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SM Energy Reports Third Quarter 2020 Results, Generating Cash Flow And Reducing Debt

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DENVER , Oct. 29, 2020 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced operating and financial results for the third quarter 2020 and provided updates to its 2020 guidance.

During the third quarter of 2020, the Company continued its focus on the following priorities:

  • Capital discipline. Capital expenditures demonstrated continued capital efficiencies as well as timing of certain activity. Capital expenditures of $109.6 million adjusted for increased capital accruals of $11.5 million totaled $121.1 million .

  • Generating significant cash flows . Third quarter net cash provided by operating activities of $201.6 million before net change in working capital of $16.8 million totaled $184.8 million . The Company generated free cash flow of $63.7 million (a non-GAAP measure defined and reconciled below). Free cash flow for the first nine months of 2020 was $172.1 million and on a trailing 12-month basis was $233.1 million , or a 128% yield to market capitalization of approximately $182 million as of September 30, 2020 .

  • Absolute debt reduction . The outstanding principal amount of long-term debt was reduced by $106.5 million , as free cash flow was used to repurchase certain unsecured senior notes due 2022 and 2024 at market rates. Net debt-to-Adjusted EBITDAX was 2.4 times at quarter-end (a non-GAAP measure defined and reconciled below).

  • Reducing 2020 capital expenditures. 2020 capital expenditure guidance is further reduced and narrowed to $605 -610 million. Compared with original 2020 guidance at the mid-point, capital expenditure guidance is reduced 27% while production remains in-line.

Chief Executive Officer Jay Ottoson comments: "Exceptional third quarter results are due to continued capital discipline, aggressive cost management, better than expected well performance and adherence to strict financial objectives to generate free cash flow and reduce absolute debt. The entire SM Energy team is working diligently toward our common 2020 goals and objectives and we congratulate our employees on our success year-to-date, especially during a particularly challenging time.

"As we look ahead, we intend to stay-the-course and continue to prioritize generating free cash flow and reducing leverage."

THIRD QUARTER 2020 RESULTS
PRODUCTION, REALIZED PRICES AND CERTAIN OPERATING COSTS

PRODUCTION:







Midland Basin

South Texas

Total

Oil (MBbl / MBbl/d)

5,023 / 54.6

487 / 5.3

5,510 / 59.9

Natural Gas (MMcf / MMcf/d)

12,275 / 133.4

13,785 / 149.8

26,060 / 283.3

NGLs (MBbl / MBbl/d)

nm / -

1,755 / 19.1

1,764 / 19.2

Total (MBoe / MBoe/d)

7,077 / 76.9

4,539 / 49.3

11,617 / 126.3

Note: Totals may not calculate due to rounding.







REALIZED PRICES:







Midland Basin

South Texas

Total  (Pre/Post-hedge)

Oil ($/Bbl)

$38.73

$26.90

$37.69 / $50.20

Natural Gas ($/Mcf)

$1.90

$1.90

$1.90 / $1.94

NGLs ($/Bbl)

nm

$14.07

$14.07/ $14.35

Per Boe

$30.80

$14.11

$24.28 / $30.33




Note: Totals may not calculate due to rounding



 

  • Total production volumes were down 6% compared with the same period in 2019 and up 4% sequentially. Production during the quarter was positively affected by South Texas Austin Chalk well performance exceeding expectations and reduced flaring in the Midland Basin.

  • Total production volumes of 35.2 MMBoe for the first nine months of 2020 were relatively flat with the same period in 2019.

  • Benchmark pricing for the quarter included NYMEX WTI oil at $40.93 /Bbl, NYMEX Henry Hub natural gas at $1.98 /MMBtu and Hart Composite OPIS NGLs at $19.13 /Bbl.

  • The average realized price per Boe of $24.28 was down 23% compared with the same period in 2019 yet up 60% sequentially as commodity prices came off second quarter lows. Including the effect of realized hedges, the average realized price per Boe was $30.33 , resulting in approximately $70.3 million of realized net hedge gains for the quarter.

  • Lease operating expenses of $3.65 per Boe were down 23% compared with the same period in 2019 and up 11% sequentially. Lower year-over-year costs are the result of aggressive cost management, while the sequential increase reflects additional workover expense. Transportation costs of $3.11 per Boe were down 22% from the same period in 2019 and nearly flat sequentially. Transportation charges year-over-year benefit from a lower proportion of production from South Texas , where transportation costs are higher, as well as a relative increase in production from the Austin Chalk, which has lower transportation costs per Boe.

  • Largely as a result of cost management and hedge gains, the operating margin per Boe for the first nine months of 2020 was up 5% compared with the first nine months of 2019, despite significantly lower benchmark commodity prices.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying 3Q20 slide deck.

NET LOSS, LOSS PER SHARE AND NET CASH PROVIDED BY OPERATING ACTIVITIES

Third quarter 2020 net loss was ($98.3) million , or ($0.86) per diluted common share, which compared with net income of $42.2 million , or $0.37 per diluted common share, in the same period in 2019. The current period included a $63.9 million net derivative loss, while the prior year period included a $100.9 million net derivative gain. For the first nine months of 2020, net loss was ($599.4) million , or ($5.28) per diluted common share, which compares with a loss of ($0.76) per diluted common share in the same period in 2019.

Third quarter 2020 net cash provided by operating activities of $201.6 million before net change in working capital of $16.8 million totaled $184.8 million , which was down ($28.1) million , or 13%, from $212.8 million in the comparable prior year period. The decline in cash flow before the net change in working capital was primarily due to the 9% decline in price per Boe after the effect of realized hedge gains and the 6% decline in production, partially offset by lower costs per unit. For the first nine months of 2020, net cash provided by operating activities of $534.1 million before net change in working capital of $40.4 million totaled $574.5 million , up 1% from the same period in 2019.

ADJUSTED EBITDAX, ADJUSTED NET INCOME AND NET DEBT-TO-ADJUSTED EBITDAX

The following paragraphs discuss non-GAAP measures including Adjusted EBITDAX, adjusted net loss, adjusted net loss per diluted share and net debt-to-Adjusted EBITDAX. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.

Third quarter 2020 Adjusted EBITDAX was $232.5 million , down $25.3 million , or 10%, from $257.8 million in the same period in 2019. The decrease in Adjusted EBITDAX was due to lower realized prices and production, partially offset by lower costs per unit. For the first nine months of 2020, Adjusted EBITDAX was $720.0 million , up 2% from $707.2 million for the first nine months of 2019.

Third quarter 2020 adjusted net loss was ($5.5) million , or ($0.05) per diluted common share, which compares with adjusted net loss of ($12.1) million , or ($0.11) per diluted common share, for the same period in 2019.  For the first nine months of 2020, adjusted net loss was ($28.5) million , or ($0.25) per diluted common share, compared with an adjusted net loss of ($48.5) million , or ($0.43) per diluted common share, in the first nine months of 2019.

At September 30, 2020 , net debt-to-Adjusted EBITDAX was 2.4 times.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL EXPENDITURES

On September 30, 2020 , the outstanding principal amount of the Company's long-term debt was $2.42 billion , down from $2.77 billion at year-end 2019. Long-term debt was comprised of $1.73 billion in unsecured senior notes, $446.7 million in secured senior notes, $65.5 million in secured senior convertible notes, plus $178.0 million drawn on the Company's senior secured revolving credit facility.

On September 30, 2020 , the Company's borrowing base and commitments under its senior secured revolving credit facility were $1.1 billion . The Company's available liquidity was $880 million , which includes $178.0 million drawn and a $42 million letter of credit. The cash balance was approximately zero. The Company expects to complete its fall redetermination process in November 2020 .

Capital expenditures before capital accruals for the third quarter of 2020 were $121.1 million . During the third quarter 2020, the Company drilled 19 net wells and added 24 net flowing completions. For the nine months of 2020 the Company drilled 72 net wells and added 54 net flowing completions.

COMMODITY DERIVATIVES

Commodity hedge positions as of September 30, 2020 :

  • Approximately 90%+ of expected 4Q20 oil production is hedged to WTI. The average floor price on collars is $55 /Bbl and the average price on swaps is $57 /Bbl. Approximately 18 MMBbls of 2021 oil production is hedged to WTI. The average floor price on collars is approximately $49 /Bbl and the average price on swaps is approximately $40 /Bbl.

  • Approximately 85-90% of expected 4Q20 Midland Basin oil production basis is hedged to the local price point at $(0.38) /Bbl.

  • Approximately 40% of expected 4Q20 natural gas production is hedged at an average price of $2.39 /MMBtu to HSC, and approximately 65% of expected 4Q20 Midland natural gas production is hedged at an average price of $1.21 /MMBtu to WAHA.

  • NGL hedges are by individual product and include only propane.

A detailed schedule of these and other hedge positions are provided in the 3Q20 accompanying slide deck.

GUIDANCE FULL YEAR 2020:

  • Capital expenditures: $605 -610 million, further reduced to reflect continued capital efficiency and timing. Fourth quarter 2020 is expected to range between $203 -208 million, which will include the addition of a second completions crew in the Midland Basin and a partial quarter crew in South Texas.  Capital will include costs associated with wells that will be turned-in-line in January 2021 .

  • Production: 45.2-46.2 MMBoe, or 123.5-126.2 MBoe/d, at 49% oil. Fourth quarter 2020 is expected to range between 10.0-11.0 MMBoe, or 109-120 MBoe/d, at 48% oil.

  • G&A: ~$110 million including approximately $20 million non-cash compensation.

  • Exploration/Capitalized overhead: ~$40 million .

  • LOE: ~$4.00 significantly reduced due to cost reductions, specifically faster connections to the electric grid, and fewer workovers.

  • Transportation: $3.10 - $3.30 , unchanged.

  • Production and ad valorem taxes: ~4.5% of pre-hedge revenue + ~ $0.40 . Approximately $1.40 combined.

  • DD&A: $17 - $18 /Boe.

SCHEDULE FOR THIRD QUARTER REPORTING
October 29, 2020 - In conjunction with this release, the Company posts to its website a pre-recorded webcast discussion, a written transcript of the webcast, and an associated IR presentation. Please visit ir.sm-energy.com .

October 30, 2020 Please join SM Energy management at 8:00 a.m. Mountain time / 10:00 a.m. Eastern time for the third quarter 2020 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. In order to join the live conference call, please register at the link below for dial-in information.

The call replay will be available approximately one hour after the call and until November 6, 2020 .

UPCOMING CONFERENCE PARTICIPATION

  • November 18, 2020 - Stephens Annual Investment Conference 2020. President and Chief Operating Officer Herb Vogel will be present at 11:00 a.m. Eastern time . This event will be webcast, accessible from the Company's website, and available for replay for a limited period. An investor presentation for this event will be posted to the Company's website before market open on November 18, 2020 .

  • November 30, 2020 . Bank of America Securities 2020 Leveraged Finance Virtual Conference. EVP and Chief Financial Officer Wade Pursell will present at 12:00 p.m. Eastern time . This event will be webcast, accessible from the Company's website, and available for replay for a limited period. An investor presentation for this event will be posted to the Company's website before market open on November 30, 2020 .

FORWARD LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of securities laws. The words "assumes," "anticipate," "estimate," "expect," "forecast," "generate," "guidance," "implied," "maintain," "plan," "project,"  "objectives," "outlook," "sustainable," "target," "will" and similar expressions are intended to identify forward-looking statements.  Forward-looking statements in this release include, among other things, certain guidance for the full year and fourth quarter 2020, including capital expenditures, production, operating costs and DD&A; and, the Company's 2020 goals, which include generating free cash flow and reducing leverage. 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. Future results may be impacted by the risks discussed in the Risk Factors section of SM Energy's most recent 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, specifically the third quarter 2020 Form 10-Q.  The forward-looking statements contained herein speak as of the date of this release.  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 NGLs in the state of Texas.  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


SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Production Data














For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


Percent
Change


2020


2019


Percent
Change


Realized sales price (before the effects of derivative settlements):













Oil (per Bbl)

$

37.69



$

53.99



(30)

%


$

35.92



$

53.31



(33)

%


Gas (per Mcf)

$

1.90



$

2.17



(12)

%


$

1.59



$

2.38



(33)

%


NGLs (per Bbl)

$

14.07



$

15.73



(11)

%


$

12.81



$

17.09



(25)

%


Equivalent (per Boe)

$

24.28



$

31.39



(23)

%


$

22.92



$

32.00



(28)

%


Realized sales price (including the effects of derivative settlements):













Oil (per Bbl)

$

50.20



$

53.57



(6)

%


$

51.08



$

52.39



(3)

%


Gas (per Mcf)

$

1.94



$

2.59



(25)

%


$

1.80



$

2.55



(29)

%


NGLs (per Bbl)

$

14.35



$

22.87



(37)

%


$

14.58



$

21.01



(31)

%


Equivalent (per Boe)

$

30.33



$

33.38



(9)

%


$

31.06



$

32.68



(5)

%


Net production volumes: (1)













Oil (MMBbl)

5.5



5.4



2

%


17.2



15.7



10

%


Gas (Bcf)

26.1



29.5



(12)

%


78.6



81.7



(4)

%


NGLs (MMBbl)

1.8



2.1



(15)

%


4.8



6.2



(22)

%


MMBoe

11.6



12.4



(6)

%


35.2



35.5



(1)

%


Average net daily production: (1)













Oil (MBbls/d)

59.9



59.0



2

%


62.9



57.5



9

%


Gas (MMcf/d)

283.3



320.6



(12)

%


286.7



299.2



(4)

%


NGLs (MBbls/d)

19.2



22.5



(15)

%


17.7



22.8



(22)

%


MBoe/d

126.3



134.9



(6)

%


128.3



130.1



(1)

%


Per Boe data:













Realized price (before the effects of derivative settlements)

$

24.28



$

31.39



(23)

%


$

22.92



$

32.00



(28)

%


Lease operating expense

3.65



4.73



(23)

%


3.93



4.67



(16)

%


Transportation costs

3.11



4.00



(22)

%


3.11



4.02



(23)

%


Production taxes

1.04



1.29



(19)

%


0.94



1.30



(28)

%


Ad valorem tax expense

0.40



0.39



3

%


0.41



0.52



(21)

%


General and administrative (2)

2.10



2.63



(20)

%


2.25



2.69



(16)

%


Operating margin (before the effects of derivative settlements)

13.98



18.35



(24)

%


12.28



18.80



(35)

%


Derivative settlement gain

6.05



1.99



204

%


8.14



0.67



1,115

%


Operating margin (including the effects of derivative settlements)

$

20.03



$

20.34



(2)

%


$

20.42



$

19.47



5

%


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

$

15.64



$

17.02



(8)

%


$

16.95



$

16.76



1

%



(1)  Amounts and percentage changes may not calculate due to rounding.

(2)  Includes non-cash stock-based compensation expense per Boe of $0.30 and $0.44 for the three months ended September 30, 2020, and 2019, respectively, and $0.36 and $0.42 for the nine months ended September 30, 2020, and 2019, respectively.


 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Condensed Consolidated Balance Sheets




(in thousands, except share data)

September 30,


December 31,

ASSETS

2020


2019

Current assets:




Cash and cash equivalents

$

10



$

10


Accounts receivable

136,613



184,732


Derivative assets

128,046



55,184


Prepaid expenses and other

10,221



12,708


Total current assets

274,890



252,634


Property and equipment (successful efforts method):




Proved oil and gas properties

8,307,165



8,934,020


Accumulated depletion, depreciation, and amortization

(4,713,442)



(4,177,876)


Unproved oil and gas properties

907,864



1,005,887


Wells in progress

226,452



118,769


Other property and equipment, net of accumulated depreciation of $66,025 and $64,032, respectively

37,062



72,848


Total property and equipment, net

4,765,101



5,953,648


Noncurrent assets:




Derivative assets

31,509



20,624


Other noncurrent assets

50,785



65,326


Total noncurrent assets

82,294



85,950


Total assets

$

5,122,285



$

6,292,232


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable and accrued expenses

$

287,777



$

402,008


Derivative liabilities

76,969



50,846


Other current liabilities

12,532



19,189


Total current liabilities

377,278



472,043


Noncurrent liabilities:




Revolving credit facility

178,000



122,500


Senior Notes, net

2,175,038



2,610,298


Asset retirement obligations

87,014



84,134


Deferred income taxes

34,582



189,386


Derivative liabilities

33,068



3,444


Other noncurrent liabilities

52,197



61,433


Total noncurrent liabilities

2,559,899



3,071,195


Stockholders' equity:




Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 114,572,800 and 112,987,952 shares, respectively

1,146



1,130


Additional paid-in capital

1,827,836



1,791,596


Retained earnings

365,872



967,587


Accumulated other comprehensive loss

(9,746)



(11,319)


Total stockholders' equity

2,185,108



2,748,994


Total liabilities and stockholders' equity

$

5,122,285



$

6,292,232


SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Condensed Consolidated Statements of Operations

(in thousands, except per share data)

For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Operating revenues and other income:








Oil, gas, and NGL production revenue

$

282,012



$

389,419



$

806,035



$

1,136,749


Net gain on divestiture activity





91



323


Other operating revenues

(997)



898



255



1,347


Total operating revenues and other income

281,015



390,317



806,381



1,138,419


Operating expenses:








Oil, gas, and NGL production expense

95,257



129,042



295,254



373,397


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

181,708



211,125



596,053



595,201


Exploration (1)

8,547



11,626



29,683



33,851


Impairment

8,750



6,337



1,007,263



25,092


General and administrative (1)

24,452



32,578



79,126



95,584


Net derivative (gain) loss (2)

63,871



(100,889)



(314,269)



(3,463)


Other operating expense, net

1,562



1,021



10,174



422


Total operating expenses

384,147



290,840



1,703,284



1,120,084


Income (loss) from operations

(103,132)



99,477



(896,903)



18,335


Interest expense

(41,519)



(40,584)



(123,385)



(118,191)


Gain on extinguishment of debt

25,070





264,546




Other non-operating expense, net

(1,680)



(548)



(2,359)



(1,427)


Income (loss) before income taxes

(121,261)



58,345



(758,101)



(101,283)


Income tax (expense) benefit

22,969



(16,111)



158,662



16,337


Net income (loss)

$

(98,292)



$

42,234



$

(599,439)



$

(84,946)










Basic weighted-average common shares outstanding

114,371



112,804



113,462



112,441


Diluted weighted-average common shares outstanding

114,371



113,334



113,462



112,441


Basic net income (loss) per common share

$

(0.86)



$

0.37



$

(5.28)



$

(0.76)


Diluted net income (loss) per common share

$

(0.86)



$

0.37



$

(5.28)



$

(0.76)


Dividends per common share

$

0.01



$

0.05



$

0.02



$

0.10










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








Exploration expense

$

665



$

1,285



$

2,713



$

3,781


General and administrative expense

3,499



5,481



12,724



14,977


Total non-cash stock-based compensation

$

4,164



$

6,766



$

15,437



$

18,758










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








Settlement gain

$

(70,305)



$

(24,722)



$

(286,270)



$

(23,843)


(Gain) loss on fair value changes

134,176



(76,167)



(27,999)



20,380


Total net derivative (gain) loss

$

63,871



$

(100,889)



$

(314,269)



$

(3,463)


SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data and dividends per share)










Total
Stockholders'
Equity










Common Stock


Additional
Paid-in
Capital


Retained Earnings


Accumulated
Other
Comprehensive
Loss

Shares


Amount

Balances, December 31, 2019

112,987,952



$

1,130



$

1,791,596



$

967,587



$

(11,319)



$

2,748,994


Net loss







(411,895)





(411,895)


Other comprehensive income









190



190


Cash dividends declared, $0.01 per share







(1,130)





(1,130)


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

730





(3)







(3)


Stock-based compensation expense





5,561







5,561


Balances, March 31, 2020

112,988,682



$

1,130



$

1,797,154



$

554,562



$

(11,129)



$

2,341,717


Net loss







(89,252)





(89,252)


Other comprehensive income









188



188


Issuance of common stock under Employee Stock Purchase Plan

297,013



3



944







947


Stock-based compensation expense

267,576



3



5,709







5,712


Issuance of warrants





21,520







21,520


Balances, June 30, 2020

113,553,271



$

1,136



$

1,825,327



$

465,310



$

(10,941)



$

2,280,832


Net loss







(98,292)





(98,292)


Other comprehensive income









1,195



1,195


Cash dividends declared, $0.01 per share







(1,146)





(1,146)


Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings

1,019,529



10



(1,567)







(1,557)


Stock-based compensation expense





4,164







4,164


Other





(88)







(88)


Balances, September 30, 2020

114,572,800



$

1,146



$

1,827,836



$

365,872



$

(9,746)



$

2,185,108


SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020













Condensed Consolidated Statements of Stockholders' Equity (Continued)

(in thousands, except share data and dividends per share)
















Additional
Paid-in
Capital




Accumulated
Other
Comprehensive
Loss


Total
Stockholders'
Equity


Common Stock



Retained
Earnings




Shares


Amount





Balances, December 31, 2018

112,241,966



$

1,122



$

1,765,738



$

1,165,842



$

(12,380)



$

2,920,322


Net loss







(177,568)





(177,568)


Other comprehensive income









263



263


Cash dividends declared, $0.05 per share







(5,612)





(5,612)


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

2,579





(18)







(18)


Stock-based compensation expense





5,838







5,838


Balances, March 31, 2019

112,244,545



$

1,122



$

1,771,558



$

982,662



$

(12,117)



$

2,743,225


Net income







50,388





50,388


Other comprehensive income









119



119


Issuance of common stock under Employee Stock Purchase Plan

184,079



2



1,957







1,959


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

290





(2)







(2)


Stock-based compensation expense

96,719



1



6,153







6,154


Other





(1)



1






Balances, June 30, 2019

112,525,633



$

1,125



$

1,779,665



$

1,033,051



$

(11,998)



$

2,801,843


Net income







42,234





42,234


Other comprehensive income









190



190


Cash dividends declared, $0.05 per share







(5,643)





(5,643)


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

331,530



4



(1,644)







(1,640)


Stock-based compensation expense





6,766







6,766


Balances, September 30, 2019

112,857,163



$

1,129



$

1,784,787



$

1,069,642



$

(11,808)



$

2,843,750


SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Condensed Consolidated Statements of Cash Flows







(in thousands)

For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Cash flows from operating activities:








Net income (loss)

$

(98,292)



$

42,234



$

(599,439)



$

(84,946)


Adjustments to reconcile net loss to net cash provided by operating activities:








Net gain on divestiture activity





(91)



(323)


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

181,708



211,125



596,053



595,201


Impairment

8,750



6,337



1,007,263



25,092


Stock-based compensation expense

4,164



6,766



15,437



18,758


Net derivative (gain) loss

63,871



(100,889)



(314,269)



(3,463)


Derivative settlement gain

70,305



24,722



286,270



23,843


Amortization of debt discount and deferred financing costs

4,506



3,921



13,084



11,554


Gain on extinguishment of debt

(25,070)





(264,546)




Deferred income taxes

(22,796)



19,617



(159,064)



(13,620)


Other, net

(2,376)



(1,004)



(6,203)



(2,291)


Net change in working capital

16,843



(9,673)



(40,411)



11,781


Net cash provided by operating activities

201,613



203,156



534,084



581,586










Cash flows from investing activities:








Net proceeds from the sale of oil and gas properties (1)





92



12,520


Capital expenditures

(109,568)



(212,515)



(419,777)



(788,642)


Acquisition of proved and unproved oil and gas properties

(7,075)



(2,900)



(7,075)



(2,581)


Net cash used in investing activities

(116,643)



(215,415)



(426,760)



(778,703)










Cash flows from financing activities:








Proceeds from revolving credit facility

324,500



428,000



1,165,500



1,124,500


Repayment of revolving credit facility

(339,500)



(417,000)



(1,110,000)



(995,500)


Debt issuance costs related to 10.0% Senior Secured Notes due 2025

(2,395)





(12,886)




Cash paid to repurchase Senior Notes

(65,944)





(94,262)




Repayment of 1.50% Senior Convertible Notes due 2021





(53,508)




Net proceeds from sale of common stock





947



1,959


Dividends paid





(1,130)



(5,612)


Other, net

(1,631)



(1,640)



(1,985)



(2,684)


Net cash provided by (used in) financing activities

(84,970)



9,360



(107,324)



122,663










Net change in cash, cash equivalents, and restricted cash



(2,899)





(74,454)


Cash, cash equivalents, and restricted cash at beginning of period

10



6,410



10



77,965


Cash, cash equivalents, and restricted cash at end of period

$

10



$

3,511



$

10



$

3,511


Less: Restricted cash (1)



(3,501)





(3,501)


Cash and cash equivalents

$

10



$

10



$

10



$

10



(1) As of September 30, 2019, a portion of net proceeds from the sale of oil and gas properties was restricted for future property acquisitions.



SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Condensed Consolidated Statements of Cash Flows (Continued)







(in thousands)

For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Supplemental schedule of additional cash flow information and non-cash activities:








Operating activities:








Cash paid for interest, net of capitalized interest

$

(39,861)



$

(45,476)



$

(122,174)



$

(113,122)










Investing activities:








Increase (decrease) in capital expenditure accruals and other

$

11,491



$

44,975



$

(17,405)



$

34,878


DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY
The following non-GAAP measures are presented in addition to financial statements as the Company believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and compare investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others. A non-GAAP measure should not be considered in isolation or as a substitute for the related GAAP measure or any other measure of a company's financial or operating performance presented in accordance with GAAP. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure or measures is presented below. These measures may not be comparable to similarly titled measures of other companies.

Adjusted EBITDAX: Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is also important as it is considered among financial covenants under the Company's Credit Agreement, a material source of liquidity for the Company. Please reference the Company's 2019 Form 10-K and third quarter 2020 Form 10-Q for discussion of the Credit Agreement and its covenants.

Adjusted net loss: Adjusted net loss excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or 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, gains and losses on extinguishment of debt, and accruals for non-recurring matters.

Free cash flow: Free cash flow is calculated as net cash provided by operating activities before net change in working capital less capital expenditures before increase (decrease) in capital expenditure accruals and other.

Free cash flow yield to market capitalization: Free cash flow yield to market capitalization is calculated as Free cash flow (defined above) divided by market capitalization.

Net Debt: The total principal amount of outstanding senior secured notes and senior unsecured notes plus amounts drawn on the revolving credit facility (also referred to as total funded debt) less cash and cash equivalents.

Net debt-to-Adjusted EBITDAX: Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above). A variation of this calculation is a financial covenant under the Company's Credit Agreement for its revolving credit facility beginning in the fourth quarter of 2018.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Adjusted EBITDAX Reconciliation (1)








(in thousands)
















Reconciliation of net income (loss) (GAAP) and net cash provided by operating activities (GAAP) to Adjusted EBITDAX (non-GAAP)

For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Net income (loss) (GAAP)

$

(98,292)



$

42,234



$

(599,439)



$

(84,946)


Interest expense

41,519



40,584



123,385



118,191


Income tax expense (benefit)

(22,969)



16,111



(158,662)



(16,337)


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

181,708



211,125



596,053



595,201


Exploration (2)

7,882



10,341



26,970



30,070


Impairment

8,750



6,337



1,007,263



25,092


Stock-based compensation expense

4,164



6,766



15,437



18,758


Net derivative (gain) loss

63,871



(100,889)



(314,269)



(3,463)


Derivative settlement gain

70,305



24,722



286,270



23,843


Net gain on divestiture activity





(91)



(323)


Gain on extinguishment of debt

(25,070)





(264,546)




Other, net

615



434



1,651



1,129


Adjusted EBITDAX (non-GAAP)

232,483



257,765



720,022



707,215


Interest expense

(41,519)



(40,584)



(123,385)



(118,191)


Income tax (expense) benefit

22,969



(16,111)



158,662



16,337


Exploration (2)

(7,882)



(10,341)



(26,970)



(30,070)


Amortization of debt discount and deferred financing costs

4,506



3,921



13,084



11,554


Deferred income taxes

(22,796)



19,617



(159,064)



(13,620)


Other, net

(2,991)



(1,438)



(7,854)



(3,420)


Net change in working capital

16,843



(9,673)



(40,411)



11,781


Net cash provided by operating activities (GAAP)

$

201,613



$

203,156



$

534,084



$

581,586










(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

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

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020


Adjusted Net Loss Reconciliation (1)








(in thousands, except per share data)
















Reconciliation of net income (loss) (GAAP) to adjusted net loss (non-GAAP):

For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Net income (loss) (GAAP)

$

(98,292)



$

42,234



$

(599,439)



$

(84,946)


Net derivative (gain) loss

63,871



(100,889)



(314,269)



(3,463)


Derivative settlement gain

70,305



24,722



286,270



23,843


Net gain on divestiture activity





(91)



(323)


Impairment

8,750



6,337



1,007,263



25,092


Gain on extinguishment of debt

(25,070)





(264,546)




Other, net (2)

615



435



1,767



1,347


Tax effect of adjustments (3)

(25,708)



15,058



(155,457)



(10,090)


Valuation allowance on deferred tax assets





10,017




Adjusted net loss (non-GAAP)

$

(5,529)



$

(12,103)



$

(28,485)



$

(48,540)










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

$

(0.86)



$

0.37



$

(5.28)



$

(0.76)


Net derivative (gain) loss

0.56



(0.89)



(2.77)



(0.03)


Derivative settlement gain

0.61



0.22



2.52



0.21


Net gain on divestiture activity








Impairment

0.08



0.06



8.88



0.22


Gain on extinguishment of debt

(0.22)





(2.33)




Other, net (2)

0.01





0.02



0.01


Tax effect of adjustments (3)

(0.23)



0.13



(1.38)



(0.09)


Valuation allowance on deferred tax assets





0.09




Adjusted net loss per diluted common share (non-GAAP)

$

(0.05)



$

(0.11)



$

(0.25)



$

(0.43)










Basic weighted-average common shares outstanding

114,371



112,804



113,462



112,441


Diluted weighted-average common shares outstanding

114,371



113,334



113,462



112,441










Note: Amounts may not calculate due to rounding.









(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

(2) For the three months and nine months ended September 30, 2020, and September 30, 2019, the adjustments related to bad debt expense and impairments of materials inventory and other property.

(3) The tax effect of adjustments for each of the three and nine months ended September 30, 2020, and 2019, was calculated using a tax rate of 21.7%. This rate approximates the Company's statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

Reconciliation of Net Debt (1)


(in thousands)



As of September 30, 2020

Senior Secured Notes (2)

$

512,160


Senior Unsecured Notes (2)

1,732,658


Revolving credit facility (2)

178,000


Total funded debt

2,422,818


Less: Cash and cash equivalents

10


Net Debt

$

2,422,808




(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

(2) Amounts are from Note 5 - Long-term Debt in Part I, Item I of the Company's Form 10-Q for the quarter ended September 30, 2020.

Free Cash Flow (1)








(in thousands)









For the Three Months Ended
September 30,


For the Nine Months Ended
September 30,


2020


2019


2020


2019

Net cash provided by operating activities (GAAP)

$

201,613



$

203,156



$

534,084



$

581,586


Net change in working capital

16,843



(9,673)



(40,411)



11,781


Cash flow from operations before net change in working capital

$

184,770



$

212,829



$

574,495



$

569,805










Capital expenditures (GAAP)

109,568



212,515



419,777



788,642


Increase (decrease) in capital expenditure accruals and other

11,491



44,975



(17,405)



34,878


Capital expenditures before accruals and other

$

121,059



$

257,490



$

402,372



$

823,520










Free cash flow

$

63,711



$

(44,661)



$

172,123



$

(253,715)










(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

Free Cash Flow (1)



(in thousands)





For the Twelve Months Ended
September 30,



2020

Net cash provided by operating activities (GAAP)


$

776,065


Net change in working capital


(35,340)


Cash flow from operations before net change in working capital


$

811,405





Capital expenditures (GAAP)


654,904


Increase (decrease) in capital expenditure accruals and other


(76,572)


Capital expenditures before accruals and other


$

578,332





Free cash flow


$

233,073





Market capitalization at September 30, 2020


$

182,171





Free cash flow yield


128

%




(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

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SOURCE SM Energy Company