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SM Energy to Divest Assets in Williston Basin & Upton County

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SM Energy Company SM has inked two definitive agreements for the sale of assets in the Williston Basin and Upton County. The company did not reveal the buyers. A cumulative amount of $292.3 million is expected from the transactions.

The first agreement relates to the sale of remaining assets in the Williston Basin located in Divide County, ND. This comprises net acreage of about 119,400, which areprimarily contiguous. It also includesnet proved reserves as of year-end 2017 of 28.8 million barrels of oil equivalent (MMBoe), of which 52% are proved undeveloped. In December 2017, net production from the assets to be sold wasabout 6,100 Boe per day, of which 83% was oil.

The second relates to the sale of its third-party operated assets known as Halff East located in Upton County, TX.The assets likelyto be sold in Upton County comprises a 60% working interest in third-party operated assets, a net acreage of about 5,400 and 1.6 MMBoe net proved reserves as of year-end 2017, of which 0% is proved undeveloped. In December, net production from these assets was about 1,025 Boe per day, of which 72% oil.

The transactions are expected to close in the second quarter of 2018, with effective date of Jan 1, 2018. Each transaction’s purchase price is subject to the required closing conditions. There is no guarantee that either transaction will close on time or at all. The expected sale proceeds are intended to be used by the company for general corporate purposes, including debt reduction.

The company anticipates production to be lower by 1.2 MMBoe in 2018, following the sale of the assets. Of which oil was 81%, while natural gas was 19%. Per a recent announcement, SM Energy will no longer record production related with its Powder River Basin divestiture as of the second quarter of 2018.

These divestitures are in sync with the company’s strategy to focus on the development of its core holdings in top tier Midland Basin and Eagle Ford assets. Besides, SM Energy intends to reduce debt burden. Year-to-date, the company has raised about $792 million from the expected divestiture of its non-core assets. This has resulted in the reduction in its pro forma net debt for year-end 2017 by 30%.

Price Performance

SM Energy’s shares have lost 28.6% in the last three months, compared with the industry’s 9.3% decline.


Zacks Rank & Key Picks

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

A few better-ranked players in the same sector are Continental Resources, Inc CLR, Pioneer Natural Resources Company PXD and Concho Resources Inc CXO. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Continental Resources is an independent oil and natural gas exploration and production company. It delivered an average positive earnings surprise of 64.9% over the last four quarters.

Headquartered at Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production entity. It pulled off an average beat of 66.92% in the trailing four quarters.

Concho Resources is an independent oil and natural gas company. It delivered a positive surprise of 48.9% during the same time frame.

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