SM Energy Upgraded To Overweight At KeyBanc, Bullish On Permian Positioning

KeyBanc upgraded SM Energy Co

to Overweight from Sector Weight with a $40 price target on the shares. The analysts believe the company's Rock Oil acquisition and its prospective ability to accelerate activity across its collective Permian position via future asset sales should drive both stronger overall returns and growth across the its asset portfolio. According to the analysts, SM Energy currently has around 10 years of low-risk Permian inventory (assuming it ramps to 7 rigs in 2018 and 8 rigs by 2020). They estimate that more than 50 percent of CapEx could be allocated to the Permian in 2017-18, which could drive 15 percent (vs prior +2 percent) oil growth in 2017 and 20 percent (vs prior -1 percent) in 2018. The company is planning to sell its non-operated Eagle Ford acreage (est. ~23 MBOED / 36K net acres), estimated by Keybanc to be worth around $700M-$800M, which would further de-lever the balance sheet and enable additional acceleration.