SM Energy Reports Results for Fourth Quarter and Full Year of 2012 and Provides Operational Update

• Record proved reserves of 1,761 BCFE (293 MMBOE) at year-end 2012, up 40% from 2011; liquids account for 53% of total proved reserves at year-end 2012
• Drilling finding and development costs decrease to $1.74 per MCFE for 2012; drilling reserve replacement increases to 411% for same period
• Annual production increases 29% to a record 218.9 BCFE (36.5 MMBOE); record quarterly production of 60.7 BCFE exceeds guidance of 57.5 - 60.5 BCFE
• Fourth quarter GAAP net loss of $67.1 million or $1.02 per diluted share; adjusted net income of $30.4 million, or $0.45 per diluted share
• Quarterly cash flow from operations (GAAP) of $268.4 million; quarterly EBITDAX of $298.2 million, a 14% sequential increase over third quarter

DENVER--(BUSINESS WIRE)-- SM Energy Company (NYSE: SM) ("SM Energy" or the "Company") reports financial results for the fourth quarter of 2012 and provides an update on the Company's operating activities. In addition, a new 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 21, 2013. Information concerning access to the Company's earnings call can be found below.

MANAGEMENT COMMENTARY

Tony Best, CEO, remarked, "SM Energy had a record-breaking year in 2012 with new highs for proved reserves and annual production, completing the year with record quarterly production. These results were driven by our high rate of return oil and liquid-rich programs in the Eagle Ford shale and Bakken/Three Forks, which are expected to continue to drive our growth in 2013. The quality of our development programs is demonstrated by the significant improvement in our finding and development costs and reserve replacement ratios in 2012. Our New Ventures program, which focuses on finding the next stages of growth for the Company, has captured additional acreage in the Permian Basin and in East Texas that has the potential to add significant oily inventory to our portfolio. Our balance sheet and liquidity position remain strong, and we are positioned to execute on our 2013 plan, which I expect will result in another record production year for the Company."

FOURTH QUARTER 2012 RESULTS

SM Energy posted a GAAP net loss for the fourth quarter of 2012 of $(67.1) million, or $(1.02) per diluted share. Adjusted net income for the fourth quarter was $30.4 million, or $0.45 per adjusted diluted share. 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. A summary of the adjustments made to arrive at adjusted net income is presented in the table below:

Earnings before interest, taxes, depreciation, depletion, amortization, accretion, and exploration expense ("EBITDAX") were $298.2 million for the fourth quarter of 2012, a 14% sequential increase from the prior quarter and an increase of 19% from $250.7 million for the same period in 2011.

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 660 MMCFE/d (110 MBOE/d) for the fourth quarter of 2012 was approximately 3% above the midpoint of the Company's guidance range of 625 to 658 MMCFE/d. The production mix for the quarter was 28% oil, 53% gas, and 19% NGLs. Production growth was driven by strong results in the Company's Eagle Ford shale and Bakken/Three Forks programs. Production grew 6% sequentially in the fourth quarter of 2012 over the preceding quarter, and 18% over the fourth quarter of 2011.

Total operating revenues and other income for the fourth quarter of 2012 were $444.3 million, compared to $379.5 million for the same period of 2011. The following table displays, by product type, the average realized price the Company received, as well as the adjusted price received after taking into account cash settlements for derivative transactions:

The table below presents actual production and per MCFE cost metrics for the fourth quarter of 2012, along with previously issued fourth quarter guidance for 2012:

General and administrative expense for the fourth quarter was lower than guided due to performance-based bonus compensation being lower than the target for the year. Net income generation, which is a component of the bonus calculation, was impacted by a proved property impairment of $170.4 million in the fourth quarter. This non-cash charge was driven by downward engineering revisions that resulted in the write-down of Wolfberry assets in its Permian region.

PROVED RESERVES AND COSTS INCURRED

SM Energy's estimate of proved reserves as of December 31, 2012, was 1,760.6 BCFE (293.4 MMBOE), which is an increase of 40% from 1,259.2 BCFE (209.9 MMBOE) at the end of 2011. These reserves are comprised of 92.2 MMBbl of oil, 833.4 Bcf of natural gas, and 62.3 MMBbl of NGLs.

The Company's proved undeveloped reserves percentage increased to 43% of total proved reserves at year-end 2012, compared to 33% at the end of 2011. The Company's proved reserves volume of oil and NGLs increased 56% to 154.5 MMBOE at year-end 2012 which reflects the Company's focus on liquids-rich plays.

The table below reconciles the changes in the Company's proved reserves from year-end 2011 to year-end 2012:

Prices used at year-end to calculate the Company's estimate of proved reserves were $94.71 per barrel of oil, $2.76 per MMBTU of natural gas, and $45.65 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 lower by 2% for oil, 33% for natural gas, and 23% for NGLs than the respective prices used at the end of 2011.

The standardized measure of discounted future net cash flows at December 31, 2012, was $3.0 billion. The before income tax PV-10 value of the Company's estimated proved reserves at December 31, 2012, was $3.8 billion, which was 11% higher than the prior year PV-10 value of $3.5 billion. Over 80% of SM Energy's estimated proved reserves by value were audited by an independent reserve engineering firm.

The table below provides detail of the Company's costs incurred in oil and gas producing activities for the year ended December 31, 2012:

Costs incurred in oil and gas producing activities ("Costs incurred") were higher than previously anticipated as a result of increased capital investments in the Company's non-operated Eagle Ford shale program, some of which will be recovered pursuant to the Company's Acquisition and Development Agreement with Mitsui E&P Texas LP. The Company also had a more active leasing effort in 2012 than had been planned. Cash capital expenditures for the year were $1.5 billion. Additionally, net cash proceeds from the sale of oil and gas properties were $55.4 million, which are not netted against costs incurred for accounting purposes.

The table below provides finding and development costs and reserve replacement ratios for the year ended December 31, 2012; please refer to the respective definitions in the accompanying Financial Highlights section below.

Drilling finding and development costs excluding revisions decreased in 2012 by approximately 39% to $1.74 from $2.85 in 2011. In 2012, drilling reserve replacement excluding revisions increased to 411% from 310% in 2011. Over the last five years, the Company has made significant improvements to these reserve metrics as it has transitioned to a leading resource play company.

FINANCIAL POSITION AND LIQUIDITY

As of December 31, 2012, SM Energy had total long-term debt of $1.4 billion. A summary of the Company's long-term debt is shown in the table below:

As of December 31, 2012, SM Energy's debt-to-book capitalization ratio was 50% and the ratio of its debt to trailing twelve month EBITDAX was 1.4 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 77 flowing completions in its operated Eagle Ford shale program in 2012, 23 of which were in the fourth quarter. At year-end 2012, SM Energy had 154 wells producing, with 29 wells waiting on completion or connection to a sales line.

SM Energy's operated acreage position in the Eagle Ford currently stands at approximately 145,000 net acres. Approximately 4,000 net acres in the dry gas window at the southern end of the Company's operated position were released due to unfavorable economics.

The Company now expects that it will be able to down-space portions of its operated acreage position at tighter spacing than previously assumed. Based on these spacing changes and slight upward EUR revisions on the Company's type curve assumptions, SM Energy is increasing its projected net resource attributable to undrilled locations by approximately 500 BCFE to 5.8 TCFE.

SM Energy is currently operating five drilling rigs in this program with two dedicated frac spreads providing completion services.

In the non-operated Eagle Ford program, SM Energy expects that the operator will decrease its 2013 rig count by one rig to eight drilling rigs. The Company anticipates the operator's number of gross completions for the year to remain consistent with prior levels due to efficiency gains.

Bakken / Three Forks

SM Energy made 30 gross flowing completions in its operated Bakken/Three Forks program in 2012, eight of which were completed in the fourth quarter of 2012. The Company's drilling focus is in its Bear Den, Raven, and Gooseneck prospects in North Dakota. Substantially all of the Company's activity is now focused on infill development. SM Energy is currently operating four drilling rigs in North Dakota. Two traditional drilling rigs will be swapped for a more efficient walking rig later this year, at which time all of the rigs in this program will be focused on pad drilling.

Permian Basin Mississippian

The Company's current focus in the Permian Basin is on its horizontal Mississippian program. SM Energy has approximately 66,000 net acres in Lynn, Borden, and Garza Counties, Texas. The Company is currently operating two drilling rigs in the play with encouraging results. The average 30-day rate for the last five wells was approximately 475 BOE/d. This average 30-day rate excludes two recent wells that experienced mechanical or drilling complications.

Exploration Program

Through its New Ventures program, SM Energy continuously evaluates new play concepts to drive the Company's future growth. The Company is currently testing various shale targets in the Midland Basin, where it has approximately 120,000 net acres with shale potential. In East Texas, SM Energy has assembled approximately 95,000 net acres in areas north of Houston, Texas. The Company is currently testing various targets in this acreage and expects to have results based on these tests later in the year.

PRODUCTION AND PERFORMANCE GUIDANCE

SM Energy provides production and cost guidance for the first quarter and full year 2013 in the table below:

The Company has recently elected to reject ethane during the processing of a significant portion of its operated Eagle Ford rich gas production, which will have a negative impact on reported production volumes. However, the Company is reiterating its previously announced 2013 production guidance of 255 to 267 BCFE.

EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss these results and other operational matters on February 21, 2013, 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 89664242. An audio replay of the call will be available approximately two hours after the call at 855-859-2056, with the conference ID number 89664242. International participants can dial 617-401-8115 to take part in the conference call, using the conference ID number 89664242, and can access a replay of the call at 404-537-3406, using conference ID number 89664242. Replays can be accessed through March 7, 2013.

This call is being webcast live and can be accessed on 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 7, 2013.

INFORMATION ABOUT FORWARD LOOKING STATEMENTS

This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words “will,” “believe,” “budget,” “anticipate,” “plan,” “intend,” “estimate,” “forecast,” and “expect” 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 the expected benefits from the actual or expected acquisition, divestiture, farm down 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, 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, 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 2012 Annual Report on Form 10-K which is expected to be filed with the Securities and Exchange Commission on or around February 21, 2013. 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, 2012, may be reconciled to its standardized measure of discounted future net cash flows as of December 31, 2012, 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.

Additionally, the Company believes its use of an independent reserve auditor is a matter of interest to current and potential shareholders, and to analysts who follow the Company. More information on these items are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, which is to be filed with the Securities and Exchange Commission on or around February 21, 2013.

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
James R. Edwards, 303-837-2444

Source: SM Energy Company

Released February 20, 2013