Post on 17-May-2020
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
Lateral Length: 12,875’
% liquids: 58%
API Gravity: 56.7
Galvan Ranch C917H
IP30: 2,133 Boe/d
IP30 oil: 310 Bbl/d
Lateral Length: 7,886’
% liquids: 52%
API Gravity: 61.9
Galvan Ranch B904H
IP30: 3,599 Boe/d
IP30 oil: 896 Bbl/d
Lateral Length: 11,306’
% 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
Lateral Length: 6,502’
% 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.
1) See “Definitions of non-GAAP Measures as Calculated by the Company” above.
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
1) See “Definitions of non-GAAP Measures as Calculated by the Company” above.
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)
For the Years Ended December 31,
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
For the Years Ended December 31,
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
1) See “Definitions of non-GAAP Measures as Calculated by the Company” above.
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
For the Years Ended December 31,
(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)%
1) See “Definitions of non-GAAP Measures as Calculated by the Company” above.
NYSE: SM
NET DEBT(1)
40
For the Years Ended December 31,
(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
1) See “Definitions of non-GAAP Measures as Calculated by the Company” above.
NYSE: SM
CONTACT INFORMATION
41
Jennifer Martin SamuelsVice President - Investor Relations 303-864-2507jsamuels@sm-energy.com