SM - Earnings call transcript Q4 2018

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Operator

Good morning. My name is Judy and I will be your conference operator today. At this time I would like to welcome everyone to the SM Energy 2018 results and 2019 Operating Plan Q&A Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. Instructions]. [Operator you. Thank President, Vice you begin may Jennifer Investor conference. your Samuels, Relations,

Jennifer Samuels

and Good for Judy. you, thank morning Thank everyone you joining us.

As our to results materially expressed advise involve risks making start to regarding our I’d differ we and may forward-looking These plans, we implied this or be statements performance. our during forward-looking usual will results statements cause assumptions from about expectations that statements. the future you in before that call like our actual

should the you risk forward for risks, to to these the our XX-K about of discussion and factor a website information refer looking Form our press that cautionary For the the of call this release presentation was in section statements just from yesterday, posted filed.

financial in call. for are we metrics those these non-GAAP measures are GAAP Reconciliation most of about in We that evaluating release to performance. and our will useful this the directly measure non-GAAP described measures comparable discuss believe our information also other certain press

answer it Officer; Here Financial and I’ll back Executive operator Chief today and with with me Operations. Vice Vice President And questions. open Wade to your questions Executive President, it Officer; Chief to that, Jay Vogel, Pursell, up executive President Herb for turn Ottoson, are the to

Operator

Instructions]. [Operator

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

is open. line Your

Michael Scialla

Good Mormon everybody.

Jennifer Samuels

Hi Mike.

Wade Pursell

Morning.

Michael Scialla

and half ‘XX here the You reach mentioned of in growth both sustainable free the the beyond the flow release is and to goals second flow prepared one of free remarks that that. and cash cash in to

of what growth thinking cash are growth to it ’XX? XXXX flow beyond you sustain spending looking free that in did are for terms and would versus kind of Just for? cut are looking you of maybe at, what take wondering kind you you spending in ‘XX What how

Wade Pursell

standpoint, then continue is mentioned percentage free similar goal to CapEx high cash and flow. years I out and being a in its again growth the digit annual think it’s a growth I level the From like Wade. Mike, single generate

Michael Scialla

higher rest at Okay the than the and year. specifically, the looking like it looks is of CapEx XXXX quarter first

I know and completions it rig. a sixth in first quarter. I’m your wondering, like Just adding are looking you actually slide the at are lower XX looks But

the driving what’s the there? CapEx bump wondering in Just

Herb Vogel

this Mike, Herb. is Yeah

is look the half about is same is to at, CapEx, really last is which a our it’s XX% XX% as the So of way really second first year. it’s about and about half the

you This than So first it’s in actually just budgeted. quarter-to-quarter – you know our ground at We’ll year we've was look come more I’d pace a at the But the the rapid bit. we in if the hopefully year on that see it in quite quarter how second the completions half as the depends last first XX%. half where it it’s XX%, increased you in budge and on look one. many in pace split pace had quarter-over-quarter, we put we actually really know

Michael Scialla

do so particular that location Ford. drove be? I pretty know have that? of last play Eagle or know viewed results a from could about you are then how the you I ask least more you play it’s sports, Chalk. I on the to traditionally want what thoughts? been one on to that well Looks just And discussed relative Okay. kind that sweet think thinking you How you relies Any at well like the a it’s there. me, but one a interesting the to and as far, about conventional widespread maybe

Jay Ottoson

Right.

are with than we Chalk Austin what we and we’ve the one On pretty actually that just actually data have seen well. happy more

was and then one in Northwest for those where our the I the lot map, showed think then yields data that’s almost the a XX% of on this Ford and Chalk I you lower got the and penetrations really and upper and to partial know NGL to have Xx have we the Eagle we first Xx, entirely and we really to of We and were yields dedicate happy XX% of see of three higher.

really development Austin between our pretty is So well. at upper how forward do mapped looking going we we we're Chalk it what integrate and have and lower,

penetrations We Chalk. have in a lot of the

next So want the not will account because well of a at want a to longer lateral, be are and way but we looking get yet, to quite all see we is more we're there that we upside, at to bit in well having going this how does. which

Austin that's Chalk. the the So color really on

Michael Scialla

for that. thanks Great,

Operator

of line from Please line a Pickering. go Tudor Your ahead, question your next Oliver Huang of open. comes is

Oliver Huang

everybody. morning, Good

Jay Ottoson

Oliver. Hi

Oliver Huang

checked, your in two location the us references perspective the aerial activity five and account? also an levels that to three half. for other in into and factored XX your you of all risking of drilling cost economic there four Could from I XX current walk Permian comment is any years of to and zones through to sort perspective at if Last XX% acreage with inventory

Herb Vogel

Okay, Oliver Herb. this is

Spraberry B. let know primarily So last Lower less activity go the what in is D, Wolfcamp so But we completion. traditional of year, one there’s similar showed offset at number on Wolfcamp year the considerable Westside. to Spraberry, real its the and know the where look overall that, over and me Then three we Middle A you just been Wolfcamp you

also So there Dean. is

side, then on levels its we’ve risk because and the say and basically then east we D when move of certain is you got three where don’t and the have we and to mainly go areas generally you some us. spacing around And the So distributions of well plus there Spraberry sowing three middle five, control the that’s Wolfcamp two how much really basis which Westside, areal for to are those areas the risking we side B’s that there. and

have that and data Wolfcamp know spacing Did the drilling If looked done it’s less little, has wider out obviously Middle de-risked. much Oliver? the a County Howard that XXXX, Spraberry we XXXX, well intervals D. you really in been like is in how help at in quite There you have

Oliver Huang

Yes, remaining Eagle it follow-up, inventory, Henry your that you blended if or the that’s in also call ROR available XX have was my XXX Permian might for for number perfect. in be WTI just with Hub the and at whatever and you all And a wondering Ford? that readily have

Wade Pursell

so we really do the Yes, it for overall. like that program

are For price XXXX XX% deck. on our that returns over

Jay Ottoson

And the slightly the than Ford, that’s Eagle Permian the outlook. will be higher really but

Oliver Huang

that you you have, longer are what that And changed from does drastically all the term in all drilling XXXX? inventory has

Jay Ottoson

I change. mix No, the will mean

goes or much You we’ll or more as Dean, know have D have but that later on. in ‘XX we the don't Spraberry Middle time way Wolfcamp of in of

we return wise, methodology, focused and we're decision know you what that better you that's are really designing totally and is the XX% with only well returns we focused know on. there and or spacing returns last the are Our DSUs

you'll because So want peers, we We type our well NPVXX of and XX% see spacing that last really go the little drilled. to of the that return a wider than don't bit some methodology. on

Oliver Huang

you perfect. very Okay, Thank much.

Operator

Your from Please of the is Instructions] question go Grigel Paul ahead, line comes Macquarie. of [Operator next line open. your

Paul Grigel

you bit is kind on helping Should show to Hi, building XXXX of maybe following we just lower pads? end or up of level Ford DUC’s the your first as related view into count. into issue guys a XXXX. that spending On that tailwind Eagle that with a a on into XX timing

Jay Ottoson

end It's ’XX; just DUC I the I timing. count ‘XX lower. year just slightly mean it’s similar, quite going into year-end it's from Yeah, actually remember so

Paul Grigel

higher Okay, you cut the focuses throughout and year be of of the the throughout mentioned XX% XX% more we cadence kind to increasing oil then maybe given How mix the in thinking guys that County should oil the Howard the throughout there? year, year. about versus

Jay Ottoson

Yeah, straightforward. it’s pretty

You from where ‘XX just drops know condensate in because to the XXX,XXX where are Ford. barrels in little a from we oil the ‘XX bit and lose Eagle about of we the Ford Eagle drilling it of that's

that's component of change. the So one

program we're it's on Permian GOR to The in where that other of story but XX% ‘XX a drilling, there. primarily is, a oil from just you the just oil with normal XX% goes that's little that get so XXXX is bit the as goes all time increase It overall. well, and in is really slight the

Paul Grigel

Okay, have you the program. and handy? the program PDT decline a then PDP Permian lastly decline to Ford to Do guys Eagle make reference you the happen rate of

Jay Ottoson

It’s in it the at side. see so you'll there also,

year think yesterday. the the second XX% I've and its year, the first got remarks it on I put – I

Paul Grigel

much. so thanks Okay,

Operator

question comes from go Please Michael the next line McAllister Your open. of MUFG. is of your line ahead,

Michael McAllister

everyone. morning Good

the time program are and leaning, grow so is set going you to or and metric it is cash the the cash flow the EBITDA free beneficial into hopefully the pay free should where looks and higher, time is more keeping of With better? just to it be the that up things harvest debt flow XXXX to or kind way down way it

Jay Ottoson

I From think that’s cash no use term of question. debt. free standpoint, in Yeah, near the see you'll a a good us flow reduce

leverage know you'll that to first. us to area, Xx us, goal into get so down for level using pretty cash to so is important a goal down get the you Our see free into flow the, that's the

Michael McAllister

But increasing on an absolute denominator? basis, just not the

Jay Ottoson

would I’d debt. absolute Yeah, both. it be No, reducing be

Michael McAllister

Okay, okay.

Jay Ottoson

at flow cash you’ll obvious see a… growing And same the time, so

Michael McAllister

know to level. absolute Yeah, just I combination, but the then a want

do balance asking hopefully increasing little say size XXXX, a harvesting that as it CapEx know to a a that get it up goes bit could get or the it let's guess you that? that and accelerate bigger I'm to get would know you can Permian to idea – How environment as in the higher you with a is, we you and want So, point to you – activity an get do to increasing are to XXXX, know price where I were the is what in you oil grow at and you efficient be have base. you you the of where bigger by

Jay Ottoson

maintain would spending little I levels outstanding and right that first, forecasting the be exhilarating want goal we’re now then you of versus think absolute more. We out lower. debt of temptation bit absolute reduction know and debt get the to and reduction the a

flow be whatever then of use higher commodity and a to great. would price, more cash going we're So it's because if free that

Michael McAllister

you Thank Alright, great. very much.

Operator

line question the of is go of Stark from line Please Remeny comes Your ahead, your open. RBC. next

Stark Remeny

have Hey the for processing any just level the do final when of measure are questions. provide in guide? was you is Permian. quarter clarity do hoping a natural you into around gas first commentary taking you to force and your impact be what resolution – or my on I might thanks some guys, factored you When expect the able

Herb Vogel

is Herb. this Stark, Yes

in different the So mentioned force they we were two the fourth measure quarter, plants.

One of online. back is those plants

The the that that. around that usually management the by that they company expect you February online other some of we've end of to flexibility back told and have plant, plant there's been by know

impact equivalent a the take we fairly February if that end just bit longer, then from can basically modeled plant online plant of February. our but following it that see and come from middle that we've more Sometimes of they little then a no about after shut-in obviously the – through shut-ins $XXX,XXX

Stark Remeny

then I Okay, give about think guess on what perfect. any activity how then just Eagle say on JV And we you Ford, the activity beyond and XXXX? color you've should seen on can

Jay Ottoson

first so Okay, the JV. go let me on

know spaced real initially also a wider pleased partner, you optic a Together data our we the did we data bit installation. of we're quite did JV and design. we really putting the in. So optimize the lot fiber started gathering helped of us completion We Permian that wells got with first

with extends So on see results those wider of to expect wells. into middle as the into XXXX that wells XXXX spaced get from late we and more we

So We're analytics it going it, lot beneficial. there’s into quite data we a of view that. data, looking at the as

gotten see that then we we not. in, that and When now a can activity other do we’ll more, JV lot we see value have that, things don't but XXXX we factored JV go terms the more we the we've straight we whether forward where would know of. doing consider Looking or than ascribe and of right in

Stark Remeny

very Okay, thank much. you

Operator

go Your next Stifel. question Scialla ahead open. from your Michael of comes you’re is line of the Please line

Michael Scialla

it on drilling Ford. JV looks you're of year. the just Eagle Outside to Yeah, doing the follow maybe some like this up

primarily you in well wells the there. going Chalk SM mentioned only or to are already, other be some but Ranch Galvan drilling are those You

Herb Vogel

So, or are drilling you saying completing?

Michael Scialla

both. Well,

Herb Vogel

Oh, there the East okay. Ranch. are there, Ford Well wells. a difference yeah, a the than more than there there of Briscoe some well Eagle but Galvan more North I’d there’s Ranch of say our The XXX% North, Eagle Ford little is Ford although Eagle bit for

Michael Scialla

feel you And enough are to primarily North that like area or Eagle Ford those acreage wells from that JV now learned you've same competes. the

Herb Vogel

No, are definitely these returns are wells. for content high they and liquid

allows have So not drive for these there saving us to agreements acreage better which out that returns. are about we consolidation

Michael Scialla

set, spacing your on mentioned XXX you feet and in zone. Okay, within the Midland

what testing I comparison, XXX. about if that and there. so think apples-to-apples in you an talked spacing the previously increase tight as drove as Is

Herb Vogel

you the XXX, as we're in within within zone average XXX as so so our XXXX know XXX range average and there's entire possible acreage the up XXX’s an and and way some to spacing XXXX wells just pads for and program we two So where is have to is we program of a and number the do all the to we’re of much acreage holding at there. where hold XXX well are those areas zone

That counting So at they so within sense? just can you when other, quite that just can not – the that makes almost know stacked be that's you each we’re zone. you some know over zone, in counting not way, XXX the cases we're stack, look program, entire it it actually within and you but

Michael Scialla

not Okay. Yeah, your development spacing… to anticipate what be the necessarily is so you XXX I final guess

Herb Vogel

it's you now Absolutely hone area that No, that returns we it well and so fundamental XX% are by have of know than really interval customize last can very greater not, that that we getting drilled. much we those much in conclusion for and no. data on

we're So side focused returns the it's really that on.

Michael Scialla

this a that like western the estimate XXX at least for and looked good at still acreage Okay, point?

Herb Vogel

of go that's Depending want on that to data return return, we’ll intervals. like and that it getting we're sort looks and work the higher obviously and going okay, we one and is a of do where do. is evaluation decide, two that more be we'll can it XX% or to more a Yeah,

Michael Scialla

Okay, revisions performance in add more. any also some there? On nice you had and addition, boe. reserves have but related million just then one approved that Was XX to you revisions related your of or price

Herb Vogel

that, know in that development the you Ford. of the the redesign the Eagle of So lion's plan revisions share originates from

of existing those higher of wells, the and and deem actually Also those we’ll you and barrels. XX year cases spacing eliminate PUD the we the with revised that returns some in rule from widen PUDs we of wider and kind we call those what plan, when so locations it’s a – that’s out got development revision, of in that some removal we So our PUD that's the horizon, million because year of the in revisions, space some five then move five XX barrels.

and to plan. some revision the the is – Eagle So in it's the most of Ford development related

is the but Now Permian, there's some smaller plan ones development in in Ford. the thing the Eagle key really

Michael Scialla

Herb. Thanks good. Very

Jay Ottoson

Okay.

Operator

are Ottoson, the there and questions back in no queue the And time. at this further Executive President I call turn over Jay Officer. to Chief

Jay Ottoson

want just in when your Well, I forward thank you you and quarter our again for results. we again. have talking first to to company interest Thanks our to look I

Operator

call. This concludes conference today’s

may disconnect. You now

SM Energy (SM) 21 Feb 192018 Q4 Earnings call transcript