Exhibit 99.1

For Information
James R. Edwards
303-837-2444

FOR IMMEDIATE RELEASE


SM ENERGY REPORTS RESULTS FOR THE SECOND QUARTER OF 2012;
PROVIDES OPERATIONS UPDATE

Quarterly production of 8.4 MMBOE, an average of 92.6 MBOE/d or 555.7 MMCFE/d; in-line with quarterly guidance range of 549 - 593 MMCFE/d

Operated Eagle Ford shale production for the second quarter increases 16% from first quarter

27,700 net acres added to its Permian Basin acreage in first half of 2012; total Permian acreage now approximately 115,500 net acres

Quarterly GAAP net income of $24.9 million, or $0.37 per diluted share


DENVER, CO August 1, 2012 - SM Energy Company (NYSE: SM) announces financial results for the second quarter of 2012 and provides an operations update. In addition, a new presentation for the Company's second 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 August 2, 2012. Information for the earnings call can be found below.


SECOND QUARTER 2012 RESULTS

SM Energy reported net income for the second quarter of 2012 of $24.9 million or $0.37 per diluted share. This compares to net income of $124.5 million, or $1.86 per diluted share, for the same period of 2011. Adjusted net income for the second quarter of 2012 was $5.9 million, or $0.09 per diluted share, compared to adjusted net income of $61.1 million, or $0.91 per diluted share, for the same period of 2011. 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 or losses 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 June 30,
 
2012

2011
 
 
 
 
Reported net income (GAAP)
$
24,889

 
$
124,533

Adjustments, net of tax: (1)
 
 
 
Change in Net Profits Plan liability
(13,844
)
 
(8,823
)
Unrealized derivative gain
(51,205
)
 
(36,500
)
Loss (gain) on divestiture activity
15,158

 
(18,940
)
Impairment of proved properties
24,154

 

Abandonment & impairment of unproved properties
6,713

 
780

 
 
 
 
Adjusted net income (Non-GAAP)
$
5,865

 
$
61,050

 
 
 
 
Adjusted net income per common share
 
 
 
Basic
$
0.09


$
0.96

Diluted
$
0.09


$
0.91

 



Weighted-average common shares outstanding



Basic
64,585


63,638

Diluted
67,556


66,909

 
 
 
 
(1) For the three-month periods ended June 30, 2012, 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, as adjusted for ordinary permanent differences. For the three-month period ended June 30, 2011, 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 that period.

Earnings before interest, taxes, depreciation, depletion, amortization, accretion, and exploration expense ("EBITDAX") was $213.7 million for the second quarter of 2012, down from $242.4 million for the same period of 2011.

Adjusted net income and EBITDAX 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.

Revenues and other income for the second quarter were $304.4 million compared to $377.9 million for the same period of 2011, a 19% decrease. The table below provides the average realized prices received by product for the Company, as well as the adjusted prices received after taking into account cash settlements for derivative transactions:




Average Realized Commodity Prices for Quarter Ended June 30, 2012
 
Before the effect of derivative cash settlements
 
After the effect of derivative cash settlements
 
 
 
 
Oil ($/Bbl)
$
82.52

 
$
80.52

Gas ($/Mcf)
$
2.34

 
$
3.02

Natural gas liquids ($/Bbl)
$
37.79

 
$
39.44

Equivalent ($/MCFE)
$
6.18

 
$
6.51



The table below presents key performance measures and metrics, as well as previously provided guidance for the second quarter of 2012:

Production
Reported
2Q12 Guidance
 
 
 
Average daily production (MMCFE/d)
555.7
549 - 593
Total production (BCFE)
50.6
50.0 - 54.0
 
 
 
Costs
 
 
LOE ($/MCFE)
$0.91
$0.83 - $0.88
Transportation ($/MCFE)
$0.60
$0.67 - $0.71
Production taxes (% of pre-derivative oil, gas, and NGL revenue)
4.7%
6.3%
 
 
 
G&A - Other Cash ($/MCFE)
$0.43
$0.43 - $0.46
G&A - Cash NPP ($/MCFE)
$0.07
$0.08 - $0.10
G&A - Non-cash ($/MCFE)
$0.12
$0.11 - $0.13
Total G&A ($/MCFE)
$0.62
$0.62 - $0.69
 
 
 
DD&A ($/MCFE)
$3.20
$3.20 - $3.40
Non-cash interest expense ($MM)
$1.0
$1.0

For the second quarter of 2012, SM Energy met or beat guidance on all metrics except LOE. Absolute dollars of LOE were in-line with the Company's expectations, however lower than anticipated production volumes drove per unit LOE above the guidance range for the quarter. Lower than forecasted production from the Eagle Ford shale programs, which are the largest driver of transportation expense for the Company, resulted in lower transportation expense for the quarter. SM Energy recorded lower than expected production taxes as a percentage of pre-derivative oil, gas, and NGL revenue due to tax incentive rebates the Company received during the second quarter of 2012 from the state of Oklahoma. These severance tax incentives relate to activity dating back to 2010 and have all been recorded in the current period resulting in a lower production tax rate for the quarter.

During the second quarter of 2012, the Company withdrew its sales package of DJ Basin assets from the market after receiving inadequate value for the assets. Accounting guidance requires that the assets be recorded at the lower of cost or market when reclassified as "held and used," which resulted in a $28.3 million non-cash loss on divestiture activity for the quarter. During the quarter, the Company recognized an impairment of proved properties of $38.5 million, primarily related to the Company's Haynesville shale assets. The Company also recorded a charge to abandonment and impairment of unproved properties of $10.7 million primarily related to an



exploratory program in its Rocky Mountain region.
 
FINANCIAL POSITION AND LIQUIDITY

At the end of the second quarter of 2012, SM Energy had total long-term debt of $1.2 billion. A summary of the Company's long-term debt is shown in the table below:
Schedule of long-term debt
($ in millions)
 
 
 
 
 
Debt Issue
 
Amount outstanding at 6/30/12
Long-term credit facility
 
$
61

Senior Notes due 2019
 
350

Senior Notes due 2021
 
350

Senior Notes due 2023
 
400

Total
 
$
1,161


On June 29, 2012, the Company issued $400 million of 6.50% Senior Notes due in 2023. As a result of this issuance, the Company's borrowing base under its credit facility was automatically decreased from $1.5 billion to $1.4 billion. SM Energy has elected to keep its current commitments under its credit facility unchanged at $1.0 billion. As of June 30, 2012, SM Energy's debt-to-book capitalization ratio was 43%, and the ratio of the Company's debt to twelve month trailing EBITDAX was 1.2 times. As of the end of the second quarter, SM Energy was in compliance with all of the covenants associated with its long-term debt. As of June 30, 2012, and July 27, 2012, the Company's outstanding balance on its long-term credit facility was $61.0 million and $85.5 million, respectively.


OPERATIONS UPDATE

Production
SM Energy reported quarterly production of 50.6 BCFE, or an average of 555.7 MMCFE per day, for the second quarter of 2012, which is within the previously provided production guidance range of 549 to 593 MMCFE per day. Reported production declined slightly from the quarterly production of 50.7 BCFE in the first quarter of 2012 due to production declines in dry gas producing areas and divestitures that were not fully offset by production growth in other areas during the quarter.

Divestitures
During the first half of 2012, the Company has closed or entered into contracts to sell approximately $50 million of various legacy assets packages, including a non-operated Green River Basin package and non-operated Bakken/Three Forks assets in the Williston Basin.

Eagle Ford Shale
The Company's operated net production in the Eagle Ford shale averaged 207.1 MMCFE/d in the second quarter of 2012, a 16% increase from the first quarter production of 178.3 MMCFE/d. During the second quarter of 2012, SM Energy operated six drilling rigs on its operated Eagle Ford shale acreage. Starting in 2012, most drilling activity has been focused on drilling multi-well



pads, and as a result, the well completion schedule for the year is weighted toward the second half. During the first half of 2012, the Company completed 26 wells in the operated program. Production in the second quarter was impacted by downstream pipeline curtailments in April and further constrained by continuing delays in the installation and start-up of new field production batteries on the third-party operated gathering system. These delays are being caused by later than expected deliveries of equipment resulting from increased industry demand. Based on the current schedule for delivery of midstream equipment, the Company now expects to complete 67 wells in 2012.

In the non-operated portion of the Company's Eagle Ford program, net production for the second quarter of 2012 averaged 9.5 MBOE/d. The operator ran approximately nine drilling rigs and one spudder rig during the second quarter of 2012 and is expected to continue at the same activity level for the remainder of the year. The operator has recently accelerated the expansion of the midstream assets, which is a non-carried expense under the carry agreement with Mitsui, causing an increase in the amount of capital invested in this system by SM Energy in 2012.

Bakken / Three Forks
SM Energy added a fourth drilling rig in the North Dakota portion of the Williston Basin at the end of the second quarter and plans to run those four rigs for the remainder of 2012. The Company currently has three of its rigs focused on Bakken and Three Forks drilling in the Company's Raven and Bear Den prospects in McKenzie and Williams Counties, North Dakota. The fourth operated rig is focused on the Three Forks formation in the Company's Gooseneck prospect in Divide County, North Dakota. During the first half of 2012, the Company transitioned most of its drilling and completion activity in the Williston Basin to multi-well pad infill drilling. The Company is also participating in a number of non-operated wells throughout the Williston Basin.
 
Permian Basin
During the first half of 2012, the Company increased its acreage position in the Permian Basin by 27,700 net acres and increased its development rig count in the basin to three rigs. During the second quarter, one of the rigs was focused on Mississippian Limestone development in the northern Midland Basin where the Company has seen encouraging results with recent wells. The Company operated a rig in a recently acquired acreage block near Midland, Texas, and completed a horizontal well in the Leonard Shale. The well is currently flowing back and a second well is currently being drilled. The Company also completed a Bone Springs development well on acreage it holds in New Mexico and is drilling the second well of a multi-well program in that play. At the beginning of the third quarter, the Company added a second rig to its Mississippian Limestone development program, increasing its total operated rig count in the Permian Basin to four.

Other Activity
In its Granite Wash program, the Company operated three rigs throughout the second quarter of 2012 and completed five wells. The Company also operated one rig in its Niobrara/Frontier program in the Powder River Basin.





UPDATED CAPITAL, PRODUCTION, AND PERFORMANCE GUIDANCE

SM Energy is updating its previously provided capital expenditure and operational guidance for the third quarter and for the full year 2012.

The Company's current forecast for 2012 capital investment will be approximately $1.5 billion. The following table summarizes the updated capital allocations for 2012:
Capital Update
 
 
 
(in millions)
Updated 2012
 
Capital Plan
Drilling Capital
 
 
 
Operated Eagle Ford
$520
-
$570
Operated Bakken/Three Forks
$160
-
$185
Operated Granite Wash
$50
-
$60
Other Operated
$60
-
$80
Operated Permian
$95
-
$105
Outside Operated
$150
-
$200
Drilling Subtotal (1)
$1,100
-
$1,200
 
 
 
 
Non Drilling Capital
$250
-
$350
 
 
 
 
Total (1)
$1,450
-
$1,550
 
 
 
 
(1) Ranges of capital are not intended to sum.
 
 
 

As indicated earlier, non-drilling capital is now forecast to be higher than in the original plan due to non-operated infrastructure investment in the Eagle Ford shale. Capital in the operated Eagle Ford program is expected to be lower than originally planned due to infrastructure related deferrals of a number of completions. This development capital has been shifted to oily activities in the Permian Basin and the non-operated portion of the Bakken/Three Forks program.

The Company is providing updated production and cost guidance for third quarter and full year 2012 in the table below:



Guidance for 2012
 
 
3Q12
FY2012
Production (BCFE)
52.0 - 55.5
210 - 217
Average daily production (MMCFE/d)
565 - 603
573 - 593
Oil production (as % of total)
 
~28%
Natural gas production (as % of total)
 
~55%
NGL production (as % of total)
 
~17%
 
 
 
LOE ($/MCFE)
$0.88 - $0.94
$0.85 - $0.91
Transportation ($/MCFE)
$0.69 - $0.73
$0.64 - $0.68
Production taxes (% of pre-derivative oil, gas, and NGL revenue)
6.1
%
5.6
%
 
 
 
G&A - Cash ($/MCFE)
$0.44 - $0.47
$0.41 - $0.45
G&A - Cash NPP ($/MCFE)
$0.07 - $0.09
$0.07 - $0.09
G&A - Non-cash ($/MCFE)
$0.13 - $0.15
$0.11 - $0.13
Total G&A ($/MCFE)
$0.64 - $0.71
$0.59 - $0.67
 
 
 
DD&A ($/MCFE)
$3.20 - $3.40
$3.20 - $3.40
Non-cash interest expense ($MM)
$
1.1

$
6.8

 
 
 
Effective income tax rate range
 
37.0% - 37.5%
% of income tax that is current
 
<5%


EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss these results and other operational matters for August 2, 2012, at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 877-445-0811 and the conference ID number is 10490818. An audio replay of the call will be available approximately two hours after the call at 855-859-2056, with the conference ID number 10490818. International participants can dial 617‑401-8115 to take part in the conference call, using the conference ID number 10490818, and can access a replay of the call at 404-537-3406, using conference ID number 10490818. Replays can be accessed through August 16, 2012.

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 August 16, 2012.





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, the availability of drilling, completion, and operating equipment and services, 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 2011 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 acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in onshore North America. 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
June 30, 2012
 
 
 
 
Guidance Comparison
 
 
For the Three Months Ended June 30, 2012
 
 Actual
 
Guidance Range
 
 
 
 
Average daily production (MMCFE per day)
555.7

 
549 - 593
Total production (BCFE)
50.6

 
50.0 - 54.0
 
 
 
 
Lease operating expense (per MCFE)
$0.91
 
$0.83 - $0.88
Transportation expense (per MCFE)
$0.60
 
$0.67 - $0.71
Production taxes, as a percentage of pre-derivative oil, gas, and NGL revenue
4.7
%
 
6.3%
 
 
 
 
General and administrative - Cash (per MCFE)
$0.43
 
$0.43 - $0.46
General and administrative - Cash related to Net Profits Plan (per MCFE)
$0.07
 
$0.08 - $0.10
General and administrative - Non-cash (per MCFE)
$0.12
 
$0.11 - $0.13
Total General and administrative (per MCFE)
$0.62
 
$0.62 - $0.69
 
 
 
 
Depreciation, depletion, and amortization (per MCFE)
$3.20
 
$3.20 - $3.40
 
 
 
 
Non-cash interest expense ($MM)
$1.0
 
$1.0



SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
6/30/2012
 
 
 
 
 
 
 
 
 
 
 
 
Production Data
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2012

2011

Percent Change
 
2012
 
2011
 
Percent Change
 
 
 
 
 
 
 
 
 
 
 
 
Average realized sales price, before the effects of
 
 
 
 
 
 
 
 
 
 
 
derivative cash settlements:
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
82.52

 
$
97.51

 
(15)%
 
$
86.72

 
$
91.76

 
(5)%
Gas (per Mcf)
2.34

 
4.63

 
(49)%
 
2.62

 
4.50

 
(42)%
NGL (per Bbl)
37.79

 
54.02

 
(30)%
 
40.94

 
50.80

 
(19)%
Equivalent (per MCFE)
$
6.18

 
$
8.40

 
(26)%
 
$
6.67

 
$
8.04

 
(17)%
 
 
 
 
 
 
 
 
 
 
 
 
Average realized sales price, including the effects of
 
 
 
 
 
 
 
 
 
 
 
derivative cash settlements:
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
80.52

 
$
84.40

 
(5)%
 
$
83.52

 
$
79.82

 
5%
Gas (per Mcf)
3.02

 
5.01

 
(40)%
 
3.31

 
5.02

 
(34)%
NGL (per Bbl)
39.44

 
47.49

 
(17)%
 
41.06

 
44.60

 
(8)%
Equivalent (per MCFE)
$
6.51

 
$
7.89

 
(17)%
 
$
6.90

 
$
7.67

 
(10)%
 
 
 
 
 
 
 
 
 
 
 
 
Production:
 
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
2.4
 
1.9
 
27%
 
4.9
 
3.6
 
34%
Gas (Bcf)
28.1
 
23.9
 
18%
 
56.8
 
45.6
 
24%
NGL (MMBbls)
1.4

 
0.8

 
75%
 
2.5

 
1.4

 
81%
BCFE (6:1)
50.6
 
39.8
 
27%
 
101.3
 
75.9
 
33%
 
 
 
 
 
 
 
 
 
 
 
 
Average daily production:
 
 
 
 
 
 
 
 
 
 
 
Oil (MBbls per day)
25.9

 
20.4

 
27%
 
26.7

 
20.1

 
33%
Gas (MMcf per day)
309.2

 
262.7

 
18%
 
312.0

 
252.2

 
24%
NGL (MBbls per day)
15.2

 
8.7

 
75%
 
14.0

 
7.8

 
80%
MMCFE per day (6:1)
555.7

 
436.9

 
27%
 
556.4

 
419.3

 
33%
 
 
 
 
 
 
 
 
 
 
 
 
Per MCFE Data:
 
 
 
 
 
 
 
 
 
 
 
Realized price before the effects of derivative cash settlements
$
6.18

 
$
8.40

 
(26)%
 
$
6.67

 
$
8.04

 
(17)%
Lease operating expense
0.91

 
0.84

 
8%
 
0.85

 
0.87

 
(2)%
Transportation costs
0.60

 
0.42

 
43%
 
0.58

 
0.42

 
38%
Production taxes
0.29

 
0.08

 
263%
 
0.33

 
0.28

 
18%
General and administrative
0.62

 
0.69

 
(10)%
 
0.59

 
0.70

 
(16)%
Operating profit, before the effects of derivative cash settlements
$
3.76

 
$
6.37

 
(41)%
 
$
4.32

 
$
5.77

 
(25)%
Derivative cash settlements
0.33

 
(0.51
)
 
(165)%
 
0.23

 
(0.37
)
 
(162)%
Operating profit, including the effects of derivative cash settlements
$
4.09

 
$
5.86

 
(30)%
 
$
4.55

 
$
5.40

 
(16)%
Depletion, depreciation, amortization, and
 
 
 
 
 
 
 
 
 
 
 
asset retirement obligation liability accretion
$
3.20

 
$
2.90

 
10%
 
$
3.27

 
$
2.91

 
12%




SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2012
 
 
 
 
 
 
 
 
Consolidated Statements of Operations
 
 
 
 
 
 
 
(in thousands, except per share amounts)
For the Three Months Ended June 30,

For the Six Months Ended June 30,
 
2012

2011

2012

2011
Operating revenues and other income:
 
 
 
 
 
 
 
Oil, gas, and NGL production revenue
$
312,608

 
$
333,934

 
$
675,203

 
$
610,247

Realized hedge gain (loss)
185

 
(6,330
)
 
1,837

 
(7,705
)
Gain (loss) on divestiture activity
(24,176
)
 
30,019

 
(22,714
)
 
54,934

Marketed gas system and other operating revenue
15,803

 
20,250

 
27,517

 
35,726

Total operating revenues and other income
304,420

 
377,873

 
681,843

 
693,202


 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Oil, gas, and NGL production expense
91,134

 
53,342

 
178,266

 
119,154

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
161,608

 
115,382

 
331,178

 
220,738

Exploration
22,007

 
9,603

 
40,614

 
22,315

Impairment of proved properties
38,523

 

 
38,523

 

Abandonment and impairment of unproved properties
10,707

 
1,237

 
10,849

 
4,316

General and administrative
31,130

 
27,310

 
59,272

 
53,171

Change in Net Profits Plan liability
(22,079
)
 
(13,984
)
 
(18,140
)
 
211

Unrealized and realized derivative (gain) loss
(98,112
)
 
(43,876
)
 
(95,896
)
 
44,553

Marketed gas system and other operating expense
17,111

 
17,152

 
28,561

 
37,009

Total operating expenses
252,029

 
166,166

 
573,227

 
501,467


 
 
 
 
 
 
 
Income from operations
52,391

 
211,707


108,616


191,735


 
 
 
 
 
 
 
Nonoperating income (expense):
 
 
 
 
 
 
 
Interest income
5

 
227

 
75

 
355

Interest expense
(12,712
)
 
(14,550
)
 
(26,990
)
 
(24,264
)

 
 
 
 
 
 
 
Income before income taxes
39,684

 
197,384

 
81,701

 
167,826

Income tax expense
(14,795
)
 
(72,851
)
 
(30,476
)
 
(61,796
)

 
 
 
 
 
 
 
Net income
$
24,889

 
$
124,533

 
$
51,225

 
$
106,030

 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
64,585

 
63,638

 
64,345

 
63,543

 
 
 
 
 
 
 
 
Diluted weighted-average common shares outstanding
67,556

 
66,909

 
67,806

 
66,695

 
 
 
 
 
 
 
 
Basic net income per common share
$
0.39

 
$
1.96

 
$
0.80

 
$
1.67

 
 
 
 
 
 
 
 
Diluted net income per common share
$
0.37

 
$
1.86

 
$
0.76

 
$
1.59






SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2012
 
 
 
 
Consolidated Balance Sheets
 
 
(in thousands, except per share amounts)
June 30,
 
December 31,
 ASSETS
2012
 
2011
Current assets:
 
 
 
Cash and cash equivalents
$
184

 
$
119,194

Accounts receivable
209,633

 
210,368

Refundable income taxes
2,603

 
5,581

Prepaid expenses and other
46,812

 
68,026

Derivative asset
69,207

 
55,813

Deferred income taxes
5,798

 
4,222

Total current assets
334,237

 
463,204


 
 
 
Property and equipment (successful efforts method), at cost:
 
 
 
Land
1,845

 
1,548

Proved oil and gas properties
4,869,603

 
4,378,987

Less - accumulated depletion, depreciation, and amortization
(2,034,929
)
 
(1,766,445
)
Unproved oil and gas properties
122,005

 
120,966

Wells in progress
274,690

 
273,428

Materials inventory, at lower of cost or market
12,966

 
16,537

Oil and gas properties held for sale
60,711

 
246

Other property and equipment, net of accumulated depreciation of $20,799 in 2012 and $23,985 in 2011
120,058

 
71,369

Total property and equipment, net
3,426,949

 
3,096,636


 
 
 
Other noncurrent assets:
 
 
 
Derivative asset
44,270

 
31,062

Restricted cash
109,486

 
124,703

Other noncurrent assets
84,629

 
83,375

Total other noncurrent assets
238,385

 
239,140



 

Total Assets
$
3,999,571

 
$
3,798,980


 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
460,611

 
$
456,999

Derivative liability
9,150

 
42,806

Other current liabilities
6,000

 
6,000

Total current liabilities
475,761

 
505,805


 
 
 
Noncurrent liabilities:
 
 
 
Long-term credit facility
61,000

 

3.50% Senior Convertible Notes, net of unamortized discount of $2,431 in 2011

 
285,069

6.625% Senior Notes Due 2019
350,000

 
350,000

6.50% Senior Notes Due 2021
350,000

 
350,000

6.50% Senior Notes Due 2023
400,000

 

Asset retirement obligation
89,027

 
87,167

Asset retirement obligation associated with oil and gas properties held for sale
1,732

 
1,277

Net Profits Plan liability
89,591

 
107,731

Deferred income taxes
596,725

 
568,263

Derivative liability
956

 
12,875

Other noncurrent liabilities
57,083

 
67,853

Total noncurrent liabilities
1,996,114

 
1,830,235


 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.01 par value - authorized: 200,000,000 shares; issued: 65,155,340 shares in 2012 and 64,145,482 shares in 2011; outstanding, net of treasury shares: 65,100,773 shares in 2012 and 64,064,415 shares in 2011
652

 
641

Additional paid-in capital
234,562

 
216,966

Treasury stock, at cost: 54,567 shares in 2012 and 81,067 shares in 2011
(1,263
)
 
(1,544
)
Retained earnings
1,299,175

 
1,251,157

Accumulated other comprehensive loss
(5,430
)
 
(4,280
)
Total stockholders' equity
1,527,696

 
1,462,940


 
 
 
Total Liabilities and Stockholders’ Equity
$
3,999,571

 
$
3,798,980





SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2012
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,

For the Six Months Ended June 30,
 
2012

2011

2012

2011
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
24,889

 
$
124,533

 
$
51,225

 
$
106,030

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Loss (gain) on divestiture activity
24,176

 
(30,019
)
 
22,714

 
(54,934
)
Depletion, depreciation, amortization, and asset retirement obligation liability accretion
161,608

 
115,382

 
331,178

 
220,738

Exploratory dry hole expense
7,592

 
9

 
8,198

 
49

Impairment of proved properties
38,523

 

 
38,523

 

Abandonment and impairment of unproved properties
10,707

 
1,237

 
10,849

 
4,316

Stock-based compensation expense
8,022

 
6,286

 
12,372

 
11,837

Change in Net Profits Plan liability
(22,079
)
 
(13,984
)
 
(18,140
)
 
211

Unrealized derivative (gain) loss
(81,666
)
 
(57,852
)
 
(74,014
)
 
24,160

Amortization of debt discount and deferred financing costs
951

 
7,674

 
4,616

 
11,294

Deferred income taxes
14,927

 
70,415

 
30,215

 
52,241

Plugging and abandonment
(1,516
)
 
(1,395
)
 
(1,516
)
 
(1,430
)
Other
251

 
(3,917
)
 
(867
)
 
(5,888
)
Changes in current assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
14,702

 
(26,755
)
 
735

 
(10,370
)
Refundable income taxes
(28
)
 
1,618

 
2,978

 
5,348

Prepaid expenses and other
(1,756
)
 
(5,267
)
 
(4,759
)
 
15,692

Accounts payable and accrued expenses
22,932

 
25,811

 
(4,019
)
 
(2,530
)
Excess income tax benefit from the exercise of stock awards

 
(488
)
 

 
(6,791
)
Net cash provided by operating activities
222,235

 
213,288

 
410,288

 
369,973


 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Net proceeds from sale of oil and gas properties
13,731

 
58,929

 
15,410

 
97,952

Capital expenditures
(370,351
)
 
(352,681
)
 
(705,366
)
 
(662,372
)
Acquisition of oil and gas properties
(5,312
)
 

 
(5,312
)
 

Other
(1,439
)
 

 
111

 
(2,355
)
Net cash used in investing activities
(363,371
)
 
(293,752
)
 
(695,157
)
 
(566,775
)

 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from credit facility
776,500

 

 
802,500

 
102,000

Repayment of credit facility
(739,500
)
 

 
(741,500
)
 
(150,000
)
Debt issuance costs related to credit facility

 
(8,525
)
 

 
(8,525
)
Net proceeds from Senior Notes due 2019

 

 

 
341,435

Net proceeds from Senior Notes due 2023
392,336

 

 
392,336

 

Repayment of Convertible Notes
(287,500
)
 

 
(287,500
)
 

Proceeds from sale of common stock
1,850

 
1,469

 
2,888

 
4,929

Dividends paid
(3,208
)
 
(3,181
)
 
(3,208
)
 
(3,181
)
Excess income tax benefit from the exercise of stock awards

 
488

 

 
6,791

Other
556

 
(1
)
 
343

 
(644
)
Net cash provided by financing activities
$
141,034

 
$
(9,750
)
 
$
165,859

 
$
292,805


 
 
 
 
 
 
 
Net change in cash and cash equivalents
$
(102
)
 
$
(90,214
)
 
$
(119,010
)
 
$
96,003

Cash and cash equivalents at beginning of period
286

 
191,294

 
119,194

 
5,077

Cash and cash equivalents at end of period
$
184

 
$
101,080

 
$
184

 
$
101,080





SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2012
 
 
 
 
 
 
 
 
Adjusted Net Income
 
 
 
 
 
 
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (GAAP)
 
 
 
 
 
 
 
to adjusted net income (Non-GAAP):
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Reported net income (GAAP)
$
24,889

 
$
124,533

 
$
51,225

 
$
106,030

 
 
 
 
 
 
 
 
Adjustments net of tax: (1)
 
 
 
 
 
 
 
Change in Net Profits Plan liability
(13,844
)
 
(8,823
)
 
(11,374
)
 
133

Unrealized derivative (gain) loss
(51,205
)
 
(36,500
)
 
(46,407
)
 
15,264

Loss (gain) on divestiture activity
15,158

 
(18,940
)
 
14,241

 
(34,706
)
Impairment of proved properties
24,154

 

 
24,154

 

Abandonment and impairment of unproved properties
6,713

 
780

 
6,802

 
2,727

 
 
 
 
 
 
 
 
Adjusted net income (Non-GAAP) (2)
$
5,865

 
$
61,050

 
$
38,641

 
$
89,448

 
 
 
 
 
 
 
 
Adjusted net income per share (Non-GAAP)
 
 
 
 
 
 
 
Basic
$
0.09

 
$
0.96

 
$
0.60

 
$
1.41

Diluted
$
0.09

 
$
0.91

 
$
0.57

 
$
1.34

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
 
 
 
 
 
Basic
64,585

 
63,638

 
64,345

 
63,543

Diluted
67,556

 
66,909

 
67,806

 
66,695

 
 
 
 
 
 
 
 
(1) For the three and six-month periods ended June 30, 2012, 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, as adjusted for ordinary permanent differences. For the three and six-month periods ended June 30, 2011, 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 that respective period.
(2) 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.




EBITDAX
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (GAAP) to EBITDAX (Non-GAAP)
 
 
 
 
 
 
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2012

2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Reported net income (GAAP)
$
24,889

 
$
124,533

 
$
51,225

 
$
106,030

 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Interest income
(5
)
 
(227
)
 
(75
)
 
(355
)
Interest expense
12,712

 
14,550

 
26,990

 
24,264

Income tax expense
14,795

 
72,851

 
30,476

 
61,796

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
161,608

 
115,382

 
331,178

 
220,738

Exploration
22,007

 
9,603

 
40,614

 
22,315

Impairment of proved properties
38,523

 

 
38,523

 

Abandonment and impairment of unproved properties
10,707

 
1,237

 
10,849

 
4,316

Stock-based compensation expense
8,022

 
6,286

 
12,372

 
11,837

Unrealized derivative (gain) loss
(81,666
)
 
(57,852
)
 
(74,014
)
 
24,160

Change in Net Profits Plan liability
(22,079
)
 
(13,984
)
 
(18,140
)
 
211

Loss (gain) on divestiture activity
24,176

 
(30,019
)
 
22,714

 
(54,934
)
EBITDAX (Non-GAAP) (3)
$
213,689

 
$
242,360

 
$
472,712

 
$
420,378

 
 
 
 
 
 
 
 
(3) EBITDAX represents income or loss before interest expense, interest income, income taxes, depreciation, depletion, amortization and accretion, exploration expense, property impairments, non-cash stock compensation expense, unrealized derivative gains and losses, change in the Net Profit Plan liability, and gains and losses on divestitures. EBITDAX excludes certain items that we believe affect the comparability of operating results and can exclude items which are generally one-time or whose timing and/or amount cannot be reasonably estimated. EBITDAX is a non-GAAP measure that is presented because we believe that it provides useful additional information to investors, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt. We are also subject to financial covenants under our credit facility based on our debt to EBITDAX ratio. In addition, EBITDAX 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. EBITDAX should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities, profitability, or liquidity measures prepared under GAAP. Since EBITDAX excludes some, but not all items that affect net income and may vary among companies, the EBITDAX amounts presented may not be comparable to similar metrics of other companies.