SM Energy(US:SM)2022-11-04 16:40Financial Data and Key Metrics Changes - The company initiated a return of capital program ahead of expectations, including share repurchases and an increased fixed dividend [9] - The sustainable dividend program is designed assuming $60 oil and $3 gas, providing flexibility in a stronger commodity price environment [9] Business Line Data and Key Metrics Changes - The company completed 14 wells in the Midland Basin, with some coming online later than expected due to supply chain issues [32] - Three high-performing wells were highlighted in the Western Flank of Swedish Pac, proving up different zones and moving them to the proved category [20][22] Market Data and Key Metrics Changes - The company noted that supply chain difficulties are affecting production timelines, with 60% of delays attributed to turning wells online and 40% from offset activity [31] - The company is experiencing challenges in the service sector, particularly in finding and retaining experienced labor [31] Company Strategy and Development Direction - The company is focused on capital allocation between South Texas and Permian, emphasizing returns from both areas [14] - The management is concentrating on development in core areas while also extending boundaries, as demonstrated by the successful wells in the Western Flank [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unpredictability of offset activity and its impact on production timelines, indicating a cautious approach to forecasting [44] - The company is monitoring inflation closely, with expectations of higher exit rates for 2022 compared to the average of 25% to 30% [52][54] Other Important Information - The company has not implemented a 10b5-1 plan for stock buybacks but remains open to future considerations [16] - Management is focused on maintaining relationships with key suppliers to mitigate supply chain issues [61] Q&A Session Summary Question: Drivers of oil cut moving lower in Q4 - Management indicated that the oil cut is driven by the number of completions in Midland versus South Texas, with long-term capital allocation being key [13][14] Question: Buyback pace and strategy - The buyback will be systematic and opportunistic, with a focus on trading below NAV [15] Question: Details on high-performing wells - Three wells were successfully tested in different zones, moving them to the proved category [20][22] Question: Well degradation concerns - Management emphasized their modeling and proprietary tools that help predict well performance, sidestepping degradation issues [23][25] Question: Supply chain issues and future production - Supply chain difficulties are causing delays, with a significant portion of completions coming online later than expected [31][32] Question: Debt reduction strategy - The company plans to reduce debt by maturity, focusing on the first maturities as they come due [50] Question: Inflation impact on capital budget - Management expects inflation to remain a concern, with higher exit rates for 2022 and ongoing monitoring for 2023 [52][54]