Denver-based independent SM Energy Co., which is focused mostly on Texas, said it plans to target additional formations within the Permian Basin later this year and into the next, as two dozen wells drilled into the Permian's Midland sub-basin in the second quarter yielded encouraging results.

During an earnings call to discuss 2Q2018, SM's Herb Vogel, executive vice president for operations, said the company had taken notice of competitors' success in targeting the Middle Spraberry formation in the area around Howard County, TX. He said SM plans to drill a test well targeting the Middle Spraberry late in 2018, and would also test the Wolfcamp D interval next year.

"We have noticed those great Middle Spraberry wells and nearby Wolfcamp D wells, also," Vogel said Thursday.

SM reported production of 10.5 million boe (115,200 boe/d) in 2Q2018, an 8% decline from the 11.3 million boe (124,600 boe/d) produced in the year-ago quarter. While crude oil production grew 50% to 4.4 million bbl (47,900 b/d) in 2Q2018, up from 2.9 million bbl (32,000 b/d) in 2Q2017, natural gas production fell 26% to 25.3 Bcf (278.3 MMcf/d), down from 34 Bcf (374.1 MMcf/d). Natural gas liquids (NGL) declined 31% to 1.9 million bbl (20,900 b/d), down from 2.8 million bbl (30,300 b/d).

Broken down by play, Eagle Ford production totaled 5.36 million boe while Permian production totaled 4.77 million boe. SM last month attributed the increase in overall production to improved well performance in the Permian, while conceding that production for the quarter was higher than expected.

SM drilled 39 gross (34 net) operated wells in 2Q2018, of which 29 gross (28 net) were in the Permian and 10 gross (six net) were in the Eagle Ford. The company also completed 57 gross (47 net) wells during the quarter, including 41 gross (38 net) in the Permian and 16 gross (nine net) in the Eagle Ford.

Most of the wells that SM drilled (25 gross, 24 net) and completed (33 gross, 30 net) in the Permian were in its RockStar operating area, which totaled 65,580 net acres at the end of the quarter. The remainder was in the company's Sweetie Peck area, which measures 16,880 net acres. Both areas are in the Midland sub-basin. SM holds 164,680 net acres in the Eagle Ford.

SM highlighted two RockStar wells, Spackler Wolfcamp A and B, which had 30-day peak initial production (IP) rates of 2,324 boe/d and 2,022 boe/d, respectively. The company also said nine wells targeting the Wolfcamp A and B intervals from its 14-well Kramer-Costanza development had an average 30-day peak IP rate of 1,285 boe/d per well.

SM is currently running a seven-rig drilling program in the Midland, but plans to drop one rig in the third quarter. It also plans to run two rigs and one hydraulic fracturing crew in the Eagle Ford Shale this month.

The company plans to spend $1.31 billion on capital expenditures, before acquisitions, in 2018. SM issued full-year production guidance of 43.5-45 million boe (119,000-123,000 boe/d), and 3Q2018 production guidance of 11.2-11.7 million boe (122,000-127,000 boe/d). Crude oil is expected to make up about 42% of production for the year and the third quarter.

SM reported net income of $17.2 million (15 cents/share) in 2Q2018, compared to a net loss of $119.9 million (minus $1.08) in the year-ago quarter.