SM Energy Company
) has provided its production growth forecast for the next year.
The independent oil and gas company also plans to spend more on
its Eagle Ford, Bakken/Three Forks, and Permian drilling
CHESAPEAKE ENGY (CHK): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
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The Denver, Colorado-based company expects its 2013 capital
outlay to be approximately $1.5 billion, with Eagle Ford and
Bakken/Three Forks occupying more than 43% and 19% of the total
budget, respectively. The Eagle Ford, where the company has built
a premier position, represents an attractive resource potential
with its significant liquids content and favorable economics.
Development of the Eagle Ford Shale is an important part of SM
Energy's goal to increase stockholder value.
In the production front, the company expects to deliver 255-267
billion cubic feet equivalent/Bcfe (or 42.5-44.5 million barrels
of oil equivalent/MMBoe) of hydrocarbon for 2013. This represents
about 20% growth from the 2012 level, which will likely be
followed by about 15% production growth in 2014 and 2015.
Meanwhile, SM Energy maintains this year's as well as the fourth
quarter's production guidance at 57.5-60.5 Bcfe and 215.5-218.5
Given the current tepid gas price scenario, the company intends
to increase liquids composition in its portfolio, like its peer
Chesapeake Energy Corp.
). As such, liquids are expected to comprise 50% of production by
the end of 2013.
While Eagle Ford will likely accelerate faster than expected
because of additional takeaway, the company also remains
proactive in its Permian play. Given the company's increasing
focus on oil, specifically in the Permian and Rocky Mountain
regions, we believe that SM Energy will be able to boost its
The company's meaningful leasehold positions of the leading U.S.
shale plays, comprising the Bakken, Niobrara, Haynesville, and
Granite Wash, will provide it with many years of profitable
However, we remain bearish on account of the depressed natural
gas price environment. The company derives a significant portion
of its operating revenues from natural gas (nearly 55% of the
third quarter's production), and may face near-term headwinds in
this market from struggling commodity prices. SM Energy's third
quarter adjusted earnings per share fell 77.8% from the year-ago
level due to lower price realization. Natural gas was sold at
$3.44 per thousand cubic feet/Mcf, down 29.7% from the comparable
quarter last year.
Considering the fundamentals, we maintain our Neutral
recommendation on the stock for the long term, which is supported
by a Zacks #3 Rank (short-term Hold rating).