SM Energy (SM) 2 Nov 232023 Q3 Earnings call transcript

Good afternoon, and welcome to SM Energy's Third Quarter 2023 Results Webcast.

Before we get started on our prepared remarks, I'll remind you that our discussion today will include forward-looking statements. I direct you to Slide 2 of the accompanying slide deck, Page 6 of the accompanying earnings release and the Risk Factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ.

We will also discuss non-GAAP measures and metrics, definitions and reconciliations of non-GAAP measures and metrics to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures can be found in the back of the slide deck and earnings release. Today's prepared remarks will be given by our President and CEO, Herb Vogel; and our CFO, Wade Pursell. the to turn now will call Herb. over I

and for will your you, on Jennifer. in you afternoon, Good I Thank interest thank SM X. Slide start Energy.

and to We pleased discuss year-to-date results. our are today third very quarter

in You'll set and strategic the for year. core on our the objectives start company our against we forth for see objectives our stronger XXXX, progress assets by XXXX. continue I'll that of deliver our to quality early position demonstrate we an the even reviewing

First, to deliver of shareholders. our capital an increased return

In $XXX the XX% previous amounted third quarter, return of from million, capital to quarter. up which is the

now addition of X.X around or of we stock. In of million repurchased the shares of X% were outstanding shares inception XXXX. X.XX have the September return million September dividend, as repurchased the From in of capital shares and to program that retired we XXXX,

policy. fixed I'm ahead, in increase Looking our pleased XX% very a announce dividend to

we As we we outlook. offer a our we return dividend initiated to a increase the emphasize capabilities, performance capital assets, when in the confidence in the This our seek testament sustainable is industry. to have through cycles and program, of

to Turning X. Slide now

execution. The to is focus on second operational objective

are be line wells working performers increased in expect from turned they the This and our complemented XX,XXX-foot we nearly This land strong exchange performance quarter, Texas. Midland XX% quarter, this location. of executed South drilled in early This our Also accelerated well we interest X lateral Texas. team Basin asset which completion at Sweetie by in enjoyed South the both in strong XXXX. and uncompleted our drilling Peck to continued was faster wells an in when X XXX% around but to

are expected estimated contribute Looking mid-single-digit oil ahead, our growth next year. these to wells to

that a move Martin for Howard and XX,XXX on inventory We Basin new October. rig build we intend early a in to contracted in drilling objective by North over fourth increased just in Basin logistics XXXX. South other and Year-to-date, County third is December to permits the and place. or We have Counties our to position acres commenced about our it Boston replace in Midland are pad acreage once during Midland footprint Our XX%.

Looking is and months, and production inventory in initiate we for new ahead, excited high-quality oil we contribute currently our contracted area, this rig X to growth. drilling are which expect to the both XXXX to

In we expectations on fronts short, all exceeded this have year.

X Wade turn positioned the positive months we remain the what Wade? As to we expect to well in these a of expect results last to it for over some speak wrap to now and fourth I'll quarter. XXXX. the to behind of up XXXX, during specifics

objectives quarter, everyone. the some Thanks, Herb strategic into Herbert. back, get Good I that I'd behind the afternoon, through. the of like to put numbers walked just step details

Slide to X. Turning

three, leverage; return maintain value. on . Drilling predictable with repeatable and our stockholders. free build model cap sustainable inventory and to maintain XX generating and to high-quality seek long-term last long-term that yield flow objectives generate Our substantial allocate cash to months. current our to one, market is over low turn, we free allocation. business In disciplined yield base; opportunity X% flow We upside with cash to: capital two, a the down

balance with X.Xx adjusted $X.X $XXX at flow. to EBITDAX has slide cash in half to our the net to allocated Xx, capital from On debt increased acquisition/inventory cash debt as since XX% -- around free return to This of the million approximately XX% reduction January of and as million. XX% and stockholders currently the as to top numbers to reducing of a cash XX% to year billion started $XXX using the been round generated with XXXX, we adjusted follows: X, then,

adjusted for XXXX our entered leverage we metrics half bottom the in flow million XXXX and leverage at capital have while on still free essentially place, $XXX million to in cash with further of looking year-to-date, Then year-to-date. return with our generated maintaining to the we've low stockholders This the cash met inventory. show We these of target. of we $XXX lean been in had able slide,

Year-to-date, to has acreage. stockholders been capital and and acquisitions approximately XX% allocation XX% to increased

ahead, Looking for maintain continue assume can think thoughtful I will you that balance a sustainability. to we long-term

flexibility. of X significant quick through Slide commitments of $X.XX on healthy. which a the very drawn ratably Maturities the revolver from remains offering X.Xx, billion. EBITDAX billion, XXXX debt adjusted X $X.XX at XXXX, Net to to and sheet, including balance Turning with look liquidity staggered

As rush on the XXXXs. so I've down X% are earning mentioned, invested no cash, over we in taking

let's -- quarter. Strong to it share, our Production that results. and barrels from commodity oil GAAP day details net ] combined or now sequential BOE quarter the prices, at excellent $XXX of per BOE look higher and was X driven of third exceeded guidance $X.XX from to X contributed the South production, diluted XX% Slide oil EBITDAX per of turn faster income with XX,XXX million. XXX.X,XXX Texas, So slightly at completion per wells million production where with drilling [ adjusted or day, XX.X the supported accelerated

million. Cash million flow capital from operations $XXX changes of adjusted working and adjusted cash for $XXX free flow of

earned behind will albeit statements sequentially we All point efforts believe, line are I well significantly of development that significant results research credit generally bottom our these straightforward expectations. although optimized and I consensus for performance. and a the have out tax financial were The up

support Chalk. technology out and we Basin we These in pioneered over continue innovation credit. a development innovation and in years, pointed As research Texas research and Permian have the tax efforts the and South Austin

we for recognized reducing years. the benefit, years, to prior will have benefit $XX million taxes which future XXXX, to be carried addition in forward current to those a cash periods year In

expected reduce tax coming For used, years significant XX% your a carryforward taxes the modeling until is benefit. purpose, in up future this is our by to to cash completely cash

guidance, due expenditures to million. adjusted removed. guidance change but and accruals for a is For on purposes was the Slides $XXX X were difference Capital below the simply of to so the fourth into came onetime adjusted carryforward prior is in good timing which gets segue XX. net pushed income, in quarter, period This

has Peck or X first million BOE XX% will in the working approximately Full interest to year BOE exchange million to per the million quarter million XXX,XXX gained XXX,XXX online volumes. XX% oil. XX.X range fourth narrowed early per The asset XXX,XXX in DUC XXXX, XX.X in to quarter to production day increased guidance day previous at or at of BOE benefiting Implied XXX,XXX Sweetie the at then production XX.X XX% BOE end come high the to 'XX oil. to guidance is production XX.X wells

in add to is is the and is XX and BOE South $X.XX to to with the in fourth The XX Capital up expected increased drilling We've to in net the from $X.X fourth a Midland other workover This guidance rig the come XX range picked the per puts year X cost completing and the expect $XXX Peck wells per full and net wells, million XX to to year year $X.XX than include $X.XX Texas full LOE guidance and is in wells the between Sweetie BOE. associated $X.XX to interest quarter working reduced. at full billion. now exchange. unchanged the for Midland. around $XXX asset in quarter guidance DUC million

guidance in keeping full around around $X.XX come could fourth in Transportation quarter, per BOE. the year $X.XX expense

quarter, team. by great a summary, execution in So the great

Solid capital walk it cash I'll in back field. stockholders. highlights flow to now to significant to resulting a through generation Herb? return few of Herb turn the you from

over our deliver following Envers, team. the of that high performance. Slide Skipping we At the agree relative of simulation using TD that ourselves data from Wave. our slides SM, by quality to and to reservoir us the performance flawless best our Basin Cowen, operations optimization you, differentiate cutting-edge our who from The years and team -- continue with to execution Midland analytics well the to followed targeting engineering third-party peers. caliber and high geoscience with data-driven Rystad improved is XX designs, intervals and completion Thank base all present and JPMorgan, asset optimize team our efforts

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and and improved mitigation, installation to surveillance flare SCADA included show the South we operations And acre model acquisition, risk most North as of department, automation environmental on economic and efforts production our of wells to flare our school and such Aldar progress has fire net call value, optimization operations in survey existing side, and XX,XXX Martin field-wide as the donations reduction, assurance for well parameters. which Midland building SM spill community including of and local we outreach, a Klondike, recent counties as already At the Dawson production acquisitions. applying right model and organically our implementation facilities inventory the

we our that excited will this new December. acreage be are spud ready well We in to on first

we sand mentioned target quarter, less we at $X.XX average wells Mcf Middle were completed offset operator, barrel discount an from Spraberry mentioned to XX% Sweetie and new per asset which assuming per intervals. as a working As XX% XX,XXX-foot increase We enabled on than rate. gas last oil, wells. $XX that I with to intend the in our and around Dean new breakeven earlier, an interest At X almost Peck, to exchange XXX% lateral we us estimate

These expected early us online setting oil year. be up for first the in stronger in wells the quarter, are to production

with an X,XXX to now see gas stars. over content peak of BOE Texas wells and IPXX and brought the XX% in on wells acreage blue high liquids. In XXXX as XX% day XX. Slide IP liquids-rich rates, peak on position Turning XX the areas, average reached have XX both we our have per these to have wells can that South oil includes by averaged location across you date, This of oil

SM Chalk wells in turning October Overall, that to And reached has as Slide IPXX completed the have XXXX. of XX. Austin XX

and surveillance excited instrumentation, team, and emerging to communications very office analytics fully operations, the operation electrical, IT centralized up technology, of are operations new and our and SM several collaboration among in This running We management. third room automation Permian a have technologies, facilities quarter. result facility is advanced production our teams,

team operating and improved as responses, costs leading monitoring enable operating serve and empowers generating stewardship. times. as reduce and with environmental well with improve employed companies communicating cutting efficiencies, midstream It reaction automated technologies field operations thereby our to that The ensure personnel technologies

to capabilities resolution detection and monitoring events response of the early example, prior potential enabled downtime For and compressor shutdown. automated

to that in So Thank is our now theme. a and your interest our return Energy, SM strategic cutting-edge I'll technology, strong Energy look balance model Q&A capital with repeatable presents SM reiterating durable of to an sheet, stockholders and dividend I wrap by and increased call by fixed forward growing inventory operations, and a you for growth. business up tomorrow. sustainable characterized outstanding