As part of my advanced diploma in Energy Finance, I had to do investment analysis on various energy companies. Here is my final presentation, as of Dec 2015, on SM Energy. Today's stock price for SM Energy is $28.08. I was headed in the right direction! [Disclaimer: This is not a recommendation to buy or sell any shares within SM Energy.]

1. CASSANDRA A. JOHN
SM Energy Corporation
Investment Analysis

2. Background
SM Energy is engaged in the onshore North
America acquisition, exploration, development,
and production of oil, gas, and natural gas liquids
(NGLs). It operates in Montana, New Mexico, North
Dakota, Texas, and Wyoming.
It is primarly drilling in the Williston Basin (North
Dakota), Powder River Basin (Wyoming), Permian
Basin (New Mexico / Texas), and Eagle Ford
(Texas).
As of 2014, it had a total production of 55.1
mmboe with a daily production average of 151.1
mboe, resulting in revenues of $2.5 billion.
Source: SM Energy Company

3. Recommendation
The following factors influenced the short term (Neutral) and long term (Buy) recommendation
for SM Energy Corporation:
ST: $19.05 -
$21.65
While SM’s stock is slightly overvalued at
$22.51 (cob 12/11), underlying factors
indicate that it is capable of recovery in 1H
2016
SM’s strong operating margins, if
maintained, will continue to provide an
advantage over peers and help them manage
through soft commodity prices
Stock
Valuation
Stock
Valuation
The overall energy market has been
impacted by low commodity prices, but SM is
somewhat hedged against this weakness
SM has acquired additional proven and
unproven reserves and if able to shift towards
strong oil production, will manage well
through 2016
Market
Assessment
Market
Assessment
SM has one of the strongest operating
margins amongst its peers and despite a
Debt/Equity ratio of 1.16x, it is well-managed
debt
The cash burn rate for SM is positive in the
last two quarters and represents a
turnaround without significant asset sales to
support
Operating
Efficiencies
Operating
Efficiencies
LT: $23.95 - $24.25

4. Appendix
Key Indicators

5. Operational
► As of YE 2014, SM has a total production of 55.1
mmboe and a daily production of 151.1 mboe. Of
it’s proven reserve, nearly 70% is currently
developed
► As of Q3 2015, SM produced 96 mboe, most of it
in Natural Gas (45%) and Natural Gas Liquids
(27%). Overall, that is nearly 72% exposure to net-
natural gas, which puts SM at risk for the steep
price drops and volatility seen in the last year with
all natural gas products.
Source: SM Energy: SEC Form 10-K, 31 December 2014
ST: $19.05 -
$21.65
LT: $23.95 - $24.25
Source: SM Energy: SEC Form 10-Q, 30 September 2015 (Calculated)

6. Derivatives: Swaps ST: $19.05 -
$21.65
LT: $23.95 - $24.25
Overall Derivatives Facts
► Oil (Swaps and Collars) only hedged for
48% of production
► Natural Gas (Swaps and Collars) only
hedged for 38% of production
► NGL (Swaps) limited hedging in 2015
Key Swaps Facts
► Oil: Swaps do not extend past 2016;
will not be significantly effective past
that point
► Gas: While swaps are long-running,
annualized quarterly production,
makes them significant less effective
by 2019
► NGLs: For existing hedges, annualizing
production is significant exposure (only
1% by 2018)
Source: SM Energy: SEC Form 10-Q, 30 April 2015, SEC Form 10-Q, 30 September 2015

7. Derivatives: Collars ST: $19.05 -
$21.65
LT: $23.95 - $24.25
Overall Derivatives Facts
► Oil (Swaps and Collars) only hedged for
48% of production
► Natural Gas (Swaps and Collars) only
hedged for 38% of production
► NGL (Swaps) limited hedging in 2015
Key Collars Facts
► Do not extend past 2015
► Any new contracts in 2016 will be
based on current market lows and will
either have limited effectivenesss or
represent potential liability (should
markets recover)
Source: SM Energy: SEC Form 10-Q, 30 April 2015, SEC Form 10-Q, 30 September 2015

8. Debt Liability ST: $19.05 -
$21.65
LT: $23.95 - $24.25
SM Energy has a long-term revolver facility with a maturity in
December 2019. Existing commitments are $1.5 billion, with a max
loan of $2.5 billion (reduced to $2 billion as of 7 October 2015).
There are $2.35 billion outstanding in corporate bonds.
Key Facts
► No large outstanding debt payments due within the next 3 years
► Current Aaa corporate bond rate is 3.65% - on average, SM
bonds priced at 5.95%
► Any new debt issued in 2016 will be at a higher cost of capital
► Annual debt service, excluding the credit revolver, is
approximately $139 million, paid out semi-annually – represents
7.7% of annual revenue (LTM revenue of $1.8 billion)
Source: SM Energy: SEC Form 10-Q, 30 September 2015

9. Share Price Analysis
SM Energy’s stock has outperformed all of its peers (DNR, EPE, SSLTY) and while it has underperformed against the S&P 500,
it has overperformed in comparison to the DJ-AIG Energy Index. It is slightly underperforming against the NYSE MKT Energy
SPDR.
P/E Ratio: 7.24x EPS: $3.30 Dividend: $0.05
ST: $19.05 -
$21.65
LT: $23.95 - $24.25
Source: E*trade