SM ENERGY ANNOUNCES HIGHLY ACCRETIVE $2.0 BILLION UINTA BASIN ACQUISITION, 11% INCREASE TO FIXED DIVIDEND AND RELOADED $500 MILLION SHARE REPURCHASE PROGRAM
XCL ASSETS EXPAND SM ENERGY'S TOP-TIER PORTFOLIO ADDING (NET TO THE COMPANY):
- ~37,200 net acres (~99% operated), increasing the Company's core net acreage ~14%
- 43 MBoed/38 MBod (88% crude oil),(1) increasing the Company's 2025E net production to ~195 MBoed and oil mix to greater than 50%
- ~390(2) net locations with breakevens
$43 –$57 /Bbl,(4) increasing the Company's inventory life by 2 years to 12+ years(5) -
$50.45 /Boe 2025E cash production margin,(4) increasing the Company's 2025E cash production margin by ~11%; and - 107 million Boe preliminary proved reserves,(7) increasing the Company's estimated net proved reserves by ~18%(8)
TRANSACTION BENEFITS
This value-driven acquisition meets
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Expected to be immediately accretive to key metrics:
Acquired for 2.9x NTM Adjusted EBITDAX(6) (
$78.00 /Bbl and$3.25 /MMBtu), the acquisition is expected to be immediately accretive to key financial metrics. Based on 2025E projections, 2025E Adjusted EBITDAX(6) is expected to increase ~35%, 2025E Adjusted free cash flow(6) is expected to increase ~45%, and 2025E cash production margin(6) is expected to increase ~11%. -
Expands the Company's top-tier asset portfolio with accretive scale, significantly increases oil volumes, and extends low-breakeven inventory life:
Pro forma 2025E net production is expected to increase to ~195 MBoed, oil production is expected to increase to 52% of commodity mix, reinvestment ratio is expected to decrease by 5%, and inventory is expected to increase by approximately 390(2) net quality locations competitive with current portfolio to add two years of inventory life(5).
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Significant resource upside in Core Uinta driven by the Company's technical expertise:
The Uinta Basin has stacked pay potential and high oil content that combine to result in top-tier well performance and inventory with upside. The Company's track record in full stack co-development offers the potential to drive differential value across as many as 17 benches. -
Increasing return of capital while maintaining strong balance sheet:
Highly accretive Adjusted free cash flow(6) metrics support a Board of Directors approved 11% increase in the Company's fixed quarterly dividend policy from
$0.18 to$0.20 per share, expected to commence in the fourth quarter 2024 while projecting a reduction in post-acquisition leverage from ~1.3x net debt-to-Adjusted EBITDAX(6) to less than 1.0x by mid-2025 (assuming current commodity prices). The Board of Directors has also authorized a new$500 million share repurchase program through 2027, replacing the remaining existing program. -
High margin barrels competitive with
Midland Basin due to higher oil content, lower operating costs, and sufficient contracted transportation capacity:SM Energy's 2025E cash production margin(6) is projected to increase approximately 11% as theUinta Basin cash production margin(6) slightly exceeds theCompany's Midland Basin cash production margin(6) due to higher oil content and lower operating costs. - Continued leader in environmental stewardship: The Company remains committed to environmental stewardship, sustainability, and strong corporate governance and intends to apply its standards to these new operations.
President and Chief Executive Officer
FINANCING:
TIMING AND APPROVALS:
The Company's Board of Directors has approved the XCL Acquisition. Consideration at closing will be subject to customary purchase price adjustments. The effective date of the XCL Acquisition is
INVESTOR CALL INFORMATION:
- Webcast (available live and for replay) - on the Company's website at sm-energy.com/investors (replay accessible approximately 1 hour after the live call); or
- Telephone - join the live conference call by registering at: http://event.choruscall.com/mediaframe/webcast.html?webcastid=CxddlT5K. Dial-in for domestic toll free/International is 877-407-6050 / +1 201-689-8022.
ADVISORS:
FOOTNOTES:
(1) Q3 2024 estimated.
(2) Locations normalized for 10K foot lateral length.
(3) Based on
(4) PV-10 Flat oil breakeven prices with gas valued at 20:1 WTI:HH.
(5) The Company's inventory assessment as of
(6) Indicates a non-GAAP measure or metric. Please refer to the "Definition of Non-GAAP Measures and Metrics as Calculated by the Company" section below.
(7) XCL preliminary unaudited estimated net proved reserves are as of
(8) The Company's "Proved Reserves" are estimated net proved reserves as of year-end 2023.
FORWARD LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of securities laws. The words "anticipate," "assume," "believe," "budget," "estimate," "expect," "forecast," "guidance," "intend," "plan," "project," "will" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, which may cause
ABOUT THE COMPANY
SM ENERGY INVESTOR CONTACTS
DEFINITION OF NON-GAAP MEASURES AND METRICS AS CALCULATED BY THE COMPANY
To provide investors with additional information in connection with our results as determined in accordance with
The Company is unable to provide a reconciliation of forward-looking non-GAAP measures as components of forward-looking calculations are inherently unpredictable. The inability to project certain components of the calculations would significantly affect the accuracy of a reconciliation. These measures may not be comparable to similarly titled measures of other companies.
Adjusted EBITDAX: Adjusted EBITDAX is calculated as net income before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results and can exclude items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that the Company believes provides useful additional information to investors and analysts, as a performance measure, for analysis of the Company's ability to internally generate funds for exploration, development, acquisitions, and to service debt. The Company is also subject to financial covenants under the Company's Credit Agreement, a material source of liquidity for the Company, based on Adjusted EBITDAX ratios. Please reference the Company's first quarter 2024 Form 10-Q and the most recent Annual Report on Form 10-K for discussion of the Credit Agreement and its covenants.
Adjusted free cash flow or FCF: Adjusted free cash flow is calculated as net cash provided by operating activities before net change in working capital less capital expenditures before changes in accruals. The Company uses this measure as representative of the cash from operations, in excess of capital expenditures that provides liquidity to fund discretionary obligations such as debt reduction, returning cash to stockholders or expanding the business.
Cash production margin: Cash production margin is calculated as oil, gas, and NGL revenues (before the effects of commodity derivative settlements), less operating expenses (specifically, LOE, transportation, production taxes, and ad valorem taxes). This calculation excludes derivative settlements, G&A, exploration expense, and DD&A and is reflected on a per BOE basis using net equivalent production for the period presented. The Company believes this metric provides management and the investment community with an understanding of the Company's recurring operating margin before G&A, exploration expense, and DD&A , which is helpful to compare period-to-period and across peers.
Net debt: Net debt is calculated as the total principal amount of outstanding senior notes plus amounts drawn on the revolving credit facility less cash and cash equivalents (also referred to as total funded debt). The Company uses net debt as a measure of financial position and believes this measure provides useful additional information to investors to evaluate the Company's capital structure and financial leverage.
Net debt-to-Adjusted EBITDAX: Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above) for the trailing twelve-month period (also referred to as leverage ratio). A variation of this calculation is a financial covenant under the Company's Credit Agreement. The Company and the investment community may use this metric in understanding the Company's ability to service its debt and identify trends in its leverage position. The Company reconciles the two non-GAAP measure components of this calculation.
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