SM Energy Company (SM) announces its financial results for the third quarter of 2014 and provides an operations update. In addition, a new presentation concerning the Company’s third quarter earnings and operations update will be posted on the Company’s website at www.sm-energy.com. This presentation will be referenced during the conference call scheduled for 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on October 29, 2014. Information for the call can be found below.
THIRD QUARTER 2014 RESULTS
SM Energy reported net income for the third quarter of 2014 of $208.9 million, or $3.05 per diluted share. This compares to net income of $70.7 million, or $1.04 per diluted share, for the same period of 2013.
Adjusted net income for the third quarter of 2014 was $98.6 million, or $1.44 per diluted share, compared to adjusted net income of $107.6 million, or $1.58 per diluted share, for the same period of 2013. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results and are generally items whose timing and/or amount cannot be reasonably estimated.
Earnings before interest, taxes, depreciation, depletion, amortization, accretion, and exploration expense (“adjusted EBITDAX”) was $406.2 million for the third quarter of 2014, compared to adjusted EBITDAX of $410.4 million for the same period of 2013.
Adjusted net income and adjusted EBITDAX are non-GAAP financial measures. Please refer to the respective reconciliations in the Financial Highlights section at the end of this release for additional information about these measures.
Total operating revenues for the third quarter of 2014 were $618.8 million, compared to $613.1 million for the same period of 2013. The table below provides the average realized prices received by product, as well as the adjusted prices received after taking into account cash settlements for derivative transactions:
| Average Realized Commodity Prices for the Three Months Ended September 30, 2014 | ||||||||||
|
Before the effect of |
After the effect of |
|||||||||
| Oil ($/Bbl) | $ | 86.56 | $ | 86.44 | ||||||
| Gas ($/Mcf) | $ | 4.49 | $ | 4.44 | ||||||
| Natural gas liquids ($/Bbl) | $ | 34.86 | $ | 35.47 | ||||||
| Equivalent ($/BOE) | $ | 47.06 | $ | 47.04 | ||||||
The table below presents key performance measures and metrics, as well as previously provided guidance for the third quarter of 2014:
| Production | Reported | 3Q14 Guidance | |||||
| Average daily production (MBOE/d) | 142.5 | 143 – 150 | |||||
| Total production (MMBOE) | 13.11 | 13.1 – 13.8 | |||||
| Costs | |||||||
| LOE ($/BOE) | $5.07 | $4.60 – $4.85 | |||||
| Transportation ($/BOE) | $6.22 | $5.90 – $6.20 | |||||
| Production taxes (% of pre-derivative oil, gas, and NGL revenue) | 4.9% | 5.0% – 5.5% | |||||
| G&A – Cash ($/BOE) | $2.41 | $2.30 – $2.50 | |||||
| G&A – Cash NPP ($/BOE) | $0.19 | $0.15 – $0.30 | |||||
| G&A – Non-cash ($/BOE) | $0.58 | $0.45 – $0.65 | |||||
| Total G&A ($/BOE) | $3.18 | $2.90 – $3.45 | |||||
| DD&A ($/BOE) | $13.97 | $14.00 – $14.75 | |||||
Reported average daily production decreased sequentially from the prior quarter by 3% due to an unusually large number of well shut-ins for offset completion work in the operated Eagle Ford. In the third quarter of 2014, SM Energy’s reported production mix was 31% oil/condensate, 24% NGLs, and 45% natural gas. The Company reported record quarterly oil/condensate production of 4.0 million barrels of oil in the third quarter of 2014.
Lower production volumes in the third quarter of 2014 led to higher costs on a per unit basis. Higher than anticipated workover activity in the Company’s Bakken/Three Forks program also contributed to LOE per BOE being above the Company’s guidance for the quarter.
OPERATIONS UPDATE
Eagle Ford Shale
During the third quarter, SM Energy made 24 flowing completions in its operated Eagle Ford shale program. The Company’s operated net production in the Eagle Ford shale averaged 76.2 MBOE per day in the third quarter of 2014, an 8% sequential decrease from the prior quarter and a 12% increase over the third quarter of 2013. The sequential decrease in production from the second quarter of 2014 was caused by required shut-ins of producing wells during offset well completions. Daily operated production has increased significantly since the end of the quarter.
The Company’s wells that utilize longer laterals and higher sand loadings continue to demonstrate strong performance. Additional details regarding this program are included in the Company’s presentation and will be discussed on the Company’s earnings call.
In the non-operated portion of the Company’s Eagle Ford shale program, net production for the third quarter of 2014 averaged 26.2 MBOE per day, a 10% sequential increase over the second quarter of 2014 production of 23.8 MBOE per day and a 32% increase over the third quarter of 2013. The operator made approximately 92 flowing completions during the third quarter.
Bakken / Three Forks
In the third quarter of 2014, SM Energy’s average daily production for its Bakken/Three Forks program was 17.5 MBOE per day. Average daily production for the quarter increased by 6% over the prior quarter and increased 17% from the third quarter of 2013. During the third quarter, the Company made 9 gross flowing completions in its operated Bakken/Three Forks program. The Company is currently operating three rigs in the basin and expects to add a fourth rig by year end 2014.
In mid-October, SM Energy acquired approximately 12,500 net acres and approximately 720 BOE/d from Bakken Hunter, LLC for $84.8 million in the Company’s Gooseneck prospect in North Dakota. Post closing, the Company’s total Gooseneck acreage is approximately 110,000 net acres. A majority of the interests acquired from Bakken Hunter, LLC are in properties in which the Company previously had an operated ownership interest.
Powder River Basin
During the third quarter of 2014, the Company completed the Dynamite St 3975-16-21-1FH (~7,500 foot effectively stimulated lateral length), which had a peak 30-day initial production rate of 890 BOE per day (2-stream, 54% oil, 1,600 BTU gas). This well is located in the center of the Company’s acreage position and continues the successful delineation of the Frontier interval on its acreage.
At the end of the third quarter, the Company closed on two transactions to acquire acreage in the Powder River Basin bringing the Company’s total acreage in the basin to approximately 171,000 net acres. The Company is currently operating three rigs in the basin and expects to add a fourth rig by year end 2014.
Permian Basin
During the third quarter of 2014, the Company made 4 flowing completions in its Sweetie Peck property. The Company is currently flowing back a Wolfcamp D well on its Buffalo prospect in the Northern Midland Basin and plans to drill and complete a Lower Spraberry well on its Buffalo prospect in the fourth quarter of 2014.
FINANCIAL POSITION AND LIQUIDITY
As of September 30, 2014, the Company’s debt to twelve month trailing adjusted EBITDAX was 1.2 times. The Company had outstanding borrowings of approximately $2.0 billion, which were comprised of $1.6 billion in long-term notes and the remainder was drawn on the Company’s senior secured revolving credit facility. On October 6, 2014, the Company’s borrowing base under its senior secured revolving credit facility was increased to $2.4 billion from $2.2 billion following its lenders’ regularly scheduled semi-annual redetermination.
PRODUCTION AND PERFORMANCE GUIDANCE
The Company is providing updated production and performance guidance for the fourth quarter and full year 2014 in the table below:
| Guidance for 2014 | |||||||
| 4Q14 | FY2014 | ||||||
| Production (MMBOE) | 13.9 – 14.7 | 52.9 – 53.6 | |||||
| Average daily production (MBOE/d) | 152 – 159 | 145 – 147 | |||||
| LOE ($/BOE) | $4.95 – $5.20 | $4.85 – $4.90 | |||||
| Transportation ($/BOE) | $6.05 – $6.35 | $6.20 – $6.30 | |||||
| Production taxes (% of pre-derivative oil, gas, and NGL revenue) | 5.0% – 5.5% | 5.0% – 5.5% | |||||
| G&A – Cash ($/BOE) | $2.25 – $2.45 | $2.26 – $2.31 | |||||
| G&A – Cash NPP ($/BOE) | $0.15 – $0.30 | $0.18 – $0.22 | |||||
| G&A – Non-cash ($/BOE) | $0.35 – $0.55 | $0.44 – $0.50 | |||||
| Total G&A ($/BOE) | $2.75 – $3.30 | $2.88 – $3.03 | |||||
| DD&A ($/BOE) | $14.00 – $14.75 | $14.05 – $14.25 | |||||
| Effective income tax rate range | 37.0% – 37.5% | ||||||
| % of income tax that is current | <3% | ||||||
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference to discuss these results and other operational matters on October 29, 2014, at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). Conference dial-in information is included below. A telephonic replay of the call will be available approximately two hours after the call through November 12, 2014.
| Call Type | Phone Number | Conference ID | ||||||
| Domestic Participant | 877-303-1292 | 18488188 | ||||||
| Domestic Replay | 855-859-2056 | 18488188 | ||||||
| International Participant | 315-625-3086 | 18488188 | ||||||
| International Replay | 404-537-3406 | 18488188 |
This call is being webcast live and can be accessed at SM Energy Company’s website at www.sm-energy.com. An audio recording of the conference call will be available at that site through November 12, 2014.
