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SM Energy(SM) - 2022 Q1 - Earnings Call Transcript
SMSM Energy(SM)2022-04-29 16:39
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Financial Data and Key Metrics Changes - The company underspent by approximately 20millioninQ12022,withplanstoshiftthatspendingintoQ2,whichisexpectedtobethepeakactivityperiod[7]−Thecompanyisapproachingaleverageratioofonetimesandaimstoreducedebtto20 million in Q1 2022, with plans to shift that spending into Q2, which is expected to be the peak activity period [7] - The company is approaching a leverage ratio of one times and aims to reduce debt to 1 billion by Q4 2022, which may lead to potential returns of capital to shareholders in 2023 [9][10] Business Line Data and Key Metrics Changes - The company plans to complete around 38 wells in 2022, with approximately 30 in the Austin Chalk and 6 to 8 in the Eagle Ford, indicating a strategic focus on capital efficiency [13] - The company reported that its capital efficiency remains among the best in the industry, with well costs still in the sub 700perfootrangeduetofavorablecontracts[15][16]MarketDataandKeyMetricsChanges−Thecompanyhassecuredsandsupplycommitmentssince2017,ensuringnoavailabilityissues,whichiscrucialformaintainingoperationalefficiency[17]−Thecompanyhasimplementedbasishedgesthrough2025tomitigatepricingrisksassociatedwithgastakeawaycapacity[26]CompanyStrategyandDevelopmentDirection−Thecompanyisfocusedonmaximizingfreecashflowoveratwotothree−yearperiod,withaplanforlow−single−digitproductiongrowthyear−over−year[12]−ThecompanyisstrategicallypositionedinthePermianandEagleFordbasins,withastrongemphasisontechnicaladvancementsandoperationalefficiency[36]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedconfidenceintheabilitytomanageproductionandpricingrisks,particularlyinlightofexpectedexpansionsingastakeawaycapacitybymidstreamoperators[25]−Thecompanyanticipatesbeginningtopaycashtaxeslaterin2022,withprojectionsof700 per foot range due to favorable contracts [15][16] Market Data and Key Metrics Changes - The company has secured sand supply commitments since 2017, ensuring no availability issues, which is crucial for maintaining operational efficiency [17] - The company has implemented basis hedges through 2025 to mitigate pricing risks associated with gas takeaway capacity [26] Company Strategy and Development Direction - The company is focused on maximizing free cash flow over a two to three-year period, with a plan for low-single-digit production growth year-over-year [12] - The company is strategically positioned in the Permian and Eagle Ford basins, with a strong emphasis on technical advancements and operational efficiency [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to manage production and pricing risks, particularly in light of expected expansions in gas takeaway capacity by midstream operators [25] - The company anticipates beginning to pay cash taxes later in 2022, with projections of 100 million to $150 million annually in the future, assuming stable commodity prices [30][31] Other Important Information - The company is maintaining its inventory target of 400 locations, indicating a robust resource base for future development [22] - Management highlighted the importance of strategic partnerships and data sharing with other operators to optimize completion designs and improve well results [20] Q&A Session Summary Question: CapEx and Production Trajectory - Management indicated that Q2 and Q3 will see peak activities, with a focus on maintaining consistent crew operations for better capital efficiency [7] Question: Return of Capital Timing - Management confirmed that if current conditions persist, a return of capital to shareholders could be considered in Q4 2022 [9] Question: Production Decline and Future Growth - Management explained that production is expected to ramp up in Q3 and Q4 due to increased completions, despite a temporary decline in Q2 [11][12] Question: Eagle Ford Wells Decision - The decision to drill Eagle Ford wells was based on capital efficiency and favorable commodity prices, with a balanced approach to development across both Eagle Ford and Austin Chalk [13] Question: Sand Supply Issues - Management reported no issues with sand supply, attributing this to strategic commitments made in previous years [17] Question: Cash Taxes and Effective Rate - Management projected cash taxes to begin later in 2022, with an effective rate significantly below the statutory rate due to ongoing capital programs [30][34]