SM Energy Reports Second Quarter 2019 Results: Solid Earnings And Cash Flow Driven By Continued Execution
DENVER, Aug. 1, 2019 /PRNewswire/ -- SM Energy Company ("SM Energy" or the "Company") (NYSE: SM) today announced financial and operating results for the second quarter of 2019. Highlights include:
-- Better wells at lower costs - As previously reported, second quarter
production of 12.4 MMBoe (136.5 MBoe/d), was up 19% from the second
quarter of 2018 and up 16% sequentially, as performance from both the
Midland Basin and South Texas exceeded expectations. Oil production of
5.4 MMBbls (60 MBbls/d) was up 24% from the second quarter of 2018 and
12% sequentially. Second quarter 2019 costs incurred in oil and gas
activities was $269 million and total capital spend (total capital spend
is a non-GAAP measure; see below for definition and reconciliation) was
$261 million. Total capital spend was below guidance and reflects
continued cost savings.
-- Strong production drove solid earnings and cash flow - Net income was
$50.4 million; EPS was $0.45 per diluted common share, and adjusted EPS
was $0.01 per diluted common share; net cash provided by operating
activities was $259.9 million and adjusted EBITDAX was $263.0 million,
up 41% sequentially (adjusted EPS and adjusted EBITDAX are non-GAAP
measures; see below for definition and reconciliation).
-- Best in class well performance - The Sarah Connor 1050WA well set SM's
record as its top performing Midland Basin well to date, based on a peak
30-day IP rate of 2,426 Boe/d (93% oil) from a 10,366 foot lateral. 27
new RockStar wells across five intervals reached 30-day peak IP rates
averaging 1,250 Boe/d per well and 87% oil.
-- Value enhancement through successful interval tests - Four new horizons
have continued to deliver encouraging results, including the Company's
previously announced Austin Chalk wells in South Texas and its first
Middle Spraberry, Dean and Wolfcamp D tests in RockStar.
MANAGEMENT COMMENTARY
President and Chief Executive Officer Jay Ottoson comments: "Our excellent performance is the result of having some of the best assets in the Midland Basin combined with continued outstanding operational execution. This year, operational efforts include well tests from South Texas and the Midland Basin on four new horizons that, while early, remain encouraging for organic inventory growth and value creation. Adjusted EBITDAX for the second quarter was the highest recorded since 2015, despite lower natural gas and NGL prices. We are generating top tier returns, continuing to drive higher operating margins and are on course with our long-term plan to deliver a positive free cash flow yield and de-lever the balance sheet."
SUMMARY WELL RESULTS
New well results include RockStar area wells that reached their 30-day peak IP rates subsequent to the Company's May 2019 update and new interval exploration results in both the RockStar area and South Texas.
-- Results from 27 new RockStar wells, having an average lateral length of
10,552 feet, delivered 30-day peak IP rates that averaged 1,250 Boe/d
per well and 87% oil. This includes wells across five intervals, 24 of
which were fully or half bounded.
-- By interval, results included 13 Wolfcamp A wells averaging 1,326
Boe/d per well, two Wolfcamp B wells averaging 902 Boe/d per well,
and 10 Lower Spraberry wells averaging 1,076 Boe/d per well.
-- As previously reported, new interval tests at RockStar targeting the
Dean and Wolfcamp D reached 30-day peak rates of approximately 1,550
Boe/d (92% oil) and approximately 1,400 Boe/d (80% oil and naturally
flowing), respectively. New interval tests at RockStar continue to
be encouraging and the Company plans to include additional tests in
future programs.
-- All 25 wells that are part of the Merlin Maximus development have now
reached their 30-day peak IP rates, averaging approximately 1,400 Boe/d
per well and 86% oil.
-- As previously reported, the Company's Watson State Austin Chalk test in
South Texas continues to show encouraging results with a 30-day peak IP
rate that averaged approximately 3,200 Boe/d (3-stream) with
approximately 55% liquids from a 12,875 foot lateral. Both Austin Chalk
test wells continue to perform well and, based on their success, the
Company has planned two additional tests, both of which are expected to
start producing in the fourth quarter. The Austin Chalk presents the
potential for higher margin and higher return wells due to higher
liquids content and lower transportation costs per Boe.
SECOND QUARTER 2019 RESULTS
Second quarter of 2019 production was 12.4 MMBoe, or 136.5 MBoe/d, with 44% oil in the commodity mix. Second quarter realized prices (before the effects of hedges) averaged $32.75 per Boe. The Company realized a $4.1 million, or $0.32 per Boe, gain after the effects of hedges.
Second quarter of 2019 net income was $50.4 million, or $0.45 per diluted common share, compared with net income of $17.2 million, or $0.15 per diluted common share, in the second quarter of 2018. For the first six months of 2019, net loss was ($127.2) million or ($1.13) per diluted common share.
Second quarter of 2019 net cash provided by operating activities was $259.9 million. For the first six months of 2019, net cash provided by operating activities was $378.4 million.
The following paragraphs discuss adjusted net income (loss), adjusted net income (loss) per diluted common share, and adjusted EBITDAX, all of which are non-GAAP measures. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.
Second quarter of 2019 adjusted EBITDAX was $263.0 million. Adjusted EBITDAX is up 17% year-over-year and up 41% sequentially. The increase in adjusted EBITDAX year-over-year was primarily driven by a production increase of 19% and per unit operating costs down by 11%, partially offset by lower realized prices (post-hedge). The sequential increase in adjusted EBITDAX was driven by a 16% increase in total production, including a 12% increase in oil production and a 14% decline in per unit operating costs. For the first six months of 2019, adjusted EBITDAX was $449.5 million.
Second quarter of 2019 adjusted net income was $1.3 million, or $0.01 per diluted common share, compared with adjusted net income of $16.8 million, or $0.15 per diluted common share, in the second quarter of 2018. For the first six months of 2019, adjusted net loss was ($36.4) million, or ($0.32) per diluted common share.
COMMODITY DERIVATIVES
As of July 31, 2019, the Company had commodity derivatives in place for the third and fourth quarters of 2019 and fiscal year 2020, including:
-- WTI oil hedges for approximately 80% of expected second half 2019 and
approximately 50% + of expected 2020 oil production;
-- HSC natural gas hedges for approximately 70% of expected second half
2019 production;
-- Midland-Cushing differential hedges for approximately 60% of expected
second half 2019 and expected 2020 Permian oil production; and
-- WAHA natural gas hedges for approximately 70% of expected second half
2019 Permian residue natural gas production
Detailed data on derivatives are provided in the accompanying IR presentation and the Company's Quarterly Report on Form 10-Q for the second quarter of 2019.
SCHEDULE FOR SECOND QUARTER REPORTING
This release is accompanied by an investor presentation and pre-recorded call with transcript all of which are 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, 2019 for the second quarter 2019 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 3293419) - Domestic toll free/International:
844-343-4183/647-689-5129
-- Replay (conference ID 3293419) - 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, 2019.
UPCOMING CONFERENCE PARTICIPATION
-- August 12, 2019 - Enercom's The Oil and Gas Conference. President and
Chief Executive Officer Jay Ottoson will present at 2:30 p.m. Mountain
time. The presentation will be webcast, accessible from the Company's
website, and available for replay for a limited period. An investor
presentation for this event will be posted to the Company's website
before market open on August 12, 2019.
-- September 3, 2019 - Barclay's Global CEO - Energy Power Conference.
President and Chief Executive Officer Jay Ottoson will present at 1:45
p.m. Eastern time. The presentation will be webcast, accessible from the
Company's website, and available for replay for a limited period. An
investor presentation for this event will be posted to the Company's
website before market open on September 3, 2019.
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," "objectives," "target," "will," "on course," "potential" 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: projections for cash flow yield; projections for improved margins; Austin Chalk production and related margin projections; expected inventory growth; expected value creation; and, expected de-levering of the balance sheet. 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 test results and 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 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; and other such matters discussed in the Risk Factors section of SM Energy's most recent Annual Report on Form 10-K, as such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this 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, 2019
Production Data
---
For the Three Months Ended
For the Six Months Ended
June 30,
June 30,
2019 2018 Percent 2019 2018 Percent
Change Change
---
Average realized sales price, before the
effects of derivative settlements:
Oil (per Bbl) $
56.04 $
61.02 (8) $
52.95 $
61.14 (13)
% %
Gas (per Mcf) $
2.31 $
3.32 (30) $
2.50 $
3.23 (23)
% %
NGLs (per Bbl) $
16.42 $
27.55 (40) $
17.76 $
26.60 (33)
% %
Per Boe $
32.75 $
38.40 (15) $
32.34 $
38.09 (15)
% %
Average realized sales price, including
the effects of derivative settlements:
Oil (per Bbl) $
54.07 $
55.42 (2) $
51.77 $
55.90 (7)
% %
Gas (per Mcf) $
2.51 $
3.29 (24) $
2.53 $
3.34 (24)
% %
NGLs (per Bbl) $
20.42 $
21.51 (5) $
20.08 $
20.54 (2)
% %
Equivalent (per Boe) $
33.07 $
34.91 (5) $
32.30 $
35.12 (8)
% %
Production(1):
Oil (MMBbl) 5.4 4.4 24 10.3 8.6 19
% %
Gas (Bcf) 28.3 25.3 12 52.2 50.5 3
% %
NGLs (MMBbl) 2.3 1.9 20 4.2 3.6 16
% %
MMBoe 12.4 10.5 19 23.1 20.6 12
% %
Average daily production(1):
Oil (MBbl/d) 59.6 47.9 24 56.7 47.6 19
% %
Gas (MMcf/d) 310.9 278.3 12 288.3 279.3 3
% %
NGLs (MBbl/d) 25.1 20.9 20 23.0 19.7 16
% %
MBoe/d 136.5 115.2 19 127.7 113.9 12
% %
Per Boe data:
Realized price, before the
effects of derivative % %
settlements $
32.75 $
38.40 (15) $
32.34 $
38.09 (15)
Lease operating expense 4.16 4.66 (11) 4.64 4.80 (3)
% %
Transportation costs 4.00 4.47 (11) 4.04 4.55 (11)
% %
Production taxes 1.30 1.66 (22) 1.30 1.67 (22)
% %
Ad valorem tax expense 0.44 0.41 7 0.59 0.54 9
% %
General and 2.49 2.76 (10)
administrative(2) % 2.73 2.74
%
Operating margin, before
the effects of derivative % %
settlements 20.36 24.44 (17) 19.04 23.79 (20)
Derivative settlement gain 0.32 (3.49) 109 (0.04) (2.97) 99
(loss) % %
Operating margin,
including the effects of % %
derivative settlements $
20.68 $
20.95 (1) $
19.00 $
20.82 (9)
Depletion, depreciation,
amortization, and % %
asset retirement
obligation liability
accretion $
16.61 $
14.48 15 $
16.62 $
13.69 21
(1) Amounts and percentage changes
may not calculate due to rounding.
(2) Includes non-cash stock-based
compensation expense per Boe of
$0.39 for the three months ended
June 30, 2019, and 2018, and $0.41
and $0.40 for the six months ended
June 30, 2019, and 2018,
respectively.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Condensed Consolidated Balance Sheets
---
(in thousands, except share
data) June 30, December 31,
ASSETS 2019 2018
---
Current assets:
Cash and cash equivalents $
12 $
77,965
Accounts receivable 165,757 167,536
Derivative assets 114,242 175,130
Prepaid expenses and other 8,723 8,632
Total current assets 288,734 429,263
Property and equipment (successful efforts
method):
Proved oil and gas properties 7,974,754 7,278,362
Accumulated depletion,
depreciation, and amortization (3,774,548) (3,417,953)
Unproved oil and gas properties 1,445,985 1,581,401
Wells in progress 257,945 295,529
Properties held for sale, net - 5,280
Other property and equipment,
net of accumulated
depreciation of $62,372 and
$57,102, respectively 81,193 88,546
Total property and equipment,
net 5,985,329 5,831,165
Noncurrent assets:
Derivative assets 30,180 58,499
Other noncurrent assets 87,696 33,935
Total noncurrent assets 117,876 92,434
Total assets $
6,391,939 $
6,352,862
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $
407,883 $
403,199
Derivative liabilities 70,259 62,853
Other current liabilities 25,803
Total current liabilities 503,945 466,052
Noncurrent liabilities:
Revolving credit facility 118,000
Senior Notes, net of
unamortized deferred financing
costs 2,450,737 2,448,439
Senior Convertible Notes, net
of unamortized discount and
deferred financing costs 152,503 147,894
Asset retirement obligations 95,194 91,859
Deferred income taxes 190,146 223,278
Derivative liabilities 12,431 12,496
Other noncurrent liabilities 67,140 42,522
Total noncurrent liabilities 3,086,151 2,966,488
Stockholders' equity:
Common stock, $0.01 par value -
authorized: 200,000,000
shares; issued and
outstanding: 112,525,633 and
112,241,966 shares,
respectively 1,125 1,122
Additional paid-in capital 1,779,665 1,765,738
Retained earnings 1,033,051 1,165,842
Accumulated other comprehensive
loss (11,998) (12,380)
Total stockholders' equity 2,801,843 2,920,322
Total liabilities and
stockholders' equity $
6,391,939 $
6,352,862
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Condensed Consolidated Statements of Operations
---
(in thousands, except per share
data) For the Three Months Ended For the Six Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Operating revenues and other income:
Oil, gas, and NGL production
revenue $
406,854 $
402,558 $
747,330 $
785,444
Net gain on divestiture activity 262 39,501 323 424,870
Other operating revenues 56 1,857 449 3,197
Total operating revenues and other
income 407,172 443,916 748,102 1,213,511
Operating expenses:
Oil, gas, and NGL production
expense 123,050 117,400 244,355 238,279
Depletion, depreciation,
amortization, and asset retirement
obligation liability accretion 206,330 151,765 384,076 282,238
Exploration(1) 10,877 14,056 22,225 27,783
Abandonment and impairment of
unproved properties 12,417 11,935 18,755 17,560
General and administrative(1) 30,920 28,920 63,006 56,602
Net derivative (gain) loss(2) (79,655) 63,749 97,426 71,278
Other operating expenses, net (934) (57) (599) 4,555
Total operating expenses 303,005 387,768 829,244 698,295
Income (loss) from operations 104,167 56,148 (81,142) 515,216
Interest expense (39,627) (41,654) (77,607) (84,739)
Other non-operating income
(expense), net (562) 1,802 (879) 2,211
Income (loss) before income taxes 63,978 16,296 (159,628) 432,688
Income tax (expense) benefit (13,590) 901 32,448 (98,090)
Net income (loss) $
50,388 $
17,197 $
(127,180) $
334,598
Basic weighted-average common
shares outstanding 112,262 111,701 112,257 111,698
Diluted weighted-average common
shares outstanding 112,932 113,630 112,257 113,267
Basic net income (loss) per common
share $
0.45 $
0.15 $
(1.13) $
3.00
Diluted net income (loss) per
common share $
0.45 $
0.15 $
(1.13) $
2.95
Dividends per common share
$
$ $
0.05 $
0.05
(1) Non-cash stock-based compensation included
in:
Exploration expense $
1,291 $
1,189 $
2,496 $
2,505
General and administrative expense 4,863 4,075 9,496 8,171
Total non-cash stock-based
compensation $
6,154 $
5,264 $
11,992 $
10,676
(2) The net derivative (gain) loss line item
consists of the following:
Settlement (gain) loss $
(4,090) $
36,665 $
879 $
61,193
(Gain) loss on fair value changes (75,565) 27,084 96,547 10,085
Total net derivative (gain) loss $
(79,655) $
63,749 $
97,426 $
71,278
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Condensed Consolidated Statements of Stockholders' Equity
---
(in thousands, except share data and dividends per share)
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Loss Equity
---
Balances, December 31,
2018 112,241,966 $
1,122 $
1,765,738 $
1,165,842 $
(12,380) $
2,920,322
Net loss - (177,568) (177,568)
Other comprehensive
income - 263 263
Cash dividends
declared, $0.05 per
share - (5,612) (5,612)
Issuance of common
stock upon vesting of
RSUs, net of shares
used for tax
withholdings 2,579 (18) (18)
Stock-based
compensation expense - 5,838 5,838
Balances, March 31,
2019 112,244,545 $
1,122 $
1,771,558 $
982,662 $
(12,117) $
2,743,225
Net income - 50,388 50,388
Other comprehensive
income - 119 119
Issuance of common
stock under Employee
Stock Purchase Plan 184,079 2 1,957 1,959
Issuance of common
stock upon vesting of
RSUs, net of shares
used for tax
withholdings 290 (2) (2)
Stock-based
compensation expense 96,719 1 6,153 6,154
Other - (1) 1
Balances, June 30,
2019 112,525,633 $
1,125 $
1,779,665 $
1,033,051 $
(11,998) $
2,801,843
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Loss Equity
Balances, December 31,
2017 111,687,016 $
1,117 $
1,741,623 $
665,657 $
(13,789) $
2,394,608
Net income - 317,401 317,401
Other comprehensive
income - 260 260
Cash dividends
declared, $0.05 per
share - (5,584) (5,584)
Stock-based compensation expense 5,412 5,412
Cumulative effect of
accounting change - 2,969 (2,969)
Other - 1 (1)
Balances, March 31,
2018 111,687,016 $
1,117 $
1,747,035 $
980,444 $
(16,499) $
2,712,097
Net income - 17,197 17,197
Other comprehensive
income - 198 198
Issuance of common
stock under Employee
Stock Purchase Plan 100,249 1 1,880 1,881
Issuance of common
stock upon vesting of
RSUs, net of shares
used for tax
withholdings 1,161 (10) (10)
Stock-based
compensation expense 58,572 5,264 5,264
Balances, June 30,
2018 111,846,998 $
1,118 $
1,754,169 $
997,641 $
(16,301) $
2,736,627
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Condensed Consolidated Statements of Cash Flows
---
(in thousands) For the Three Months For the Six Months Ended
Ended June 30,
June 30,
---
2019 2018 2019 2018
---
Cash flows from operating activities:
Net income (loss) $
50,388 $
17,197 $
(127,180) $
334,598
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Net gain on divestiture
activity (262) (39,501) (323) (424,870)
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 206,330 151,765 384,076 282,238
Abandonment and
impairment of unproved
properties 12,417 11,935 18,755 17,560
Stock-based compensation
expense 6,154 5,264 11,992 10,676
Net derivative (gain)
loss (79,655) 63,749 97,426 71,278
Derivative settlement
gain (loss) 4,090 (36,665) (879) (61,193)
Amortization of debt
discount and deferred
financing costs 3,844 3,884 7,633 7,750
Deferred income taxes 13,766 (861) (33,237) 97,505
Other, net 1,243 225 (1,287) (2,302)
Net change in working
capital 41,613 (5,609) 21,454 (21,722)
Net cash provided by
operating activities 259,928 171,383 378,430 311,518
Cash flows from investing activities:
Net proceeds from the
sale of oil and gas
properties (1) 6,406 251,435 12,520 742,215
Capital expenditures (326,787) (421,798) (576,127) (723,319)
Acquisition of proved and
unproved oil and gas
properties 28 (24,615) 319 (24,615)
Net cash used in
investing activities (320,353) (194,978) (563,288) (5,719)
Cash flows from financing activities:
Proceeds from credit
facility 524,500 696,500
Repayment of credit
facility (453,000) (578,500)
Net proceeds from sale of
common stock 1,959 1,881 1,959 1,881
Dividends paid (5,612) (5,584) (5,612) (5,584)
Other, net (1,026) (133) (1,044) (133)
Net cash provided by
(used in) financing
activities 66,821 (3,836) 113,303 (3,836)
Net change in cash, cash
equivalents, and
restricted cash 6,396 (27,431) (71,555) 301,963
Cash, cash equivalents,
and restricted cash at
beginning of period 14 643,337 77,965 313,943
Cash, cash equivalents,
and restricted cash at
end of period (1) $
6,410 $
615,906 $
6,410 $
615,906
Less: Restricted cash (1) (6,398) (6,398)
Cash and cash equivalents $
12 $
615,906 $
12 $
615,906
(1) As of June 30, 2019, a portion
of net proceeds from the sale of
oil and gas properties was
restricted for future property
acquisitions. Restricted cash is
included in the other noncurrent
assets line item on the
accompanying unaudited condensed
consolidated balance sheets.
DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANY
The following non-GAAP measures are presented in addition to financial statements as the Company believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and compare investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others. Non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measure or any other measure of a company's financial or operating performance presented in accordance with GAAP. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure or measures is presented below. These measures may not be comparable to similarly titled measures of other companies.
Adjusted EBITDAX: Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that the Company presents because management believes it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt. Adjusted EBITDAX is also important as it is considered among financial covenants under the Company's Credit Agreement, a material source of liquidity for the Company. Please reference the Company's second quarter of 2019 Form 10-Q and 2018 Form 10-K for discussion of the Credit Agreement and its covenants.
Adjusted net income (loss): Adjusted net income (loss) excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include non-cash and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, and accruals for non-recurring matters. Adjusted net income (loss) is presented because management believes it provides useful additional information to investors for analysis of the Company's fundamental business on a recurring basis. In addition, management believes that adjusted net income (loss) attributable to common shareholders is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.
Total capital spend: Total capital spend is calculated as costs incurred, less asset retirement obligations ("ARO"), capitalized interest and acquisitions. Total capital spend is presented because management believes that it provides useful information to investors in the analysis of SM Energy Company and is widely used by professional research analysts and others in the valuation, comparison and investment recommendations of companies in the oil and gas exploration and production industry. Total capital spend should not be used in isolation or as a substitute to costs incurred or other capital spending measures under GAAP.
Discretionary cash flow: Discretionary cash flow is calculated as net cash provided by operating activities excluding changes in current assets and current liabilities, and exploration. Exploration expense is added back in the calculation because, for peer comparison purposes, this number is included in our total capital spend. The Company believes this measure is important to investors because it provides useful additional information to investors for analysis of the Company's ability to generate cash to fund exploration and development, and to service indebtedness. In addition, management believes that discretionary cash flows is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of upstream oil and gas companies.
FORWARD-LOOKING NON-GAAP MEASURES
The Company is unable to present a reconciliation of forward-looking Total Capital Spend because components of the calculation, such as potential acquisitions, are inherently unpredictable. Moreover, estimating the most directly comparable GAAP measures with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Adjusted EBITDAX Reconciliation
(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 Six Months Ended
June 30, June 30,
2019 2018 2019 2018
---
Net income (loss)
(GAAP) $
50,388 $
17,197 $
(127,180) $
334,598
Interest expense 39,627 41,654 77,607 84,739
Income tax expense
(benefit) 13,590 (901) (32,448) 98,090
Depletion,
depreciation,
amortization, and
asset retirement
obligation liability
accretion 206,330 151,765 384,076 282,238
Exploration(2) 9,586 12,867 19,729 25,278
Abandonment and
impairment of
unproved properties 12,417 11,935 18,755 17,560
Stock-based
compensation expense 6,154 5,264 11,992 10,676
Net derivative (gain)
loss (79,655) 63,749 97,426 71,278
Derivative settlement
gain (loss) 4,090 (36,665) (879) (61,193)
Net gain on
divestiture activity (262) (39,501) (323) (424,870)
Other, net 691 (2,412) 695 (3,254)
Adjusted EBITDAX (non-
GAAP) 262,956 224,952 449,450 435,140
Interest expense (39,627) (41,654) (77,607) (84,739)
Income tax (expense)
benefit (13,590) 901 32,448 (98,090)
Exploration(2) (9,586) (12,867) (19,729) (25,278)
Amortization of debt
discount and deferred
financing costs 3,844 3,884 7,633 7,750
Deferred income taxes 13,766 (861) (33,237) 97,505
Other, net 552 2,637 (1,982) 952
Net change in working
capital 41,613 (5,609) 21,454 (21,722)
Net cash provided by
operating activities
(GAAP) $
259,928 $
171,383 $
378,430 $
311,518
(1) See "Definitions of non-GAAP
Measures as Calculated by the
Company" above.
(2) Stock-based compensation
expense is a component of
exploration expense and general
and administrative expense on the
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 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, 2019
Adjusted Net Income (Loss) Reconciliation
(1)
---
(in thousands, except per share data)
Reconciliation of net
income (loss) (GAAP)
to adjusted net
income (loss) (non-
GAAP): For the Three Months Ended For the Six Months Ended
June 30, June 30,
2019 2018 2019 2018
---
Net income (loss)
(GAAP) $
50,388 $
17,197 $
(127,180) $
334,598
Net derivative (gain)
loss (79,655) 63,749 97,426 71,278
Derivative settlement
gain (loss) 4,090 (36,665) (879) (61,193)
Net gain on
divestiture activity (262) (39,501) (323) (424,870)
Abandonment and
impairment of
unproved properties 12,417 11,935 18,755 17,560
Other, net(2) 699 2 912 809
Tax effect of
adjustments(3) 13,608 104 (25,148) 86,022
Adjusted net income
(loss) (non-GAAP) $
1,285 $
16,821 $
(36,437) $
24,204
Diluted net income
(loss) per common
share (GAAP) $
0.45 $
0.15 $
(1.13) $
2.95
Net derivative (gain)
loss (0.71) 0.56 0.87 0.63
Derivative settlement
gain (loss) 0.04 (0.32) (0.01) (0.54)
Net gain on
divestiture activity - (0.35) (3.75)
Abandonment and
impairment of
unproved properties 0.11 0.11 0.17 0.16
Other, net(2) 0.01 0.01 0.01
Tax effect of
adjustments(3) 0.11 (0.23) 0.75
Adjusted net income
(loss) per diluted
common share (non-
GAAP) $
0.01 $
0.15 $
(0.32) $
0.21
Basic weighted-
average common shares
outstanding 112,262 111,701 112,257 111,698
Diluted weighted-
average common shares
outstanding 112,932 113,630 112,257 113,267
Note: Amounts may not calculate
due to rounding.
(1) See "Definitions of non-
GAAP Measures as Calculated by
the Company" above.
(2) For the three and six-month
periods ended June 30, 2019,
the adjustment relates to bad
debt expense and impairment on
materials inventory. For the
three-month period ended June
30, 2018, the adjustment
relates to bad debt expense.
For the six-month period ended
June 30, 2018, the adjustment
relates to bad debt expense and
an accrual for a non-recurring
matter. These items are
included in other operating
expenses, net on the Company's
condensed consolidated
statements of operations.
(3) The tax effect of
adjustments for the three and
six month periods ended June
30, 2019, and 2018, was
calculated using a tax rate of
21.7%. These rates approximate
the Company's statutory tax
rate for the respective
periods, as adjusted for
ordinary permanent differences.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS (UNAUDITED)
June 30, 2019
Total Capital Spend Reconciliation
(1)
---
(in millions)
Reconciliation of
costs incurred in
oil & gas
activities (GAAP)
to total capital
spend (non-GAAP) For the Three Months Ended For the Six Months Ended
June 30, June 30,
---
2019 2019
---
Costs incurred in
oil and gas
activities (GAAP): $
268.5 $
590.5
Asset retirement
obligations (0.3) (0.8)
Capitalized interest (5.0) (9.9)
Proved property
acquisitions(2) - 0.3
Other (2.0) (3.4)
Total capital spend
(non-GAAP): $
261.3 $
576.8
Note: Amounts may not sum
due to rounding.
(1) See "Definitions of non-GAAP Measures
as Calculated by the Company" above.
(2) The Company completed several primarily
non-monetary acreage trades in the Midland
Basin during the first half of 2019 totaling
$66.6 million of value attributed to the
properties transferred. This non-monetary
consideration is not reflected in the costs
incurred or capital spend amounts presented
above.
Discretionary Cash Flow Reconciliation
(1)
---
(in millions)
Reconciliation of
net cash provided
by operating
activities (GAAP)
to discretionary
cash flow (non-
GAAP) For the Three Months Ended For the Six Months Ended
June 30, June 30,
---
2019 2019
---
Net cash provided by
operating
activities (GAAP): $
259.9 $
378.4
Net change in
working capital (41.6) (21.5)
Exploration(2)(3) 9.6 19.7
Discretionary cash
flow (non-GAAP): $
227.9 $
376.6
(1) See "Definitions of non-GAAP
Measures as Calculated by the
Company" above.
(2) Exploration expense is added
back in the calculation of
discretionary cash flow because,
for peer comparison purposes, this
number is included in our reported
total capital spend.
(3) Stock-based compensation
expense is a component of
exploration expense and general
and administrative expense on the
condensed consolidated statements
of operations. Therefore, the
exploration line items shown in
the reconciliation above will vary
from the amount shown on the
condensed consolidated statements
of operations for the component of
stock-based compensation expense
recorded to exploration expense as
it is non-cash.
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SOURCE SM Energy Company
