SM Energy Board Approves $1.5B Capital Program for 2013, Offers Production Outlook
SM Energy Company (NYSE: SM) today announces that its Board of Directors has approved a capital expenditure budget for 2013 and provides 2013 production and cost guidance.
Tony Best, CEO, remarked, “Our 2013 capital program positions the Company for another year of record production while generating strong returns from our key projects. The capital budget is anchored by our high return Eagle Ford and Bakken/Three Forks development programs, with additional investments being made in emerging oil programs in the Permian Basin. Our production mix will continue to shift from lower value natural gas to higher value liquids throughout the year. We'll exit next year with a solid balance sheet and with quarterly capital expenditures equaling quarterly EBITDAX assuming current strip prices. We expect to grow production by 20% in 2013, followed by annual production growth of approximately 15% in 2014 and 2015 with improving leverage metrics and no equity dilution. With our solid multi-year drilling inventory, visibility of production growth, and strong financial position, it is an excellent time to be a shareholder of SM Energy.”
2013 Capital Investment Budget
The breakdown of the capital budget is provided in the following table:
2013 Capital Expenditure Budget ($ in MM) Eagle Ford (1) $650 Bakken/Three Forks $290 Operated Permian $170 Operated Granite Wash $45 Operated other $20 Non-operated other $25 Drilling and completion subtotal $1,200 Non-drilling capital (2) $175 New Ventures activity $125 Non-program subtotal $300 TOTAL $1,500
(1) This amount is net of carried costs for the non-operated Eagle Ford program. (2) Includes capitalized overhead, facilities, G&G, and land.
SM Energy plans to operate five drilling rigs, supported by two dedicated frac spreads, on its operated Eagle Ford shale acreage in 2013. Most of the Company's activity next year will be focused on swath drilling in the northern portion of its Galvan Ranch acreage and the eastern portions of its Briscoe Ranch acreage. Swath drilling allows wells to be drilled at optimum spacing and mitigates complications associated with attempting to drill and complete infill locations later in field life. The Company expects to complete approximately 75 flowing completions during the year, with an additional 40 wells waiting on completion at year-end.
SM Energy forecasts its non-operated Eagle Ford shale net production to increase by roughly 5% per quarter throughout 2013.
Bakken/Three Forks activity next year will be focused on SM Energy's Bear Den, Raven, and Gooseneck prospects. SM Energy will operate approximately 80% of the capital allocated for the program and plans for approximately 40 flowing completions in the operated portion of this program in 2013. The Company will enter 2013 with four operated drilling rigs, however, efficiencies associated with pad drilling will allow completion of this program averaging 3 ½ rigs for the year.
SM Energy plans to operate two drilling rigs in its operated Permian Mississippian program in 2013, with approximately 12 flowing completions planned for the year. One operated drilling rig is scheduled to work on Bone Spring projects in southeastern New Mexico, with six flowing completions planned for 2013. SM Energy will operate substantially all of its capital investments in the Permian Basin in 2013.
Production and Cost Guidance
Based on the capital budget and program discussed above, the Company anticipates full year 2013 production to range from 255 to 267 BCFE (699-732 MMCFE/d), which represents a 20% annual increase over 2012 at the midpoint of next year's guidance. The Company expects to exit 2013 producing within a range of 769 to 808 MMCFE/d with a mix of 50% natural gas, 29% oil, and 21% NGLs. This production growth profile is weighted to the second half of the year and reflects the timing of previously contracted firm transportation agreements in the Company's operated Eagle Ford shale program.
Preliminary cost guidance for 2013 is summarized in the table below:
LOE ($/MCFE) $0.82 - $0.87 Transportation ($/MCFE) $0.80 - $0.85 Production taxes (% of pre-derivative oil, gas, and NGL 5% revenue) G&A – Cash ($/MCFE) $0.41 - $0.45 G&A – Cash NPP ($/MCFE) $0.05 - $0.07 G&A – Non-cash equity compensation ($/MCFE) $0.09 - $0.11 Total G&A ($/MCFE) $0.55 - $0.63 DD&A ($/MCFE) $3.20 - $3.40
Based on current strip prices and the capital budget and program described above, the Company expects to exit 2013 with a debt to trailing twelve month EBITDAX ratio of approximately 1.6 times.
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