SM Energy Reports Results for Second Quarter of 2010
-- Quarterly production of 276 MMCFE/d exceeds guidance of 253 -274 MMCFE/d -- Company reports net income of $18.1 million, or $0.28 per diluted share -- Adjusted net income of $10.2 million, or $0.16 per diluted share
DENVER--(BUSINESS WIRE)-- SM Energy Company (NYSE: SM), formerly named St. Mary Land & Exploration Company, today reports financial results from the second quarter of 2010. In addition, a new presentation for the second quarter earnings and operational update will be posted on the Company's website at 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 August 3, 2010. Information for the earnings call can be found below.
MANAGEMENT COMMENTARY
Tony Best, CEO and President, remarked, "SM Energy has had another strong quarter. We beat production targets and performed very well on most of our cost guidance. Through mid-year, we continue to execute well on our business plan for 2010. We are well positioned with a strong inventory of projects and ample liquidity to fund our programs through the second half of this year."
SECOND QUARTER 2010 RESULTS
SM Energy posted net income for the second quarter of 2010 of $18.1 million, or $0.28 per diluted share. This compares to a net loss of ($8.3 million), or ($0.13) per diluted share, for the same period in 2009. Adjusted net income for the quarter was $10.2 million, or $0.16 per diluted share, versus an adjusted net income of $15.2 million, or $0.24 per diluted share, for the second quarter of 2009. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are 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.
For the Three Months Ended June 30, 2010 2009 Weighted-average diluted share 64.6 62.4 count (in millions) $ in Per $ in Per millions Diluted millions Diluted Share Share Reported net income (loss) $18.1 $0.28 ($8.3 ) ($0.13 ) Adjustments net of tax: Change in Net Profits Plan ($3.9 ) ($0.06 ) $1.5 $0.02 liability Unrealized derivative (gain) ($1.2 ) ($0.02 ) $7.0 $0.11 loss Gain on divestiture activity ($4.2 ) ($0.06 ) ($0.8 ) ($0.01 ) Loss related to hurricanes - - $3.1 $0.05 Adjusted net income (loss), $8.8 $0.14 $2.5 $0.04 before impairments Non-cash impairments net of tax: Impairment of proved properties - - $3.7 $0.06 Abandonment and impairment of $1.4 $0.02 $7.2 $0.12 unproved properties Impairment of materials - - $1.7 $0.03 inventory Adjusted net income $10.2 $0.16 $15.2 $0.24 NOTE: Totals may not add due to rounding
Operating cash flow increased to $119.2 million for the second quarter of 2010 from $117.8 million in the same period last year. Net cash provided by operating activities decreased to $116.3 million for the second quarter of 2010 from $116.6 million in the same period in 2009.
Adjusted net income and operating cash flow 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 reported quarterly production of 276.4 MMCFE/d, which was above the guidance range of 253 to 274 MMCFE/d. Production came in above guidance primarily due to strong results in the Eagle Ford.
Revenues and other income for the quarter were $211.7 million compared to $205.2 million for the same period in 2009. For the second quarter of 2010, the average equivalent price per MCFE, net of hedging, was $7.36 per MCFE, which is an increase of 10% from the $6.68 per MCFE realized in the comparable period in 2009. Average realized prices, inclusive of hedging activities, were $5.59 per Mcf and $65.17 per barrel in the second quarter of 2010, which is an increase of 8% and 15%, respectively, from the same period a year ago. SM Energy reports its gas volumes on a "wet gas" basis, meaning that revenue dollars associated with natural gas liquids ("NGLs") are reported within the Company's natural gas revenues.
Lease operating expense ("LOE") of $1.15 per MCFE in the second quarter of 2010 was below the Company's guidance of $1.24 to $1.32 per MCFE. Lease operating expense for the quarter represents a 9% decrease from the $1.26 per MCFE in the comparable period last year. The divestiture of higher per unit cost assets was the primary reason for lower per unit LOE costs year over year. Sequentially, LOE declined 2% or $0.02 per MCFE in the second quarter of 2010 from the preceding quarter.
Transportation expense of $0.20 per MCFE in the second quarter of 2010 was within guidance of $0.18 to $0.20 per MCFE. The reported per unit expense increased from $0.16 per MCFE for the comparable period in 2009. Sequentially, transportation expense was up $0.04 per MCFE from the first quarter of 2010. Transportation costs, both on a year over year and sequential basis, reflects increased production contributed from areas with higher per unit transportation costs, such as the Eagle Ford shale.
Commodity price increases over the past year for both oil and natural gas resulted in year over year increases in production taxes, both on a per MCFE basis and in absolute dollars. Between the second quarters of 2009 and 2010, production taxes on a per MCFE basis increased 33% from $0.33 to $0.44. The Company's realized production tax rate for the second quarter was 6%, which was slightly below the provided guidance of 7% of pre-hedge oil and natural gas revenue.
Total general and administrative ("G&A") expense for the second quarter of 2010 was $1.01 per MCFE, which was slightly above the guidance range provided by the Company. Cash G&A expense was $0.61 per MCFE for the quarter, compared to a guidance range of $0.53 to $0.55 per MCFE. The Cash G&A expense came in above guidance primarily due to the recognition of certain administrative and legal items in the second quarter. Non-cash G&A for the second quarter was $0.18 per MCFE versus a guidance range of $0.19 to $0.21 per MCFE. G&A related to cash payments from the Company's legacy Net Profits Plan (NPP) program was $0.22 per MCFE in the quarter compared to a guidance range of $0.22 to $0.24 per MCFE.
Depletion and depreciation expense ("DD&A") increased to $3.17 per MCFE in the second quarter of 2010, which was above the Company's guidance range of $2.90 to $3.10 per MCFE. DD&A in the comparable period of 2009 was $2.49 per MCFE. Sequentially, DD&A increased 5% from $3.02 per MCFE in the first quarter of 2010. The Company's DD&A rate was impacted by the Company's divestiture of lower cost basis properties in the first quarter of 2010. Additionally, infrastructure costs that are incurred at the beginning of the development of emerging plays are also increasing the DD&A rate.
In the second quarter of 2010, SM Energy recognized a pre-tax non-cash benefit of $6.6 million as a result of a decrease in the NPP liability. The NPP liability is a significant management estimate that is highly sensitive to a number of assumptions including future commodity prices, production rates, and operating costs. The last pool created under this legacy compensation plan was in 2007.
FINANCIAL POSITION AND LIQUIDITY
As of June 30, 2010, SM Energy had total long-term debt of $271.2 million, which was comprised entirely of the Company's 3.50% Senior Convertible Notes, net of debt discount. The Company's debt-to-book capitalization ratio was 19% as of the end of the quarter.
SM Energy currently has no outstanding borrowing under its long-term credit facility. The Company has a commitment amount of $678 million from the Company's bank group with a borrowing base of $900 million. SM Energy is in compliance with all the covenants associated with this facility.
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference to discuss the second quarter results on August 3, 2010 at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 866-788-0539 and the participant passcode is 18765995. An audio replay of the call will be available approximately two hours after the call at 888-286-8010, with the passcode 82316400. International participants can dial 857-350-1677 to take part in the conference call, using passcode 18765995 and can access a replay of the call at 617-801-6888, using passcode 82316400. Replays can be accessed through August 17, 2010.
In addition, the call will be webcast live and can be accessed at SM Energy Company's website at sm-energy.com. An audio recording of the conference call will be available at that site through August 17, 2010.
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 such factors as the volatility and level of oil and natural gas prices, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, the availability of debt and equity financing, the ability of the banks in the Company's credit facility to fund requested borrowings, the ability of hedge counterparties to settle hedges in favor of the Company, the imprecise nature of estimating oil and gas reserves, the availability of additional economically attractive exploration, development, and property acquisition opportunities for future growth and any necessary financings, unexpected drilling conditions and results, unsuccessful exploration and development drilling, drilling, completion, and operating service availability, the risks associated with the Company's hedging strategy, and other such matters discussed in the "Risk Factors" section of SM Energy's 2009 Annual Report on Form 10-K and subsequent quarterly reports filed on Form 10-Q. 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, formerly named St. Mary Land & Exploration Company, is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas and crude oil. SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at sm-energy.com.
SM ENERGY COMPANY FINANCIAL HIGHLIGHTS June 30, 2010 Guidance For the Three Months Comparison Ended June 30, 2010 Actual Guidance Range Oil and gas production 276.4 253 - 274 (MMCFE per day) Lease operating $1.24 - expense (per $ 1.15 $1.32 MCFE) Transportation $0.18 - expense (per $ 0.20 $0.20 MCFE) Production taxes, as a percentage of 6 % 7 % pre-hedge revenue General and $0.53 - administrative - $ 0.61 $0.55 cash General and administrative - $ 0.22 $0.22 - cash related to $0.24 Net Profits Plan General and $0.19 - administrative - $ 0.18 $0.21 non-cash General and $0.94 - administrative - $ 1.01 $1.00 TOTAL Depreciation, $2.90 - depletion, and $ 3.17 $3.10 amortization Production Data For the Three Months For the Six Months Ended June 30, Ended June 30, 2010 2009 Percent 2010 2009 Percent Change Change Average realized sales price, before hedging: Oil (per Bbl) $ 70.92 $ 53.96 31 % $ 71.86 $ 44.21 63 % Gas (per Mcf) 4.54 3.07 48 % 5.34 3.54 51 % Average realized sales price, net of hedging: Oil (per Bbl) $ 65.17 $ 56.72 15 % $ 66.10 $ 50.45 31 % Gas (per Mcf) 5.59 5.19 8 % 6.21 5.66 10 % Production: Oil (MMBbls) 1.4 1.6 -14 % 2.9 3.3 -11 % Gas (Bcf) 16.7 18.3 -9 % 33.2 36.8 -10 % BCFE (6:1) 25.2 28.2 -11 % 50.9 56.6 -10 % Daily production: Oil (MBbls per 15.5 18.1 -14 % 16.2 18.2 -11 % day) Gas (MMcf per 183.3 201.4 -9 % 183.7 203.6 -10 % day) MMCFE per day 276.4 310.1 -11 % 281.1 312.6 -10 % (6:1) Margin analysis per MCFE: Average realized sales price, $ 6.99 $ 5.15 36 % $ 7.64 $ 4.87 57 % before hedging Average realized sales price, net 7.36 6.68 10 % 7.88 6.62 19 % of hedging Lease operating 1.15 1.26 -9 % 1.16 1.36 -15 % expense Transportation 0.20 0.16 25 % 0.18 0.18 0 % Production taxes 0.44 0.33 33 % 0.50 0.33 52 % General and 1.01 0.64 58 % 0.96 0.61 57 % administrative Operating margin $ 4.56 $ 4.29 6 % $ 5.08 $ 4.14 23 % Depletion, depreciation, amortization, and asset retirement obligation $ 3.17 $ 2.49 27 % $ 3.10 $ 2.87 8 % liability accretion Consolidated Statements of Operations (In thousands, except per share For the Three Months For the Six Months amounts) Ended June 30, Ended June, 30, 2010 2009 2010 2009 Operating revenues and other income: Oil and gas $ production $ 175,887 $ 145,279 388,774 $ 275,696 revenue Realized oil and 9,329 43,279 11,924 98,899 gas hedge gain Gain on divestiture 7,021 1,244 127,999 645 activity Marketed gas system and other 19,460 15,396 43,135 29,178 operating revenue Total operating revenues and 211,697 205,198 571,832 404,418 other income Operating expenses: Oil and gas production 45,168 49,465 93,508 105,294 expense Depletion, depreciation, amortization, and asset retirement obligation 79,770 70,391 157,535 162,103 liability accretion Exploration 14,498 19,490 28,396 33,088 Impairment of proved - 6,043 - 153,092 properties Abandonment and impairment of 2,375 11,631 3,279 15,533 unproved properties Impairment of materials - 2,719 - 11,335 inventory General and 25,398 18,160 48,884 34,559 administrative Change in Net Profits Plan (6,599 ) 2,449 (33,871 ) (20,842 ) liability Marketed gas 15,807 13,609 37,853 26,992 system expense Unrealized derivative (2,087 ) 11,288 (9,822 ) 13,134 (gain) loss Other expense 578 5,814 1,530 11,456 Total operating 174,908 211,059 327,292 545,744 expenses Income (loss) 36,789 (5,861 ) 244,540 (141,326 ) from operations Nonoperating income (expense): Interest income 54 105 183 127 Interest expense (6,343 ) (7,663 ) (13,130 ) (13,759 ) Income (loss) before income 30,500 (13,419 ) 231,593 (154,958 ) taxes Income tax benefit (12,432 ) 5,097 (87,347 ) 59,013 (expense) Net income $ 18,068 $ (8,322 ) $ $ (95,945 ) (loss) 144,246 Basic weighted-average 62,917 62,418 62,855 62,377 common shares outstanding Diluted weighted-average 64,566 62,418 64,493 62,377 common shares outstanding Basic net income (loss) per $ 0.29 $ (0.13 ) $ 2.29 $ (1.54 ) common share Diluted net income (loss) $ 0.28 $ (0.13 ) $ 2.24 $ (1.54 ) per common share Consolidated Balance Sheets (In thousands, except share June 30, December 31, amounts) ASSETS 2010 2009 Current assets: Cash and cash $ 10,249 $ 10,649 equivalents Accounts 108,427 116,136 receivable Refundable 23,215 32,773 income taxes Prepaid expenses 14,284 14,259 and other Derivative asset 45,481 30,295 Deferred income - 4,934 taxes Total current 201,656 209,046 assets Property and equipment (successful efforts method), at cost: Land 1,483 1,371 Proved oil and 3,066,300 2,797,341 gas properties Less - accumulated depletion, (1,203,841 ) (1,053,518 ) depreciation, and amortization Unproved oil and gas properties, net of impairment allowance of $62,507 in 2010 and $66,570 138,531 132,370 in 2009 Wells in 97,312 65,771 progress Materials inventory, at 31,305 24,467 lower of cost or market Oil and gas properties held for sale less accumulated depletion, depreciation, 7,115 145,392 and amortization Other property and equipment, net of accumulated depreciation of $16,478 in 2010 and $14,550 15,472 14,404 in 2009 2,153,677 2,127,598 Other noncurrent assets: Derivative asset 30,169 8,251 Restricted cash subject to 19,595 - Section 1031 Exchange Other noncurrent 12,288 16,041 assets Total other noncurrent 62,052 24,292 assets Total Assets $ $ 2,417,385 2,360,936 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued $ 270,030 $ 236,242 expenses Derivative 37,903 53,929 liability Deposit associated with oil and gas - 6,500 properties held for sale Deferred income 4,970 - taxes Total current 312,903 296,671 liabilities Noncurrent liabilities: Long-term credit - 188,000 facility Senior convertible notes, net of unamortized discount of $16,288 in 2010, 271,212 266,902 and $20,598 in 2009 Asset retirement 64,284 60,289 obligation Asset retirement obligation associated with 1,526 18,126 oil and gas properties held for sale Net Profits Plan 136,420 170,291 liability Deferred income 408,997 308,189 taxes Derivative 24,046 65,499 liability Other noncurrent 15,164 13,399 liabilities Total noncurrent 921,649 1,090,695 liabilities Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value: authorized - 200,000,000 shares; issued: 63,110,068 shares in 2010 and 62,899,122 shares in 2009; outstanding, net of treasury shares: 63,007,433 shares in 2010 and 62,772,229 631 629 shares in 2009 Additional 174,973 160,516 paid-in capital Treasury stock, at cost: 102,635 shares in 2010 (489 ) (1,204 ) and 126,893 shares in 2009 Retained 992,685 851,583 earnings Accumulated other 15,033 (37,954 ) comprehensive income (loss) Total stockholders' 1,182,833 973,570 equity Total Liabilities and $ $ Stockholders' 2,417,385 2,360,936 Equity Consolidated Statements of Cash Flows (In thousands) For the Three Months For the Six Months Ended June 30, Ended June 30, 2010 2009 2010 2009 Cash flows from operating activities: Net income $ 18,068 $ (8,322 ) $ $ (95,945 ) (loss) 144,246 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on divestiture (7,021 ) (1,244 ) (127,999 ) (645 ) activity Depletion, depreciation, amortization, and asset retirement obligation 79,770 70,391 157,535 162,103 liability accretion Exploratory dry 164 4,573 327 4,667 hole expense Impairment of proved - 6,043 - 153,092 properties Abandonment and impairment of 2,375 11,631 3,279 15,533 unproved properties Impairment of materials - 2,719 - 11,335 inventory Stock-based compensation 6,261 3,733 11,864 7,509 expense* Change in Net Profits Plan (6,599 ) 2,449 (33,871 ) (20,842 ) liability Unrealized derivative (2,087 ) 11,288 (9,822 ) 13,134 (gain) loss Loss related to - 5,027 - 7,120 hurricanes Amortization of debt discount 3,366 3,611 6,657 5,703 and deferred financing costs Deferred income 14,212 (7,758 ) 78,820 (63,148 ) taxes Plugging and (3,988 ) (337 ) (6,222 ) (2,355 ) abandonment Other 1,988 430 2,937 1,619 Changes in current assets and liabilities: Accounts 20,872 5,446 7,628 49,149 receivable Refundable (3,445 ) - 9,558 13,161 income taxes Prepaid expenses (1,637 ) (1,677 ) (148 ) (7,091 ) and other Accounts payable and accrued (5,103 ) 8,583 26,299 (12,338 ) expenses Excess income tax benefit from (938 ) - (938 ) - the exercise of stock options Net cash provided by 116,258 116,586 270,150 241,761 operating activities Cash flows from investing activities: Net proceeds from sale of oil 8,751 18 247,998 1,081 and gas properties Capital (172,182 ) (82,201 ) (304,627 ) (215,826 ) expenditures Acquisition of oil and gas - 9 - (44 ) properties Deposits to - - (19,595 ) - restricted cash Receipts from 16,565 10,050 - 14,398 restricted cash Receipts from short-term - 1,002 - 1,002 investments Other 8 - (6,492 ) - Net cash used in investing (146,858 ) (71,122 ) (82,716 ) (199,389 ) activities Cash flows from financing activities: Proceeds from 26,500 576,000 204,059 1,766,000 credit facility Repayment of (26,500 ) (600,000 ) (392,059 ) (1,791,000 ) credit facility Debt issuance costs related to - (11,060 ) - (11,060 ) credit facility Proceeds from sale of common 2,648 894 2,916 1,066 stock Dividends paid (3,144 ) (3,120 ) (3,144 ) (3,120 ) Excess income tax benefit from 938 - 938 - the exercise of stock options Other (17 ) - (544 ) - Net cash provided by (used in) 425 (37,286 ) (187,834 ) (38,114 ) financing activities Net change in cash and cash (30,175 ) 8,178 (400 ) 4,258 equivalents Cash and cash equivalents at 40,424 2,211 10,649 6,131 beginning of period Cash and cash equivalents at $ 10,249 $ 10,389 $ 10,249 $ 10,389 end of period * Stock-based compensation expense is a component of exploration expense and general and administrative expense on the consolidated statements of operations. For the six months ended June 30, 2010, and 2009, approximately $3.4 million and $2.9 million, respectively of stock-based compensation expense was included in exploration expense. For the six months ended June 30, 2010, and 2009, approximately $8.5 million and $4.6 million, respectively of stock-based compensation expense was included in general and administrative expense. For the three months ended June, 30, 2010, and 2009, approximately $1.7 million and $1.3 million, respectively of stock-based compensation expense was included in exploration expense. For the three months ended June, 30, 2010 and 2009, approximately $4.6 million and $2.4 million, respectively of stock-based compensation expense was included in general and administrative expense. Adjusted Net Income (In thousands, except per share data) Reconciliation of net income For the Three Months For the Six Months (loss) (GAAP) to Adjusted net income Ended June 30, Ended June 30, (Non-GAAP): 2010 2009 2010 2009 Reported net $ income (loss) $ 18,068 $ (8,322 ) 144,246 $ (95,945 ) (GAAP) Adjustments net of tax: (1) Change in Net Profits Plan (3,907 ) 1,519 (21,102 ) (12,901 ) liability Unrealized derivative (1,236 ) 7,000 (6,119 ) 8,130 (gain) loss Gain on divestiture (4,156 ) (771 ) (79,743 ) (399 ) activity Loss related to - 3,117 - # 4,407 hurricanes (2) Adjusted net income (loss), before 8,769 2,543 37,282 (96,708 ) impairment adjustments Non-cash impairments net of tax: (1) Impairment of proved - 3,748 - 94,790 properties Abandonment and impairment of 1,406 7,213 2,043 9,618 unproved properties Impairment of materials - 1,686 - 7,017 inventory Adjusted net income, non-recurring items & non-cash impairments $ 10,175 $ 15,190 $ 39,325 $ 14,717 (Non-GAAP) (3) Adjusted net income per share (Non-GAAP) Basic $ 0.16 $ 0.24 $ 0.63 $ 0.24 Diluted $ 0.16 $ 0.24 $ 0.61 $ 0.24 Average number of shares outstanding Basic 62,917 62,418 62,855 62,377 Diluted 64,566 62,418 64,493 62,377 (1) Adjustments are shown net of tax using the effective income tax rate; calculated by dividing the income tax benefit (expense) by income (loss) before income taxes as stated on the consolidated statement of operations. Effective income tax rates for the three months ended June 30, 2010 and 2009, were 40.8% and 38.0% respectively. Effective income tax rates for the six months ended June 30, 2010 and 2009, were 37.7% and 38.1% respectively. (2) The loss related to hurricanes is included within line item other expense on the consolidated statements of operations. (3) Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are one-time items or are items whose timing and/or amount cannot be reasonably estimated. These items include non-cash adjustments and impairments such as the change in the Net Profits Plan liability, unrealized derivative (gain) loss, impairment of proved properties, abandonment and impairment of unproved properties, impairment of materials inventory, gain on divestiture activity, and loss related to hurricanes. The non-GAAP measure of adjusted net income 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 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 should not be considered in isolation or as a substitute for net income, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income excludes some, but not all, items that affect net income and may vary among companies, the adjusted net income amounts presented may not be comparable to similarly titled measures of other companies. Operating Cash Flow (In thousands) Reconciliation of net cash provided by For the Three Months For the Six Months operating activities (GAAP) to Operating cash Ended June 30, Ended June 30, flow (Non-GAAP): 2010 2009 2010 2009 Net cash provided by $ operating $ 116,258 $ 116,586 270,150 $ 241,761 activities (GAAP) Changes in $ current assets $ (9,749 ) $ (12,352 ) (42,399 ) $ (42,881 ) and liabilities Exploration $ 14,498 $ 19,490 28,396 33,088 Less: Exploratory dry $ (164 ) $ (4,573 ) (327 ) (4,667 ) hole expense Less: Stock-based compensation $ (1,684 ) $ (1,309 ) (3,438 ) (2,864 ) expense included in exploration Operating cash $ flow (Non-GAAP) $ 119,159 $ 117,842 252,382 $ 224,437 (4) (4) Beginning in the third quarter of 2009 the Company changed its definition of operating cash flow. Prior periods have been conformed to the current definition and the change in the definition did not result in a material variance to results under the prior definition. Operating cash flow is computed as net cash provided by operating activities adjusted for changes in current assets and liabilities and exploration, less exploratory dry hole expense, and stock-based compensation expense included in exploration. The non-GAAP measure of operating cash flow is presented because management believes that it provides useful additional information to investors for analysis of SM Energy's ability to internally generate funds for exploration, development, acquisitions, and to service debt. In addition, operating cash flow 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. Operating cash flow should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since operating cash flow excludes some, but not all items that affect net income and net cash provided by operating activities and may vary among companies, the operating cash flow amounts presented may not be comparable to similarly titled measures of other companies. See the consolidated statements of cash flows herein for more detailed cash flow information.
Source: SM Energy
Released August 2, 2010