SM Energy Reports First Quarter Of 2017 Results - Higher Production, Lower Capital Versus Plan, Production Guidance Raised

 

DENVER, May 2, 2017 /PRNewswire/ --

  • Production of 12.1 MMBoe, well ahead of guidance
    • 55% sequential growth in Midland Basin
    • Full year production guidance increased by 1.5 MMBoe to 41.5-44.5 MMBoe
  • Costs incurred $282 MM (includes acquisitions); total capital spend $193 MM, 4% less than projected (see GAAP reconciliation below)
    • Full year total capital spend (excluding acquisitions) guidance of $875 MM unchanged
  • Balance sheet strengthened further with closing of non-op Eagle Ford divestiture
    • Net debt reduced by 22%
  • EPS of $0.67; Adjusted EPS (loss) ($0.18), ahead of expectations (see GAAP reconciliation below)

SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) announced today financial results and operations highlights from the first quarter of 2017. In conjunction with this release, the Company posts an investor presentation to its website at sm-energy.com with additional first quarter results and operational detail. This presentation will be referenced during the earnings webcast and conference call scheduled for 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on May 3, 2017. Further information on the earnings webcast and conference call can be found below.

MANAGEMENT COMMENTARY

President and Chief Executive Officer Jay Ottoson comments: "We have laid out a solid three year plan that we expect to create substantial value for our shareholders, and the first quarter results demonstrate our commitment and ability to execute on this plan. We have met or exceeded expectations across the board to-date in 2017 and are confident in our ability to meet or exceed plan expectations going forward. On the operations front, new Midland Basin wells continue to outperform, with all SM-completed RockStar wells to date exceeding acquisition performance metrics, and we are only months into our expanded Midland Basin program. In addition, our financial strategy is right on track with the closing of the sale of our third party-operated Eagle Ford assets, which provided the Company with $1.6 billion of liquidity at quarter-end."

FIRST QUARTER 2017 RESULTS

PRODUCTION – SEQUENTIAL COMPARISON:

TOTAL COMPANY PRODUCTION - MMBoe

 

First Quarter 2017

Fourth Quarter 2016

Oil (MMBbls)

3.5

4.0

Natural gas (Bcf)

33.9

35.2

NGLs (MMBbls)

2.9

3.5

Total MMBoe

12.1

13.4

Production includes production from assets sold (through the closing date) or pending sale

 

REGIONAL PRODUCTION - MMBoe

 

First Quarter 2017

Fourth Quarter 2016

Eagle Ford (operated)

7.3

7.6

Permian Basin

2.1

1.4

Rocky Mountain (PRB)

0.3

0.2

Production – Retained Assets

9.7

9.2

Assets sold and for sale

2.4

4.2

Total MMBoe

12.1

13.4

   Eagle Ford (operated) includes nominal other production from the region

First quarter production of 12.1 MMBoe significantly exceeded guidance of 11.0-11.4 MMBoe, due to higher than expected initial rates from new operated Eagle Ford wells, early completion timing and continued outperformance from wells in the Midland Basin. Midland Basin production increased 55% sequentially and production from retained assets increased 5% sequentially. As a result of first quarter production outperformance, the Company is raising full year production guidance by 1.5 MMBoe.

Total Company production of 12.1 MMBoe was down 10% compared with both the fourth quarter of 2016 and the first quarter of 2016, affected by producing asset sales completed in December 2016 and early March 2017.

REALIZED PRICES – 1Q17 PRE/POST-HEDGE:

REALIZED PRICES

 

Pre-Hedge

Post-Hedge

Oil (per Bbl)

$ 47.55

$44.97

Natural gas (per Mcf)

2.98

3.50

NGLs (per Bbl)

22.06

19.18

Average per Boe

$ 27.55

$ 27.55

The average realized price per Boe before the effects of commodity hedges was $27.55, the highest average realized in nine quarters due to higher benchmark prices for oil and NGLs, as well as an increasing percentage of higher value oil produced in the Midland Basin where differentials averaged less than $2 per Bbl.

Cash production costs totaled $11.42 per Boe, compared with $11.34 per Boe in the fourth quarter of 2016 and up $0.64, or 6%, from $10.78 per Boe in the first quarter of 2016, due primarily to higher taxes associated with higher commodity prices. Production costs per unit are expected to decline in the second half of 2017, due to both the completion of asset divestitures that consist of higher cost assets and also the benefits of increased scale in the Midland Basin program.

Net income for the first quarter was $74.4 million, or $0.67 per diluted common share, compared with a net loss of $347.2 million, or ($5.10) per diluted common share, in the first quarter of 2016. Net income in the first quarter of 2017 reflects a near four-fold increase in the Company's pre-hedge cash operating margin from the prior year period, which increased from $40.1 million to $169.9 million. The 2017 period also includes a significant reduction in DD&A expense per Boe from $15.96 to $11.39 and a non-cash derivative gain of $114.8 million. Net cash provided by operating activities was $135.0 million.  

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

Adjusted EBITDAX for the first quarter was $172.2 million, compared with $182.3 million in the prior year period. While the pre-hedge operating margin was significantly higher in the first quarter of 2017, the prior year period benefited from a $147 million derivative settlement gain.

Adjusted net loss for the first quarter was $19.6 million, or $0.18 per diluted common share, compared with an adjusted net loss of $56.6 million, or $0.83 per diluted common share, in the first quarter of 2016. The calculation of adjusted net loss 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.

FINANCIAL POSITION AND LIQUIDITY

At March 31, 2017, the outstanding principal balance on the Company's long-term debt included $2.8 billion in senior notes plus $172.5 million in senior convertible notes, with zero drawn on the Company's senior secured credit facility. At quarter-end, the Company had a cash balance of $659.1 million, providing for net debt of $2.3 billion. During the quarter, as part of the regularly scheduled redetermination process, the lenders on the Company's credit facility set the borrowing base and aggregate commitments at $925 million. In addition, the lenders agreed to certain modifications to the credit agreement, including permission to hedge up to 85% of projected production volumes for 36 months.

CAPITAL ACTIVITY AND OPERATIONS

Costs incurred for the first quarter of 2017 were $281.5 million, which included $85.8 million (of which $24.5 million was non-cash) of proved and unproved property acquisitions. First quarter total capital spend (see below for GAAP reconciliation) was $192.9 million. During the quarter, the Company drilled or participated in 26 net wells and completed 33 net wells. The Company completed a number of wells ahead of schedule at quarter-end.

Please refer to the Total Capital Spend Reconciliation at the end of this release for a reconciliation to Costs Incurred in oil and gas activities (GAAP).

The Company is conducting a sales process for its Divide County, North Dakota assets. The Company has extended the bid date and data room access due to new entrants to the process but continues to assume a mid-year close date for planning purposes.

PERMIAN BASIN

In the first quarter of 2017, production from the Company's Midland Basin assets was 2.1 MMBoe and was 77% oil. Production was up 55% sequentially as the Company's capital program is concentrated in the region. The Company is currently running six horizontal rigs in the basin, with two in the Sweetie Peck area and four in the RockStar area, and one vertical rig dedicated to data acquisition, as well as running three completion crews. The first quarter production margin for this area was $33.05 per Boe.

The Company is focused on optimizing drilling and completion operations across the basin in order to identify the appropriate number of wells per section and optimize production performance in preparation for increased development activity in 2018. The Company is actively testing different pay intervals, well spacing per interval, fracture stimulation stage spacing, perforation cluster configurations, fluid volumes and sand volumes. In addition, the Company seeks to drill 10,000 foot laterals to maximize net asset value per well and is actively trading and acquiring bolt-on land positions to enable longer laterals.

The Company currently has approximately 88,000 net acres in the Midland Basin, which includes approximately 1,300 additional net acres acquired year-to-date through acreage trades and other transactions.

EAGLE FORD

In the first quarter of 2017, production from the Company's operated Eagle Ford assets was 7.3 MMBoe and included 61% natural gas, 33% NGLs, and 6% oil. Production was down slightly from the fourth quarter of 2016 as the Company re-initiated drilling activity in the quarter. The Company is currently running one horizontal rig in the Eagle Ford and has a dedicated completion crew reducing its inventory of drilled but uncompleted wells.

First quarter activity in the Eagle Ford is highlighted by a six-well pad in the Company's northern acreage area brought on-line in the quarter with drilling and completion costs 8% under budget. The pad included completions in the Upper Eagle Ford and Lower Eagle Ford in a stacked configuration at 625 foot spacing, implementing co-development in the area.

The Company has approximately 166,760 net acres in its operated Eagle Ford program.

GUIDANCE

Full year 2017 guidance is revised as follows:

  • Total capital spend (before acquisitions) ($MM)                                      $875 (unchanged)
  • Total production (MMBoe)                                                                     41.5-44.5
    • Increased 1.5 MMBoe
    • Oil 29% of commodity mix
    • Full year production assumes sale of Divide County assets mid-year
  • LOE including ad valorem ($/Boe)                                                         ~$4.00 (unchanged)
    • Expected to exceed the average 1H17, be below average 2H17
  • Transportation ($/Boe)                                                                          $5.50-5.75 (unchanged)
  • Production taxes ($/Boe)                                                              ~$1.25/4.0-4.5% (unchanged)
  • G&A ($MM)                                                                                       $120-130 (unchanged)
    • Includes approximately $21-23 MM non-cash,
       stock-based compensation expense
  • Capitalized overhead/Exploration before dry hole expenses ($MM)          $65-70 (unchanged)
    • This amount is a component of capital guidance
  • DD&A ($/Boe)                                                                                    $13.00-15.00 (unchanged)

Second quarter of 2017 production is expected to range between 10.3 and 10.7 MMBoe (or 113-118, MBoe/d), which will vary depending upon the ultimate timing of capital 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.

COMMODITY DERIVATIVES

As of April 26, 2017.

For the last nine months of 2017, the Company has commodity derivatives in place for approximately 70% of expected oil production, 85% of expected natural gas production and 80% of expected NGL production.

 

OIL SWAPS

OIL COLLARS

NATURAL GAS SWAPS

NGL SWAPS

 

Volume/Average Price

Volume/Avg. Ceiling - Floor

Volume /Average Price

Volume/Average Price

Period

(MBbls/$Bbl)

(MBbls/$Bbl)

(BBtu/$MMBtu)

(MBbls/$Bbl)

2Q17

1,444/$46.44

636/$54.10 - $45.00

26,205/$3.98

2,114/$21.40

         

3Q17

1,340/$46.66

583/$54.05 - $45.00

23,657/$4.01

2,019/$20.89

         

4Q17

1,254/$46.35

1,086/$56.05 - $47.51

22,001/$3.98

1,996/$20.18

         

1Q18

-

1,026/$58.46 - $50.00

19,628/$3.25

1,828/$21.45

         

2Q18

-

1,004/$58.37 - $50.00

13,052/$2.85

1,438/$16.26

         

3Q18

-

1,393/$57.93 - $50.00

14,241/$2.87

1,414/$16.53

         

4Q18

-

1,607/$57.75 - $50.00

15,487/$2.90

1,416/$16.72

Notes: The volumes above represent fixed swap and collar contracts the Company has in place through 4Q18.  Volumes for 2Q17 include all commodity contracts for settlement any time during the second quarter of 2017; prices are weighted averages; natural gas contracts reflect regional contract positions and are no longer adjusted to a NYMEX equivalent; NGL prices are at Mt. Belvieu and reflect specific NGL components, 2017 and 2018 quarters include ethane, propane, butanes and gasoline. In addition to the volumes above, the Company has oil basis swaps in place through 4Q18. See 1Q17 Earnings Presentation for contract details on the oil basis swaps.

UPCOMING EVENTS

EARNINGS WEBCAST AND CALL

As previously announced, SM Energy will host a webcast and conference call to discuss first quarter 2017 results at 8:00 a.m. Mountain Time/10:00 a.m. Eastern Time tomorrow, May 3, 2017. Please join us via webcast at www.SM-Energy.com or by telephone 877-870-4263 (toll free) or 412-317-0790 (international), and indicate SM Energy earnings call. The webcast and call will also be available for replay. The dial-in replay number is 877-344-7529 (toll free) or 412-317-0088 (international) with passcode 10104227 and is available through May 10, 2017.

A presentation will be posted to the Company's website to accompany this call at www.SM-Energy.com

UPCOMING CONFERENCE PARTICIPATION

  • June 6, 2017 – RBC Global Energy & Power Conference. Executive Vice President and Chief Financial Officer Wade Pursell will participate in investor meetings at this event.
  • June 7, 2017 – BAML 2017 Energy Credit Conference. Executive Vice President and Chief Financial Officer Wade Pursell will present at 8:50 a.m. Eastern Time. This event will be webcast.

An investor presentation for these events will be posted to the Company's website on June 5, 2017 at www.SM-Energy.com.

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. 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 estimates for the second quarter and full year 2017. General risk factors include 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 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 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 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 2016 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 CONTACTS

INVESTORS: Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507

 

 

SM ENERGY COMPANY

 

FINANCIAL HIGHLIGHTS

 

March 31, 2017

 
             
 

For the Three Months
Ended March 31,

     

Production Data

2017

 

2016

 

Percent
Change

 

Average realized sales price, before the effects of derivative settlements:

         

Oil (per Bbl)

$

47.55

   

$

25.67

   

85

%

Gas (per Mcf)

2.98

   

1.87

   

59

%

NGLs (per Bbl)

22.06

   

11.76

   

88

%

Equivalent (per BOE)

$

27.55

   

$

15.78

   

75

%

Average realized sales price, including the effects of derivative settlements:

         

Oil (per Bbl)

$

44.97

   

$

49.94

   

(10)

%

Gas (per Mcf)

3.50

   

3.02

   

16

%

NGLs (per Bbl)

19.18

   

13.54

   

42

%

Equivalent (per BOE)

$

27.55

   

$

26.74

   

3

%

Production:

         

Oil (MMBbl)

3.5

   

4.1

   

(14)

%

Gas (Bcf)

33.9

   

35.7

   

(5)

%

NGLs (MMBbl)

2.9

   

3.3

   

(13)

%

MMBOE (6:1)

12.1

   

13.4

   

(10)

%

Average daily production:

         

Oil (MBbl/d)

39.2

   

45.3

   

(13)

%

Gas (MMcf/d)

376.6

   

392.2

   

(4)

%

NGLs (MBbl/d)

32.5

   

36.8

   

(12)

%

MBOE/d (6:1)

134.4

   

147.5

   

(9)

%

Per BOE data:

         

Realized price, before the effects of derivative settlements

$

27.55

   

$

15.78

   

75

%

Lease operating expense

3.82

   

3.79

   

1

%

Transportation costs

5.88

   

6.06

   

(3)

%

Production taxes

1.17

   

0.66

   

77

%

Ad valorem tax expense

0.55

   

0.27

   

104

%

General and administrative (excluding stock-compensation)

2.08

   

2.01

   

3

%

Net, before the effects of derivative settlements

$

14.05

   

$

2.99

   

370

%

Derivative settlement gain

   

10.96

   

(100)

%

Margin, including the effects of derivative settlements

$

14.05

   

$

13.95

   

1

%

           

Depletion, depreciation, amortization, and

asset retirement obligation liability accretion

$

11.39

   

$

15.96

   

(29)

%

                             

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Condensed Consolidated Balance Sheets

     

(in thousands, except share amounts)

March 31,

 

December 31,

 ASSETS

2017

 

2016

Current assets:

     

Cash and cash equivalents

$

659,147

   

$

9,372

 

Accounts receivable

108,368

   

151,950

 

Derivative asset

73,978

   

54,521

 

Prepaid expenses and other

8,053

   

8,799

 

   Total current assets

849,546

   

224,642

 
       

Property and equipment (successful efforts method):

     

Total property and equipment, net

5,450,120

   

6,081,354

 
       

Noncurrent assets:

     

Derivative asset

84,195

   

67,575

 

Other noncurrent assets

15,847

   

19,940

 

   Total other noncurrent assets

100,042

   

87,515

 

Total Assets

$

6,399,708

   

$

6,393,511

 
       

LIABILITIES AND STOCKHOLDERS' EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

$

299,676

   

$

299,708

 

Derivative liability

53,809

   

115,464

 

   Total current liabilities

353,485

   

415,172

 
       

Noncurrent liabilities:

     

Revolving credit facility

   

 

Senior Notes, net of unamortized deferred financing costs

2,765,714

   

2,766,719

 

Senior Convertible Notes, net of unamortized discount and deferred financing costs

132,889

   

130,856

 

Asset retirement obligation

83,160

   

96,134

 

Asset retirement obligation associated with oil and gas properties held for sale

16,056

   

26,241

 

Deferred income taxes

304,331

   

315,672

 

Derivative liability

81,306

   

98,340

 

Other noncurrent liabilities

47,252

   

47,244

 

   Total noncurrent liabilities

3,430,708

   

3,481,206

 
       

Stockholders' equity:

     

Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 111,258,225 and 111,257,500 shares, respectively

1,113

   

1,113

 

Additional paid-in capital

1,723,010

   

1,716,556

 

Retained earnings

906,515

   

794,020

 

Accumulated other comprehensive loss

(15,123)

   

(14,556)

 

   Total stockholders' equity

2,615,515

   

2,497,133

 

Total Liabilities and Stockholders' Equity

$

6,399,708

   

$

6,393,511

 

 

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

       

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

For the Three Months Ended
March 31,

 

2017

 

2016

Operating revenues and other income:

     

Oil, gas, and NGL production revenue

$

333,198

   

$

211,823

 

Net gain (loss) on divestiture activity

37,463

   

(69,021)

 

Other operating revenues

2,077

   

274

 

   Total operating revenues and other income

372,738

   

143,076

 
       

Operating expenses:

     

Oil, gas, and NGL production expense

138,046

   

144,543

 

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

137,812

   

214,207

 

Exploration(1)

11,978

   

15,273

 

Impairment of proved properties

   

269,785

 

Abandonment and impairment of unproved properties

   

2,311

 

General and administrative (including stock-based compensation)(1)

29,224

   

32,238

 

Net derivative gain(2)

(114,774)

   

(14,228)

 

Other operating expenses

4,859

   

5,672

 

   Total operating expenses

207,145

   

669,801

 
       

Income (loss) from operations

165,593

   

(526,725)

 
       

Non-operating income (expense):

     

Interest expense

(46,953)

   

(31,088)

 

Gain (loss) on extinguishment of debt

(35)

   

15,722

 

Other, net

335

   

6

 
       

Income (loss) before income taxes

118,940

   

(542,085)

 

Income tax (expense) benefit

(44,506)

   

194,875

 
       

Net income (loss)

$

74,434

   

$

(347,210)

 
       

Basic weighted-average common shares outstanding

111,258

   

68,077

 

Diluted weighted-average common shares outstanding

111,329

   

68,077

 

Basic net income (loss) per common share

$

0.67

   

$

(5.10)

 

Diluted net income (loss) per common share

$

0.67

   

$

(5.10)

 
       

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

     

Exploration expense

$

1,408

   

$

1,662

 

G&A expense

$

4,047

   

$

5,206

 
       

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

     

Settlement gain

$

(7)

   

$

(147,028)

 

(Gain) loss on fair value changes

$

(114,767)

   

$

132,800

 

   Total net derivative gain:

$

(114,774)

   

$

(14,228)

 

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

 

Condensed Consolidated Statement of Stockholders' Equity

(in thousands, except share amounts)

     

Additional
Paid-in
Capital

     

Accumulated
Other
Comprehensive
Loss

 

 Total  Stockholders'  Equity

 

Common Stock

   

Retained Earnings

   
 

Shares

 

Amount

       

Balances, December 31, 2016

111,257,500

   

$

1,113

   

$

1,716,556

   

$

794,020

   

$

(14,556)

   

$

2,497,133

 

Net income

   

   

   

74,434

   

   

74,434

 

Other comprehensive loss

   

   

   

   

(567)

   

(567)

 

Dividends declared, $ 0.05 per share

   

   

   

(5,563)

   

   

(5,563)

 

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

725

   

   

(11)

   

   

   

(11)

 

Stock-based compensation expense

   

   

5,455

   

   

   

5,455

 

Cumulative effect of accounting change

   

   

1,108

   

43,624

   

   

44,732

 

Other

   

   

(98)

   

   

   

(98)

 

Balances, March 31, 2017

111,258,225

   

$

1,113

   

$

1,723,010

   

$

906,515

   

$

(15,123)

   

$

2,615,515

 
                                                                 

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

       

Condensed Consolidated Statements of Cash Flows

     

(in thousands)

For the Three Months
Ended March 31,

 
 

2017

 

2016

Cash flows from operating activities:

     

Net income (loss)

$

74,434

   

$

(347,210)

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

     

Net (gain) loss on divestiture activity

(37,463)

   

69,021

 

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

137,812

   

214,207

 

Impairment of proved properties

   

269,785

 

Abandonment and impairment of unproved properties

   

2,311

 

Stock-based compensation expense

5,455

   

6,868

 

Net derivative gain

(114,774)

   

(14,228)

 

Derivative settlement gain

7

   

147,028

 

Amortization of discount and deferred financing costs

4,946

   

(920)

 

Non-cash (gain) loss on extinguishment of debt, net

22

   

(15,722)

 

Deferred income taxes

33,225

   

(195,039)

 

Plugging and abandonment

(1,191)

   

(604)

 

Other, net

4,567

   

(1,151)

 

Changes in current assets and liabilities:

     

Accounts receivable

30,407

   

26,922

 

Prepaid expenses and other

178

   

4,984

 

Accounts payable and accrued expenses

(5,497)

   

(52,294)

 

Accrued derivative settlements

2,838

   

4,318

 

Net cash provided by operating activities

134,966

   

118,276

 
       

Cash flows from investing activities:

     

Net proceeds from the sale of oil and gas properties

744,333

   

1,206

 

Capital expenditures

(154,401)

   

(176,370)

 

Acquisition of proved and unproved oil and gas properties

(75,105)

   

(15,044)

 

Other, net

2,486

   

885

 

Net cash provided by (used in) investing activities

517,313

   

(189,323)

 
       

Cash flows from financing activities:

     

Proceeds from credit facility

397,500

   

317,000

 

Repayment of credit facility

(397,500)

   

(226,000)

 

Cash paid to repurchase Senior Notes

(2,344)

   

(19,917)

 

Other, net

(160)

   

(3)

 

Net cash provided by (used in) financing activities

(2,504)

   

71,080

 
       

Net change in cash and cash equivalents

649,775

   

33

 

Cash and cash equivalents at beginning of period

9,372

   

18

 

Cash and cash equivalents at end of period

$

659,147

   

$

51

 

 

 

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

Adjusted EBITDAX(1)

     

(in thousands)

     
       

Reconciliation of net income (loss) (GAAP) to adjusted EBITDAX (Non-GAAP) to net cash provided by operating activities (GAAP)

For the Three Months Ended
March 31,

 

2017

 

2016

Net income (loss) (GAAP)

$

74,434

   

$

(347,210)

 

Interest expense

46,953

   

31,088

 

Other non-operating income, net

(335)

   

(6)

 

Income tax expense (benefit)

44,506

   

(194,875)

 

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

137,812

   

214,207

 

Exploration(2)

10,570

   

13,611

 

Impairment of proved properties

   

269,785

 

Abandonment and impairment of unproved properties

   

2,311

 

Stock-based compensation expense

5,455

   

6,868

 

Net derivative gain

(114,774)

   

(14,228)

 

Derivative settlement gain

7

   

147,028

 

Net (gain) loss on divestiture activity

(37,463)

   

69,021

 

(Gain) loss on extinguishment of debt

35

   

(15,722)

 

Other

4,986

   

432

 

Adjusted EBITDAX (Non-GAAP)

$

172,186

   

$

182,310

 

Interest expense

(46,953)

   

(31,088)

 

Other non-operating income, net

335

   

6

 

Income tax (expense) benefit

(44,506)

   

194,875

 

Exploration(2)

(10,570)

   

(13,611)

 

Amortization of discount and deferred financing costs

4,946

   

(920)

 

Deferred income taxes

33,225

   

(195,039)

 

Plugging and abandonment

(1,191)

   

(604)

 

Other, net

(432)

   

(1,583)

 

Changes in current assets and liabilities

27,926

   

(16,070)

 

Net cash provided by operating activities (GAAP)

$

134,966

   

$

118,276

 
       

 

(1) Adjusted EBITDAX represents net income (loss) before interest expense, other non-operating income and expense, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property impairments, non-cash stock-based compensation expense, derivative gains and losses net of settlements, change in the Net Profits Plan liability, gains and losses on divestitures, gains or losses on extinguishment of debt, and materials inventory impairments and losses on sale.  Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results and can exclude items that are generally one-time in nature or whose timing and/or amount cannot be reasonably estimated.  Adjusted EBITDAX is a non-GAAP measure that is presented because the Company believes it provides useful additional information to investors and analysts, as a performance measure, for analysis of the Company's ability to internally generate funds for exploration, development, acquisitions, and to service debt.  The Company is also subject to financial covenants under its Credit Agreement based on adjusted EBITDAX ratios.  In addition, adjusted EBITDAX 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 EBITDAX should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by operating activities, or profitability or liquidity measures prepared under GAAP.  Because adjusted EBITDAX excludes some, but not all items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies.  Under the terms of the Company's credit agreement, if the Company fails to comply with the covenants that establish a maximum permitted ratio of senior secured debt to adjusted EBITDAX and a minimum permitted ratio of adjusted EBITDAX to interest, it will be in default, an event that would prevent it from borrowing under its credit facility and would therefore materially limit the Company's sources of liquidity.  In addition, if the Company was in default under its credit facility and unable to obtain a waiver of that default from its lenders, the lenders under that facility and under the indentures governing the Company's outstanding Senior Notes and Senior Convertible Notes would be entitled to exercise all of their remedies for a default.

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

 


 

SM ENERGY COMPANY

 

FINANCIAL HIGHLIGHTS (UNAUDITED)

 

March 31, 2017

 

Adjusted Net Loss (Non-GAAP)

       

(in thousands, except per share data)

       
 

For the Three Months Ended
March 31,

 
   
 

2017

 

2016

 

Net income (loss) (GAAP)

$

74,434

   

$

(347,210)

   

Net derivative gain

(114,774)

   

(14,228)

   

Derivative settlement gain

7

   

147,028

   

Net (gain) loss on divestiture activity

(37,463)

   

69,021

   

Impairment of proved properties

   

269,785

   

Abandonment and impairment of unproved properties

   

2,311

   

(Gain) loss on extinguishment of debt

35

   

(15,722)

   

Other, net(2)

4,986

   

(508)

   

Tax effect of adjustments(1)

53,142

   

(167,056)

   

Adjusted net loss (Non-GAAP)(3)

$

(19,633)

   

$

(56,579)

   
         

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

$

0.67

   

$

(5.10)

   

Net derivative gain

(1.03)

   

(0.21)

   

Derivative settlement gain

   

2.16

   

Net (gain) loss on divestiture activity

(0.34)

   

1.01

   

Impairment of proved properties

   

3.96

   

Abandonment and impairment of unproved properties

   

0.03

   

(Gain) loss on extinguishment of debt

   

(0.23)

   

Other, net(2)

0.04

   

(0.01)

   

Tax effect of adjustments(1)

0.48

   

(2.44)

   

Adjusted net loss per diluted common share (Non-GAAP)(4)

$

(0.18)

   

$

(0.83)

   
         

Basic weighted-average common shares outstanding (GAAP)

111,258

   

68,077

   

Diluted weighted-average common shares outstanding (GAAP)

111,329

   

68,077

   
         

(1) The tax effect of adjustments is calculated using a tax rate of 36.1% and 36.5% for the three-month periods ended March 31, 2017 and March 31, 2016, respectively. These rates approximate the Company's statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

 

(2) For the three-month periods ended March 31, 2017 and March 31, 2016 the adjustment is related to materials inventory loss and the change in the Net Profits Plan liability. Additionally, for the three-month period ended March 31, 2016, adjustments relating to claims on royalties on certain Federal and Indian leases are included. These items are included in other operating expenses on the Company's condensed consolidated statements of operations.

 

(3) Adjusted net loss excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are non-recurring items or are items 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, materials inventory loss, and gains or losses on extinguishment of debt. The non-GAAP measure of adjusted net income (loss) 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 (loss) 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 (loss) should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, cash provided by operating activities, or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income (loss) excludes some, but not all, items that affect net income (loss) and may vary among companies, the adjusted net income (loss) amounts presented may not be comparable to similarly titled measures of other companies.

 

(4) For periods where the Company reports adjusted net loss, basic weighted-average common shares outstanding are used in the calculation of adjusted net loss per diluted common share.

 

 

 

 

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2017

   

Total Capital Spend Reconciliation

 

(in millions)

 
   

Reconciliation of costs incurred in oil & gas activities (GAAP)

For the Three Months
Ended March 31,

to total capital spend (Non-GAAP)(1)

 

2017

Costs incurred in oil and gas activities (GAAP):

$

281.5

 

Less:

 

Asset retirement obligation

(0.9)

 

Capitalized interest

(2.2)

 

Proved property acquisitions(2)

(2.2)

 

Unproved property acquisitions(3)

(83.6)

 

Other

0.3

 

Total capital spend (Non-GAAP):

$

192.9

 
   

 

(1) The non-GAAP measure of total capital spend is presented because management believes it provides useful information to investors for analysis of SM Energy's  fundamental business on a recurring basis. In addition, management believes that total capital spend 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. Total capital spend should not be considered in isolation or as a substitute for Costs Incurred or other capital spending measures prepared under GAAP. The total capital spend amounts presented may not be comparable to similarly titled measures of other companies.

(2) Includes approximately $800,000 of ARO associated with proved property acquisitions for the three-month period ended March 31, 2017.

(3) Includes approximately $24.5 million related to the fair value attributed to the properties surrendered in the non-monetary acreage trade that  completed during the three-month period ended March 31, 2017.

                       

 

 

 

SOURCE SM Energy Company