grow production by mid-single digits in 2024. SM Energy generated $94.8 million of Adjusted free cash flow⁽¹⁾ in the second quarter and returned 92% to stockholders.”

Second quarter production volumes were 14.1 MMBoe, or 154.4 MBoe/d. Volumes were approximately 47% from the Midland Basin and 53% from South Texas, and were 42% oil. South Texas production exceeded expectations as a result of strong well performance from both new and existing Austin Chalk wells, and benefited from the build-out of oil handling facilities that is expected to resolve the need for periodic curtailment of production when large, oil-rich pads are brought on-line.

 

The second quarter average realized price before the effect of hedges was $38.89 per Boe, and the average realized price after the effect of hedges was $40.00 per Boe.⁽¹⁾

• Benchmark pricing for the quarter included NYMEX WTI at $73.78/Bbl, NYMEX Henry Hub natural gas at $2.10/MMBtu and OPIS Composite NGLs at $25.21/Bbl.
• The effect of commodity derivative settlements for the second quarter was a gain of $1.11 per Boe, or $15.6 million.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying slide deck.

NET INCOME, NET INCOME PER SHARE AND NET CASH PROVIDED BY OPERATING ACTIVITIES

Second quarter 2023 net income was $149.9 million, or $1.25 per diluted common share, compared with net income of $323.5 million, or $2.60 per diluted common share, for the same period in 2022. The current year period was affected by a 29% decline in the average realized price per Boe after derivative settlements, partially offset by a 5% increase in production, lower interest expense and a (non-cash) net derivative gain. The higher prior year period total oil, gas, and NGL production revenue and other income was partially offset by a (non-cash) net derivative loss. For the first six months of 2023, net income was $348.4 million, or $2.88 per diluted common share, compared with net income of $372.2 million, or $3.00 per diluted common share, for the same period in 2022.

Second quarter 2023 net cash provided by operating activities of $383.3 million before net change in working capital of $(21.8) million totaled $361.5 million⁽¹⁾ compared with net cash provided by operating activities of $542.6 million before net change in working capital of $(28.2) million that totaled $514.4 million⁽¹⁾ for the same period in 2022. The $152.9 million, or 30%, decline in the current year period is primarily due to decreased realized prices for natural gas and NGLs after the effect of derivative settlements and reduced oil volumes. For the first six months of 2023, net cash provided by operating activities of $714.9 million before net change in working capital of $4.4 million totaled $719.3 million,⁽¹⁾ which was down from $994.4 million⁽¹⁾ for the same period in 2022.

ADJUSTED EBITDAX,⁽¹⁾ ADJUSTED NET INCOME,⁽¹⁾ AND NET DEBT-TO-ADJUSTED EBITDAX⁽¹⁾

Second quarter 2023 Adjusted EBITDAX⁽¹⁾ was $390.2 million, down $169.5 million, or 30%, from $559.7 million for the same period in 2022, primarily due to decreased realized prices for natural gas and NGLs after the effect of derivative settlements and reduced oil volumes. For the first six months of 2023, Adjusted EBITDAX⁽¹⁾ was $791.6 million compared with $1,084.3 million for the same period in 2022.

Second quarter 2023 Adjusted net income⁽¹⁾ was $153.8 million, or $1.28 per diluted common share, which compares with Adjusted net income⁽¹⁾ of $272.8 million, or $2.19 per diluted common share, for the same period in 2022. For the first six months of 2023, Adjusted net income⁽¹⁾ was $316.0 million, or $2.61 per diluted common share, compared with an Adjusted net income⁽¹⁾ of $518.8 million, or $4.17 per diluted common share, for the same period in 2022.

At June 30, 2023, Net debt-to-Adjusted EBITDAX⁽¹⁾ was 0.7 times.

FINANCIAL POSITION, LIQUIDITY, CAPITAL EXPENDITURES AND ADJUSTED FREE CASH FLOW⁽¹⁾

On June 30, 2023, the outstanding principal amount of the Company’s long-term debt was $1.6 billion with zero drawn on the Company’s senior secured revolving credit facility, and cash and cash equivalents were $378.2 million. Net debt⁽¹⁾ was $1.2 billion.

Second quarter 2023 capital expenditures adjusted for decreased capital accruals were $266.7 million.⁽¹⁾ Capital activity during the quarter included drilling 17 net wells, of which 12 were in South Texas and 5 were in the Midland Basin, and adding 25 net flowing completions, of which 8 were in South Texas and 17 were in the Midland Basin. Subsequent to quarter-end, as planned, the remaining wells on the 20-well Guitar Consolidated pads located in the RockStar area have been turned-in-line.

Second quarter 2023 net cash provided by operating activities before net change in working capital totaled $361.5 million,⁽¹⁾ and capital expenditures adjusted for decreased capital accruals totaled $266.7 million,⁽¹⁾ delivering Adjusted free cash flow of $94.8 million.⁽¹⁾ Capital expenditures include the undisclosed leasehold acquisition cost of certain acreage.

COMMODITY DERIVATIVES

As entered into as of July 21, 2023, commodity derivative positions for the second half of 2023 include:

SWAPS AND COLLARS:

• Oil: Approximately 30% of expected second half 2023 oil production is hedged at an average price of $76.21/Bbl (weighted-average of collar floors and swaps, excludes basis swaps).
• Natural gas: Approximately 30% of second half 2023 expected natural gas production is hedged at an average price of $4.00/MMBtu (weighted-average of collar floors and swaps, excludes basis swaps).

BASIS SWAPS:

• Oil, Midland Basin differential: Approximately 2,700 MBbls are hedged to the local price point at a weighted-average $0.88/Bbl basis.
• Gas, WAHA differential: Approximately 5,800 BBtu are hedged to WAHA at a weighted-average ($0.97)/MMBtu basis.

A detailed schedule of these and additional derivative positions are provided in the 2Q23 accompanying slide deck.

2023 OPERATING PLAN AND GUIDANCE

The Company is unable to provide a reconciliation of forward-looking non-GAAP capital expenditures because components of the calculation are inherently unpredictable, such as changes to, and timing of, capital accruals. The inability to project certain components of the calculation would significantly affect the accuracy of a reconciliation.

GUIDANCE FULL YEAR 2023:

• Production: 53.5-55.5 MMBoe, or 147-152 MBoe/d at 43%-44% oil
• Capital expenditures (net of the change in capital accruals),⁽¹⁾ excluding acquisitions: $1,050 million
• LOE: $5.25-$5.50 per Boe
• Exploration expense: ~$60 million, inclusive of additional geologic and geophysical expenses associated with acquisitions
• Unchanged: Transportation per Boe at ~$2.50; production and ad valorem taxes per Boe at $2.90-$3.00; G&A ~$120 million, including $15-20 million for non-cash compensation; and, DD&A $12-$13 per Boe

GUIDANCE THIRD QUARTER 2023:

• Capital expenditures (net of the change in capital accruals),⁽¹⁾ excluding acquisitions: approximately $235-240 million. In the third quarter of 2023, the Company expects to drill approximately 22 net wells, of which 10 are planned for South Texas and 12 are planned for the Midland Basin, and turn-in-line approximately 28 net wells, of which 11 are planned for South Texas and 17 are planned for the Midland Basin.
• Production: Approximately 14.0 MMboe or 152 MBoe/d, at approximately 44% oil and 60%-61% liquids.

UPCOMING EVENTS

EARNINGS Q&A WEBCAST AND CONFERENCE CALL

August 3, 2023 – Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time for the second quarter 2023 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. To join the live conference call, please register at the link below for dial-in information.

• Live Conference Call Registration: https://conferencingportals.com/event/pAjDSntN
• Replay (conference ID 11299) – Domestic toll free/International: 800-770-2030/647-362-9199

The call replay will be available approximately one hour after the call and until August 17, 2023.

CONFERENCE PARTICIPATION

• August 15, 2023 – EnerCom Denver. President and Chief Executive Officer Herb Vogel will present at 8:50 a.m. Mountain time/10:50 a.m. Eastern time. The event webcast replay will be available the following day, accessible from the Company’s website and available for a limited period. The Company plans to post an investor presentation to its website the morning of the event.

DISCLOSURES

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. The words “estimate,” “expect,” “goal,” “generate,” “plan,” “target,” “believes,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include, among other things: projections for the full year and third quarter 2023, including guidance for capital expenditures, production, production costs, DD&A, exploration expense and G&A; the percent of future production to be hedged; our expectations to continue to build inventory in 2023 and grow production in 2024; our expectation that the build-out of oil handling facilities in South Texas will resolve the need for periodic production curtailment; the number of wells the Company plans to drill and complete in 2023; and plans to add a rig in the Midland Basin in the fourth quarter of 2023. 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. Future results may be impacted by the risks discussed in the Risk Factors section of SM Energy’s most recent Annual Report on Form 10-K, and 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 release. 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.

FOOTNOTE 1

Indicates a non-GAAP measure or metric. Please refer below to the section “Definitions of non-GAAP Measures and Metrics as Calculated by the Company” in Financials Highlights for additional information.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas. 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 CONTACTS

Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507

 

 

 

 

 

 

DEFINITIONS OF NON-GAAP MEASURES AND METRICS AS CALCULATED BY THE COMPANY

To supplement the presentation of its financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides certain non-GAAP measures and metrics, which are used by management and the investment community to assess the Company’s financial condition, results of operations, and cash flows, as well as compare performance from period to period and across the Company’s peer group. The Company believes these measures and metrics are widely used by the investment community, including investors, research analysts and others, to evaluate and compare recurring financial results among upstream oil and gas companies in making investment decisions or recommendations. These measures and metrics, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures and metrics provided by others. A non-GAAP measure should not be considered in isolation or as a substitute for the most directly comparable GAAP measure or any other measure of a company’s financial or operating performance presented in accordance with GAAP. A reconciliation of the Company’s non-GAAP measures to the most directly comparable GAAP measure is presented below. These measures may not be comparable to similarly titled measures of other companies.

Adjusted EBITDAX : Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results and can exclude items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that the Company believes provides useful additional information to investors and analysts, as a performance measure, for analysis of the Company’s ability to internally generate funds for exploration, development, acquisitions, and to service debt. The Company is also subject to financial covenants under the Company’s Credit Agreement, a material source of liquidity for the Company, based on Adjusted EBITDAX ratios. Please reference the Company’s second quarter 2023 Form 10-Q and the most recent Annual Report on Form 10-K for discussion of the Credit Agreement and its covenants.

Adjusted net income and adjusted net income per diluted common share :  Adjusted net income (loss) and adjusted net income (loss) per diluted common share excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include non-cash and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, gains and losses on extinguishment of debt, and accruals for non-recurring matters. The Company uses these measures to evaluate the comparability of the Company’s ongoing operational results and trends and believes these measures provide useful information to investors for analysis of the Company’s fundamental business on a recurring basis.

Adjusted free cash flow : Adjusted free cash flow is calculated as net cash provided by operating activities before net change in working capital less capital expenditures before increase (decrease) in capital expenditure accruals and other. The Company uses this measure as representative of the cash from operations, in excess of capital expenditures that provides liquidity to fund discretionary obligations such as debt reduction, returning cash to stockholders or expanding the business.

Net debt : Net debt is calculated as the total principal amount of outstanding senior notes plus amounts drawn on the revolving credit facility less cash and cash equivalents (also referred to as total funded debt). The Company uses net debt as a measure of financial position and believes this measure provides useful additional information to investors to evaluate the Company’s capital structure and financial leverage.

Net debt-to-Adjusted EBITDAX : Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above) for the trailing twelve-month period (also referred to as leverage ratio). A variation of this calculation is a financial covenant under the Company’s Credit Agreement. The Company and the investment community may use this metric in understanding the Company’s ability to service its debt and identify trends in its leverage position. The Company reconciles the two non-GAAP measure components of this calculation.

Post-hedge: Post-hedge is calculated as the average realized price after the effects of commodity derivative settlements. The Company believes this metric is useful to management and the investment community to understand the effects of commodity derivative settlements on average realized price.

 

 

 

 

 

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SOURCE SM Energy Company