SM Energy's (SM) Q2 Earnings Beat Estimates, Revenues Miss

SM Energy Company (NYSE:SM) recently reported second-quarter 2019 adjusted earnings of 2 cents per share against the Zacks Consensus Estimate of a loss of 11 cents. The reported figure, however, decreased from earnings of 15 cents a year ago.

Total revenues, which declined to $407.2 million from $443.9 million in the prior-year quarter, marginally missed the Zacks Consensus Estimate of $408 million.

The better-than-expected second-quarter 2019 earnings were supported by higher production levels and increased operating efficiency. However, the positives were partially offset by lower commodity price realizations.

Operational Performance:

Production Surges

The company’s second-quarter production was 136.5 thousand barrels of oil equivalent per day (MBoe/d), up 19% from the year-ago level of 115.2 MBoe/d.

Oil production increased 24% year over year to 59.6 thousand barrels per day (MBbls/d). SM Energy produced 310.9 million cubic feet per day of natural gas in the quarter, up 12% year over year. Natural gas liquids contributed 25.1 MBbls/d to total production volume, up 20% from the second-quarter 2018 level.

Realized Prices Decline

Due to hedging, the average price per Boe was $33.07 (including the effects of derivative settlements) compared with $34.91 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 24% year over year to $2.51 per thousand cubic feet. Moreover, average realized prices of oil fell 2% to $54.07 per barrel and that of natural gas liquids declined 5% from the prior-year quarter to $20.42.

Cost & Expenses

On the cost front, unit lease operating expenses decreased 11% year over year to $4.16 per Boe, reflecting significant increase in efficiency. In addition, transportation expenses fell to $4 per Boe from $4.47 in the year-ago quarter. General and administrative expenses also decreased 10% to $2.49 per Boe from the prior-year level of $2.76. However, depletion, depreciation and amortization expenses were up 15% to $16.61 per Boe from the year-ago level of $14.48.

Total exploration expenses fell to $10.9 million from $14.1 million in the year-ago quarter. Hydrocarbon production expenses in the quarter were recorded at $123.1 million compared with the year-ago level of $117.4 million. Total operating expenses in the quarter declined to $303 million from the year-ago period’s $387.8 million, primarily due to a net derivative gain.

Balance Sheet

As of Jun 30, SM Energy had a cash balance of $12 thousand and long-term debt of $2,721.2 million. The company had a debt-to-capitalization ratio of 49.3%.

Guidance

SM Energy expects full-year 2019 production to average 129-131 MBoe/d. Production for third-quarter 2019 is projected within 12-12.2 million barrels of oil equivalent or 130-133 MBoe/d, of which 43% is expected to be oil. For second-half 2019, the company expects capital program of around $70-80 million per month. Full-year lease operating expense is expected to be $5 per Boe. In 2019, the company expects to achieve production growth, while keeping capital expenditure low.

Zacks Rank and Stocks to Consider

Currently, SM Energy has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy sector are given below:

Transportadora de Gas del Sur S.A. (NYSE:TGS) is a midstream energy firm. In the trailing four quarters, the company delivered average positive earnings surprise of 114%. It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lonestar Resources US Inc. (NASDAQ:LONE) is an oil and gas exploration and production company. In the trailing four quarters, the company missed earnings estimates only once and delivered average positive surprise of almost 52%. The company has a Zacks Rank #2 (Buy).

Keane Group, Inc. (NYSE:FRAC) is a provider of integrated well completion services, primarily in the United States. In the trailing four quarters, the company delivered average positive surprise of 320.2%. It has a Zacks Rank #2.

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