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SM Energy (SM) Beats on Q2 Earnings, Cuts Capex View Again

SM Energy Company SM reported second-quarter 2020 adjusted loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 47 cents. However, the reported figure deteriorated from a loss of a penny a year ago.

Total revenues, which decreased to $169.6 million from $407.2 million in the prior-year quarter, missed the Zacks Consensus Estimate of $284 million.

The better-than-expected earnings can be attributed to lower operating expenses. The positives were partially offset by lower realized commodity prices and hydrocarbon production volumes.

SM Energy Company Price, Consensus and EPS Surprise

SM Energy Company price-consensus-eps-surprise-chart | SM Energy Company Quote

Operational Performance:

Total Production Falls

The company’s second-quarter production was 122.9 thousand barrels of oil equivalent per day (MBoe/d) (48% oil), down 10% from the year-ago level of 136.5 MBoe/d. The production decline was caused by curtailed operations in the Midland Basin. Notably, it drilled 27 net wells in the quarter and added 11 net flowing completions.

Oil production decreased 1% year over year to 59 thousand barrels per day (MBbls/d). SM Energy produced 285.8 million cubic feet per day of natural gas in the quarter, down 8% year over year. Natural gas liquids contributed 16.2 MBbls/d to total production volume, down 35% from the second-quarter 2019 level.  

Realized Prices Decline

Excluding the effects of derivative settlements, the average realized price per Boe was $15.18 compared with $32.75 in the year-ago quarter. Average realized price of natural gas fell 42% year over year to $1.34 per thousand cubic feet. Notably, average realized prices of oil decreased 60% to $22.25 per barrel and that of natural gas liquids declined 36% from the prior-year quarter to $10.43.

Cost & Expenses

On the cost front, unit lease operating expenses decreased 21% year over year to $3.30 per Boe. In addition, transportation expenses fell to $3.12 per Boe from $4 in the year-ago quarter. Moreover, general and administrative expenses decreased 2% to $2.43 per Boe from the prior-year level of $2.49. Also, transportation costs fell 22% year over year to $3.12 per Boe.

Total exploration expenses were $9.8 million, lower than the year-ago figure of $10.9 million. Hydrocarbon production expenses for the quarter were recorded at $80.4 million compared with the year-ago level of $123.1 million. However, total operating expenses for the quarter increased to $482.3 million from the year-ago period’s $303 million, primarily due to substantial net derivative loss incurred.

Balance Sheet & Capex

As of Jun 30, SM Energy had a cash balance of $10,000 and liquidity of $865 million. Its net long-term debt was $2,456.1 million, down from the first-quarter level of $2,645.4 million. The company had a debt to capitalization of 51.9%.

Capital expenditure for the quarter was recorded at $170.9 million, lower than the year-ago figure of $326.8 million. Notably, it generated free cash flow of $27.9 million in the quarter versus the year-ago negative free cash flow of $36.2 million.

Guidance

Due to current market volatility, the company has reduced well completion and drilling pace. It anticipates capital spending for full-year 2020 within $610-630 million. This expectation is 25% lower than the prior guidance. The company expects production in the range of 120.2-125.7 Boe/d for the year, of which 49-50% will likely be crude oil. Third-quarter production is expected in the range of 114.1-119.6 Boe/d, comprising 48% crude oil. Lease operating expenses are expected in the band of $4.75-$5 per Boe. Transportation expenses are anticipated in the range of $3.10-$3.30 per Boe.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include Cimarex Energy Co. XEC, Indonesia Energy Corporation Limited INDO and EOG Resources, Inc. EOG, each holding a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cimarex Energy’s earnings estimates of 11 cents per share for the current year have witnessed 14 upward and five downward revisions in the past 30 days.

Indonesia Energy’s bottom line for 2020 is expected to soar 78.6% year over year.

EOG Resources’ bottom line for the next year is expected to skyrocket 188.4% year over year.

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EOG Resources, Inc. (EOG): Free Stock Analysis Report
 
SM Energy Company (SM): Free Stock Analysis Report
 
Cimarex Energy Co (XEC): Free Stock Analysis Report
 
Indonesia Energy Corporation Limited (INDO): Free Stock Analysis Report
 
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