Current SM Stock Info

SM Energy adds 35,700 acres in the Midland for $1.6 billion
SM Energy Company (ticker: SM) announced Tuesday that it has entered into a definitive purchase agreement to acquire 35,700 net acres in Howard and Martin Counties in West Texas, expanding the company’s Midland Basin footprint to approximately 82,450 net acres. The acquired acreage complements, and is partially contiguous to, the company’s recently closed Howard County acreage acquisition and includes approximately 2,400 BOEPD net production, SM said in a press release.

The company...

Analyst Commentary

SunTrust Robinson Humphrey
Oasis Petroleum announced the $785 million purchase of ~55,000 Williston acres from SM Energy that is largely funded by today’s announced 46 million share offering and the previously completed two convertible note deals. Today’s acquisition appears positive for Oasis given the strong overlap with existing acreage the company has previously deemed core. While there have been few Williston sales this year, we view the ~$3,000/acre purchase price as in line with prior core asset sales in the play. The company also announced increased 2016 guidance, a redetermined borrowing base, and updated hedges. The stock likely underperforms on the ~25% dilution of today’s equity deal.

Johnson Rice & Company
This morning, SM announced the acquisition of 35.7k net acres and 2.4 mboe/d in the Midland Basin (Howard/Martin) from Qstar for $1.6b (or ~$43k/acre at $35k/flowing boe). The transaction raises SM's total Midland Basin position to 82.5k net acres. In addition, the company sold its non-Divide County Williston Basin position to OAS for $785mm (55k net acres, 12.4 mboe/d), above the high end of our expectations at $750mm (see note). The $1.6b Midland acquisition will be funded by issuing 13.4mm shares (~$520mm, ~15% of o/s) to the seller, and proceeds from the Williston Basin sale, with the remaining balance on the company's undrawn $1.35b credit facility. SM will add a fourth rig in the Midland Basin later in 4Q:16 setting up a FY:17 total expected company capex of $710mm (below cons/our $830-860mm). The acreage we were able to spot via state permits looks to be tucked in nicely with SM's recent Rock Oil transaction (see note), as it does in SM's previously disclosed Howard map (slide 44). SM continues to trade below the Permian group ('17 EV/EBITDA of 10.4x vs 13.7x); we continue to like the name and reiterate our Buy rating.

Wells Fargo
35,700 net acres in Howard and Martin Counties (Midland Basin) from QStar (EnCap sponsored) with flowing production of 2,400 boe/d for total consideration of $1.6B, or roughly $42,500 per net acre (assumes $35,000 per flowing). Will now pick up a 4th rig during 4Q16, and will now look to run 6 rigs on their Permian assets in 2017. Cash portion of deal funded through a combination of the sale of 55,000 net acres in the Bakken (to Oasis) generating proceeds of $785MM and drawing the remaining $315MM from their undrawn revolver. Acquisition is expected to close in mid-December, and effective Sept 1st.  


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