SM Beats on Earnings & Revs - Analyst Blog

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Independent oil and gas company SM Energy Company 's ( SM ) third-quarter 2013 adjusted earnings of $1.54 per share comfortably surpassed the Zacks Consensus Estimate of $1.09 per share. The results also increased tenfold from the year-ago earnings of 14 cents on the back of strong production.

Total revenue was $613.1 million in the quarter, showing an improvement of 61.8% from $379.0 million in the prior-year quarter. The revenues also beat the Zacks Consensus Estimate of $588.0 million.

Operational Performance

The company's third-quarter production came in at 138.8 thousand barrels of oil equivalent per day (MBoe/d). It also showed an improvement of 34.4% from the year-ago level of 103.3 MBoe/d. The growth was mainly attributable to the leasehold expansion in New Ventures along with acreage addition in its Midland Basin and the Powder River Basin.

The company intends to increase the liquids composition in its portfolio, like its peer Chesapeake Energy Corp. ( CHK ). During the quarter, the company achieved its targeted liquids composition of 50% of its total production.

SM Energy produced 418.1 million cubic feet per day (MMcf/d) of natural gas in the quarter, up 22.9% year over year. Oil production also grew 45.5% year over year to 41.6 thousand barrels per day (MBbls/d). Natural gas liquids contributed 27.5 MBbls/d to the total volume, up 52.8% from the third quarter of 2012.

Including the effect of hedging, the average equivalent price per barrel of oil equivalent (Boe) was $46.99 compared with $40.56 in the year-ago quarter. Average realized prices (inclusive of hedging activities) were $4.10 per thousand cubic feet (Mcf) of natural gas (up 19.2% from the comparable quarter last year), $92.78 per barrel of oil (up 12.9%), and $34.50 per barrel of natural gas liquid (down 7.7%).

On the cost front, unit lease operating expense (LOE) decreased 2.5% year over year to $4.77 per Boe in the quarter. Transportation expenses increased to $5.38 per Boe (from $3.90 per Boe in the year-ago period); general and administrative expenses were $2.66 per Boe (down 21.5%); while depletion, depreciation and amortization (DD&A) expenses decreased 24.3% to $15.33 per Boe from the year-earlier level of $20.25 per Boe.

Liquidity

Net cash provided by operating activities increased to $404.5 million during the quarter from $243.3 million in the year-ago quarter. As of Sep 30, 2013, SM Energy had a cash balance of $0.176 million and long-term debt of $1,628.0 million, with a debt-to-capitalization ratio of 50.6% (versus 51.6% in the preceding quarter).

Guidance

For the fourth quarter of 2013, SM Energy's production forecast is 12.8 MMBoe/d to 13.5 MMBoe/d. The estimated LOE per Boe is $4.65 to $4.90 while DD&A is projected in the $15.00-$16.00 range.

SM Energy has increased its 2013 production forecast in the band of 47.9-48.6 MMBoe/d from its earlier guidance of 47.3-48.6 MMBoe/d.

With regard to its liquids focus, the company remains upbeat on its New Ventures plan. Its acreage in the Permian Basin and in East Texas have significant potential to boost its oil-weighted inventory.

Zacks Rank

SM Energy currently carries a Zacks Rank #2 (Buy). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry such as TransAtlantic Petroleum Ltd ( TAT ) and Northern Oil and Gas, Inc. ( NOG ) that appear more attractive in the short term.



CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

NORTHRN OIL&GAS (NOG): Free Stock Analysis Report

SM ENERGY CO (SM): Free Stock Analysis Report

TRANSATL PETROL (TAT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CHK , NOG , SM , TAT

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