SM Energy Reports First Quarter Of 2017 Results - Higher Production, Lower Capital Versus Plan, Production Guidance Raised

TOTAL COMPANY PRODUCTION - MMBoe

First Quarter 2017

Fourth Quarter 2016

Oil (MMBbls)

3.5

4.0

Natural gas (Bcf)

33.9

35.2

NGLs (MMBbls)

2.9

3.5

Total MMBoe

12.1

13.4

•

Production includes production from assets sold (through the closing date) or pending sale

REGIONAL PRODUCTION - MMBoe

First Quarter 2017

Fourth Quarter 2016

Eagle Ford (operated)

7.3

7.6

Permian Basin

2.1

1.4

Rocky Mountain (PRB)

0.3

0.2

Production – Retained Assets

9.7

9.2

Assets sold and for sale

2.4

4.2

Total MMBoe

12.1

13.4

•

   Eagle Ford (operated) includes nominal other production from the region

REALIZED PRICES

Pre-Hedge

Post-Hedge

Oil (per Bbl)

$ 47.55

$44.97

Natural gas (per Mcf)

2.98

3.50

NGLs (per Bbl)

22.06

19.18

Average per Boe

$ 27.55

$ 27.55

OIL SWAPS

OIL COLLARS

NATURAL GAS SWAPS

NGL SWAPS

Volume/Average Price

Volume/Avg. Ceiling - Floor

Volume /Average Price

Volume/Average Price

Period

(BBtu/$MMBtu)

(MBbls/$Bbl)

2Q17

1,444/$46.44

636/$54.10 - $45.00

26,205/$3.98

2,114/$21.40

3Q17

1,340/$46.66

583/$54.05 - $45.00

23,657/$4.01

2,019/$20.89

4Q17

1,254/$46.35

1,086/$56.05 - $47.51

22,001/$3.98

1,996/$20.18

1Q18

-

1,026/$58.46 - $50.00

19,628/$3.25

1,828/$21.45

2Q18

-

1,004/$58.37 - $50.00

13,052/$2.85

1,438/$16.26

3Q18

-

1,393/$57.93 - $50.00

14,241/$2.87

1,414/$16.53

4Q18

-

1,607/$57.75 - $50.00

15,487/$2.90

1,416/$16.72

Notes: The volumes above represent fixed swap and collar contracts the Company has in place through 4Q18.  Volumes for 2Q17 include all commodity contracts for settlement any time during the second quarter of 2017; prices are weighted averages; natural gas contracts reflect regional contract positions and are no longer adjusted to a NYMEX equivalent; NGL prices are at Mt. Belvieu and reflect specific NGL components, 2017 and 2018 quarters include ethane, propane, butanes and gasoline. In addition to the volumes above, the Company has oil basis swaps in place through 4Q18. See 1Q17 Earnings Presentation for contract details on the oil basis swaps.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS

March 31, 2017

For the Three Months
Ended March 31,

Production Data

2017

2016

Percent
Change

Average realized sales price, before the effects of derivative settlements:

Oil (per Bbl)

$

47.55

$

25.67

85

%

Gas (per Mcf)

2.98

1.87

59

%

NGLs (per Bbl)

22.06

11.76

88

%

Equivalent (per BOE)

$

27.55

$

15.78

75

%

Average realized sales price, including the effects of derivative settlements:

Oil (per Bbl)

$

44.97

$

49.94

(10)

%

Gas (per Mcf)

3.50

3.02

16

%

NGLs (per Bbl)

19.18

13.54

42

%

Equivalent (per BOE)

$

27.55

$

26.74

3

%

Production:

Oil (MMBbl)

3.5

4.1

(14)

%

Gas (Bcf)

33.9

35.7

(5)

%

NGLs (MMBbl)

2.9

3.3

(13)

%

MMBOE (6:1)

12.1

13.4

(10)

%

Average daily production:

Oil (MBbl/d)

39.2

45.3

(13)

%

Gas (MMcf/d)

376.6

392.2

(4)

%

NGLs (MBbl/d)

32.5

36.8

(12)

%

MBOE/d (6:1)

134.4

147.5

(9)

%

Per BOE data:

Realized price, before the effects of derivative settlements

$

27.55

$

15.78

75

%

Lease operating expense

3.82

3.79

1

%

Transportation costs

5.88

6.06

(3)

%

Production taxes

1.17

0.66

77

%

Ad valorem tax expense

0.55

0.27

104

%

General and administrative (excluding stock-compensation)

2.08

2.01

3

%

Net, before the effects of derivative settlements

$

14.05

$

2.99

370

%

Derivative settlement gain

—

10.96

(100)

%

Margin, including the effects of derivative settlements

$

14.05

$

13.95

1

Depletion, depreciation, amortization, and

asset retirement obligation liability accretion

$

11.39

$

15.96

(29)

%

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

March 31,

December 31,

 ASSETS

2017

2016

Current assets:

Cash and cash equivalents

$

659,147

$

9,372

Accounts receivable

108,368

151,950

Derivative asset

73,978

54,521

Prepaid expenses and other

8,053

8,799

   Total current assets

849,546

224,642

Property and equipment (successful efforts method):

Total property and equipment, net

5,450,120

6,081,354

Noncurrent assets:

Derivative asset

84,195

67,575

Other noncurrent assets

15,847

19,940

   Total other noncurrent assets

100,042

87,515

Total Assets

$

6,399,708

$

6,393,511

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

299,676

$

299,708

Derivative liability

53,809

115,464

   Total current liabilities

353,485

415,172

Noncurrent liabilities:

Revolving credit facility

—

—

Senior Notes, net of unamortized deferred financing costs

2,765,714

2,766,719

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

132,889

130,856

Asset retirement obligation

83,160

96,134

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

16,056

26,241

Deferred income taxes

304,331

315,672

Derivative liability

81,306

98,340

Other noncurrent liabilities

47,252

47,244

   Total noncurrent liabilities

3,430,708

3,481,206

Stockholders' equity:

Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 111,258,225 and 111,257,500 shares, respectively

1,113

1,113

Additional paid-in capital

1,723,010

1,716,556

Retained earnings

906,515

794,020

Accumulated other comprehensive loss

(15,123)

(14,556)

   Total stockholders' equity

2,615,515

2,497,133

Total Liabilities and Stockholders' Equity

$

6,399,708

$

6,393,511

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

For the Three Months Ended
March 31,

2017

2016

Operating revenues and other income:

Oil, gas, and NGL production revenue

$

333,198

$

211,823

Net gain (loss) on divestiture activity

37,463

(69,021)

Other operating revenues

2,077

274

   Total operating revenues and other income

372,738

143,076

Operating expenses:

Oil, gas, and NGL production expense

138,046

144,543

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

137,812

214,207

Exploration⁽¹⁾

11,978

15,273

Impairment of proved properties

—

269,785

Abandonment and impairment of unproved properties

—

2,311

General and administrative (including stock-based compensation)⁽¹⁾

29,224

32,238

Net derivative gain⁽²⁾

(114,774)

(14,228)

Other operating expenses

4,859

5,672

   Total operating expenses

207,145

669,801

Income (loss) from operations

165,593

(526,725)

Non-operating income (expense):

Interest expense

(46,953)

(31,088)

Gain (loss) on extinguishment of debt

(35)

15,722

Other, net

335

6

Income (loss) before income taxes

118,940

(542,085)

Income tax (expense) benefit

(44,506)

194,875

Net income (loss)

$

74,434

$

(347,210)

Basic weighted-average common shares outstanding

111,258

68,077

Diluted weighted-average common shares outstanding

111,329

68,077

Basic net income (loss) per common share

$

0.67

$

(5.10)

Diluted net income (loss) per common share

$

0.67

$

(5.10)

⁽¹⁾  Non-cash stock-based compensation component included in:

Exploration expense

$

1,408

$

1,662

G&A expense

$

4,047

$

5,206

⁽²⁾  The net derivative gain line item consists of the following:

Settlement gain

$

(7)

$

(147,028)

(Gain) loss on fair value changes

$

(114,767)

$

132,800

   Total net derivative gain:

$

(114,774)

$

(14,228)

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Condensed Consolidated Statement of Stockholders' Equity

(in thousands, except share amounts)

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

 Total  Stockholders'  Equity

Common Stock

Retained Earnings

Shares

Amount

Balances, December 31, 2016

111,257,500

$

1,113

$

1,716,556

$

794,020

$

(14,556)

$

2,497,133

Net income

—

—

—

74,434

—

74,434

Other comprehensive loss

—

—

—

—

(567)

(567)

Dividends declared, $ 0.05 per share

—

—

—

(5,563)

—

(5,563)

Issuance of common stock upon vesting of restricted stock units, net of shares used for tax withholdings

725

—

(11)

—

—

(11)

Stock-based compensation expense

—

—

5,455

—

—

5,455

Cumulative effect of accounting change

—

—

1,108

43,624

—

44,732

Other

—

—

(98)

—

—

(98)

Balances, March 31, 2017

111,258,225

$

1,113

$

1,723,010

$

906,515

$

(15,123)

$

2,615,515

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Three Months
Ended March 31,

2017

2016

Cash flows from operating activities:

Net income (loss)

$

74,434

$

(347,210)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net (gain) loss on divestiture activity

(37,463)

69,021

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

137,812

214,207

Impairment of proved properties

—

269,785

Abandonment and impairment of unproved properties

—

2,311

Stock-based compensation expense

5,455

6,868

Net derivative gain

(114,774)

(14,228)

Derivative settlement gain

7

147,028

Amortization of discount and deferred financing costs

4,946

(920)

Non-cash (gain) loss on extinguishment of debt, net

22

(15,722)

Deferred income taxes

33,225

(195,039)

Plugging and abandonment

(1,191)

(604)

Other, net

4,567

(1,151)

Changes in current assets and liabilities:

Accounts receivable

30,407

26,922

Prepaid expenses and other

178

4,984

Accounts payable and accrued expenses

(5,497)

(52,294)

Accrued derivative settlements

2,838

4,318

Net cash provided by operating activities

134,966

118,276

Cash flows from investing activities:

Net proceeds from the sale of oil and gas properties

744,333

1,206

Capital expenditures

(154,401)

(176,370)

Acquisition of proved and unproved oil and gas properties

(75,105)

(15,044)

Other, net

2,486

885

Net cash provided by (used in) investing activities

517,313

Cash flows from financing activities:

Proceeds from credit facility

397,500

317,000

Repayment of credit facility

(397,500)

(226,000)

Cash paid to repurchase Senior Notes

(2,344)

(19,917)

Other, net

(160)

(3)

Net cash provided by (used in) financing activities

(2,504)

71,080

Net change in cash and cash equivalents

649,775

33

Cash and cash equivalents at beginning of period

9,372

18

Cash and cash equivalents at end of period

$

659,147

$

51

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Adjusted EBITDAX⁽¹⁾

(in thousands)

Reconciliation of net income (loss) (GAAP) to adjusted EBITDAX (Non-GAAP) to net cash provided by operating activities (GAAP)

For the Three Months Ended
March 31,

2016

Net income (loss) (GAAP)

$

74,434

$

(347,210)

Interest expense

46,953

31,088

Other non-operating income, net

(335)

(6)

Income tax expense (benefit)

44,506

(194,875)

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

137,812

214,207

Exploration⁽²⁾

10,570

13,611

Impairment of proved properties

—

269,785

Abandonment and impairment of unproved properties

—

2,311

Stock-based compensation expense

5,455

6,868

Net derivative gain

(114,774)

(14,228)

Derivative settlement gain

7

147,028

Net (gain) loss on divestiture activity

(37,463)

69,021

(Gain) loss on extinguishment of debt

35

(15,722)

Other

4,986

432

Adjusted EBITDAX (Non-GAAP)

$

172,186

$

182,310

Interest expense

(46,953)

(31,088)

Other non-operating income, net

335

6

Income tax (expense) benefit

(44,506)

194,875

Exploration⁽²⁾

(10,570)

(13,611)

Amortization of discount and deferred financing costs

4,946

(920)

Deferred income taxes

33,225

(195,039)

Plugging and abandonment

(1,191)

(604)

Other, net

(432)

(1,583)

Changes in current assets and liabilities

27,926

(16,070)

Net cash provided by operating activities (GAAP)

$

134,966

$

118,276

⁽¹⁾ Adjusted EBITDAX represents net income (loss) before interest expense, other non-operating income and expense, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, change in the Net Profits Plan liability, gains and losses on divestitures, gains or losses on extinguishment of debt, and materials inventory impairments and losses on sale.  Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results and can exclude items that are generally one-time in nature or whose timing and/or amount cannot be reasonably estimated.  Adjusted EBITDAX is a non-GAAP measure that is presented because the Company believes it provides useful additional information to investors and analysts, as a performance measure, for analysis of the Company's ability to internally generate funds for exploration, development, acquisitions, and to service debt.  The Company is also subject to financial covenants under its Credit Agreement based on adjusted EBITDAX ratios.  In addition, adjusted 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.  Adjusted EBITDAX should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by operating activities, or profitability or liquidity measures prepared under GAAP.  Because adjusted EBITDAX excludes some, but not all items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies.  Under the terms of the Company's credit agreement, if the Company fails to comply with the covenants that establish a maximum permitted ratio of senior secured debt to adjusted EBITDAX and a minimum permitted ratio of adjusted EBITDAX to interest, it will be in default, an event that would prevent it from borrowing under its credit facility and would therefore materially limit the Company's sources of liquidity.  In addition, if the Company was in default under its credit facility and unable to obtain a waiver of that default from its lenders, the lenders under that facility and under the indentures governing the Company's outstanding Senior Notes and Senior Convertible Notes would be entitled to exercise all of their remedies for a default.

⁽²⁾ Stock-based compensation expense is a component of exploration expense and general and administrative expense on the accompanying statements of operations.  Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the accompanying statements of operations for the component of stock-based compensation expense recorded to exploration expense.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Adjusted Net Loss (Non-GAAP)

(in thousands, except per share data)

For the Three Months Ended
March 31,

2017

2016

Net income (loss) (GAAP)

$

74,434

$

(347,210)

Net derivative gain

(114,774)

(14,228)

Derivative settlement gain

7

147,028

Net (gain) loss on divestiture activity

(37,463)

69,021

Impairment of proved properties

—

269,785

Abandonment and impairment of unproved properties

—

2,311

(Gain) loss on extinguishment of debt

35

(15,722)

Other, net⁽²⁾

4,986

(508)

Tax effect of adjustments⁽¹⁾

53,142

(167,056)

Adjusted net loss (Non-GAAP)⁽³⁾

$

(19,633)

$

(56,579)

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

$

0.67

$

(5.10)

Net derivative gain

(1.03)

(0.21)

Derivative settlement gain

—

2.16

Net (gain) loss on divestiture activity

(0.34)

1.01

Impairment of proved properties

—

3.96

Abandonment and impairment of unproved properties

—

0.03

(Gain) loss on extinguishment of debt

—

(0.23)

Other, net⁽²⁾

0.04

(0.01)

Tax effect of adjustments⁽¹⁾

0.48

(2.44)

Adjusted net loss per diluted common share (Non-GAAP)⁽⁴⁾

$

(0.18)

$

(0.83)

Basic weighted-average common shares outstanding (GAAP)

111,258

68,077

Diluted weighted-average common shares outstanding (GAAP)

111,329

68,077

⁽¹⁾ The tax effect of adjustments is calculated using a tax rate of 36.1% and 36.5% for the three-month periods ended March 31, 2017 and March 31, 2016, respectively. These rates approximate the Company's statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

⁽²⁾ For the three-month periods ended March 31, 2017 and March 31, 2016 the adjustment is related to materials inventory loss and the change in the Net Profits Plan liability. Additionally, for the three-month period ended March 31, 2016, adjustments relating to claims on royalties on certain Federal and Indian leases are included. These items are included in other operating expenses on the Company's condensed consolidated statements of operations.

⁽³⁾ Adjusted net loss 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 and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, materials inventory loss, and gains or losses on extinguishment of debt. The non-GAAP measure of adjusted net income (loss) 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 (loss) 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 (loss) should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, cash provided by operating activities, or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income (loss) excludes some, but not all, items that affect net income (loss) and may vary among companies, the adjusted net income (loss) amounts presented may not be comparable to similarly titled measures of other companies.

⁽⁴⁾ For periods where the Company reports adjusted net loss, basic weighted-average common shares outstanding are used in the calculation of adjusted net loss per diluted common share.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Total Capital Spend Reconciliation

(in millions)

Reconciliation of costs incurred in oil & gas activities (GAAP)

For the Three Months
Ended March 31,

to total capital spend (Non-GAAP)⁽¹⁾

2017

Costs incurred in oil and gas activities (GAAP):

$

281.5

Less:

Asset retirement obligation

(0.9)

Capitalized interest

(2.2)

Proved property acquisitions⁽²⁾

(2.2)

Unproved property acquisitions⁽³⁾

(83.6)

Other

0.3

Total capital spend (Non-GAAP):

$

192.9

⁽¹⁾ The non-GAAP measure of total capital spend is presented because management believes it provides useful information to investors for analysis of SM Energy's  fundamental business on a recurring basis. In addition, management believes that total capital spend 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. Total capital spend should not be considered in isolation or as a substitute for Costs Incurred or other capital spending measures prepared under GAAP. The total capital spend amounts presented may not be comparable to similarly titled measures of other companies.

⁽²⁾ Includes approximately $800,000 of ARO associated with proved property acquisitions for the three-month period ended March 31, 2017.

⁽³⁾ Includes approximately $24.5 million related to the fair value attributed to the properties surrendered in the non-monetary acreage trade that  completed during the three-month period ended March 31, 2017.