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SM Energy's Q2 Production Rises, Capital Spending Falls

Zacks Equity Research

SM Energy Company SM recently announced second-quarter 2019 total production of 136.5 thousand barrels of oil equivalent per day (MBoe/d), higher than the year-ago period’s 115.2 MBoe/d, backed by better-than-expected performance from the Permian Basin and South Texas region. Moreover, production increased 16% sequentially. Of the total production in the June quarter, 44% is expected to be oil.

The better-than-expected performance so far has enabled the company to boost its full-year 2019 production guidance to the range of 129-131 MBoe/d, the midpoint of which is higher than the previous guidance of 124.4-132.6 MBoe/d. The revised guidance is much higher than the 2018 figure of 120.3 MBoe/d.

In the second quarter, the company incurred a cost of $269 million related to oil and gas activities. Total capital expenditure for the quarter is estimated at $261 million, below the earlier guided level and first quarter’s realized amount of $316 million. For full-year 2019, it reduced its total capital spend guidance at the midpoint to $1,025 million.

Higher output and lower capital spending reflect tremendous increase in efficiency in the company’s operations. SM Energy expects the trait to favour the company in 2020 as well. It expects 2020 capital spending program to be similar to 2019.

The company expects second-quarter realized prices for oil to be $54.07 per barrel post hedging, lower than the year-ago period’s $55.42. Natural gas prices for the second quarter are estimated at $2.51 per thousand cubic feet, lower than the year-ago level of $3.29. It expects equivalent price to be $33.07 per barrel, indicating a decrease from the year-ago quarter’s $34.91. Notably, the company has hedged more than 50% of its expected production for the next year at oil prices of more than $55 per barrel.

Lower realized prices could lead to reduced profits in the second quarter. The company is expected to report loss per share of 4 cents in the to-be-reported quarter versus year-ago earnings of 15 cents. It is slated to report second-quarter 2019 results on Aug 1, 2019, after the closing bell.

Price Performance

Denver, CO-based SM Energy has lost 39.6% year to date compared with 3.9% collective decline of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, the company has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Talos Energy Inc. TALO, Approach Resources Inc. AREX and Earthstone Energy, Inc. ESTE. While Talos sports a Zacks Rank #1 (Strong Buy), Approach Resources and Earthstone Energy hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Talos’ sales growth is projected at 22.9% through 2019.

Approach Resources surpassed earnings estimates in three of the trailing four quarters, with the average positive surprise being 12.7%.

Earthstone Energy’ sales growth is projected at 15% through 2019.

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