SM Energy Updates Capital Expenditure and Production Outlook; Provides Operations Update
- Company increases 2011 production forecast to a range of 162 – 167 BCFE, up approximately 10% from prior guidance; anticipate year over year production growth of 50%
- Production for 2012 expected to increase 35% - 40% to a range of 225 – 232 BCFE, based on preliminary 2012 capital program budget of
$1.4 to$1.5 billion - Company has closed or entered into over
$1.0 billion of transactions in 2011 to fund activity
MANAGEMENT COMMENTARY
2011 CAPITAL BUDGET UPDATE
The following table summarizes the changes in the Company’s 2011 capital expenditure budget:
Previously Issued 2011 |
Changes |
Revised 2011 |
||||||||||||
($ in millions) | ||||||||||||||
Drilling Capital |
||||||||||||||
Total Eagle Ford shale | $500 | $295 | $795 | |||||||||||
Bakken/Three Forks | 170 | 20 | 190 | |||||||||||
Granite Wash | 60 | 60 | ||||||||||||
Permian Basin Oil | 40 | 10 | 50 | |||||||||||
Haynesville shale | 75 | 90 | 165 | |||||||||||
Niobrara/Other Oil | 25 | 25 | ||||||||||||
Drilling subtotal | $870 | $415 | $1,285 | |||||||||||
Non-drilling capital | $210 | $55 | $265 | |||||||||||
Total | $1,080 | $470 | $1,550 | |||||||||||
The primary increase to the 2011 capital budget results from differences regarding the size and timing of the Company’s previously announced Eagle Ford shale transactions, compared to assumptions made when they were originally budgeted. The reduction in SM Energy’s total Eagle Ford shale position will not be as large as was assumed at the beginning of the year. The scheduled closing dates for these transactions are also later in the year than originally budgeted. As a result, higher amounts of production and capital expenditures will be recognized by the Company in 2011. The capital budget is also being increased to reflect the decision to continue drilling in the Company’s operated Haynesville shale position in
The increase in capital expenditures is effectively being funded by proceeds from transactions that the Company has either closed or announced in 2011. A summary of the estimated gross proceeds from these transactions is provided in the following table:
Gross Proceeds | ||||
($ in millions) | ||||
Eagle Ford LaSalle block | $225 | |||
Non-operated Eagle Ford reimbursements | 55 | |||
Marcellus shale assets | 80 | |||
Constitution Field (East Texas) assets | 44 | |||
Rocky Mountain oil assets | 47 | |||
Eagle Ford gathering assets | 25 | |||
Total gross proceeds | $476 | |||
The table above does not include any benefit from the
PRELIMINARY 2012 CAPITAL PROGRAM BUDGET
Estimated Gross |
Estimated |
Estimated
Net Capital |
||||||||||||
($ in millions) | ||||||||||||||
Operated Eagle Ford shale | 95 | 100% | $670 - 730 | |||||||||||
Non-operated Eagle Ford shale | 300 | 14.5% | - | |||||||||||
Operated Bakken/Three Forks | 40 | 57% | 185 - 205 | |||||||||||
Operated Haynesville | 8 | 95% | 85 - 95 | |||||||||||
Operated Granite Wash | 15 | 60% | 70 - 75 | |||||||||||
Other Operated | TBD | Varies | 130 - 150 | |||||||||||
Outside Operated | TBD | Varies | 75 - 100 | |||||||||||
Range of drilling capital | $1,200 - 1,300 | |||||||||||||
Non-drilling capital | $200 | |||||||||||||
Range of total capital | $1,400 - $1,500 | |||||||||||||
NOTE: The above estimated capital ranges are preliminary and are not intended to sum.
2011 AND 2012 PRODUCTION OUTLOOK
Previous |
Revised |
Preliminary |
||||||||||||
Production (BCFE) | 146 – 152 | 162 – 167 | 225 – 232 | |||||||||||
Production growth (year over year) | 33 – 38% | 47 – 52% | 35 – 40% | |||||||||||
FUNDING OF 2011 AND 2012 PROGRAMS
Below is a table that summarizes the Company’s estimated net cash needs for 2011 and 2012 based on the assumptions presented above:
($ in millions) | 2011 | 2012 | ||||||||
Capital program | $1,550 | $1,400 – $1,500 | ||||||||
Less: Projected operating cash flow* | 860 | 1,200 – 1,300 | ||||||||
Less: Transaction proceeds | 476 |
|
- | |||||||
Estimated funding gap | $214 | $200 |
* Projected operating cash flow assumes current strip pricing. Projected operating cash flow is a non-GAAP financial measure intended to be an estimate of future operating cash flow that provides internally generated funds for exploration, development, acquisitions, and to service debt. The Company computes historical operating cash flow as net cash provided by operating activities adjusted for changes in current assets and liabilities and exploration, less exploratory dry hole expense, and stock-based compensation expense included in exploration. A reconciliation of projected operating cash flow to projected net cash provided by operating activities is not provided due to uncertainties in projecting future changes in current assets and liabilities and other reconciling items.
OPERATIONAL UPDATE
As previously announced, during the second quarter of 2011 the Company entered into two separate transactions related to its Eagle Ford shale assets. These transactions are scheduled to close during the third quarter. Post-closings, SM Energy will have approximately 196,000 net acres in the play.
Bakken / Three Forks
The Company has also started permitting for several wells in the
During the quarter,
The Company operated one (1) drilling rig in the Permian region during the second quarter of 2011, aimed at drilling down-spacing pilots in the Wolfberry tight oil and testing Mississippian targets.
DETAILED 2011 PRODUCTION AND COST GUIDANCE
3Q11E | 4Q11E | FY 2011E | ||||||||||||
Production (BCFE) | 42.0 – 44.5 | 44.0 – 47.0 | 162.0 – 167.0 | |||||||||||
Average daily production (MMCFE/d) | 453 – 481 | 479 – 509 | 437 – 464 | |||||||||||
Oil production (as % of total) | ~30% | ~31% | ~30% | |||||||||||
Natural gas production (as % of total) | ~55% | ~55% | ~57% | |||||||||||
NGL production (as % of total) | ~15% | ~14% | ~13% | |||||||||||
LOE ($/MCFE) | $0.90 – $0.96 | $0.90 – $0.96 | $0.88 – $0.93 | |||||||||||
Transportation ($/MCFE) | </td> | $0.59 – $0.62 | $0.58 – $0.61 | $0.50 – $0.53 | ||||||||||
Production Taxes (% of pre-derivative oil, gas, and NGL revenue) | 6 – 7% | 6 – 7% | 5.5 – 6% | |||||||||||
G&A - cash NPP ($/MCFE) | $0.11 – $0.13 | $0.11 – $0.13 | $0.12 – $0.14 | |||||||||||
G&A - other cash ($/MCFE) | $0.47 – $0.50 | $0.47 – $0.50 | $0.47 – $0.50 | |||||||||||
G&A - non-cash ($/MCFE) | $0.12 – $0.14 | $0.11 – $0.13 | $0.11 – $0.13 | |||||||||||
G&A TOTAL ($/MCFE) | $0.70 – $0.77 | $0.69 – $0.76 | $0.70 – $0.77 | |||||||||||
DD&A ($/MCFE) | $2.90 – $3.10 | $2.90 – $3.10 | $2.90 – $3.10 | |||||||||||
Non-cash interest expense ($MM) | $3.4 | $3.5 | $18.1 | |||||||||||
Effective income tax rate range | 37.0% - 37.5% | |||||||||||||
% of income tax that is current | ~5% | |||||||||||||
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference to discuss second quarter results and other operational matters on
This call will be webcast live and can be accessed at
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words “will,” “believe,” “budget,” “anticipate,” “plan,” “intend,” “estimate,” “forecast,” and “expect” and similar expressions are intended to identify forward looking statements. 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. These risks include such factors as the volatility and level of oil, natural gas, and natural gas liquids prices, the uncertain nature of the expected benefits from the acquisition, divestiture, or joint venture of oil and gas properties, the uncertain nature of announced divestiture, joint venture, farm down or similar efforts and the ability to complete such transactions, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, the ability of midstream service providers to purchase or market the Company’s production, the ability of purchasers of production to pay for those sales, the availability of debt and equity financing for purchasers of oil and gas properties, the ability of the banks in the Company’s credit facility to fund requested borrowings, the ability of derivative counterparties to settle derivative contracts in favor of the Company, the imprecise nature of estimating oil and gas reserves, the availability of additional economically attractive exploration, development, and property acquisition opportunities for future growth and any necessary financings, unexpected drilling conditions and results, unsuccessful exploration and development drilling, drilling and operating service availability, the risks associated with the Company’s commodity price risk management strategy, uncertainty regarding the ultimate impact of potentially dilutive securities, and other such matters discussed in the “Risk Factors” section of SM Energy’s 2010 Annual Report on Form 10-K and subsequent quarterly reports filed on Form 10-Q. Although
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