Will SM Energy's Diverse Asset Mix Offset Macro Risks?

On Aug 8, 2016, we issued an updated research report on independent oil and gas company, SM Energy Company (NYSE:SM) .

SM Energy’s attractive oil and gas investments, balanced and diverse portfolio of proved reserves and development drilling opportunities are expected to create long-term value for shareholders. We view SM Energy as one of the most attractive players in the exploration and production space.

Given the company’s increasing focus on oil, specifically in the Permian and Rocky Mountain regions, we believe that it will be able to boost its oil-weighted activity. Additionally, SM Energy has meaningful leasehold positions in the leading U.S. shale plays, including the Bakken, Niobrara, Haynesville, and Granite Wash. This, we believe, will provide the company with many years of profitable drilling inventory. Other growth drivers include the South Texas Eagle Ford Shale and Rockies Williston Basin Bakken/Three Forks shales.

SM Energy has been able to lower its per unit cash operating costs. In addition, the company continues to improve upon drilling times and reduce capital expenditure needs – an impressive achievement amid the low price scenario.

While Eagle Ford will likely accelerate faster than expected because of additional takeaway, the company remains proactive in its Permian play. The inclusion of additional acreage to its holding in the Permian play (through the recent Rock Oil acquisition) validates the potential of the basin. Moreover, the leasehold expansion in New Ventures as well as acreage additions in its East Texas and the Powder River Basin contributed to production growth.

SM ENERGY CO Price and Consensus

SM ENERGY CO Price and Consensus | SM ENERGY CO Quote

However, reduced capital spending and a decline in operating rigs could hamper financials for the company.

SM Energy is a firm in the upstream energy space and hence, is likely to face troubles amid weak commodity prices. The company anticipates substantial decline in the number of operating rigs in 2016, which in turn, would result in reduced production. Moreover, cuts in its capital spending could also hurt production volumes.

Though SM Energy holds considerable acreage in the Williston Basin, most of its holdings lie in the region having low yield. Thus, its results will likely lag peers who have acreage in the core region of the Bakken.

Zacks Rank and Stocks to Consider

SM currently carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector include Sasol Ltd. (NYSE:SSL) , Enbridge, Inc. (NYSE:ENB) and Total SA (TO:TOT) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).