SM Energy Co Q4 2024 Earnings Call- Q&A Session Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Scialla - Stephens Inc - Analyst : Hi. Good morning, everybody. Wanted to see if you could speak to the first quarter guidance, why production was down, I wanted to see specifically was the third-party issue that I guess, impacted the -- you had some delays in railing oil. Was that resolved in the fourth quarter or some of that still in the first quarter as well?

Question: Michael Scialla - Stephens Inc - Analyst : So really just a timing issue, nothing more than that.

Question: Michael Scialla - Stephens Inc - Analyst : And then you talked 40% increase in drill year-over-year. I want to see if can you provide any detail behind where the where that number is? And can you break it out by area even at a high level? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Michael Scialla - Stephens Inc - Analyst : Okay. Very good. If I could follow up with just one more on that inventory I don't think last year, you included any of the dry gas locations that you have in the Eagle Ford, wondering if you included any of those this year given the increase in prices are there any plans to develop any of those assets with the stronger gas?

Question: Michael Scialla - Stephens Inc - Analyst : Great. Thanks for the color. Appreciate it.

Question: Gabriel Daoud - TD Cowen - Analyst : Hey, good morning, everyone. I was hoping we can maybe touch on just the full year guidance range for 2025, quite a wide range there. Could you maybe speak to what you need to see your confidence level and maybe getting close to that 112,000 barrels a day level?

Question: Gabriel Daoud - TD Cowen - Analyst : Okay. And so just on the prior question, last question. But -- so the trajectory is basically significant growth in 2Q, 3Q and then down in 4Q. Is that how we should think about it?

Question: Gabriel Daoud - TD Cowen - Analyst : Okay. And then my official follow-up is, how should we be looking at 2026, Obviously, a lot of moving pieces in '25 with a heavy level of equipment and dropping, so maybe the shortest way to ask is what would maintenance be to hold -- let's say, the midpoint of 2025 oil production flat into 2026.

Question: Gabriel Daoud - TD Cowen - Analyst : Okay. And so similar capital spend, was that fair too or no?

Question: Gabriel Daoud - TD Cowen - Analyst : Great. Thanks a lot, guys. Very helpful.

Question: Zach Parham - JP Morgan - Analyst : Thanks. Maybe just following up on Michael's question. You mentioned some transport delays during the quarter. I think those were rail delays in -- can you just give us a little more color on those delays? Is this a one-off? Or would you expect -- are these things that regularly happen just -- and you have to plan for in the future? I'm just trying to get a sense on this, as it's a new asset for you all.

Question: Zach Parham - JP Morgan - Analyst : Got it. And then my follow-up. In the release, you mentioned some -- the potential for some non-op spending that would be decided on later in the year. Could you just give us a little more color there? What non-op assets or projects are you considering maybe could you quantify the potential level.

Question: Zach Parham - JP Morgan - Analyst : Is it fair -- if it's a few net wells, is it fair to say that it would be in the ballpark of the same level of spending you had in '24 on non-op?

Question: Zach Parham - JP Morgan - Analyst : Thank you, sir. Appreciate the color.

Question: Leo Mariani - Roth MKM - Analyst : Hi, guys. I wanted to ask really just about the drilling and completion activity this year. So I'm looking at this right, you guys are drilling 105 net wells in 2025, completing 150 net wells. So definitely, it seems like a bit of a mismatch on the drilling versus the completion. So hoping you could speak to that a little bit more. It sounds like you guys are maybe blowing down some DUC inventory here and would you foresee a situation where you have to kind of pick up drilling in '26 to maybe get back to a similar number of completions? Just any color on that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Leo Mariani - Roth MKM - Analyst : Great. So do you see a situation where you have to increase drilling a bit to kind of get back to that kind of 150 roughly completions, if that's the plan?

Question: Leo Mariani - Roth MKM - Analyst : That's helpful color. And then just jumping over to the Uinta here. I know these were like really early numbers, but you guys announced the acquisition in mid-2024. There was a discussion of Uinta production of around 43,000 BOE per day. It looks like it came in at 36% in the fourth quarter. I know you guys said that some of that was inventory builds. And then also, I think you guys had talked about an LOE in Utah of around $470 a barrel. It looks like it came in around $715 in the fourth quarter. So I was hoping you could just give a little bit more color in terms of the variance from a high level on those numbers.

Question: Leo Mariani - Roth MKM - Analyst : Okay. Thank you.

Question: Oliver Huang - Tudor Pickering Holt & Co - Analyst : Good morning, all, and thanks for taking my questions. Just wanted to start on the Uinta, just with respect to well productivity. I know it's still pretty early on the assets, but just any sort of initial takeaways with respect to well productivity, you're seeing relative to the acquisition type curves that were underwritten with the deal anything that we should be aware of from the perspective of downtime or constrained flow and when we might start to see a full start to complete SM well designed to come online?

Question: Oliver Huang - Tudor Pickering Holt & Co - Analyst : And maybe just for a follow-up, kind of looking at your inventory slide, the 10-plus years assumed 120 to 130 gross well run rate per year. Just kind of wondering what average lateral length does that assume and just kind of saying how you all are turning in line 150 net wells this year, the gross being a bit higher than that. Really just trying to reconcile if this $120 million to $130 million run rate is how you all are thinking about a sustaining program run rate beyond 2025, just kind of given that delta or if it's just more illustrative in nature. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Oliver Huang - Tudor Pickering Holt & Co - Analyst : Yes. And just to clarify, for the lateral length, something similar to what the 2025 program, that 11,000 to 12,000 range, that's a good number to kind of use for that.

Question: Oliver Huang - Tudor Pickering Holt & Co - Analyst : Perfect. Thanks for the time.

Question: Michael Furrow - Pickering Energy Partners - Analyst : That's all right. Thanks for having me on this morning Just wanted to hit on sort of the DUC drawdown and what sort of went into that decision. So clearly, there is -- your drilling cycle times are sort of outpacing your completion cycle times. It looks like '24, you grew your net DUCs by about 8 net DUCs down to like up to 104, right. Planning on drawing down 45 of those this year, really an efficient use of capital. So I was wondering if you guys could just sort of walk us through what went into the decision to sort of draw those down this year? And maybe give us an idea about what percentage of the current DUC count is more of a regular working DUC count that's not just sort of a DUC backlog.

Question: Michael Furrow - Pickering Energy Partners - Analyst : Yeah, that makes sense. Very helpful.

Question: Michael Furrow - Pickering Energy Partners - Analyst : All right. That's noted. I'd like to talk a little bit about capital allocation. A few moving pieces with the company, integrating you went the deal, changing activity levels. I'm just looking at your slide -- your slide here was the capital allocation, 35% to 40% split in the Midland, you went to 25% in South Texas. So longer term, does this seem like the right capital allocation split and the 150 net turn-in-line cadence for the go-forward company? And would you expect to keep volumes around that 25% guidance level of 107,000 barrels a day?

Question: Michael Furrow - Pickering Energy Partners - Analyst : All right. That's helpful.

Question: Neal Dingmann - Truist Securities - Analyst : Okay. Thanks. This is Neal Dingmann. My first question, guys, is just on another one on Uinta, if I may, specifically. Just wondered, has -- you talked a bit about this already this morning on the release. I'm just wondering has the '25 plan program or your growth expectation changed at all based REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Neal Dingmann - Truist Securities - Analyst : Great, beth. And then maybe my second just on reserves, specifically noticing '24 net proved reserves went up nicely, obviously, given that Uinta addition I'm just wondering, when you look sort of go forward, can you just talk about maybe about what you're expecting for future, do Uinta you want to sort of hold based on what you're doing there? And as you're adding things? And then secondly, it looked like the Midland reserve decreased a little bit. Was that related performance revisions? Or what was driving that?

Question: Neal Dingmann - Truist Securities - Analyst : Was that slowdown just driven by the Uinta by reallocation? Is that primarily...

Question: Neal Dingmann - Truist Securities - Analyst : Great, great update. Thank you all

Question: Tim Rezvan - KeyBanc Capital Markets - Analyst : Good morning, folks. Thanks for taking my question. Herb I'll spare you on any more DUC questions, and I'll throw on away here. Look, repurchases obviously came down a lot in 2024. It makes sense with the big Uinta acquisition. It's been an interesting dynamic in the market where companies that are actively repurchasing really didn't see much outperformance in 2024. So just kind of curious what -- it looks -- you have a pretty clear path to get leverage back at that 0.7 times, 0.8 times range at the end of the year. How are you thinking about repurchases? And should we look at 2023 as like a kind of maybe a steady-state kind of cadence for you all.

Question: Tim Rezvan - KeyBanc Capital Markets - Analyst : To 2023?

Question: Tim Rezvan - KeyBanc Capital Markets - Analyst : Okay. That's helpful. And then my follow-up, I would -- just on the oil realizations in the fourth quarter were a little better than what we expected. It's hard to have a feel for kind of how Uinta is going to trend over time. As you look forward, Herb, you've sort of vaguely commented about REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Tim Rezvan - KeyBanc Capital Markets - Analyst : Okay. Fair enough. Thank you.

Question: Scott Hanold - RBC Capital Markets - Analyst : Thanks. First, Jennifer, congrats on the retirement. It was a good work in all these years and best of luck in your future.

Question: Scott Hanold - RBC Capital Markets - Analyst : My first question is going to be just on some of the South Texas gas tier assets, it seems like you guys have more of a, I guess, to kind of focus on the oil properties right now. I know the commodities are sort of moving in a different direction where I think just broadly speaking, it feels like more folks are more constructive on gas and less so on oil, but it seems like you're taking a different sort of angle. Is it more on the commodity view? Or is it just the fact that your oil properties still provide a better rate of return opportunity.

Question: Scott Hanold - RBC Capital Markets - Analyst : Okay. Understood. And when we take a look at the Permian opportunities and specifically, if we look at Klondike and the greater Sweetie Peck Woodford-Barnett opportunity, how do those returns? I know it's still early, but how do you think those returns will compare to sort of your legacy Permian activity?

Question: Scott Hanold - RBC Capital Markets - Analyst : Okay. So it sounds like things are going well, but I guess I'm sensing it may be too early for you guys to put a stake in the ground and saying it's as good as your legacy stuff that you've done in the past? Is it just too early?

Question: Scott Hanold - RBC Capital Markets - Analyst : Okay. Thank you.

Question: Gabriel Daoud - TD Cowen - Analyst : Thanks for getting me back on. Jennifer, do want to say congrats to you as well. I hope you enjoy retirement. And then my follow-up guys.

Question: Gabriel Daoud - TD Cowen - Analyst : Thanks, Jennifer. It's been a pleasure. Guys, just on the Midland reserves. I recognize the removal of PUDs related to the five-year window. But then the negative performance revisions, and then the additions related to infills, could you maybe just discuss a little bit what's going on there?

Question: Gabriel Daoud - TD Cowen - Analyst : All right. Thanks, everyone. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.