SM Energy Reports First Quarter 2019 Results: Solid Execution On 2019 Plan

DENVER, May 1, 2019 /PRNewswire/ -- SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the first quarter of 2019. Highlights include:

• Excellent well performance and capital efficiency - demonstrated by the successful Merlin Maximus development in RockStar. 19 wells across three intervals reached 30-day peak IP rates in excess of 1,400 Boe/d per well and 87% oil, where the average cost at this 25-well development to drill, complete and equip is expected to be less than $765 per lateral foot.
• Value enhancement through testing new intervals - indicated by encouraging early results from a second Austin Chalk well in South Texas and a first Middle Spraberry test well in RockStar.

MANAGEMENT COMMENTARY

President and Chief Executive Officer Jay Ottoson comments: "We are solidly on track to meet our objective of growing production while keeping total capital spend within discretionary cash flow starting in the second half of 2019. Our Midland Basin Merlin Maximus development is performing even better than we expected, and we are encouraged by early results from testing new intervals and enhancing completions across our acreage positions in both the Permian Basin and in South Texas.  We made good progress in the first quarter on all of our priorities for the year."

SUMMARY WELL RESULTS

New well results include wells in the RockStar area that reached their 30-day peak IP rates since the Company's February 2019 update and new interval exploration results in both RockStar and South Texas.

• Results from 20 new RockStar wells, having an average lateral length of 10,714 feet, have reached their 30-day peak IP rates that averaged 1,430 Boe/d per well and 88% oil. This includes wells across three intervals, all of which wells are fully or half bounded (16 fully bounded).
• By interval, results are 11 Wolfcamp A wells averaging 1,645 Boe/d per well, four Wolfcamp B wells averaging 1,350 Boe/d per well and five Lower Spraberry wells averaging 1,021 Boe/d per well.
• 19 of the wells are part of the Merlin Maximus development, with all 24 producing wells expected to meet 30-day peak IP rates by the end of the second quarter.
• One of the wells is a successfully executed 15,000 foot lateral in the Lower Spraberry.
• A second Austin Chalk test in South Texas is showing encouraging preliminary results with current rates of more than 3,500 Boe/d (three-stream) and liquids content exceeding 55%. This second Austin Chalk well has an effective lateral length of 12,875 feet. The Austin Chalk presents the potential for higher margin/higher return wells due to higher liquids revenue and lower transportation costs per Boe.
• Results from the first Middle Spraberry test in the RockStar area are also encouraging. The well produced approximately 1,000 Boe/d 30-day peak IP rate at 86% oil. Similar to Lower Spraberry wells in the area, Middle Spraberry wells are expected to exhibit lower peak IP rates compared to Wolfcamp wells as well as shallower decline rates. The Company allocated nominal value to the Middle Spraberry in its acquisition of the RockStar area, so Middle Spraberry success presents inventory upside.

FIRST QUARTER 2019 RESULTS

As previously announced, first quarter production of 10.7 MMBoe, or 118.7 MBoe/d, came in at the mid-point of guidance despite impacts totaling (0.2) MMBoe in March from severe weather and delays at a third-party processing plant in reaching full capacity following a force majeure event. Realized prices (before the effects of hedges) averaged $31.86 per Boe, benefiting from improved regional oil differentials in the Permian Basin that were offset by lower regional natural gas prices and a lower realized NGL uplift from Permian production related to force majeure events.

First quarter of 2019 net loss was ($177.6) million, or ($1.58) per diluted common share, compared with net income of $317.4 million, or $2.81 per diluted common share, in the first quarter of 2018. The primary components of the year-over-year difference include a net gain on divestiture activity of $385.4 million in the first quarter of 2018 and a net derivative loss of $177.1 million in the first quarter of 2019.

First quarter of 2019 net cash provided by operating activities (GAAP) was $118.5 million.

The following paragraphs discuss adjusted net income (loss), adjusted net income (loss) per diluted common share, and adjusted EBITDAX, all of which are non-GAAP measures. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.

First quarter of 2019 adjusted net loss was ($37.7) million, or ($0.34) per diluted common share, compared with adjusted net income of $8.2 million, or $0.07 per diluted common share, in the first quarter of 2018. The decline in adjusted net income is predominantly due to lower realized commodity prices in the first quarter of 2019, which were down 16% per Boe, partially offset by a lower realized loss on derivatives in the first quarter of 2019.

First quarter of 2019 adjusted EBITDAX was $186.5 million, compared with adjusted EBITDAX of $210.2 million in the first quarter of 2018. The decrease in adjusted EBITDAX was primarily driven by lower realized prices after the effects of hedges discussed above.

FINANCIAL POSITION AND LIQUIDITY

As previously reported, the outstanding principal amount on the Company's long-term debt was $2.5 billion in senior notes, $172.5 million in senior convertible notes, and $46.5 million drawn on the Company's senior secured credit facility. The cash balance at quarter-end was $0.0 million.

Subsequent to quarter-end, the Company's revolving credit agreement was amended to increase the borrowing base and lender commitments to $1.6 billion and $1.2 billion, respectively. Pro forma for the amended credit facility terms, liquidity at quarter-end was $1.2 billion.

COMMODITY DERIVATIVES              

As of April 26, 2019, the Company had commodity derivatives in place for the second through fourth quarters of 2019, including:

• Oil hedged to benchmark pricing for approximately 80% of projected production
• Natural gas hedged to benchmark pricing for approximately 65% of projected production
• Midland-Cushing basis hedged for approximately 60% of projected Permian oil production
• Natural gas hedged at Waha for approximately 70-75% of Permian natural gas production
• Components of the NGL barrel hedged

Detailed data on derivatives are provided in the accompanying IR presentation and the Company's Quarterly Report on Form 10-Q for the first quarter of 2019.

GUIDANCE UPDATE

Total capital spend is a non-GAAP measure; please refer to the definition of total capital spend and description of forward-looking total capital spend at the end of this release.

Full year 2019 guidance remains unchanged.

Second quarter 2019 guidance is as follows:

• Production is projected to range between 11.5 and 11.9 MMBoe/126-131 MBoe/d
• The commodity mix is expected to be approximately 43-44% oil
• The Company is processing ethane in April and May
• Commodity price realizations before the effects of hedges are expected to be volatile in the Permian as the Midland regional oil price and Waha regional natural gas price reflect tight pipeline capacity. Refer to derivatives detail for the Company's hedge positions to regional pricing.
• As previously reported, the Company expects that approximately 60% of projected total capital spend will occur in the first half of 2019, and approximately 40% will occur in the second half of 2019. For the second quarter of 2019, total capital spend is projected to range between $300 and $310 million as the Company expects to:
• Drill 28 gross/26 net wells and complete 40 gross/35 net wells in the Permian Basin; and
• Drill 2 gross/2 net and complete 14 gross/14 net wells in South Texas. In addition, the Company's Joint Development Partner is expected to drill 4 and complete 0 gross wells in the area.

SCHEDULE FOR FIRST 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 first quarter detail.

Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time on May 2, 2019 for the first quarter 2019 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 3654049) - Domestic toll free/International: 844-343-4183/647-689-5129
• Replay (conference ID 3654049) - Domestic toll free/International: 800-585-8367/416-621-4642

The call replay will be available approximately one hour after the call until May 9, 2019.

UPCOMING CONFERENCE PARTICIPATION

• June 4, 2019 - 2019 RBC Capital Markets Global Energy and Power Conference. Chief Financial Officer Wade Pursell will present at 11:00 a.m. Eastern time. This event will not be webcast. An investor presentation for this event will be posted to the Company's website before market open on June 4, 2019.

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, commodity mix, price realizations and total capital spend for the second quarter and full year 2019; the timing and results of new wells relating to 30-day peak IP rates; and, the potential for well tests in new intervals in the Permian Basin and South Texas. 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 2018 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

 

 

 

 

 

DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY

The following non-GAAP measures are presented in addition to financial statements as the Company believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and compare investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others.  Non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measure or any other measure of a company's financial or operating performance presented in accordance with GAAP.  A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure or measures 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, and certain other items.  Adjusted EBITDAX 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. Adjusted EBITDAX is a non-GAAP measure that the Company presents because management believes it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt.  Adjusted EBITDAX is also important as it is considered among financial covenants under the Company's Credit Agreement, a material source of liquidity for the Company.  Please reference the Company's first quarter of 2019 Form 10-Q and 2018 Form 10-K for discussion of the Credit Agreement and its covenants.

Adjusted net income (loss):  Adjusted net income (loss) 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, and materials inventory loss. Adjusted net income (loss) is presented because management believes it provides useful additional information to investors for analysis of the Company's fundamental business on a recurring basis. In addition, management believes that adjusted net income (loss) attributable to common shareholders is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.

Total capital spend: Total capital spend is calculated as costs incurred, less asset retirement obligations ("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 Company 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.

Discretionary cash flow: Discretionary cash flow is calculated as net cash provided by operating activities excluding changes in current assets and current liabilities, and exploration. Exploration expense is added back in the calculation because, for peer comparison purposes, this number is included in our total capital spend. The Company believes this measure is important to investors because it provides useful additional information to investors for analysis of the Company's ability to generate cash to fund exploration and development, and to service indebtedness. In addition, management believes that discretionary cash flows is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.

FORWARD-LOOKING NON-GAAP MEASURES

The Company is unable to present a reconciliation of forward-looking Total Capital Spend because components of the calculation, such as potential acquisitions, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.

 

 

 

 

 

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