SM Energy's Q4 2024: Unraveling Contradictions in DUC Strategy, Production Growth, and Oil Focus

These are the key contradictions discussed in SM Energy's latest 2024Q4 earnings call, specifically including: DUC Counts and Capital Allocation Strategy, Production Growth Expectations, Production Growth and Timing, and Strategic Focus on Oil Assets:



Operational and Financial Growth:
- SM Energy Company reported a significant 40% increase in free cash flow expected for 2025, supported by 30% oil production growth while maintaining a strong balance sheet.
- The growth is attributed to the acquisition of the Uinta Basin assets, which increased gross inventory count by approximately 40% and realized a cash production margin comparable to Midland Basin production.

Drilling and Inventory Increase:
- The company plans to drill 105 net wells and complete 150 net wells in 2025, reflecting an increase in drilling inventory year-over-year.
- This expansion is primarily due to the Utah acquisition, which has contributed significantly to inventory growth, and the company's conservative approach to inventory estimation.

Uinta Basin Integration:
- The Uinta Basin acquisition added approximately 43,000 barrels of oil equivalent per day in Q4 2024, which produced less than expected due to integration challenges.
- The lower-than-anticipated production was attributed to limited control over operations and integration issues in the fourth quarter, though the company expects to meet the acquisition's anticipated production levels in the future.

Capital Allocation and Strategic Focus:
- The company's capital allocation is split across regions, with 25% allocated to South Texas, focusing on oil properties despite the current gas-friendly market environment.
- This strategic focus on oil properties is due to their better rate of return and a cautious approach to natural gas volatility and market uncertainties.