SM - Earnings call transcript Q4 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day and thank you for standing by. Welcome to the SM Energy’s 2021 Financial and Operating Results and 2022 Operating Plan Q&A call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Samuels, VP of Investor Relations. Please go ahead.

Jennifer Samuels

you. Thank thank us and call. our for you morning for joining question-and-answers Good answer have CFO, Vogel we questions Wade President To today, Herb our your and CEO, Pursell. and

forward-looking include that always, I measures. Page to the discussion As X remind of you and you X cause XX-Q, slide will of most recently today of I direct our results Factors section which risks the describe of may accompanying could accompanying forward-looking Slide earnings release and non-GAAP statements statements discussion associated differ. to with XX-K actual Risk and our that the deck, filed

We measures and accompanying to commentary. directly morning. will to filed slide reconciliations to of Please XX-K and of earnings our XX measures. the forward-looking Pages XX look and will accompanying see for to non-GAAP this XX over opening measures Herb slides most a also refer Also, comparable turn deck discussion non-GAAP of for in measures. definitions through the for XX it XXXX the I With non-GAAP that, GAAP brief release

Herb Vogel

Jennifer. Thanks,

gravity First current to want acknowledge of off, the events. I

Our of central geopolitics plan the SM the Ukraine. is people prayers reliable, sustainable Energy a to importance macroeconomic range affordable in scenarios, positioned providing maintain while under and of gas and a go long-term out Oil to are of recognizing energy.

production Second, add color our of component oil I guidance. to the like would regarding some

of the X-year I NGLs say plan Importantly, and flow. free quarter. gas components optimize cash oil, we are will reiterate of to something and Production outputs our every

year, last last on oil last allocation One, and CapEx attractive Two which impact production XX% mix cash of this the a to XXXX time is over Midland year orderly plan we year, free than completions XXXX Texas, to free things had at of XXXX, in rates. flow our two, more result in same the highly expected Texas of South that the in natural year. phasing XXXX of the cash and increased Our the of quarter plan yield. the and gas capital moves freeze flow NGLs was are going XX% double delivering the unique to versus first roughly

Some key in wells and a two year. in quarters, The net the in third Midland of completed to total XX keep quarters second Midland We wells the X we mind. Basin. last points subsequent in complete

rate new to XX% is The XX%. on decline first approximately year wells

of So, simply you a XXXX. will in decline Midland half the in have production first

South a of capital New oil, Austin increased Chalk have changing wells contributes level. company gas. to the higher and XX% gas The average, allocation on Texas in XX% projected mix at and therefore XX% will, NGLs the mix NGLs,

turn comment early yesterday not that Basin In line will the XXXX that a from wells will capital portion of XXXX. addition, spend the repeat I Wade’s includes Midland capital our in for XX until good in

So, affect again, percent timing that it’s the will oil in XXXX.

As with we returns Midland in our Basin. actual performance, the well compete Chalk have with the demonstrated Austin

build to Again, As of opportunity X-month shown Chalk and to Chalk well. XXXX creation wells take I cash Development roughly output. average expected to that highly our a for have an it will where realize plan to value production Austin we Thank free flow first high is return to NAV our a Austin efficient, question. is the is payout are double back year-over-year, you. shareholders. expected because operator the the operating in deck, per have an And turn sizable

Operator

from question Gabe your [Operator Cowen. the with Instructions] And Daoud first line of comes

Gabe Daoud

Thanks. Good morning, everyone.

of have how to baked just fracs whether conservatism also little downtime of just on kind a now, maybe just PDP standpoint, dig a a can more in the just offset your guy. sense comments appreciate you we bit I get for the last what’s night oil or hoping guided weather all it’s volumes trying Chalk remarks Austin in Just the what getting or been with and sense, from just capital allocation little would but program I to have trying Midland Austin to. obviously you a that would a to bit increase Chalk just that wells even handicap plus better better. given first events improved the thought because get the just in had

just So, could all, you in comfort a around of is maybe guide? if give little us much, baked conservatism at bit how the

Herb Vogel

Yes. Herb. Gabe. is This

direction really it’s have just a any have It’s had aggressive in We and events, we how from new been more, if like anything on don’t we shut well have fracs performed. and they we have normal something very and fortunate assumed have certain in wells offset And assume then we number to less those sometimes So we is do we offset performance where to is with do well is operators sometimes those performance. our of way. influence. in design, completion – normal With then there there what outperformance one weather normal steer conservative where expected be. basically or Midland-based can

the operators So fourth less were helped offset in fracs offset there us. that from quarter, and

Midland really in Basin. had the also weather We good

things, So, trying or be aggressive. to conservative anything we those trying key do be the but don’t to are really of in terms

Gabe Daoud

at Thanks. output output capital allocation coming. free of is Okay. There of still helpful. That’s production what is lot And regardless is of as mentioned, then just framework. you an flow it cash the a your

whether return once EBITDA around get you of about Could talk your of once Any get talk just next there the free holders? it’s we equity capital use you cash about there? you debt which to maybe figure, thoughts targets, kind maybe just to leverage get quarter. net or you flow one-time steps think could to you So,

Herb Vogel

hand one this over with got I I pleased just then just it this Wade, but fast would really will will say we on we are start I point. have to how and Well, Gabe, to

We are way our expectations. beyond

ever performance we expected. shareholders a than I’ll to turn commodity has best And are return capital about it got we thinking are to Wade to time. thinking And and about over be some the point, our with much perspective. what just give the enabled obviously both We really but of prices, to Basin the over tailwind Chalk this from means it Midland for have just of faster us at

Wade Pursell

We think well. important and to which quicker, at I get us, But sure. Yes. look I’ll out, mentioned, very a mentioned time Good Xx, to of think, that’s quarter again actually is are important laid getting the down I the call we guideposts but reiterate and want exciting. to we Yes, last then on kind And is really, pleased de-levering But as is mentioned really we going. first I it very we’re just we that how for question. as also debt yesterday. absolute that there few

So get $X to said basically, debt. one one Xx in we and absolute down billion of

quick to assuming you the at sometime as there So assuming that it Xx, year, $X the around mentioned, conservative are next which or year. maybe strip, macro the this compared today’s the this And prices is of like just middle assumed, billion, looks I mentioned, something towards the early somewhat coming we hangs forecast, pretty probably. our in but think end looking the I of year

it would it’s what – potentially dividend and to will think program. those be ask appropriate or And which buyback declare one a get and love certainly So are. People close right one early the we start considering of to too we I meaningful the to of one. which think we – as those will includes that the options start that, we horizon, is on

valuation compared big at stock think NAV to factor the I a is in time. that

would contemplating factor that start be So we a when decisions. those

shouldn’t our be – buyback, to – be the answer I think given stock if today, but we color would a to of Just I it view today. add that, assume to valuation were shock towards NAV, would that’s we versus might it considering anybody theoretical leaning

answer get to I think reality. it when will more be a closer we prudent

Gabe Daoud

Thank I versus is And you. no color. before to in go, great ‘XX difference just way past, there prepared you just years guidance issued so That’s the or confirm, right?

Wade Pursell

Same consistent approach.

Gabe Daoud

Thanks, Awesome. guys.

Wade Pursell

Yes.

Operator

William your Stifel. question with comes from And next Howell

William Howell

more you’re morning, wondering quarter. into where good And on My XX% are baked bit little efficiency remarks, about much you that? guys. that? have factored Hi, prepared talk the I’m is about inflation. first cost. inflation into on well a question seeing Congrats could mentioned gains you that if In you how the

Herb Vogel

topic the definitely, of year the Yes, William. Thanks, inflation.

last up – of half, at having we’re through we degree for the availability activity when look is terms in need ramp everything of first probably positioned almost And in So chain, well some locked did seen what you’ve that supply definitely the to everything year. we us.

we like we prices are XX%. seeing over are in up. So the a lock are don’t side last continuous recently with diesel drilling rig where inflation, side or in are what supply as contract. clearly, of sorts the those what But the to oil overall, we’re Labor, diesel, much increases year, know prices you do baked trucking, cost Steel obviously, the geopolitical The not if the completion those chain. and going program run up. events we prices and things, on know areas spread that up, on

an what that’s which we did right based were bake But So on seemed we XX%, reasonable the in at unknown. year-end. seeing

William Howell

other it. the Texas. capital my the of about question is to decision got half Thank And you. Okay, allocate to South almost

the how little Just stacks bit against long-term Midland of up economics Basin? that talk see there you a about that and more the kind

Herb Vogel

Yes.

So we’re really that’s what pleased about.

are at giving start we this seeing based shown And commodity of the from Chalk. for addition last returns, of and XX price they Austin in year, the we’re potential have Austin we’ve now results the Chalk a comparable year, saw over NAV had producing. recognition that we So the time, big that on wells environment we end

more So Chalk the had the year. last we’ve allocated XX% than capital to of we

Chalk, returns returns mix are different, to XX-XX but the between somewhat from the went same. are The we to So the two. accelerate recognition the very and is that of comparable XX-XX commodity the

William Howell

thanks. Okay,

Operator

JPMorgan. Your Parham Zach comes next from with question

Zach Parham

Thanks for question. my taking

the your guide on decline around rate I could base to oil when line, at Really during quarter oil decline XQ Just wells. about the you reconcile a year-end? sequential oil that a Maybe implies bit of midpoint a as turn in think, XX an still going just XX% follow-up trying to little in for the you’re guide. and talk

Herb Vogel

heard your question there. I think I Zach,

basis we that on quarter, But turned slide fourth quarter XX%. XX In five. four. the in showed year in the second quarter, last here we the base a year-over-year, In we our on and in turned is on wells. key So first the is Basin, the on deck turned the third we that decline Midland BOE

in XX% unconventionals. up a start normal that QX, XX% they on wells are to like and QX annual those decline So

So decline. see rapid a you’ll relatively

back of versus wells Midland the the really seeing this come dip in wells. XXXX. the will we like those rapid new the last certain since year. is why are that rate decline and more event That’s wells program, you NGL-rich base a you oil quarterly gassier first are While And see Chalk XX%, in of freeze then at It’s around. half it don’t of phasing have a decline, Austin because

Zach Parham

for one it. guess color. on cash return. question Gabe’s Got that And following Thanks on I up just

You out leverage one have of leverage hit also of reach both would Do got consider of you once cash target the you return or targets? reducing one cash sheet. considering of there for turn to some those before return, balance debt $X billion you the level and while want the

Wade Pursell

would the mean once and we to Yes. – way good we there I something I both meantime. would wouldn’t start second both. them put the target. the that. would say guess, out I reach say, in one, is reach want approaching generally doesn’t as a start We one, speaking, I we considering question. It

Zach Parham

Got it. That’s helpful. Thanks.

Operator

question Instructions] Karl from next Blunden with [Operator Goldman Sachs. Your comes

Karl Blunden

sheet M&A, but if I about morning. hear when of at in with the a come all? now for didn’t better into that time. Good consideration, Thanks a Hi. balance position, discussion the does lot

Herb Vogel

for thanks question. Karl, Yes. the

So change any a for our really consistent see pretty position in we over don’t we and been the have need M&A, there. time,

of about to sense. have sense, considering to some are at we we open assets. have high-quality that talking So are are And to all, when say first acquisition what it and really open makes the we of we looking approaches, an makes really

out So, that acquired or in the several have there. the We to returns diminish the high want acreage our don’t years the because where able returns portfolio for drill we aren’t you to portfolio. be wouldn’t

levering basically it from should then Second, earnings flow leverage not standpoint, be be from comparable to And standpoint, cash standpoint, up significantly. accretive. have us a so an

on are the impeding us those our quality, leverage we flow So, from standpoint open. criteria, and standpoint, a really but then us out asset cash are not helping

Karl Blunden

That sense. makes

opportunities. different You is the get reduction, about a couple and for When different of think this, have encouraging. a debt about billion there, outlined plan $X you to you which parts reiterated of

bonds some in have XXXX. You due some XXXX, in

those coal the of prices. paying NPV Some in higher about have on high internally? coal calcs ‘XX price? you prioritizing do How you do bonds how coupons taking Just go interested high versus

Wade Pursell

outlined of kind question. summary And Great Sure. Yes. a of you it.

but make mentioned We second there through out capital have the move high that will take mean, notes, forward math the to standpoint, is the and walk just past, From generating kind as the a get most I in notes of sense. cash year, structure. of obviously, a have we we the those – free I lien desire the out also

So, they months. become callable in about four

a we – middle of down are The is And of towards then the callable but those at are year. get think paid approach the moving by math will the we that year, as – get you target, those to off. So, I they this as get run closer. you get notes, ‘XX they we the into at And time the on are the XXX. ‘XX to unsecured callable on XXX.X, midyear, we end

and it’s have to the get to that always get – So, level desire Hopefully, I to. the we compelling, we options the down math compelling are cash with be always to going to to going debt is helps. think

Karl Blunden

time. Thanks helpful. for much very That’s the

Operator

Your Nicholas with next Seaport question Research. comes Pope from

Nicholas Pope

everyone. morning Good

Herb Vogel

Good morning.

Wade Pursell

Good morning.

Nicholas Pope

you repeatability I is what’s of knock bit talk much been. like like have hoping Chalk how a formation It been the kind there? in of Texas down the performance of understanding And performance – past output wealth? results on was Texas. as you across that could And look consistency really has the what’s spread kind kind And and maybe in Louisiana and bigger feels guess, maybe I a of of performance. a changed consistent have about how South Austin that’s little

Herb Vogel

a I will that’s you And great give to a answer question. that. long of Nicholas, kind Yes.

done with so have the we we across our XXX through extremely we going the had First of And science are map of we position, starting well. entire Austin science to and core. of amount to can drilled consistency have Austin enormous just Eagle all, the Chalk Then we it also more wells Ford get Chalk, data. data, an the

look quantity. yet you factors. at big But variation completion. the consider you have when not We is fluid optimized there two is have to the our results, One in

Northwest, higher the it it’s NGL-rich south from as gassier deeper east and move gets pressure. So, and you as and oilier it gets progressively and

and be variability, that’s So, going the is there very to variability fluid-type fine, predictable.

you would will narrow The other it’s Texas what would vary. lateral Chalk seen a is developing PXXXX is at in lengths XXs. the the And really have per been then the late the East performance. lateral X,XXX Austin from much we there, feet look And have than in I that

predictable. a and compared properties So, were predictable, Chalk lot that well, it which was old, Well, say, quite of uniform Austin are wells. for the fracture more here, people of actually the unloading system – and knock, days the it’s quite it’s not is a to

I that helps. Here, it’s consistent. hope much more

Nicholas Pope

my Yes. four That’s in have outperformed mean I for quarters great, guys actually. a kind you of row. model

That’s how the trying just Thanks. a time. of appreciate I So, to little is. get had. understanding repeatable I all that

Herb Vogel

Thanks.

Operator

turn remarks. to Herb the President now for CEO, time. to closing like and We queue this back would conference Vogel, have at in questions no further I over

Herb Vogel

thank you, the wishes you Best rest of Deb. year. all for joining And Okay. for us. Thank the

Operator

And participation. does this conference call. ladies gentlemen, Thank you your conclude today’s and for

disconnect You your may now lines.

SM Energy (SM) 25 Feb 222021 Q4 Earnings call transcript