News Release
 
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EXHIBIT 99.1

SM ENERGY REPORTS SECOND QUARTER 2019 RESULTS:
SOLID EARNINGS AND CASH FLOW DRIVEN BY CONTINUED EXECUTION

DENVER, CO August 1, 2019 - SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the second quarter of 2019. Highlights include:
•
Better wells at lower costs - As previously reported, second quarter production of 12.4 MMBoe (136.5 MBoe/d), was up 19% from the second quarter of 2018 and up 16% sequentially, as performance from both the Midland Basin and South Texas exceeded expectations. Oil production of 5.4 MMBbls (60 MBbls/d) was up 24% from the second quarter of 2018 and 12% sequentially. Second quarter 2019 costs incurred in oil and gas activities was $269 million and total capital spend (total capital spend is a non-GAAP measure; see below for definition and reconciliation) was $261 million. Total capital spend was below guidance and reflects continued cost savings.
•
Strong production drove solid earnings and cash flow - Net income was $50.4 million; EPS was $0.45 per diluted common share, and adjusted EPS was $0.01 per diluted common share; net cash provided by operating activities was $259.9 million and adjusted EBITDAX was $263.0 million, up 41% sequentially (adjusted EPS and adjusted EBITDAX are non-GAAP measures; see below for definition and reconciliation).
•
Best in class well performance - The Sarah Connor 1050WA well set SM's record as its top performing Midland Basin well to date, based on a peak 30-day IP rate of 2,426 Boe/d (93% oil) from a 10,366 foot lateral. 27 new RockStar wells across five intervals reached 30-day peak IP rates averaging 1,250 Boe/d per well and 87% oil.
•
Value enhancement through successful interval tests - Four new horizons have continued to deliver encouraging results, including the Company's previously announced Austin Chalk wells in South Texas and its first Middle Spraberry, Dean and Wolfcamp D tests in RockStar.
MANAGEMENT COMMENTARY
President and Chief Executive Officer Jay Ottoson comments: "Our excellent performance is the result of having some of the best assets in the Midland Basin combined with continued outstanding operational execution. This year, operational efforts include well tests from South Texas and the Midland Basin on four new horizons that, while early, remain encouraging for organic inventory growth and value creation. Adjusted EBITDAX for the second quarter was the highest recorded since 2015, despite lower natural gas and NGL prices. We are generating top tier returns, continuing to drive higher operating margins and are on course with our long-term plan to deliver a positive free cash flow yield and de-lever the balance sheet."

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SUMMARY WELL RESULTS
New well results include RockStar area wells that reached their 30-day peak IP rates subsequent to the Company’s May 2019 update and new interval exploration results in both the RockStar area and South Texas.
•
Results from 27 new RockStar wells, having an average lateral length of 10,552 feet, delivered 30-day peak IP rates that averaged 1,250 Boe/d per well and 87% oil. This includes wells across five intervals, 24 of which were fully or half bounded.
•
By interval, results included 13 Wolfcamp A wells averaging 1,326 Boe/d per well, two Wolfcamp B wells averaging 902 Boe/d per well, and 10 Lower Spraberry wells averaging 1,076 Boe/d per well.
•
As previously reported, new interval tests at RockStar targeting the Dean and Wolfcamp D reached 30-day peak rates of approximately 1,550 Boe/d (92% oil) and approximately 1,400 Boe/d (80% oil and naturally flowing), respectively. New interval tests at RockStar continue to be encouraging and the Company plans to include additional tests in future programs.
•
All 25 wells that are part of the Merlin Maximus development have now reached their 30-day peak IP rates, averaging approximately 1,400 Boe/d per well and 86% oil.
•
As previously reported, the Company's Watson State Austin Chalk test in South Texas continues to show encouraging results with a 30-day peak IP rate that averaged approximately 3,200 Boe/d (3-stream) with approximately 55% liquids from a 12,875 foot lateral. Both Austin Chalk test wells continue to perform well and, based on their success, the Company has planned two additional tests, both of which are expected to start producing in the fourth quarter. The Austin Chalk presents the potential for higher margin and higher return wells due to higher liquids content and lower transportation costs per Boe.
SECOND QUARTER 2019 RESULTS
Second quarter of 2019 production was 12.4 MMBoe, or 136.5 MBoe/d, with 44% oil in the commodity mix. Second quarter realized prices (before the effects of hedges) averaged $32.75 per Boe. The Company realized a $4.1 million, or $0.32 per Boe, gain after the effects of hedges.
Second quarter of 2019 net income was $50.4 million, or $0.45 per diluted common share, compared with net income of $17.2 million, or $0.15 per diluted common share, in the second quarter of 2018. For the first six months of 2019, net loss was ($127.2) million or ($1.13) per diluted common share.
Second quarter of 2019 net cash provided by operating activities was $259.9 million. For the first six months of 2019, net cash provided by operating activities was $378.4 million.
The following paragraphs discuss adjusted net income (loss), adjusted net income (loss) per diluted common share, and adjusted EBITDAX, all of which are non-GAAP measures. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.
Second quarter of 2019 adjusted EBITDAX was $263.0 million. Adjusted EBITDAX is up 17% year-over-year and up 41% sequentially. The increase in adjusted EBITDAX year-over-year was primarily driven by a production increase of 19% and per unit operating costs down by 11%, partially offset by lower realized prices (post-hedge). The sequential increase in adjusted EBITDAX was driven by a 16% increase in total production, including a 12% increase in oil production and a 14% decline in per unit operating costs. For the first six months of 2019, adjusted EBITDAX was $449.5 million.

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Second quarter of 2019 adjusted net income was $1.3 million, or $0.01 per diluted common share, compared with adjusted net income of $16.8 million, or $0.15 per diluted common share, in the second quarter of 2018. For the first six months of 2019, adjusted net loss was ($36.4) million, or ($0.32) per diluted common share.
COMMODITY DERIVATIVES
As of July 31, 2019, the Company had commodity derivatives in place for the third and fourth quarters of 2019 and fiscal year 2020, including:
•
WTI oil hedges for approximately 80% of expected second half 2019 and approximately 50% + of expected 2020 oil production;
•
HSC natural gas hedges for approximately 70% of expected second half 2019 production;
•
Midland-Cushing differential hedges for approximately 60% of expected second half 2019 and expected 2020 Permian oil production; and
•
WAHA natural gas hedges for approximately 70% of expected second half 2019 Permian residue natural gas production
Detailed data on derivatives are provided in the accompanying IR presentation and the Company’s Quarterly Report on Form 10-Q for the second quarter of 2019.
SCHEDULE FOR SECOND QUARTER REPORTING
This release is accompanied by an investor presentation and pre-recorded call with transcript all of which are posted to the Company’s website. Please visit the Company’s website at ir.sm-energy.com to access this additional second quarter detail.
Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time on August 2, 2019 for the second quarter 2019 financial and operating results Q&A session. This discussion will be accessible via webcast (available live and for replay) on the Company’s website at ir.sm-energy.com or by telephone at:
•
Live (conference ID 3293419) - Domestic toll free/International: 844-343-4183/647-689-5129
•
Replay (conference ID 3293419) - Domestic toll free/International: 800-585-8367/416-621-4642
The call replay will be available approximately one hour after the call until August 9, 2019.
UPCOMING CONFERENCE PARTICIPATION
•
August 12, 2019 - Enercom’s The Oil and Gas Conference. President and Chief Executive Officer Jay Ottoson will present at 2:30 p.m. Mountain time. The presentation will be webcast, accessible from the Company’s website, and available for replay for a limited period. An investor presentation for this event will be posted to the Company's website before market open on August 12, 2019.
•
September 3, 2019 - Barclay’s Global CEO - Energy Power Conference.  President and Chief Executive Officer Jay Ottoson will present at 1:45 p.m. Eastern time.  The presentation will be webcast, accessible from the Company’s website, and available for replay for a limited period.  An investor presentation for this event will be posted to the Company’s website before market open on September 3, 2019.

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FORWARD LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of securities laws. The words "anticipate," "budget," "estimate," "expect," "forecast," "guidance," "plan," "project," "objectives," "target," "will," "on course," "potential" and similar expressions are intended to identify forward-looking statements. 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. Forward-looking statements in this release include: projections for cash flow yield; projections for improved margins; Austin Chalk production and related margin projections; expected inventory growth; expected value creation; and, expected de-levering of the balance sheet. General risk factors include the availability, proximity and capacity of gathering, processing and transportation facilities; the volatility and level of oil, natural gas, and natural gas liquids prices and related differentials, including any impact on the Company’s asset carrying values or reserves arising from price declines; uncertainties inherent in projecting future test results and timing and rates of production or other results from drilling and completion activities; the imprecise nature of estimating oil and natural gas reserves; uncertainties inherent in projecting future drilling and completion activities, costs or results; the availability of additional economically attractive exploration, development, and acquisition opportunities for future growth and any necessary financings; unexpected drilling conditions and results; unsuccessful exploration and development drilling results; the availability of drilling, completion, and operating equipment and services; the risks associated with the Company's commodity price risk management strategy; and other such matters discussed in the Risk Factors section of SM Energy's most recent Annual Report on Form 10-K, as such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this announcement. 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 INVESTOR CONTACT
Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507


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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Production Data
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2018
 
Percent Change
 
2019
 
2018

Percent Change
Average realized sales price, before the effects of derivative settlements:
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
56.04

 
$
61.02

 
(8
)%
 
$
52.95

 
$
61.14

 
(13
)%
Gas (per Mcf)
$
2.31

 
$
3.32

 
(30
)%
 
$
2.50

 
$
3.23

 
(23
)%
NGLs (per Bbl)
$
16.42

 
$
27.55

 
(40
)%
 
$
17.76

 
$
26.60

 
(33
)%
Per Boe
$
32.75

 
$
38.40

 
(15
)%
 
$
32.34

 
$
38.09

 
(15
)%
Average realized sales price, including the effects of derivative settlements:
 
 
 
 
 
 
 
 
 
 
 
Oil (per Bbl)
$
54.07

 
$
55.42

 
(2
)%
 
$
51.77

 
$
55.90

 
(7
)%
Gas (per Mcf)
$
2.51

 
$
3.29

 
(24
)%
 
$
2.53

 
$
3.34

 
(24
)%
NGLs (per Bbl)
$
20.42

 
$
21.51

 
(5
)%
 
$
20.08

 
$
20.54

 
(2
)%
Equivalent (per Boe)
$
33.07

 
$
34.91

 
(5
)%
 
$
32.30

 
$
35.12

 
(8
)%
Production(1):
 
 
 
 
 
 
 
 
 
 
 
Oil (MMBbl)
5.4

 
4.4

 
24
 %
 
10.3

 
8.6

 
19
 %
Gas (Bcf)
28.3

 
25.3

 
12
 %
 
52.2

 
50.5

 
3
 %
NGLs (MMBbl)
2.3

 
1.9

 
20
 %
 
4.2

 
3.6

 
16
 %
MMBoe
12.4

 
10.5

 
19
 %
 
23.1

 
20.6

 
12
 %
Average daily production(1):
 
 
 
 
 
 
 
 
 
 
 
Oil (MBbl/d)
59.6

 
47.9

 
24
 %
 
56.7

 
47.6

 
19
 %
Gas (MMcf/d)
310.9

 
278.3

 
12
 %
 
288.3

 
279.3

 
3
 %
NGLs (MBbl/d)
25.1

 
20.9

 
20
 %
 
23.0

 
19.7

 
16
 %
MBoe/d
136.5

 
115.2

 
19
 %
 
127.7

 
113.9

 
12
 %
Per Boe data:
 
 
 
 
 
 
 
 
 
 
 
Realized price, before the effects of derivative settlements
$
32.75

 
$
38.40

 
(15
)%
 
$
32.34

 
$
38.09

 
(15
)%
Lease operating expense
4.16

 
4.66

 
(11
)%
 
4.64

 
4.80

 
(3
)%
Transportation costs
4.00

 
4.47

 
(11
)%
 
4.04

 
4.55

 
(11
)%
Production taxes
1.30

 
1.66

 
(22
)%
 
1.30

 
1.67

 
(22
)%
Ad valorem tax expense
0.44

 
0.41

 
7
 %
 
0.59

 
0.54

 
9
 %
General and administrative(2)
2.49

 
2.76

 
(10
)%
 
2.73

 
2.74

 
—
 %
Operating margin, before the effects of derivative settlements
20.36

 
24.44

 
(17
)%
 
19.04

 
23.79

 
(20
)%
Derivative settlement gain (loss)
0.32

 
(3.49
)
 
109
 %
 
(0.04
)
 
(2.97
)
 
99
 %
Operating margin, including the effects of derivative settlements
$
20.68

 
$
20.95

 
(1
)%
 
$
19.00

 
$
20.82

 
(9
)%
Depletion, depreciation, amortization, and
asset retirement obligation liability accretion
$
16.61

 
$
14.48

 
15
 %
 
$
16.62

 
$
13.69

 
21
 %
 
 
 
 
 
 
 
 
 
 
 
 
(1) Amounts and percentage changes may not calculate due to rounding.
(2) Includes non-cash stock-based compensation expense per Boe of $0.39 for the three months ended June 30, 2019, and 2018, and $0.41 and $0.40 for the six months ended June 30, 2019, and 2018, respectively.

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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
(in thousands, except share data)
June 30,
 
December 31,
ASSETS
2019
 
2018
Current assets:
 
 
 
Cash and cash equivalents
$
12

 
$
77,965

Accounts receivable
165,757

 
167,536

Derivative assets
114,242

 
175,130

Prepaid expenses and other
8,723

 
8,632

Total current assets
288,734

 
429,263

Property and equipment (successful efforts method):
 
 
 
Proved oil and gas properties
7,974,754

 
7,278,362

Accumulated depletion, depreciation, and amortization
(3,774,548
)
 
(3,417,953
)
Unproved oil and gas properties
1,445,985

 
1,581,401

Wells in progress
257,945

 
295,529

Properties held for sale, net
—

 
5,280

Other property and equipment, net of accumulated depreciation of $62,372 and $57,102, respectively
81,193

 
88,546

Total property and equipment, net
5,985,329

 
5,831,165

Noncurrent assets:
 
 
 
Derivative assets
30,180

 
58,499

Other noncurrent assets
87,696

 
33,935

Total noncurrent assets
117,876

 
92,434

Total assets
$
6,391,939

 
$
6,352,862

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
407,883

 
$
403,199

Derivative liabilities
70,259

 
62,853

Other current liabilities
25,803

 
—

Total current liabilities
503,945

 
466,052

Noncurrent liabilities:
 
 
 
Revolving credit facility
118,000

 
—

Senior Notes, net of unamortized deferred financing costs
2,450,737

 
2,448,439

Senior Convertible Notes, net of unamortized discount and deferred financing costs
152,503

 
147,894

Asset retirement obligations
95,194

 
91,859

Deferred income taxes
190,146

 
223,278

Derivative liabilities
12,431

 
12,496

Other noncurrent liabilities
67,140

 
42,522

Total noncurrent liabilities
3,086,151

 
2,966,488

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 112,525,633 and 112,241,966 shares, respectively
1,125

 
1,122

Additional paid-in capital
1,779,665

 
1,765,738

Retained earnings
1,033,051

 
1,165,842

Accumulated other comprehensive loss
(11,998
)
 
(12,380
)
Total stockholders’ equity
2,801,843

 
2,920,322

Total liabilities and stockholders’ equity
$
6,391,939

 
$
6,352,862


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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues and other income:
 
 
 
 
 
 
 
Oil, gas, and NGL production revenue
$
406,854

 
$
402,558

 
$
747,330

 
$
785,444

Net gain on divestiture activity
262

 
39,501

 
323

 
424,870

Other operating revenues
56

 
1,857

 
449

 
3,197

Total operating revenues and other income
407,172

 
443,916

 
748,102

 
1,213,511

Operating expenses:
 
 
 
 
 
 
 
Oil, gas, and NGL production expense
123,050

 
117,400

 
244,355

 
238,279

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
206,330

 
151,765

 
384,076

 
282,238

Exploration(1)
10,877

 
14,056

 
22,225

 
27,783

Abandonment and impairment of unproved properties
12,417

 
11,935

 
18,755

 
17,560

General and administrative(1)
30,920

 
28,920

 
63,006

 
56,602

Net derivative (gain) loss(2)
(79,655
)
 
63,749

 
97,426

 
71,278

Other operating expenses, net
(934
)
 
(57
)
 
(599
)
 
4,555

Total operating expenses
303,005

 
387,768

 
829,244

 
698,295

Income (loss) from operations
104,167

 
56,148

 
(81,142
)
 
515,216

Interest expense
(39,627
)
 
(41,654
)
 
(77,607
)
 
(84,739
)
Other non-operating income (expense), net
(562
)
 
1,802

 
(879
)
 
2,211

Income (loss) before income taxes
63,978

 
16,296

 
(159,628
)
 
432,688

Income tax (expense) benefit
(13,590
)
 
901

 
32,448

 
(98,090
)
Net income (loss)
$
50,388

 
$
17,197

 
$
(127,180
)
 
$
334,598

 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
112,262

 
111,701

 
112,257

 
111,698

Diluted weighted-average common shares outstanding
112,932

 
113,630

 
112,257

 
113,267

Basic net income (loss) per common share
$
0.45

 
$
0.15

 
$
(1.13
)
 
$
3.00

Diluted net income (loss) per common share
$
0.45

 
$
0.15

 
$
(1.13
)
 
$
2.95

Dividends per common share
$
—

 
$
—

 
$
0.05

 
$
0.05

 
 
 
 
 
 
 
 
(1) Non-cash stock-based compensation included in:
 
 
 
 
 
 
 
Exploration expense
$
1,291

 
$
1,189

 
$
2,496

 
$
2,505

General and administrative expense
4,863

 
4,075

 
9,496

 
8,171

Total non-cash stock-based compensation
$
6,154

 
$
5,264

 
$
11,992

 
$
10,676

 
 
 
 
 
 
 
 
(2)  The net derivative (gain) loss line item consists of the following:
 
 
 
 
 
 
 
Settlement (gain) loss
$
(4,090
)
 
$
36,665

 
$
879

 
$
61,193

(Gain) loss on fair value changes
(75,565
)
 
27,084

 
96,547

 
10,085

Total net derivative (gain) loss
$
(79,655
)
 
$
63,749

 
$
97,426

 
$
71,278


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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share data and dividends per share)
 
 
 
Additional Paid-in Capital
 
 
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Common Stock
 
 
Retained Earnings
 
 
 
Shares
 
Amount
 
 
 
 
Balances, December 31, 2018
112,241,966

 
$
1,122

 
$
1,765,738

 
$
1,165,842

 
$
(12,380
)
 
$
2,920,322

Net loss
—

 
—

 
—

 
(177,568
)
 
—

 
(177,568
)
Other comprehensive income
—

 
—

 
—

 
—

 
263

 
263

Cash dividends declared, $0.05 per share
—

 
—

 
—

 
(5,612
)
 
—

 
(5,612
)
Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings
2,579

 
—

 
(18
)
 
—

 
—

 
(18
)
Stock-based compensation expense
—

 
—

 
5,838

 
—

 
—

 
5,838

Balances, March 31, 2019
112,244,545

 
$
1,122

 
$
1,771,558

 
$
982,662

 
$
(12,117
)
 
$
2,743,225

Net income
—

 
—

 
—

 
50,388

 
—

 
50,388

Other comprehensive income
—

 
 
 
—

 
—

 
119

 
119

Issuance of common stock under Employee Stock Purchase Plan
184,079

 
2

 
1,957

 
—

 
—

 
1,959

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings
290

 
—

 
(2
)
 
—

 
—

 
(2
)
Stock-based compensation expense
96,719

 
1

 
6,153

 
—

 
—

 
6,154

Other
—

 
—

 
(1
)
 
1

 
—

 
—

Balances, June 30, 2019
112,525,633

 
$
1,125

 
$
1,779,665

 
$
1,033,051

 
$
(11,998
)
 
$
2,801,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Paid-in Capital
 
 
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Common Stock
 
 
Retained Earnings
 
 
 
Shares
 
Amount
 
 
 
 
Balances, December 31, 2017
111,687,016

 
$
1,117

 
$
1,741,623

 
$
665,657

 
$
(13,789
)
 
$
2,394,608

Net income
—

 
—

 
—

 
317,401

 
—

 
317,401

Other comprehensive income
—

 
—

 
—

 
—

 
260

 
260

Cash dividends declared, $0.05 per share
—

 
—

 
—

 
(5,584
)
 
—

 
(5,584
)
Stock-based compensation expense
 
 
—

 
5,412

 
—

 
—

 
5,412

Cumulative effect of accounting change
—

 
—

 
—

 
2,969

 
(2,969
)
 
—

Other
—

 
—

 
—

 
1

 
(1
)
 
—

Balances, March 31, 2018
111,687,016

 
$
1,117

 
$
1,747,035

 
$
980,444

 
$
(16,499
)
 
$
2,712,097

Net income
—

 
—

 
—

 
17,197

 
—

 
17,197

Other comprehensive income
—

 
—

 
—

 
—

 
198

 
198

Issuance of common stock under Employee Stock Purchase Plan
100,249

 
1

 
1,880

 
—

 
—

 
1,881

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings
1,161

 
—

 
(10
)
 
—

 
—

 
(10
)
Stock-based compensation expense
58,572

 
—

 
5,264

 
—

 
—

 
5,264

Balances, June 30, 2018
111,846,998

 
$
1,118

 
$
1,754,169

 
$
997,641

 
$
(16,301
)
 
$
2,736,627


8



 
 
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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
(in thousands)
For the Three Months Ended June 30,
 
For the Six Months Ended
June 30,
 
 
 
2019
 
2018
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
$
50,388

 
$
17,197

 
$
(127,180
)
 
$
334,598

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Net gain on divestiture activity
(262
)
 
(39,501
)
 
(323
)
 
(424,870
)
Depletion, depreciation, amortization, and asset retirement obligation liability accretion
206,330

 
151,765

 
384,076

 
282,238

Abandonment and impairment of unproved properties
12,417

 
11,935

 
18,755

 
17,560

Stock-based compensation expense
6,154

 
5,264

 
11,992

 
10,676

Net derivative (gain) loss
(79,655
)
 
63,749

 
97,426

 
71,278

Derivative settlement gain (loss)
4,090

 
(36,665
)
 
(879
)
 
(61,193
)
Amortization of debt discount and deferred financing costs
3,844

 
3,884

 
7,633

 
7,750

Deferred income taxes
13,766

 
(861
)
 
(33,237
)
 
97,505

Other, net
1,243

 
225

 
(1,287
)
 
(2,302
)
Net change in working capital
41,613

 
(5,609
)
 
21,454

 
(21,722
)
Net cash provided by operating activities
259,928

 
171,383

 
378,430

 
311,518

 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Net proceeds from the sale of oil and gas properties (1)
6,406

 
251,435

 
12,520

 
742,215

Capital expenditures
(326,787
)
 
(421,798
)
 
(576,127
)
 
(723,319
)
Acquisition of proved and unproved oil and gas properties
28

 
(24,615
)
 
319

 
(24,615
)
Net cash used in investing activities
(320,353
)
 
(194,978
)
 
(563,288
)
 
(5,719
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from credit facility
524,500

 
—

 
696,500

 
—

Repayment of credit facility
(453,000
)
 
—

 
(578,500
)
 
—

Net proceeds from sale of common stock
1,959

 
1,881

 
1,959

 
1,881

Dividends paid
(5,612
)
 
(5,584
)
 
(5,612
)
 
(5,584
)
Other, net
(1,026
)
 
(133
)
 
(1,044
)
 
(133
)
Net cash provided by (used in) financing activities
66,821

 
(3,836
)
 
113,303

 
(3,836
)
 
 
 
 
 
 
 
 
Net change in cash, cash equivalents, and restricted cash
6,396

 
(27,431
)
 
(71,555
)
 
301,963

Cash, cash equivalents, and restricted cash at beginning of period
14

 
643,337

 
77,965

 
313,943

Cash, cash equivalents, and restricted cash at end of period (1)
$
6,410

 
$
615,906

 
$
6,410

 
$
615,906

Less: Restricted cash (1)
(6,398
)
 
—

 
(6,398
)
 
—

Cash and cash equivalents
$
12

 
$
615,906

 
$
12

 
$
615,906

 
 
 
 
 
 
 
 
(1) As of June 30, 2019, a portion of net proceeds from the sale of oil and gas properties was restricted for future property acquisitions. Restricted cash is included in the other noncurrent assets line item on the accompanying unaudited condensed consolidated balance sheets.

9



 
 
smenergylogoverticala_sma14.jpg

DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY
The following non-GAAP measures are presented in addition to financial statements as the Company believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and compare investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others. Non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measure or any other measure of a company’s financial or operating performance presented in accordance with GAAP. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure or measures is presented below. These measures may not be comparable to similarly titled measures of other companies.
Adjusted EBITDAX: Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that the Company presents because management believes it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt. Adjusted EBITDAX is also important as it is considered among financial covenants under the Company’s Credit Agreement, a material source of liquidity for the Company. Please reference the Company’s second quarter of 2019 Form 10-Q and 2018 Form 10-K for discussion of the Credit Agreement and its covenants.
Adjusted net income (loss): Adjusted net income (loss) excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include non-cash and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, and accruals for non-recurring matters. Adjusted net income (loss) is presented because management believes it provides useful additional information to investors for analysis of the Company’s fundamental business on a recurring basis. In addition, management believes that adjusted net income (loss) attributable to common shareholders is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.
Total capital spend: Total capital spend is calculated as costs incurred, less asset retirement obligations (“ARO”), capitalized interest and acquisitions. Total capital spend is presented because management believes that it provides useful information to investors in the analysis of SM Energy Company and 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. Total capital spend should not be used in isolation or as a substitute to costs incurred or other capital spending measures under GAAP.
Discretionary cash flow: Discretionary cash flow is calculated as net cash provided by operating activities excluding changes in current assets and current liabilities, and exploration. Exploration expense is added back in the calculation because, for peer comparison purposes, this number is included in our total capital spend. The Company believes this measure is important to investors because it provides useful additional information to investors for analysis of the Company’s ability to generate cash to fund exploration and development, and to service indebtedness. In addition, management believes that discretionary cash flows is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.
FORWARD-LOOKING NON-GAAP MEASURES
The Company is unable to present a reconciliation of forward-looking Total Capital Spend because components of the calculation, such as potential acquisitions, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.

10



 
 
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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
 
 
 
 
 
 
 
Adjusted EBITDAX Reconciliation(1)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (loss) (GAAP) and net cash provided by operating activities (GAAP) to adjusted EBITDAX (non-GAAP)
For the Three Months Ended June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss) (GAAP)
$
50,388

 
$
17,197

 
$
(127,180
)
 
$
334,598

Interest expense
39,627

 
41,654

 
77,607

 
84,739

Income tax expense (benefit)
13,590

 
(901
)
 
(32,448
)
 
98,090

Depletion, depreciation, amortization, and asset retirement obligation liability accretion
206,330

 
151,765

 
384,076

 
282,238

Exploration(2)
9,586

 
12,867

 
19,729

 
25,278

Abandonment and impairment of unproved properties
12,417

 
11,935

 
18,755

 
17,560

Stock-based compensation expense
6,154

 
5,264

 
11,992

 
10,676

Net derivative (gain) loss
(79,655
)
 
63,749

 
97,426

 
71,278

Derivative settlement gain (loss)
4,090

 
(36,665
)
 
(879
)
 
(61,193
)
Net gain on divestiture activity
(262
)
 
(39,501
)
 
(323
)
 
(424,870
)
Other, net
691

 
(2,412
)
 
695

 
(3,254
)
Adjusted EBITDAX (non-GAAP)
262,956

 
224,952

 
449,450

 
435,140

Interest expense
(39,627
)
 
(41,654
)
 
(77,607
)
 
(84,739
)
Income tax (expense) benefit
(13,590
)
 
901

 
32,448

 
(98,090
)
Exploration(2)
(9,586
)
 
(12,867
)
 
(19,729
)
 
(25,278
)
Amortization of debt discount and deferred financing costs
3,844

 
3,884

 
7,633

 
7,750

Deferred income taxes
13,766

 
(861
)
 
(33,237
)
 
97,505

Other, net
552

 
2,637

 
(1,982
)
 
952

Net change in working capital
41,613

 
(5,609
)
 
21,454

 
(21,722
)
Net cash provided by operating activities (GAAP)
$
259,928

 
$
171,383

 
$
378,430

 
$
311,518

 
 
 
 
 
 
 
 
(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.
(2) Stock-based compensation expense is a component of exploration expense and general and administrative expense on the condensed consolidated statements of operations. Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the Company's condensed consolidated statements of operations for the component of stock-based compensation expense recorded to exploration expense.

11



 
 
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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
 
 
 
Adjusted Net Income (Loss) Reconciliation(1)
 
 
 
 
 
 
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (loss) (GAAP) to adjusted net income (loss) (non-GAAP):
For the Three Months Ended June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss) (GAAP)
$
50,388

 
$
17,197

 
$
(127,180
)
 
$
334,598

Net derivative (gain) loss
(79,655
)
 
63,749

 
97,426

 
71,278

Derivative settlement gain (loss)
4,090

 
(36,665
)
 
(879
)
 
(61,193
)
Net gain on divestiture activity
(262
)
 
(39,501
)
 
(323
)
 
(424,870
)
Abandonment and impairment of unproved properties
12,417

 
11,935

 
18,755

 
17,560

Other, net(2)
699

 
2

 
912

 
809

Tax effect of adjustments(3)
13,608

 
104

 
(25,148
)
 
86,022

Adjusted net income (loss) (non-GAAP)
$
1,285

 
$
16,821

 
$
(36,437
)
 
$
24,204

 
 
 
 
 
 
 
 
Diluted net income (loss) per common share (GAAP)
$
0.45

 
$
0.15

 
$
(1.13
)
 
$
2.95

Net derivative (gain) loss
(0.71
)
 
0.56

 
0.87

 
0.63

Derivative settlement gain (loss)
0.04

 
(0.32
)
 
(0.01
)
 
(0.54
)
Net gain on divestiture activity
—

 
(0.35
)
 
—

 
(3.75
)
Abandonment and impairment of unproved properties
0.11

 
0.11

 
0.17

 
0.16

Other, net(2)
0.01

 
—

 
0.01

 
0.01

Tax effect of adjustments(3)
0.11

 
—

 
(0.23
)
 
0.75

Adjusted net income (loss) per diluted common share (non-GAAP)
$
0.01

 
$
0.15

 
$
(0.32
)
 
$
0.21

 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
112,262

 
111,701

 
112,257

 
111,698

Diluted weighted-average common shares outstanding
112,932

 
113,630

 
112,257

 
113,267

 
 
 
 
 
 
 
 
Note: Amounts may not calculate due to rounding.
 
 
 
 
 
 
 
(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.
(2) For the three and six-month periods ended June 30, 2019, the adjustment relates to bad debt expense and impairment on materials inventory. For the three-month period ended June 30, 2018, the adjustment relates to bad debt expense. For the six-month period ended June 30, 2018, the adjustment relates to bad debt expense and an accrual for a non-recurring matter. These items are included in other operating expenses, net on the Company's condensed consolidated statements of operations.
(3) The tax effect of adjustments for the three and six month periods ended June 30, 2019, and 2018, was calculated using a tax rate of 21.7%. These rates approximate the Company's statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

12



 
 
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SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
 
Total Capital Spend Reconciliation(1)
(in millions)
 
 
 
 
 
 
 
Reconciliation of costs incurred in oil & gas activities (GAAP) to total capital spend (non-GAAP)
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2019
Costs incurred in oil and gas activities (GAAP):
$
268.5

 
$
590.5

Asset retirement obligations
(0.3
)
 
(0.8
)
Capitalized interest
(5.0
)
 
(9.9
)
Proved property acquisitions(2)
—

 
0.3

Other
(2.0
)
 
(3.4
)
Total capital spend (non-GAAP):
$
261.3

 
$
576.8

 
 
 
 
Note: Amounts may not sum due to rounding.
 
 
 
(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.
(2) The Company completed several primarily non-monetary acreage trades in the Midland Basin during the first half of 2019 totaling $66.6 million of value attributed to the properties transferred. This non-monetary consideration is not reflected in the costs incurred or capital spend amounts presented above.
Discretionary Cash Flow Reconciliation(1)
(in millions)
 
 
 
 
 
 
 
Reconciliation of net cash provided by operating activities (GAAP) to discretionary cash flow (non-GAAP)
For the Three Months Ended
June 30,
 
For the Six Months Ended
June 30,
 
2019
 
2019
Net cash provided by operating activities (GAAP):
$
259.9

 
$
378.4

Net change in working capital
(41.6
)
 
(21.5
)
Exploration(2)(3)
9.6

 
19.7

Discretionary cash flow (non-GAAP):
$
227.9

 
$
376.6

 
 
 
 
(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.
(2) Exploration expense is added back in the calculation of discretionary cash flow because, for peer comparison purposes, this number is included in our reported total capital spend.
(3) Stock-based compensation expense is a component of exploration expense and general and administrative expense on the condensed consolidated statements of operations. Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the condensed consolidated statements of operations for the component of stock-based compensation expense recorded to exploration expense as it is non-cash.

13