SM Energy Dives Despite Bullish Uinta Basin Acquisition: Details

Lekha Gupta

June 27, 2024

SM Energy Company (NYSE:SM) shares are diving today after the company disclosed an agreement to purchase the Uinta Basin oil and gas assets from entities affiliated with XCL Resources, LLC. for an unadjusted purchase price of $2.55 billion.

Simultaneously, Northern Oil and Gas, Inc. (NYSE:NOG) stated that it would purchase a 20% share of XCL’s oil and gas assets for $510 million, leaving SM Energy with an 80% stake at a net cost of $2.04 billion.

SM Energy will assume operational control of the assets currently managed by XCL and plans to fund the buyout through a mix of debt and existing cash reserves.

The Board has approved the XCL transaction, effective May 1, 2024, with closing expected in September 2024, subject to customary adjustments and conditions.

Synergy & Outlook: The company anticipates the acquisition will immediately benefit key financial metrics. For 2025, Adjusted EBITDAX is expected to rise by approximately 35%, Adjusted free cash flow by about 45%, and cash production margin by around 11%.

SM Energy projects that pro forma 2025 net production will rise to around 195 MBoed, with oil production making up 52% of the commodity mix.

SM Energy’s 2025 cash production margin is projected to rise by about 11%, driven by the Uinta Basin’s higher oil content and lower operating costs than the Midland Basin.

Dividend Boost: The Board of Directors approved an 11% increase in the quarterly dividend to $0.20 per share, starting in Q4 2024.

Share Buyback: Additionally, the company authorized a new $500 million share repurchase program through 2027, replacing the existing program.

As of March-end, the company’s long-term debt was $1.59 billion, and cash and cash equivalents were $506.3 million.

SM Energy has received firm commitments for an aggregate $1.2 billion, 364-day unsecured bridge facility.

Investors can gain exposure to the stock via Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE) and Texas Capital Funds Trust Texas Capital Texas Oil Index ETF (NYSE:OILT).

Price Action: SM shares are down 10.2% at $43.47 at the last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image: Shutterstock/ create jobs 51

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