SM Energy Reports Second Quarter 2018 Results

DENVER, Aug. 1, 2018 /PRNewswire/ — SM Energy Company (“SM Energy” or the “Company”) (NYSE: SM) today announced financial and operating results for the second quarter of 2018. Highlights include:

• RockStar wells continue to produce best in class results. Spackler Wolfcamp A sets SM record as its top performing Midland Basin well to-date with a peak 30-day IP rate of 2,324 Boe/d. 24 new RockStar wells reached peak 30-day IP rates that averaged 1,330 Boe/d per well (87% oil) from three intervals
• Production exceeded guidance range. 115 MBoe/d average production, 42% oil. Midland Basin production from retained assets was up 14% sequentially and 117% year-over-year. Full year production guidance raised ~3,700 Boe/d at the mid-point
• Rapid margin expansion. $24.44 per Boe operating margin (pre-hedge) was the highest in 15 quarters, up 6% sequentially and up 110% year-over-year
• Strong earnings. Net income was $17.2 million; EPS was $0.15 and adjusted EPS was $0.15, per diluted common share; net cash provided by operating activities (GAAP) was $171.4 million and adjusted EBITDAX was $225.0 million (adjusted EPS and adjusted EBITDAX are non-GAAP measures; see below for additional information)
• Significant reduction in long-term debt. $345 million in 6.5% senior notes due 2021 redeemed subsequent to quarter-end, following the closing of two non-core divestitures for an aggregate sales price of $292 million

MANAGEMENT COMMENTARY

President and Chief Executive Officer Jay Ottoson comments: “In the first half of 2018, we made significant improvements in capital efficiency and operating margins as a result of outstanding operations execution and great well results. Our cash flows have been higher than anticipated, and we are raising full year production guidance without changing our expected full year activity level.  We remain on track to meet our targeted total capital spend-to-cash flow neutrality by mid-year 2019.”

SUMMARY WELL RESULTS

Results from 24 new RockStar wells, having an average 10,180 foot lateral, that have reached their 30-day peak IP rates include:

• Spackler Wolfcamp A and B wells are among top 5 SM performers to-date with peak 30-day IP rates at 2,324 Boe/d and, 2,022 Boe/d, respectively (89% and 90% oil, respectively)
• 9 wells from the 14-well Kramer-Costanza development reached peak 30-day IP rates averaging 1,285 Boe/d per well from the Wolfcamp A and B. The wells are drilled at 513-660 foot spacing and 7 of the 9 wells are fully bounded
• Average peak 30-day IP rates by interval were: 15 Wolfcamp A wells produced approximately 1,320 Boe/d per well (89% oil); 8 Wolfcamp B wells produced approximately 1,385 Boe/d per well (85% oil); 1 Lower Spraberry well produced approximately 1,080 Boe/d (85% oil)

SECOND QUARTER 2018 RESULTS

As previously announced, production and realized prices came in particularly strong. Production was 10.5 MMBoe, or 115 MBoe/d, exceeding the Company’s expectations primarily due to strong well performance from new and existing wells. Realized pricing (before the effects of hedges) averaged $38.40 per Boe, benefiting from higher benchmark oil and NGL prices.

Second quarter of 2018 net income was $17.2 million or $0.15 per diluted common share, up from a loss of ($119.9) million or ($1.08) per diluted common share in the second quarter of 2017. Second quarter of 2018 net income includes a $39.5 million net gain on divestiture activity and a net derivative loss of $63.7 million.

Second quarter of 2018 net cash provided by operating activities (GAAP) was $171.4 million.

Adjusted net income, adjusted net income per diluted common share and adjusted EBITDAX are non-GAAP measures. Please reference the reconciliations to the most directly comparable GAAP financial measures at the end of this release.

Second quarter of 2018 adjusted net income was $16.8 million, or $0.15 per diluted common share, up from an adjusted net loss of ($35.5) million, or ($0.32) per diluted common share, in the second quarter of 2017. The calculation of adjusted net income excludes non-recurring items and items difficult to estimate, in order to present results that can be more consistently compared with prior periods and peer results. Specifically, second quarter adjustments remove the net gain on divestitures, non-cash derivative losses and abandonment and impairment charges.

Second quarter of 2018 adjusted EBITDAX was $225.0 million, up 46% from $154.0 million in the second quarter of 2017. The increase in adjusted EBITDAX was primarily driven by the 110% increase in the operating margin per Boe (pre-hedge), partially offset by an 8% decline in production due to asset divestitures.

COMMODITY DERIVATIVES              

For the second half of 2018, the Company currently has commodity derivatives in place for approximately 80% of expected oil production and 70% of expected natural gas production (NGLs are hedged by product). Additionally, the Company has Midland-NYMEX WTI basis hedges in place for approximately 70% of expected Midland oil production through the remainder of the year.

GUIDANCE UPDATE

Full year 2018 production guidance is increased to a range of 43.5-45.0 MMBoe from 40.9-44.9 MMBoe and is expected to average approximately 42% oil in the commodity mix, up from approximately 40%. The increase in production is attributable to better than expected well performance in the Midland Basin from new and existing wells and higher average working interests in new wells compared to the original plan.

• Third quarter production is expected to range between 11.2-11.7 MMBoe, or 122-127 MBoe/d, and includes approximately 42% oil in the commodity mix. Production is expected to include increased natural gas and NGL volumes from the Eagle Ford from 12, high volume, new first half 2018 wells. The NGLs and natural gas in the commodity mix will be affected by the Company’s election to process ethane in July and August of 2018, with the election for September undecided.
• Faster paced drilling and completion activity in the Midland Basin in 1H18 increased expected third quarter production, due to accelerated completion timing, and increased the number of expected third quarter new net well completions by 16 (as planned fourth quarter completions are accelerated into the third quarter), compared to the February plan.

Full year total capital spend is slightly increased by $40 million to $1.31 billion primarily to account for increased working interests (with corresponding increased net revenue interests) in new Howard County wells. Higher than expected working interests increased first half 2018 capital by approximately $30 million and expected full year net well completions in the Permian Basin from approximately 100 to 103. Additional future working interest increases are anticipated. Eagle Ford completions for the full year are unchanged at approximately 25 net wells.

• Total capital spend in the second half of 2018 is projected to approximate $514 million and be more heavily weighted to the third quarter due to the acceleration of fourth quarter completions. Third quarter net completions are expected to include 37 net wells in the Permian Basin and 4 net wells in the Eagle Ford.

As previously stated, the Company’s 2018 capital expenditure program is weighted to the first half of the year. Due to the accelerated timing of drilling and completion activity, the Company is currently running seven rigs and three completion crews in the Midland Basin (down from nine rigs and five crews, with plans to release an additional rig during the third quarter). In the Eagle Ford, the Company is running two rigs and one completion crew (with plans to drop one Eagle Ford rig during August 2018) for both Company and third-party carried activity.

Total capital spend (before acquisitions) is a non-GAAP measure. The Company is unable to present a quantitative reconciliation of this forward-looking, non-GAAP financial measure without unreasonable effort because acquisition costs are inherently unpredictable.

SCHEDULE FOR SECOND QUARTER REPORTING

This release is accompanied by an investor presentation and pre-recorded call with transcript all 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, 2018 for the second quarter 2018 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 4891245) – Domestic toll free/International: 844-343-4183/647-689-5129
• Replay (conference ID 4891245) – 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, 2018.

UPCOMING CONFERENCE PARTICIPATION

• August 21, 2018 – Enercom: The Oil and Gas Conference. President and Chief Executive Officer Jay Ottoson will present at 9:15 a.m. Mountain time. This event will be webcast. An investor presentation for this event will be posted to the Company’s website on August 21, 2018.
• September 4, 2018 – Barclays CEO Energy-Power Conference. President and Chief Executive Officer Jay Ottoson will present at 4:25 p.m. Eastern time. This event will be webcast. An investor presentation for this event will be posted to the Company’s website on September 4, 2018.

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,” “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. Forward-looking statements in this release include, among other things, guidance for production volumes and total capital spend for the third quarter and full year 2018. General risk factors include the availability of and access to capital markets; the availability, proximity and capacity of gathering, processing and transportation facilities; the volatility and level of oil, natural gas, and natural gas liquids prices, including any impact on the Company’s asset carrying values or reserves arising from price declines; uncertainties inherent in projecting future 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 uncertainty of negotiations to result in an agreement or a completed transaction; the uncertain nature of 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 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 2017 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