SM Energy Co. (NYSE: SM) continues to core-up following the sale of about 79,000 net acres of mostly oily noncore properties for a better-than-expected price, the company said Aug. 1.
The Denver company entered definitive agreements with undisclosed companies for the sale of assets in Southeast New Mexico and the Williston Basin in two separate packages. The combined price is $172.5 million, which will be used to pay down SM's revolver and strengthen its balance sheet.
The sale included waterflood assets in New Mexico and producing acreage in North Dakota and Montana. Together, the assets produced about 3,300 barrels of oil equivalent per day (boe/d) in second-quarter 2016, consisting of 82% oil and 18% natural gas.
SM got about $52,000 per boe/d for the properties, said Chris Stevens, vice president and equity research analyst with KeyBanc Capital Markets. SM’s management indicated it previously expected more than $100 million for assets consisting of about 4,300 boe/d, he said.
Stevens views it as a solid price given little near-term development opportunity on the assets. “SM received more proceeds for less production than expected and there could be some small incremental proceeds generated from other noncore assets,” he said in a report.
In February, SM announced noncore asset sale plans for 2016 that also included assets in East Texas and the Powder River Basin. The company’s divestments in New Mexico and the Williston make up the majority of asset sales it anticipated this year.
In total, the divested assets in New Mexico and the Williston had net proved reserves of about 9.5 MMboe at year-end 2015. Reserves are comprised of 87% oil and 13% natural gas and are all proved developed.
Pearce Hammond, senior research analyst with Piper Jaffray & Co., said he wasn’t surprised by SM’s move because noncore asset sales have been part of the company’s normal strategy of high-grading its asset base.
“To be fair, the divested assets have an oilier production mix than SM’s overall corporate production, which is 32% oil, 44% gas and 24% NGL,” Hammond said in a report.
In 2015, SM sold assets in the Arkoma Basin in Oklahoma and the Ark-La-Tex area of East Texas and North Louisiana for $324 million. The company also closed its Tulsa, Okla. office last year, and the company cut its capex in half compared to 2014.
RELATED: SM Energy Lets Go Of Midcontinent Assets, Production Unchanged
SM trimmed another 45% off its 2016 capex, down to about $705 million. The budget has roughly equal amounts to SM’s core assets:
- 30% Permian Basin;
- 30% Eagle Ford;
- 30% Bakken/Three Forks; and
- 10% for other plays.
A portion of SM’s 2016 budget will be used to hold acreage in the Eagle Ford. The company also plans to complete a number of drilled but uncompleted wells in the Eagle Ford and Bakken/Three Forks. Drilling and completion activity will shift to Midland Basin assets in development in the Permian.
Jay Ottoson, SM’s president and CEO, said the asset sales in New Mexico and the Williston were “well-timed and well executed.”
“We are committed to improving liquidity and debt metrics while managing our portfolio to focus on our highest return assets,” Ottoson said in a statement.
At the end of the first quarter, SM had about $290 million drawn on its senior secured credit facility, which has a borrowing base and lender commitments of $1.25 billion.
RBC Richardson Barr advised SM in the divestiture process for the New Mexico sale and UBS Securities LLC advised the company for the Williston sale. The transactions are expected to close late in the third quarter.
Emily Moser can be reached at emoser@hartenergy.com.
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