SM Energy Company (SM) Bundle
Understanding SM Energy Company (SM) Revenue Streams
Understanding SM Energy Company’s Revenue Streams
SM Energy Company generates revenue primarily through the production of oil, gas, and natural gas liquids (NGLs). Below is a detailed analysis of the company's revenue streams for 2024.
Revenue Sources Breakdown
- Oil Production Revenue: $531.8 million for Q3 2024
- Gas Production Revenue: $50.6 million for Q3 2024
- NGL Production Revenue: $60.0 million for Q3 2024
The total oil, gas, and NGL production revenue for Q3 2024 amounted to $642.4 million, reflecting a 1% increase from the previous quarter's revenue of $633.5 million.
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, the total revenue stood at $1.835 billion, compared to $1.757 billion for the same period in 2023, marking a 4% increase year-over-year.
Contribution of Different Business Segments
| Segment | Q3 2024 Revenue (in millions) | Percentage of Total Revenue |
|---|---|---|
| Oil | $531.8 | 82.8% |
| Gas | $50.6 | 7.9% |
| NGL | $60.0 | 9.3% |
| Total | $642.4 | 100% |
The oil segment represents the largest share of total revenue, accounting for approximately 82.8% of the total revenue in Q3 2024.
Significant Changes in Revenue Streams
Comparing Q3 2024 to Q2 2024, oil production revenue decreased slightly by $0.7 million, while gas production revenue increased by 12% due to improved market conditions.
The average realized price per BOE for Q3 2024 was $41.08, a 6% decrease from the previous quarter.
Summary of Revenue Performance Metrics
| Metric | Q3 2024 | Q2 2024 | Change (%) |
|---|---|---|---|
| Total Revenue | $642.4 million | $633.5 million | 1% |
| Oil Revenue | $531.8 million | $532.6 million | 0% |
| Gas Revenue | $50.6 million | $45.2 million | 12% |
| NGL Revenue | $60.0 million | $55.7 million | 8% |
The increase in gas and NGL revenue indicates a diversification in revenue streams, which could provide stability against fluctuations in oil prices.
A Deep Dive into SM Energy Company (SM) Profitability
A Deep Dive into SM Energy Company's Profitability
Gross Profit Margin: For Q3 2024, the gross profit margin was approximately 63.0%, reflecting a gross profit of $393.9 million against revenues of $642.4 million.
Operating Profit Margin: The operating profit margin for the same quarter was about 37.3%, calculated from an operating income of $239.0 million on total revenues of $642.4 million.
Net Profit Margin: The net profit margin stood at 37.4%, with net income reported at $240.5 million for Q3 2024, against total revenues of $642.4 million.
Trends in Profitability Over Time
Year-to-date (YTD) results indicate that net income for the first nine months of 2024 reached $582.0 million, a 2.6% increase compared to $570.8 million during the same period in 2023.
Operating income increased by 10.2% YTD, from $364.5 million in 2023 to $402.4 million in 2024.
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, the company's gross profit margin of 63.0% exceeds the industry average of 55.0%. The operating profit margin of 37.3% also surpasses the average of 30.0% for similar companies in the sector.
The net profit margin of 37.4% is significantly higher than the industry average of 25.0%, indicating strong profitability relative to peers.
Analysis of Operational Efficiency
The lease operating expense (LOE) per BOE (barrel of oil equivalent) for Q3 2024 was $4.73, showing a decrease from $5.01 in Q3 2023, indicating improved cost management.
Transportation costs per BOE were reported at $2.13, reflecting a sequential increase of 10.0% from the previous quarter, but a 21.0% decrease YTD compared to $2.68 in 2023.
Profitability Metrics Table
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Revenue (in millions) | $642.4 | $606.9 | $1,835.4 | $1,757.0 |
| Gross Profit (in millions) | $393.9 | $367.1 | $1,150.9 | $1,086.5 |
| Operating Income (in millions) | $239.0 | $210.2 | $402.4 | $364.5 |
| Net Income (in millions) | $240.5 | $222.3 | $582.0 | $570.8 |
| Gross Profit Margin (%) | 63.0% | 60.5% | 62.7% | 61.8% |
| Operating Profit Margin (%) | 37.3% | 34.6% | 21.9% | 20.7% |
| Net Profit Margin (%) | 37.4% | 36.6% | 31.7% | 32.4% |
Debt vs. Equity: How SM Energy Company (SM) Finances Its Growth
Debt vs. Equity: How SM Energy Company Finances Its Growth
Debt Levels
As of September 30, 2024, the total outstanding debt of the company was approximately $2.7 billion, all of which was in the form of fixed-rate debt. The company has no floating-rate debt outstanding .
Debt-to-Equity Ratio
The debt-to-equity ratio stands at approximately 0.73, which is below the industry average of about 1.0. This indicates a conservative approach to leveraging and financing growth.
Recent Debt Issuances and Credit Ratings
In August 2024, the company issued $1.48 billion in Senior Notes due in 2029 and 2032. Additionally, it redeemed all $349.1 million of its 2025 Senior Notes . The company currently maintains a credit rating of B1 from Moody's and B+ from S&P.
Balancing Debt and Equity Funding
The company has been active in managing its capital structure through both debt and equity financing. Over the past nine months, it repurchased 1.8 million shares of common stock at a cost of $84.0 million. The total stockholders’ equity as of September 30, 2024, was approximately $4.06 billion.
| Financial Metric | Value |
|---|---|
| Total Outstanding Debt | $2.7 billion |
| Debt-to-Equity Ratio | 0.73 |
| Recent Senior Notes Issued | $1.48 billion |
| 2025 Senior Notes Redeemed | $349.1 million |
| Total Stockholders’ Equity | $4.06 billion |
| Number of Shares Repurchased | 1.8 million |
| Cost of Shares Repurchased | $84.0 million |
Assessing SM Energy Company (SM) Liquidity
Assessing Liquidity and Solvency of SM Energy Company
Current and Quick Ratios
The current ratio as of September 30, 2024, stands at 2.24, indicating a strong liquidity position. The quick ratio, which excludes inventory, is 1.87, reflecting a solid ability to meet short-term obligations without relying on inventory liquidation.
Analysis of Working Capital Trends
As of September 30, 2024, working capital is calculated as follows:
| Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|
| $2,661,313 | $1,188,189 | $1,473,124 |
This shows a significant improvement from the previous year, where working capital was $1,215,000 as of September 30, 2023, indicating a positive trend in liquidity management.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities was $1,204.6 million, an increase from $1,097.9 million in the same period for 2023. This increase is primarily driven by a rise in oil, gas, and NGL production revenue, netting $1,835.4 million for 2024 compared to $1,757.0 million in 2023.
Cash Flow from Operating Activities
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Net Cash Provided by Operating Activities | $1,204.6 | $1,097.9 |
| Net Cash Used in Investing Activities | ($957.9) | ($875.4) |
| Net Cash Provided by Financing Activities | $974.4 | ($265.5) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company has $1,837.3 million in cash and cash equivalents, significantly up from $401.9 million at the same time in the previous year, highlighting a robust liquidity position. The total available borrowing capacity under the revolving credit facility is currently $1.839 billion, with a total aggregate lender revolving commitment amount of $2.0 billion.
The company's financial health is further supported by a strong cash flow generation ability and a manageable debt structure, with total liabilities standing at $3.385 billion as of September 30, 2024.
Is SM Energy Company (SM) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the financial metrics for the company provide insight into its valuation status. The Price-to-Earnings (P/E) ratio stands at 10.7, while the Price-to-Book (P/B) ratio is noted at 1.6. The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is recorded at 6.8.
| Valuation Metric | 2024 Value |
|---|---|
| P/E Ratio | 10.7 |
| P/B Ratio | 1.6 |
| EV/EBITDA Ratio | 6.8 |
Over the past 12 months, the stock price has experienced fluctuations. The stock opened at $30.56 and closed at $38.19, marking an increase of approximately 24.7%.
In terms of dividends, the company has declared a dividend of $0.20 per share for the fourth quarter of 2024, which results in a dividend yield of approximately 1.95%. The payout ratio is noted at 18.3%, indicating a sustainable dividend policy.
Analyst consensus on the stock valuation is predominantly positive, with a recommendation breakdown as follows:
| Recommendation | Count |
|---|---|
| Buy | 12 |
| Hold | 5 |
| Sell | 1 |
This consensus reflects confidence in the company's financial health and future growth prospects.
Key Risks Facing SM Energy Company (SM)
Key Risks Facing SM Energy Company
The financial health of SM Energy Company is influenced by various internal and external risk factors. Understanding these risks is crucial for investors assessing the company's stability and growth potential.
Industry Competition
The energy sector is highly competitive, with numerous players vying for market share. SM Energy faces competition from both large integrated oil companies and smaller independent producers. This competition can lead to pricing pressures, impacting revenue.
- Market Share: The company holds a significant position in the Midland Basin and South Texas regions, but competition from peers can affect its market share.
- Technological Advancements: Competitors may adopt new technologies faster, improving efficiency and reducing costs, which could put SM Energy at a disadvantage.
Regulatory Changes
Changes in regulations can significantly impact operational costs and project viability.
- Environmental Regulations: Stricter environmental laws may increase compliance costs. For instance, SM Energy's capital expenditures are projected between $1.24 billion and $1.26 billion for 2024, which may rise due to regulatory compliance.
- Tax Policies: Changes in tax laws, particularly those affecting oil and gas production, could alter the company's profitability.
Market Conditions
The oil and gas market is subject to volatility driven by geopolitical events, supply and demand dynamics, and macroeconomic factors.
- Commodity Prices: Fluctuations in oil, gas, and NGL prices directly affect revenue. For example, the company reported a 6% decrease in total realized price per BOE in Q3 2024 due to declining benchmark prices.
- Production Volume Variability: Average net daily equivalent production volumes increased by 7% in Q3 2024, but future production levels are uncertain and can be affected by market conditions.
Operational Risks
Operational challenges can hinder growth and affect profitability.
- Drilling and Completion Activities: The company operated four drilling rigs in the Midland Basin and two in South Texas, with costs incurred totaling $168.3 million and $125.9 million respectively in Q3 2024.
- Supply Chain Disruptions: Disruptions in the supply chain can delay projects and increase costs, impacting overall operational efficiency.
Financial Risks
Financial health is a critical aspect of the company's risk profile.
- Debt Levels: As of September 30, 2024, total senior notes amounted to $2.736 billion, with an average interest rate of 7.3%, which increases financial burden.
- Interest Rate Fluctuations: An increase in interest rates could lead to higher interest expenses. For Q3 2024, interest expense was reported at $50.7 million, compared to $21.8 million in the previous quarter.
Strategic Risks
Strategic decisions can create both opportunities and risks for the company.
- Acquisition Strategies: The recent acquisition of Uinta Basin assets poses integration risks and requires significant capital investment.
- Stock Repurchase Programs: The company has authorized up to $500 million for stock repurchases, which may affect liquidity and financial flexibility.
Mitigation Strategies
To address these risks, SM Energy has implemented various strategies:
- Diversification: The company is diversifying its asset base to reduce dependence on any single region or commodity.
- Hedging Activities: SM Energy employs financial derivatives to manage commodity price fluctuations, which has resulted in net derivative gains of $86.3 million for Q3 2024.
- Cost Management: Continuous efforts to optimize operations and control costs are vital, as evidenced by a 9% increase in production expenses due to higher transportation costs.
| Risk Factor | Impact | Current Metrics |
|---|---|---|
| Debt Levels | Increased financial burden | Total Senior Notes: $2.736 billion |
| Commodity Prices | Revenue volatility | Total realized price per BOE: decreased 6% |
| Production Expenses | Higher operational costs | Production expense: $148.4 million in Q3 2024 |
| Average Net Daily Production | Growth potential | Average net daily equivalent production: 170.0 MBOE |
| Capital Expenditures | Future growth funding | Projected: $1.24 billion to $1.26 billion |
Future Growth Prospects for SM Energy Company (SM)
Future Growth Prospects for SM Energy Company
Analysis of Key Growth Drivers
SM Energy Company is poised for growth through strategic initiatives, market expansions, and product innovations. The company has emphasized its focus on high-yield oil development projects in key areas such as the Midland Basin, South Texas, and Uinta Basin.
Capital Expenditures and Production Growth
For 2024, SM Energy expects to allocate between $1.24 billion and $1.26 billion for its capital program, mainly for the development of newly acquired Uinta Basin assets. As of September 30, 2024, the company operated four drilling rigs in the Midland Basin and two in South Texas, achieving an average net daily equivalent production of 170.0 MBOE per day, reflecting an increase of 7% sequentially.
Revenue Growth Projections
SM Energy's oil, gas, and NGL production revenue for the nine months ended September 30, 2024, reached $1.835 billion, up from $1.757 billion in the same period in 2023. The company’s net income for the same period was $582 million, translating to a diluted net income per share of $5.03.
Strategic Initiatives and Partnerships
In October 2024, SM Energy completed the Uinta Basin Acquisition, funded through a combination of senior notes and cash. This acquisition is expected to enhance production capabilities and expand market reach. The company’s strategic focus on inventory replacement and operational efficiency, leveraging its strengths in geosciences and development optimization, is pivotal for future growth.
Competitive Advantages
SM Energy's competitive advantages include:
- Access to high-quality reserves in prolific regions, namely the Midland Basin and Uinta Basin.
- Operational efficiencies resulting in lower lease operating expenses, which were reported at $4.73 per BOE.
- Robust cash flow generation with net cash provided by operating activities of $1.204 billion for the nine months ended September 30, 2024.
Financial Performance Metrics
| Metric | 2024 (YTD) | 2023 (YTD) | Change |
|---|---|---|---|
| Net Income | $582 million | $570 million | +2.1% |
| Oil Production Revenue | $1.505 billion | $1.343 billion | +12% |
| Gas Production Revenue | $163.6 million | $245.3 million | -33% |
| NGL Production Revenue | $166.6 million | $168.3 million | -1% |
| Average Net Daily Production (MBOE) | 170.0 | 157.9 | +7% |
Conclusion
The strategic initiatives and robust financial performance position SM Energy for significant growth in the coming years. With a strong focus on capital investments and operational efficiency, the company is well-equipped to capitalize on market opportunities.
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Article updated on 8 Nov 2024
Resources:
- SM Energy Company (SM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of SM Energy Company (SM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View SM Energy Company (SM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.