SM's Q2 Earnings In Line, Revs Beat - Analyst Blog

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Independent oil and gas company SM Energy Company 's ( SM ) second-quarter 2013 adjusted earnings of 76 cents per share were in line with the Zacks Consensus Estimate but increased seven-fold from the year-ago earnings of 9 cents on the back of record production.

Total revenue was $559.4 million in the quarter, showing an improvement of 83.7% from $304.4 million in the prior-year quarter. The revenues also surpassed the Zacks Consensus Estimate of $508.0 million.

Operational Performance

The company's second-quarter production came in at 131.8 thousand barrels of oil equivalent per day (MBoe/d). It also showed an improvement of 42.3% from the year-ago level of 92.6 MBoe/d. The outperformance was mainly attributable to the leasehold expansion in New Ventures along with acreage additions in its East Texas and the Powder River Basin.

SM Energy produced 430.2 million cubic feet per day (MMcf/d) of natural gas in the quarter, up 39.1% year over year. Oil production also grew 37.0% year over year to 35.5 thousand barrels per day (MBbls/d). Natural gas liquids contributed 24.6 MBbls/d to the total volume, up 61.8% from the second quarter of 2012.

Including the effect of hedging, the average equivalent price per barrel of oil equivalent (Boe) was $44.66 compared with $39.06 in the year-ago period. Average realized prices (inclusive of hedging activities) were $4.23 per thousand cubic feet (Mcf) of natural gas (up 40.1% from the comparable quarter last year), $89.64 per barrel of oil (up 11.3%), and $36.00 per barrel of natural gas liquid (down 8.7%).

On the cost front, unit lease operating expense (LOE) decreased 14.4% year over year to $4.69 per Boe in the quarter. Transportation expenses increased to $5.59 per Boe (from $3.59 per Boe in the year-ago period); general and administrative expenses were $2.95 per Boe (down 20.1%); while depletion, depreciation and amortization (DD&A) expenses decreased 1.8% to $18.82 per Boe from the year-earlier level of $19.17 per Boe.

Liquidity

Net cash provided by operating activities increased to $314.1 million during the quarter from $222.2 million in the year-ago quarter. As of Jun 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 51.6%.

Guidance

For the third quarter of 2013, SM Energy's production forecast is 12.2 MMBoe/d to 12.8 MMBoe/d. The estimated LOE per Boe is $4.55 to $4.80 while DD&A is projected in the $17.30-$18.50 range.

SM Energy has increased its 2013 production forecast in the band of 47.3-48.6 MMBoe/d from its earlier guidance of 42.8-44.5 MMBoe/d. The company intends to increase the liquids composition in its portfolio, like its peer Chesapeake Energy Corp. ( CHK ). As such, liquids are expected to comprise 50% of production by the end of 2013.

The company also remains upbeat on its New Ventures plan. The program has already taken additional acreage in the Permian Basin and in East Texas. These resources have significant potential to boost its oil-weighted inventory.

Zacks Rank

SM Energy currently carries a Zacks Rank #3 (Hold). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry such as Gulfmark Offshore, Inc. ( GLF ) and Dril-Quip, Inc. ( DRQ ) that appear  attractive in the short term.



CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

DRIL-QUIP INC (DRQ): Free Stock Analysis Report

GULFMARK OFFSHR (GLF): 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 , DRQ , GLF , SM

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