• Free Cash Flow Increase: Expected 40% increase in 2025.
• Oil Production Growth: Projected 30% increase.
• Leverage Ratio: Anticipated to meet 1 times leverage by the second half of 2025.
• Cash Production Margin: Approximately $40 per BOE for Uinta Basin acquisition.
• Gross Inventory Count: Increased by about 40% due to Uinta Basin acquisition.

• Warning! GuruFocus has detected 8 Warning Signs with NVRI.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• SM Energy Co (NYSE:SM) expects a 40% increase in free cash flow for 2025, supported by a 30% growth in oil production.
• The company maintains a strong balance sheet, aiming for 1 times leverage by the second half of the year.
• The Uinta Basin acquisition has increased the gross inventory count by about 40%, enhancing production capabilities.
• SM Energy Co (NYSE:SM) has successfully restarted a South Texas frac crew, which is expected to boost production throughout the year.
• The company is focusing on capital efficiency, with strong returns across its Permian assets and promising results from new wells in Klondike and Woodford-Barnett.

Negative Points

• First quarter production guidance is down due to a three-month gap in TILs, caused by dropping a South Texas frac crew in the fourth quarter.
• Transport delays, including rail delays and refinery downtime, have impacted the timing of sales recognition.
• The company faces challenges with a wide guidance range for 2025, attributed to timing-related production fluctuations.
• There is uncertainty regarding non-op spending, with potential projects not yet confirmed or approved.
• The Midland reserve has decreased slightly due to PUDs falling out of the five-year window, influenced by a slowdown in activity.

Q & A Highlights

Q: Could you explain the first quarter production guidance and the impact of third-party issues on production? A: Beth McDonald, COO, explained that the first quarter production was affected by dropping a South Texas frac crew in the fourth quarter, leading to a three-month gap in TILs. This impacted volumes in the first quarter, but production is expected to grow throughout the year.

Q: Can you provide details on the 40% increase in drilling year-over-year and break it down by area? A: CEO Herb Vogel stated that the Utah acquisition significantly contributed to inventory growth. However, they are not breaking down the inventory by area and are being conservative in their estimates.

Q: What is the outlook for 2026, and what would be the maintenance level to hold 2025 oil production flat into 2026? A: CEO Herb Vogel mentioned that assuming commodity prices remain stable, the plan would be for flat to single-digit production growth. By year-end 2025, the balance sheet should be in great shape, allowing for increased return of capital to stockholders in 2026.

Q: Can you provide more color on the transport delays experienced during the quarter? A: Beth McDonald, COO, explained that the delays were due to refinery downtime in Salt Lake City and rail delays. They are building flexibility within their railcar and storage capacity to manage such issues in the future.

Q: What are the plans for non-op spending, and what projects are being considered? A: CEO Herb Vogel stated that potential non-op activity is included in capital expenditures, primarily in the Permian Basin. Discussions with business neighbors are ongoing, and participation will depend on economic viability. Non-op spending in 2024 was $19 million.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.