[Editor's note: This story was updated at 12:53 p.m. CT April 4.]
SM Energy Co. (NYSE: SM) announced on April 4 the sale of $292.3 million worth of noncore assets, continuing its strategy to zero in on Texas’s Midland Basin and Eagle Ford Shale plays while reducing the company's debt.
The Denver-based oil and gas producer said it entered two agreements with undisclosed buyers to sell its remaining Bakken position and third-party operated assets known as Halff East in West Texas. SM Energy estimates a reduction of 1.2 million boe, 81% oil and 19% natural gas, on production this year from both transactions—that’s roughly 3% of the company’s 2018 production guidance, as of Feb. 21.
Gabriele Sorbara, senior equity analyst with Williams Capital Group LP, estimates SM Energy’s assets sold for roughly $41,000 per flowing boe, which is accretive to SM’s current implied market valuation of $35,587 per flowing boe.
Overall, the valuation of SM Energy’s assets was lower than Sorbara had expected. The company’s Williston Basin assets were valued by Sorbara at $300 million and the Halff East assets at $100 million.
“Despite a lower than expected valuation, we believe these transactions unlock value that was not reflected in the stock and further improve its balance sheet. Moreover, the Williston Basin sale transitions SM to a pure-play Texas company, consistent with its strategy of focusing on its core Midland Basin and Eagle Ford shale assets,” Sorbara said in an April 4 note.
In total, SM Energy has announced the divestiture of roughly $792 million of noncore assets year-to-date, which President and CEO Jay Ottoson said is expected to reduce the company’s net debt pro forma for year-end 2017 by 30%.
SM Energy’s net debt as reported at the end of fourth-quarter 2017 was $2.7 billion. Pro forma for $792 million in expected proceeds from divestitures year-to-date, net debt would have been $1.9 billion, according to the company press release.
“We are committed to our strategy to focus on development of our core top-tier Midland Basin and Eagle Ford assets and improving our balance sheet by reducing debt. This is a significant step on both those fronts,” Ottoson said in a statement.
SM Energy's remaining Williston assets to be sold include about 119,400 predominantly contiguous net acres in Divide County, N.D., with 28.8 million barrels of oil equivalent (boe) net proved reserves and roughly 6,100 boe/d (83% oil) of net production in December.
In West Texas, SM Energy agreed to sell a 60% working interest in Halff East, which covers about 5,400 net acres in Upton County with 1.6 million boe net proved reserves and 1,025 boe/d (72% oil) of net production in December.
Concho Resources Inc. (NYSE: CXO) is the operator of SM Energy’s Halff East position, according to analysts with Seaport Global Securities LLC.
SM Energy said it expects each of the transactions to close second-quarter 2018. Each divestiture has an effective date of Jan. 1.
RBC Richardson Barr was exclusive financial adviser to SM Energy in the Halff East divestiture and Tudor, Pickering, Holt & Co. was its exclusive financial adviser in the Williston sale.
Emily Patsy can be reached at firstname.lastname@example.org.
George Solich’s FourPoint will join forces with Double Eagle to form DoublePoint with more than 70,000 acres in the core of the Midland Basin.
Cabot CEO Dan Dinges said the sale will accelerate the value of its Eagle Ford assets, which struggled to compete for capital next to its Marcellus position due to low oil prices.
The transaction comes days after Diamondback Energy said it would add to its Northern Midland position with the roughly $1.25 billion cash-and-stock purchase of Ajax Resources.