SM Energy Co. will expand its Midland Basin footprint, signing a deal to acquire 20,000 net acres in Dawson and northern Martin counties, Texas, for $93.5 million, the E&P said on June 21.
The acquired assets include average net production of 1,250 boe/d, approximately 90% of which is oil. The transaction also adds undeveloped acreage, the company said in a second-quarter 2023 activity update.
“Based on extensive geologic data and demonstrated economics from nearby wells, the company expects to target the Dean and Middle Spraberry sand intervals,” the company said. “Upside locations are expected to breakeven at less than $50/bbl oil prices,” with the company assuming a 10% discount rate, current capital costs and a $2.50/Mcf natural gas price.
The transaction is expected to close June 30 with an effective date of March 1, 2023.
SM Energy also said it acquired an additional 2,800 net acres adjacent to a first quarter acquisition of 6,300 net acres in the Midland Basin, for a total of 9,100 net acres. The location and acquisition cost were not disclosed.
SM Energy looked to be in a strong position for the quarter, also reporting that it would exceed its second quarter production guidance while “undershooting previous low end of [its] budget,” according to Oliver Huang, an analyst at Tudor, Pickering, Holt & Co.
Updated production showed the company averaging 153,000 boe/d in the second quarter, 4% higher than its midpoint guidance from prior, with the company citing higher than expected production out of South Texas and earlier than anticipated completion of oil handling facilities as the key drivers, Huang said in a June 21 analyst note.
“Updated capex guide for the quarter moving lower by ~10% at the midpoint to ~$275MM comparing to TPHe ~$303MM and Street ~$301MM, driven by deflation trends and lower than expected facilities spend,” Huang said.
SM Energy President and CEO Herb Vogel said the company had set three strategic objectives for 2023 and “our second quarter activities deliver on all of them – increasing the return of capital to our stockholders, elevating operational execution and driving inventory growth.
“Our operations, geosciences, land and finance teams are collaborating to drive excellent results and value creation," he said.
SM Energy repurchased 2.6 million shares in the quarter, of 2.2% of its outstanding shares as part of a $500 million buyback program, according to its June 21 report. Since inception of the buyback program in September 2022, the company has repurchased 5.3 million shares with authorization to repurchase up to $334 million more of its common stock through 2024.
In combination with the company's $0.15 per share quarterly dividend, SM Energy reported its return of capital has totaled $221 million, or a 7% yield to current market capitalization over previous nine months.