SM - Earnings call transcript Q2 2018

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Operator

Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the SM Energy Second Quarter 2018 Earnings Q&A Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. you. Thank to Relations. over like Vice Jennifer the Investor President, turn now to call Samuels, I'd ahead. go Please

Jennifer Martin Samuels

Thank you, had morning, quarter pre-recorded today. take Kelly. webcast Good look earnings I joining you a accompanying listen hope us release for with and you've to our the all at the to to everyone, chance second and the thank presentation. slide

were forward to questions. look outstanding taking we and results quarter Second your

statements our – the to that remind statements. the statements results Please second was will you also All quarter XX-K results in earnings to of release that measure our a filed discussion this evaluating measures included Reconciliation Q&A assumptions which expressed forward-looking those the differ today's comparable to and earnings our we our forward-looking information cautionary may involve of cause in These need most during presentation. XX-K actual We materially directly the be refer be XX-Q, discussion in regarding on morning Form or measures useful believe IR excuse or for found to non-GAAP making I in presentation, can about that or financial are performance. available IR website. risks. from release our expectations, plans, the First, yesterday's implied performance. me, these Form are discuss we and future GAAP may risks

of questions are Herb answer your Ottoson, Wade and Here Jay Operations, to CFO, Pursell, Vogel. CEO, EVP

open So let's call started. up for the please Kelly, get Q&A.

Operator

Certainly.

Please from of go from comes Scialla line Stifel. Your question the first ahead. Mike

Michael Stephen Scialla

quarter. the Congrats everybody. morning, Good on

Javan D. Ottoson

you, Mike. Thank

Michael Stephen Scialla

good some plans plans there. that Any and to Spraberry Wolfcamp well? like I any some wanted looks wells Howard to competitors Middle the as maybe have zone D test drilled on ask, pretty County,

Herbert S. Vogel

testing plan year. we Yeah, Herb. and be we'll well the Middle is Spraberry complete to Wolfcamp this Mike, D the late in a year, Yeah. next

and nearby Spraberry where also. Wolfcamp those stand. great have D wells yeah, But, noticed we we wells that's So Middle

Michael Stephen Scialla

switching and, over South just to venture? part wondering Chalk on Texas, so, there any that if joint And be thoughts Austin your Okay. would testing the of

Herbert S. Vogel

Okay.

So, Chalk. first, the yeah, well into have a we Austin drilled

flowing flowing We a seen ago. not yields just but great couple currently. started And days. area. just its well, in that we're early back that So, weeks from JV back the We've is that

Michael Stephen Scialla

Got it, okay. back queue. the I'll get Herb. Thanks, in

Jennifer Martin Samuels

Thank you, Mike.

Herbert S. Vogel

You bet.

Operator

morning. next question go Macquarie. Grigel or ahead. Paul Capital the Grigel for here. Jay Macquarie from of - Good line Please Your Maybe comes Herb Paul (USA), Inc. from one Hi

start CapEx the fourth pad into move potential look the we out of XXXX? realizing lumpy bit looking large As at the what's quarter sometime of growth and as half the fairly during for the coming move to a down start XXXX that around and a up back thoughts quarter, in little around, the can you first of

Herbert S. Vogel

Yeah.

wells. at you big by So that really going on momentum see the it, growth great but we're much some will Permian's XXXX of I Permian if XX trajectory and pads, depend should set into guess, XQ a got grow grows Merlin-Maximus on and look it how definitely we

going to we're XQ closer year, the get end we the pin down where as to So, actually of we'll XQ. versus be

line So Capital that be XX pads. right (USA), time it do to But lumpy Paul co-development that's it or going big coming for you Grigel on where Inc. really it's wells Macquarie stands. those we on got the any -

well long then processing gathering of do up slush oil on pad, around at pad, from one on I guess as haul the guys on the kind transportation Okay. on and I production? pad how and such the you infrastructure and Merlin-Maximus two on following the general just just And and guess, then, large parts, look and the takeaway,

Herbert S. Vogel

Okay.

then we and we capacity the that wells. the your a to the facility's And the some we're sizing. there we but tie-in for so lot ability on going have forecast the very to question, of issues, building timing really there's be good out but the ability have is there's it's key capital-wise planned in volumes nearby this So to that what ahead and efficient are pads

In you taking heard and they yesterday got the out and of contracts. from all pretty them our that the in terms remarks takeaway, we've on think where I all lined volumes forecasted firm they're go probably much who's

Inc. already all integrated our into Macquarie Thanks, that's Paul (USA), all - plans. Grigel So Capital Herb.

Herbert S. Vogel

Okay.

Operator

comes Holt. go of line Oliver from Tudor, from ahead. the Please Huang Your question Pickering, next

Oliver Huang

Good morning, everyone, and for thanks questions. taking my

Herbert S. Vogel

morning. Good

Oliver Huang

on seven bounded the In the Kramer-Costanza pointed out of that wells your development. are release you've

might you the what versus in early detail Just provide be you wondering to some all for have the observed unbounded wells going? of able if wells in terms bounded

Herbert S. Vogel

Oliver, is Herb. Okay. this

days obviously them X reached early it's all the pad. and Kramer-Costanza So wells together have There's with IPs. XX XX-day their of

say So can I we'll out be elsewhere. laying IPs with in line so that the and far pretty but great much look

half wells, wells. XXX-foot are half bounded bounded bounded XXX-foot fully or And some are some of those

great really So so far pleased result. the it's a with we're test and

Oliver Huang

cube formation? is will pad Okay, I many all design Merlin-Maximus for be that in you be to able to might question, second of QX And detail spacing XX-well the perfect. the wondering to wells each be flowing just as within that you if all provide expected on zone wondering in consists how my each employing was of and this XXXX,

Herbert S. Vogel

Yeah.

pretty haven't line but I We out much the in can that past for provided it you.

Oliver Huang

Okay.

Herbert S. Vogel

four just pads Lower A And there's top we're pads. about about kind there on And wells, off the and X X of about zone. will that of head, to Lower spacing XXX-foot wells be on XXX-foot and B wells. on Spraberry at some the going was be be the Wolfcamp X,XXX-foot Wolfcamp wells, Wolfcamp B, other spacings Merlin will remember XX our Maximus XXX-foot between on XXX-foot vary And spacing. spacing one spacing. will And So my I within – Wolfcamp spacing those will wells, really we the pads there's the and about the and and Spraberry of some and have XXX-foot on some spacing. spacing The the A be some they're,

a Kramer-Costanza. it's up-scaling fairly and did pretty we at much what So extensive development an from

Oliver Huang

much. very Thanks Okay.

Operator

question McAllister next line ahead. from from Michael comes Securities. Please of go MUFG Your

Michael McAllister

Good morning, everyone.

going as You this it? hoping that look area it went quality an Is creation, was above in compete that Eagle about on more the an as get current comment model. have that one-to-one Permian, this in me color Herb oil to long fits does with can the says is is maybe talked attractive or at way $XX, commodity on that price specifically, but to the not I SM the that could what's implies Ford value and because that and presented that, to I environment, that

Javan D. Ottoson

because largely were question. kind is asset when higher. of a the much that's gas asset. interesting guess gas It's in view asset, but Eagle I it's about talking an great Well, really our the environment developing this of that Ford a gassy obviously prices we're we that price started

our period a adjusting is our little the spacing, a time. of we're less think we for So adjusting fact gas be $X significant that to program or going to

acreage we So the we the is said is returns action our is longer that now completions best kind a further laterals, we can through the there. large course of Eagle undeveloped in so Ford the up-spacing, what for make think in the we doing, we're doing competitive bunch of to be that that of better value there. we're to pushing that truly demonstrate And times, make project Permian of just really believe as we're we our what

Michael McAllister

Okay.

what Is figure So, of or out more it way you're you're targeting to more can that in like to attractive just the things it's are that trying trying not environment. that look a work you're you it? price that it's at liquids; to $X make have

Javan D. Ottoson

Yeah.

This and higher during environment. we've this And back progressively those have work know think wells time, drill a what comments, gas wider the in we and $X price prices way. lateral, we that we recorded gas And price what much spacing. returns in higher, had can is Javan in the you've drilling a tighter the by Over much asset wider this this to our spacing will the about acreage I longer a down the had on that done much Herb know if right started seen, this were we environment done now you based to spaced make talked laterals. history we drilled at and work is when spacing. longer moving

liquid Your higher comment that on higher liquid zones content. content, we have looking at are landing

of In as fact, contents and been Austin helping Clearly, a the is ago. mentioned which well, been economics all our prices, this wet have strong liquid as just generally, very Herb the prices course, we significantly Chalk at actually have minute economics. NGL NGL gas so having higher that. improves anticipate we look and simply those

Tier we think position sizable lot inventory level, is that at it. can the program have a kind the current So can economic in people We in very position here of of X we demonstrate compete overall our a Ford. there that Eagle inventory with to and that's a

Michael McAllister

Okay. the bit, some of amount economic XXXX, are that point a a a you could At kind certain amount in little of maybe we certain that up of activity of quantification locations ramping that, with expect have viability?

Javan D. Ottoson

we we inventory give Generally, once an Yeah. after reserves. Sure. finish update year a

can wells really will data have won't you'll lot so see we look down-spaced of drilled we've older in sometime have performance on tell substantially at we and up-spaced next year that. we But the wells, true it'll wells wider have be I because you, we wells drill. the next Eagle those that I fully confidence until indicated a we think do lot all that sometime than better the we before a that spacing, perform Ford of wells, year,

Herbert S. Vogel

Yeah.

in seeing I were the remarks that we production. double think mentioned I the

Javan D. Ottoson

spaced wider the On wells.

Herbert S. Vogel

Wider spaced wells.

Javan D. Ottoson

our on historical... based Just

Herbert S. Vogel

Yeah.

Javan D. Ottoson

...historical data.

Michael McAllister

much Thank good. call. my taking very Okay, for you

Javan D. Ottoson

bet. You

Operator

of Stifel. question ahead. comes line Your go from next Mike Please Scialla the from

Michael Stephen Scialla

from lot the costs how than sourced know being I cost I out. balanced service see drilling you can completing anticipated, that want against to well you locally you're sand Permian. I faster, is an to and that's see get wanted helping just a I update on in more inflation. the if quickly

Herbert S. Vogel

Yeah, all softened have an then of on year, little little have – impact by a will Mike. rig a we're little somewhat services the bit but turned markets seeing small bit. costs entire them we helping out But pretty in from would some This Pumping relatively were And our would. the Herb. up inflation definitely our of range it costs. sand the being of I'm bit, because they're it we're steel small ago, plays Obviously it is two anticipate yes, the a get like the in, we'll to how it's the recent see versus and AFEs our in end we seeing quarters lower much softened year. costs like from much local significantly. those right we is But thought well earlier of it such today the the of pretty rates well what looks a be expectations year for when have drop. very seeing it's Yeah, and as proportion all tariffs thought out we

So cover that it? does

Michael Stephen Scialla

or Yeah. Can around put say, numbers you ranges XX,XXX-foot any the, lateral?

Herbert S. Vogel

I that number are of a out of a the couple that on numbers how the didn't Well be of pad or $XXX,XXX here year. to will wells do it think the at beginning down make by and because number that with We'll the just influence straight things with come pinned obviously I many a number. different want so we'll a to changes there, we and

Michael Stephen Scialla

anticipated. Okay, fair put terms, had know numbers rig a but you're early dropping around I hard it's XXXX, than relative just to earlier in too you enough. I guess any

the for you're general terms look you look down? Permian XXXX you up, into if sheet's focus looking CapEx even you what or flattish in say been think to As would like know I the Can relative year, a at next you. in balance real

Javan D. Ottoson

from really we February anything haven't out. the plan we Mike, changed put that

same we to And for our the XXXX XXXX and and, expect basically and still overall, XXXX, was look about expectations CapEx think we forward. and XX% our generate to Our put be down cash the flows that's I between expected that production expectation.

we So, don't talk have any at this really about. point, change to

Jennifer Martin Samuels

production with was And associated that... XX% Yeah. decline that in

Javan D. Ottoson

CapEx.

Herbert S. Vogel

CapEx.

Jennifer Martin Samuels

Similar sorry. completions. number of Capital,

Michael Stephen Scialla

about the say Eagle that Ford were quarter? wells could the you during Anything good. completed second nine Okay,

Herbert S. Vogel

Yeah, this is Herb.

several think May another got now, we've eight and all that the I completions May, the East Ford in that there Eagle in came So in June, on were in online area. they're four and

of they're it, to they're four edge edge, in in of kind lower but Some results. The the and great. four they of where a are. great West doing are of the are are obviously way Early we're terms little Southwest the part it center days, really but last on bit yield, and encouraged the Southwest by the all of them performing

Javan D. Ottoson

spacing mention those? you Did on

Herbert S. Vogel

and Upper within They're both Yeah. Those are at, XXX Lower. feet. zone,

on down them if And so plain and you're in between view, XXX-foot Lower, be Upper spacing. looking they'd

as wells were. they're not were tight pilots that some the So they're so that spacing, as the after the of drilled pilots on

Javan D. Ottoson

wells as we're as widely the at this spaced point. not They're drilling

Herbert S. Vogel

wider Right, Eagle widen then right. particular we're the The around in where future Ford spacing. at we will looking the and in Lowers go ones XXX-foot that that have at Upper the

Michael Stephen Scialla

Got it. those? Any completed impact on when the you wells parent

Herbert S. Vogel

those There's well. where in XXX are so no there's Well, that parent so the vicinity least no. immediately away, feet parent well not much at

Michael Stephen Scialla

you. Got

you. Thank Okay.

Operator

Your ahead. Macquarie Please Capital next go from Paul Grigel follow-up. Grigel quick One Macquarie. question comes from - Hi, of the (USA), Paul Inc. guys. line

Just you you're key on to is the the bolt-ons? seeing incremental – mentioned interest, do that of from walk kind what's drivers CapEx trades, of curious if acreage that. behind could non-consents, Just increase working increased that through you ability kind

Herbert S. Vogel

– the interest the where we've interest far were acreage from increased and we on for Yeah. wound in of up then traded $XX trades higher Sure, working out is piece year or to Paul. our so The spent plan drilling. really we total a acreage is by with wells predominant that million working

Some XXX% whether are of we been or what some or are, and those a varies don't those circumstances don't have payout not. them agreement still they parties, range joint between penalty on DUCs. of after we where there's know finances the a another and and non-consents have the depend whatever, whether and other there's XXX%. have from Then their completed, for But operating back-in there's

some a cases. can of interest be a you - And seen on that's fraction and kind non-consents, Macquarie you public So of in double kind be any up Grigel E&Ps, small to how digits it it (USA), the really Paul X.X% private pattern? of ever it stacks just Capital Inc. within the mom-and-pops, anything pattern call E&Ps, those have can lines along interest

Herbert S. Vogel

back-in building to up they'll aerially and value value. get like acreage scattered out - we're the low can payout and choose are, Inc. big drilling if be more really just after certain Grigel non-consent us Paul of some our Macquarie one then will interest go where and and Capital to on working parties do acreage ahead up been side trades it's the (USA), No, And and can they us on take of it's getting be places that in actually that. to

Okay. the Thanks for color.

Operator

go comes next line from question Your from Please the ahead. of Douglas Owen Baird.

Trelford Owen Douglas

quick I guys. could. one, to sneak Wanted a Hi, in if

for year, of with? expectations So just in number second your you're of to DUCs the the the terms understanding to with cadence the the half going what's of regards end year

Herbert S. Vogel

Yeah. This is Herb.

of I the be of think it's to slide XX is it that production shows year. our XX at end the kind DUCs, around got of so

Trelford Owen Douglas

Okay. That's...

Herbert S. Vogel

Between Eagle in Ford backup. and Permian. the It's

Trelford Owen Douglas

That's great. you have missed just what I sorry, – I'm said. Okay,

Herbert S. Vogel

in the on backup. It's slide Sorry. XX, the

Javan D. Ottoson

In appendix. the

Herbert S. Vogel

our... the of In appendix

Trelford Owen Douglas

sorry. Okay,

the great, in Okay, so backup there.

kind to that understanding, so So that's sort or with just of ending of you're to for in going your terms it's level DUC going expectation be where of be.

we sort expect activity? As be should whether front of of XXXX sort of tell another sort burst end mean the does I that kind what as far of as of beginning far as and us would of there

Javan D. Ottoson

discussed in pad chunk the DUC end Merlin-Maximus a is that DUCs XX-well be then first in so along. the DUCs that'll big we of earlier count we completed the as go get this of Well quarter, toward which year, we'll we go building as there's

year. next So, DUC at mean, that be that what general should will relatively I mostly we'll be you I count think in anticipate

Trelford Owen Douglas

Okay, is that helpful.

I budget? being of So XXXX thinking about the I roughly as expenditure or fairly XXXX, budget sort similar, DUCs how be far your thinking as be kind should with of capital should flat then

Javan D. Ottoson

sand A same we'll expect and than be earlier things forecast. our of savings to other just in into we this XXXX. just CapEx as the that in cost we've lot about of Well XX% about on is In built complete that our general, we discussed lower call, wells. XXXX number

Trelford Owen Douglas

a Okay, great. lot. Thanks

Operator

Tudor, Your of Pickering, go next the from Please line ahead. from comes question Oliver Holt. Huang

Oliver Huang

Hey, guys.

have savings on out had levels front. into to the of the Just baked baked planning usage through XXXX plans? latest when of that sand much much question. follow-up XXXX this the you cost and how to was really wondering been what one guidance savings is into see are to, flow Good just starting the be I ramp to local your how by, towards is all more But might sand use carried and for local

Herbert S. Vogel

you is quite Okay. Herb. few this a follow-up Yeah, Oliver, out there. laid questions

can getting local the progressively increasing or we're sand the the the you Right in Whether year, just that little bit. end in a certain what or as the proportion and at on have. of year. integrating depends we of we're that's a to So by think about I go significant local We've baked and our from targeting anticipate we we XX% not we're June July, ramp savings through volumes, now XX% there. sand budget July, exceed and in

be so We Obviously that pricing the drive right compared expected. where will would forecast non-local on achieve all also to we it now a the that sand the to where what ultimately local comes But everything side good our what expectations sand. will in had comes contractual on sand is looking in. be, we is and know on

Javan D. Ottoson

Yeah. use, And pretty $XXX,XXX cost decent the publicly to for before that's of we're sand on we've a order think use. I that number mentioned a savings so well local expecting

Herbert S. Vogel

Yeah.

Oliver Huang

That's for Okay. me. all very Thanks much.

Operator

Jennifer further the at now closing no time. Samuels call this for will I are there over questions And turn remarks. to back

Jennifer Martin Samuels

time follow-up I us all calls. know join you for I any it's forward to busy and Well look thank taking a day, the to so

Operator

today's This conference concludes call.

You may disconnect. now

SM Energy (SM) 2 Aug 182018 Q2 Earnings call transcript