Current SM Stock Info

SM Energy purchases 46,750 net acres in Midland Basin

Denver-based SM Energy (ticker: SM) announced the acquisition of 46,750 net acres in the Midland Basin today. The acreage is “largely contiguous” and includes approximately 4,900 BOEPD of production, two new wells coming online this month, and 6 MMBOE of PDP reserves from Rock Oil Holdings LLC, according to a company press release. The implied deal metrics of SM’s acquisition are $20,962.57 per acre, $200,000 per flowing BOE, and $163.33 per BOE of proved reserves.

As the global glut of oil continues to exert downward pressure on oil prices, many E&P companies continue to focus on the economic assets available, many of which are in the Midland and Delaware Basins. Based on second quarter conference calls, major E&Ps like Chevron (ticker: CVX), WPX Energy (ticker: WPX), and Occidental Petroleum (ticker: OXY) among others continue to increase activity in two of the most productive regions of the Permian.

SM Energy’s shift toward the Permian is apparent in its capital budget plans for the year as well. The 2016 capex plan called for $705 million, 90% of which will be split evenly between the Eagle Ford, Permian and Bakken/Three Forks assets. The remaining 10% is allocated for other assets. The plan is for more than 115 net completions and a total budget of $600 million for drilling & completion costs.

“We expect that the implementation of pad drilling, reservoir modeling, zipper frac’s, and leading edge completion technologies will add value from the start,” said SM President and CEO Jay Ottoson. “We anticipate running one rig in the area in the fourth quarter of 2016 and two rigs throughout 2017. As a result, we are increasing our estimate of total capital spend for 2016 by approximately $15-20 million.”

Midland deal financing

Along with the press release announcing the Midland Basin purchase today, SM announced an offering of common stock, and an offering of senior convertible notes.

The stock offering will consist of 15,000,000 shares of common stock, with an option for underwriters to buy up to an additional 2,250,000 additional shares. The proceeds from the offering will be used “to pay a portion of the purchase price for its recently announced acquisition… in the Midland Basin of west Texas from Rock Oil Holdings,” the company said in its press release.

The aggregate principal amount for SM’s senior note offering will be $100 million, with the option for underwriters to purchase an additional $15 million due July 1, 2021, according to the company. According to SM Energy, the net proceeds from the offering will pay for privately negotiated capped call transactions with “one or more of the underwriters.” The capped call transactions are expected generally to reduce potential dilution of SM Energy’s common stock upon any conversion of notes, and/or offset any cash payments SM is required to make in excess of the principal amount of converted notes, the company said in its press release.

The remainder of the proceeds will be used to pay a portion of the Midland purchase, SM said in its press release.

SM Energy will present at the EnerCom conference in Denver on Tuesday, Aug. 16. Conference registration details are available here.


Legal Notice