- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the SM Energy Third Quarter 2022 Financial and Operating Results Q&A. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator President Relations, Vice may of Samuels, you Investor begin. Jennifer

Jennifer Samuels

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

most release usual, to differ. section that, deck, Herb our forward-looking and discussion third measures. filed measures. morning. you earnings risks the Page the Please include recently comparable for to We GAAP X appendix As of today non-GAAP X And this of of commentary. Also, I with earnings and and look non-GAAP turn for to over statements we of release actual our brief discussion statements get XX-Q, deck also discussion will and may before results and see for the Factors forward-looking may the which measures. measures with Slide associated of reconciliations our non-GAAP most quarter that measures the direct refer to directly Risk and filed started, cause accompanying it slide could definitions I XX-K accompanying opening XX-Q to non-GAAP of slide describe forward-looking

Herb Vogel

Good Energy morning. morning. for Thank you, us in SM you Jennifer. interest and your Thank this joining

return have our to of and exciting capital reiterate expectations. We reached ahead pleased time like initiate really program business I that, very would a for our to we are of

flexibility to first that, commodity now earlier-than-expected gas, acceleration We our line $X assuming With it was let Our us oil questions. designed program the Emma. September stronger dividend price for of increased to dividend turn gives initiation sustainable $XX gets which a including of repurchases share Emma me next buybacks. upside our open and fixed environment paid week. in in and

Operator

Thank Instructions]. you. [Operator

the Parham of from with today question [Lynne] JPMorgan. comes First line

is line open. now Your

Zachary Parham

from Hey, Zach is guys. This JPMorgan. Parham

the drivers true cut on and XXXX? you guide, the moving cut you of which we about lower to oil the as the move XQ that moved how wanted to can oil lower just and little First, into in oil talk cut, just do ask a expect

Herb Vogel

Yes. variations Midland on Zach, it quite in many of that driven is in completions and versus But completions is two the be on is a Permian. areas. we difference. it driven just between longer-term ultimately the bit. allocation South by that a don’t very are really are capital make a those look how And how Texas. between returns going comparable come to We know Texas and come really by important quarterly South hear very returns it in We many and at the kind just question the

Zach Parham

cash And on particularly then just buyback. to shifting it. Got return, over the

talk that about and be you You opportunistic out? buybacks $XX to going the when utilized forward? pace buyback going million did that in purely of And about in is are or systematic you Can September. blacked not

Wade Pursell

question. systematic great is be Wade. say, but I would This will Yes, opportunistic. very and methodical, also it somewhat

That that that. we overtime are we will take is some certainly right it. each We and certainly just a on harder that always days, done But of makes now. say will and be way it I NAV the we play would We quarter and believe down trading will do view we it the will easy. below have looks

Zach Parham

are buy a quick on you that XXbX-X in follow-up. periods? blackout plan in putting can you when back stock planning consistently one Just so Are you

Wade Pursell

not. And that. change, right but is I done that currently not now, the have We that But plan. say, not could would

Zach Parham

taking my for question. Thanks Okay.

Wade Pursell

bet. You

Operator

comes Rezvan question of next KeyBanc. from line Your with the Timothy

line now Your open. is

Timothy Rezvan

felt you that And proved proved zones details Flank some up what you if Hi. high to or more of release? the you Good call on morning, the three release, Pac. Western Swedish that provide why out you everybody. in need In mentioned your curious essentially wells just press could up the and performing

Herb Vogel

closest wells they question. the the three Yes. mile were zones outcome step-out our from wells. West great to pleased were Those of were one and the and in with we producers, a quite Tim, three different

is So called why out. those we that

Timothy Rezvan

and information Okay. pretty any And that on do the have zones you acreage you much how tested well? maybe derisks

Herb Vogel

So one been is area moves previously. others in category, Spraberry, possible And or the middle probable proved Wolfcamp to would it and Spraberry is the have A. one lower an the just that

same the concentrating parts. more development are is in it on the have which been is less or what doing, So time, we at core we

extending also that. are and example boundaries our is that of doing We a great

Timothy Rezvan

follow-up, well wanted degradation. about big on the Midland if lot A in color. for And I you a of the to it. topic touch Thank operators talking my on Okay. Basin are

of been kind overtime. You your have to all impacted results less looking at seem

So curious thinking of think just sort issue sidestep have are that kind forward? of you how and going you this I’m you about how

Herb Vogel

an question. that Yes. is Tim, excellent

on the how where spend think and and spacing the we where Midland with slide, where vertical I I are to the how the the our show is we ladder cloud have the deck DSU, the potential that we with is think oil is the all to the in kind of get And So really much and ability and if out designs the compared proprietary time deck you interference. whole place well competitors we we much look have of each we zone, to that completion by Basin. tools wells driven each horizontal part stand our in of really fracs modeling developed is tuned one the in that in

having So predictable is ourselves as that why we really view wealth.

have them. very with lateral foot is a on per per predict we we always expect lateral spot the a basis delivered. it and well basis. got on If fully is to us, what For Their on length easy performance

So that is really what drives it.

Timothy Rezvan

just I if then on And Okay. that. could follow-up

the over have next spacing are those you years up you spacing last the versus couple Your are thinking consistent about of any years how two assumptions changes? or made

Herb Vogel

on and these after all less less DSU years out each of tuning year. is by there lined basically have tuning, We going and

much are we pretty think right on. I So

done have well the Those are with really Dean wells. outperformed. really We

modified And so saw some particularly zones that we when performed we well.

same. entirety, Thank comments. in you. minor is Q some done the the Rezvan much it pretty But appreciate I Timothy have modifications. - We

Herb Vogel

bet. You

Operator

Your Daoud next with from line Company. Gabriel Cowen and comes question of the

is now open. line Your

Gabriel Daoud

how Hey night. if of remarks chain supply the release issues right we a of in could expect I on in was and like guys. here. come XXXX? should just prepared were frac all to the some these month offset of the issue. all ago, anticipated wells Gabe weeks maybe can that last the push pretty referenced an were curious about a on then I it, a start ago the to Thanks the to maybe you couple we also that the long guess pre given and just nice think for get update linger or year and issues

Herb Vogel

down. Gabe, differences Yes. turning sector, zipper production to finding from the or delays labor If about question. offset really wait got is fracking down. job, folks other cover was final inline really great challenge. difficulties fracking. The We even have slow where supply there, us has tuned materials well And from and out expectations. the finely we a us keeping parts provider is, on the we slows are that counterparts on that is chain that activity. for site when And And especially whether XX% in XX% when then that service if and that required or for and trucking, the there another experienced we is put release the slowdowns out our early to instrument from can about are that really

more a So years those we in at what several of in the is now, on activity been online expected. number South And quarter that have is couldn’t online those sorts really than XX, that. the are with the but of driving later but of then fewer Texas, level now, completions completed for are yet things already some has come. Overall, Midland in Basin, we the the highest to and two brought two came

just base the is timing our one. outlet looks is. the that on great, it what matter So of is a That production really story but

than three actually have in the accused we that of is forecasts. to been activity, that being On And is it in conservative funny quarters offset offset then funny into our of offset our it than quarter lower kind estimates. conservative, a this the baked had that are kind we expected, accused higher what was we of and row, while was activity activity we

times, not really at and do we much happen will it. that can about So

Gabriel Daoud

to Maybe get accelerating Thank helpful. comfortable got it. Okay, what see either and it. you the you. That curious, great now do just with is even maybe, to have just raising or it buyback color very on

a and so. price conservative noted, pretty or showing is You TI calendar $XX XXXX it on deck

exceed side something your obviously, is to be So or that or the about to to like pretty long on are close debt you is how target. it sustained,

what maybe to So think program about Thank see? help you to need us just that guys upside you. to and

Wade Pursell

question. Great Sure.

are As on you and right move debt, leverage that will say side forward. and mentioned, of around now all we kind net billions we well the target right can our I of of right below at is the one-times

that use our we have you pretty would we levels to sure mentioned, so XX And the shareholders on conservatively commitment deliver talked make happen return about. the will three. We we to to and that in built as that

That our as how of the the too So have But yet. making and opportunities return increase obviously on But flow shareholder will commodity to watch of move we prices forward. move stable other with for we to the we seeing decision like the finalizing go part we free as there any be that plans and you more side. are the stability now. forward at possibility give the XXXX will get metrics generating, being. and that that might a comfortable the indicate we is we any as cash into and to an looking just Can’t the of opportunity right for commodity early levels the in

Gabriel Daoud

thanks guys. Understood, Okay. Thanks Wade.

Wade Pursell

You bet.

Operator

question Oliver the with next Huang TPH. from of line Your comes

line Your is open. now

Oliver Huang

to the QX guide. wanted follow up Just on back

you and initial to prior chain that it or supply the the a XX/XX for having for of referenced frac in Just QX I kind also other? one guess heavier hold Does that expectations encountered QX. QX way issues bit offset mix of to lean does just or compared

Herb Vogel

for Oliver, really we is Offset all something hard would been is say XQ, delays that we to and some when is there Yes. activity turn forecast. in wells is line. can

for use the then So our basically own know we activity, will delayed was do. XQ what offset asset offset asset our we And less we we where just operators know somewhat. then just activity activity, our turning for what model or lines more and did

schedules, But nothing say on of all of their would percentages delay. change together. we one grouped Kind will a I they will other. specific Sometimes versus the that into have sometimes there is

Oliver Huang

players more a frac risk in of makes activity just some the historically in I the That thanks. strong commodity offset question, sense. prices, second kind for per bake but Okay, and And all you know, downtime, in basin. getting

Just in kind other historical XXXX communicated are kind year of elevated all conversations a if point relative operators expecting more just you the of thinking this with based have you about impact wondering time? when that to phase at in planning for next norms on

Herb Vogel

update is an It thing. sort is every really. we on something Not get things will that month that it of

So count to one be it Howard is hard is what exactly proxy. the That will rig forecast County. really in

way Just is There in area. it at count rig more look the activity be going the is in to County when Howard up.

we own So offset because to off we a only directly activity - our where complex got got is really, quite different very wells it South Texas bit have us. is of have

Oliver Huang

for time. Thanks the Perfect.

Operator

of comes America. the Gregg Your Bank with next Instructions] question [Operator line from of Brody

Your line is open. now

Gregg Brody

of terms you Just side, leverage in revolver. have target, to debt below follow-up, down and your paid the your clearly

XXX still the to terms to get in to got you bond side billion million your So target. or reduce try dollars one to from so another debt of

that. way? they about on how are approaching about a on just maturities different you in you come calling us due are to first it you think talk as Should or planning about Just we the thinking

Wade Pursell

maturity. You by know how we operate typically

can are assume reduce that numbers ready when one we to down billion. that the to to absolute you So debt get

and although have well. we speaking of and generally just It is inflation would As would XXs say to as the the probably rates in But to a good with tap We rates. levels that be this It do have just close of a - a interest cash the little we bit time why watch that you time be the on others first like the cash. the rising mentioned, how we that. lot of billion. trading is uncertainty would can one feels we target, that right brakes given now uncertainty

So running that the right of way things kind now. is we are

general will of As we a and forward. more cash forward thinking. as that is kind move we decisions build But than that make we move those

Gregg Brody

that call I in And then wanted some your just you to understand make comments to I had sure pre clarify them.

inflation, you the this to when in average about talked - about how I number. you to I XX% XXXX, said that year above you And So exit you think model XX%. that for rate expected think talking you you were be

you implying translate potentially percent to So patients when than twenty I for that capital may having duration how are locked try some higher understand contracting, XX%? about does in budget and about longer from already correctly we inflation? approaching think and address have what maybe year thinking the contracts XXXX of that you five you how Did to just this are your to

Wade Pursell

that are any areas on we to up did rate on any an let hear are correctly. though. it listed higher. But out remarks. comment too color and Yes. those to prepared in we your but I going are give to you Herb my still that things exit XXXX respond wants, add of XXXX XX% specifics seeing XX% that early And will he the

Herb Vogel

Yes. Greg, the that will on the have add not thing we budget. XXXX only I is that done

We really things are watching closely.

as done will to as on don’t have the it and when chain out. supply no inflation pop We year. much But is is for we there we there going lock doubt next in know can

Gregg Brody

addressed smaller contracts chain now you in had also was quarter? some that considering this providers, occurred you with duration of your Are have the it issues supply

Herb Vogel

are contracts the there. making a the critical then is and have of mix a that we set providers, themselves, sure the point. sure wells, is we can the steel, it starting making service got Yes, steel on the And frac getting we drill

really Stand a supply, because we in lock are are great in that bit longer-term. we shape We good. do

So work up. I it the as we way hard really that would sum

Gregg Brody

Great. I Thanks for it. appreciate the time guys.

Herb Vogel

You bet.

Operator

Partners. Daniel Your John of next Daniel’s question with comes Energy from line the

is Your line open. now

Daniel John

activity Thank the these Herb, in chain. the the if the headaches, you sees quick question guys. to view, of industry you do here, think we just happens another see you industry stabilizes If me. headaches the is across on XX% activity from Hey, for supply your if I XXXX? including What what the will? got X% in ease board, duration a

Herb Vogel

for John, the thanks Yes. question.

better probably looks those it tight that quite what activity, the it is know have like. of obviously were if is than areas You areas more tight and there are anyone There hypothetical inflation. on will increasing

are think the ready don’t I think side. the often. if there E&P service forecast to bit discipline side going a forecast of But I is quite are think cast. is thing and on that, the I you we to forecast,

then are And where to in with We and those and relationships on we put our key a with focused go our going budget But expectations that, things will materials. we together November will see through service and suppliers providers timeframe. come. with we are January

is I that that. just what So say would on

Daniel John

are on we have a evolution you got any you I enough. often on designs? well testing completion new the of Where dumb question are picture guy designs big thoughts Fair for Like now. how that?

Herb Vogel

if I but it, So really showed... have in John, just to deck. you slide you know it don’t I’m going point one our to at looked

Daniel John

not I’m sure. sorry? -

Herb Vogel

point and Slide capital, can some you and design take have completion the XX capital phenomenal. that I’m return for performance additional in we moved value see incremental you to to how that but our additional add it cases going is to does

We are continue do going to that. to

You our our to going get are towards going designs overtime. better and moving to us see are competitors see to you continue

be. edge cutting right on are is want that we a at the think it place we I to and

Daniel John

appreciate you. Awesome. you some I questions. really ask Thank me guys letting

Herb Vogel

You bet John.

Operator

today’s Herb Q&A. the Vice to and Vogel, will concludes turn I This call President now CEO. Dr.

Herb Vogel

Thank your interest you thank Emma. SM And you, Energy. you. all in Thank for

Operator

call. That concludes today’s attending. for Thank you

disconnect. now may You

SM Energy (SM) 4 Nov 222022 Q3 Earnings call transcript