SM Energy Company (NYSE:SM) Q4 2023 Earnings Call Transcript
SM Energy Company (NYSE:SM) Q4 2023 Earnings Call Transcript February 21, 2024
SM Energy Company isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to SM Energy's Fourth Quarter and Full Year 2023 Results Webcast. Before we get started on our prepared remarks, I'll remind you that our discussion today will include forward-looking statements. I direct you to Slide 2 of the accompanying slide deck, Page 7 of the accompanying earnings release and the Risk Factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. We will also discuss non-GAAP measures and metrics, definitions and reconciliations of non-GAAP measures and metrics to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures can be found in the back of the slide deck and earnings release. Today's prepared remarks will be given by our President and CEO, Herb Vogel; and our CFO, Wade Pursell. I will now turn the call over to Herb.
Herbert Vogel: Good afternoon and thank you for your interest in SM Energy. We are very pleased to report our excellent 2023 financial and operating results. We measured up very well against each of our 2023 objectives! Today, we will spend more time looking forward, into our plans for 2024. We are well positioned to slightly increase activity and deliver an attractive return of capital to our stockholders, initiate development of properties acquired in 2023 and maintain our low leverage. Turning to slides 4 and 5 and starting with key 2023 results. How did we measure up against our stated strategic objectives? We met or exceeded each objective as I will step through now. Our first objective was to deliver increased return of capital to our stockholders.
We generated substantial free cash flow of $509 million and returned $300 million to our stockholders. This is an approximate 7% yield for stockholders and return of approximately 60% of the free cash flow we generated. This included the repurchase of 6.9 million shares at an average price of $32.89, for $228 million, and fixed dividends paid of $72 million. Notably, this is four times the $77 million returned to stockholders in 2022, and we reinvested in our portfolio, transacting approximately $125 million in prospective leasehold positions. In addition, we set a company record for proved reserves, ending the year with 605 MMBoe, up almost 13% from yearend 2022, despite a reduced SEC pricing environment. At the same time, we improved our balance sheet, reducing net debt by $171 million to $969 million, which met our objective of less than $1 billion net debt.
Our allocation of free cash flow is intended to drive long term, sustainable profitability, and share price appreciation. Our second objective was to focus on operational execution, including excellent safety and environmental stewardship. If we measure operational execution by production performance, production came in about 3.5% ahead of the mid-point of early-year guidance, and production was up approximately 5% year-over-year, consistent with mid-single digit growth discussed last June. Increased production guidance over the course of 2023 was driven by well performance from our Austin Chalk program, which exceeded expectations, while operating efficiencies served to accelerate drill and completion times for certain wells in the Midland Basin.
As we have emphasized in the past, our differential application of technology supports completion designs that optimize well performance to peer leading outcomes. If we measure operational execution by well performance compared to peers, as shown on slide 6, in both the Midland Basin and Austin Chalk, SM wells sizably outperform our regional peers. These charts show normalized cumulative oil production per 10,000 feet of lateral. If you look closely, you may be surprised to see that cumulative oil production from an average west condensate area Austin Chalk well is almost the same, around 230, 000 to 240, 000 barrels of oil after 20 months of production, as an average Howard County well. That leads to simply excellent economics in both plays and we’re always working to get even better.
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