SM ENERGY PRICES AN UPSIZED PRIVATE OFFERING OF $750 MILLION OF SENIOR NOTES DUE 2029 AND $750 MILLION OF SENIOR NOTES DUE 2032

Rhea-AI Summary

SM Energy (NYSE: SM) has priced an upsized offering of $1.5 billion in senior notes, comprising $750 million of 6.750% notes due 2029 and $750 million of 7.000% notes due 2032. The offering is expected to close on July 25, 2024. The company plans to use the proceeds, along with cash on hand and credit borrowings, to fund its pending acquisition of Uinta Basin assets from XCL Resources affiliates, redeem its outstanding 5.625% Notes due 2025, and cover related expenses. The 2029 Notes include a special mandatory redemption clause tied to the XCL Acquisition's completion. These notes are being offered only to qualified institutional buyers and non-U.S. persons, and are not registered under the Securities Act.

Positive

• Successful upsizing of senior notes offering to $1.5 billion, indicating strong investor interest
• Proceeds to fund strategic acquisition of Uinta Basin assets, potentially expanding SM Energy's operations
• Redemption of 2025 Notes, potentially improving debt maturity profile

Negative

• Increase in long-term debt by $1.5 billion, potentially impacting the company's leverage ratios
• Higher interest rates on new notes (6.750% and 7.000%) compared to the 5.625% Notes being redeemed, potentially increasing interest expenses
• Special mandatory redemption clause for 2029 Notes adds uncertainty if XCL Acquisition fails to close

Insights

Financial Analyst

The issuance of $750 million in senior notes due 2029 and another $750 million due 2032 is a significant move for SM Energy. By issuing these notes at a rate of 6.750% and 7.000% respectively, the company is locking in relatively high costs of borrowing in today's market. This indicates robust investor confidence in SM Energy's ability to service the debt despite the higher rates.

The proceeds from these notes are earmarked for three main purposes: funding the XCL Acquisition, redeeming all outstanding 2025 Notes with an interest rate of 5.625% and paying related fees and expenses. By allocating funds to redeem the 2025 Notes, SM Energy is strategically managing its debt profile, though at a slightly higher cost.

For retail investors, it's important to note that while this debt issuance increases the company's leverage, the acquisition of oil and gas properties in the Uinta Basin could potentially add significant value in the long term. However, such acquisitions always carry risks, especially in a volatile commodities market.

Energy Sector Analyst

The Uinta Basin acquisition is a noteworthy step for SM Energy, potentially expanding their resource base. The Uinta Basin is known for its oil-rich deposits and acquiring assets here could bolster SM Energy's production capabilities and reserves. However, investors should consider the operational risks and the fluctuating nature of oil prices which could affect the profitability of these assets.

It's important to keep an eye on the special mandatory redemption clause attached to the 2029 Notes. If the acquisition doesn't close by July 2025, the company will be required to redeem the notes, which could strain their financials.

Given the oil market's volatility, such strategic acquisitions can be seen as a double-edged sword; they offer growth potential but also add layers of risk.

Legal Expert

The notes issuance being conducted under exemptions from the Securities Act means these are private placements targeted at institutional investors. This often implies that the general retail investor market will have limited visibility into the specifics until later filings or disclosures. The reliance on exemptions like Rule 144A and Regulation S is fairly standard for large debt issuances, yet it also indicates that SM Energy is targeting sophisticated investors who can evaluate the risks involved.

The regulatory framework ensures that the issuance is streamlined, but retail investors should be cautious as these notes are not initially accessible to them. Additionally, the effective management of outstanding debt via redemption strategies showcases a proactive approach to financial obligations.

DENVER, July 18, 2024 /PRNewswire/ -- SM Energy Company ("SM Energy") (NYSE: SM) announced today that it has priced an upsized offering of $750,000,000.00 aggregate principal amount of its  6.750% senior notes due 2029 (the "2029 Notes"), and $750,000,000.00 aggregate principal amount of its 7.000% senior notes due 2032 (the "2032 Notes," and together with the 2029 Notes, the "Notes"). The Notes will be issued at par. The offering of the Notes is expected to close on July 25, 2024, subject to customary closing conditions.

SM Energy intends to use the net proceeds from the offering of the Notes, together with cash on hand and borrowings under its Credit Agreement, to fund the purchase price for SM Energy's recently announced pending acquisition of certain oil and gas properties, interests, and related assets located in the Uinta Basin from certain entities affiliated with XCL Resources, LLC (the "XCL Sellers" and such acquisition, the "XCL Acquisition"), to redeem all of its outstanding 5.625% Notes due 2025 (the "2025 Notes"), and to pay related fees and expenses. 

The 2029 Notes will be subject to a "special mandatory redemption" if the consummation of the XCL Acquisition does not occur on or before July 1, 2025, or if the Company notifies the trustee of the 2029 Notes that it will not pursue the consummation of the XCL Acquisition.

The Notes offered will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state or other securities laws, and the Notes will be issued pursuant to an exemption therefrom, and may not be offered or sold within the United States, or to or for the account or benefit of any U.S. person, absent registration or an applicable exemption from registration requirements. The Notes were being offered only to persons reasonably believed to be qualified institutional buyers under Rule 144A under the Securities Act and non-U.S. persons outside the United States in accordance with Regulation S under the Securities Act.

This press release does not constitute an offer to sell, a solicitation, to buy or an offer to purchase or sell any securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. This press release is not a notice of redemption with respect to the 2025 Notes.

INFORMATION ON FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. Forward-looking statements in this release include, among other things, the consummation of the XCL Acquisition, the contingencies related to the special mandatory redemption, the intended use of offering proceeds and other aspects of the Notes offering. These statements involve known and unknown risks, including market conditions, customary offering closing conditions and other factors described in the Confidential Offering Memorandum and Purchase Agreement, which may cause SM Energy's actual results to differ materially from results expressed or implied by the forward-looking statements. Future results may be impacted by the risks discussed in the Risk Factors section of SM Energy's most recent Annual Report on Form 10-K for the year ended December 31, 2023, as such risk factors may be updated from time to time in the Company's other periodic and current reports filed with the Securities and Exchange Commission. These risks also include risks associated with the XCL Acquisition, including the risk that we may fail to consummate the XCL Acquisition on the terms or timing currently contemplated, or at all, the risk that Northern Oil and Gas, Inc., may fail to consummate its purchase of an undivided 20% of the purchase and sale agreement for the XCL Acquisition, the risk that we may fail to realize the expected benefits of the XCL Acquisition, including as it relates to the number of net acres to be acquired, the number of expected drilling locations, reserves estimates and producing formations, and risks related to the integration of the XCL Acquisition or business disruptions that could result from the XCL Acquisition. The forward-looking statements contained herein speak as of the date of this release. Although SM Energy may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so, except as required by applicable securities laws.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas.

SM ENERGY INVESTOR CONTACTS

Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507

 

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SOURCE SM Energy Company

FAQ

What is the total value of SM Energy's (SM) new senior notes offering?

SM Energy (SM) has priced an upsized offering of $1.5 billion in senior notes, consisting of $750 million due 2029 and $750 million due 2032.

What are the interest rates for SM Energy's (SM) new senior notes?

The new senior notes from SM Energy (SM) have interest rates of 6.750% for the 2029 Notes and 7.000% for the 2032 Notes.

How does SM Energy (SM) plan to use the proceeds from the senior notes offering?

SM Energy (SM) plans to use the proceeds to fund its pending acquisition of Uinta Basin assets from XCL Resources affiliates, redeem its outstanding 5.625% Notes due 2025, and cover related expenses.

When is the expected closing date for SM Energy's (SM) senior notes offering?

The senior notes offering from SM Energy (SM) is expected to close on July 25, 2024, subject to customary closing conditions.