SM Energy's (SM) Permian Acquisition Seen as Consistent with Company Message
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Deutsche Bank maintained a Hold rating on SM Energy (NYSE: SM) with a price target of $35. Earlier the company announced that it has entered into a definitive purchase agreement to acquire 24,783 net acres in Howard County, West Texas, expanding the Company’s Midland Basin footprint to approximately 46,750 net acres.
Commenting on the development, analyst Josh Silverstein said, "Beyond a common theme of accelerating activity through year end, Permian producers’ thirst for M&A has led to escalating asset price tags throughout the basin, though the narrative is evenly split between premium core packages and value-hunting, as of late. With recent transactions going for as high as ~$60k per acre, producer focus in 2Q highlighted the Delaware and edges of the Midland basin where laterals are getting longer, EURs are trending higher (1mmboe+), and assets can be acquired for under ~$35k per acre."
"For SM, this marks a significant expansion of the Permian Basin leasehold and alleviates a concern that while Sweetie Peck is clearly a strong asset, the inventory base is dwarfed by the Eagle Ford and Williston. In our view, the acquisition is consistent with messaging from SM that they were looking for acquisition opportunities to high-grade the portfolio with the Permian at the top of the list. While we remain HOLD rated and wait for additional details on the leasehold footprint and volume impact through 2017 (SM plans to deploy 2 rigs throughout the year), the now ~47k net acre position provides a growth and resource base that is supportive for multiple expansion with execution," added the analyst.
Shares of SM Energy closed at $29.30 yesterday.
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