SM Energy(US:SM)2022-11-04 12:55markdown Part I - Financial Information [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited condensed consolidated financial statements for SM Energy Company as of September 30, 2022, reflecting significant year-over-year performance improvement and debt reduction [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2022, shows total assets increased to **$5.65 billion** and total liabilities decreased to **$2.78 billion**, leading to a substantial increase in total stockholders' equity to **$2.87 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$5,651,513** | **$5,233,977** | | Cash and cash equivalents | $498,435 | $332,716 | | Total property and equipment, net | $4,746,855 | $4,575,998 | | **Total Liabilities** | **$2,783,851** | **$3,170,846** | | Senior Notes, net | $1,571,429 | $2,081,164 | | **Total Stockholders' Equity** | **$2,867,662** | **$2,063,131** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 2022, net income significantly increased to **$481.2 million**, or **$3.87 per diluted share**, and for the nine months ended September 30, 2022, net income was **$853.5 million**, a turnaround from a prior-year net loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Oil, gas, and NGL production revenue | $827,558 | $759,813 | $2,676,656 | $1,745,547 | | Income (loss) from operations | $622,281 | $126,257 | $1,236,823 | $(265,288) | | Net income (loss) | $481,240 | $85,593 | $853,489 | $(388,671) | | Diluted net income (loss) per share | $3.87 | $0.69 | $6.87 | $(3.29) | | Dividends per common share | $0.15 | $0.01 | $0.16 | $0.02 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, net cash provided by operating activities nearly doubled to **$1.40 billion**, while net cash used in financing activities significantly increased to **$639.9 million** due to debt and stock repurchases Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,398,031 | $730,142 | | Net cash used in investing activities | $(592,442) | $(544,751) | | Net cash used in financing activities | $(639,870) | $(155,601) | | **Net change in cash** | **$165,719** | **$29,790** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, a **$500 million** stock repurchase program, an increased dividend, significant debt reduction, and commodity derivative positions for risk management - The company's Board of Directors approved a stock repurchase program authorizing up to **$500.0 million** in share buybacks through December 31, 2024. In Q3 2022, **$20.2 million** of stock was repurchased[36](index=36&type=chunk)[37](index=37&type=chunk) - The quarterly fixed dividend was increased to **$0.15 per share**, or **$0.60 per share** annually[41](index=41&type=chunk) - The company redeemed all of its **$104.8 million** 5.0% Senior Notes due 2024 and all of its **$446.7 million** 10.0% Senior Secured Notes due 2025 during 2022[54](index=54&type=chunk)[50](index=50&type=chunk) - As of September 30, 2022, the company had commodity derivative contracts outstanding through Q4 2025 to mitigate price volatility for oil, gas, and NGLs[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operations, highlighting its strategic focus on Midland and South Texas basins, capital return initiatives, and a projected **$870-$900 million** capital budget for 2022 - The company's strategic objective is to be a premier operator of top-tier oil and gas assets in the Midland Basin and South Texas[103](index=103&type=chunk) - The 2022 capital program is expected to be between **$870.0 million** and **$900.0 million**, focused on highly economic oil development projects[108](index=108&type=chunk) - In Q3 2022, the company initiated a stock repurchase program and increased its annual fixed dividend to **$0.60 per share**[110](index=110&type=chunk) Q3 2022 vs. Q2 2022 Performance | Metric | Q3 2022 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Avg. Daily Production (MBOE/d) | 137.8 | 146.6 | -6% | | Production Revenue (in millions) | $827.6 | $990.4 | -16% | | Net Income (in millions) | $481.2 | $323.5 | +49% | | Adjusted EBITDAX (in millions) | $460.2 | $559.7 | -18% | [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages commodity price risk through derivatives and faces limited interest rate risk, with **$1.6 billion** in fixed-rate debt and no outstanding revolving credit facility borrowings as of September 30, 2022 - The company is exposed to interest rate risk on its revolving credit facility, but had no outstanding balance as of September 30, 2022. Its **$1.6 billion** of Senior Notes are fixed-rate[182](index=182&type=chunk) - A hypothetical **10%** decrease in average realized commodity prices for the first nine months of 2022 would have reduced revenues by approximately **$267.6 million**, partially offset by a **$128.2 million** gain from derivative settlements[183](index=183&type=chunk) - A **10%** change in the forward price curves for commodities would change the fair value of the company's net derivative positions by approximately **$90.5 million**[184](index=184&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the third quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[196](index=196&type=chunk) - There were no changes during Q3 2022 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[197](index=197&type=chunk) Part II - Other Information [Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial condition, results of operations, or cash flows - As of the filing date, no pending legal proceedings are expected to have a materially adverse effect on the company's financial condition, operations, or cash flows[199](index=199&type=chunk) [Risk Factors](index=52&type=page&id=Item%201A.%20Risk%20Factors) The company highlights that global geopolitical tensions, specifically the conflict in Ukraine, may lead to heightened volatility in commodity prices and market disruptions, with no other material changes to previously disclosed risk factors - The ongoing military conflict in Ukraine is identified as a key risk factor that could lead to significant volatility in commodity prices, supply chain disruptions, and instability in financial markets[200](index=200&type=chunk)[201](index=201&type=chunk) - There have been no other material changes to the risk factors previously disclosed in the company's 2021 Form 10-K[203](index=203&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchases during Q3 2022, including a new **$500 million** program under which **452,734 shares** were repurchased for **$20.2 million** Q3 2022 Share Repurchases | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased Under Program | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | Jul-22 | 283,800 | $34.19 | — | 3,072,184 (shares) | | Aug-22 | — | $— | — | 3,072,184 (shares) | | Sep-22 | 802,221 | $44.42 | 452,734 | $479,767,724 | - A new stock repurchase program was approved on September 7, 2022, authorizing up to **$500.0 million** in repurchases through December 31, 2024[206](index=206&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the amended credit agreement and required certifications from the CEO and CFO - The report includes key exhibits such as the Seventh Amended and Restated Credit Agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[207](index=207&type=chunk)