On Jun 1, 2015, we issued an updated research report on SM Energy Company SM.
With an increasing focus on oil, specifically in the Permian and Rocky Mountain regions, SM Energy is expected to be able to boost its oil-weighted activity. Additionally, the company has meaningful leasehold positions in the leading U.S. shale plays, which includes the Bakken, Niobrara, Haynesville, and Granite Wash. These assets should provide the company with many years of profitable drilling inventory. Growth drivers include the South Texas Eagle Ford Shale, Rockies, Williston Basin and Bakken/Three Forks shales.
SM Energy’s attractive oil and gas investments, balanced and diverse portfolio of proved reserves as well as development drilling opportunities are expected to create long-term value for shareholders. We view the company as one of the most attractive players in the exploration and production (E&P) space.
While Eagle Ford is likely to accelerate faster than expected because of additional takeaway, the company also remains proactive in the Permian play. The inclusion of additional acreage to its holding in the Permian play validates the potential of the basin. Moreover, the leasehold expansion in New Ventures along with acreage additions in its East Texas and the Powder River Basin has contributed to production growth.
However, reduced capital spending and a decline in operating rigs could hamper financials for the company. Being a firm in the upstream energy space, SM Energy is likely to face troubles amid weak commodity prices. The company anticipates a substantial decline in the number of operating rigs in 2015, which in turn, would result in reduced production. Moreover, a 40% cut in its capital spending could also hurt production volumes.
Though the company holds considerable acreage in the Williston Basin, most of its holdings lie in a region having low yield. Therefore, its results are likely to lag its peers who hold acreage in the core region of the Bakken.
Stocks to Consider
SM Energy currently carries a Zacks Rank #3 (Hold). Better-ranked players from the same space include Transmontaigne Partners L.P. TLP, LRR Energy, L.P. LRE and Pembina Pipeline Corporation PBA. All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment