SM Energy (SM) Tops Q1 EPS by 10c, Proves Operations Update

SM Energy (NYSE: SM) reported Q1 EPS of $1.58, $0.10 better than the analyst estimate of $1.48. Revenue for the quarter came in at $632.7 million versus the consensus estimate of $599.71 million.

OPERATIONS UPDATE

Eagle Ford Shale

The Company's operated net production in the Eagle Ford shale averaged 76.3 MBOE per day in the first quarter of 2014, a 2% sequential increase from the prior quarter. Average daily production in the first quarter of 2014 from the Company's operated Eagle Ford shale program increased 47% over the first quarter of 2013. During the first quarter, SM Energy made 20 flowing completions in its operated Eagle Ford Shale program. During the first quarter, the Company's average lateral length of wells drilled was approximately 25% longer than the average length of wells drilled in 2013. The Company plans to complete these wells in the coming months, some of which will have modified completion designs.

In the non-operated portion of the Company's Eagle Ford shale program, net production for the first quarter of 2014 averaged 23.4 MBOE per day, a 17% sequential increase over the fourth quarter of 2013 production of 20.0 MBOE per day and a 46% increase over the first quarter of 2013. The operator made approximately 107 flowing completions during the first quarter. Consistent with its previously announced 2014 capital budget, the Company expects the drilling and completion carry provided under its Acquisition and Development Agreement with Mitsui to be exhausted in the second quarter of 2014.

Bakken / Three Forks

In the first quarter of 2014, SM Energy's average daily production for its Bakken/Three Forks program was 16.0 MBOE per day. Average daily production for the quarter remained flat from the fourth quarter of 2013 as a result of weather related completion delays in the northern Rockies. During the first quarter, the Company made 12 gross flowing completions in its operated Bakken/Three Forks program.

Permian Basin

During the first quarter of 2014, the Company made 3 flowing completions in its Sweetie Peck property. Initial results from the two wells with sufficient production history are in-line with the Company's previous horizontal well results in the field, with an average peak 30-day initial production rate exceeding 900 BOE per day. The Company expects to complete 14 wells in Sweetie Peck in 2014. In its Buffalo prospect in the northern Midland Basin, the Company expects to drill and complete its first test well targeting the Wolfcamp D interval in the second quarter of 2014.

Powder River Basin

SM Energy completed one well in its Powder River Basin acreage in the first quarter of 2014. The Blackjack Fed 3774 27-22-1FH (SM 33% WI) had a peak 30-day initial production rate of 917 BOE per day (87% oil). The Company added a second rig to the program during the first quarter. Subsequent to the close of the quarter, SM Energy entered into separate agreements to acquire approximately 28,000 additional net acres that are adjacent to the Company's existing acreage and prospective for the Frontier formation. The Company has agreed to pay cash consideration of approximately $100 million plus trade approximately 7,000 net acres in other portions of the basin. Upon closing, these acquisitions will increase SM Energy's total acreage in the Powder River Basin to a total of approximately 161,000 net acres with approximately 122,000 net acres prospective in the Frontier formation. The Company expects to add a third rig in the second quarter to accelerate delineation of its Powder River Basin play area and now expects to complete 9 Frontier and 2 Shannon wells during 2014.

East Texas

In its East Texas program, the Company completed two Woodbine wells in its Deep Pines West prospect. The Matt Dillon 1H (SM 100% WI) and Little Joe 1H (SM 100% WI) had constrained 7-day initial two-stream production rates of 1,046 BOE per day (16% oil) and 820 BOE per day (29% oil), respectively. The heating content of the gas produced from the two wells averaged 1,270 BTU/SCF with flowing casing pressures of approximately 2,000 PSI for the two wells. The Company plans to complete a total of 8 wells in 2014, to test and delineate its East Texas position

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