SM Energy Earnings Grow on Strong Yield - Analyst Blog


Independent oil and gas company SM Energy Company 's ( SM ) fourth-quarter 2013 adjusted earnings of $1.26 per share lagged the Zacks Consensus Estimate of $1.43 per share. The results, however, increased 180% from the year-ago earnings of 45 cents on the back of strong production.

Full-year 2013 adjusted earnings increased nearly 260% to $4.21 per share from last year's profit level of $1.17 but failed to meet our expectation of $4.56 per share.

Total revenue was $636.7 million in the quarter, showing an improvement of 43.3% from $444.3 million in the prior-year quarter. Revenues also beat the Zacks Consensus Estimate of $615.0 million.

Full-year 2013 total revenue increased nearly 47% to $2,293.3 million from the year-earlier level of $1,505.1 million.

Operational Performance

The company's fourth-quarter production came in at 143.8 thousand barrels of oil equivalent per day (MBoe/d), reflecting an improvement of 30.8% from the year-ago level of 109.9 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 429.3 million cubic feet per day (MMcf/d) of natural gas in the quarter, up 23.7% year over year. Oil production also grew 30.4% year over year to 40.8 thousand barrels per day (MBbls/d). Natural gas liquids contributed 31.5 MBbls/d to the total volume, up 51.4% from the fourth quarter of 2012.

Including the effect of hedging, the average equivalent price per barrel of oil equivalent (Boe) was $45.57 compared with $43.28 in the year-ago quarter. Average realized prices (inclusive of hedging activities) were $4.27 per thousand cubic feet (Mcf) of natural gas (up 11.5% from the comparable quarter last year), $86.12 per barrel of oil (up 1.6%), and $38.34 per barrel of natural gas liquid (up 2.7%).

On the cost front, unit lease operating expense (LOE) decreased 2.5% year over year to $4.62 per Boe in the quarter. Transportation expenses increased to $5.67 per Boe (from $4.25 per Boe in the year-ago period); general and administrative expenses were $3.63 per Boe (up 29.2%); while depletion, depreciation and amortization (DD&A) expenses decreased 24.2% to $15.31 per Boe from the year-earlier level of $20.20 per Boe.


Net cash provided by operating activities increased to $337.6 million during the quarter from $268.4 million in the year-ago quarter. As of Dec 31, 2013, SM Energy had a cash balance of $282.2 million and long-term debt of $1,600.0 million, with a debt-to-capitalization ratio of 49.9% (versus 50.6% in the preceding quarter).


For the first quarter of 2014, SM Energy's production forecast is 12.0 MMBoe/d to 12.6 MMBoe/d. The estimated LOE per Boe is $5.25 to $5.50 while DD&A is projected in the $15.10-$15.90 range.

SM Energy's 2014 production forecast lies in the band of 51.0-53.5 MMBoe/d.

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

Zacks Rank

SM Energy currently carries a Zacks Rank #3 (Hold). However, there are other better-ranked stocks in the oil and gas sector such as Helmerich & Payne, Inc. ( HP ) and Matador Resources Company ( MTDR ), each holding a Zacks Rank #1 (Strong Buy).

CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

MATADOR RESOURC (MTDR): Free Stock Analysis Report

SM ENERGY CO (SM): 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 , HP , MTDR , SM

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