Exhibit 99.1

For Information
James R. Edwards
303-837-2444

FOR IMMEDIATE RELEASE


SM ENERGY REPORTS RESULTS FOR
THE THIRD QUARTER OF 2011

Record quarterly production of 42.5 BCFE, or an average of 462 MMCFE/d; in line with quarterly guidance range of 453 - 481 MMCFE/d

Quarterly GAAP net income of $230.1 million, or $3.41 per diluted share

Adjusted net income of $42.4 million, or $0.63 per diluted share


DENVER, CO October 31, 2011 - SM Energy Company (NYSE: SM) announces financial results from the third quarter of 2011 and provides an operations update. In addition, a new presentation for the Company's third quarter earnings and operations update will be posted on the Company's website at www.sm‑energy.com. This presentation will be referenced during the conference call scheduled for 8:00 a.m. Mountain time (10:00 a.m. Eastern time) on November 1, 2011. Information for the earnings call can be found below.


THIRD QUARTER 2011 RESULTS

SM Energy reported net income for the third quarter of 2011 of $230.1 million or $3.41 per diluted share. This compares to net income of $15.5 million, or $0.24 per diluted share, for the same period of 2010. The increase in net income between these two periods is due to higher operating income driven by higher production year over year as well as the recognition in the third quarter of 2011 of a gain on divestiture activity related to the previously announced sale of operated Eagle Ford shale properties and large non-cash gains associated with the Company's commodity derivative program. Adjusted net income for the third quarter of 2011 was $42.4 million, or $0.63 per diluted share, compared to adjusted net income of $20.0 million, or $0.31 per diluted share, for the same period of 2010. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. The Company generally excludes non-recurring items or items whose timing and/or amount cannot be reasonably estimated, and large non-cash items, such as gains on divestiture activity and unrealized gains or losses from derivative activity. A summary of the adjustments made to arrive at adjusted net income is presented in the table below:






Adjusted Net Income Reconciliation
(In thousands, except per share data)
 
Reconciliation of Net Income (GAAP)
To Adjusted Net Income (Non-GAAP):
 
For the Three Months Ended September 30,
 
 
2011
 
2010
 
 
 
 
 
Reported Net Income (GAAP)
 
$
230,097

 
$
15,452

Adjustments, net of tax: (1)
 
 
 
 
Change in Net Profits Plan liability
 
(15,631
)
 
2,546

Unrealized portion of derivative (gain) loss
 
(82,877
)
 
3,569

Gain on divestiture activity
 
(119,586
)
 
(2,607
)
Impairment of proved properties
 
30,425

 

Abandonment & impairment of unproved properties
 

 
1,071

 
 
 
 
 
Adjusted Net Income (Non-GAAP)
 
$
42,428

 
$
20,031

 
 
 
 
 
Adjusted Net Income per common share:
 
 
 
 
Basic
 
$
0.66

 
$
0.32

Diluted
 
$
0.63

 
$
0.31

 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
Basic
 
63,904

 
63,031

Diluted
 
67,386

 
64,794

 
 
 
 
 
(1) For the three-month period ended September 30, 2011, adjustments are shown net of tax and are calculated using an effective tax rate of 37.3% which approximates the Company's statutory tax rate adjusted for ordinary permanent differences. For the three-month period ended September 30, 2010, adjustments are shown net of tax using the effective income tax rate as calculated by dividing the income tax expense by income before income taxes as shown on the consolidated statement of operations for the respective period.

Operating cash flow, a non-GAAP measure, increased to $184.6 million for the third quarter of 2011 from $130.1 million for the same period of 2010. Net cash provided by operating activities decreased to $119.8 million for the third quarter of 2011 from $148.2 million for the same period of 2010.

Adjusted net income and operating cash flow are non-GAAP financial measures - please refer to the respective reconciliations in the accompanying Financial Highlights section at the end of this release for additional information about these measures.

SM Energy reported record quarterly production of 42.5 BCFE, or an average of 462.1 MMCFE per day for the third quarter of 2011, within third quarter average daily production guidance of 453 - 481 MMCFE per day.

Revenues and other income for the third quarter were $530.6 million compared to $226.9 million for the same period of 2010. Below is a table that displays, by product type, the average realized price received by the Company, as well as the adjusted price received after taking into account cash settlements for derivative transactions.






Average Realized Commodity Prices for Quarter Ended September 30, 2011
 
Before the impact of derivative cash settlements
 
After the impact of derivative cash settlements
 
 
 
 
Oil ($/Bbl)
$
82.63

 
$
75.02

Gas ($/Mcf)
$
4.52

 
$
4.89

Natural gas liquids ($/Bbl)
$
56.10

 
$
49.71

Equivalent ($/MCFE)
$
7.65

 
$
7.40



The table below presents production and per MCFE cost metrics as reported for the quarter along with previously issued third quarter guidance for 2011:

Production
Reported
3Q11 Guidance
 
 
 
Average daily production (MMCFE/d)
462.1
453 - 481
Total production (BCFE)
42.5
42.0 - 44.5
Oil production (as % of total)
28%
~30%
Natural gas production (as % of total)
61%
~55%
NGL production (as % of total)
11%
~15%
 
 
 
Costs
 
 
LOE ($/MCFE)
$0.94
$0.90 - $0.96
Transportation ($/MCFE)
$0.56
$0.59 - $0.62
Production taxes (% of pre-derivative oil, gas, and NGL revenue)
4.3%
6% - 7%
 
 
 
G&A - Other Cash ($/MCFE)
$0.47
$0.47 - $0.50
G&A - Cash NPP ($/MCFE)
$0.10
$0.11 - $0.13
G&A - Non-cash ($/MCFE)
$0.13
$0.12 - $0.14
Total G&A ($/MCFE)
$0.70
$0.70 - $0.77
 

 
DD&A ($/MCFE)
$2.89
$2.90 - $3.10
Non-cash interest expense ($MM)
$3.4
$3.4

 
FINANCIAL POSITION AND LIQUIDITY

As of September 30, 2011, the Company's debt-to-book capitalization ratio was 28%. At the end of the third quarter of 2011, SM Energy had total long-term debt of $632.6 million, which consisted of its 6.625% senior notes and 3.50% senior convertible notes, net of debt discount. The convertible notes are accounted for as if they will be net-share settled.

As of September 30, 2011, the Company had $29.9 million in cash and no outstanding borrowings under its long-term secured credit facility. During the third quarter, the Company's borrowing base was redetermined by its bank group. Although properties associated with recently closed or pending divestitures were excluded, the borrowing base increased from $1.3 billion to $1.4 billion. As of September 30, 2011 and October 31, 2011, SM Energy was in compliance with all the covenants associated with this facility.







OPERATIONS UPDATE

Record production
Record production in the third quarter of 2011 averaged approximately 462 MMCFE per day, and grew sequentially by 6% from the second quarter of 2011 to the third quarter of 2011. The increase in sequential production was despite continued start-up related infrastructure slowdowns in the Company's core Eagle Ford resource play area. Year over year average daily production growth from the third quarter of 2010 to the third quarter of 2011 was 55%.
 

Eagle Ford Shale
Operated production in the Eagle Ford shale averaged 128 MMCFE/D, a 32% increase over the previous quarter. This increase was made possible by the addition of downstream wet gas transportation capacity made available during September by the start-up of the third party owned and operated Eagle Ford Gathering LLC pipeline. Production volumes on both operated and non-operated assets were at levels lower than the Company's internal forecast due to intermittent downstream constraints and construction related downtime on midstream facilities in the field, as well as a higher percentage of wells being shut-in for offset completion work during the quarter. Although a number of these issues have continued into October, the Company believes that production rates will grow materially by year end.

During the third quarter, SM Energy operated an average of 3.5 drilling rigs on its operated Eagle Ford acreage with 4 rigs running at the end of the quarter. The Company reduced average rig count during the early part of the third quarter compared to its original plan to avoid drilling and completing wells that could not be produced due to the infrastructure constraints noted above. A fifth rig is anticipated to be in the field by year end and the Company expects to run 5 rigs in the field throughout 2012.

During the quarter, the Company continued experimentation with down spacing pilots, longer lateral wells, and revised completion methods. By year end, the Company will have 8 pilot areas drilled at well spacing tighter than 1,250 feet. As previously indicated, data from the earliest of these pilots should be useful by year end 2011 to determine optimum spacing plans for future drilling. In general, the Company expects that optimum development spacing in the shallower and oilier areas of the field will be tighter than in the higher productivity areas. With the addition of rigs designed for pad drilling, SM Energy has begun drilling three well pads in its operated Eagle Ford shale program. These pads are expected to reduce the time to drill the wells and lower the associated cost of each three well pad package by roughly $1 million.
 
On August 2, 2011, SM Energy closed its previously announced sale of approximately 15,400 net operated acres in LaSalle and Dimmit Counties, Texas for cash proceeds of $226.9 million, before certain adjustments.

In the non-operated portion of the Eagle Ford program, the Company fully participated in Anadarko Petroleum Corporation's drilling program, which operated approximately 10 drilling rigs during the third quarter of 2011.








Bakken / Three Forks
SM Energy is currently operating 3 drilling rigs in the Williston Basin. The current focus of this program is the Bakken formation in the Company's Raven prospect in McKenzie County, North Dakota and the Three Forks formation in the Company's Gooseneck prospect in Divide County, North Dakota. The Company is also participating in a number of non-operated wells in both of these areas. During the third quarter of 2011, the Company was able to re-establish nearly all production it had previously shut-in due to regional flooding. In conjunction with production restoration, the Company was able to ramp up drilling and completion activity as these issues subsided.

The Company plans to continue operating 3 drilling rigs for the remainder of 2011 and recently committed to a new-build rig contract to expand its program to 4 rigs in 2012.


Other Plays
Updates on the Company's activities in other resource play areas will be provided during the Company's upcoming conference call.








UPDATED CAPITAL, PRODUCTION, AND PERFORMANCE GUIDANCE

Following is the Company's performance guidance for the fourth quarter and fiscal year 2011.

Guidance for 2011
 
4Q11
Production (BCFE)
44.0 - 47.0
Average daily production (MMCFE/d)
479 - 509
Oil production (as % of total)
~30%
Natural gas production (as % of total)
~58%
NGL production (as % of total)
~12%
 
 
LOE ($/MCFE)
$0.90 - $0.96
Transportation ($/MCFE)
$0.64 - $0.67
Production Taxes (% of pre-derivative oil, gas, and NGL revenue)
5%
 
 
G&A - cash NPP ($/MCFE)
$0.11 - $0.13
G&A - other cash ($/MCFE)
$0.48 - $0.51
G&A - non-cash ($/MCFE)
$0.12 - $0.14
G&A TOTAL ($/MCFE)
$0.71 - $0.78
 
 
DD&A ($/MCFE)
$2.90 - $3.10
Non-cash interest expense ($MM)
$3.40
 
 
 
 
 
FY 2011
Effective income tax rate range
36.6% - 37.1%
% of income tax that is current
15% - 18%

The Company is reiterating its guidance ranges for 2012 capital and production.

Preliminary guidance for fiscal year 2012
 
FY 2012
Production (BCFE)
225 - 232
Capital Budget ($MM)
1,400 - 1,500
 
 
Note: Capital and production guidance ranges assume Eagle Ford transaction with Mitsui closing by year end 2011.









EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss these results and other operational matters on November 1, 2011, at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 877-811-9962 and the conference ID number is 19927057. An audio replay of the call will be available approximately two hours after the call at 855-859-2056, with the conference ID number 19927057. International participants can dial 706-902-4360 to take part in the conference call, using the conference ID number 19927057, and can access a replay of the call at 404-537-3406, using conference ID number 19927057. Replays can be accessed through November 15, 2011.
 
This call is being webcast live and can be accessed at SM Energy Company's website at www.sm-energy.com. An audio recording of the conference call will be available at that site through November 15, 2011.


INFORMATION ABOUT FORWARD LOOKING STATEMENTS

This release may contain or incorporate by reference forward looking statements within the meaning of securities laws, including estimates, forecasts, plans and projections. The words “will,” “believe,” “budget,” “anticipate,” “plan,” “intend,” “estimate,” “forecast,” and “expect” and similar expressions are intended to identify forward looking statements. The forward looking statements contained in this release speak as of the date of this release. These statements involve known and unknown risks, which may cause SM Energy's actual results to differ materially from results expressed or implied by the forward looking statements. These risks include such factors as the volatility and level of oil, natural gas, and natural gas liquids prices, the uncertain nature of the expected benefits from the acquisition, divestiture, or joint venture of oil and gas properties, the uncertain nature of announced divestiture, joint venture, farm down or similar efforts and the ability to complete such transactions, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, the ability of midstream service providers to purchase or market the Company's production, the ability of purchasers of production to pay for those sales, the availability of debt and equity financing for purchasers of oil and gas properties, the ability of the banks in the Company's credit facility to fund requested borrowings, the ability of derivative counterparties to settle derivative contracts in favor of the Company, the imprecise nature of estimating oil and gas reserves, the availability of additional economically attractive exploration, development, and property acquisition opportunities for future growth and any necessary financings, unexpected drilling conditions and results, unsuccessful exploration and development drilling, drilling and operating service availability, the risks associated with the Company's commodity price risk management strategy, uncertainty regarding the ultimate impact of potentially dilutive securities, and other such matters discussed in the “Risk Factors” section of SM Energy's 2010 Annual Report on Form 10-K and subsequent quarterly reports filed on Form 10-Q. Although SM Energy may from time to time voluntarily update its prior forward looking statements, it disclaims any commitment to do so except as required by securities laws.







ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas, natural gas liquids, and crude oil. SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at www.sm‑energy.com.







SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
Guidance Comparison
For the Three Months
 
Ended September 30, 2011
 
 Actual
Guidance Range
 
 
 
Average daily production (MMCFE per day)
462.1

453 - 481
Total production (BCFE)
42.5

42.0 - 44.5
Oil production (as % of total)
28
%
~30%
Natural gas production (as % of total)
61
%
~55%
NGL production (as % of total)
11
%
~15%
 
 
 
Lease operating expense (per MCFE)
$0.94
$0.90 - $0.96
Transportation expense (per MCFE)
$0.56
$0.59 - $0.62
Production taxes, as a percentage of pre-derivative oil, gas, and NGL revenue
4.3
%
6% - 7%
 
 
 
General and administrative - other cash (per MCFE)
$0.47
$0.47 - $0.50
General and administrative - cash related to Net Profits Plan (per MCFE)
$0.10
$0.11 - $0.13
General and administrative - non-cash (per MCFE)
$0.13
$0.12 - $0.14
General and administrative - TOTAL (per MCFE)
$0.70
$0.70 - $0.77
 

 
Depreciation, depletion, and amortization (per MCFE)
$2.89
$2.90 - $3.10
 
 
 
Non-cash interest expense ($MM)
$3.40
$3.40






SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Production Data
For the Three Months
 
For the Nine Months
 
Ended September 30,
 
Ended September 30,
 
2011
 
2010
 
Percent Change
 
2011
 
2010
 
Percent Change
 
 
 
 
 
 
 
 
 
 
 
 
Average realized sales price, before the effects of
 
 
 
 
 
 
 
 
 
 
 
derivative cash settlements: (1)
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
82.63

 
$
68.56

 
21%
 
$
88.54

 
$
70.70

 
25%
Gas (per Mcf)
4.52

 
4.93

 
(8)%
 
4.51

 
5.20

 
(13)%
NGL (per Bbl)
56.10

 

 
NM
 
52.71

 

 
NM
Equivalent (MCFE)
$
7.65

 
$
7.19

 
6%
 
$
7.90

 
$
7.48

 
6%
 
 
 
 
 
 
 
 
 
 
 
 
Average realized sales price, including the effects of
 
 
 
 
 
 
 
 
 
 
 
derivative cash settlements: (1)
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
75.02

 
$
64.28

 
17%
 
$
78.13

 
$
65.46

 
19%
Gas (per Mcf)
4.89

 
5.81

 
(16)%
 
4.97

 
6.07

 
(18)%
NGL (per Bbl)
49.71

 

 
NM
 
46.45

 

 
NM
Equivalent (MCFE)
$
7.40

 
$
7.51

 
(1)%
 
$
7.57

 
$
7.75

 
(2)%
 
 
 
 
 
 
 
 
 
 
 
 
Production: (1)
 
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
2.0
 
1.6
 
25%
 
5.6

 
4.5

 
24%
Gas (Bcf)
25.9
 
17.9
 
44%
 
71.5

 
51.2

 
40%
NGL (MMBbls)
0.8

 

 
NM
 
2.2

 

 
NM
BCFE (6:1)
42.5
 
27.5
 
55%
 
118.4

 
78.3

 
51%
 
 
 
 
 
 
 
 
 
 
 
 
Average daily production: (1)
 
 
 
 
 
 
 
 
 
 
 
Oil (MBbls per day)
21.5

 
17.3

 
25%
 
20.6

 
16.6

 
24%
Gas (MMcf per day)
281.2

 
194.8

 
44%
 
262.0

 
187.4

 
40%
NGL (MBbls per day)
8.6

 

 
NM
 
8.0

 

 
NM
MMCFE per day (6:1)
462.1

 
298.4

 
55%
 
433.7

 
286.9

 
51%
 
 
 
 
 
 
 
 
 
 
 
 
Per MCFE Data:
 
 
 
 
 
 
 
 
 
 
 
Realized price before the effects of derivative cash settlements
$
7.65

 
$
7.19

 
6%
 
$
7.90

 
$
7.48

 
6%
Lease operating expense
(0.94
)
 
(1.06
)
 
(11)%
 
(0.90
)
 
(1.12
)
 
(20)%
Transportation costs
(0.56
)
 
(0.18
)
 
211%
 
(0.47
)
 
(0.18
)
 
161%
Production taxes
(0.33
)
 
(0.39
)
 
(15)%
 
(0.29
)
 
(0.46
)
 
(37)%
General and administrative
(0.70
)
 
(0.96
)
 
(27)%
 
(0.70
)
 
(0.96
)
 
(27)%
Operating profit, before the effects of derivative cash settlements
$
5.12

 
$
4.60

 
11%
 
$
5.54

 
$
4.76

 
16%
Derivative cash settlements
(0.25
)
 
0.32

 
(178)%
 
(0.33
)
 
0.27

 
(222)%
Operating profit, including the effects of derivative cash settlements
$
4.87

 
$
4.92

 
(1)%
 
$
5.21

 
$
5.03

 
4%
Depletion, depreciation, amortization, and
 
 
 
 
 
 
 
 
 
 
 
asset retirement obligation liability accretion
$
(2.89
)
 
$
(3.05
)
 
(5)%
 
$
(2.90
)
 
$
(3.08
)
 
(6)%
 
 
 
 
 
 
 
 
 
 
 
 
(1) NGL production volumes, revenues, and prices for 2010 have not been reclassified to conform to the current presentation given the immateriality of the volumes in that period. Please refer to additional discussion in the Company's Form 10-Q for the quarter ended March 31, 2011.






SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
 
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
 
 
 
(In thousands, except per share amounts)
For the Three Months
 
For the Nine Months
 
Ended September 30,
 
Ended September 30,
 
2011
 
2010
 
2011
 
2010
Operating revenues and other income:
 
 
 
 
 
 
 
Oil, gas, and NGL production revenue
$
325,231

 
$
197,354

 
$
935,478

 
$
586,128

Realized hedge (loss) gain*
(6,843
)
 
8,847

 
(14,548
)
 
20,771

Gain on divestiture activity
190,728

 
4,184

 
245,662

 
132,183

Marketed gas system and other operating revenue
21,458

 
16,499

 
57,184

 
59,634

Total operating revenues and other income
530,574

 
226,884

 
1,223,776

 
798,716



 

 

 

Operating expenses:

 

 

 

Oil, gas, and NGL production expense
77,753

 
44,606

 
196,907

 
138,114

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
123,067

 
83,800

 
343,805

 
241,335

Exploration
11,272

 
14,437

 
33,587

 
42,833

Impairment of proved properties
48,525

 

 
48,525

 

Abandonment and impairment of unproved properties

 
1,719

 
4,316

 
4,998

General and administrative
29,787

 
26,219

 
82,958

 
75,103

Change in Net Profits Plan liability
(24,930
)
 
4,086

 
(24,719
)
 
(29,785
)
Unrealized and realized derivative (gain) loss*
(128,425
)
 
5,727

 
(83,872
)
 
(4,095
)
Marketed gas system and other expense
20,737

 
15,238

 
57,746

 
54,621

Total operating expenses
157,786

 
195,832

 
659,253

 
523,124



 

 

 

Income from operations
372,788

 
31,052

 
564,523

 
275,592



 

 

 

Nonoperating income (expense):

 

 

 

Interest income
27

 
85

 
382

 
268

Interest expense
(9,372
)
 
(6,339
)
 
(33,636
)
 
(19,469
)


 

 

 

Income before income taxes
363,443

 
24,798

 
531,269

 
256,391

Income tax expense
(133,346
)
 
(9,346
)
 
(195,142
)
 
(96,693
)


 

 

 

Net income
$
230,097

 
$
15,452

 
$
336,127

 
$
159,698



 

 

 

Basic weighted-average common shares outstanding
63,904

 
63,031

 
63,665

 
62,914



 

 

 

Diluted weighted-average common shares outstanding
67,386

 
64,794

 
67,390

 
64,599



 

 

 

Basic net income per common share
$
3.60

 
$
0.25

 
$
5.28

 
$
2.54



 

 

 

Diluted net income per common share
$
3.41

 
$
0.24

 
$
4.99

 
$
2.47

 
 
 
 
 
 
 
 
* As of January 1, 2011, the Company elected to de-designate all commodity derivative contracts that had previously been designated as cash flow hedges as of December 31, 2010, and to discontinue hedge accounting prospectively.  Accordingly, beginning January 1, 2011, gains and losses from commodity price management activities, both realized and unrealized, will be included in the income statement on the line titled “Unrealized and realized derivative (gain) loss”. Hedging balances accounted for in the balance sheet line titled “accumulated other comprehensive loss” as of December 31, 2010 will now be recognized in the income statement line titled “Realized hedge (loss) gain” as they are realized.  For the nine-month period ended September 30, 2011, SM Energy's adjusted oil price was negatively impacted by $58.5 million of realized oil derivative cash settlements, the Company's adjusted natural gas price was positively impacted by $33.6 million of realized natural gas derivative cash settlements, and SM Energy's adjusted NGL price was negatively impacted by $13.8 million of realized NGL derivative cash settlements. For the three-month period ended September 30, 2011, the Company's adjusted oil price was negatively impacted by $15.1 million of realized oil derivative cash settlements, SM Energy's adjusted natural gas price was positively impacted by $9.5 million of realized natural gas derivative cash settlements, and the Company's adjusted NGL price was negatively impacted by $5.1 million of realized NGL derivative cash settlements.







SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
 
Consolidated Balance Sheets
 
 
(In thousands, except per share amounts)
September 30,
 
December 31,
ASSETS
2011
 
2010
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
29,923

 
$
5,077

Accounts receivable
183,943

 
163,190

Refundable income taxes

 
8,482

Prepaid expenses and other
30,937

 
45,522

Derivative asset
54,698

 
43,491

Deferred income taxes
5,203

 
8,883

Total current assets
304,704

 
274,645



 

Property and equipment (successful efforts method), at cost:

 

Land
1,543

 
1,491

Proved oil and gas properties
4,070,916

 
3,389,158

Less - accumulated depletion, depreciation, and amortization
(1,635,470
)
 
(1,326,932
)
Unproved oil and gas properties
107,651

 
94,290

Wells in progress
329,363

 
145,327

Materials inventory, at lower of cost or market
14,959

 
22,542

Oil and gas properties held for sale
105,918

 
86,811

Other property and equipment, net of accumulated depreciation of $18,312 in 2011 and $15,480 in 2010
47,655

 
21,365

Total property and equipment, net
3,042,535

 
2,434,052



 

Other noncurrent assets:

 

Derivative asset
39,891

 
18,841

Other noncurrent assets
69,150

 
16,783

Total other noncurrent assets
109,041

 
35,624



 

Total Assets
$
3,456,280

 
$
2,744,321



 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

Accounts payable and accrued expenses
$
400,420

 
$
417,654

Derivative liability
21,106

 
82,044

Deposit associated with oil and gas properties held for sale
2,000

 
2,355

Total current liabilities
423,526

 
502,053



 

Noncurrent liabilities:

 

Long-term credit facility

 
48,000

3.50% Senior Convertible Notes, net of unamortized discount of $4,861 in 2011 and $11,827 in 2010
282,639

 
275,673

6.625% Senior Notes
350,000

 

Asset retirement obligation
73,693

 
69,052

Asset retirement obligation associated with oil and gas properties held for sale
220

 
2,119

Net Profits Plan liability
108,489

 
135,850

Deferred income taxes
609,393

 
443,135

Derivative liability
3,184

 
32,557

Other noncurrent liabilities
17,383

 
17,356

Total noncurrent liabilities
1,445,001

 
1,023,742



 

Stockholders' equity:

 

Common stock, $0.01 par value - authorized: 200,000,000 shares; issued: 64,079,885 shares in 2011 and 63,412,800 shares in 2010; outstanding, net of treasury shares: 63,998,818 shares in 2011 and 63,310,165 shares in 2010
641

 
634

Additional paid-in capital
223,120

 
191,674

Treasury stock, at cost: 81,067 shares in 2011 and 102,635 shares in 2010
(1,544
)
 
(423
)
Retained earnings
1,371,869

 
1,042,123

Accumulated other comprehensive loss
(6,333
)
 
(15,482
)
Total stockholders' equity
1,587,753

 
1,218,526



 

Total Liabilities and Stockholders' Equity
$
3,456,280

 
$
2,744,321

 
 
 
 






SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
 
 
(In thousands)
 For the Three Months
 
 For the Nine Months
 
Ended September 30,
 
Ended September 30,
 
2011
 
2010
 
2011
 
2010
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
230,097

 
$
15,452

 
$
336,127

 
$
159,698

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Gain on divestiture activity
(190,728
)
 
(4,184
)
 
(245,662
)
 
(132,183
)
Depletion, depreciation, amortization, and asset retirement obligation liability accretion
123,067

 
83,800

 
343,805

 
241,335

Exploratory dry hole expense

 
(38
)
 
49

 
289

Impairment of proved properties
48,525

 

 
48,525

 

Abandonment and impairment of unproved properties

 
1,719

 
4,316

 
4,998

Stock-based compensation expense*
7,713

 
7,989

 
19,550

 
19,853

Change in Net Profits Plan liability
(24,930
)
 
4,086

 
(24,719
)
 
(29,785
)
Unrealized derivative (gain) loss
(132,180
)
 
5,727

 
(108,020
)
 
(4,095
)
Amortization of debt discount and deferred financing costs
3,404

 
3,365

 
14,698

 
10,022

Deferred income taxes
112,010

 
6,875

 
164,251

 
85,695

Plugging and abandonment
(1,505
)
 
(884
)
 
(2,935
)
 
(7,106
)
Other
(64
)
 
(6,022
)
 
(5,952
)
 
(3,085
)
Changes in current assets and liabilities:

 

 

 

Accounts receivable
(10,417
)
 
(12,565
)
 
(20,787
)
 
(4,937
)
Refundable income taxes
3,134

 
21,844

 
8,482

 
31,402

Prepaid expenses and other
(960
)
 
660

 
14,732

 
512

Accounts payable and accrued expenses
(39,028
)
 
20,824

 
(41,558
)
 
47,123

Excess income tax benefit from the exercise of stock awards
(8,364
)
 
(438
)
 
(15,155
)
 
(1,376
)
Net cash provided by operating activities
119,774

 
148,210

 
489,747

 
418,360



 

 

 

Cash flows from investing activities:

 

 

 

Net proceeds from sale of oil and gas properties
227,101

 
11,503

 
325,053

 
259,501

Capital expenditures
(419,245
)
 
(184,057
)
 
(1,081,617
)
 
(488,684
)
Acquisition of oil and gas properties

 
(685
)
 

 
(685
)
Receipts from restricted cash

 
19,595

 

 

Other
2,015

 

 
(340
)
 
(6,492
)
Net cash used in investing activities
(190,129
)
 
(153,644
)
 
(756,904
)
 
(236,360
)


 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from credit facility
13,500

 
111,000

 
115,500

 
315,059

Repayment of credit facility
(13,500
)
 
(109,000
)
 
(163,500
)
 
(501,059
)
Debt issuance costs related to credit facility
(194
)
 

 
(8,719
)
 

Net proceeds from 6.625% Senior Notes
(313
)
 

 
341,122

 

Proceeds from sale of common stock
664

 
200

 
5,593

 
3,116

Dividends paid

 

 
(3,181
)
 
(3,144
)
Excess income tax benefit from the exercise of stock awards
8,364

 
438

 
15,155

 
1,376

Other
(9,323
)
 
(364
)
 
(9,967
)
 
(908
)
Net cash provided by (used in) financing activities
(802
)
 
2,274

 
292,003

 
(185,560
)


 

 

 

Net change in cash and cash equivalents
(71,157
)
 
(3,160
)
 
24,846

 
(3,560
)
Cash and cash equivalents at beginning of period
101,080

 
10,249

 
5,077

 
10,649

Cash and cash equivalents at end of period
$
29,923

 
$
7,089

 
$
29,923

 
$
7,089

 
 
 
 
 
 
 
 
* Stock-based compensation expense is a component of exploration expense and general and administrative expense on the consolidated statements of operations. For the three-month periods ended September 30, 2011 and 2010, approximately $2.1 million and $2.3 million, respectively, of stock-based compensation expense was included in exploration expense. For the three-month periods ended September 30, 2011 and 2010, approximately $5.6 million and $5.7 million, respectively, of stock-based compensation expense was included in general and administrative expense. For the nine-month periods ended September 30, 2011 and 2010, approximately $4.9 million and $5.7 million, respectively, of stock-based compensation expense was included in exploration expense. For the nine-month periods ended September 30, 2011 and 2010, approximately $14.7 million and $14.1 million, respectively, of stock-based compensation expense was included in general and administrative expense.







SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2011
 
 
 
 
 
 
 
 
Adjusted Net Income
 
 
 
 
 
 
 
(In thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (GAAP)
For the Three Months
 
For the Nine Months
to Adjusted net income (Non-GAAP):
Ended September 30,
 
Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Reported net income (GAAP)
$
230,097

 
$
15,452

 
$
336,127

 
$
159,698

 
 
 
 
 
 
 
 
Adjustments net of tax: (2)
 
 
 
 
 
 
 
Change in Net Profits Plan liability
(15,631
)
 
2,546

 
(15,499
)
 
(18,552
)
Unrealized derivative (gain) loss
(82,877
)
 
3,569

 
(67,729
)
 
(2,551
)
Gain on divestiture activity
(119,586
)
 
(2,607
)
 
(154,030
)
 
(82,333
)
Impairment of proved properties
30,425

 

 
30,425

 

Abandonment and impairment of unproved properties

 
1,071

 
2,706

 
3,113

 
 
 
 
 
 
 
 
Adjusted net income (Non-GAAP) (3)
$
42,428

 
$
20,031

 
$
132,000

 
$
59,375

 
 
 
 
 
 
 
 
Adjusted net income per share (Non-GAAP)
 
 
 
 
 
 
 
Basic
$
0.66

 
$
0.32

 
$
2.07

 
$
0.94

Diluted
$
0.63

 
$
0.31

 
$
1.96

 
$
0.92

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
63,904

 
63,031

 
63,665

 
62,914

Diluted
67,386

 
64,794

 
67,390

 
64,599

 
 
 
 
 
 
 
 
(2) For the three and nine-month periods ended September 30, 2011, adjustments are shown net of tax and are calculated using an effective tax rate of 37.3%, which approximates the Company's statutory tax rate adjusted for ordinary permanent differences. For the three and nine-month periods ended September 30, 2010, adjustments are shown net of tax using the effective income tax rate as calculated by dividing the income tax expense by income before income taxes as shown on the consolidated statement of operations for the respective period.
 
 
 
 
 
 
 
 
(3) Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are non-recurring items or are items whose timing and/or amount cannot be reasonably estimated. These items include non-cash adjustments and impairments such as the change in the Net Profits Plan liability, unrealized derivative (gain) loss, impairment of proved properties, abandonment and impairment of unproved properties, and gain on divestiture activity. The non-GAAP measure of adjusted net income is presented because management believes it provides useful additional information to investors for analysis of SM Energy's fundamental business on a recurring basis. In addition, management believes that adjusted net income is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Adjusted net income should not be considered in isolation or as a substitute for net income, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income excludes some, but not all, items that affect net income and may vary among companies, the adjusted net income amounts presented may not be comparable to similarly titled measures of other companies.

Operating Cash Flow
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net cash provided by operating activities
For the Three Months
 
For the Nine Months
(GAAP) to Operating cash flow (Non-GAAP):
Ended September 30,
 
Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net cash provided by operating activities (GAAP)
$
119,774

 
$
148,210

 
$
489,747

 
$
418,360

 
 
 
 
 
 
 
 
Changes in current assets and liabilities
55,635

 
(30,325
)
 
54,286

 
(72,724
)
 
 
 
 
 
 
 
 
Exploration
11,272

 
14,437

 
33,587

 
42,833

Less: Exploratory dry hole expense

 
38

 
(49
)
 
(289
)
Less: Stock-based compensation expense included in exploration
(2,086
)
 
(2,286
)
 
(4,892
)
 
(5,724
)
 
 
 
 
 
 
 
 
Operating cash flow (Non-GAAP) (4)
$
184,595

 
$
130,074

 
$
572,679

 
$
382,456

 
 
 
 
 
 
 
 
(4) Operating cash flow is computed as net cash provided by operating activities adjusted for changes in current assets and liabilities and exploration, less exploratory dry hole expense, and stock-based compensation expense included in exploration. The non-GAAP measure of operating cash flow is presented because management believes that it provides useful additional information to investors for analysis of SM Energy's ability to internally generate funds for exploration, development, acquisitions, and to service debt. In addition, operating cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Operating cash flow should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since operating cash flow excludes some, but not all items that affect net income and net cash provided by operating activities and may vary among companies, the operating cash flow amounts presented may not be comparable to similarly titled measures of other companies. See the consolidated statements of cash flows herein for more detailed cash flow information.