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spk02: Good morning. My name is Rob and I will be your conference operator today. At this time, I'd like to welcome everyone to the SM Energy fourth quarter 2022 results and 2023 plan Q&A discussion. All lines have been placed on mute to prevent any background noise. After the speaker's brief remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. Thank you. Jennifer Samuels, Vice President, Investor Relations and ESG Stewardship, you may begin your conference.
spk01: Thanks, Rob. Good morning, everyone. We come to you this morning from a chilly Denver. It just warmed up to minus 2 degrees. Thank you for joining us today. To answer your questions, we have our President and CEO, Herb Vogel, and CFO, Wade Purcell. As usual, before we get started, I will remind you that our discussion today may include forward-looking statements and discussion of non-GAAP measures. I direct you to slide 2 of the accompanying slide deck, page 8 of the accompanying earnings release, and the risk factors section of our most recently filed 10-K, which describe risks associated with forward-looking statements that could cause actual results to differ. We may also refer to non-GAAP measures. Please see the slide deck appendix and earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. As a reminder, we have posted to our website an investor presentation and the transcript to our pre-recorded call that we may reference today. And also look for our 2022 annual report filed on Form 10-K this morning. With that, I will turn it back to Rob to open it up for questions. Rob?
spk02: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We ask that you please limit yourself to one question and one follow-up.
spk00: We'll pause for just a moment to compile the Q&A roster. Again, if you'd like to ask a question, press star 1 on your telephone keypad.
spk02: And we have our first question from the line of Zach Parham from JP Morgan. Your line is open.
spk04: Hey, guys. Thanks for taking my question. I guess, first off, you started buying back stock a couple quarters ago. You've met your balance sheet goals and exited the year with almost $450 million in cash on the balance sheet. Can you just talk a little bit about your plans for cash return going forward and what what your plans are for allocating that cash balance?
spk00: Good morning, this is Wade. Yeah, good question.
spk05: I think we mentioned in our remarks that we're very pleased to continue with the return on capital program, which we were happy to announce last year as we met our leverage targets and and we feel that's a very sustainable uh program and we even reminded everyone that that we ran that at 60 and three um so uh you know the dividend uh obviously that that will continue to be paid in the 500 million that we committed to on the stock buyback and we said through 2024 uh we'll continue that program and uh it'll be methodical people like to ask how do you how are we going to run that and we'll we're saying the same thing we said before that that it'll just be a methodical buyback. We'll support the stock looking at it on a daily basis. As far as anything beyond that, obviously that'll have a lot to do with commodity price and the level of free cash flow that we generate. And there's clearly some upside to that, given the fact that we stated that we ran it at 60 and 3. And beyond that, we'll just monitor conditions going forward. We did mention at one time, and we still believe it, that that running the balance sheet kind of in a one-in-one area is a prudent place to be. So one of the reasons that cash is so high is because that's a net debt number. So at some point we could reduce absolute debt. We could do that any time, a lot of flexibility with those bonds. But for now, there's a lot of uncertainty as we enter 23, so it just feels prudent to have some cash on the balance sheet and just kind of monitor things, how they develop.
spk04: Got it. And then for my follow-up, just wanted to ask on LOE, the guidance for the year was up pretty significantly, a little higher than we were modeling. I know you mentioned workovers in there, but can you just talk about the drivers of LOE moving higher year over year?
spk03: Yeah, Zach, this is Herb. Yeah, the capital inflation last year was much stronger than the operating cost inflation, but there are certain cost areas that went up, but workovers increase is probably the single biggest. Then we've got water and just general inflation. So that's really the contributors there. Labor is also up, and we've got that – integrated in that estimate also. Those are the major components. The good news is diesel's way down, and that'll play into capital and operating expense on a downward trajectory right now.
spk00: Thanks, I appreciate the call. And your next question comes from the line of Elisa Dong from Bloomberg. Your line is, oh, I'm sorry, it just disconnected. I'm sorry, and again, if you would like to ask a question, please press star 1 to re-enter the queue. And we have no further questions at this time.
spk02: I'm going to turn it back to Herb Vogel. Oh, yes, to Herb Vogel for some final closing comments.
spk03: Okay, well, thank you for joining the call and your interest in SM Energy, and we're looking forward to an outstanding 2023.
spk02: this concludes today's conference call thank you for your participation you may now disconnect
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