Denver-based SM Energy Co. is marketing all of its properties in the Anadarko Basin, including its Granite Wash interests. The sale of the gas-weighted assets is part of normal high-grading activities, the company said. Proceeds could be spent in the Permian Basin or in the Eagle Ford Shale, analysts speculated last week.
The marketing process is expected to take six months. Production from the assets represents slightly more than 9,000 boe/d (75% natural gas), which was about 8% of the company's first quarter production. The Anadarko Basin assets include about 56,000 net mineral acres.
Analysts at Tudor, Pickering, Holt & Co. said last week it was "good to see [the] company monetizing [its] noncore portfolio given [its] diversity of asset base...Potential Permian [Basin activity] acceleration comes to mind."
During the first quarter, SM Energy operated three rigs in the Permian region, with two of these focused on its 66,000-net acre position targeting the Mississippian Lime in the northern Midland Basin and a third rig focused on the Bone Spring formation in the Delaware Basin.
However, Wells Fargo Securities LLC analyst David Tameron wrote that proceeds from the Anadarko Basin divestment could support SM Energy's Eagle Ford Shale program.
"According to what we heard during our recent bus tour, proceeds would likely be deployed in the Eagle Ford," Tameron said. "With the company tracking ahead of the budgeted level in the area (75 Eagle Ford well completions) [see NGI, May 6], the company could expand its Eagle Ford program."
Tameron noted that the announcement proceeds by "just weeks" SM Energy's second quarter earnings conference call and its midyear review. "Combining this with the company's statement that it would bring assets to market (look for the divestment of nonoperated positions in both the Williston and Denver-Julesburg basins), we believe that SM may offer some meaningful updates on corporate strategy..."
At the end of last year, SM Energy CEO Tony Best said that this year the company would spend 90% of its planned drilling and completions budget of $1.2 billion on its Eagle Ford, Bakken/Three Forks and Permian Basin programs (see NGI, Dec. 24, 2012). "We expect to grow production by 20% in 2013, followed by annual production growth of approximately 15% in 2014 and 2015 with improving leverage metrics and no equity dilution," he said.
Tameron said Wells Fargo sees "upside" to the 15% production growth targets announced last year.
Last May, Laredo Petroleum Holdings Inc. agreed to sell all of its Granite Wash properties to affiliates of EnerVest Ltd. for $438 million in cash (see NGI, May 27). The deal included about 58 MMcfe/d (valued at $7,600 per Mcfe/d), proved reserves of 171 Bcfe, 104,000 net acres and associated gathering assets in Western Oklahoma and the Texas Panhandle.
"...[W]e expect SM's transaction would likely come in lower [than the Laredo sale]," Tameron said. "Assuming $5,000 per Mcfe/d, the transaction would generate about $250-300 million."
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