SM ENERGY REPORTS FIRST QUARTER 2023 RESULTS

EXECUTION DRIVES PRODUCTION OUTPERFORMANCE; 1.4 MILLION SHARES REPURCHASED

DENVER, April 27, 2023 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced operating and financial results for the first quarter 2023 and provided certain second quarter 2023 guidance.

Highlights include:

• Growing profitability. In the first quarter 2023, net income was $198.6 million, or $1.62 per diluted common share, up more than 300% compared with the prior year period. Adjusted net income⁽¹⁾ was $1.33 per diluted common share. Net cash provided by operating activities was $331.6 million and Adjusted EBITDAX⁽¹⁾ was $401.4 million.
  
  
• Exceeding production guidance. Production for the first quarter 2023 was 13.2 MMBoe, or 146.4 MBoe/d, at 43% oil. Production was approximately 178,000 Boe above the mid-point of guidance, primarily due to outperformance from new South Texas wells, including outperformance from a seven-well pad that turned-in-line one week earlier than initially planned.
  
  
• Delivering capital returns to stockholders. The Company repurchased 1,413,758 shares of its common stock during the first quarter. In combination with the $0.15 per share quarterly dividend paid February 6, 2023, return of capital to stockholders totaled $58.3 million in the quarter. Since announcing the return of capital program, the Company has returned $133.9 million to stockholders, inclusive of dividends and common stock repurchases.
  
  
• Driving capital efficiency. First quarter capital expenditures of $240.7 million, adjusted for an increase in capital accruals of $66.9 million, totaled $307.6 million.⁽¹⁾ Capital expenditures included $9.9 million for leasehold acquisitions in the Midland Basin that were not considered in guidance.
  
  
• Maintaining low leverage and strong liquidity. In April 2023, the Company's lenders under its senior secured revolving credit facility reaffirmed the borrowing base at $2.5 billion and lender commitments at $1.25 billion, a testament to the quality of the Company's asset base in a changing commodity price environment. At first quarter-end, there was zero drawn on the Company's credit facility and Net debt-to-Adjusted EBITDAX⁽¹⁾ was 0.6 times.
  
  
• Stewardship recognition. SM Energy received a score of A- from CDP for supplier engagement, exceeding CDP's North American regional and E&P peer group averages. The Company considers environmental stewardship one component of being a premier operator.

President and Chief Executive Officer Herb Vogel comments: "During the first quarter, we delivered on each of our core strategic objectives for 2023. Return of capital to stockholders totaled $58.3 million in the quarter and $133.9 million since inception of the program in September 2022. This equates to an approximate 4% yield to market capitalization over a less than 8-month period. Our focus on operational execution delivered higher than projected production, early completion of a seven-well pad in South Texas and pads with top tier lateral length wells in the Midland Basin, while our emphasis on building inventory led to the acquisition of approximately 6,300 net leasehold acres in the Midland Basin. We are off to a strong start in 2023."

First quarter production volumes were 13.2 MMBoe, or 146.4 MBoe/d. Volumes were approximately 51% from the Midland Basin and 49% from South Texas, and were 43% oil.

First quarter volumes in South Texas benefited from early time outperformance from all 16 new wells turned-in-line during the quarter. This includes seven wells located in the liquids-rich northern area that have yet to reach peak rates, which came on one week early with higher liquids content than projected.

The first quarter average realized price before the effect of hedges was $43.31 per Boe, and the average realized price after the effect of hedges (post-hedge) was $43.70 per Boe.⁽¹⁾

• Benchmark pricing for the quarter included NYMEX WTI at $76.13/Bbl, NYMEX Henry Hub natural gas at $3.42/MMBtu and OPIS Composite NGLs at $30.95/Bbl.
  
  
• The effect of commodity derivative settlements for the first quarter was a gain of $0.39 per Boe, or $5.1 million.
  
  
• The realized price for natural gas continued to be affected by wider differentials at the Midland and Houston regional trading hubs.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying slide deck.

NET INCOME, NET INCOME PER SHARE AND NET CASH PROVIDED BY OPERATING ACTIVITIES

First quarter 2023 net income was $198.6 million, or $1.62 per diluted common share, compared with net income of $48.8 million, or $0.39 per diluted common share, for the same period in 2022. The current year period included a 4% decline in production volumes and a 13% decline in the average realized price per Boe after derivative settlements, while benefiting from lower interest expense and a (non-cash) net derivative gain. The higher prior year period total oil, gas, and NGL production revenue and other income was partially offset by a (non-cash) net derivative loss.

First quarter 2023 net cash provided by operating activities of $331.6 million before net change in working capital of $26.2 million totaled $357.9 million⁽¹⁾ compared with net cash provided by operating activities of $342.1 million before net change in working capital of $138.0 million that totaled $480.1 million for the same period in 2022. The $122.2 million, or 25%, decline in the current year period is primarily due to decreased realized prices for natural gas and NGLs after the effect of derivative settlements and reduced oil volumes.

ADJUSTED EBITDAX,⁽¹⁾ ADJUSTED NET INCOME,⁽¹⁾ AND NET DEBT-TO-ADJUSTED EBITDAX⁽¹⁾

First quarter 2023 Adjusted EBITDAX⁽¹⁾ was $401.4 million, down $123.2 million, or 23%, from $524.6 million for the same period in 2022, primarily due to decreased realized prices for natural gas and NGLs after the effect of derivative settlements and reduced oil volumes.

First quarter 2023 Adjusted net income⁽¹⁾ was $162.2 million, or $1.33 per diluted common share, which compares with Adjusted net income⁽¹⁾ of $245.9 million, or $1.98 per diluted common share, for the same period in 2022.

At March 31, 2023, Net debt-to-Adjusted EBITDAX⁽¹⁾ was 0.6 times.

FINANCIAL POSITION, LIQUIDITY, CAPITAL EXPENDITURES AND ADJUSTED FREE CASH FLOW⁽¹⁾

On March 31, 2023, the outstanding principal amount of the Company's long-term debt was $1.6 billion with zero drawn on the Company's senior secured revolving credit facility, and cash and cash equivalents were $477.9 million. Net debt⁽¹⁾ was $1.1 billion.

Subsequent to quarter-end, the Company's lenders under its senior secured revolving credit facility reaffirmed the borrowing base at $2.5 billion and lender commitments at $1.25 billion.

First quarter 2023 capital expenditures of $240.7 million adjusted for increased capital accruals of $66.9 million were $307.6 million,⁽¹⁾ which included $9.9 million for the acquisition of leasehold acreage in the Midland Basin that was not considered in guidance. Capital activity during the quarter included drilling 15 net wells, of which 7 were in South Texas and 8 were in the Midland Basin, and adding 26 net flowing completions, of which 16 were in South Texas and 10 were in the Midland Basin. In South Texas, the Company optimized drilling efficiencies by replacing four planned 5,000 foot lateral wells with four average 11,700 foot lateral wells, thereby extending the drilling time of two pads into the second quarter. Capital expenditures before acquisition costs were below the guidance range of $320-330 million, primarily due to timing and deferred facilities costs.

During the first quarter 2023, net cash provided by operating activities of $331.6 million before net change in working capital of $26.2 million totaled $357.9 million,⁽¹⁾ and capital expenditures of $240.7 million adjusted for increased capital accruals of $66.9 million totaled $307.6 million,⁽¹⁾ delivering Adjusted free cash flow of $50.3 million.⁽¹⁾

COMMODITY DERIVATIVES

As entered into as of April 24, 2023, commodity derivative positions for the second through fourth quarters of 2023 include:

• Oil: Approximately 30% of expected 2Q-4Q 2023 oil production is hedged to contract prices in the Midland Basin at an average price of $75.29/Bbl (weighted-average of collar floors and swaps, excludes basis swaps).
  
  
• Oil, Midland Basin differential: Approximately 4,100 MBbls are hedged to the local price point at a positive $0.92/Bbl basis.
  
  
• Natural gas: Slightly less than 30% of 2Q-4Q 2023 expected natural gas production is hedged at an average price of $4.03/MMBtu (weighted-average of collar floors and swaps, excludes basis swaps).

A detailed schedule of these and other derivative positions are provided in the 1Q23 accompanying slide deck.

2023 OPERATING PLAN AND GUIDANCE

The Company is unable to provide a reconciliation of forward-looking non-GAAP capital expenditures because components of the calculation are inherently unpredictable, such as changes to, and timing of, capital accruals. The inability to project certain components of the calculation would significantly affect the accuracy of a reconciliation.

GUIDANCE FULL YEAR 2023:

• Guidance metrics for full year 2023 are unchanged.

GUIDANCE SECOND QUARTER 2023:

• Capital expenditures (net of the change in capital accruals), excluding acquisitions: $295-315 million. In the second quarter of 2023, the Company expects to drill approximately 17 net wells, of which 10 are planned for South Texas and 7 are planned for the Midland Basin, and turn-in-line approximately 22 net wells, of which 8 are planned for South Texas and 14 are planned for the Midland Basin.
  
  
• Production: 13.3-13.5 MMBoe or 146-148 MBoe/d, at 42-43% oil and 59-60% liquids.

UPCOMING EVENTS

EARNINGS Q&A WEBCAST AND CONFERENCE CALL

April 28, 2023 – Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time for the first quarter 2023 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. To join the live conference call, please register at the link below for dial-in information.

• Live Conference Call Registration: https://conferencingportals.com/event/pAjDSntN
  
  
• Replay (conference ID 11299) - Domestic toll free/International: 800-770-2030/647-362-9199

The call replay will be available approximately one hour after the call and until May 12, 2023.

CONFERENCE PARTICIPATION

• May 16-17, 2023 - TPH & CO Hotter N' Hell Energy Conference. President and Chief Executive Officer Herb Vogel will be meeting with investors in one-on-one settings. The event will not be webcast.
  
  
• June 6, 2023 - 2023 RBC Capital Markets Global Energy, Power and Infrastructure Conference. Executive Vice President and Chief Financial Officer Wade Pursell will host a breakout session at 11:20 a.m. Eastern time and will also meet with investors in one-on-one settings. The presentation will not be webcast. The Company will post a presentation to its website prior to the event.
  
  
• June 7, 2023 - BofA Securities 2023 Energy Credit Conference. Executive Vice President and Chief Financial Officer Wade Pursell will be meeting with investors in one-on-one settings. The event will not be webcast.

DISCLOSURES

FORWARD LOOKING STATEMENTS

This release contains forward-looking statements within the meaning of securities laws. The words "estimate," "expect," "goal," "generate," "plan," "target," "believes," and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include, among other things, projections for the full year and second quarter 2023, including guidance for capital expenditures, production, production costs, DD&A, exploration expense and G&A; the percent of future production to be hedged, and the number of wells the Company plans to drill and complete in second quarter 2023. These statements involve known and unknown risks, which may cause SM Energy's actual results to differ materially from results expressed or implied by the forward-looking statements. Future results may be impacted by the risks discussed in the Risk Factors section of SM Energy's most recent Annual Report on Form 10-K, and such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this release. Although SM Energy may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so, except as required by securities laws.

FOOTNOTE 1

Indicates a non-GAAP measure or metric. Please refer below to the section "Definitions of non-GAAP Measures and Metrics as Calculated by the Company" in Financials Highlights for additional information.

ABOUT THE COMPANY

SM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas. 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 CONTACTS

Jennifer Martin Samuels, [email protected], 303-864-2507

DEFINITIONS OF NON-GAAP MEASURES AND METRICS AS CALCULATED BY THE COMPANY

To supplement the presentation of its financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides certain non-GAAP measures and metrics, which are used by management and the investment community to assess the Company's financial condition, results of operations, and cash flows, as well as compare performance from period to period and across the Company's peer group. The Company believes these measures and metrics are widely used by the investment community, including investors, research analysts and others, to evaluate and compare recurring financial results among upstream oil and gas companies in making investment decisions or recommendations. These measures and metrics, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures and metrics provided by others. A non-GAAP measure should not be considered in isolation or as a substitute for the most directly comparable GAAP measure or any other measure of a company's financial or operating performance presented in accordance with GAAP. A reconciliation of the Company's non-GAAP measures to the most directly comparable GAAP measure is presented below. These measures may not be comparable to similarly titled measures of other companies.

Adjusted EBITDAX: Adjusted EBITDAX is calculated as net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items. Adjusted EBITDAX excludes certain items that the Company believes affect the comparability of operating results and can exclude 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 believes provides useful additional information to investors and analysts, as a performance measure, for analysis of the Company's ability to internally generate funds for exploration, development, acquisitions, and to service debt. The Company is also subject to financial covenants under the Company's Credit Agreement, a material source of liquidity for the Company, based on Adjusted EBITDAX ratios. Please reference the Company's first quarter 2023 Form 10-Q and the most recent Annual Report on Form 10-K for discussion of the Credit Agreement and its covenants.

Adjusted net income (loss) and adjusted net income (loss) per diluted common share:  Adjusted net income (loss) and adjusted net income (loss) per diluted common share excludes certain items that the Company believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. These items include non-cash and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, gains and losses on extinguishment of debt, and accruals for non-recurring matters. The Company uses these measures to evaluate the comparability of the Company's ongoing operational results and trends and believes these measures provide useful information to investors for analysis of the Company's fundamental business on a recurring basis.

Adjusted free cash flow: Adjusted free cash flow is calculated as net cash provided by operating activities before net change in working capital less capital expenditures before increase (decrease) in capital expenditure accruals and other. The Company uses this measure as representative of the cash from operations, in excess of capital expenditures that provides liquidity to fund discretionary obligations such as debt reduction, returning cash to stockholders or expanding the business.

Net debt: Net debt is calculated as the total principal amount of outstanding senior notes plus amounts drawn on the revolving credit facility less cash and cash equivalents (also referred to as total funded debt). The Company uses net debt as a measure of financial position and believes this measure provides useful additional information to investors to evaluate the Company's capital structure and financial leverage.

Net debt-to-Adjusted EBITDAX: Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above) for the trailing twelve-month period (also referred to as leverage ratio). A variation of this calculation is a financial covenant under the Company's Credit Agreement. The Company and the investment community may use this metric in understanding the Company's ability to service its debt and identify trends in its leverage position. The Company reconciles the two non-GAAP measure components of this calculation.

Post-hedge: Post-hedge is calculated as the average realized price after the effects of commodity derivative settlements. The Company believes this metric is useful to management and the investment community to understand the effects of commodity derivative settlements on average realized price. 

SOURCE SM Energy Company

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