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SM Energy's (SM) Q4 Loss Wider Than Expected, Sales Beat

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SM Energy Company (SM - Free Report) reported a loss of 18 cents in fourth-quarter 2018, wider than the Zacks Consensus Estimate of a loss of 11 cents. The reported figure was also wider than a loss of 8 cents incurred in the year-ago quarter. Lower realized prices in the quarter led to the underperformance.

Total revenues surged to $394.2 million from $340.5 million in the prior-year quarter and beat the Zacks Consensus Estimate of $383 million on the back of year-over-year increased production.

SM Energy Company Price, Consensus and EPS Surprise

SM Energy Company Price, Consensus and EPS Surprise | SM Energy Company Quote

Operational Performance:

Equivalent Production Rises

The company’s fourth-quarter production was 122.8 thousand barrels of oil equivalent per day (MBoe/d), up 9% from the year-ago level of 112.6 MBoe/d. The upside can be mainly attributed to higher oil production.

SM Energy produced 277 million cubic feet per day of natural gas in the quarter, down 2% year over year. However, oil production increased 33% year over year to 55.3 thousand barrels per day (MBbls/d). Natural gas liquids contributed 21.3 MBbls/d to total production volume, down 11% from the fourth-quarter 2017 level.  

Realized Prices Fell

Due to hedging, the average equivalent price per barrel of oil equivalent (Boe) was $31.74 (including the effects of derivative settlements) compared with $32.16 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 25% year over year to $3.01 per thousand cubic feet. Average realized prices of oil fell 2% to $47.94 per barrel, while that of natural gas liquids grew 3% from the prior-year quarter to $19.36.

Costs Per Boe

On the cost front, unit lease operating expenses (LOE) declined 2% year over year to $4.98 per Boe. Transportation expenses fell to $4.19 per Boe from $5.01 in the year-ago quarter. General and administrative expenses also declined 15% to $2.69 per Boe from the prior-year level of $3.15. Additionally, depletion, depreciation and amortization (DD&A) expenses were up 27% to $16.10 per Boe from the year-ago level of $12.69.   

Expenses

Exploration expenses fell to $14.3 million from $15.8 million in the year-ago quarter.

Reserves Grow

SM Energy boosted its reserves by 18% through 2018 to 503 million barrels of oil equivalent (MMBoe).

Liquidity

Net cash from operating activities increased to $179.5 million during the quarter from $144.8 million in the year-ago period. As of Dec 31, SM Energy had a cash balance of $78 million and long-term debt of $2,596.3 million. The company had a debt-to-capitalization ratio of 47.1%.

Guidance

SM Energy announced its 2019 production guidance within 45-48 MMBoe or 123.3-131.5 MBoe/d, of which 43-44% is expected to be oil. Per barrel LOE, transportation and DD&A expenses are expected at $5.00, $4.25 and $17, respectively. For full-year 2019, the company expects capital spending in the range of $1,000-1,070 million. Notably, the mid-point of the range represents a 22% fall from the 2018 level. Around 90% of the total capital spending is expected to be allocated toward drilling & completion works. The operations plan for 2019 is expected to lead to free cash flow generation in the second half of the year.

In the Permian Basin, the company intends to boost production by 20% year over year. SM Energy has five operating rigs in the region. The number is expected to be increased to six in March and plans of adding three completion crews are also underway. The company expects 2019 production from the Eagle Ford Shale to be in line with 2018 levels.

Production for first-quarter 2019 is projected within 10.5-10.9 MMBoe or 116.7-121.1 MBoe/d, of which 45% is expected to be oil. The guidance assumes a continuing force majeure in a natural gas plant in the Permian Basin. First-quarter capital expenditure is expected in the range of $325-350 million.

Zacks Rank and Stocks to Consider

SM Energy currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

San Antonio, TX-based NuStar Energy L.P. (NS - Free Report) is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 30 days, is expected to grow 64.2% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Madrid, Spain-based Repsol, S.A. (REPYY - Free Report) is an integrated energy company. Its bottom line for 2019 is expected to increase 13.7% year over year. The company delivered average positive earnings surprise of 9% in the trailing four quarters. The stock currently has a Zacks Rank #2.

Enbridge Inc. (ENB - Free Report) is a Calgary, Canada-based energy infrastructure provider. The company delivered average positive earnings surprise of 33.2% in the trailing four quarters. It currently has a Zacks Rank #2.

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