4q19 earnings and 2020 operating plan · free cash flow leverage (1) adjusted ebitdax, total...

4Q19 EARNINGS AND 2020 OPERATING PLAN

F E B R U A R Y 1 9 , 2 0 2 0

NYSE: SM

PLEASE READTHIS PRESENTATION MAKES REFERENCE TO:

2

FORWARD LOOKING STATEMENTS

This presentation contains forward-looking statements within the meaning of securities laws. The words "assumes," "anticipate," "estimate," "expect," "forecast," "guidance," "implied,"

"plan," "project," "objectives," “outlook,” "target," "will" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include,

among other things, guidance for the full year and first quarter 2020, including production volumes, oil production growth, operating and general and administrative costs, DD&A, and

total capital spend; the Company’s 2020 strategic priorities, including: improved operating margins and cash flow, the allocation of capital across the Company’s assets, oil mix as a

percentage of production, delivery of free cash flow, maintaining top quartile environmental, health and safety performance, and increasing inventory and inventory value; the Company’s

2020 goals, including: reducing leverage and generating full-year 2020 free cash flow; and the number of wells the Company plans to drill and complete. 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. 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.

NON-GAAP FINANCIAL MEASURES

This presentation references non-GAAP financial measures. Please see the Appendix to this presentation for detailed discussion of non-GAAP measures, definitions and reconciliations

to the directly most directly comparable GAAP measure.

FORWARD LOOKING NON-GAAP MEASURES

Discussion in this presentation of the 2020 operating plan and guidance include total capital spend, discretionary cash flow, free cash flow and net debt-to-EBITDAX, which are non-

GAAP measures. The Company is unable to provide reconciliations of these forward-looking measures because components of the calculations are inherently unpredictable (such as

future expenditures to acquire properties, changes to current assets and liabilities) and estimating future GAAP measures with the precision necessary to provide a meaningful

reconciliation is extremely difficult and could not be accomplished without unreasonable effort.

See Appendix for definitions and reconciliations of non-GAAP measures

RESERVES AND PRE-TAX PV-10 - DISCLOSURE

The SEC requires oil and natural gas companies, in their filings with the SEC, to disclose proved reserves, which are those quantities of oil, natural gas and NGLs, that, by analysis of

geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing

economic conditions (using the trailing 12-month average first-day-of-the-month prices), operating methods and government regulations—prior to the time at which contracts providing

the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The

SEC also permits the disclosure of separate estimates of probable or possible reserves that meet SEC definitions for such reserves; however, the Company currently does not disclose

probable or possible reserves in its SEC filings.

Proved reserves attributable to the Company at December 31, 2019, are estimated utilizing SEC reserve recognition standards and pricing assumptions based on the trailing 12-month

average first-day-of-the-month prices of $55.69 per Bbl of oil, $2.58 per MMBtu of natural gas, and $22.68 per Bbl of NGLs. At least 80% of the PV-10 of the Company’s estimate of its

total proved reserves at December 31, 2019, was audited by Ryder Scott Company, L.P.

NYSE: SM

PREMIER OPERATOR OF TOP-TIER ASSETS

3

2019 PLAN RESULTS EXCEED PLAN OBJECTIVES

Generate free cash flow in 2H191

Deliver ~20% production growth in

the Midland Basin

2

Generate solid full cycle returns

from last $ spent per drilling unit

3

Maintain leverage at ~3 times net

debt to Adjusted EBITDAX at YE19

4

February 2019 Plan Objectives 2019 Actual Results

~$29MM of free cash flow

generated, 2% free cash

flow yield in 2H19(1)

~25% production growth in the

Midland Basin 2019/2018

Optimized spacing, longer laterals,

lower costs = ~40% improvement in

returns y-o-y(2)

Net debt to Adjusted

EBITDAX at ~2.8 times

at YE19(1)

Note: 2019 Plan based on $55/Bbl WTI oil and $3/MMBtu Henry Hub natural gas; actual 2019 benchmark

pricing was $57.03/Bbl WTI oil and $2.63/MMBtu Henry Hub natural gas.

(1) Free cash flow, free cash flow yield, and net debt to Adjusted EBITDAX are non-GAAP financial measures. See “Definitions of non-

GAAP Measures as Calculated by the Company” in the Appendix.

(2) SEC pricing; overall portfolio.

NYSE: SM 4

2019 TOTAL CAPITAL SPEND GUIDANCE:~1,025 MM(1)

-

10,000

20,000

30,000

40,000

50,000

2017 2018 2019

Pro

du

cti

on

(M

Bo

e)

Midland Basin South Texas Sold

MIDLAND BASIN PRODUCTION UP ~150% 2017-2019(1)

(1) Based on retained assets

PRODUCTION 2017 – 2019 EXCEEDED PLANMIDLAND BASIN PRODUCTION GROWTH DRIVES MARGIN EXPANSION & CASH FLOW

NYSE: SM

BALANCE SHEET FOCUS(1)

LEVERAGE METRICS IMPROVED

5

• Liquidity of $1.1B; borrowing base re-affirmed in October

• Net debt to adjusted EBITDAX at 2.8x(2)

$500$500$500$500$476.8

$172.5 $0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

20272026202520242023202220212020

Debt Maturities(1)

(in millions)

Borrowing Base: $1.6B

Commitments: $1.2B

$123

Coupon 1.500% 6.125% 5.000% 5.625% 6.750% 6.625%

Yield to worst(3) - 6.65% 7.22% 7.66% 8.14% 8.13%

Initial call date - 11/2018 7/2018 6/2020 9/2021 1/2022

Initial call price - 103.06% 102.50% 102.81% 103.38% 104.97%

Maturity date 7/2021 11/2022 01/2024 06/2025 09/2026 01/2027

(1) As of December 31, 2019.

(2) Net debt to adjusted EBITDAX is a non-GAAP financial measure. See “Definitions of non-GAAP Measures as Calculated by the Company” in the Appendix.

(3) YTW as of February 18, 2020.

NYSE: SM 6

Plan Overview

& Guidance

NYSE: SM 7

CASH FLOW

GROWTH

+

PREMIER OPERATOR OF TOP TIER ASSETS2020 PRIORITIES FOCUSED ON SHAREHOLDER VALUE CREATION

FREE CASH FLOW

FUNDED DEBT

REDUCTION

2020 PRIORITIES VALUE CREATION

IMPROVE LEVERAGE

METRICS

+

CASH FLOW

GROWTH PER DEBT

ADJUSTED SHARE

NYSE: SM 8

2019 TOTAL CAPITAL SPEND GUIDANCE:~1,025 MM(1)

MIDLAND BASIN EXPECTED PRODUCTION UP ~180% 2017-2020(1)

COMPANY EXPECTED PRODUCTION MARGIN UP ~75% 2017-2020(1)

(1) Based on retained assets.

(2) Production margins are not actual; they have been normalized for commodity prices. Production margin calculated as realized price per Boe before hedges less LOE,

transportation, production taxes, and ad valorem taxes; realized price for all periods presented normalized to $50/Bbl oil, $2.20/Mcf gas, $20/Bbl NGLs less differential.

2020 – 2020 PLAN HIGHLIGHTSMIDLAND BASIN PLANNED PRODUCTION GROWTH DRIVES EXPECTED

MARGIN EXPANSION & CASH FLOW

$5

$10

$15

$20

$25

-

20,000

40,000

60,000

2017 2018 2019 2020e

Pro

du

cti

on

Ma

rgin

(2)

($/B

oe

)

Pro

du

cti

on

(MB

oe

)

Midland Basin South Texas Sold Production Margin

NYSE: SM 9

2020 – 2021 PLAN HIGHLIGHTSKEY METRICS IMPROVE

$0

$400

$800

$1,200

2017 2018 2019 2020e

To

tal C

ap

ita

l S

pe

nd

(1)

($M

M)

Ad

jus

ted

EB

ITD

AX

(1)

($M

M)

1.0

2.0

3.0

4.0

5.0

2017 2018 2019 2020e 2021e

Net

Deb

t to

Ad

j. E

BIT

DA

X(1

)

-60%

-40%

-20%

0%

20%

2017 2018 2019 2020e 2021e

Fre

e C

as

h F

low

Yie

ld(1

)Adjusted EBITDAX

Total Capital Spend

Free Cash Flow

Leverage

(1) Adjusted EBITDAX, total capital spend, free cash flow, free cash flow yield, and net debt to adjusted EBITDAX are non-GAAP

financial measures. See “Definitions of non-GAAP Measures as Calculated by the Company” in the Appendix.

Benchmark

Pricing

2019

Actual

2020

Plan

Oil ($/Bbl) $57.03 $50.00

Gas ($/MMBtu) $2.63 $2.20

NGLs ($/Bbl) $22.34 $20.00

NYSE: SM 10

2020 CAPITAL PROGRAMFOCUS ON HIGH-MARGIN GROWTH

EXPECTED TOTAL CAPITAL SPEND(1) REDUCED NEARLY ~20%(2)

~90%

~5%

~5%

Total Capital Spend

~$825 - $850MM

Drilling and

Completion Other

• Midland Basin: plan ~80 net wells

drilled and ~85 net wells completed

• South Texas: plan ~16 net wells

drilled and ~9 net wells completed

Facilities

(1) Total capital spend is a non-GAAP financial measure. See “Definitions of non-GAAP Measures as Calculated by the Company” in the Appendix.

(2) 2020 expected total capital spend compared to 2019.

NYSE: SM

2020 PLAN GUIDANCE(1)

11(1) As of February 19, 2020.

(2) Total capital spend is a non-GAAP financial measure. See “Definitions of non-GAAP Measures as Calculated by the Company” in the Appendix.

Capital & Production FY 2020

Total capital spend ($MM)(2) (before acquisitions) $825 - $850

Total production (MMBoe) 45 - 48

Total production (MBoe/d) 123 - 131

Oil percentage ~50%

Costs FY 2020

LOE ($/Boe) $5.25 - $5.50

Transportation ($/Boe) $3.20 - $3.45

Production and Ad Valorem taxes ($/Boe)– 4.5% of pre-hedge revenue + ~$0.65

~$2.00

G&A ($MM) – includes ~$20MM non-cash compensation; $4-5MM non-

recurring

~$125

Exploration expense, including capitalized overhead ($MM)– before dry hole expense, all of which is included in capital

expenditure guidance

~$50

DD&A ($/Boe) $18.00 - $20.00

• 1Q20 production is expected to range between 11.9 and 12.4 MMBoe (131-136 MBoe/d), ~50% oil

• 1Q20 Total capital spend expected to be $180 - $200 million

• During the first quarter, we expect to complete ~20 net wells in the Midland Basin and one in South Texas

NYSE: SM

~80%

~15%

~5%

WELL HEDGEDPERCENTAGE OF OIL PRODUCTION HEDGED

12

2020 Oil Volumes

Hedged(1)

~80%

(1) 2020 oil hedges include oil swaps and collars only; excludes basis swaps.

(2) 2020 natural gas hedges include IF HSC and WAHA gas swaps.

Note: Hedging data as of February 17, 2020

2020

Expected Revenue

Oil

Gas

NGLs

• ~80% of expected 2020 oil production hedged; swaps at ~$58/Bbl, collar floors at ~$55/Bbl

• ~30-35%(2) of expected 2020 natural gas hedged

• 2020 Midland Basin oil production substantially hedged at basis Midland to Cushing

NYSE: SM 13

2019 Regional Results and

2020 Operations Plan

NYSE: SM

MIDLAND BASINTOP-TIER EXECUTION, WELL PERFORMANCE AND CAPITAL EFFICIENCY

14

MARTIN

RockStarHOWARD

UPTON

Sweetie Peck

2 0 2 0 P l a n O b j e c t i v e s

2020 PLAN DETAILS

• ~85 net completions and ~80 net drilled wells planned

• Deliver ~10% production growth (2020/2019)

• ~11,750’ average lateral feet per well

• ~$7.6MM average well cost

• ~20 net completions expected in 1Q20

• ~48% Boe PDP decline (YE19 – YE20)

BEST IN CLASS WELL PERFORMANCE

• SM wells generate among the highest revenues per well in the Midland Basin(1)

LEADING EDGE CAPITAL COSTS• 2020 Plan assumes DC&E costs of ~$650/lateral foot

O p e r a t i n g D e t a i l s ( 2 )

~82,000

Rigs Running:

Completion Crews:

N E T A C R E S

MIDLAND

(1) Baird Equity Research, Joseph Allman, November 4, 2019; Baird Energy Big Data Analytics (May 2018 – April 2019 first production).

(2) As of February 19, 2020.

NYSE: SM 15

+26%Increase in

Lateral Feet

Drilled / Day(2019 / 2017)

+96%

+13%

-72%

Increase in

Lateral Feet

Completed / Day(2019 / 2017)

Increase in Avg.

Lateral Length

Completed(2019 / 2017)

Decrease in

Sand Costs(2019 / Jan. 18)

(1) Total lateral feet delivered per day, spud to rig release.

(2) Lateral feet completed per fleet per day.(3) Excludes last mile logistics as there is variability in these charges.

510

562

645

2017 2018 2019

Drilling FasterLateral Ft Drilled per Day(1)

9,300

10,100

10,537

2017 2018 2019

Longer LateralsAvg Lateral Length Completed

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

Jan Apr Jul Oct Jan Apr Jul Oct

Lower Sand CostsIndexed to January 2018(3)

765

1,025

1,503

2017 2018 2019

Completing FasterLateral Ft Completed per Day(2)

MIDLAND BASIN: TOP-TIER CAPITAL EFFICIENCYINCREASE IN CAPITAL EFFICIENCY 2020 PLAN BASED ON ~$650 / LATERAL FOOT

NYSE: SM

0

50,000

100,000

150,000

200,000

250,000

0 50 100 150 200 250 300 350

Cu

mu

lati

ve

Pro

du

cti

on

(B

oe

)(1)

Days on Production

Previous Well Average New Well Average

MIDLAND BASIN: GREAT NEW ROCKSTAR RESULTSOUTSTANDING NEW WELL PERFORMANCE

16

(2)

(1) Cumulative production adjusted for days shut in (thereby data shown will differ from state data).

(2) Previously Reported Well Average includes all (193) previously reported SM operated wells at RockStar on production since 11/3/2016.

(3) New Well Average includes 41 new wells at RockStar that have not been previously reported.

(3)

• 41 new wells at RockStar have reached an average 30-day peak IP rate of 1,395 Boe/d (87% oil)

• New wells include 25 Wolfcamp A wells and 16 Lower Spraberry wells

NYSE: SM

0%

20%

40%

60%

80%

100%

Peer 1 Peer 2 Peer 3 Peer 4 Peer 6 Peer 8 Peer 9 Peer 10 Peer 5 Peer 11 SM

% of Permian Inventory Breakeven(1) <$45/bbl Oil

17

• RSEG data supports 100% of SM inventory breakeven(1) at < $45/Bbl oil

MIDLAND BASIN HIGH QUALITY INVENTORY COMPARISON

Source: RSEG data provided to SM Energy February 2020; peers include CDEV, CPE, CXO, FANG, LPI, MTDR, PDCE, PE, PXD, WPX, XEC.

(1) Breakeven calculated at a 10% return half-cycle (drill, complete, equip).

100%

NYSE: SM

SOUTH TEXASFOCUSED ON EXECUTION AND RETURNS ENHANCEMENT

18

DIMMIT COUNTY

WEBB COUNTY

North

Area

South

Area

East

Area

2020 PLAN DETAILS

• ~16 net wells expected to be drilled

• ~9 net completions planned, all targeting the Austin

Chalk, and weighted towards the second half of 2020

• ~11,600’ average lateral feet per well

• $7.6MM average well cost

• ~27% Boe PDP decline (YE19 – YE20)

AUSTIN CHALK SUCCESS

• One Austin Chalk well completed during the fourth

quarter 2019 reached an average 30-day peak rate of

~2,634 Boe/d (>75% liquids, 3-stream)

2 0 2 0 P l a n O b j e c t i v e s

O p e r a t i n g D e t a i l s ( 1 )

Rigs Running:

~159,000N E T A C R E S

(1) As of February 19, 2020.

NYSE: SM

SOUTH TEXAS: EXCELLENT CAPITAL EFFICIENCYLONGER LATERALS & NEW WELL DESIGN 2020 PLAN BASED ON ~$650 / LAT. F.T.

19

666721

824

2017 2018 2019

Drilling FasterLateral Ft Drilled per Day(1)

8,392

10,48311,259

2017 2018 2019

Drilling LongerAvg. Lateral Length Completed

851

737

632

2017 2018 2019

Lower CostsD&C Cost / Lateral Foot(3)

1,210 1,256

1,663

2017 2018 2019

Completing FasterLateral Feet Completed per Day(2)

+24%

+34%

+37%

-26%Decrease in

Well Costs(2019 / 2017)

Increase in

Lateral Feet

Completed / Day(2019 / 2017)

Increase in

Lateral Feet

Drilled / Day(2019 / 2017)

Increase in Avg.

Lateral Length

Completed(2019 / 2017)

(1) Total lateral feet delivered per day, spud to rig release.

(2) Lateral feet completed per fleet per day.(3) Includes drilling, toe-prep, stim, drill-out & flowback.

Note: Data shown on this slide excludes Austin Chalk wells.

NYSE: SM

0

20

40

60

80

100

120

140

160

180

0 20 40 60 80

Cu

mu

lati

ve

Pro

du

cti

on

Days on Production

SOUTH TEXAS: AUSTIN CHALK SUCCESSNEW AUSTIN CHALK WELL: ~1,581 BOPD 30-DAY PEAK IP RATE

20

HIGHER OIL CONTENT = HIGHER RETURNS

Briscoe C (SA1) State 108H

IP30: 1,693 Boe/d

IP30 oil: 779 Bbl/d

Lateral Length: 11,269’

% liquids: 73%

API Gravity: 50.0

Watson (SA2) State 167H

IP30: 3,179 Boe/d

IP30 oil: 651 Bbl/d


% liquids: 58%

API Gravity: 56.7

Galvan Ranch C917H

IP30: 2,133 Boe/d

IP30 oil: 310 Bbl/d


% liquids: 52%

API Gravity: 61.9

Galvan Ranch B904H

IP30: 3,599 Boe/d

IP30 oil: 896 Bbl/d


% liquids: 61%

API Gravity: 53.5

DEMONSTRATING GEOGRAPHIC EXPANSE

Note: Boe rates provided are 3-stream.

Briscoe G GU11 State (SA4) 109H

IP30: 2,634 Boe/d

IP30 oil: 1,581 Bbl/d


% liquids: 78%

API Gravity: 52.4

Total Production (MBoe, 3-stream)

Oil Production (MBo)

Briscoe G GU11 State (SA4) 109H

NYSE: SM

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)MAKING PEOPLE’S LIVES BETTER BY RESPONSIBLY PRODUCING OIL & NATURAL GAS

21

CORPORATE

RESPONSIBIL ITY

REPORTS M - E N E R G Y. C O M

SM’S BOARD OF DIRECTORS IS ACTIVELY ENGAGED IN ESG OVERSIGHT

• Board composition includes: independent chairman; 8 of 9 independent

directors; diversity of gender, race, geography, tenure and expertise

• Executive compensation aligned with corporate long-term strategy and

value creation objectives with relative performance measures

• Board annually establishes top quartile EHS performance goals, which

are reviewed quarterly and impact compensation of every employee

• Committed to building and maintaining partnerships with our

stakeholders by investing in and connecting with the communities

where we live, work and operate

• Valuing employee development exemplified by Leadership Learning

Journey program to involve 100% of employees in leadership training

• Support volunteering of all employees in local community and

national programs plus charitable contribution matching; SM

contributions totaled approximately $1.5 million in 2019

• Member in API Environmental Partnership – energy companies

committed to improving the industry’s environmental performance

• Employ leak detection and repair (LDAR) program at new facilities to

monitor fugitive emissions

• Implement Spill Reduction Planning in each region that meets EPA

requirements

E

S

G

NYSE: SM 22

Appendix

NYSE: SM 23

Fourth Quarter and

Full Year Performance

NYSE: SM

FOURTH QUARTER 2019 PERFORMANCE

24

Production & Pricing 4Q19 2019

Total Production (MMBoe / MBoe/d) 12.8/138.8 48.3/132.3

Oil Percentage 48% 45%

Pre-Hedge Realized Price ($/Boe) $35.17 $32.84

Post-Hedge Realized Price ($/Boe) $36.38 $33.65

Costs ($/Boe) 4Q19 2019

LOE $4.67 $4.67

Ad Valorem $0.37 $0.48

Transportation $3.46 $3.88

Production Taxes $1.48 $1.35

Production Expenses $9.98 $10.38

Cash Production Margin (pre-hedge) $25.19 $22.46

G&A – Cash $2.54 $2.34

G&A – Non Cash $0.38 $0.41

Operating Margin (pre-hedge) $22.27 $19.71

DD&A $17.91 $17.06

Earnings 4Q19 2019

EPS (Diluted) $(0.90) $(1.66)

Adjusted EPS(1) $(0.04) $(0.48)

Adjusted EBITDAX(1) ($MM) $286.2 $993.4

(1) Adjusted EPS and Adjusted EBITDAX are non-GAAP financial measures. See “Definitions of non-GAAP Measures as Calculated by the

Company” and reconciliations to the most directly comparable GAAP metric in the Appendix.

NYSE: SM

4Q19 REALIZATIONS BY REGION

25

Benchmark Pricing

NYMEX WTI Oil ($/Bbl) $56.96

NYMEX LLS Oil ($/Bbl) $60.63

NYMEX Henry Hub Gas ($/MMBtu) $2.50

Hart Composite NGL ($/Bbl) $21.96

Production Volumes South Texas Midland Basin Total

Oil (MBbls) 409 5,780 6,189

Gas (MMcf) 18,190 9,934 28,124

NGL (MBbls) 1,888 1 1,889

Total (Mboe) 5,329 7,437 12,765

Revenue (in thousands)

Oil $18,419 $328,731 $347,150

Gas 42,139 26,006 68,144

NGL 33,685 21 33,706

Total $94,243 $354,758 $449,001

Expenses (in thousands)

LOE $14,386 $45,172 $59,558

Ad Valorem $2,764 $1,940 $4,704

Transportation $44,178 $34 $44,212

Production Taxes $1,717 $17,120 $18,837

Per Unit Metrics

Realized Oil per Bbl $45.03 $56.88 $56.09

% of Benchmark - WTI 79% 100% 98%

Realized Gas per Mcf $2.32 $2.62 $2.42

% of Benchmark – NYMEX HH 93% 105% 97%

Realized NGL per Bbl $17.84 nm $17.84

% of Benchmark – HART 81% nm 81%

Realized per Boe $17.69 $47.70 $35.17

LOE per Boe $2.70 $6.07 $4.67

Transportation per Boe $8.29 $0.00 $3.46

Ad Val per Boe $0.52 $0.26 $0.37

Production Tax - per Boe/% of Pre-Hedge Revenue $0.32/1.8% $2.30/4.8% $1.48/4.2%

Production Margin per Boe $5.86 $39.07 $25.19

Note: Amounts may not calculate due to rounding and other classifications.

SIMPLIFIED PORTFOLIO: 2 TOP-TIER AREAS OF OPERATION

Midland Basin realized

price/Boe reflects high oil

content of production

NYSE: SM

2019 ACTIVITY BY REGIONWELLS DRILLED, FLOWING COMPLETIONS AND DUC COUNT

26

As of December 31, 2019

(1) Non-operated activity relates to wells located in the Midland Basin. A single well that was drilled during the second quarter of 2019 was included in a trade

that closed in June 2019.

Wells Drilled Flowing Completions DUC Count

4th Quarter 2019 2019 YTD 4th Quarter 2019 2019 YTD As of December 31, 2019

Region Gross Net Gross Net Gross Net Gross Net Gross Net

Midland Basin

Sweetie Peck 4 4 16 12 4 2 15 10 6 6

RockStar 27 25 97 92 32 31 108 101 45 42

Permian total 31 29 113 104 36 33 123 111 51 48

South Texas 4 4 25 20 1 1 31 20 21 21

Subtotal Operated Wells 35 33 138 124 37 34 154 131 72 69

Non-operated Wells(1) n/a - n/a 1 n/a - n/a - n/a -

Total n/a 33 n/a 125 n/a 34 n/a 131 n/a 69

NYSE: SM

2019 PROVED RESERVES: ADDITIONS AND REVISIONS

27

Note: Calculated in accordance with SEC Pricing at $55.69 per barrel of oil NYMEX, $2.58 per MMBtu of

natural gas at Henry Hub and $22.68 per barrel of natural gas liquids (“NGLs”) at Mt. Belvieu.

• 53% Proved Developed

• 40% oil, 44% natural gas, 16% NGLs

48 3

98 25

503

70

462

0

100

200

300

400

500

600

YE18 Production Acquisitions/Divestitures

Adds/Infills

Revisions(5-year and other)

Revisions(price)

YE19

Pro

ve

d R

ese

rve

s (

MM

Bo

e)

+ 1 0 1 . 5

• Reserve adds of 101.5 MMBoe before revisions

• Oil reserves increased from 35% to 40% of total reserves due to

increased Midland reserves

NYSE: SM

2019 PROVED RESERVES BY REGION

28

YE 2019Midland

Basin

South

TexasTotal

Oil (MMBbl) 167.5 16.6 184.1

Gas (Bcf) 398.8 824.4 1,223.2

NGL (MMBbl) 0.1 73.9 74.0

Total (MMBoe) 234.1 227.8 462.0

% Proved Developed 49% 58% 53%

Reserve Growth 9% (21%) (8%)

YE 2018 (MMBoe) 214.3 289.1 503.4

SEC Pricing 2019 2018 % change

Oil ($/Bbl) $55.69 $65.56 (15)%

Gas ($/MMBtu) $2.58 $3.10 (17)%

NGLs ($/Bbl) $22.68 $33.45 (32)%

NYSE: SM

LEASEHOLD SUMMARY

29

RegionNet Acres(1)

December 31, 2019

Midland Basin

RockStar 63,800

Sweetie Peck(2) 18,000

Midland Basin Total 81,800

South Texas(3) 158,900

Rocky Mountain Other(4) 10,600

Other Areas/Exploration 26,400

Total 277,700

(1) Includes developed and undeveloped oil and gas leasehold, fee properties, and mineral servitudes held as of December 31, 2019.

(2) Sweetie Peck acreage includes 1,940 net drill-to-earn acreage.

(3) South Texas decrease of ~4,100 net acres from September 30, 2019 primarily relates to partially released acreage.

(4) Rocky Mountain Other includes non-core acreage located in North Dakota, Montana, Wyoming, and Utah. The reduction in Rocky Mountain

Other acreage from 6/30/19 relates to Federal leases that were released back to the Bureau of Land Management.

NO LEASEHOLD ON FEDERAL LANDS IN THE MIDLAND BASIN OR SOUTH TEXAS

NYSE: SM

NGL REALIZATIONS

30

• NGL price realizations are predominantly tied to Mont Belvieu, fee-

based contracts

• Differential reflects composite NGL barrel product mix, transportation

and fractionation fees

42%

27%

9%

9%

13%

SM Typical NGL Bbl(1)

Ethane Propane

Isobutane Normal Butane

Natural Gasoline

4Q18 1Q19 2Q19 3Q19 4Q19

Mt. Belvieu ($/Bbl) $29.91 $26.28 $22.23 $18.89 $21.96

SM Realization

($/Bbl)$24.01 $19.39 $16.42 $15.73 $17.84

% Differential to

Mt. Belvieu80% 74% 74% 83% 81%

(1) Reflects ethane rejection; if the Company were to process ethane, the typical NGL barrel would consist of 51% ethane,

23% propane, 12% natural gasoline, 7% normal butane, and 7% isobutane. During 2019, the Company elected to

process ethane in January through June and reject ethane in July through December. The Company expects to

continue rejecting ethane during the first quarter of 2020.

NYSE: SM 31

Hedges

NYSE: SM

OIL, GAS, AND NGL DERIVATIVE POSITIONS(1)

BY QUARTER

32

Midland - Cushing NYMEX WTI – ICE Brent

Oil Swaps Oil Collars Oil Basis Swaps Oil Basis Swaps

Period

Volume

(MBbls) $/Bbl(2)

Volume

(MBbls)

Ceiling

$/Bbl(2)

Floor

$/Bbl(2) Volume (MBbls)Price Differential

$/Bbl(2)

Volume

(MBbls)Price Differential

$/Bbl(2)

1Q’20 2,486 $59.65 2,267 $63.91 $55.00 4,193 ($0.68) - -

2Q’20 2,838 $58.81 1,881 $62.17 $55.00 3,637 ($0.62) 910 ($8.06)

3Q’20 3,361 $56.43 1,252 $62.90 $55.00 3,607 ($0.62) 920 ($8.01)

4Q’20 4,397 $57.03 610 $61.90 $55.00 4,087 ($0.38) 920 ($8.01)

1Q’21 760 $56.23 329 $56.70 $55.00 2,834 $0.86 900 ($7.86)

2Q’21 - - - - - 2,922 $0.87 910 ($7.86)

3Q’21 - - - - - 2,885 $0.87 920 ($7.86)

4Q’21 - - - - - 2,886 $0.87 920 ($7.86)

1Q’22 - - - - - 1,755 $1.13 900 ($7.78)

2Q’22 - - - - - 1,822 $1.13 910 ($7.78)

3Q’22 - - - - - 1,850 $1.13 920 ($7.78)

4Q’22 - - - - - 1,848 $1.13 920 ($7.78)

IF HSC Gas Swaps WAHA Gas Swaps

Period

Volume

(BBTU) $/MMBTU(2)

Volume

(BBTU) $/MMBTU(2)

1Q’20 9,123 $2.98 3,099 $1.93

2Q’20 4,160 $2.20 3,196 $0.56

3Q’20 4,493 $2.41 3,268 $1.03

4Q’20 3,722 $2.36 3,419 $1.17

1Q’21 - - 1,071 $1.51

2Q’21 - - 1,045 $1.51

3Q’21 - - 1,045 $1.51

4Q’21 - - 1,063 $1.51

(1) Includes derivative contracts for settlement at any time during the first quarter of 2020 and later periods, entered into as of 02/17/2020.

(2) Weighted-average contract price.

Ethane Propane

Period

Volume

(MBbls) $/Bbl(2)

Volume

(MBbls) $/Bbl(2)

1Q’20 447 $11.53 382 $22.64

2Q’20 264 $11.13 382 $22.34

3Q’20 - - 409 $22.33

4Q’20 - - 466 $22.29

O i l

G a s N G L s

NYSE: SM 33

Fourth Quarter & Full Year 2019Non-GAAP Reconciliations and Disclosures

NYSE: SM

DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY

34

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. Non-GAAP measures 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 a non-GAAP measure that the Company presents because management believes it provides useful additional information to investors and

analysts, as a performance measure, for analysis of our ability to internally generate funds for development, exploration, acquisitions, and to service debt. 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 for discussion of the Credit Agreement and its covenants.

Adjusted net income (loss): Adjusted net income (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. Adjusted net income (loss) is presented because management believes it provides useful additional information to investors for analysis of the Company’s

fundamental business on a recurring basis. In addition, management believes that adjusted net income (loss) attributable to common shareholders is widely used by professional research analysts and others in the valuation,

comparison, and investment recommendations of upstream oil and gas companies.

Total capital spend: Total capital spend is calculated as costs incurred from oil and gas producing activities, less asset retirement obligations (“ARO”), capitalized interest and acquisitions. Total capital spend is presented

because management believes that it provides useful information to investors in the analysis of SM Energy Company and 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. Total capital spend should not be used in isolation or as a substitute to costs incurred or other capital spending measures prepared under

GAAP.

Discretionary cash flow: Discretionary cash flow is calculated as net cash provided by operating activities excluding changes in current assets and current liabilities, and exploration expense (net of stock-based compensation

expense). Exploration expense (net of stock-based compensation expense) is added back in the calculation because, for peer comparison purposes, this number is included in our total capital spend. The Company believes this

measure is important to investors because it provides useful additional information to investors for analysis of the Company’s ability to generate cash to fund exploration and development, and to service indebtedness. In

addition, management believes that discretionary cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.

FORWARD-LOOKING NON-GAAP MEASURES

Discussion in this presentation of the 2020 operating plan and guidance include discretionary cash flow, free cash flow, total capital spend, and net debt-to-EBITDAX, which are

non-GAAP measures. The Company is unable to provide reconciliations of these forward-looking measures because components of the calculations are inherently unpredictable

(such as future expenditures to acquire properties, changes to current assets and liabilities) and estimating future GAAP measures with the precision necessary to provide a

meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.

Free cash flow: Free cash flow is calculated as Discretionary cash flow (defined above) less Total capital spend (defined above). The Company believes that this is an important measure because it represents the cash from

operations, in excess of capital expenditures, available to operate the Company and fund discretionary obligations.

Net debt to Adjusted EBITDAX: Net debt to Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above). The Company presents this metric to show trends that investors may

find useful in understanding the Company’s ability to service its debt. This metric is widely used by professional research analysts, including credit analysts, in the valuation and comparison of companies in the oil and gas

exploration and production industry. 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.

Net debt: The total principal value of outstanding senior notes, senior convertible notes plus amounts drawn on the revolving credit facility (also referred to as total funded debt) less cash and cash equivalents. The Company

presents this metric to help evaluate its capital structure and financial leverage and believes that it is widely used by professional research analysts, including credit analysts, and others in the evaluation of total leverage.

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

NYSE: SM

ADJUSTED EBITDAX(1)

RECONCILIATION TO NET INCOME (LOSS) (GAAP) & NET CASH

PROVIDED BY OPERATING ACTIVITIES (GAAP)

35

Reconciliation of net income (loss) (GAAP) and net cash

provided by operating activities (GAAP) to adjusted

EBITDAX (non-GAAP): (in thousands)

For the Years Ended December 31,

2019 2018 2017Net income (loss) (GAAP) $(187,001) $508,407 $(160,843)

Interest expense 159,102 160,906 179,257

Income tax expense (benefit) (44,043) 143,370 (182,970)

Depletion, depreciation, amortization, and asset retirement obligation liability accretion 823,798 665,313 557,036

Exploration(2) 46,995 49,627 48,413

Impairment of oil and gas properties 33,842 49,889 16,078

Stock-based compensation expense 24,318 23,908 22,700

Net derivative (gain) loss 97,539 (161,832) 21,234

Derivative settlement gain (loss) 39,222 (135,803) 39,222

Net (gain) loss on divestiture activity (862) (426,917) 131,028

Loss on extinguishment of debt - 26,740 35

Other, net 481 (3,214) 4,852

Adjusted EBITDAX (non-GAAP) $993,391 $900,394 $663,234

Interest expense (159,102) (160,906) (179,257)

Income tax (expense) benefit 44,043 (143,370) 182,970

Exploration(2) (46,995) (49,627) (48,413)

Amortization of debt discount and deferred financing costs 15,474 15,258 16,276

Deferred income taxes (41,835) 141,708 (192,066)

Other, net 1,739 3,501 3,033

Changes in current assets and liabilities 16,852 13,671 69,613

Net cash provided by operating activities (GAAP) $823,567 $720,629 $515,390

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

2) Stock-based compensation expense is a component of exploration expense and general and administrative expense on consolidated statements of operations. Therefore,

the exploration line items shown in the reconciliation above will vary from the amount shown on the statements of operations for the component of stock-based

compensation expense recorded to exploration expense.

NYSE: SM

ADJUSTED NET LOSS(1)

RECONCILIATION TO NET INCOME (LOSS) (GAAP)

36

Reconciliation of net income (loss) (GAAP) to

adjusted net loss (non-GAAP):

(in thousands, except per share data)

Three Months Ended

December 31, 2019

Twelve Months Ended

December 31, 2019Net income (loss) (GAAP) $(102,055) $(187,001)

Total net derivative loss 101,002 97,539

Derivative settlement gain 15,379 39,222

Net gain on divestiture activity (539) (862)

Impairment of oil and gas properties 8,750 33,842

Other, net (647) 700

Tax effect of adjustments(2) (26,896) (36,986)

Adjusted net loss (non-GAAP) $(5,006) $(53,546)

Net income (loss) per diluted common share (GAAP) $(0.90) $(1.66)

Total net derivative loss 0.90 0.87

Derivative settlement gain 0.14 0.35

Net gain on divestiture activity - (0.01)

Impairment of oil and gas properties 0.08 0.30

Other, net (0.01) 0.01

Tax effect of adjustments(2) (0.25) (0.34)

Adjusted net loss per diluted common share (non-GAAP) $(0.04) $(0.48)

Diluted weighted-average common shares outstanding (GAAP): 112,847 112,544

Note: Amounts may not calculate due to rounding.


2) The tax effect of adjustments is calculated using a tax rate of 21.7% for the three and twelve-month periods ended December 31, 2019. This rate approximates

the Company's statutory tax rate adjusted for ordinary permanent differences.

NYSE: SM


2) Exploration expense is added back in the calculation of discretionary cash flow because, for peer comparison purposes, this number is included in our

reported total capital spend.

3) Stock-based compensation expense is a component of exploration expense and general and administrative expense on the consolidated statements

of operations. Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the consolidated statements

of operations for the component of stock-based compensation expense recorded to exploration expense.

DISCRETIONARY CASH FLOW(1)

RECONCILIATION TO NET CASH PROVIDED BY OPERATING ACTIVITIES (GAAP)

37

Reconciliation of net cash provided by operating

activities (GAAP) to discretionary cash flow

(non-GAAP): (in millions)


Six Months Ended

December 31, 2019 2019 2018 2017

Net cash provided by operating activities (GAAP): $445.2 $823.6 $720.6 $515.4

Net change in working capital 4.6 (16.9) (13.7) (69.6)

Exploration(2)(3) 27.3 47.0 49.6 48.4

Discretionary cash flow (non-GAAP): $477.1 $853.7 $756.6 $494.2

Note: Amounts may not sum due to rounding.

NYSE: SM

TOTAL CAPITAL SPEND(1)

RECONCILIATION TO COSTS INCURRED (GAAP)

38

Reconciliation of costs incurred in oil and gas

producing activities (GAAP) to total capital

spend (non-GAAP): (in millions)Six Months Ended

December 31, 2019


2019 2018 2017

Costs incurred in oil and gas producing activities (GAAP): $449.7 $1,040.2 $1,389.5 $1,040.0

Asset retirement obligations 10.7 9.9 (6.8) (12.1)

Capitalized interest (8.6) (18.5) (20.6) (12.6)

Proved and unproved property acquisitions(2) (2.9) (2.6) (33.6) (80.2)

Other (0.5) (3.9) 0.6 1.3

Total capital spend (non-GAAP): $448.3 $1,025.1 $1,329.1 $936.4


2) The Company completed several non-monetary acreage trades in the Midland Basin during 2019, 2018, and 2017 totaling $73.4 million, $95.1 million,

and $294 million respectively, of value attributed to the properties transferred. This non-monetary consideration is not reflected in the costs incurred

or capital spend amounts presented above.

Note: Amounts may not sum due to rounding.

NYSE: SM

FREE CASH FLOW AND FREE CASH FLOW YIELD(1)

39

Six Months Ended

December 31, 2019


(in millions) 2019 2018 2017

Discretionary cash flow $477.1 $853.7 $756.6 $494.2

Total capital spend 448.3 1,025.1 1,329.1 936.4

Free cash flow: $28.8 $(171.4) $(572.5) $(442.2)

Market capitalization at 12/31/19 $1,270.0 $1,270.0 $1,270.0 $1,270.0

Free cash flow yield: 2% (13)% (45)% (35)%


NYSE: SM

NET DEBT(1)

40


(in millions) 2019 2018 2017

Senior Notes (principal value from Note 5 of Form 10-K) $2,476.8 $2.476.8 $2,801.4

Senior Convertible Notes (principal value from Note 5 of Form 10-K) 172.5 172.5 172.5

Revolving credit facility 122.5 - -

Total funded debt 2,771.8 2,649.3 2,973.9

Less: Cash and cash equivalents - (78.0) (313.9)

Net Debt $2,771.8 $2,571.3 $2,660.0


NYSE: SM

CONTACT INFORMATION

41

Jennifer Martin SamuelsVice President - Investor Relations [email protected]

4q19 earnings and 2020 operating plan · free cash flow leverage (1) adjusted ebitdax, total...

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