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SM Energy (SM) to Sell Powder River Basin Assets for $500M

Zacks Equity Research

SM Energy Company SM has inked a definitive agreement to divest a bulk of its Powder River Basin resources for a total value of $500 million in cash.

The assets comprise net acreage of about 112,000 located in northwest Converse County, parts of southeast Johnson and southwest Campbell Counties, Wyoming. The transaction with an effective date of Oct 1, 2017, is scheduled to close in the first quarter of 2018, and is subject to the fulfillment of the necessary closing conditions. The closure of the transaction may be deferred.

As of December 2017, production of these assets, which is about 80% of the company's current Powder River Basin acreage position, was about 2,200 Boe/d. Of this, oil, NGLs and natural gas comprised 51%, 18% and 31%, respectively. Proved reserves for year-end 2017 per initial estimates are 4.2 million barrels of oil equivalent (MMBoe).

The proceeds from the transaction will be used for general corporate purposes, including lowering of debt. The sale is in line with its strategy to focus on development of Midland Basin and Eagle Ford assets. Based on this transaction, as of the end of third-quarter 2017, there will be a likely lowering in net debt by about 20% and net debt to EBITDAX ratio to less than three times.

Price Performance

SM Energy’s shares have gained 46.3% compared with the industry’s rally of 14.9% in the last three months.


Zacks Rank & Key Picks    

SM Energy carries a Zacks Rank #3 (Hold). A few better-ranked players in the energy sector include Statoil ASA STO, Pioneer Natural Resources Company PXD, and Denbury Resources Inc DNR. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Statoil, based in Norway, is a major international integrated oil and gas company. It saw an average negative earnings surprise of 8.44% in the last four quarters.

Headquartered in Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production company. The company delivered an average positive earnings surprise of 67.62% in the last four quarters.

Headquartered in Plano, TX, Denbury Resources, is engaged in the exploration, production and development of natural gas properties. The company delivered an average positive earnings surprise of 125.00% in the last four quarters.

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