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    SM Energy (SM)

    SM Q4 2024: Prod rebound, 112K bpd goal & buybacks tied to 1x leverage

    Reported on May 12, 2025 (After Market Close)
    Pre-Earnings Price$37.11Last close (Feb 20, 2025)
    Post-Earnings Price$37.11Open (Feb 21, 2025)
    Price Change
    $0.00(0.00%)

    What went well

    • Production Rebound: Despite a Q1 slowdown due to a temporary crew gap, the management expects production to grow steadily through the year into Q3, suggesting that the production dip was a timing issue rather than a structural problem.
    • Proactive Operational Management: The swift restart of the South Texas frac crew in January underscores management’s proactive approach to address short-term issues, positioning the company for a robust production ramp-up later in the year.
    • Strategic Inventory Growth: The significant contribution from the Utah acquisition to inventory growth supports potential future production increases and operational flexibility.

    Q&A Summary

    1. Capital Allocation
      Q: How will repurchases proceed with free cash flow?
      A: Management emphasized a clear path to reach 1x leverage by prioritizing free cash flow, with repurchases resuming once the balance sheet is strong.

    2. Production Guidance
      Q: How will production reach 112K barrels/day?
      A: They aim for the 112,000 barrels/day target by adjusting the oil percentage mix and expecting growth in Q2 and Q3, with timing being key.

    3. Reserves Outlook
      Q: What’s driving reserve changes and PUD declines?
      A: The decline in Midland reserves reflects PUDs falling outside the five‑year window, while Uinta assets continue to be optimized and add value.

    4. Drill/Comp Efficiency
      Q: Why 105 nets drilled vs. 150 completions planned?
      A: Management clarified that the higher completion count results from capital efficiency and acquired asset pace; DUCs are an outcome rather than a managed metric.

    5. Q1 Production Dip
      Q: Why was first quarter production lower?
      A: A delay from a South Texas frac crew created a three‑month gap, which has since been addressed as operations resume.

    6. Rail Delays
      Q: Are rail delays a one-off issue?
      A: The delays, related to refinery downtime and rail constraints, are being managed with added flexibility in storage and railcar capacity.

    7. Non‑Op Spend
      Q: What non‑operated spending is anticipated?
      A: There’s potential for increased non‑op drilling in the Permian, possibly exceeding the prior $19M spend, though final decisions depend on economic conditions.

    8. Uinta Integration
      Q: Why are Uinta production/loss estimates off-target?
      A: Early integration challenges and timing issues in a noisy quarter led to production and LOE variances, with expectations for stabilization as operations fully integrate.

    9. Uinta Productivity
      Q: How productive are Uinta wells initially?
      A: Early results show that lower cube wells, while slower to peak, maintain shallower declines, indicating promising longer‑term value creation.

    10. Gas Asset Focus
      Q: Why not pursue South Texas gas assets now?
      A: Management is holding off on further gas development due to high volatility and instead focuses on oil assets with steadier returns.

    11. Permian Returns
      Q: Are new Permian opportunities competitive?
      A: Early results in Klondike and Woodford‑Barnett are strong—one well produced 150+ MBOE and another 250 MBOE—though final comparisons to legacy assets await further data.

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