SM Energy Reports Second Quarter 2018 Results
DENVER, Aug. 1, 2018 /PRNewswire/ -- SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the second quarter of 2018. Highlights include:
-- RockStar wells continue to produce best in class results. Spackler
Wolfcamp A sets SM record as its top performing Midland Basin well
to-date with a peak 30-day IP rate of 2,324 Boe/d. 24 new RockStar wells
reached peak 30-day IP rates that averaged 1,330 Boe/d per well (87%
oil) from three intervals
-- Production exceeded guidance range. 115 MBoe/d average production, 42%
oil. Midland Basin production from retained assets was up 14%
sequentially and 117% year-over-year. Full year production guidance
raised ~3,700 Boe/d at the mid-point
-- Rapid margin expansion. $24.44 per Boe operating margin (pre-hedge) was
the highest in 15 quarters, up 6% sequentially and up 110%
year-over-year
-- Strong earnings. Net income was $17.2 million; EPS was $0.15 and
adjusted EPS was $0.15, per diluted common share; net cash provided by
operating activities (GAAP) was $171.4 million and adjusted EBITDAX was
$225.0 million (adjusted EPS and adjusted EBITDAX are non-GAAP measures;
see below for additional information)
-- Significant reduction in long-term debt. $345 million in 6.5% senior
notes due 2021 redeemed subsequent to quarter-end, following the closing
of two non-core divestitures for an aggregate sales price of $292
million
MANAGEMENT COMMENTARY
President and Chief Executive Officer Jay Ottoson comments: "In the first half of 2018, we made significant improvements in capital efficiency and operating margins as a result of outstanding operations execution and great well results. Our cash flows have been higher than anticipated, and we are raising full year production guidance without changing our expected full year activity level. We remain on track to meet our targeted total capital spend-to-cash flow neutrality by mid-year 2019."
SUMMARY WELL RESULTS
Results from 24 new RockStar wells, having an average 10,180 foot lateral, that have reached their 30-day peak IP rates include:
-- Spackler Wolfcamp A and B wells are among top 5 SM performers to-date
with peak 30-day IP rates at 2,324 Boe/d and, 2,022 Boe/d, respectively
(89% and 90% oil, respectively)
-- 9 wells from the 14-well Kramer-Costanza development reached peak 30-day
IP rates averaging 1,285 Boe/d per well from the Wolfcamp A and B. The
wells are drilled at 513-660 foot spacing and 7 of the 9 wells are fully
bounded
-- Average peak 30-day IP rates by interval were: 15 Wolfcamp A wells
produced approximately 1,320 Boe/d per well (89% oil); 8 Wolfcamp B
wells produced approximately 1,385 Boe/d per well (85% oil); 1 Lower
Spraberry well produced approximately 1,080 Boe/d (85% oil)
SECOND QUARTER 2018 RESULTS
As previously announced, production and realized prices came in particularly strong. Production was 10.5 MMBoe, or 115 MBoe/d, exceeding the Company's expectations primarily due to strong well performance from new and existing wells. Realized pricing (before the effects of hedges) averaged $38.40 per Boe, benefiting from higher benchmark oil and NGL prices.
Second quarter of 2018 net income was $17.2 million or $0.15 per diluted common share, up from a loss of ($119.9) million or ($1.08) per diluted common share in the second quarter of 2017. Second quarter of 2018 net income includes a $39.5 million net gain on divestiture activity and a net derivative loss of $63.7 million.
Second quarter of 2018 net cash provided by operating activities (GAAP) was $171.4 million.
Adjusted net income, adjusted net income per diluted common share and adjusted EBITDAX are non-GAAP measures. Please reference the reconciliations to the most directly comparable GAAP financial measures at the end of this release.
Second quarter of 2018 adjusted net income was $16.8 million, or $0.15 per diluted common share, up from an adjusted net loss of ($35.5) million, or ($0.32) per diluted common share, in the second quarter of 2017. The calculation of adjusted net income 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. Specifically, second quarter adjustments remove the net gain on divestitures, non-cash derivative losses and abandonment and impairment charges.
Second quarter of 2018 adjusted EBITDAX was $225.0 million, up 46% from $154.0 million in the second quarter of 2017. The increase in adjusted EBITDAX was primarily driven by the 110% increase in the operating margin per Boe (pre-hedge), partially offset by an 8% decline in production due to asset divestitures.
COMMODITY DERIVATIVES
For the second half of 2018, the Company currently has commodity derivatives in place for approximately 80% of expected oil production and 70% of expected natural gas production (NGLs are hedged by product). Additionally, the Company has Midland-NYMEX WTI basis hedges in place for approximately 70% of expected Midland oil production through the remainder of the year.
GUIDANCE UPDATE
Full year 2018 production guidance is increased to a range of 43.5-45.0 MMBoe from 40.9-44.9 MMBoe and is expected to average approximately 42% oil in the commodity mix, up from approximately 40%. The increase in production is attributable to better than expected well performance in the Midland Basin from new and existing wells and higher average working interests in new wells compared to the original plan.
-- Third quarter production is expected to range between 11.2-11.7 MMBoe,
or 122-127 MBoe/d, and includes approximately 42% oil in the commodity
mix. Production is expected to include increased natural gas and NGL
volumes from the Eagle Ford from 12, high volume, new first half 2018
wells. The NGLs and natural gas in the commodity mix will be affected by
the Company's election to process ethane in July and August of 2018,
with the election for September undecided.
-- Faster paced drilling and completion activity in the Midland Basin in
1H18 increased expected third quarter production, due to accelerated
completion timing, and increased the number of expected third quarter
new net well completions by 16 (as planned fourth quarter completions
are accelerated into the third quarter), compared to the February plan.
Full year total capital spend is slightly increased by $40 million to $1.31 billion primarily to account for increased working interests (with corresponding increased net revenue interests) in new Howard County wells. Higher than expected working interests increased first half 2018 capital by approximately $30 million and expected full year net well completions in the Permian Basin from approximately 100 to 103. Additional future working interest increases are anticipated. Eagle Ford completions for the full year are unchanged at approximately 25 net wells.
-- Total capital spend in the second half of 2018 is projected to
approximate $514 million and be more heavily weighted to the third
quarter due to the acceleration of fourth quarter completions. Third
quarter net completions are expected to include 37 net wells in the
Permian Basin and 4 net wells in the Eagle Ford.
As previously stated, the Company's 2018 capital expenditure program is weighted to the first half of the year. Due to the accelerated timing of drilling and completion activity, the Company is currently running seven rigs and three completion crews in the Midland Basin (down from nine rigs and five crews, with plans to release an additional rig during the third quarter). In the Eagle Ford, the Company is running two rigs and one completion crew (with plans to drop one Eagle Ford rig during August 2018) for both Company and third-party carried activity.
Total capital spend (before acquisitions) is a non-GAAP measure. The Company is unable to present a quantitative reconciliation of this forward-looking, non-GAAP financial measure without unreasonable effort because acquisition costs are inherently unpredictable.
SCHEDULE FOR SECOND QUARTER REPORTING
This release is accompanied by an investor presentation and pre-recorded call with transcript all posted to the Company's website. Please visit the Company's website at ir.sm-energy.com to access this additional second quarter detail.
Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time on August 2, 2018 for the second quarter 2018 financial and operating results Q&A session. This discussion will be accessible via webcast (available live and for replay) on the Company's website at ir.sm-energy.com or by telephone at:
-- Live (conference ID 4891245) - Domestic toll free/International:
844-343-4183/647-689-5129
-- Replay (conference ID 4891245) - Domestic toll free/International:
800-585-8367/416-621-4642
The call replay will be available approximately one hour after the call until August 9, 2018.
UPCOMING CONFERENCE PARTICIPATION
-- August 21, 2018 - Enercom: The Oil and Gas Conference. President and
Chief Executive Officer Jay Ottoson will present at 9:15 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 21, 2018.
-- September 4, 2018 - Barclays CEO Energy-Power Conference. President and
Chief Executive Officer Jay Ottoson will present at 4:25 p.m. Eastern
time. This event will be webcast. An investor presentation for this
event will be posted to the Company's website on September 4, 2018.
FORWARD LOOKING STATEMENTS
This release contains forward-looking statements within the meaning of securities laws. The words "anticipate," "budget," "estimate," "expect," "forecast," "guidance," "plan," "project," "will" and similar expressions are intended to identify forward-looking statements. 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 for production volumes and total capital spend for the third quarter and full year 2018. General risk factors include the availability of and access to capital markets; 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 natural gas reserves; uncertainties inherent in projecting future drilling and completion activities, costs or results; the uncertainty of negotiations to result in an agreement or a completed transaction; the uncertain nature of acquisition, 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 acquisition, 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 2017 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 INVESTOR CONTACT
Jennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Production Data
---------------
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2018 2017 Percent 2018 2017 Percent
Change Change
------
Average realized sales price, before the
effects of derivative settlements:
Oil (per Bbl) $61.02 $44.30 38% $61.14 $46.08 33%
Gas (per Mcf) $3.32 $2.99 11% $3.23 $2.99 8%
NGLs (per Bbl) $27.55 $19.71 40% $26.60 $20.92 27%
Per Boe $38.40 $25.13 53% $38.09 $26.38 44%
Average realized sales price, including
the effects of derivative settlements:
Oil (per Bbl) $55.42 $43.36 28% $55.90 $44.24 26%
Gas (per Mcf) $3.29 $3.63 (9)% $3.34 $3.56 (6)%
NGLs (per Bbl) $21.51 $18.73 15% $20.54 $18.96 8%
Equivalent (per Boe) $34.91 $26.57 31% $35.12 $27.08 30%
Production:
Oil (MMBbl) 4.4 2.9 50% 8.6 6.4 34%
Gas (Bcf) 25.3 34.0 (26)% 50.5 67.9 (26)%
NGLs (MMBbl) 1.9 2.8 (31)% 3.6 5.7 (37)%
MMBoe 10.5 11.3 (8)% 20.6 23.4 (12)%
Average daily production:
Oil (MBbl/d) 47.9 32.0 50% 47.6 35.5 34%
Gas (MMcf/d) 278.3 374.1 (26)% 279.3 375.3 (26)%
NGLs (MBbl/d) 20.9 30.3 (31)% 19.7 31.4 (37)%
MBoe/d 115.2 124.6 (8)% 113.9 129.5 (12)%
Per Boe data:
Realized price, before the
effects of derivative
settlements $38.40 $25.13 53% $38.09 $26.38 44%
Lease operating expense 4.66 4.11 13% 4.80 3.96 21%
Transportation costs 4.47 5.71 (22)% 4.55 5.79 (21)%
Production taxes 1.66 1.00 66% 1.67 1.09 53%
Ad valorem tax expense 0.41 0.16 156% 0.54 0.36 50%
General and
administrative(1) (2) 2.76 2.49 11% 2.74 2.43 13%
---- ---- ---- ----
Operating margin, before
the effects of derivative
settlements(2) 24.44 11.66 110% 23.79 12.75 87%
Derivative settlement loss (3.49) 1.44 (342)% (2.97) 0.70 (524)%
----- ---- ----
Operating margin,
including the effects of
derivative settlements(2) $20.95 $13.10 60% $20.82 $13.45 55%
====== ====== ====== ======
Depletion, depreciation,
amortization, and $14.48 $13.52 7% $13.69 $12.42 10%
asset retirement obligation
liability accretion
(1) Includes non-cash stock-based
compensation expense per Boe of
$0.39 and $0.30 for the three
months ended June 30, 2018 and
2017, respectively, and $0.40 and
$0.32 for the six months ended
June 30, 2018 and 2017,
respectively.
(2) Certain prior period amounts
have been adjusted to conform to
the current period presentation
due to an accounting standards
update.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Condensed Consolidated Balance Sheets
-------------------------------------
(in thousands, except share
data) June 30, December 31,
ASSETS 2018 2017
---- ----
Current assets:
Cash and cash equivalents $615,906 $313,943
Accounts receivable 178,682 160,154
Derivative assets 146,329 64,266
Prepaid expenses and other 14,293 10,752
Total current assets 955,210 549,115
------- -------
Property and equipment (successful efforts
method):
Proved oil and gas properties 6,372,956 6,139,379
Accumulated depletion,
depreciation, and amortization (3,041,653) (3,171,575)
Unproved oil and gas properties 1,917,883 2,047,203
Wells in progress 361,238 321,347
Oil and gas properties held for
sale, net 5,040 111,700
Other property and equipment,
net of accumulated
depreciation of $53,483 and
$49,985, respectively 102,986 106,738
Total property and equipment,
net 5,718,450 5,554,792
--------- ---------
Noncurrent assets:
Derivative assets 31,151 40,362
Other noncurrent assets 31,674 32,507
------ ------
Total noncurrent assets 62,825 72,869
------ ------
Total assets $6,736,485 $6,176,776
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $446,318 $386,630
Current portion of Senior
Notes, net of unamortized
deferred financing costs 342,301 -
Derivative liabilities 259,338 172,582
Total current liabilities 1,047,957 559,212
--------- -------
Noncurrent liabilities:
Revolving credit facility - -
Noncurrent portion of Senior
Notes, net of unamortized
deferred financing costs 2,429,994 2,769,663
Senior Convertible Notes, net
of unamortized discount and
deferred financing costs 143,430 139,107
Asset retirement obligations 87,279 103,026
Asset retirement obligations
associated with oil and gas
properties held for sale - 11,369
Deferred income taxes 177,709 79,989
Derivative liabilities 67,583 71,402
Other noncurrent liabilities 45,906 48,400
------ ------
Total noncurrent liabilities 2,951,901 3,222,956
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value -
authorized: 200,000,000
shares; issued and
outstanding: 111,846,998 and
111,687,016 shares,
respectively 1,118 1,117
Additional paid-in capital 1,754,169 1,741,623
Retained earnings(1) 997,641 665,657
Accumulated other comprehensive
loss(1) (16,301) (13,789)
------- -------
Total stockholders' equity 2,736,627 2,394,608
--------- ---------
Total liabilities and
stockholders' equity $6,736,485 $6,176,776
========== ==========
(1) The Company reclassified $3.0
million of tax effects stranded in
accumulated other comprehensive loss
to retained earnings as of January
1, 2018 due to an accounting
standards update.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Condensed Consolidated Statements of Operations
-----------------------------------------------
(in thousands, except per share
data) For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2018 2017 2018 2017
---- ---- ---- ----
(as adjusted) (as adjusted)
Operating revenues and other income:
Oil, gas, and NGL production
revenue $402,558 $284,939 $785,444 $618,137
Net gain (loss) on divestiture
activity 39,501 (167,133) 424,870 (129,670)
Other operating revenues 1,857 2,915 3,197 4,992
----- ----- ----- -----
Total operating revenues and other
income 443,916 120,721 1,213,511 493,459
------- ------- --------- -------
Operating expenses:
Oil, gas, and NGL production
expense 117,400 124,376 238,279 262,422
Depletion, depreciation,
amortization, and asset retirement
obligation liability accretion 151,765 153,232 282,238 291,044
Exploration(1) 14,056 12,983 27,783 24,800
Abandonment and impairment of
unproved properties 11,935 157 17,560 157
General and administrative(1) 28,920 28,237 56,602 57,054
Net derivative (gain) loss(2) 63,749 (55,189) 71,278 (169,963)
Other operating expenses, net (57) 4,251 4,555 9,110
--- ----- ----- -----
Total operating expenses 387,768 268,047 698,295 474,624
------- ------- ------- -------
Income (loss) from operations 56,148 (147,326) 515,216 18,835
Interest expense (41,654) (44,595) (84,739) (91,548)
Loss on extinguishment of debt - - - (35)
Other non-operating income, net 1,802 953 2,211 720
----- --- ----- ---
Income (loss) before income taxes 16,296 (190,968) 432,688 (72,028)
Income tax (expense) benefit 901 71,061 (98,090) 26,555
--- ------ ------- ------
Net income (loss) $17,197 $(119,907) $334,598 $(45,473)
======= ========= ======== ========
Basic weighted-average common
shares outstanding 111,701 111,277 111,698 111,274
Diluted weighted-average common
shares outstanding 113,630 111,277 113,267 111,274
Basic net income (loss) per common
share $0.15 $(1.08) $3.00 $(0.41)
Diluted net income (loss) per
common share $0.15 $(1.08) $2.95 $(0.41)
Dividends per common share $ - $ - $0.05 $0.05
(1) Non-cash stock-based compensation included in:
Exploration expense $1,189 $995 $2,505 $2,403
General and administrative expense 4,075 3,363 8,171 7,410
Total non-cash stock-based
compensation $5,264 $4,358 $10,676 $9,813
====== ====== ======= ======
(2) The net derivative (gain) loss line item
consists of the following:
Settlement (gain) loss $36,665 $(16,303) $61,193 $(16,310)
(Gain) loss on fair value changes 27,084 (38,886) 10,085 (153,653)
Total net derivative (gain) loss $63,749 $(55,189) $71,278 $(169,963)
======= ======== ======= =========
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(in thousands) For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2018 2017 2018 2017
---- ---- ---- ----
(as adjusted) (as adjusted)
Cash flows from operating activities:
Net income (loss) $17,197 $(119,907) $334,598 $(45,473)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Net (gain) loss on
divestiture activity (39,501) 167,133 (424,870) 129,670
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 151,765 153,232 282,238 291,044
Abandonment and impairment
of unproved properties 11,935 157 17,560 157
Stock-based compensation
expense 5,264 4,358 10,676 9,813
Net derivative (gain) loss 63,749 (55,189) 71,278 (169,963)
Derivative settlement gain
(loss) (36,665) 16,303 (61,193) 16,310
Amortization of debt
discount and deferred
financing costs 3,884 3,733 7,750 8,679
Loss on extinguishment of
debt - - - 35
Deferred income taxes (861) (64,015) 97,505 (30,790)
Other, net 225 1,088 (2,302) 4,464
Net change in working
capital (5,609) 256 (21,722) 28,182
Net cash provided by
operating activities 171,383 107,149 311,518 242,128
------- ------- ------- -------
Cash flows from investing activities:
Net proceeds from the sale
of oil and gas properties 251,435 21,914 742,215 766,247
Capital expenditures (421,798) (212,342) (723,319) (366,743)
Acquisition of proved and
unproved oil and gas
properties (24,615) (13,035) (24,615) (88,140)
Net cash provided by (used
in) investing activities (194,978) (203,463) (5,719) 311,364
-------- -------- ------ -------
Cash flows from financing activities:
Proceeds from credit
facility - 8,500 - 406,000
Repayment of credit
facility - (8,500) - (406,000)
Cash paid to repurchase
Senior Notes - - - (2,344)
Cash paid for
extinguishment of debt - - - (13)
Net proceeds from sale of
common stock 1,881 1,738 1,881 1,738
Dividends paid (5,584) (5,563) (5,584) (5,563)
Other, net (133) (1) (133) (161)
---- ---- ----
Net cash used in financing
activities (3,836) (3,826) (3,836) (6,343)
------ ------ ------ ------
Net change in cash, cash
equivalents, and
restricted cash (27,431) (100,140) 301,963 547,149
Cash, cash equivalents, and
restricted cash at
beginning of period 643,337 659,661 313,943 12,372
Cash, cash equivalents, and
restricted cash at end of
period $615,906 $559,521 $615,906 $559,521
======== ======== ======== ========
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Adjusted EBITDAX (Non-GAAP)(1)
-----------------------------
(in thousands)
Reconciliation of net
income (loss) (GAAP)
and net cash provided
by operating activities
(GAAP) to adjusted
EBITDAX (Non-GAAP) For the Three Months For the Six Months Ended
Ended June 30, June 30,
2018 2017 2018 2017
---- ---- ----
Net income (loss) (GAAP) $17,197 $(119,907) $334,598 $(45,473)
Interest expense 41,654 44,595 84,739 91,548
Interest income(2) (2,414) (1,265) (3,263) (1,600)
Income tax expense
(benefit) (901) (71,061) 98,090 (26,555)
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 151,765 153,232 282,238 291,044
Exploration(3)(4) 12,867 11,988 25,278 22,397
Abandonment and
impairment of unproved
properties 11,935 157 17,560 157
Stock-based
compensation expense 5,264 4,358 10,676 9,813
Net derivative (gain)
loss 63,749 (55,189) 71,278 (169,963)
Derivative settlement
gain (loss) (36,665) 16,303 (61,193) 16,310
Net (gain) loss on
divestiture activity (39,501) 167,133 (424,870) 129,670
Loss on extinguishment
of debt - - - 35
Other, net 2 3,655 9 8,641
Adjusted EBITDAX (Non-
GAAP)(4) 224,952 153,999 435,140 326,024
------- ------- ------- -------
Interest expense (41,654) (44,595) (84,739) (91,548)
Interest income(2) 2,414 1,265 3,263 1,600
Income tax (expense)
benefit 901 71,061 (98,090) 26,555
Exploration(3)(4) (12,867) (11,988) (25,278) (22,397)
Amortization of debt
discount and deferred
financing costs 3,884 3,733 7,750 8,679
Deferred income taxes (861) (64,015) 97,505 (30,790)
Other, net (4) 223 (2,567) (2,311) (4,177)
Net change in working
capital (5,609) 256 (21,722) 28,182
------ ------- ------
Net cash provided by
operating activities
(GAAP)(4) $171,383 $107,149 $311,518 $242,128
======== ======== ======== ========
(1) Adjusted EBITDAX represents 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 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 other
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) Interest income is included within the
other non-operating income, net line
item on the Company's condensed
consolidated statements of operations.
(3) Stock-based compensation expense is a
component of exploration expense and
general and administrative expense on the
accompanying condensed consolidated
statements of operations. Therefore, the
exploration line items shown in the
reconciliation above will vary from the
amount shown on the Company's
accompanying condensed consolidated
statements of operations for the
component of stock-based compensation
expense recorded to exploration expense.
(4) Certain prior period amounts have been
adjusted to conform to the current period
presentation on the condensed
consolidated financial statements due to
accounting standards updates.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2018
Adjusted Net Income (Loss) (Non-GAAP)
------------------------------------
(in thousands, except per share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
2018 2017 2018 2017
---- ---- ---- ----
Net income (loss) (GAAP) $17,197 $(119,907) $334,598 $(45,473)
Net derivative (gain)
loss 63,749 (55,189) 71,278 (169,963)
Derivative settlement
gain (loss) (36,665) 16,303 (61,193) 16,310
Net (gain) loss on
divestiture activity (39,501) 167,133 (424,870) 129,670
Abandonment and
impairment of unproved
properties 11,935 157 17,560 157
Loss on extinguishment
of debt - - - 35
Other, net(1) 2 3,655 809 8,641
Tax effect of
adjustments(2) 104 (47,673) 86,022 5,469
Adjusted net income
(loss) (Non-GAAP)(3) $16,821 $(35,521) $24,204 $(55,154)
======= ======== ======= ========
Diluted net income
(loss) per common share
(GAAP) $0.15 $(1.08) $2.95 $(0.41)
Net derivative (gain)
loss 0.56 (0.50) 0.63 (1.53)
Derivative settlement
gain (loss) (0.32) 0.15 (0.54) 0.15
Net (gain) loss on
divestiture activity (0.35) 1.50 (3.75) 1.17
Abandonment and
impairment of unproved
properties 0.11 - 0.16 -
Loss on extinguishment
of debt - - - -
Other, net(1) - 0.03 0.01 0.07
Tax effect of
adjustments(2) - (0.42) 0.75 0.05
--- -----
Adjusted net income
(loss) per diluted
common share (Non-
GAAP)(4) $0.15 $(0.32) $0.21 $(0.50)
===== ====== ===== ======
Basic weighted-average
common shares
outstanding (GAAP) 111,701 111,277 111,698 111,274
Diluted weighted-
average common shares
outstanding (GAAP) 113,630 111,277 113,267 111,274
Note: Amounts may not calculate due to
rounding.
(1) For the three-month and six-month
periods ended June 30, 2018, the
adjustment is related to bad debt
expense. Additionally, for the six-month
period ended June 30, 2018, an accrual
for a non-recurring matter is included.
For the three-month and six-month
periods ended June 30, 2017, the
adjustment is related to the change in
Net Profits Plan liability and impairment
of proved properties. Additionally, for
the six-month period ended June 30,
2017, an adjustment related to materials
inventory loss is included. These items
are included in other operating expenses
on the Company's condensed consolidated
statements of operations.
(2) The tax effect of adjustments is
calculated using a tax rate of 21.7% for
the three-month and six-month periods
ended June 30, 2018, and a tax rate of
36.1% for the three-month and six-month
periods ended June 30, 2017. Note that
the rate used for the three-month period
ended March 31, 2018 was 21.9%. These
rates approximate the Company's statutory
tax rate for the respective periods, as
adjusted for ordinary permanent
differences.
(3) Adjusted net income (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.
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SOURCE SM Energy Company
