SM Energy aims to get leverage below 2x; debt reduction planned in Q3

By Devika Patel

Knoxville, Tenn., June 10 – SM Energy Co. plans to reduce its spending in order to stay within its cash flow and then plans to begin paying down debt in the third quarter and beyond with the goal of reducing the company’s leverage ratio to below 2x from its current 3x.

“We’ve been outspending cash flow,” president and chief executive officer Jay Ottoson said at the Stifel 2019 Cross Sector Insight Conference in Boston on Monday.

“Our forecast is that we’ll be starting to grow within our own cash flow starting in the third quarter or the second half of this year.

“As we start to operate within our own cash flow, then we’ll be focusing on reducing leverage.

“We’re about 3x levered right now, which in the oil and gas business didn’t used to be a bad number, but it’s kind of on the high end of most of our peers at this point.

“That free cash flow, then, will generate debt reduction, allow us to take down our absolute debt and, of course, our leverage as we go forward,” he said.

The company wants to get its leverage ratio to below 2x, and then perhaps somewhat lower than that going forward.

“We want to be below 2x,” Ottoson said.

“Most of our peers are in the 1.5x range.

“Over time, the last few years, people used a lot of equity, essentially using equity instead of debt.

“We’d like to get ourselves below 2x, and then we’ll continue to move that down somewhat as we go forward,” he said.

The company has “a lot” of liquidity and no near-term maturities.

“We don’t have any near-term maturities, so we’re really in good shape from that standpoint,” Ottoson said.

SM Energy is a Denver-based energy company focused on exploration and production of crude oil, natural gas and natural gas liquids in onshore fields in North America.

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