SM Energy Reports Third Quarter 2018 Results: Great Wells, High Margins And Solid Cash Flow Growth
DENVER, Nov. 1, 2018 /PRNewswire/ -- SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the third quarter of 2018. Highlights include:
-- New RockStar wells demonstrate excellent performance from 3 intervals.
25 new RockStar wells had average 30-day IP rates of 1,300 Boe/d per
well and averaged 88% oil.
-- Production exceeded guidance range. 130.2 MBoe/d average production, 42%
oil; Midland Basin production from retained assets was up 26%
sequentially and 108% year-over-year.
-- Big revenue growth and high margins. Production revenue was up 56%
year-over-year driven by a 48% increase in oil production and a 39%
increase in the realized price per Boe; operating margin (pre-hedge)
averaged $25.16 per Boe, up 86% year-over-year.
-- High margins translated into solid cash flows. Net cash provided by
operating activities (GAAP) was $229.7 million and adjusted EBITDAX was
$256.1 million (adjusted EBITDAX is a non-GAAP measure, see below for
additional information); adjusted EBITDAX increased 56% year-over-year.
-- Strengthening debt metrics. Net debt-to-adjusted EBITDAX (trailing
twelve months) dropped to 2.9 times, meeting the Company's year-end
objective of less than 3.0 times (Net debt-to-adjusted EBITDAX is a
non-GAAP measure, see below for additional information.)
MANAGEMENT COMMENTARY
President and Chief Executive Officer Jay Ottoson comments: "In the first nine months of 2018, we met or exceeded our plan objectives for production growth, capital efficiency and debt reduction while maintaining our planned level of drilling and completion activity. Our exceptional operational execution and prudent balance sheet management position our Company to meet our targeted total capital spend-to-cash flow neutrality by mid-year 2019 and competitive growth in cash flow per debt-adjusted-share."
SUMMARY WELL RESULTS
Results from 25 new RockStar wells, having an average 10,021 foot lateral, that have reached their 30-day peak IP rates include:
-- Successful results across three intervals with 17 Wolfcamp A wells
averaging 1,341 Boe/d per well, 3 Wolfcamp B wells averaging 1,228 Boe/d
per well and 5 Lower Spraberry wells averaging 1,198 Boe/d per well.
-- Successful results across the acreage position including 10 of the 25
wells located in the eastern portion of the RockStar area.
-- 23 of the 25 wells are half or fully bounded.
-- Given results from all 14 wells at Kramer-Costanza, the development on
three pads averaged 30-day peak IP rates of 1,300 Boe/d per well and 87%
oil.
In 2018 year-to-date, the Company has reported results for all 2018 RockStar wells with 30-day peak IP rates. This has included 84 wells located across the acreage position in three intervals. These wells have average 30-day rates of more than 1,300 Boe/d per well, at an average 88% oil, and have average lateral lengths of 10,070 feet.
THIRD QUARTER 2018 RESULTS
As previously announced, third quarter production and realized prices were strong. Production was 12.0 MMBoe, or 130.2 MBoe/d, exceeding the Company's expectations primarily due to strong well performance and increased processed NGL volumes. Realized pricing (before the effects of hedges) averaged $38.26 per Boe, benefiting from high benchmark oil and NGL prices and despite an increased Midland-WTI differential. For the first nine months of 2018, production was 32.6 MMBoe, or 119.4 MBoe/d and realized pricing (before the effects of hedges) averaged $38.15 per Boe.
Third quarter of 2018 net loss was ($135.9) million, or ($1.21) per diluted common share, compared with a loss of ($89.1) million, or ($0.80) per diluted common share, in the third quarter of 2017. Third quarter of 2018 net loss includes a net derivative loss of ($178.0) million and loss on extinguishment of debt of ($26.7) million. For the first nine months of 2018, net income was $198.7 million, or $1.75 per diluted common share.
Third quarter of 2018 net cash provided by operating activities (GAAP) was $229.7 million.
Adjusted net income, adjusted net income per diluted common share, adjusted EBITDAX and net debt-to-adjusted EBITDAX are non-GAAP measures. Please reference the reconciliations to the most directly comparable GAAP financial measures at the end of this release.
Third quarter of 2018 adjusted net loss was ($1.0) million, or ($0.01) per diluted common share, compared with an adjusted net loss of ($27.5) million, or ($0.25) per diluted common share, in the third 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, third quarter adjustments remove the loss on extinguishment of debt, non-cash derivative losses and abandonment and impairment charges. Third quarter adjusted net income does not adjust for a $9.0 million (tax adjusted) out of period DD&A expense or $5.2 million (tax adjusted) non-recurring contingent liability expenses. In addition, third quarter DD&A expense increased in total and on a per unit basis compared with the prior year period and sequentially due to higher Permian volumes, which have higher depletion rates, as well as capital spend on facilities/Midland water management system in the first half of the year. For the first nine months of 2018, adjusted net income was $23.2 million, or $0.20 per diluted common share.
Third quarter of 2018 adjusted EBITDAX was $256.1 million, up a significant 56% from $164.3 million in the third quarter of 2017. The increase in adjusted EBITDAX was primarily driven by the 12% increase in total production and 86% increase in the operating margin per Boe (pre-hedge). For the first nine months of 2018, adjusted EBITDAX was $691.2 million.
COMMODITY DERIVATIVES
For the fourth quarter of 2018, the Company currently has commodity derivatives in place for approximately 85% of expected oil production and 70% of expected natural gas production (NGLs are hedged by product). Additionally for the fourth quarter of 2018, the Company has Midland-NYMEX WTI basis hedges in place for approximately 70-75% of expected Midland oil production based on current Company estimates.
GUIDANCE UPDATE
The Company previously announced that fourth quarter production would be affected by a force majeure incident at a third-party gas processing facility, as well as regional storms. Subsequent to that announcement, the RockStar area was further impacted by heavy rains associated with Hurricane Willa and also experienced isolated curtailments related to a leak at a third-party oil pipeline used by one of the Company's purchasers. The effect on fourth quarter production related to the temporary shut-in of some wells and delayed installation of pipeline connections on certain new wells is now estimated to be 0.6 MMBoe. While the Company expects that these matters are being resolved or mitigated, it expects certain effects to last through year-end.
Expected full year 2018 production guidance is narrowed to a range of 43.9-44.3 MMBoe (120.3-121.4 MBoe/d) from 43.5-45.0 MMBoe (119.2-123.3 MBoe/d) and is expected to average approximately 42% oil in the commodity mix. This includes the estimated effects of the temporary issues discussed above.
-- This implies a fourth quarter production guidance range of 11.3-11.7
MMBoe, or 122.8-127.2 MBoe/d.
-- Fourth quarter production is expected to approximate 42% oil in the
commodity mix.
-- The Company expects to process ethane, where possible, each month during
the fourth quarter.
Total capital spend (before acquisitions) is a non-GAAP measure, see below for additional information. 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.
Expected full year 2018 total capital spend guidance is unchanged at $1.31 billion and expected full year net well completions are unchanged at 103 in the Permian and 25 in the Eagle Ford.
-- This implies expected total capital spend in the fourth quarter of 2018
of approximately $240-250 million.
-- The Company is currently running six rigs and three completion crews in
the Midland Basin and one rig and one completions crew in the Eagle
Ford.
-- During the fourth quarter, the Company expects to complete approximately
20 net wells in the Midland Basin and 14 gross wells (of which 8 will be
part of its Eagle Ford JV) and approximately 6 net wells in the Eagle
Ford.
Full year 2018 guidance is updated for LOE, which is now expected to approximate $4.75/Boe for the full year (down from approximately $5.00/Boe) and for DD&A/Boe, which is now expected to range between $15.00-$15.25 (increased from a range of $13.00-$15.00/Boe) to include increased rates in the second half of 2018. Other guidance line items remain unchanged.
SCHEDULE FOR THIRD 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 third quarter detail.
Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time on November 2, 2018 for the third 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 6519928) - Domestic toll free/International:
844-343-4183/647-689-5129
-- Replay (conference ID 6519928) - Domestic toll free/International:
800-585-8367/416-621-4642
The call replay will be available approximately one hour after the call until November 9, 2018.
UPCOMING CONFERENCE PARTICIPATION
-- November 6, 2018 - Baird 2018 Global Industrial Conference. President
and Chief Executive Officer Jay Ottoson will present at 8:30 a.m.
Central time. This event will be webcast. An investor presentation for
this event will be posted to the Company's website on November 6, 2018.
-- November 15, 2018 - BAML 2018 Global Energy Conference. Executive Vice
President and Chief Financial Officer Wade Pursell will present at 9:45
a.m. Eastern time. This event will be webcast.
-- December 4, 2018 - BAML Leveraged Finance Conference. Executive Vice
President and Chief Financial Officer Wade Pursell will present at 11:30
a.m. Eastern time. This event will be webcast. An investor presentation
for this event will be posted to the Company's website on December 4,
2018.
-- December 5, 2018 - Capital One Securities 13(th) Annual Energy
Conference. President and Chief Executive Officer Jay Ottoson will
present at 1:30 p.m. Central time. This event will be webcast.
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 fourth quarter and full year 2018 and projected effects on production volumes from regional storms and from a force majeure event at a third-party gas processing facility and an event at a third-party pipeline. 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 and related differentials, including any impact on the Company's asset carrying values or reserves arising from price declines; uncertainties inherent in projecting future timing and 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 uncertain nature of joint venture or similar efforts and the ability to complete any such transactions; the uncertain nature of expected benefits from the actual or expected joint venture 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)
September 30, 2018
Production Data
---
For the Nine Months Ended
September 30,
For the Three Months Ended
September 30,
2018 2017 Percent 2018 2017 Percent
Change Change
---
Average realized sales price, before the
effects of derivative settlements:
Oil (per Bbl) $
56.96 $
45.20 26 $
59.60 $
45.77 30
% %
Gas (per Mcf) $
3.56 $
2.96 20 $
3.35 $
2.98 12
% %
NGLs (per Bbl) $
30.77 $
22.40 37 $
28.28 $
21.36 32
% %
Per Boe $
38.26 $
27.59 39 $
38.15 $
26.76 43
% %
Average realized sales price, including
the effects of derivative settlements:
Oil (per Bbl) $
53.64 $
44.47 21 $
55.06 $
44.32 24
% %
Gas (per Mcf) $
3.53 $
3.79 (7) $
3.41 $
3.63 (6)
% %
NGLs (per Bbl) $
21.16 $
18.86 12 $
20.79 $
18.93 10
% %
Equivalent (per Boe) $
34.86 $
28.82 21 $
35.02 $
27.62 27
% %
Production:
Oil (MMBbl) 5.0 3.4 48 13.7 9.8 39
% %
Gas (Bcf) 27.2 29.1 (7) 77.7 97.0 (20)
% %
NGLs (MMBbl) 2.4 2.4
% 6.0 8.1 (26)
%
MMBoe 12.0 10.7 12 32.6 34.1 (4)
% %
Average daily production:
Oil (MBbl/d) 54.9 37.1 48 50.1 36.1 39
% %
Gas (MMcf/d) 295.3 316.1 (7) 284.7 355.4 (20)
% %
NGLs (MBbl/d) 26.2 26.2
% 21.9 29.6 (26)
%
MBoe/d 130.2 116.0 12 119.4 124.9 (4)
% %
Per Boe data:
Realized price, before the
effects of derivative % %
settlements $
38.26 $
27.59 39 $
38.15 $
26.76 43
Lease operating expense 4.41 4.81 (8) 4.66 4.22 10
% %
Transportation costs 4.20 5.24 (20) 4.42 5.62 (21)
% %
Production taxes 1.58 1.15 37 1.64 1.11 48
% %
Ad valorem tax expense 0.45 0.29 55 0.51 0.34 50
% %
General and 2.46 2.58 (5) 2.64 2.48 6
administrative(1) (2) % %
Operating margin, before
the effects of derivative % %
settlements(2) 25.16 13.52 86 24.28 12.99 87
Derivative settlement gain (3.40) 1.23 (376) (3.13) 0.86 (464)
(loss) % %
Operating margin,
including the effects of % %
derivative settlements(2) $
21.76 $
14.75 48 $
21.15 $
13.85 53
Depletion, depreciation, $
16.78 $
12.61 33 $
14.82 $
12.48 19
amortization, and % %
asset retirement obligation
liability accretion
(1) Includes non-cash stock-based
compensation expense per Boe of
$0.45 for both the three months
ended September 30, 2018, and
2017, and $0.42 and $0.36 for the
nine months ended September 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)
September 30, 2018
Condensed Consolidated Balance Sheets
---
(in thousands, except share
data) September 30, December 31,
ASSETS 2018 2017
---
Current assets:
Cash and cash equivalents $
176,806 $
313,943
Accounts receivable 179,347 160,154
Derivative assets 81,163 64,266
Prepaid expenses and other 15,826 10,752
Total current assets 453,142 549,115
Property and equipment (successful efforts
method):
Proved oil and gas properties 6,686,922 6,139,379
Accumulated depletion,
depreciation, and amortization (3,240,124) (3,171,575)
Unproved oil and gas properties 1,892,557 2,047,203
Wells in progress 328,808 321,347
Properties held for sale, net 5,040 111,700
Other property and equipment,
net of accumulated
depreciation of $56,067 and
$49,985, respectively 102,984 106,738
Total property and equipment,
net 5,776,187 5,554,792
Noncurrent assets:
Derivative assets 8,853 40,362
Other noncurrent assets 35,539 32,507
Total noncurrent assets 44,392 72,869
Total assets $
6,273,721 $
6,176,776
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $
429,698 $
386,630
Derivative liabilities 304,159 172,582
Total current liabilities 733,857 559,212
Noncurrent liabilities:
Revolving credit facility -
Senior Notes, net of
unamortized deferred financing
costs 2,447,290 2,769,663
Senior Convertible Notes, net
of unamortized discount and
deferred financing costs 145,662 139,107
Asset retirement obligations 88,149 103,026
Asset retirement obligations
associated with oil and gas
properties held for sale - 11,369
Deferred income taxes 140,949 79,989
Derivative liabilities 72,605 71,402
Other noncurrent liabilities 45,810 48,400
Total noncurrent liabilities 2,940,465 3,222,956
Stockholders' equity:
Common stock, $0.01 par value -
authorized: 200,000,000
shares; issued and
outstanding: 112,137,582 and
111,687,016 shares,
respectively 1,121 1,117
Additional paid-in capital 1,758,205 1,741,623
Retained earnings(1) 856,111 665,657
Accumulated other comprehensive
loss(1) (16,038) (13,789)
Total stockholders' equity 2,599,399 2,394,608
Total liabilities and
stockholders' equity $
6,273,721 $
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)
September 30, 2018
Condensed Consolidated Statements of
Operations
---
(in thousands, except per share For the Three Months Ended September
data) 30, For the Nine Months Ended September 30,
---
2018 2017 2018 2017
---
(as adjusted) (as adjusted)
Operating revenues and other income:
Oil, gas, and NGL production
revenue $
458,382 $
294,459 $
1,243,826 $
912,596
Net gain (loss) on divestiture
activity 786 (1,895) 425,656 (131,565)
Other operating revenues 201 2,815 3,398 7,807
Total operating revenues and other
income 459,369 295,379 1,672,880 788,838
Operating expenses:
Oil, gas, and NGL production
expense 127,638 122,651 365,917 385,073
Depletion, depreciation,
amortization, and asset retirement
obligation liability accretion 201,105 134,599 483,343 425,643
Exploration(1) 13,061 14,119 40,844 38,919
Abandonment and impairment of
unproved properties 9,055 26,615 157
General and administrative(1) 29,464 27,564 86,066 84,618
Net derivative (gain) loss(2) 178,026 80,599 249,304 (89,364)
Other operating expenses, net 9,664 999 14,219 10,109
Total operating expenses 568,013 380,531 1,266,308 855,155
Income (loss) from operations (108,644) (85,152) 406,572 (66,317)
Interest expense (38,111) (44,091) (122,850) (135,639)
Loss on extinguishment of debt (26,722) (26,722) (35)
Other non-operating income, net 806 861 3,017 1,581
Income (loss) before income taxes (172,671) (128,382) 260,017 (200,410)
Income tax (expense) benefit 36,748 39,270 (61,342) 65,825
Net income (loss) $
(135,923) $
(89,112) $
198,675 $
(134,585)
Basic weighted-average common
shares outstanding 112,107 111,575 111,836 111,366
Diluted weighted-average common
shares outstanding 112,107 111,575 113,600 111,366
Basic net income (loss) per common
share $
(1.21) $
(0.80) $
1.78 $
(1.21)
Diluted net income (loss) per
common share $
(1.21) $
(0.80) $
1.75 $
(1.21)
Dividends per common share $
0.05 $
0.05 $
0.10 $
0.10
(1) Non-cash stock-based compensation included in:
Exploration expense $
1,571 $
1,495 $
4,076 $
3,898
General and administrative expense 5,433 4,852 13,604 12,262
Total non-cash stock-based
compensation $
7,004 $
6,347 $
17,680 $
16,160
(2) The net derivative (gain) loss line item
consists of the following:
Settlement (gain) loss $
40,718 $
(13,092) $
101,911 $
(29,402)
(Gain) loss on fair value changes 137,308 93,691 147,393 (59,962)
Total net derivative (gain) loss $
178,026 $
80,599 $
249,304 $
(89,364)
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2018
Condensed Consolidated Statements of
Cash Flows
---
(in thousands) For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---
2018 2017 2018 2017
---
(as adjusted) (as adjusted)
Cash flows from operating activities:
Net income (loss) $
(135,923) $
(89,112) $
198,675 $
(134,585)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Net (gain) loss on
divestiture activity (786) 1,895 (425,656) 131,565
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 201,105 134,599 483,343 425,643
Abandonment and impairment
of unproved properties 9,055 26,615 157
Stock-based compensation
expense 7,004 6,347 17,680 16,160
Net derivative (gain) loss 178,026 80,599 249,304 (89,364)
Derivative settlement gain
(loss) (40,718) 13,092 (101,911) 29,402
Amortization of debt
discount and deferred
financing costs 3,792 3,799 11,542 12,478
Loss on extinguishment of
debt 26,722 26,722 35
Deferred income taxes (36,833) (36,668) 60,672 (67,458)
Other, net 218 1,960 (2,084) 6,424
Net change in working
capital 17,997 11,971 (3,725) 40,153
Net cash provided by
operating activities 229,659 128,482 541,177 370,610
Cash flows from investing activities:
Net proceeds from the sale
of oil and gas properties 984 12,118 743,199 778,365
Capital expenditures (309,269) (258,226) (1,032,588) (624,969)
Acquisition of proved and
unproved oil and gas
properties 44 751 (24,571) (87,389)
Net cash provided by (used
in) investing activities (308,241) (245,357) (313,960) 66,007
Cash flows from financing activities:
Proceeds from credit
facility - 406,000
Repayment of credit
facility - (406,000)
Debt issuance costs related
to credit facility (4,647) (4,771)
Net proceeds from Senior
Notes 492,079 492,079
Cash paid to repurchase
Senior Notes, including
premium (844,984) (844,984) (2,357)
Net proceeds from sale of
common stock - 1,881 1,738
Dividends paid - (5,584) (5,563)
Other, net (2,966) (1,231) (2,975) (1,392)
Net cash used in financing
activities (360,518) (1,231) (364,354) (7,574)
Net change in cash, cash
equivalents, and
restricted cash (439,100) (118,106) (137,137) 429,043
Cash, cash equivalents, and
restricted cash at
beginning of period 615,906 559,521 313,943 12,372
Cash, cash equivalents, and
restricted cash at end of
period $
176,806 $
441,415 $
176,806 $
441,415
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 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 Ended For the Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
---
Net income (loss) (GAAP) $
(135,923) $
(89,112) $
198,675 $
(134,585)
Interest expense 38,111 44,091 122,850 135,639
Interest income(2) (1,332) (1,301) (4,595) (2,901)
Income tax expense
(benefit) (36,748) (39,270) 61,342 (65,825)
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 201,105 134,599 483,343 425,643
Exploration(3)(4) 11,490 12,624 36,768 35,021
Abandonment and
impairment of unproved
properties 9,055 26,615 157
Stock-based
compensation expense 7,004 6,347 17,680 16,160
Net derivative (gain)
loss 178,026 80,599 249,304 (89,364)
Derivative settlement
gain (loss) (40,718) 13,092 (101,911) 29,402
Net (gain) loss on
divestiture activity (786) 1,895 (425,656) 131,565
Loss on extinguishment
of debt 26,722 26,722 35
Other, net 67 785 76 9,426
Adjusted EBITDAX (non-
GAAP)(4) 256,073 164,349 691,213 490,373
Interest expense (38,111) (44,091) (122,850) (135,639)
Interest income(2) 1,332 1,301 4,595 2,901
Income tax (expense)
benefit 36,748 39,270 (61,342) 65,825
Exploration(3)(4) (11,490) (12,624) (36,768) (35,021)
Amortization of debt
discount and deferred
financing costs 3,792 3,799 11,542 12,478
Deferred income taxes (36,833) (36,668) 60,672 (67,458)
Other, net (4) 151 1,175 (2,160) (3,002)
Net change in working
capital 17,997 11,971 (3,725) 40,153
Net cash provided by
operating activities
(GAAP)(4) $
229,659 $
128,482 $
541,177 $
370,610
(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 total funded debt, as defined in the
Credit Agreement, to adjusted EBITDAX, 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)
September 30, 2018
Adjusted Net Income (Loss) (non-GAAP)
---
(in thousands, except per share data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---
2018 2017 2018 2017
---
Net income (loss) (GAAP) $
(135,923) $
(89,112) $
198,675 $
(134,585)
Net derivative (gain)
loss 178,026 80,599 249,304 (89,364)
Derivative settlement
gain (loss) (40,718) 13,092 (101,911) 29,402
Net (gain) loss on
divestiture activity (786) 1,895 (425,656) 131,565
Abandonment and
impairment of unproved
properties 9,055 26,615 157
Loss on extinguishment
of debt 26,722 26,722 35
Other, net(1) 67 785 876 9,426
Tax effect of
adjustments(2) (37,403) (34,790) 48,619 (29,321)
Adjusted net income
(loss) (non-GAAP)(3) $
(960) $
(27,531) $
23,244 $
(82,685)
Diluted net income
(loss) per common share
(GAAP) $
(1.21) $
(0.80) $
1.75 $
(1.21)
Net derivative (gain)
loss 1.59 0.72 2.19 (0.80)
Derivative settlement
gain (loss) (0.36) 0.12 (0.90) 0.27
Net (gain) loss on
divestiture activity (0.01) 0.02 (3.75) 1.18
Abandonment and
impairment of unproved
properties 0.08 0.23
Loss on extinguishment
of debt 0.24 0.24
Other, net(1) - 0.01 0.08
Tax effect of
adjustments(2) (0.34) (0.31) 0.43 (0.26)
Adjusted net income
(loss) per diluted
common share (non-
GAAP)(4) $
(0.01) $
(0.25) $
0.20 $
(0.74)
Basic weighted-average
common shares
outstanding 112,107 111,575 111,836 111,366
Diluted weighted-
average common shares
outstanding 112,107 111,575 113,600 111,366
Note: Amounts may not calculate due to
rounding.
(1) For the three-month and nine-month
periods ended September 30, 2018, the
adjustment is related to bad debt
expense. Additionally, for the nine-
month period ended September 30, 2018, an
accrual for a non-recurring matter is
included. For the three-month and nine-
month periods ended September 30, 2017,
the adjustment is related to impairment
on materials inventory, impairment of
proved properties, the change in Net
Profits Plan liability, and bad debt
expense. 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 nine-month periods
ended September 30, 2018, and a tax rate
of 36.1% for the three-month and nine-
month periods ended September 30, 2017.
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.
Additional non-GAAP Measures Defined:
The Company defines Total capital spend as costs incurred, less 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 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 under GAAP. Total capital spend may not be comparable to similarly titled measures of other companies.
The Company defines Net debt as the total principal value of outstanding senior notes, senior convertible notes plus balances 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.
Reconciliation of Net
Debt
---
(in thousands) September 30,
2018
Senior Notes
(principal value
from Note 5 of Form
10-Q) $
2,476,796
Senior Convertible
Notes (principal
value from Note 5 of
Form 10-Q) 172,500
Revolving credit
facility
Total funded debt $
2,649,296
Less: Cash and cash
equivalents (176,806)
Net Debt $
2,472,490
The Company defines Net debt-to-adjusted EBITDAX as Net Debt (defined above) divided by adjusted EBITDAX (reconciled below) for the prior twelve-month period. 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. Please see below for a reconciliation of trailing twelve months adjusted EBITDAX to net income (GAAP).
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
September 30, 2018
Adjusted EBITDAX (non-GAAP)
(1)
---
(in thousands)
Reconciliation of net income For the Trailing Twelve
(GAAP) and net cash provided by Month
operating activities (GAAP) to
Adjusted EBITDAX (non-GAAP)
Period Ended September 30,
2018
Net income (GAAP) $
172,417
Interest expense 166,468
Interest income(2) (5,662)
Income tax benefit (55,803)
Depletion, depreciation,
amortization, and asset
retirement obligation liability
accretion 614,736
Exploration(3)(4) 50,160
Abandonment and impairment of
unproved properties 38,730
Stock-based compensation
expense 24,220
Net derivative loss 365,082
Derivative settlement loss (110,079)
Net gain on divestiture activity (426,193)
Loss on extinguishment of debt 26,722
Other, net 3,276
Adjusted EBITDAX (non-GAAP)(4) 864,074
Interest expense (166,468)
Interest income(2) 5,662
Income tax benefit 55,803
Exploration(3)(4) (50,160)
Amortization of debt discount
and deferred financing costs 15,340
Deferred income taxes (63,936)
Other, net(4) (93)
Net change in working capital 25,735
Net cash provided by operating
activities (GAAP)(4) $
685,957
(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 total funded debt, as defined in the
Credit Agreement, to adjusted EBITDAX, 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.
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SOURCE SM Energy Company
