SM Energy Company (NYSE: SM) today announces preliminary
production results for the fourth quarter of 2010 and its estimate
of proved reserves as of December 31, 2010, as well as an update of
divestiture activity and liquidity.
MANAGEMENT COMMENTARY
Tony Best, President and CEO, remarked, “We had a successful
year in 2010. From a production standpoint, our fourth quarter
results cap a strong year of production growth. In particular, our
programs in the Eagle Ford and Bakken/Three Forks saw significant
growth in the fourth quarter. With regard to our proved reserves,
the Company replaced nearly 350% of its production organically
through the drill bit. This reflects the transformation we have
been making over the last couple of years into a leading
unconventional resource company. I am proud of the results that our
management team and employees have delivered for 2010 and believe
that our work this year will benefit our shareholders in the years
to come.”
PRELIMINARY PRODUCTION RESULTS
Preliminary estimated production for the fourth quarter of 2010
was 31.7 BCFE, which is above the previously provided guidance
range of 28.0 – 30.5 BCFE. On a sequential basis, production grew
15% from the 27.5 BCFE reported in the third quarter of 2010.
Following is a comparison of the Company’s production on a
sequential basis:
4Q10
3Q10 % Change Oil (MMBbl)
1.8 1.6 13 % Gas (Bcf) 20.7 17.9 16 % Equivalent (BCFE) (1) 31.7
27.5 15 %
(1) Totals may not add due to rounding.
Within reported gas production, the BTU content of the natural
gas continues to increase as a result of the growing contribution
of natural gas liquids (NGLs) to the production stream. This
increase in BTU content results in higher price realizations for
the Company’s gas production.
The Company’s preliminary production by region for the fourth
quarter of 2010 is as follows:
Mid-Continent
ArkLaTex
SouthTexas&
GulfCoast
Permian
RockyMountain
Total (1)
Oil (MMBbl) .1 - .4 .4 .9 1.8 Gas (Bcf) 7.6
4.5 6.3 1.1 1.1 20.7
Equivalent (BCFE) (1) 8.0 4.6 9.0 3.7 6.4 31.7 Avg. Daily
Equivalents (MMCFE/d) 86.9 50.0 97.6 40.6 69.2 344.4 Relative
percentage 25 % 15 % 28 % 12 % 20 % 100 %
(1) Totals may not add due to rounding.
Strong production in the Company’s Eagle Ford shale (both
operated and non- operated), Bakken/Three Forks, and Haynesville
shale programs are the principal drivers for the increase in
production on a sequential basis. Below is a table showing the
equivalent production in significant programs in recent
periods:
(in BCFE) 4Q10*
3Q10 % Change
Operated Eagle Ford 5.5 3.6 53 % Non-op Eagle Ford 2.4 1.3 85 % ND
Bakken/Three Forks 2.1 1.5 40 % Haynesville 2.2
0.7
214 % Granite Wash 1.9 2.0 (5 %) Wolfberry 2.8 2.7 4 %
* Preliminary estimated.
For the full year 2010, the Company estimates production of
110.0 BCFE.
ESTIMATE OF 2010 PROVED RESERVES
SM Energy’s estimate of proved reserves as of December 31, 2010,
was 984.5 BCFE, which is an increase of 27% from 772.2 BCFE at the
end of 2009. These reserves are comprised of 57.4 MMBbl of oil and
640.0 Bcf of natural gas, and are 70% proved developed. The before
income tax PV-10 value of the Company’s estimated proved reserves
at December 31, 2010 was $2.3 billion, which was roughly $1.0
billion higher than the prior year. Over 80% of SM Energy’s
estimated proved reserves by value were audited by an independent
reserve engineering firm.
Prices used at year end to calculate the Company’s estimate of
proved reserves were $4.38 per MMBTU of natural gas and $79.43 per
barrel of oil and use the trailing 12-month arithmetic average of
the first of month price. These prices are 13% and 30% higher than
the prices used at the end of 2009 for natural gas and oil,
respectively.
The roll-forward of the Company’s estimate of proved reserves is
provided in the following table:
(in BCFE) Beginning of year 772.2 Revisions of
previous estimate (engineering, price, and aged PUD) 24.7
Discoveries and extensions 270.2 Infill reserves in an existing
proved field 114.0 Purchases of minerals in place .2 Sales of
reserves (86.8 ) Production (110.0 ) End of year 984.5
Percentage natural gas 65 % Percentage proved
undeveloped 30 %
The Company’s estimate of proved reserves by region for 2010 is
as follows:
(in BCFE)
Mid-Continent
ArkLaTex
SouthTexas&
GulfCoast
Permian
RockyMountain
Total (1)
Proved developed 198.7
88.8 97.0 98.5 204.3 687.3 Proved undeveloped 94.9 49.1
110.3 15.3 27.5 297.2 Total
proved (1) 293.7 137.9 207.3 113.9 231.8 984.5 Relative
percentage 30 % 14 % 21 % 12 % 24 % 100 % Percentage natural gas 97
% 99 % 72 % 28 % 16 % 65 %
(1) Totals may not add due to rounding.
Using the Company’s preliminary estimate of full year 2010
production of 110 BCFE, the Company’s reserve replacement ratio,
excluding the impact of any revisions, divestitures, or
acquisitions, is 349% and the Company’s reserve life is 9.0 years
as of December 31, 2010.
SELECTED MAJOR PLAY ECONOMIC SENSITIVITIES
The Company is providing economic sensitivities for its plays
with significant capital allocated to them in 2011.
Operated Eagle Ford Shale
NYMEX Price
($ per Bbl / MMBtu)
$65.00 /$3.50
$75.00 /$4.50
$85.00 /$5.50
$95.00 /$6.50
Before-tax IRR 12% 27% 45% 68%
The Operated Eagle Ford shale sensitivity assumes a gross well
cost of $7.0 million, an estimated ultimate recovery (EUR) of 2.9
BCFE, and a 30-day average initial production (IP) rate of 4.9
MMCFE/d.
Bakken / Three Forks
NYMEX Price($ per Bbl / MMBtu)
$65.00 /$3.50
$75.00 /$4.50
$85.00 /$5.50
$95.00 /$6.50
Before-tax IRR 10% 15% 22% 29%
The Bakken / Three Forks sensitivity assumes a gross well cost
of $6.7 million, an EUR of 373 MBOE, and a 30-day average IP rate
of 414 BOE/d.
The gross well costs used above are forward looking and do not
include land, seismic, or general and administrative costs. The
EURs used above reflect the estimated proved reserves associated
with a representative proved undeveloped well location in the
respective play. Please refer to the “Cautionary Statement
Concerning Hydrocarbon Volumes” for important disclosures related
to EURs and IPs.
DIVESTITURE UPDATE
In January 2011, the Company closed a portion of its previously
announced Rocky Mountain divestiture of non-core PDP properties for
$41 million, with the remainder expected to be closed in the first
quarter of 2011. The Company’s Permian divestiture of non-core PDP
properties closed in December 2010 for $56 million. These
transactions are both subject to customary closing adjustments and
marketing payments.
The Company is continuing negotiations on the potential sale of
its entire Marcellus shale position in north central
Pennsylvania.
LIQUIDITY UPDATE
As of December 31, 2010, SM Energy had $48.0 million outstanding
under its credit facility. Unused availability under the facility
at that date, excluding outstanding letters of credit, was $629.5
million.
INFORMATION ABOUT PRODUCTION AND PROVED RESERVE
AMOUNTS
The information in this release is unaudited and subject to
revision. Audited and final results will be provided in the press
release announcing fourth quarter and full year results ahead of
the Company’s earnings conference call scheduled for February 25,
2011. The Company’s Annual Report on Form 10-K for the year ended
December 31, 2010 is currently planned to be filed with the
Securities and Exchange Commission on or about February 25, 2011.
SM Energy believes that the presentation of pre-tax discounted
present value is relevant and useful to investors because it
presents the discounted future net cash flows attributable to the
Company’s proved reserves prior to taking into account future
corporate income taxes and its current tax structure. The Company
further believes investors and creditors use pre-tax discounted
present value as a basis for comparison of the relative size and
value of its proved reserves as compared with other companies. SM
Energy’s pre-tax discounted present value as of December 31, 2010
may be reconciled to its standardized measure of discounted future
net cash flows as of December 31, 2010 by reducing the Company’s
pre-tax discounted present value by the discounted future income
taxes associated with such reserves. This reconciliation is not
currently available and will be included, along with additional
reserve disclosure, in the Company’s 2010 Annual Report on Form
10-K.
CAUTIONARY STATEMENT CONCERNING HYDROCARBON VOLUMES
Proved reserves are those quantities of oil and gas, which, by
analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible – from a given
date forward, from known reservoirs, and under existing economic
conditions, operating methods, and government regulations – prior
to the time at which contracts providing the right to operate
expire, unless evidence indicates that renewal is reasonably
certain. In this release, the Company uses the term “EUR”
(estimated ultimate recovery), which for purposes of this press
release is the sum of estimated proved reserves remaining as of a
given date and cumulative production as of that date.
In this release, the Company uses type well EURs and initial
potential (“IP”) production rates to forecast rates of return under
various pricing scenarios. These hypothetical results incorporate a
number of assumptions and are for illustrative purposes only.
Actual EURs and IPs will vary significantly. The IP rates in many
of the Company’s plays have steep decline curves and these IP rates
should not be viewed as sustained production rates.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements within the
meaning of securities laws, including forecasts and projections.
The words “will,” “believe,” “budget,” “plan,” “intend,”
“estimate,” “forecast,” and “expect” and similar expressions are
intended to identify forward-looking statements. These statements
involve known and unknown risks, which may cause SM Energy’s actual
results to differ materially from results expressed or implied by
the forward-looking statements. These risks include such factors as
the volatility and level of oil and natural gas prices, the
uncertain nature of the expected benefits from the acquisition and
divestiture of oil and gas properties, uncertainties inherent in
projecting future rates of production from drilling activities and
acquisitions, the ability of purchasers of production to pay for
divested properties, the availability of debt and equity financing,
the ability of the banks in the Company’s credit facility to fund
requested borrowings, the ability of hedge counterparties to settle
hedges in favor of the Company, the imprecise nature of estimating
oil and gas reserves, the availability of additional economically
attractive exploration, development, and property acquisition
opportunities for future growth and any necessary financings,
unexpected drilling conditions and results, unsuccessful
exploration and development drilling, drilling and operating
service availability, the risks associated with the Company’s
hedging strategy, and other such matters discussed in the “Risk
Factors” section of SM Energy’s 2009 Annual Report on Form 10-K and
subsequent quarterly reports filed on Form 10-Q. Although SM Energy
may from time to time voluntarily update its prior forward-looking
statements, it disclaims any commitment to do so except as required
by securities laws.
ABOUT THE COMPANY
SM Energy Company, formerly named St. Mary Land &
Exploration Company, is an independent energy company engaged in
the exploration, exploitation, development, acquisition, and
production of natural gas and crude oil. SM Energy routinely posts
important information about the Company on its website. For more
information about SM Energy, please visit its website at
sm-energy.com.
PR-11-02
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