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SM Energy Incurs Loss on Weak Realizations; Revenues Fall

Zacks Equity Research

Independent oil and gas firm SM Energy Company SM reported weaker-than-expected fourth-quarter 2015 results. Adjusted loss of 90 cents per share was wider than the Zacks Consensus Estimate of a loss of 60 cents. In the year-ago quarter, the company had earned $1.05 per share. A substantial decline in realizations offset the benefits from production growth and cost declines.
 

Total revenue plunged to $303.7 million from $595.8 million in the prior-year quarter. The top line also failed to meet the Zacks Consensus Estimate of $362.0 million.
 
Operational Performance

The company’s fourth-quarter production came in at 162.1 thousand barrels of oil equivalent per day (MBoe/d), reflecting a fall from the year-ago level of 175.8 MBoe/d.

SM Energy produced 436.6 million cubic feet per day (MMcf/d) of natural gas in the quarter, down from 476.9 MMcf/d a year ago. Oil production also fell to 47.7 thousand barrels per day (MBbls/d) from 55.4 MBbls/d in the prior-year quarter. Natural gas liquids contributed 41.6 MBbls/d to total volume, up from 40.9 MBbls/d in the fourth quarter of 2014.

Including the effect of hedging, the average equivalent price per barrel of oil equivalent (Boe) was $28.40, substantially below the year-ago quarter level of $40.94. Average realized prices (including hedging activities) were $2.96 per thousand cubic feet (Mcf) of natural gas (down 24% from the comparable quarter last year), $55.81 per barrel of oil (down 24%), and $15.60 per barrel of natural gas liquid (down 49%).

On the cost front, unit lease operating expenses (LOE) decreased 10% year over year to $3.85 per Boe in the quarter. Transportation expenses increased to $6.10 per Boe from $5.77 per Boe in the year-ago period. General and administrative expenses were down 30% to $2.26 per Boe (from $3.23 per Boe), while depletion, depreciation and amortization (DD&A) expenses rose 19% to $16.10 per Boe (from $13.56 per Boe).

Liquidity

Net cash provided by operating activities decreased to $193.5 million during the quarter from $381.5 million in the year-ago quarter. As of Dec 31, 2015, SM Energy had a cash balance of $0.18 million and long-term debt of $2,316 million.

Guidance

SM Energy expects first-quarter of 2016 production of approximately 13.1–13.5 MMBoe. Lower sequential production may primarily result from the company's plan to reduce activity in the Eagle Ford, where activity was slowed early in the fourth quarter of 2015. An increase activity in the Permian, where drilling resumed in Jan 2016, may not be able to compensate for the slowdown in the Eagle Ford. The transition from natural gas to oil is expected to result in lower volumes yet higher cash margins.

Zacks Rank and Other Stock Picks

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

Some better-ranked stocks from the oil and gas industry are Matrix Service Company MTRX, PowerSecure International, Inc. POWR and Profire Energy, Inc. PFIE. Each of these stocks holds a Zacks Rank #2 (Buy).

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MATRIX SERVICE (MTRX): Free Stock Analysis Report
 
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SM ENERGY CO (SM): Free Stock Analysis Report
 
PROFIRE ENERGY (PFIE): Free Stock Analysis Report
 
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