SM Energy Company (NYSE: SM) today announces that its Board of Directors
has approved the capital expenditure budget for 2014. The Company is
also providing initial 2014 production and cost guidance.
Tony Best, CEO commented, “We anticipate that our announced program will
generate strong returns and will allow SM Energy to post another record
year of production in 2014. We expect to grow production approximately
16% on retained properties next year, adjusted for our Anadarko Basin
asset sale. Our 2014 growth will be anchored by our core development
programs in the Eagle Ford and Bakken/Three Forks, with additional
investments being made in our emerging oil programs in the Permian
Shales and the Powder River Basin. We also have a number of key
appraisal wells scheduled for 2014 across the Company, which if
successful, could allow for additional investment during the year. Our
balance sheet is in great shape to fund our program, having been
strengthened by approximately $455 million we expect to receive in total
from the Anadarko Basin asset sale and other divestitures in 2013. With
our existing multi-year drilling inventory, emerging exploration
potential, and strong financial position, it is an exciting time as we
continue our successful execution of high return projects which are
delivering strong growth for the benefit of our shareholders.”
2014 Capital Investment Budget
The breakdown of the capital budget is provided in the following table:
Program
|
|
Operated
|
|
Non Operated
|
|
Total
|
|
|
|
|
($ in millions)
|
|
|
Eagle Ford
|
|
$
|
650
|
|
$
|
250
|
|
$
|
900
|
Bakken/Three Forks
|
|
|
275
|
|
|
75
|
|
|
350
|
Permian Shales
|
|
|
130
|
|
|
25
|
|
|
155
|
Powder River Basin
|
|
|
115
|
|
|
25
|
|
|
140
|
East Texas
|
|
|
55
|
|
|
0
|
|
|
55
|
Other
|
|
|
60
|
|
|
0
|
|
|
60
|
Drilling and completion subtotal
|
|
$
|
1,285
|
|
$
|
375
|
|
$
|
1,660
|
|
|
|
|
|
|
|
Non-drilling capital(1)
|
|
|
|
|
|
$
|
200
|
New Ventures activity
|
|
|
|
|
|
|
65
|
Non-D&C subtotal
|
|
|
|
|
|
$
|
265
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
$
|
1,925
|
(1) Includes exploration overhead, facilities, G&G, and land.
|
|
|
|
|
|
Operated Eagle Ford
SM Energy plans to make approximately 100 flowing completions on its
operated Eagle Ford shale acreage in 2014 with a five rig program and
two dedicated frac spreads. The Company expects to drill roughly 40
additional wells, which will be awaiting completion at the end of 2014.
The Company expects that next year’s program activity will be evenly
split between Galvan Ranch and Briscoe Ranch.
Non-operated Eagle Ford
The Company’s 2014 program currently assumes 5% per quarter production
increase for its non-operated program. The Company expects its carry
with Mitsui E&P Texas, LLP, under its Acquisition and Development
Agreement, to be exhausted during the first half 2014. Subsequent to the
completion of the carry, SM Energy will be responsible for its working
interest share of proposed wells. Based upon publicly available
information and its own assumptions, the Company has budgeted
approximately $250 million of uncarried drilling and completion capital
for this program in 2014.
Bakken/Three Forks
The Company plans to focus its operated Bakken/Three Forks activity next
year on its Bear Den/Raven and Gooseneck prospects. SM Energy expects to
allocate approximately 80% of the capital for the program to its
operated properties. The Company plans for approximately 45 gross
flowing completions in the operated portion of its program in 2014,
utilizing three drilling rigs.
Permian Shales
SM Energy plans to operate an average of 2.5 drilling rigs throughout
2014 and make 14 flowing completions in its operated Permian shale
program. In 2014, the Company plans to focus its Permian program on
horizontal testing and development of the Wolfcamp formation in its
Sweetie Peck and Buffalo prospects.
Powder River Basin
The Company expects to operate an average of 2 drilling rigs and make 8
flowing completions targeting the Frontier formation in its operated
Powder River Basin program in 2014. The Company has obtained the
required permits to execute this program. With continued success in this
program, the Company could increase rig count and the number of operated
completions during the year. SM Energy expects to allocate approximately
80% of the program capital to its operated properties.
East Texas
SM Energy expects to operate one drilling rig to continue its appraisal
program of its East Texas Eagle Ford and Woodbine acreage in 2014. The
Company plans to invest the allocated capital to drill and complete 6
test wells, 2 of which will be funded by New Ventures. If the planned
test wells prove successful, the Company expects to increase the number
of test wells in 2014 to accelerate the appraisal program on its 215,000
net acres.
Non-drilling Capital
Of the $200 million of non-drilling capital allocated to the 2014
program, approximately $80 million is allocated to facilities, $70
million to exploration overhead, and the remainder allocated to land and
G&G costs.
Production and Cost Guidance
Based on the capital budget and program discussed above, the Company
anticipates full year 2014 production to range from 51.0 to 53.5 MMBOE
(140 - 147 MBOE/d), which represents reported production growth of
approximately 9% next year. Adjusted for the 3.0 MMBOE of 2013
production attributed to the Anadarko Basin assets that are scheduled to
be divested at the end of 2013, production growth on retained properties
is expected to be approximately 16% in 2014. With the divestiture of
relatively gassy Anadarko Basin assets and increased activity in liquid
rich basins, the Company expects its production mix to continue to shift
toward liquids with full year production expected to be approximately
53% liquids, up from approximately 48% liquids in 2013.
Preliminary cost guidance for 2014 is summarized in the table below:
LOE ($/BOE)
|
|
|
|
$5.25 - $5.50
|
Transportation ($/BOE)
|
|
|
|
$5.75 - $6.05
|
Production taxes (% of pre-derivative oil, gas, and NGL revenue)
|
|
|
|
5.0% - 5.5%
|
|
|
|
|
|
G&A – Cash ($/BOE)
|
|
|
|
$2.20 - $2.45
|
G&A – Cash NPP ($/BOE)
|
|
|
|
$0.20 - $0.35
|
G&A – Non-cash equity compensation ($/BOE)
|
|
|
|
$0.30 - $0.50
|
Total G&A ($/BOE)
|
|
|
|
$2.70 - $3.30
|
|
|
|
|
|
DD&A ($/BOE)
|
|
|
|
$15.10 - $15.90
|
|
|
|
|
|
LOE per unit expense is expected to increase in 2014 due to increases in
ad valorem taxes primarily in the Company’s Eagle Ford shale program.
Transportation per unit cost is expected to increase in 2014 as
production volume in the Company’s Eagle Ford shale program, where
nearly all transportation expense is incurred for the Company, becomes a
larger proportion of the Company’s total production volume.
Liquidity
Based on strip pricing in early December of 2013, SM Energy’s 2014
program is expected to result in average net debt to trailing twelve
month EBITDAX of 1.0x over 2014. This modest level of leverage provides
ample liquidity for potential success legs in the Company’s emerging
plays including the Permian Shales, the Powder River Basin, and East
Texas. The average debt to trailing EBITDAX in 2014 assumes proceeds
from its Anadarko Basin divestiture, which is expected to close by the
end of 2013.
ABOUT THE COMPANY
SM Energy Company is an independent energy company engaged in the
acquisition, exploration, development, and production of crude oil,
natural gas, and natural gas liquids in onshore North America. SM Energy
routinely posts important information about the Company on its website.
For more information about SM Energy, please visit its website at www.sm-energy.com.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the
meaning of securities laws, including forecasts and projections. The
words “anticipate,” “assume,” “believe,” “budget,” “estimate,” “expect,”
“forecast,” “intend,” “plan,” “project,” “will” and similar expressions
are intended to identify forward-looking statements. These statements
involve known and unknown risks, which may cause SM Energy's actual
results to differ materially from results expressed or implied by the
forward-looking statements. These risks include factors such as the
availability, proximity and capacity of gathering, processing and
transportation facilities; the uncertainty of negotiations to result in
an agreement or a completed transaction; the uncertain nature of
announced acquisition, divestiture, joint venture, farm down or similar
efforts and the ability to complete any such transactions, including,
but not limited to, the Company's announced plans to divest of assets
including those located in the Anadarko Basin; the uncertain nature of
expected benefits from the actual or expected acquisition, divestiture,
joint venture, farm down or similar efforts, including, but not limited
to, the Company's announced plans to divest of assets including those
located in the Anadarko Basin; the volatility and level of oil, natural
gas, and natural gas liquids prices; uncertainties inherent in
projecting future rates of production from drilling activities and
acquisitions; the imprecise nature of estimating oil and gas reserves;
the availability of additional economically attractive exploration,
development, and acquisition opportunities for future growth and any
necessary financings; unexpected drilling conditions and results;
unsuccessful exploration and development drilling results; the
availability of drilling, completion, and operating equipment and
services; the risks associated with the Company's commodity price risk
management strategy; uncertainty regarding the ultimate impact of
potentially dilutive securities; and other such matters discussed in the
“Risk Factors” section of SM Energy's 2012 Annual Report on Form 10-K.
The forward-looking statements contained herein speak as of the date of
this announcement. Although SM Energy may from time to time voluntarily
update its prior forward-looking statements, it disclaims any commitment
to do so except as required by securities laws.
NON-GAAP FINANCIAL MEASURES
The Company has referred to a “debt to trailing twelve month EBITDAX
ratio” in this release to measure relative leverage of the Company. This
ratio is calculated by dividing the last twelve months of EBITDAX into
the sum of the Company’s bank debt and senior notes shown on the
consolidated balance sheet. The ratio is expressed in the number of
annual EBITDAX amounts required to equal the outstanding debt amount.
EBITDAX is defined as income before interest expense, interest income,
income taxes, depreciation, depletion, amortization and accretion,
exploration expense, property impairments, non-cash stock compensation
expense, unrealized derivative gains and losses, change in the Net
Profit Plan liability, and gains and losses on divestitures. The Company
believes that the presentation of the total debt to EBITDAX ratio is
relevant to our investors because it presents a relative leverage metric
which is commonly used by investors and the debt rating agencies to
evaluate a company’s ability to service its current debt and/or add
incremental debt.
Copyright Business Wire 2013