SM Energy Company (SM Quick QuoteSM – Free Report) declined 8.4% since it reported year-over-year lower third-quarter 2023 earnings on Nov 2. The underperformance was owing to lower realized commodity prices, offset partially by higher-than-expected production.
The upstream energy player’s quarterly adjusted earnings of $1.73 per share surpassed the Zacks Consensus Estimate of $1.61. The bottom line, however, fell from the year-ago quarter’s earnings of $1.82 per share.
Total quarterly revenues of $641 million declined from $835 million in the year-ago quarter but beat the Zacks Consensus Estimate of $629 million.
SM Energy Company Price, Consensus and EPS Surprise
Dividend Hike
With a strong focus on returning capital to shareholders, the board of directors of SM Energy has given authorization for a 20% increase in the fixed dividend policy.
Operational Performance:
Production
SM Energy’s third-quarter production totaled 153.7 thousand barrels of oil equivalent per day (MBoe/d) (almost 44% oil), up 12% from the year-ago level of 137.8 MBoe/d and outpaced the Zacks Consensus Estimate of 153 MBoe/d.
Oil production of SM Energy increased 9% year over year to 67 thousand barrels per day (MBbls/d) and is in line with the Zacks Consensus Estimate. The company produced 357.9 million cubic feet per day of natural gas in the quarter, up 6% year over year. Natural gas liquids contributed 27 MBbls/d to the total production volume, which jumped 35%.
Realized Prices
Before the effects of derivative settlements, the average realized price per Boe was $45.24 compared with $65.27 in the year-ago quarter. The average realized oil price plunged 13% to $80.95 per barrel. The Zacks Consensus Estimate of $82 per barrel for oil price also reflects a year-over-year decline.
The average realized price of natural gas declined 67% year over year to $2.48 per thousand cubic feet, while that for natural gas liquids fell 35% to $23.61 per barrel.
Costs & Expenses
On the cost front, unit lease operating expenses of SM Energy decreased 10% year over year to $5.08 per Boe. General and administrative expenses decreased 8% to $2.07 per Boe from the prior year’s $2.24. Transportation expenses slipped 28% to $2.07 per Boe.
Total hydrocarbon production expenses of SM Energy in the quarter were $138.3 million compared with the year-ago level of almost $160 million. Total exploration expenses were $10.2 million, lower than the year-ago figure of $14.2 million.
Capex
The capital expenditure of SM Energy in the September quarter was $216.7 million. It generated an adjusted free cash flow of $207.7 million in the reported quarter.
Balance Sheet
As of Sep 30, 2023, SM Energy had cash and cash equivalents of roughly $402 million. It had a net debt of $1.2 billion at the third-quarter end.
Guidance
For the fourth quarter, SM Energy projects production at a band of 13.7 to 14 MMBoe. Of the total production, oil will probably contribute 42%.
Zacks Rank & Other Stocks to Consider
SM Energy currently carries a Zacks Rank #2 (Buy). Other prospective players in the energy space are Matador Resources Company (MTDR Quick QuoteMTDR – Free Report) and Exxon Mobil Corporation (XOM Quick QuoteXOM – Free Report) . While ExxonMobil carries a Zacks Rank #2, Matador Resources sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Matador Resources has a strong presence in the oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil price is likely to aid it in increasing production volumes. Matador acquired Advance Energy Partners Holdings, LLC, which comprises several oil and natural gas-producing properties and undeveloped acreage. MTDR expects the buyout to be accretive to important valuation and financial metrics.
In order to have a dominant presence in the Permian, ExxonMobil has entered into a staggering $59.5 billion all-stock deal to buy Pioneer Natural Resources (PXD Quick QuotePXD – Free Report) . Pioneer Natural is one of the foremost oil producers operating in the Permian Basin, the most prolific basin in the industry.