SM Energy Reports Results for Fourth Quarter and Full Year of 2013 and Provides Operational Update

• Record proved reserves of 428.7 MMBOE at year-end 2013, up 46% from 2012; liquids account for 54% of total proved reserves at year-end 2013.
• Drilling finding and development costs decreased by 26% from 2012 to $7.77 per BOE in 2013; drilling reserve replacement of 405% for 2013.
• Annual production increased 32% to a record 48.3 MMBOE; record quarterly production of 13.2 MMBOE within guidance range of 12.8 to 13.5 MMBOE.
• Fourth quarter GAAP net income of $7.0 million or $0.10 per diluted share; adjusted net income of $85.9 million, or $1.26 per diluted share.
• Fourth quarter GAAP net cash provided by operating activities of $337.6 million; quarterly EBITDAX of $395.5 million.

DENVER--(BUSINESS WIRE)-- SM Energy Company (NYSE: SM) ("SM Energy" or the "Company") reports financial results for the fourth quarter of 2013 and provides an update on the Company's operating activities. In addition, a presentation for the fourth quarter earnings and operational update has been 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 February 19, 2014. Information concerning access to the Company's earnings call can be found below.

MANAGEMENT COMMENTARY

Tony Best, CEO, remarked, "2013 was an extraordinary year for SM Energy. Our proved reserves at year end 2013 were up by 46% from 2012 and our drilling finding and development costs were down by 26% for the same period. Our development programs were the performance drivers in 2013, resulting in 33% annual average daily production growth for the Company and record annual production. As we look to 2014, we believe we have plenty of dry powder to fund our program and many exciting opportunities in optimizing our existing development programs and increasing the inventory in our new venture plays."

FOURTH QUARTER 2013 RESULTS

SM Energy posted GAAP net income for the fourth quarter of 2013 of $7.0 million, or $0.10 per diluted share, compared to a net loss of $67.1 million, or $1.02 per diluted share, for the same period of 2012. Adjusted net income for the fourth quarter was $85.9 million, or $1.26 per diluted share, compared to adjusted net income of $30.4 million, or $0.45 per adjusted diluted share, in the same period of 2012. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded are generally one-time items or are items whose timing and/or amount cannot be reasonably estimated. Earnings before interest, taxes, depreciation, depletion, amortization, accretion, and exploration expense ("EBITDAX") were $395.5 million for the fourth quarter of 2013, an increase of 33% from $298.2 million for the same period in 2012.

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

SM Energy's average daily production of 144 MBOE/d for the fourth quarter of 2013 set a new quarterly record for the Company and was above the midpoint of the Company's guidance range of 139 to 146 MBOE/d. Included in this production was approximately 7.7 MBOE/d (81% gas) associated with Anadarko Basin properties that the Company divested at the end of 2013. The production mix for the quarter was 28% oil, 50% gas, and 22% NGLs. Production growth was driven by strong results in the Company's operated Eagle Ford shale and Bakken/Three Forks programs. Production grew 4% sequentially in the fourth quarter of 2013 over the preceding quarter and 31% over the fourth quarter of 2012.

The table below presents actual production and per BOE cost metrics for the fourth quarter and full-year 2013, along with previously issued guidance for the fourth quarter and full-year 2013:

In the fourth quarter of 2013, cash G&A expenses per unit were higher than guided due to performance-based bonus compensation, which was better than projected for the year as a result of Company performance exceeding its 2013 targets. The Company reported a proved property impairment of approximately $110.9 million in the fourth quarter of 2013 for properties in the Company's Mississippian limestone program in the Permian Basin. The Company's effective tax rate for the fourth quarter of 2013 was abnormally high due to the sale of its Anadarko Basin properties in the fourth quarter. The tax gain related to this sale caused a shift in anticipated recognition of state tax benefits causing a one-time rate impact effect. Adjusted for the effects of the aforementioned sale, the Company's adjusted statutory rate would have been approximately 37.2%.

PROVED RESERVES AND COSTS INCURRED

SM Energy's estimate of proved reserves as of December 31, 2013, was 428.7 MMBOE, which is an increase of 46% from 293.4 MMBOE at the end of 2012. These reserves are comprised of 126.6 MMBbl of oil, 1,189.3 Bcf of natural gas, and 103.9 MMBbl of NGLs.

The Company's proved undeveloped reserves percentage increased to 51% of total proved reserves at year-end 2013, compared to 43% at the end of 2012. The Company's proved reserves volume of oil and NGLs increased 49% to 230.5 MMBOE at year-end 2013 and reflects the Company's focus on liquids-rich plays.

The table below reconciles the changes in the Company's proved reserves from year-end 2012 to year-end 2013:

Prices used at year-end to calculate the Company's estimate of proved reserves were $96.94 per barrel of oil, $3.67 per MMBTU of natural gas, and $40.29 per barrel of NGLs, using the trailing 12-month arithmetic average of the first of month price in accordance with SEC requirements. These prices are 2% greater for oil, 33% greater for natural gas, and 12% less for NGLs than the respective prices used at the end of 2012.

The standardized measure of discounted future net cash flows at December 31, 2013, was $4.0 billion. The before income tax PV-10 value of the Company's estimated proved reserves at December 31, 2013, was $5.5 billion, which was 44% greater than the prior year PV-10 value of $3.8 billion. More than 80% of SM Energy's estimated proved reserves by value were audited by an independent reserve engineering firm. The Company believes its use of an independent reserve auditor is a matter of interest to current and potential shareholders, as well as investment professionals who follow the Company. More information on these items are included in the Company's Form 10-K for the year ended December 31, 2013, which is to be filed with the Securities and Exchange Commission on or around February 19, 2014.

The table below provides detail of the Company's costs incurred in oil and gas producing activities for the year ended December 31, 2013:

The table below provides finding and development costs and reserve replacement ratios for the year ended December 31, 2013; please refer to the respective definitions in the accompanying Financial Highlights section below.

Drilling finding and development costs excluding revisions decreased in 2013 by approximately 26% to $7.77 per BOE from $10.44 per BOE in 2012. In 2013, drilling reserve replacement excluding revisions remained above 400% for the second consecutive year at 405% for 2013. Over a three-year period, SM Energy has decreased its drilling finding and development costs by approximately 55% from $17.10 per BOE for 2011, while posting drilling reserve replacement figures in excess of 300% annually over the same period.

FINANCIAL POSITION AND LIQUIDITY

As of December 31, 2013, SM Energy had total long-term debt of $1.6 billion and no borrowings under its revolving credit facility. At year-end, SM Energy's debt-to-book capitalization ratio was 50% and the ratio of its debt to trailing twelve month EBITDAX was 1.1 times. The Company had $282.2 million in cash and cash equivalents at the end of 2013. Adjusting for this cash, net debt-to-book capitalization ratio was 45% and the ratio of its net debt to trailing twelve month EBITDAX was 0.9 times. As of the end of the fourth quarter, SM Energy was in compliance with all of the covenants associated with its long-term debt.

OPERATIONAL UPDATE

Eagle Ford Shale

The Company made 95 flowing completions in its operated Eagle Ford shale program in 2013, 20 of which were in the fourth quarter. At year-end 2013, SM Energy had 246 net wells producing, 12 proved developed not producing, and 199 proved undeveloped net locations booked for its program. The Company had 239 MMBOE of total proved reserves booked at year-end for this program. During 2013, the Company's operated well costs decreased by approximately 14% from 2012 in both the Briscoe and Galvan Ranch portions of its acreage position. In 2014, the Company plans to make approximately 100 flowing completions on its operated acreage, with approximately 60% of the activity in Galvan Ranch (area 3) and the balance of activity in Briscoe Ranch (areas 1,2, and 4). In 2014, the Company has planned various completion design tests throughout its acreage position to maximize program economics.

In the non-operated Eagle Ford program, the operator completed 84 gross wells in the fourth quarter of 2013. During the quarter, the operator added one drilling rig to the program, ending the quarter with 10 rigs. In the fourth quarter, the operator commissioned additional compression, which added throughput capacity to its program.

Bakken / Three Forks

SM Energy made 42 gross flowing completions in its operated Bakken/Three Forks program in 2013, 8 of which were completed in the fourth quarter of 2013. At year-end 2013, SM Energy had 103 net wells producing and 79 proved undeveloped net locations booked for its program. The Company had 54 MMBOE of total proved reserves booked at year-end for this program. The Company currently focuses its drilling on its Raven/Bear Den and Gooseneck prospects in North Dakota. Substantially all of the Company's activity is now focused on infill development. SM Energy is currently operating three drilling rigs in North Dakota, two of which are operating in the Raven/Bear Den prospect and the third in the Gooseneck prospect. During 2013, the Company's drill and complete costs for its operated wells decreased by approximately 4% in both the Raven/Bear Den and Gooseneck prospects. In 2014, the Company has planned various tests including completion design, spacing, and new intervals to maximize program economics and prove up additional inventory.

Permian Basin Shales

In the Midland Basin, the Company has shifted its drilling focus to horizontal Wolfcamp B targets in both its Sweetie Peck field in Upton County, Texas, and its recently acquired Buffalo prospect in Gaines and Dawson Counties, Texas. In its Sweetie Peck field, the Company made 2 flowing completions in the fourth quarter, both of which targeted the Wolfcamp B formation. Peak 30-day initial production rates for these two completed wells were 981 and 950 BOE/d and averaged 81% and 76% oil, respectively. In 2014, the Company plans to drill approximately 14 wells on its Sweetie Peck acreage primarily targeting the Wolfcamp B formation with an additional 2014 test targeting the Wolfcamp D (Cline) formation. The Company has identified 96 drilling locations targeting the Wolfcamp B on its Sweetie Peck acreage.

In its Buffalo prospect, the Company completed its first horizontal Wolfcamp B well, the Tatonka 1-H with an effective lateral length of approximately 5,560 feet. The well had peak 7-day and 30-day initial production rates of approximately 550 BOE/d and 375 BOE/d respectively (89% oil). The Company plans to drill additional test wells with longer lateral lengths in 2014 to delineate this prospect.

Powder River Basin

In the Powder River Basin, the Company operated one drilling rig in the fourth quarter focused on the Frontier interval. In 2014, SM Energy plans to drill and complete 8 Frontier wells. At year-end 2013, the Company had identified approximately 355 gross/150 net Frontier locations and 265 gross/145 net Shannon/Sussex locations with a combined resource potential of approximately 215 MMBOE for the three intervals.

East Texas

On its East Texas acreage, the Company operated one drilling rig and completed one Eagle Ford shale test during the fourth quarter. The Brollier 1H well was the Company's first Eagle Ford shale test well in its Independence Prospect area in Washington County, Texas. The well had a 7-day initial production rate of approximately 1,475 BOE/d and an effective lateral length of approximately 4,450 feet. In 2014, the Company plans to drill and complete eight additional exploration and delineation wells targeting various formations in its four prospect areas in East Texas.

PRODUCTION AND PERFORMANCE GUIDANCE

SM Energy provides production and cost guidance for the first quarter and full year 2014 in the table below:

EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss its earnings for the fourth quarter and full year 2013 along with year-end 2013 proved reserves on February 19, 2014, at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 877-303-1292, and the conference ID number is 34653927. An audio replay of the call will be available approximately two hours after the call at 855-859-2056, with the conference ID number 34653927. International participants can dial 315-625-3086 to take part in the conference call, using the conference ID number 34653927, and can access a replay of the call at 404-537-3406, using conference ID number 34653927. Replays can be accessed through March 5, 2014.

This call is being webcast live and can be accessed through SM Energy Company's website at www.sm-energy.com. An audio recording of the conference call will be available at that site through March 5, 2014.

INFORMATION ABOUT FORWARD LOOKING STATEMENTS

This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words “anticipate,” “assume,” “believe,” “budget,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “project,” “will,” 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. These risks include factors such as the availability, proximity, and capacity of gathering, processing, and transportation facilities; the uncertainty of negotiations to result in an agreement or a completed transaction; the uncertain nature of announced acquisition, divestiture, joint venture, farm down or similar efforts and the ability to complete any such transactions; the uncertain nature of expected benefits from the actual or expected acquisition, divestiture, joint venture, farm down or similar efforts; the volatility and level of oil, natural gas, and natural gas liquids prices; uncertainties inherent in projecting future rates of production from drilling activities and acquisitions; the imprecise nature of estimating oil and gas reserves; 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; uncertainty regarding the ultimate impact of potentially dilutive securities; and other such matters discussed in the “Risk Factors” section of SM Energy's 2013 Annual Report on Form 10-K. 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.

INFORMATION ABOUT PROVED RESERVES

This press release contains references to certain items pertaining to the process used to estimate the Company's proved reserves and their PV-10 value, which is equal to the standardized measure of discounted future net cash flows from proved reserves on the applicable date, before deducting future income taxes, discounted at 10 percent. SM Energy believes that the presentation of pre-tax PV-10 value is relevant and useful to investors because it presents the discounted future net cash flows attributable to the Company's proved reserves prior to taking into account future corporate income taxes and the Company's current tax structure. The Company further believes investors and creditors use pre-tax PV-10 value as a basis for comparison of the relative size and value of the Company's proved reserves to other peer companies. SM Energy's pre-tax PV-10 value for estimated proved reserves as of December 31, 2013, may be reconciled to its standardized measure of discounted future net cash flows as of December 31, 2013, by reducing the Company's pre-tax PV-10 value by the discounted future income taxes associated with such reserves. A reconciliation of these adjustments is provided below.

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
MEDIA:
Patty Errico, 303-830-5052
perrico@sm-energy.com
or
INVESTORS:
Brent Collins, 303-863-4326
ir@sm-energy.com
or
James Edwards, 303-837-2444
ir@sm-energy.com

Source: SM Energy Company

Released February 18, 2014