SM Energy Company (NYSE:SM) Q4 2022 Earnings Call Transcript

SM Energy Company (NYSE:SM) Q4 2022 Earnings Call Transcript February 23, 2023

Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the SM Energy Fourth Quarter 2022 Results and 2023 Planned Q&A Discussion. All lines have been placed on mute to prevent any background noise. After the speakers brief remarks there will be a question and answer session. Thank you. Jennifer Samuels, Vice President, Investor Relations and ESG Stewardship, you may begin your conference.

Jennifer Samuels: Thanks, Rob. Good morning, everyone. We come to you this morning from a chilly Denver, it just warmed up to minus 2 degrees. Thank you for joining us today to answer your questions. We have our President and CEO, Herb Vogel, and CFO, Wade Pursell. As usual, before we get started, I will remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures. I direct you to Slide 2 of the accompanying slide deck, Page 8 of the accompanying earnings release and Risk Factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. We may also refer to non-GAAP measures, please see the slide deck appendix and earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures.

As a reminder, we have posted to our website an investor presentation and the transcript to our prerecorded call that we may reference today and also look for our 2022 annual report filed on Form 10-K this morning. With that, I will turn it back to Rob to open it up for questions. Rob?

Q&A Session

Operator: And we have our first question from the line of Zach Parham from JPMorgan. Your line is open.

Zach Parham: I guess, first off, you started buying back stock a couple of quarters ago. You ended — you’ve met your balance sheet goals and exited the year with almost $450 million in cash on the balance sheet. Can you just talk a little bit about your plans for cash return going forward and what your plans are for allocating that cash balance?

Wade Pursell: This is Wade. Yes, good question. We — I think we mentioned in our remarks that we’re very pleased to continue with the return of capital program, which we were happy to announce last year as we met our leverage targets, and we feel that’s a very sustainable program, and we even reminded everyone that we ran that at $60 and $3 so the dividend, obviously, that will continue to be paid in the $500 million that we committed to on the stock buyback and we said through 2024, we’ll continue that program. And it will be methodical. People like to ask, how do you — how are we going to write that and we’re saying the same thing we said before that it will just be a methodical buyback, we will support the stock looking at it on a daily basis.

As far as anything beyond that, that will — obviously, that will have a lot to do with commodity price and the level of free cash flow that we generate and there’s clearly some upside to that given the fact that we stated that we ran it at $60 and $3. And beyond that, we’ll just monitor conditions going forward. We did mention at one time that — and we still believe it that running the balance sheet in a — kind of in a one-in-one area is a prudent place to be. So the — one of the reasons that cash is so high is because that’s — it’s a net debt number. So at some point, we could reduce absolute debt. We could do that any time, a lot of flexibility with those bonds. But for now, there’s a lot of uncertainty as we enter ’23. So it just feels prudent to have some cash on the balance sheet and just kind of monitor things and how they develop.

Zach Parham: And then for my follow-up, just wanted to ask on LOE. The guidance for the year was up pretty significantly, a little higher than we were modeling. I know you mentioned workovers in there, but can you just talk about the drivers of LOE moving higher year-over-year?

Herb Vogel: Yes. Zach, this is Herb. Yes, the capital inflation last year was much stronger than the operating cost inflation, but there are certain cost areas that went up not, but workovers increase is probably the single biggest. Then we’ve got water and just general inflation. So that’s really the contributors there. Labor is also up and we’ve got that integrated in that estimate also both of those are really the major components. The good news is diesel is way down and that will play into capital and operating expense on a downward trajectory right now.

Operator: And your next question comes from the line of Alisa Dong from Bloomberg. It just disconnected. I’m sorry. And we have no further questions at this time. I’m going to turn it back to Herb Vogel — Oh I’m — yes, to Herb Vogel for some final closing comments.

Herb Vogel: Okay. Well, thank you for joining the call and your interest in SM Energy, and we’re looking forward to an outstanding 2023.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.