EXHIBIT 99.1


SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information is presented to illustrate the effect of the sale by SM Energy Company (the “Company”) of its non-operated Eagle Ford shale assets, including its ownership interest in related midstream assets (the “Eagle Ford Assets” and the “Divestiture”) on its historical financial position and operating results. The Divestiture had an effective date of November 1, 2016, and was completed on March 10, 2017. Net proceeds from the Divestiture, after customary closing adjustments and estimated selling costs, were $747.4 million. The Divestiture is subject to customary post-closing purchase price adjustments that have not yet been finalized.

The unaudited pro forma consolidated balance sheet as of December 31, 2016, is based on the historical financial statements of the Company as of December 31, 2016, after giving effect to the Divestiture as if it had occurred on December 31, 2016. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2016, is based on the historical financial statements of the Company for such period after giving effect to the Divestiture as if it had occurred on January 1, 2016. The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements.

The preparation of the unaudited pro forma consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The Company determined that the Divestiture does not qualify for discontinued operations accounting under financial statement presentation authoritative guidance.

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the Divestiture been consummated on the date or for the period presented. The unaudited pro forma consolidated financial information should be read in conjunction with the Company’s historical consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 23, 2017.




SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2016
(in thousands, except share amounts)
 
As Reported
 
Pro Forma Adjustments
 
Notes
 
As Adjusted
 ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,372

 
$
747,395

 
(a)
 
$
756,767

Accounts receivable
151,950

 
(644
)
 
(d)
 
151,306

Derivative asset
54,521

 
 
 
 
 
54,521

Prepaid expenses and other
8,799

 
 
 
 
 
8,799

Total current assets
224,642

 
746,751

 
 
 
971,393

 
 
 
 
 
 
 


Property and equipment (successful efforts method):
 
 
 
 
 
 


Proved oil and gas properties
5,700,418

 
 
 
 
 
5,700,418

Less - accumulated depletion, depreciation, and amortization
(2,836,532
)
 
 
 
 
 
(2,836,532
)
Unproved oil and gas properties
2,471,947

 
 
 
 
 
2,471,947

Wells in progress
235,147

 
 
 
 
 
235,147

Oil and gas properties held for sale, net
372,621

 
(372,621
)
 
(b)
 
—

Other property and equipment, net of accumulated depreciation of $42,882
137,753

 
 
 
 
 
137,753

Total property and equipment, net
6,081,354

 
(372,621
)
 
 
 
5,708,733

 
 
 
 
 
 
 


Noncurrent assets:
 
 
 
 
 
 


Derivative asset
67,575

 
 
 
 
 
67,575

Other noncurrent assets
19,940

 
 
 
 
 
19,940

Total other noncurrent assets
87,515

 
—

 
 
 
87,515

Total Assets
$
6,393,511

 
$
374,130

 
 
 
$
6,767,641

 
 
 
 
 
 
 


LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 


Current liabilities:
 
 
 
 
 
 


Accounts payable and accrued expenses
$
299,708

 
$
13,902

 
(d)
 
$
313,610

Derivative liability
115,464

 
 
 
 
 
115,464

Total current liabilities
415,172

 
13,902

 
 
 
429,074

 
 
 
 
 
 
 


Noncurrent liabilities:
 
 
 
 
 
 


Revolving credit facility
—

 
 
 
 
 
—

Senior Notes, net of unamortized deferred financing costs
2,766,719

 
 
 
 
 
2,766,719

Senior Convertible Notes, net of unamortized discount and deferred financing costs
130,856

 
 
 
 
 
130,856

Asset retirement obligation
96,134

 
 
 
 
 
96,134

Asset retirement obligation associated with oil and gas properties held for sale
26,241

 
(26,241
)
 
(c)
 
—

Deferred income taxes
315,672

 
128,493

 
(d)
 
444,165

Derivative liability
98,340

 
 
 
 
 
98,340

Other noncurrent liabilities
47,244

 
 
 
 
 
47,244

Total noncurrent liabilities
3,481,206

 
102,252

 
 
 
3,583,458

 
 
 
 
 
 
 


Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 


Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 111,257,500
1,113

 
 
 
 
 
1,113

Additional paid-in capital
1,716,556

 
 
 
 
 
1,716,556

Retained earnings
794,020

 
257,976

 
(e)
 
1,051,996

Accumulated other comprehensive loss
(14,556
)
 
 
 
 
 
(14,556
)
Total stockholders’ equity
2,497,133

 
257,976

 
 
 
2,755,109

Total Liabilities and Stockholders’ Equity
$
6,393,511

 
$
374,130

 
 
 
$
6,767,641






SM ENERGY COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(in thousands, except per share amounts)

 
As Reported
 
Pro Forma Adjustments
 
Notes
 
As Adjusted
Operating revenues and other income:
 
 
 
 
 
 
 
Oil, gas, and NGL production revenue
$
1,178,426

 
$
(216,844
)
 
(f)
 
$
961,582

Net gain on divestiture activity
37,074

 
 
 
(g)
 
37,074

Other operating revenues
1,950

 
 
 
 
 
1,950

Total operating revenues and other income
1,217,450

 
(216,844
)
 
 
 
1,000,606

 
 
 
 
 
 
 


Operating expenses:
 
 
 
 
 
 


Oil, gas, and NGL production expense
597,565

 
(96,829
)
 
(f)
 
500,736

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
790,745

 
(68,911
)
 
(h)
 
721,834

Exploration
65,641

 
 
 
 
 
65,641

Impairment of proved properties
354,614

 
(269,610
)
 
(i)
 
85,004

Abandonment and impairment of unproved properties
80,367

 
 
 
 
 
80,367

General and administrative
126,428

 
 
 
 
 
126,428

Change in Net Profits Plan liability
(7,200
)
 
 
 
 
 
(7,200
)
Net derivative loss
250,633

 
 
 
 
 
250,633

Other operating expenses
17,972

 
 
 
 
 
17,972

Total operating expenses
2,276,765

 
(435,350
)
 
 
 
1,841,415

 
 
 
 
 
 
 


Loss from operations
(1,059,315
)
 
218,506

 
 
 
(840,809
)
 
 
 
 
 
 
 


Non-operating income (expense):
 
 
 
 
 
 


Interest expense
(158,685
)
 
 
 
 
 
(158,685
)
Gain on extinguishment of debt
15,722

 
 
 
 
 
15,722

Other, net
362

 
 
 
 
 
362

 
 
 
 
 
 
 


Loss before income taxes
(1,201,916
)
 
218,506

 
 
 
(983,410
)
Income tax benefit
444,172

 
(79,099
)
 
(j)
 
365,073

 
 
 
 
 
 
 


Net loss
$
(757,744
)
 
$
139,407

 
 
 
$
(618,337
)
 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
76,568

 
 
 
 
 
76,568

Diluted weighted-average common shares outstanding
76,568

 
 
 
 
 
76,568

Basic net loss per common share
$
(9.90
)
 
 
 
 
 
$
(8.08
)
Diluted net loss per common share
$
(9.90
)
 
 
 
 
 
$
(8.08
)




NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated financial statements reflect the following adjustments:

Pro Forma Consolidated Balance Sheet

“As Reported” - represents the historical consolidated balance sheet of the Company as of December 31, 2016.

a.
To adjust cash and cash equivalents for the receipt of proceeds from the sale of the Company’s Eagle Ford Assets, net of estimated selling costs.
b.
To eliminate oil and gas properties related to the assets sold, which were previously classified as assets held for sale.
c.
To eliminate the asset retirement obligation liability related to the assets sold.
d.
To reflect the estimated change in income tax receivables and payables and deferred income taxes related to additional utilization of gross federal and state net operating losses of $632.8 million resulting in a decrease to deferred tax assets of $176.2 million, offset by the reversal of $28.9 million of net deferred tax liabilities associated with assets sold, and the reversal of valuation allowances on deferred tax assets of $4.3 million relating to state net operating losses and other deferred deductions which are now expected to be utilized.
e.
To record the estimated gain on sale of oil and gas properties, net of tax effect, as illustrated in the table below.
 
For the Year Ended December 31, 2016
 
(in thousands)
Gross purchase price
$
800,000

Less: customary closing adjustments
(45,965
)
Cash proceeds received at closing
754,035

 
 
Less: estimated selling costs
(6,640
)
Net divestiture proceeds
747,395

 
 
Less: cost basis of assets and liabilities sold
(346,380
)
Net gain on the Divestiture, before tax
401,015

 
 
Less: income tax expense
(143,039
)
Net gain on the Divestiture
$
257,976


Pro Forma Consolidated Statement of Operations

“As Reported” - represents the historical consolidated statement of operations of the Company for the year ended December 31, 2016.

f.
To eliminate the revenues and direct operating expenses for the assets sold.
g.
The gain directly attributable to the Divestiture is not expected to have a continuing impact on the Company’s operations, and therefore, is not reflected in the unaudited pro forma consolidated income statement.
h.
To eliminate depletion, depreciation, amortization, and asset retirement obligation liability accretion expense attributable to the assets sold.
i.
To eliminate the impairment of proved properties expense recorded for the assets sold.
j.
To adjust the income tax benefit for the effects of the pro forma adjustments at a 36.2 percent blended federal and state statutory rate.

No pro forma adjustment was made for historical overhead costs reflected in general and administrative and exploration expense or for interest expense, as these costs are not directly attributable to the assets sold. The Divestiture proceeds will be used primarily for development activity. If market conditions are favorable, the Company may use a portion of the Divestiture proceeds to pay down debt; however, the amount and timing is uncertain. Additionally, the Company’s oil, gas, and NGL commodity derivative contracts are not directly attributable to the assets sold, and therefore, were not reflected in the unaudited pro forma consolidated financial statements.