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Earnings call: SM Energy posts record production, focuses on debt reduction

investing.com 01/11/2024 - 15:55 PM

SM Energy Reports Operational Success in Q3 2024

SM Energy (NYSE: SM) achieved significant success in its third-quarter earnings call for 2024, where President and CEO Herb Vogel reported record oil production and key acquisitions.

The company expanded its portfolio with an acquisition of 63,300 net acres in the Uinta Basin, adding more than 93,000 net acres and extending its inventory life by over three years. Furthermore, a quarterly dividend increase was announced, along with a commitment to reduce debt following recent financial transactions.

Key Takeaways

  • Q3 production surpassed guidance by 3%, reaching 205,000 to 220,000 Boe per day.
  • Quarterly dividend increased to $0.20 per share, returning $146 million to shareholders year-to-date through dividends and repurchases.
  • The company is targeting a leverage ratio of around one times by prioritizing debt reduction before resuming share buybacks.
  • Significant financial activities included issuing $750 million in senior notes and redeeming $349 million in older notes.
  • Q4 production guidance is set at 205,000 to 220,000 Boe per day, the highest in company history, with 51% derived from oil.

Company Outlook

  • SM Energy anticipates a 40% sequential increase in net oil production, focusing on growth from the Uinta Basin.
  • The transition of operational control from the previous owner is in progress, projecting 87% oil production from Uinta operations in Q4.
  • Fitch Ratings upgraded SM Energy's senior unsecured notes to Double B.

Bearish Highlights

  • Delays in well completions are anticipated, deferring certain Uinta Basin volumes to 2025.

Bullish Highlights

  • Improved operational efficiencies have led to a reduction in costs and capital expenditures.
  • The borrowing base for the revolving credit facility rose to $3 billion.

Misses

  • Lower well completions by the seller in the Uinta Basin may cause some volume deferments to 2025.

Q&A Highlights

  • Discussion on revised well designs in the Uinta Basin, aimed at enhancing capital efficiency, although completions will be delayed.

SM Energy's Q3 results reflect strong operational performance, with record production and strategic Uinta Basin expansion. The focus is on reducing debt while maintaining shareholder returns.

InvestingPro Insights

SM Energy's operational successes and acquisitions are mirrored in its financial metrics. The company has a market capitalization of $4.63 billion and a low P/E ratio of 5.77, implying potential undervaluation based on strong performance and growth prospects.

Moreover, SM Energy has paid dividends for 32 consecutive years, showcasing its commitment to shareholder returns. Recently, dividends grew by 33.33% year-over-year, further indicating financial stability and a focus on shareholder-friendly policies.

The company's profitability is underscored by a gross profit margin of 82.73% and an operating income margin of 41.23% over the last twelve months as of Q2 2024, strengthening management's positive outlook and cash flow generation needed for debt reduction and growth initiatives.

InvestingPro notes that SM Energy operates with moderate debt levels, aligning with its goal to lower leverage. Strong operational performance and prudent financial management position SM Energy for sustained growth and value for shareholders.

InvestingPro offers additional tips for SM Energy, aiding investors in understanding the company's financial health and market position.


Full Transcript – SM Energy Co (SM) Q3 2024:

Jennifer Martin Samuels: Good afternoon and welcome to SM Energy’s Third Quarter 2024 Results Webcast. Before we begin, please note that our discussion may include forward-looking statements. For more details, please refer to the accompanying materials.

Herb Vogel: Thank you, Jennifer, and good afternoon. We’re pleased to announce another quarter of excellent operational execution, resulting in financial results that exceeded expectations while closing important acquisitions in Utah.

Increased core acreage by over 93,000 net acres, enhancing our productivity and extending our inventory life. Our ability to reduce operational costs has contributed positively to our financial outcomes.

Talking through regional highlights:
Uinta Basin: Expanded capacities, increasing oil production.
Midland Basin: Successful tests outperforming peers.
South Texas: Great results in the Austin Chalk area.

In summary, the first nine months of 2024 have exemplified our operational capacity and set us up for improved inventory and growth moving forward.

Wade Pursell: We had outstanding results in Q3, with production exceeding guidance. Our balance sheet reflects strong financial health, and we aim to reduce debt while enhancing shareholder value.

End of Q&A: This article was generated with the support of AI and reviewed by an editor. For more detail, see our T&C.




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