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SM Energy (SM) Releases Q2 Operational Updates, Raises View

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SM Energy Company (SM - Free Report) released operational updates for the second quarter of 2018 and announced higher-than-expected production guidance.

The company expects higher-than-expected production volumes, primarily owing to outstanding operational results at the Midland Basin, wherein  performance of new and existing wells was better than expected. The company expects production in the range of 10.1-10.4 million barrels of oil equivalent (MMBoe) or 111-114 thousand barrels of oil equivalent per day (MBoe/d), showing a rise from 9.7-10.1 MMBoe (106-111 MBoe/d). Of the total production, about 41% will comprise oil.

Operational efficiencies have enabled the ramp up of the 2018 Midland program. SM Energy continued to drill and complete wells earlier than anticipated through this plan. Consequently, a few operations in numerous pads are anticipated to be accelerated in the third quarter. This will boost production volumes in the third quarter. The bulk of capital related to the completion of these wells will be spent in the second quarter.

Improved operational efficiencies have enabled the company to supervise three completions crews in the Midland Basin, compared with five engaged through May. Eventually, SM Energy is likely to lower active rig count in the Midland Basin to seven.

Moreover, SM Energy has concluded main construction of water handling infrastructure project in the Midland Basin, investing the bulk of estimated infrastructure capital in the first half of 2018.

Higher level of activity in the first half of the year leads to the projection that about 60-65% of the total 2018 capital budget will be spent in the first half of 2018 or about 5% of the original budget is accelerated into the first half of the year. Cost inflation is a persistent obstruction to the company's original plan in February. Therefore, second-quarter capital spend is estimated in the range of $400-440 million, while total capital spend guidance for 2018 remains unchanged at about $1.27 billion.

Price Performance

In the past three months, SM Energy’s shares have gained 34% compared with the industry’s 8.6% rise.


Zacks Rank & Key Picks

SM Energy currently carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Occidental Petroleum Corporation (OXY - Free Report) , Eni SpA (E - Free Report) and CVR Refining, LP . These stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Occidental Petroleum is an international oil and gas exploration and production company. It pulled off an average positive earnings surprise of 30.2% in the trailing four quarters.

Eni with its consolidated subsidiaries is engaged in oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. The company delivered an average positive earnings surprise of 56.4% in the last four quarters.

Sugar Land, TX-based CVR Refining is an independent downstream energy partnership with refining and associated logistics properties in the Midcontinent United States. The company delivered an average positive earnings surprise of 7.05% in the last four quarters.

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