Current SM Stock Info

SM Energy announces the results of 8 Midland wells on its recently acquired acreage
SM Energy (ticker: SM) released initial production results from eight wells drilled on acreage the company acquired from Rock Oil and QStar, saying that the IP rates on the wells exceed pre-completion estimates.

SM’s Tackleberry 43-42 A 1WA well performed especially well, the company said in a press release, producing a peak average 30-day initial production rate of 2,262 BOEPD from the Wolfcamp A.  

Five of the wells are targeting the Wolfcamp A, two are...

Analyst Commentary

Johnson Rice & Company
This morning, SM announced eight new well results from its Howard County properties with average IP's of 1.6 mboe/d and average 20-d/30-d's of 1.4 mboe/d. One particularly notable well was the Tackleberry Wolf-A, which had an IP of 2,639 boe/d and a 30-d of 2,262 boe/d putting it in the top two wells in Howard County history, additionally the 60-d looks to be on-track to hit ~1.8 mboe/d. The majority of SM's operated well results in both Howard County and Sweetie Peck are now outperforming 1.0 mmboe type curves, easily exceeding both the acquisition assumptions (850-950 boe/d IPs) and the 20% internal IRR threshold.

Wells Fargo
Midland Basin activity likely 2/3rds focused on RockStar (Rock Oil + QStar) position with remaining 1/3 (or 2 rigs) focused on legacy Sweetie Peck position in Midland/Upton Counties. With 2 rigs on RockStar position able to address HBP needs. 2017 to include activity within what they see as the “sweet spot” but outside of the area they consider de-risked. Provided updated well cost range of $5.5-7.3MM for 2017, and indicated high end of range reflective of current AFE and a high sand/long lateral/tight stage spacing well design. Based on our model, and pro forma for completed 2016 A&D activity, we forecast a 2-year CAGR of 15%. Longer-term plan includes further delineating Middle Spraberry along with Wolfcamp C and D, but near-term focused on HBP and extending the economic area within the “sweet spot” across focus intervals.

The assumptions underlying our NAV/share estimate of $58 could be too conservative (Figure 3). For example, management believes that the Wolfcamp A/Wolfcamp B/Lower Spraberry will be developed on 100%/95%/83% of its Howard County acreage compared to our assumption of 50%/50%/50%. Industry completions have de-risked 76%/34%/39% of the acreage for these 3 zones to date while extensive log data analysis of 950 vertical wells supports management's higher estimates. The latter implies that a controversial northeastern acreage block lies within the sweet-spot for all 3 zones. While competitor wells in the immediate area appear uneconomic, management noted these wells were not completed optimally. A recently drilled SM well could de-risk this acreage later this year when gas infrastructure is in place.  

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