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SM Energy First Quarter 2021 Results

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   |    Monday,May 03,2021

SM Energy Co. announced operating and financial results for the first quarter 2021 and provided certain second quarter 2021 guidance.

Highlights:

• Cash flows included net cash provided by operating activities of $105.6 million before net change in working capital of ($51.4) million totaling $157.1 million. Adjusted EBITDAX, (a non-GAAP measure reconciled below) was $215.0 million.
• Production was 10.05 MMBoe or 111.6 MBoe/d and was 54% oil. Production volumes were affected by the severe winter storm in Texas during February 2021, which resulted in 14 days of reduced production and delayed completions of new wells.
• Capital expenditures reflected continued capital efficiencies with costs maintained at approximately $520 per lateral foot. Capital expenditures of $147.6 million adjusted for increased capital accruals of $37.4 million totaled $185.0 million.

Chief Executive Officer Herb Vogel comments: "While unprecedented first quarter weather presented exceptional challenges, the SM Energy team prioritized safety, collaborated with suppliers and we are back on track toward achieving our long-term objectives. We remain focused on key priorities of generating free cash flow, reducing absolute debt and demonstrating top tier ESG stewardship, and we maintain our full-year guidance for production, capital expenditures and generating free cash flow."

Q1 2021 Results

• Total production volumes of 10.05 MMBoe or 111.6 MBoe/d were down 19% compared with the prior year period and down 11% sequentially. Production was 54% oil. Lower production volumes resulted from:
• The impacts of severe winter weather in Texas during February 2021 that led to interruptions in third-party power supply and third-party gas gathering, causing production shut-ins. The Company experienced 14 days of reduced production.
• Storm related delays in the timing of planned well completions as well as continued delays (into March) in the supply chain for sand and technical services that pushed certain planned flowing completions into April. No new wells were brought on production in January or February.
• A planned decline in South Texas due to the completion of only two new wells in the second half of 2020.

Note: Totals may not sum due to rounding

• The average realized price before the effect of hedges was $42.11 per Boe and the average realized price after the effect of hedges was $31.37 per Boe.
• Benchmark pricing for the quarter included NYMEX WTI at $57.84/Bbl, NYMEX Henry Hub natural gas at $2.69/MMBtu and Hart Composite NGLs at $30.47/Bbl.
• The average realized price per Boe of $42.11 before the effect of hedges was up 47% compared with the prior year period and up 48% sequentially.
• The effect of realized hedges was a loss of $10.74 per Boe, or $107.9 million. Natural gas hedge losses were magnified during the Texas weather event as shut-in supplies across the state caused multiple days of extreme spot price spikes, up to more than $300 per MMBtu. The Company's natural gas hedge volumes exceeded production volumes (due to shut-ins) for the month of February, resulting in increased hedge losses.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying 1Q21 slide deck.

Financials

First quarter 2021 net loss was $251.3 million, or $2.19 per diluted common share, which compared with a net loss of $411.9 million, or $3.64 per diluted common share, in the same period in 2020. The current period included a $344.7 million net derivative loss, while the prior year period included a $989.8 million impairment, partially offset by a $545.3 million net derivative gain.

First quarter 2021 net cash provided by operating activities of $105.6 million before net change in working capital of ($51.4) million totaled $157.1 million, which was down 34% from $236.6 million in the comparable prior year period. While the first quarter 2021 operating margin (before the effects of hedge settlements) was up 77% compared with the prior year period, the decline in cash flow before net change in working capital was primarily due to an 18% decline in daily production volumes and $107.9 million realized hedge loss.

The following paragraphs discuss non-GAAP measures including Adjusted EBITDAX, adjusted net loss, adjusted net loss per diluted share and net debt-to-Adjusted EBITDAX. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.

First quarter 2021 Adjusted EBITDAX was $215.0 million, down 25% from the same period in 2020. The decrease in Adjusted EBITDAX was predominantly due to lower production volumes and the realized hedge loss.

First quarter 2021 adjusted net loss was $5.7 million, or $0.05 per diluted common share, which compares with adjusted net loss of $5.6 million, or $0.05 per diluted common share, for the same period in 2020.

At March 31, 2021, net debt-to-Adjusted EBITDAX was 2.6 times.

On March 31, 2021, the outstanding principal amount of the Company's long-term debt was $2.32 billion. Long-term debt was comprised of $1.67 billion in unsecured senior notes, $446.7 million in secured senior notes, $65.5 million in secured senior convertible notes, plus $135.0 million drawn on the Company's senior secured revolving credit facility.

In March 2021, the Company's borrowing base and commitments under its senior secured revolving credit facility were reaffirmed by its lenders at $1.1 billion. At March 31, 2021, the Company's available liquidity was $965.0 million. The cash balance was approximately zero. During the Spring 2021 redetermination process, the Company did not request an extension of second lien capacity.

First quarter 2021 capital expenditures of $147.6 million, adjusted for increased capital accruals of $37.4 million, totaled $185.0 million. During the quarter, the Company drilled 13 net wells and completed 14 net wells in the Midland Basin and drilled 5 net wells and completed 3 net wells in South Texas. The Company fracture stimulated two more wells than planned during March, and those wells are expected to come on production mid-year.

Hedging

Commodity hedge positions as of April 29, 2021:

• OIL: Approximately 75-80% of expected 2Q-4Q oil production is hedged to WTI at an average price of $40.66/Bbl.
• OIL, Midland Basin differential: Approximately 60-65% of expected 2Q-4Q Midland Basin oil production is hedged to the local price point at a positive $0.76/Bbl basis.
• NATURAL GAS: Approximately 85% of expected 2Q-4Q natural gas production is hedged. 38,659 BBtu is hedged to HSC at an average price of $2.42/MMBtu, and 22,943 BBtu is hedged to WAHA at an average price of $1.82/MMBtu.
• NGL hedges are by individual product and include propane and normal butane swaps for the remainder of 2021.

A detailed schedule of these and other hedge positions are provided in the 1Q21 accompanying slide deck.

Guidance

• Full year 2021 guidance is unchanged.
• Second quarter 2021 guidance includes:
• Production 11.8-12.2 MMBoe or 130-134 MBoe/d. The second quarter production range reflects timing of new wells being turned-in-line.
• Capital expenditures of $230-240 million. Capital expenditures are weighted to the first half of 2021, taking advantage of lower contracted costs. Second quarter capital anticipates approximately 20 net wells drilled and 50 net flowing completions, which includes wells that were fracture stimulated in the first quarter and will turn-in-line in the second quarter.