Welcome to day two in our Upstream track. We have a pretty packed agenda, so really looking forward to the conversations today. Really glad to have SM Energy to kick us off here. Wade Pursell, EVP and CFO of SM Energy. And the company continued to execute in the Permian in Howard County, and most recently did a Uinta deal. So a lot to talk about here. So Wade, thank you.
Thank you, Betty. Good morning, everyone. It's wonderful to be in New York City this time of year. Amazing weather, right, the last few days. So thank you, Betty. Thank you, Barclays, for inviting us to the conference this year, and thank you all for joining me this morning to showing an interest in the SM story. So as Betty said, my name is Wade Pursell. I'm the Chief Financial Officer at SM. This slide tells you that I'm not a prophet. That's how I like to summarize this. So I'm sure I'll talk about the future some today, but just kind of keep that disclaimer in mind. So I'll just kind of give you an update on the story, and there is a lot to update recently.
I'm going to kind of walk through the story really in two categories, and they are sustainable and repeatable. So if you can remember those words today, sustainable and repeatable. So what is sustainable? I like to say, we like to say, SM is a premier operator of top-tier assets generating a sustainable return of capital. So I'll talk about the core assets that have been generating that sustainable return of capital. And then the second category, we like to say, empowered by a strong balance sheet and world-class technical team, it is a true differentiator. We are poised to repeat that success, and we have a great example of that recently with the XCL acquisition that is set to close October first. So I'll talk about that a lot at the end as well.
So let's get going. On the sustainable side, the core assets are both in Texas. We're 111,000 net acres in the Midland Basin and 155,000 net acres in South Texas. These are both truly top-tier assets that generate very high returns, very low break-even oil price, break evens. The Midland Basin is truly recognized as one of the best assets in the country. We've been there for over 15 years. The larger portion we acquired back in 2016, mostly in Howard County, if you could tell which counties those are on the map. Basically, when we did that, that...
I'm going to come back to that when we talk about the technical team. The technical team saw something there that drove us to move into that area when it was frankly beyond the lines that most people had drawn as a border for the Midland Basin, and it's proven to be a very, very good asset, and then in South Texas, kind of a similar story regarding the technical team. We have been in South Texas in this position again, over 15 years there as well, and for many years, it was defined by the Eagle Ford Trend, the Eagle Ford, and that was kind of a core asset of the company, and a lot of success there, mainly, mainly a gas play, a wet gas play.
Over the years, the team was really scoping out and looking at the interval above that, the Austin Chalk, and concluding that it was much oilier and could potentially be a very large top-tier asset. That's exactly what we've been proving the last few years. We've now drilled well over a hundred wells in that interval, and the returns in that asset are very comparable, actually to the Midland Basin, which I'll show you a few graphs here in a second. Let's talk about that. Here are those two assets. A couple of good charts. This is data from Enverus. And the one on the left, you can see this is a lot of wells.
This is all of our wells since the beginning of 2021 , plotted against the average wells of all of the peers in Howard County. And what you see, based on looking at cumulative oil production, and this is modified for lateral length, standardized for lateral length, I should say, that our wells over this period are producing at a clip of 30% higher than the average wells in Howard County. Very similar story over in Austin Chalk. You can see the same thing. These are wells that go back even a little further, I think, maybe 2019 . But a lot of wells, a lot of history here, and you can see a similar result, our wells versus the average industry peers, actually 35% higher.
The other thing that I like to point out on this slide, and it actually surprised me the first time I saw it, is if you kind of look at the numbers, and once you get out, like, 20 months, you see a very similar amount of oil production from the Howard County wells as you see in the Austin Chalk wells. Again, very similar returns, very similar well results in both of these assets, top-tier assets. A couple of slides, maybe a slide on the Midland Basin and a slide on the Austin Chalk, kind of a recent news, recent developments type slides, just for an update. First of all, in the Midland Basin, and this is down in the kind of what we call the Sweetie Peck area.
This is the area that we've been in for a very long time. We were kind of excited in the quarter to announce a couple of new wells in a new interval, and that is the Woodford Barnett wells. And others have been drilling wells here. You can see how these wells compare to the peer wells in the area, and they're very favorable. The first well over 1,600 barrels a day at the peak IP30 rate. That was a 10,000-foot lateral. And then another well, which was a shorter 5,900-foot lateral, producing 830 barrels a day.
These are really, really good wells, and we're very excited, and we'll continue to, you know, obviously, to look at this interval and drill more wells in the future. We really believe this is a nice inventory add for us, 20,000-plus net acres exposed. Very exciting. Early days, but very exciting. Over in the Austin Chalk, and really just more of the same. These are 10 new wells in the Austin Chalk area, 3 pads. You can see on the map where they're located. One of them is in the oil, what we consider the oil window, and the other two are down in the liquids-rich gas window.
But these are all really good wells, very consistent with the prior wells that we've drilled in the Austin Chalk. You can see they're averaging over 1,600 barrels a day, 38% oil. These were on average 11,100 lateral length. So just more of the same, great results in the Austin Chalk. Very excited about this asset. You know, when we first announced it, I think we said we thought that we probably had 400 locations, and if you remember, at the end of last year, we had. We've actually been able to up that number to 465 total locations, and we've probably...
I don't have the number offhand, but well, just a little over 100 wells into this top-tier asset with a lot of inventory to go. Can't talk about being a premier operator without mentioning ESG. We have that. That's been a part of our culture for a very long time. We believe that you can't call yourself a premier operator unless you're a top quartile ESG performer, part of our culture. These couple of results last year show that, CDP giving us an A minus and an A minus on our supplier engagement is very rewarding. There are not very many E&P companies that can say that.
Being an E&P company with an A minus is a high bar, so we take a lot of pride in that and a lot of pride in working in a safe environment and protecting the environment, so I said premier operator, top-tier assets, generating that sustainable return of capital, and that's what we've been doing. If you just to take you back to the return of capital story, back in 2021 and 2022, we set as a target for our free cash flow to reduce debt, and we said that we needed to, we wanted to get below kind of a one-in-one level before we started returning capital in a meaningful way to shareholders.
And, we kind of set as a target one in one, one times debt to DACF and one times absolute debt, and we were able to get there almost 2 years ago to the day. It was back in September 2022, when we were kind of getting in that area, so we announced a return of capital program, and it's two categories for us, fixed dividend and stock buyback. We announced a fixed dividend at that time with the hopes that we would be able to grow that over time, and we've already increased it twice. It's now at 20 cents per share. And, I guess, you know, over that period, we paid out $132 million in dividends.
On the share buyback side, we also announced at that time, two years ago, a $500 million authorization to buy back stock. And we've been doing that systematically since then. I think we've reduced the share count by 8%, using about $370 million of cash to reduce the share count. So we just announced in connection with this XCL acquisition, which I'll talk about in a second, the board agreed to kind of reload the share buyback program. So we have a new $500 million share buyback program that will go through the end of 2027.
I think you can anticipate in the near term, a higher percentage of free cash flow going to debt reduction, and I'll get to that in a second when we talk about the XCL acquisition. But the share buyback will always be a part of our free cash flow allocation, and even in a more significant percentage as we move leverage back closer to one time. So, you know, kind of at the end of the day, we, you know, you look at that last two-year period, and I think 54% of our free cash flow went to returning capital to shareholders, and actually a much higher percentage than that the last couple of quarters. So that's the sustainable side.
On the repeatable side, I said strong balance sheet and world-class technical team enabling us to repeat all of that success. So the balance sheet, I'm gonna give you two balance sheets here. So if you look at the actual balance sheet at the end of the second quarter, it was in a very, very strong place. It still is. 0.6 times debt to EBITDA, a little over $1 billion of absolute debt, lots of liquidity, undrawn revolver, $1.25 billion, plus about $500 million of cash. So that enabled us to enter into the acquisition in the Uinta Basin, which I'll talk about in a second.
Once that acquisition closes, hopefully on October 1st, kind of giving you a preview of what the balance sheet should probably look like at that time, and really, there's two big changes here from the end of the second quarter, and that's revolver and bonds. So the revolver, you see that's the light blue box. As of the end of the second quarter, you can see it maturing in 2027, $1.25 billion lender commitment. Now you see that the lenders have agreed to raise that lender commitment to $2 billion, creating a lot of liquidity, and moving the maturity out to 2029.
Borrowing base is still $2.5 billion, and that does not include the XCL assets, so we should anticipate an increase there at some point. And then on the bond side, we completed a very successful bond offering to create the funding for the acquisition, which should close October 1st, and that's two $750 million tranches of bonds, one due in 2029, 6.75%, and one due in 2032 at 7%. And you also see that the 2025 maturity is now gone. We went ahead and called those and took those out. So when we close, that cash that's now sitting on our balance sheet from that offering will fund our share of the acquisition, which is about $2.1 billion.
And we anticipate using some revolver in that closing somewhere in the, I don't know, $250-$300 million area. So let's talk about that acquisition. So we have been able to be very satisfied. We've been able to add a lot of inventory over the last year. Kind of some smaller organic type moves in our core basin, in the looking at the far right, doing a drill to earn in the Austin Chalk, 8,000 net acres. You can read about that in kind of over the last year. And then over in the Permian, about a year ago this time, we announced what we call the Klondike acquisition, and then also a more stealthy Sweetie Peck extension.
With the XCL and Altamont acquisitions, we've added like 90,000 net acres of great inventory over the last year. On the XCL and Altamont acquisitions, we have added. I'll just talk about those on a combined basis. We've added 63,000 net acres. There's the timeline just for your reference at the bottom of the slide. The good news over the last month is, you can see on the timeline, we filed HSR approval July 22nd, and then, one month later, August 21st, we were able to announce that we had not heard any additional need from the government for review there. We think we are ready to go for closing October 1st. Really excited about this acquisition.
It really does check the boxes of everything that we look for in an acquisition. We're able to add significant amount of inventory on day one that competes for capital. The returns are very similar to the Permian and the Austin Chalk. Clearly, top-tier assets. Actually extends our inventory life about three years. You can see the kind of the combined terms in the box there, about $2.1 billion to us. I'll remind you that this is an 80% interest. We did take a non-op partner, NOG, who are also very excited about this acquisition, and we like working with them as well.
So the 63,000 net acres, you can do the math, reasonable amount for the flowing barrel, the 44,000 of production, and come up with a 1.25 million value per location, which we think is a very good, very good price, considering what we're paying for here. Ended up being, coming out at less than 3 times projected EBITDAX. So a couple of charts on that acquisition to explain why we're so excited. When we say top-tier assets and that they compare to our assets very well, I think this slide shows that pretty nicely. This is some data from Enverus again, and the chart on the left just shows, you know, that when we speak of the XTO inventory in, you know, there's a couple of sections.
One's called the Lower Cube, and one's called the Upper Cube. That's only part of the zones, which I'll show you in a second. But the Lower Cube, very strong, and that's the... You can see the colors. Think of the green lines, being the XCL lines. So you can see one of them just well above, even our Midland and Austin Chalk, so great returns for that part of the asset, and we're very excited about the Upper Cube as well.
You can see that the projection of those numbers, it's less developed and less data, but the data we do have and what the technical team is seeing tells us that it's gonna be very, very exciting as well, and you can see that line kind of crossing right on top of our Midland Basin and Austin Chalk in terms of cumulative oil production over time. Then the right chart just shows those compared to the industry in general average wells in these other basins, including the Midland Basin, including the Delaware Basin, and what you see is, again, very favorable profile with respect to these assets. A couple more charts on XCL.
17 benches, I mean, that's a staggering number, 4,000 feet of oil column, so we're very excited about the potential upside for inventory. You can imagine the technical team just, you know, doing backflips over this new playground, I call it, that they're gonna be able to work. These are some. Now, this is an interesting slide, one last one on XCL. Oil EUR per thousand foot by play, and this is something put together, again, by Enverus, and the XCL columns or bars are red, and you can see they are very favorable from an oil EUR standpoint, compared to the other basins. That dark blue is the Delaware Basin, so compete very well with that.
And then when you consider the full picture compared to the Delaware, I'll point you to the green bubbles, first of all. That's oil percentage. As I mentioned, significantly high oil percentage in the Uinta Basin, higher than the other basins. Also, on the cost side, the cost is very similar for us to the we believe to the Permian and South Texas. Just think in terms of $800 per lateral, whereas, you know, probably the Delaware is more like a thousand per lateral. So very favorable basin versus the others from a return standpoint. So that's it. So again, just remember sustainable and repeatable.
Premier operator, top-tier assets, generating sustainable return of capital, and then that world-class technical team and strong balance sheet enabling us to repeat that success as we've seen recently, and I would project you'll continue to see that out of us. So Betty, I guess I will turn it over to you for questions.
Great. I'll start with kick off the Q&A here. I think the Uinta Basin acquisition was the big news, and it certainly is. It was a step out for SM. Just curious how that really came about? Like, how is that something that you went out and you guys did a survey of the U.S. basins and looked for the oil resources, and the ones that checked those boxes, and this is what came out of it? Yeah, I wanna understand that background, and that was in my follow-up.
Yeah.
Yeah.
Sure. It's a great question. We would like to answer it. I mean, it's when I talked. I talked a lot about the technical team, and I tried to give a little history on how they focus on not only assets we're in, and go back to the Permian Basin and the work they did, getting competent in Howard County, and that was considered a big step out at the time. Then the same similar story with the Austin Chalk a few years later, and we've had to fight the battle of, well, we remember the Austin Chalk, grandfather's Austin Chalk, and all, but this is a very different, very different play. Those were great examples.
So they continue to do that, and you've seen that over the last year with the smaller step outs in the Permian. But in the meantime, they are always looking outside of the basin, mapping other basins. I think we probably know the Delaware better than most know, and other basins around the country. In the Lower 48. I'm not saying they go Gulf of Mexico and around the world, but Lower 48, North America, they look everywhere, and they look for the things that, as you just said, the things that compete with our assets, potential for high return, potential for us to go in and make it better, stack pay, high oil content, high returns.
You just continue to work that, and they've been working through the years, but circumstances have to, you know, have to align, and that's what happened here. We were very excited about this basin for all the reasons I talked about, but then the opportunity presented itself, you know, with the XTO sale, and that was built to sell. You know, I'm not gonna say the Uinta is off the radar. It's not off the radar, but it's not as, you know, followed as closely as the Permian. So that created opportunity, and that excited us. Not a lot of...
You know, when people say, "Well, there's not a lot of synergies there, it's a new basin," and that's true from what we think of as immediate synergies. But the synergies we bring to that are the technical team and the ability to add value, and really add inventory to what we believe is there. You know, the balance sheet was in a perfect place to use cash for that acquisition. Everything just kinda lined up. Those are the types of things that we're always looking for, in basin and out of basin, 'cause you can imagine the Permian Basin. We'd love to add that kind of asset in the Permian. Getting something of size anywhere near that price, that's really hard right now, so.
Yeah, no, I can imagine. And then, it's great to have a public operator to talk about a basin that, you know, it's somewhat less discussed. So from a, as you guys look at it, and then with the technical evaluation, where do you think you can add the most value, like today or near term, and then long term? Like, whether that's on the operational side, on the cost side, on the geology side-
Yeah
Could you just talk about what exactly it is?
Yeah, it's kind of an all of the above. I can't say that we're going into a situation where we saw, "Wow, they're not doing things nearly good enough, and we can make it much better." XCL is a great operator. This is a lot of ex-EOG folks, and they're doing a fantastic job there. They were doing a fantastic job there. So that's not the case. However, we do believe there are things that we do that might can add some value, and certainly with respect to the 17 intervals, right? We certainly have not valued all 17 intervals at all in the valuation. So we believe there's a great opportunity to add in those areas, and then just the way we, you know, we run our operations.
You know, it's early days, so I don't have anything specific to say yet, but it'll be an all of the above thing.
Right. Any questions from the audience? Maybe on the Austin Chalk, it's, you highlighted that the wells are actually performing fairly closely to the Permian, but these are also gassier wells. So just wondering how gas prices fit-
Mm-hmm
- into the economics of these wells and, capital allocation to that play?
Yeah. It's a great question. What typically happens with the Austin Chalk wells, they do have a pretty good oil component, and certainly more oil to the west, than as you go to the east, south are good wells, and they get more liquids, and then to the east, you get gassier. Certainly to the south-south, mostly dry gas, and we typically don't even count those in inventory. But what you typically get as you go west to east is you might get less oil. The oil percentage starts to go down, but the size of the wells go up. And you...
I hate to use the words, make up for it in volume, but in some ways, that's exactly what happens from a return standpoint, so we're not agnostic to gas. You know, it certainly impacts, obviously, the dry gas, and it impacts the further you go to the east, but again, the size of the wells and the size of the amount of liquids tend to make the returns still very similar, certainly at these prices.
Yeah. Yeah, even with these, today's low gas prices, but there's expectation of better markets and better outlook ahead, have you guys talked about whether there's a price that you will want to go back and drill the gas, dry gas wells or the gassier wells in that area?
The short answer is no. We really like what we're doing and are very much focused on oil. If gas prices do move back up into that, I don't know, high threes, $4 area, that certainly makes the returns compelling on a lot of gas wells. So I would say, you know, I wouldn't say never, but at some price, we would start looking at that again. I mean, we try not to knee-jerk to prices, especially on the gas side. However, we do modify the program occasionally. I think, you know, I can't remember when it was, it seems like a distant past now, when gas got up into that $8 area, we did complete some DUCs that we had.
So we did, you know, and that was very high return and capital efficient, as you would imagine. So at some price, we might consider it, but in the meantime, we have significant amount of inventory that we enjoy drilling, you know, that's driven more by the oil price.