SM Energy (SM) Misses Q2 EPS by 29c, Revenues Miss; Provides FY20 Fiscal Guidance

SM Energy (NYSE: SM) reported Q2 EPS of ($0.79), $0.29 worse than the analyst estimate of ($0.50). Revenue for the quarter came in at $169.63 million versus the consensus estimate of $291.27 million.

During the second quarter of 2020, the Company focused on its priorities of:

• Capital discipline. Capital expenditures were 26% below guidance primarily reflecting lower costs as well as timing of certain activity. Capital expenditures of $170.9 million adjusted for decreased capital accruals of $45.7 million totaled $125.2 million.
• Significant cash flows. Second quarter net cash provided by operating activities of $114.3 million before net change in working capital of $38.7 million totaled $153.1 million. The Company generated free cash flow of $27.9 million (a non-GAAP measure defined and reconciled below). Free cash flow for the first half of 2020 was $108.4 million and on a trailing 12-month basis was $124.7 million, or a 29% yield to market capitalization as of June 30, 2020.
• Absolute debt reduction. The outstanding principal amount of long-term debt was reduced by $219 million as a result of the debt exchange transactions completed in the second quarter. The debt exchange successfully reduced total debt and significantly reduced maturities through 2022 by approximately $250 million. Net debt-to-Adjusted EBITDAX was 2.45 times at quarter-end (a non-GAAP measure defined and reconciled below).
• Capital expenditures for 2020 further reduced. 2020 capital expenditure guidance is further reduced to $610-630 million to reflect aggressive cost controls for drilling and completion expenditures as well as certain delayed activity. The updated plan continues to prioritize cash flow and leverage metrics through 2020 and beyond.

Chief Executive Officer Jay Ottoson comments: "The second quarter presented our industry with steep challenges and the SM Energy team responded. We aggressively reduced costs, maintained capital discipline, reduced outstanding debt, deferred production volumes and delivered approximately $28 million in free cash flow. We have further modified our operating plan to meet our priorities of generating free cash flow and keeping leverage metrics in-line as we move into the second half of 2020 and through 2021.

"These accomplishments are particularly impressive as our field teams adapt to new COVID-19 related protocols and the rest of us work from home. To date, we have seamlessly managed through the challenges presented by the pandemic, and we continue to make the safety of our employees and contractors our top priority.

"I am also pleased to report that we have further evidenced our commitment to environmental and social stewardship, as our Board of Directors recently delegated to its Nominating and Corporate Governance Committee the responsibility to oversee the development and implementation of the Company's environmental and social policies, programs and initiatives, and renamed the committee the Environmental, Social and Governance Committee. In addition, we are initiating participation in the Carbon Disclosure Project and intend to publish the Company's SASB metrics for oil and gas exploration and production."

GUIDANCE FULL YEAR 2020:

• Capital expenditures: $610-630 million, down approximately 25% from the February 2020 Plan. Capital expenditures for the second half of 2020 will be more heavily weighted to the fourth quarter.
• Production: 44-46 MMBoe, or 120.2-125.7 Boe/d, at 49%-50% oil. Third quarter 2020 is expected to range between 10.5-11.0 MMBoe, or 114.1-119.6 Boe/d, at 48% oil.
• G&A: ~$110 million including approximately $20 million non-cash compensation.
• Exploration/Capitalized overhead: ~$40 million.
• LOE: $4.75-$5.00 reflecting cost reductions and fewer workovers.
• Transportation: $3.10-$3.30, reduced to correspond with declining production from South Texas.
• Production and ad valorem taxes: ~4.5% of pre-hedge revenue + ~ $0.40 or ~$1.40.
• DD&A: $17-$18/Boe.

For earnings history and earnings-related data on SM Energy (SM) click here.

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