SM ENERGY REPORTS PRODUCTION BEAT ON LOWER CAPITAL COSTS AND SCHEDULES YEAR-END 2023 EARNINGS RELEASE AND CALL
- Production exceeded expectations, with a 5% increase from 2022
- Capital efficiencies and discipline resulted in lower costs
- Net debt of approximately $969 million further strengthened the balance sheet
- Return of capital to stockholders increased to nearly $300 million in 2023
- None.
Insights
An increase in production and disciplined capital expenditure management are indicative of operational efficiency and financial prudence. The reported 5% increase in year-over-year production, coupled with capital expenditures that concluded below guidance, signals a strategic focus on cost control and operational optimization. This is particularly relevant in the context of the energy sector, where cost management is critical to maintaining competitive margins.
The strengthened balance sheet, highlighted by a significant reduction in net debt, suggests improved financial health and resilience. The ability to generate cash while reducing leverage is a positive indicator for creditworthiness and may lead to enhanced investor confidence. The return of capital to stockholders, nearly $300 million in 2023, through share repurchases and dividends, reflects a shareholder-friendly capital allocation policy. This approach can be attractive to income-focused investors and may support the stock price.
However, it's important to monitor the sustainability of these repurchases and dividends, especially in an environment of macroeconomic uncertainty. If the industry faces headwinds, such as volatile commodity prices, companies heavily engaged in share buybacks may need to reassess their capital return strategies to maintain financial flexibility.
The reported production figures, with a 50/50 split between the Midland Basin and South Texas and a product mix of 43% oil, 17% NGLs and 40% natural gas, provide insights into the company's asset portfolio diversification. The outperformance in South Texas, particularly with a higher oil content, is noteworthy as oil typically commands a higher market price than natural gas and NGLs, potentially contributing to more favorable revenue streams.
Furthermore, the hedging strategy that resulted in a net gain suggests adept risk management practices. The ability to navigate commodity price volatility through effective hedging can help stabilize cash flows, which is critical for planning and executing long-term strategies in the energy sector. The slight increase in the average realized price after hedging compared to before hedging indicates that the company's hedging positions were beneficial during the reported period.
The operational excellence highlighted by the CEO, particularly in the context of increased macro uncertainty, is crucial. The energy sector is highly sensitive to economic cycles, geopolitical events and regulatory changes. A strong balance sheet and low leverage provide a buffer against these uncertainties and enable agility in capital allocation decisions.
Investors should also note the company's reference to its 'top tier asset portfolio' and 'operational execution.' These factors are critical in ensuring that the company can sustain production levels and continue to generate returns in various market conditions. The focus on delivering meaningful capital returns to stockholders reflects a balance between investing in growth and rewarding investors, which is a delicate equilibrium in the capital-intensive energy industry.
- Production exceeded expectations. Production for the full year 2023 was 55.5 MMBoe or 152.0 MBoe/d, up
5% from 2022. Fourth quarter production was 14.1 MMBoe, or 153.5 MBoe/d, at43% oil, which exceeded the high end of guidance. - Capital efficiencies and discipline resulted in lower costs. Estimated capital expenditures of
$989 million $81 million $1,070 million $223 million $45 million $268 million - Balance sheet is further strengthened. At year-end 2023, the outstanding principal amount of the Company's long-term debt was
$1,585 million $616 million $969 million - Return of capital to stockholders increased to nearly
$300 million $299.6 million $215 million
Chief Executive Officer Herb Vogel comments: "2023 production and capital activity reflect well on our long-term track record of performance and commitment to operational excellence. I commend the SM Energy team for exceptional performance and delivering on key metrics in 2023! As we enter 2024 and an environment of increased macro uncertainty, we have prioritized a strong balance sheet that provides financial flexibility. We are well positioned for another great year given our low leverage, top tier asset portfolio and operational execution, as well as the ability to deliver meaningful capital returns to stockholders through the previously announced increased dividend and continued share repurchases. We look forward to presenting our full operating and financial results as well as our 2024 plan later this month."
FOURTH QUARTER AND FULL YEAR 2023 RESULTS
PRODUCTION BY OPERATING AREA | |||
Fourth Quarter 2023 | |||
Midland Basin | Total | ||
Oil (MBbl / MBbl/d) | 4,553 / 49.5 | 1,523 / 16.5 | 6,075 / 66.0 |
Natural Gas (MMcf / MMcf/d) | 15,187 / 165.1 | 18,309 / 199.0 | 33,496 / 364.1 |
NGLs (MBbl / MBbl/d) | 5 / - | 2,455 / 26.7 | 2,460 / 26.7 |
Total (MBoe / MBoe/d) | 7,088 / 77.0 | 7,029 / 76.4 | 14,118 / 153.5 |
Note: Totals may not calculate due to rounding. | |||
- Fourth quarter production volumes were 14.1 MMBoe (153.5 MBoe/d) and were
43% oil. - Higher than expected production volumes are a result of outperformance in
South Texas , including a higher oil content.
Full Year 2023 | |||
Midland Basin | Total | ||
Oil (MBbl / MBbl/d) | 17,515 / 48.0 | 6,261 / 17.2 | 23,776 / 65.1 |
Natural Gas (MMcf / MMcf/d) | 59,814 / 163.9 | 72,555 / 198.8 | 132,369 / 362.7 |
NGLs (MBbl / MBbl/d) | 24 / - | 9,628 / 26.4 | 9,652 / 26.4 |
Total (MBoe / MBoe/d) | 27,508 / 75.4 | 27,982 / 76.7 | 55,490 / 152.0 |
Note: Totals may not calculate due to rounding. | |||
- Full year production volumes of 55.5 MMBoe (152.0 MBoe/d) were up
5% from 2022. - Production volumes were
50% from the Midland Basin and50% fromSouth Texas . Volumes were43% oil,17% NGLs and40% natural gas.
COMMODITY PRICES BY OPERATING AREA | |||
Fourth Quarter 2023 | |||
Midland Basin | Total (Pre/Post-hedge)(1) | ||
Oil ($/Bbl) | |||
Natural Gas ($/Mcf) | |||
NGLs ($/Bbl) | nm | ||
Per Boe | |||
Note: Totals may not calculate due to rounding. | |||
Full Year 2023 | |||
Midland Basin | Total (Pre/Post-hedge)(1) | ||
Oil ($/Bbl) | |||
Natural Gas ($/Mcf) | |||
NGLs ($/Bbl) | nm | ||
Per Boe | |||
Note: Totals may not calculate due to rounding. | |||
- In the fourth quarter, the average realized price before the effect of hedges was
$42.99 $43.45 $42.60 $43.09 - In the fourth quarter, benchmark pricing included NYMEX WTI at
$78.32 $2.88 $26.89 $77.62 $2.74 $27.71 - The effect of commodity derivative settlements for the fourth quarter and full year was a gain of
$0.46 $6.5 million $0.49 $26.9 million
FOURTH QUARTER 2023 EARNINGS RELEASE AND Q&A CALL
February 21, 2024 – After market close, the Company plans to issue its fourth quarter and full year 2023 financial and operating results and 2024 operating plan, which will include an earnings release, a pre-recorded webcast discussing fourth quarter and full year 2023 financial and operating results and the Company's 2024 operating plan, and an associated presentation, all of which will be posted to the Company's website at sm-energy.com/investors.
February 22, 2024 – Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time for the 2023 financial and operating results/2024 operating plan Q&A session. This discussion will be accessible via:
- Webcast (available live and for replay) - on the Company's website at sm-energy.com/investors (replay accessible approximately 1 hour after the live call); or
- Telephone - join the live conference call by registering at http://event.choruscall.com/mediaframe/webcast.html?webcastid=KBkYnF9t. Dial-in for domestic toll free/International is 877-407-6050 / +1 201-689-8022.
DISCLOSURES
FORWARD LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of securities laws. The words "demonstrate," "expects," and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include, among other things, the expectation for 2023 results to present lower leverage. These statements involve known and unknown risks, 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, as such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. 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 securities laws.
FOOTNOTE 1
Indicates a non-GAAP measure or metric.
To supplement this presentation of certain financial results prepared in accordance with
Net debt is calculated as the total principal amount of outstanding senior notes plus amounts drawn on the revolving credit facility less cash and cash equivalents.
Post-hedge is calculated as the average realized price after the effects of commodity derivative settlements.
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
SM ENERGY INVESTOR CONTACTS
Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507
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SOURCE SM Energy Company
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