SM Energy Reports Second Quarter Of 2017 Results - Focus On Capital Efficiency Driving Value, Production Beats, Raising Guidance
DENVER, Aug. 3, 2017 /PRNewswire/ --
-- Production beats expectations: 11.3 MMBoe, exceeding guidance due to
well performance
-- 11% growth from retained assets compared with the second quarter of
2016
-- Full year 2017 production guidance increased by 0.8 MMBoe at the
mid-point to 44.5-46.5 MMBoe
-- Guidance reflects expected significant oil growth in the second half
of 2017
-- Capital efficiency drives value: First half of 2017 exceeds plan
expectations for well performance and revenue at lower than expected
drilling and completion costs
-- Well tests continue to confirm RockStar acreage to east: Viper well peak
24-hour IP rate of 1,316 Boe/d, 91% oil
-- Balance sheet remains strong: $1.5 B in liquidity
SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) announced today financial results and operations highlights from the second quarter of 2017. The Company has revised its quarterly reporting format to include posting both an investor presentation and pre-recorded call in conjunction with this release. Please visit the Company's website at sm-energy.com to access this additional second quarter detail. The Company will host a webcast and conference call at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) tomorrow, August 4, 2017, to answer questions. Further information on the earnings webcast and conference call can be found below.
MANAGEMENT COMMENTARY
President and Chief Executive Officer Jay Ottoson comments: "Our team continues to meet or exceed our operational objectives year-to-date. Our relentless pursuit of improved well performance and detailed approach to cost management have delivered high levels of efficiency in our capital investment program. As a result, year-to-date we have generated more production than we expected with less capital investment than we planned, and we are further increasing 2017 production guidance to reflect our projections for continued outperformance."
SECOND QUARTER 2017 RESULTS
PRODUCTION - SEQUENTIAL COMPARISON:
COMPANY PRODUCTION
Second Quarter First Quarter % Change
2017 2017
---- ----
Total Company (MMBoe) 11.3 12.1
Assets sold (MMBoe) - (1.5)
--- ----
Retained Assets (MMBoe) 11.3 10.6
By commodity
Oil (MMBbls) 2.9 3.0 (4)%
Natural gas (Bcf) 34.0 30.8 10%
NGLs (MMBbls) 2.8 2.4 13%
Retained Assets (MMBoe) 11.3 10.6 7%
By region (MMBoe)
Eagle Ford (operated) 8.0 7.3 10%
Permian Basin 2.3 2.1 8%
Rocky Mountain 1.1 1.2 (12)%
Retained Assets (MMBoe) 11.3 10.6 7%
-- Total Company production
includes production from
assets sold (through the
closing date)
-- Eagle Ford (operated)
includes nominal other
production from the region
Second quarter production of 11.3 MMBoe is up 7% sequentially and up 11% compared with the second quarter of 2016, on a retained asset basis. Production in the second quarter of 2017 reflects the acceleration of 11 well completions in the Eagle Ford (as announced on June 6, 2017), and further exceeds guidance due to continued production outperformance from new wells in both the Permian Basin and Eagle Ford. As a result of second quarter production outperformance, the Company is raising full year production guidance by 0.8 MMBoe. For the first six months of 2017, production was 23.4 MMBoe.
In the second quarter of 2017, the average realized price per Boe before the effects of commodity hedges was $25.13 and after the effects of commodity hedges was $26.57. Cash production costs totaled $10.98 per Boe, down sequentially from $11.42 per Boe in the first quarter of 2017 and up from $10.38 per Boe in the second quarter of 2016. The Company is updating its guidance for the second half of 2017 to reflect modified LOE and transportation costs associated with retaining its Divide County, North Dakota assets. Please see guidance below.
Net loss for the second quarter of 2017 was $119.9 million, or $1.08 per diluted common share, compared with a net loss of $168.7 million, or $2.48 per diluted common share, in the second quarter of 2016. Net loss in the second quarter of 2017 reflects a 43% increase in the Company's pre-hedge cash operating margin per Boe from the prior year period. The 2017 period also includes a reduction in DD&A expense per Boe from $14.75 to $13.52, a loss on divestiture activity of $167.1 million and a non-cash derivative gain of $38.9 million. Net cash provided by operating activities in the second quarter of 2017 was $107.1 million. For the first six months of 2017, net loss was $45.5 million, or $0.41 per diluted common share, and net cash provided by operating activities was $242.1 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 second quarter of 2017 was $154.1 million, compared with $217.1 million in the prior year period. While the pre-hedge operating margin was significantly higher in the second quarter of 2017, the prior year period benefited from a $101.7 million derivative settlement gain. For the first six months of 2017, adjusted EBITDAX was $326.3 million.
Adjusted net loss for the second quarter was $35.5 million, or $0.32 per diluted common share, compared with an adjusted net loss of $30.2 million, or $0.44 per diluted common share, in the second quarter of 2016. For the first six months of 2017, adjusted net loss was $55.2 million, or $0.50 per diluted common share. 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 June 30, 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 $559.5 million, providing for net debt of $2.4 billion. The Company's undrawn credit facility plus cash on hand provide $1.5 billion in liquidity.
CAPITAL ACTIVITY AND OPERATIONS
Costs incurred for the second quarter of 2017 were $258.0 million, which included $15.7 million of primarily unproved property acquisitions. Second quarter total capital spend (see below for GAAP reconciliation) was $237.3 million. During the quarter, the Company drilled or participated in 30 net wells and completed or participated in 25 net wells. For the first six months of 2017, costs incurred were $515.0 million and total capital spend was $430.2 million.
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).
PERMIAN BASIN
In the second quarter of 2017, production from the Company's Midland Basin assets was 2.3 MMBoe and was 75% oil. The Company is currently running seven horizontal rigs in the basin, with two in the Sweetie Peck area and five in the RockStar area. The Company recently converted the single vertical rig operating in the RockStar area to horizontal drilling, and is currently running three completion crews. During the second quarter, the Company drilled 23 net operated wells and had nine net flowing completions. The second quarter production margin for this area was $28.75 per Boe.
Subsequent to quarter-end, the Viper well, located in the northern portion of the Company's RockStar acreage, reached a 24-hour peak initial production rate of 1,316 Boe/d. The Viper well is drilled into the Wolfcamp A with a 10,400 foot lateral. Similar to peer wells in the area, the Viper well demonstrates a lower peak rate combined with a flatter production profile. In combination with nearby peer wells, the area now supports economic wells in the Wolfcamp A (SM, Sabalo), Wolfcamp B (Apache) and Lower Spraberry (Sabalo).
The Company remains 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. Over the past year, the Company has collected approximately 3,500 feet of core to better understand the entire Spraberry through Wolfcamp column, gather geomechanical rock properties necessary to support reservoir simulation efforts, and evaluate untested intervals. Efforts to drive capital efficiency and optimization also include drilling longer laterals and pad drilling. The Company has just completed the first 10,000 foot laterals at Sweetie Peck and has just completed the first six well pad at RockStar that co-develops the Lower Spraberry and Wolfcamp A.
The Company currently has approximately 89,000 net acres in the Midland Basin, which includes approximately 5,400 additional net acres acquired year-to-date through acreage trades and other transactions.
EAGLE FORD
In the second quarter of 2017, production from the Company's operated Eagle Ford assets was 8.0 MMBoe and included 62% natural gas, 34% NGLs, and 4% oil. Production was up 9.5% sequentially as the Company accelerated activity in the area. The Company is currently running one horizontal rig with plans to add a second horizontal rig during the third quarter in the Eagle Ford. During the second quarter, the Company drilled six and completed 14 net wells, including acceleration of 11 completions into the second quarter.
The Company's focus on drilling and completion optimization continues to drive better results in the Eagle Ford where completions year-to-date are exceeding type curve expectations and driving higher production. For example in the North Area, pad completions in the first half of 2017 included tighter stage and cluster spacing with increased fluid. The Company's current drilling plan co-develops the lower and upper Eagle Ford (see associated investor presentation for graph). In the East Area, pad completions included higher sand loadings and tighter stage spacing. Wells are downspaced to 625 feet (from 900 feet) and continue to outperform the 900 foot spacing type curve.
The Company operates approximately 167,500 net acres in its Eagle Ford program.
ROCKY MOUNTAIN
In the Powder River Basin, the Company is working with a third party to test newer generation drilling and completion techniques in the Shannon and Frontier zones. To-date, well results are very positive and the Company anticipates continuing its relationship with the third party into 2018.
During the second quarter, the Company decided to retain its Divide County assets (previously held for sale) rather than sell the assets due to market conditions.
GUIDANCE
Full year 2017 guidance is revised as follows:
-- Total capital spend (before acquisitions) ($MM)
$875 (unchanged)
-- Total production (MMBoe)
44.5-46.5
-- Increased 0.8 MMBoe at the mid-point
-- Oil percent near 30% of commodity mix, full year average
-- LOE including ad valorem ($/Boe)
$4.30-4.60
-- Increased to include retention of Divide County
-- Transportation ($/Boe)
$5.40-5.65
-- Reduced $0.10 at the midpoint
-- Production taxes ($/Boe/percent of pre-hedge revenue)
~$1.10/4.0-4.5%
-- G&A ($MM)
$115-125
-- Reduced $5 MM at the mid-point
-- Includes approximately $20 MM non-cash, stock-based compensation
expense
-- Capitalized overhead/Exploration before dry hole expenses ($MM)
$65-70 (unchanged)
-- This amount is a component of capital guidance
-- DD&A ($/Boe)
$12.00-14.00
Third quarter of 2017 production is expected to range between 10.8 and 11.2 MMBoe, which will vary depending upon the ultimate timing of capital activity, at approximately 29-30% oil in the commodity mix.
Total capital spend (before acquisitions) is a non-GAAP measure. The Company is unable to present a quantitative reconciliation of this forward-looking non-GAAP financial measure without unreasonable effort because acquisition costs are inherently unpredictable.
COMMODITY DERIVATIVES
As of August 1, 2017.
For the second half of 2017, the Company has commodity derivatives in place for approximately 60% of expected oil production, 75% of expected natural gas production and 80% of expected NGL production. For 2018, approximately one-half of total expected production volumes are hedged.
OIL SWAPS OIL COLLARS NATURAL GAS SWAPS NGL SWAPS
Volume/Average Volume/Avg. Ceiling - Floor Volume /Average Price Volume/Average
Price Price
Period (MBbls/$Bbl) (MBbls/$Bbl) (BBtu/$MMBtu) (MBbls/$Bbl)
------ ------------ ------------ ------------- ------------
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 535/$49.32 1,026/$58.46 - $50.00 19,628/$3.25 1,829/$21.45
2Q18 910/$48.57 1,004/$58.37 - $50.00 13,052/$2.85 1,437/$16.26
3Q18 993/$48.79 1,393/$57.93 - $50.00 14,241/$2.87 1,662/$16.47
4Q18 1,034/$48.89 1,607/$57.75 - $50.00 15,487/$2.90 1,828/$16.54
---- ------------ --------------------- ------------ ------------
Notes: The volumes above
represent fixed swap and collar
contracts the Company has in
place through 4Q18. Volumes for
3Q17 include all commodity
contracts for settlement any
time during the third 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. See 2Q17
Earnings Presentation for
contract details on the oil
basis swaps.
UPCOMING EVENTS
EARNINGS WEBCAST AND CALL
As previously announced, SM Energy is posting a pre-recorded discussion and presentation in conjunction with this earnings release. Please look for the additional detail on our website at www.sm-energy.com. Tomorrow morning, the Company will host a second quarter financial and operating results Q&A session via webcast and conference call. Please join management at 8:00 a.m. Mountain Time/10:00 a.m. Eastern Time August 4, 2017. 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).
UPCOMING CONFERENCE PARTICIPATION
-- August 15, 2017 - Enercom: The Oil and Gas Conference 22. President and
Chief Executive Officer Jay Ottoson will present at 10:05 a.m. Mountain
time. This event will be webcast. An investor presentation for this
event will be posted to the Company's website on August 14, 2017.
-- September 6, 2017 - Barclays CEO Energy-Power Conference. President and
Chief Executive Officer Jay Ottoson will present at 11:45 a.m. Eastern
time. This event will be webcast. An investor presentation for this
event will be posted to the Company's website on September 5, 2017.
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 third 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 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 (UNAUDITED)
June 30, 2017
For the Three Months Ended For the Six Months Ended
June 30, June 30,
Production Data 2017 2016 Percent 2017 2016 Percent
Change Change
--------------- ---- ---- -------- ---- ---- --------
Average realized sales price, before the
effects of derivative settlements:
Oil (per Bbl) $44.30 $39.38 12% $46.08 $32.51 42%
Gas (per Mcf) 2.99 1.79 67% 2.99 1.83 63%
NGLs (per Bbl) 19.71 16.12 22% 20.92 14.05 49%
Equivalent (per BOE) $25.13 $20.35 23% $26.38 $18.14 45%
Average realized sales price, including
the effects of derivative settlements:
Oil (per Bbl) $43.36 $56.97 (24)% $44.24 $53.45 (17)%
Gas (per Mcf) 3.63 2.60 40% 3.56 2.80 27%
NGLs (per Bbl) 18.73 15.61 20% 18.96 14.63 30%
Equivalent (per BOE) $26.57 $27.45 (3)% $27.08 $27.11 -%
Production:
Oil (MMBbl) 2.9 4.1 (29)% 6.4 8.2 (22)%
Gas (Bcf) 34.0 39.0 (13)% 67.9 74.7 (9)%
NGLs (MMBbl) 2.8 3.7 (26)% 5.7 7.1 (20)%
MMBOE (6:1) 11.3 14.3 (21)% 23.4 27.7 (15)%
Average daily production:
Oil (MBbl/d) 32.0 45.1 (29)% 35.5 45.2 (21)%
Gas (MMcf/d) 374.1 428.2 (13)% 375.3 410.2 (9)%
NGLs (MBbl/d) 30.3 40.8 (26)% 31.4 38.8 (19)%
MBOE/d (6:1) 124.6 157.2 (21)% 129.5 152.4 (15)%
Per BOE data:
Realized price, before
the effects of
derivative
settlements $25.13 $20.35 23% $26.38 $18.14 45%
Lease operating
expense 4.11 3.31 24% 3.96 3.54 12%
Transportation costs 5.71 5.95 (4)% 5.79 6.00 (4)%
Production taxes 1.00 0.93 8% 1.09 0.80 36%
Ad valorem tax expense 0.16 0.19 (16)% 0.36 0.23 57%
General and
administrative
(excluding stock-
compensation) 2.21 1.60 38% 2.15 1.80 19%
---- ---- --- ---- ----
Net, before the
effects of derivative
settlements $11.94 $8.37 43% $13.03 $5.77 126%
Derivative settlement
gain 1.44 7.10 (80)% 0.70 8.97 (92)%
---- ---- ---- ---- ---- ----
Margin, including the
effects of derivative
settlements $13.38 $15.47 (14)% $13.73 $14.74 (7)%
====== ====== ==== ====== ====== ===
Depletion,
depreciation,
amortization, and $13.52 $14.75 (8)% $12.42 $15.34 (19)%
asset retirement obligation
liability accretion
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands, except share
amounts) June 30, December 31,
ASSETS 2017 2016
---- ----
Current assets:
Cash and cash equivalents $559,521 $9,372
Accounts receivable 105,713 151,950
Derivative asset 85,962 54,521
Prepaid expenses and other 18,121 8,799
Total current assets 769,317 224,642
------- -------
Property and equipment (successful efforts
method):
Total property and
equipment, net 5,346,411 6,081,354
Noncurrent assets:
Derivative asset 82,194 67,575
Other noncurrent assets 14,683 19,940
------ ------
Total other noncurrent
assets 96,877 87,515
------ ------
Total Assets $6,212,605 $6,393,511
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $311,476 $299,708
Derivative liability 36,296 115,464
Total current liabilities 347,772 415,172
------- -------
Noncurrent liabilities:
Revolving credit facility - -
Senior Notes, net of
unamortized deferred
financing costs 2,767,030 2,766,719
Senior Convertible Notes,
net of unamortized discount
and deferred financing
costs 134,918 130,856
Asset retirement obligation 100,304 96,134
Asset retirement obligation
associated with oil and gas
properties held for sale 234 26,241
Deferred income taxes 245,506 315,672
Derivative liability 69,915 98,340
Other noncurrent liabilities 45,098 47,244
------ ------
Total noncurrent liabilities 3,363,005 3,481,206
--------- ---------
Stockholders' equity:
Common stock, $0.01 par
value -authorized:
200,000,000 shares; issued
and outstanding:
111,453,476 and 111,257,500
shares, respectively 1,115 1,113
Additional paid-in capital 1,729,104 1,716,556
Retained earnings 786,608 794,020
Accumulated other
comprehensive loss (14,999) (14,556)
------- -------
Total stockholders' equity 2,501,828 2,497,133
--------- ---------
Total Liabilities and
Stockholders' Equity $6,212,605 $6,393,511
========== ==========
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Condensed Consolidated Statements of Operations
-----------------------------------------------
(in thousands, except per
share amounts) For the Three Months Ended For the Six Months Ended
June 30, June 30,
2017 2016 2017 2016
---- ---- ---- ----
Operating revenues and other income:
Oil, gas, and NGL
production revenue $284,939 $291,142 $618,137 $502,965
Net gain (loss) on
divestiture activity (167,133) 50,046 (129,670) (18,975)
Other operating revenues 2,915 626 4,992 900
----- --- ----- ---
Total operating revenues
and other income 120,721 341,814 493,459 484,890
------- ------- ------- -------
Operating expenses:
Oil, gas, and NGL
production expense 124,376 148,591 262,422 293,134
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 153,232 211,020 291,044 425,227
Exploration 13,072 13,187 25,050 28,460
Impairment of proved
properties 3,806 - 3,806 269,785
Abandonment and
impairment of unproved
properties 157 38 157 2,349
General and
administrative 28,460 28,200 57,684 60,438
Net derivative (gain)
loss (55,189) 163,351 (169,963) 149,123
Other operating expenses 445 7,976 5,304 13,648
--- -----
Total operating expenses 268,359 572,363 475,504 1,242,164
------- ------- ------- ---------
Income (loss) from
operations (147,638) (230,549) 17,955 (757,274)
Non-operating income (expense):
Interest expense (44,595) (34,035) (91,548) (65,123)
Gain (loss) on
extinguishment of debt - - (35) 15,722
Other, net 1,265 5 1,600 11
----- --- ----- ---
Loss before income taxes (190,968) (264,579) (72,028) (806,664)
Income tax benefit 71,061 95,898 26,555 290,773
------ ------ ------ -------
Net loss $(119,907) $(168,681) $(45,473) $(515,891)
========= ========= ======== =========
Basic weighted-average
common shares
outstanding 111,277 68,102 111,274 68,090
======= ====== ======= ======
Diluted weighted-average
common shares
outstanding 111,277 68,102 111,274 68,090
======= ====== ======= ======
Basic net loss per common
share $(1.08) $(2.48) $(0.41) $(7.58)
====== ====== ====== ======
Diluted net loss per
common share $(1.08) $(2.48) $(0.41) $(7.58)
====== ====== ====== ======
(1) Non-cash stock-based compensation
component included in:
Exploration expense $995 $1,785 $2,403 $3,447
G&A expense $3,363 $5,262 $7,410 $10,468
(2) The net derivative (gain) loss line
item consists of the following:
Settlement gain $(16,303) $(101,710) $(16,310) $(248,738)
(Gain) loss on fair value
changes $(38,886) $265,061 $(153,653) $397,861
Total net derivative
(gain) loss $(55,189) $163,351 $(169,963) $149,123
======== ======== ========= ========
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Condensed Consolidated Statement of Stockholders' Equity
--------------------------------------------------------
(in thousands, except share amounts)
Additional Accumulated Total
Paid-in Other
Capital Comprehensive Stockholders'
Loss 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 loss - - - (45,473) - (45,473)
Other comprehensive
loss - - - - (443) (443)
Cash dividends, $ 0.05
per share - - - (5,563) - (5,563)
Issuance of common
stock under Employee
Stock Purchase Plan 123,678 1 1,737 - - 1,738
Issuance of common
stock upon vesting of
restricted stock
units, net of shares
used for tax
withholdings 725 - (11) - - (11)
Stock-based
compensation expense 71,573 1 9,812 - - 9,813
Cumulative effect of
accounting change - - 1,108 43,624 - 44,732
Other - - (98) - - (98)
--- --- --- --- --- ---
Balances, June 30, 2017 111,453,476 $1,115 $1,729,104 $786,608 $(14,999) $2,501,828
=========== ====== ========== ======== ======== ==========
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands) For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2017 2016 2017 2016
---- ---- ---- ----
Cash flows from operating activities:
Net loss $(119,907) $(168,681) $(45,473) $(515,891)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Net (gain) loss on
divestiture activity 167,133 (50,046) 129,670 18,975
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 153,232 211,020 291,044 425,227
Impairment of proved
properties 3,806 - 3,806 269,785
Abandonment and
impairment of unproved
properties 157 38 157 2,349
Stock-based compensation
expense 4,358 7,047 9,813 13,915
Net derivative (gain)
loss (55,189) 163,351 (169,963) 149,123
Derivative settlement
gain 16,303 101,710 16,310 248,738
Amortization of debt
discount and deferred
financing costs 3,733 2,850 8,679 1,930
Non-cash (gain) loss on
extinguishment of debt,
net - - 22 (15,722)
Deferred income taxes (64,015) (95,975) (30,790) (291,014)
Plugging and abandonment (418) (2,112) (1,609) (2,716)
Other, net (2,300) 3,668 2,267 2,517
Changes in current assets and liabilities:
Accounts receivable 16,586 (38,142) 46,993 (11,220)
Prepaid expenses and
other (9,499) 3,503 (9,321) 8,487
Accounts payable and
accrued expenses (3,476) (9,433) (8,973) (61,727)
Accrued derivative
settlements (3,355) 9,799 (517) 14,117
Net cash provided by
operating activities 107,149 138,597 242,115 256,873
------- ------- ------- -------
Cash flows from investing activities:
Net proceeds from the
sale of oil and gas
properties 21,914 11,761 766,247 12,967
Capital expenditures (212,342) (169,200) (366,743) (345,570)
Acquisition of proved and
unproved oil and gas
properties (13,035) (2,707) (88,140) (17,751)
Other, net 514 (1,785) 3,000 (900)
Net cash provided by
(used in) investing
activities (202,949) (161,931) 314,364 (351,254)
-------- -------- ------- --------
Cash flows from financing activities:
Proceeds from credit
facility 8,500 268,000 406,000 585,000
Repayment of credit
facility (8,500) (230,500) (406,000) (456,500)
Debt issuance costs
related to credit
facility - (3,132) - (3,132)
Cash paid to repurchase
Senior Notes - (9,987) (2,344) (29,904)
Net proceeds from sale of
common stock 1,738 2,354 1,738 2,354
Dividends paid (5,563) (3,404) (5,563) (3,404)
Other, net (1) (30) (161) (33)
Net cash provided by
(used in) financing
activities (3,826) 23,301 (6,330) 94,381
------ ------ ------ ------
Net change in cash and
cash equivalents (99,626) (33) 550,149 -
Cash and cash equivalents
at beginning of period 659,147 51 9,372 18
Cash and cash equivalents
at end of period $559,521 $18 $559,521 $18
======== === ======== ===
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Adjusted EBITDAX(1)
(in thousands)
Reconciliation of net
loss (GAAP) to adjusted
EBITDAX (Non-GAAP) to
net cash provided by
operating activities
(GAAP) For the Three Months Ended For the Six Months Ended
June 30, June 30,
2017 2016 2017 2016
---- ---- ----
Net loss (GAAP) $(119,907) $(168,681) $(45,473) $(515,891)
Interest expense 44,595 34,035 91,548 65,123
Other non-operating
income, net (1,265) (5) (1,600) (11)
Income tax benefit (71,061) (95,898) (26,555) (290,773)
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 153,232 211,020 291,044 425,227
Exploration(2) 12,077 11,402 22,647 25,013
Impairment of proved
properties 3,806 - 3,806 269,785
Abandonment and
impairment of unproved
properties 157 38 157 2,349
Stock-based compensation
expense 4,358 7,047 9,813 13,915
Net derivative (gain)
loss (55,189) 163,351 (169,963) 149,123
Derivative settlement
gain 16,303 101,710 16,310 248,738
Net (gain) loss on
divestiture activity 167,133 (50,046) 129,670 18,975
(Gain) loss on
extinguishment of debt - - 35 (15,722)
Other (151) 3,125 4,835 3,557
Adjusted EBITDAX (Non-
GAAP) $154,088 $217,098 $326,274 $399,408
-------- -------- -------- --------
Interest expense (44,595) (34,035) (91,548) (65,123)
Other non-operating
income, net 1,265 5 1,600 11
Income tax benefit 71,061 95,898 26,555 290,773
Exploration(2) (12,077) (11,402) (22,647) (25,013)
Amortization of debt
discount and deferred
financing costs 3,733 2,850 8,679 1,930
Deferred income taxes (64,015) (95,975) (30,790) (291,014)
Plugging and abandonment (418) (2,112) (1,609) (2,716)
Other, net (2,149) 543 (2,581) (1,040)
Changes in current assets
and liabilities 256 (34,273) 28,182 (50,343)
--- ------ -------
Net cash provided by
operating activities
(GAAP) $107,149 $138,597 $242,115 $256,873
======== ======== ======== ========
(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 and
losses on extinguishment of debt, and
materials inventory impairments and losses
on sale. Adjusted EBITDAX excludes certain
items that we believe 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 we
present because we believe it provides
useful additional information to investors
and analysts, as a performance measure, for
analysis of our ability to internally
generate funds for exploration,
development, acquisitions, and to service
debt. We are also subject to financial
covenants under our 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. Our
credit facility provides a material source
of liquidity for us. Under the terms of
our Credit Agreement, if we failed 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, we would be in default, an event
that would prevent us from borrowing under
our credit facility and would therefore
materially limit our sources of liquidity.
In addition, if we are in default under our
credit facility and are unable to obtain a
waiver of that default from our lenders,
lenders under that facility and under the
indentures governing our outstanding Senior
Notes and Senior Convertible Notes would be
entitled to exercise all of their remedies
for 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 Company's condensed
consolidated statements of operations for
the component of stock-based compensation
expense recorded to exploration expense.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2017
Adjusted Net Loss (Non-GAAP)
---------------------------
(in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Net loss (GAAP) $(119,907) $(168,681) $(45,473) $(515,891)
Net derivative (gain)
loss (55,189) 163,351 (169,963) 149,123
Derivative settlement
gain 16,303 101,710 16,310 248,738
Net (gain) loss on
divestiture activity 167,133 (50,046) 129,670 18,975
Impairment of proved
properties 3,806 - 3,806 269,785
Abandonment and
impairment of unproved
properties 157 38 157 2,349
(Gain) loss on
extinguishment of debt - - 35 (15,722)
Other, net(2) (151) 3,091 4,835 2,583
Tax effect of
adjustments(1) (47,673) (79,622) 5,469 (246,678)
Adjusted net loss (Non-
GAAP)(3) $(35,521) $(30,159) $(55,154) $(86,738)
======== ======== ======== ========
Diluted net loss per
common share (GAAP) $(1.08) $(2.48) $(0.41) $(7.58)
Net derivative gain (0.50) 2.40 (1.53) 2.19
Derivative settlement
gain 0.15 1.49 0.15 3.65
Net (gain) loss on
divestiture activity 1.50 (0.73) 1.17 0.28
Impairment of proved
properties 0.03 - 0.03 3.96
Abandonment and
impairment of unproved
properties - - - 0.03
(Gain) loss on
extinguishment of debt - - - (0.23)
Other, net(2) - 0.05 0.04 0.04
Tax effect of
adjustments(1) (0.42) (1.17) 0.05 (3.61)
----- -----
Adjusted net loss per
diluted common share
(Non-GAAP)(4) $(0.32) $(0.44) $(0.50) $(1.27)
====== ====== ====== ======
Basic weighted-average
common shares
outstanding (GAAP) 111,277 68,102 111,274 68,090
======= ====== ======= ======
(1) The tax effect of adjustments is
calculated using a tax rate of 36.1% for
the three-month and six-month periods
ended June 30, 2017, and a tax rate of
36.5% for the three-month and six-month
periods ended June 30, 2016. These rates
approximate the Company's statutory tax
rate for the respective periods, as
adjusted for ordinary permanent
differences.
(2) For the three-month and six-month
periods ended June 30, 2017, the adjustment
is related to the change in Net Profits
Plan liability. Additionally, for the six-
month period ended June 30, 2017, an
adjustment related to materials inventory
loss is included. For the three-month and
six-month periods ended June 30, 2016, the
adjustment relates to the change in Net
Profits Plan liability, impairment of
materials inventory, and an adjustment
relating to claims on royalties on certain
Federal and Indian leases. 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)
June 30, 2017
Total Capital Spend Reconciliation
----------------------------------
(in millions)
Reconciliation of
costs incurred in
oil & gas activities
(GAAP) to total
capital spend (Non-
GAAP)(1)(3) For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------- --------
2017 2017
---- ----
Costs incurred in oil
and gas activities
(GAAP): $258.0 $515.0
Less:
Asset retirement
obligation (0.5) (1.4)
Capitalized interest (2.9) (5.1)
Proved property
acquisitions(2) 0.8 (1.4)
Unproved property
acquisitions (16.5) (75.6)
Other (1.6) (1.3)
Total capital spend
(Non-GAAP): $237.3 $430.2
====== ======
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SOURCE SM Energy Company
