It pays to be a fist mover when it comes to America’s shale boom. In this case, it pays to the tune of 75% returns for shareholders in E&P firm SM Energy (SM).
This midcap and potential acquisition target has focusing its attention toward Texas and its Permian basin. While SM Energy’s Eagle Ford acreage continues to churn out production — it grew by 27% in the second quarter — SM’s future could lie with the Wolfcamp play in the Permian.
SM has gained control of around 53,000 total acres in the Permian, and that land is proving to be a dozy. Initial test drilling at its first well in the Wolfcamp has exceeded flow rates of its rivals in the area and has been described as the “best in the area” by analysts. More importantly, SM is seeing more oil than natural gas for its efforts.
That could help propel SM to higher earnings and send its shares rocketing further in the future. Sure, SM Energy’s stock isn’t cheap at 61 times earnings, but the first-mover status in the Wolfcamp — along with its Eagle Ford acreage — could make it prime target for a larger firm.