Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SM Energy Co (SM, Financial) reported an outstanding quarter with significant positive developments.
- The Woodford-Barnett wells in the Permian are performing excellently, with a high oil cut of 56% to 58%.
- The company is prioritizing debt reduction with free cash flow, aiming to reach a 1x leverage ratio by mid-next year.
- Operational efficiencies have led to a lower-than-expected LOE of $4.82 per BOE for the quarter.
- The Eagle Ford development strategy is yielding positive results, with successful co-development of multiple zones.
Negative Points
- No additional turn-in-line wells are planned for the Woodford-Barnett formation this year, indicating a potential slowdown in development.
- The company is facing uncertainties regarding rig contracts and capital efficiency optimization due to ongoing HSR approval processes.
- LOE is expected to increase in the third quarter due to additional electric generator and water handling costs.
- There is some uncertainty about production trajectory and capital efficiency optimization for 2025, pending further analysis post-acquisition.
- The Altamont Energy assets acquired are less technologically advanced compared to XCL properties, requiring optimization efforts.
Q & A Highlights
Q: Can you provide more details about the Woodford-Barnett results and development plans?
A: We are excited about the Woodford-Barnett in the Permian, which is an overpressured play. The wells are 56% to 58% oil on a two-stream basis. We are still working on development plans and do not have any additional turn-in lines planned for this year. - Herbert Vogel, CEO
Q: What is the company's focus regarding buybacks and debt reduction?
A: With the acquisition, we are prioritizing free cash flow for debt reduction in the near term. However, we may still buy back shares during periods of market weakness. Our goal is to get back to a 1 times leverage by mid-next year, depending on commodity prices. - A. Wade Pursell, CFO
Q: Can you discuss the trajectory of oil volumes and production expectations for 2025?
A: We are still in the early stages of planning and are working on scenarios based on commodity prices and rig contracts. Our focus is on achieving the best capital efficiency across our assets. We expect more clarity after HSR approval in late August. - Herbert Vogel, CEO
Q: Why did LOE come in significantly below the guidance range this quarter, and what are the expectations moving forward?
A: The second quarter saw cost reductions across the board, except for labor. We expect a slight increase in the third quarter due to additional electric generators and water handling costs. We aim to continue driving costs down. - Herbert Vogel, CEO
Q: What are the plans for Eagle Ford activity, specifically regarding the Briscoe C and Austin Chalk?
A: We plan to co-develop the upper and lower Austin Chalk zones with Eagle Ford, especially on the western acreage where results have been promising. On the eastern acreage, we will be more selective due to thinner and gassier formations. - A. Wade Pursell, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
