SM Energy Reports Results for the First Quarter of 2013; Provides Operations Update

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SM Energy Reports Results for the First Quarter of 2013; Provides Operations Update

  • Record quarterly production of 10.35 MMBOE, an average of 115.0 MBOE/d; production at the top of the quarterly guidance range of 110 - 116 MBOE/d
  • Quarterly GAAP net income of $16.7 million, or $0.25 per diluted share; adjusted net income of $55.3 million, or $0.82 per diluted share
  • Record quarterly EBITDAX of $328.8 million represents 10% sequential growth over fourth quarter of 2012 and 27% growth over first quarter of 2012
  • New ventures leasehold expanding significantly with expected additions in East Texas and the Powder River Basin

DENVER--(BUSINESS WIRE)-- SM Energy Company (NYS: SM) announces its financial results for the first quarter of 2013 and provides an operations update. In addition, a new presentation concerning the Company's first quarter earnings and operations update will be posted on the Company's website at www.sm-energy.com. This presentation will be referenced during the conference call scheduled for 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on May 1, 2013. Information for the call can be found below.

FIRST QUARTER 2013 RESULTS


SM Energy reported net income for the first quarter of 2013 of $16.7 million, or $0.25 per diluted share. This compares to net income of $26.3 million, or $0.39 per diluted share, for the same period of 2012. Adjusted net income for the first quarter of 2013 was $55.3 million, or $0.82 per diluted share, compared to adjusted net income of $32.8 million, or $0.48 per diluted share, for the same period of 2012. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results and are generally items whose timing and/or amount cannot be reasonably estimated. The table below presents a summary of the adjustments made to arrive at adjusted net income:

 
Adjusted Net Income Reconciliation
(in thousands, except per share data)
 
Reconciliation of net income (GAAP)

to adjusted net income (Non-GAAP):

  

For the Three Months Ended
March 31,

2013    2012
 
Reported net income (GAAP)$16,727$26,336
Adjustments, net of tax: (1)
Change in Net Profits Plan liability(1,188)2,470
Unrealized derivative loss26,1394,798
(Gain) loss on divestiture activity (2)354(917)
Impairment of properties13,27989
  
Adjusted net income (Non-GAAP)$55,311 $32,776 
 
Diluted weighted-average common shares outstanding:67,521 67,845 
 
Adjusted net income per diluted common share:$0.82 $0.48 
 
(1) For the three-month period ended March 31, 2013, adjustments are shown net of tax using the Company's effective rate; calculated by dividing income tax expense by income before income taxes on the consolidated statement of operations. For the three-month period ended March 31, 2012, adjustments are shown net of tax and are calculated using a tax rate of 37.3%, which approximates the Company's statutory tax rate for that period, as adjusted for ordinary permanent differences.
 

(2)(Gain) loss on divestiture activity is included within the other operating revenues line item of the accompanying statements of operations.

 

Earnings before interest, taxes, depreciation, depletion, amortization, accretion, and exploration expense ("EBITDAX") was $328.8 million for the first quarter of 2013, a record level and an increase of 27% from $259.0 million for the same period of 2012.

Adjusted net income and EBITDAX are non-GAAP financial measures. Please refer to the respective reconciliations in the accompanying Financial Highlights section at the end of this release for additional information about these measures.

Total operating revenues for the first quarter were $484.2 million compared to $377.4 million for the same period of 2012, a 28% increase from period to period. The table below provides the average realized prices received by product for the Company, as well as the adjusted prices received after taking into account cash settlements for derivative transactions:

 
Average Realized Commodity Prices for the Three Months Ended March 31, 2013
 
 

Before the effect of
derivative cash
settlements

    

After the effect of
derivative cash
settlements

 
Oil ($/Bbl)$91.67$91.30
Gas ($/Mcf)$3.57$3.90
Natural gas liquids ($/Bbl)$36.65$37.80
Equivalent ($/BOE)$45.38$46.51
 

The table below presents key performance measures and metrics, as well as previously provided guidance for the first quarter of 2013:

Production  Reported    1Q13 Guidance
 
Average daily production (MBOE/d)115.0110 - 116
Total production (MMBOE)10.359.9 - 10.4
 
Costs
LOE ($/BOE)$5.28$4.68 - $4.92
Transportation ($/BOE)$4.58$4.32 - $4.50

Production taxes (% of pre-derivative oil,
gas, and NGL revenue)

5.0%5.0% - 5.5%
 
G&A - Cash ($/BOE)$2.15$2.40 - $2.58
G&A - Cash NPP ($/BOE)$0.37$0.30 - $0.42
G&A - Non-cash ($/BOE)$0.60$0.60 - $0.72
Total G&A ($/BOE)$3.12$3.30 - $3.72
 
DD&A ($/BOE)$19.20$19.20 - $20.40
 

For the first quarter of 2013, SM Energy reported record production volumes near the top of its guidance range and approximately 2% above the midpoint of the Company's guidance range. The Company reported quarterly LOE per unit costs above its guidance range due to higher than expected LOE costs in its Tredway and non-operated Eagle Ford programs. Transportation expense was also above its guidance range for the quarter on a per unit basis largely due to non-operated Eagle Ford truck or pay shortfalls for NGLs. Cash G&A was lower than the Company's guidance range due to lower than expected compensation and general corporate expenses. DD&A and production taxes were within their respective guidance range.

FINANCIAL POSITION AND LIQUIDITY

At the end of the first quarter of 2013, SM Energy had total long-term debt outstanding of approximately $1.5 billion. A summary of the Company's long-term debt is shown in the table below:

Schedule of long-term debt
($ in millions)    
 
Debt Issue

Amount outstanding at
March 31, 2013

Revolving credit facility$430
Senior Notes due 2019350
Senior Notes due 2021350
Senior Notes due 2023400
Total$1,530
 

On April 12, 2013, the Company's bank group redetermined its borrowing base, increasing it to $1.9 billion from $1.55 billion at December 31, 2012. SM Energy also increased its commitments under its credit facility to $1.3 billion, up from $1.0 billion at year-end 2012. At the end of the first quarter, the Company had $430 million drawn against its credit facility. As of March 31, 2013, the Company's debt to twelve month trailing EBITDAX was 1.4 times, and SM Energy's debt-to-book capitalization ratio was 52%. As of the end of the first quarter, SM Energy was in compliance with all of the covenants associated with its long-term debt.

OPERATIONS UPDATE

Production

SM Energy reported quarterly production of 10.35 MMBOE, resulting in average daily production of 115.0 MBOE per day for the first quarter of 2013, near the top of the guidance range of 110 to 116 MBOE per day. Reported average daily production increased by 5% from quarterly production of 109.9 MBOE per day in the fourth quarter of 2012. Reported production in the first quarter was comprised of 30% oil/condensate, 18% NGLs, and 52% natural gas. The Company expects its product mix to be 50% liquids by year-end 2013.

Eagle Ford Shale

The Company's operated net production in the Eagle Ford shale averaged 51.8 MBOE per day in the first quarter of 2013, a 15% sequential increase over fourth quarter of 2012 production of 45.2 MBOE per day. Average daily production in the first quarter from the Company's operated Eagle Ford shale program increased 74% over the first quarter of 2012. During the first quarter of 2013, SM Energy operated five drilling rigs on its operated Eagle Ford shale acreage and made 28 flowing completions.

In the non-operated portion of the Company's Eagle Ford shale program, net production for the first quarter of 2013 averaged 16.0 MBOE per day, an increase of approximately 3% over the fourth quarter of 2012. The operator ran nine drilling rigs during the first quarter of 2013.

Bakken / Three Forks

SM Energy operated four drilling rigs during the first quarter of 2013 in its Bakken/Three Forks program, and expects to release two of these rigs and contract for one more efficient walking rig during the second quarter of 2013. The Company continues to focus its drilling on the Bakken and Three Forks formations in its Raven/Bear Den and Gooseneck prospects in McKenzie, Williams and Divide Counties, North Dakota. First quarter average daily production for the Company's Bakken/Three Forks program was 12.2 MBOE per day, a 3% sequential increase from the fourth quarter of 2012 and an 18% increase from the first quarter of 2012. During the quarter, the Company made 11 gross flowing completions on its operated Bakken/Three Forks program.

Permian Basin

In the Permian Basin, SM Energy operated three drilling rigs during the first quarter of 2013, with two of the rigs focused on the Company's approximately 66,000 net acre position, targeting the Mississippian Limestone in the northern Midland Basin and a third rig focused on the Bone Spring formation in the Delaware Basin. The Company recently completed the Roy 1803H (SM 100% WI), a long-lateral Mississippian test, which had a peak 12-day average production rate of approximately 990 BOE/d. Results from this and additional recent long-lateral Mississippian tests will be discussed in more detail on the Company's first quarter of 2013 earnings call.

East Texas

SM Energy expects to have approximately 150,000 total net acres in its new East Texas play upon the consummation of various transactions, which are expected to close during the second quarter of 2013. The Company's acreage position is located primarily in Walker, San Jacinto, Polk, and Washington Counties, Texas. SM Energy continues to add acreage in this exploratory play where it previously announced a Woodbine test well earlier this year. SM Energy expects to drill additional test wells in the play targeting primarily Woodbine and Eagle Ford shale intervals in the second half of 2013.

Powder River Basin

SM Energy has recently entered into a purchase agreement which, after closing, will increase its position in the Powder River Basin to approximately 105,000 net acres. This transaction is expected to close during the second quarter of 2013. This will be an approximately 40,000 net acre increase to its previously disclosed position in the basin. The Company is currently focusing on the Frontier, Sussex, and Shannon formations on its acreage position. Results from the Company's recent testing in the basin will be discussed in more detail on the Company's first quarter of 2013 earnings call.

UPDATED PRODUCTION AND PERFORMANCE GUIDANCE

The Company is providing updated production and performance guidance for second quarter and full year 2013 in the table below:

Guidance for 2013    
  2Q13FY2013
Production (MMBOE)10.5 - 11.042.8 - 44.5
Average daily production (MBOE/d)115 - 121117 - 122
 
LOE ($/BOE)$5.00 - $5.25$5.00 - $5.30
Transportation ($/BOE)$4.65 - $4.90$4.95 - $5.25

Production taxes (% of pre-derivative oil, gas, and NGL revenue)

5.0% - 5.5%5.0% - 5.5%
 
G&A - Cash ($/BOE)$2.25 - $2.45$2.25 - $2.45
G&A - Cash NPP ($/BOE)$0.35 - $0.50$0.35 - $0.50
G&A - Non-cash ($/BOE)$0.75 - $0.90$0.60 - $0.75
Total G&A ($/BOE)$3.35 - $3.85$3.20 - $3.70
 
DD&A ($/BOE)$19.20 - $20.40$19.20 - $20.40
 
Effective income tax rate range38.0% - 38.6%
% of income tax that is current<5%
 

EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss these results and other operational matters for May 1, 2013, at 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time). The call participation number is 877-445-0811 and the conference ID number is 55776538. An audio replay of the call will be available approximately two hours after the call at 855-859-2056, with the conference ID number 55776538. International participants can dial 617-401-8115 to take part in the conference call, using the conference ID number 55776538, and can access a replay of the call at 404-537-3406, using conference ID number 55776538. Replays can be accessed through May 15, 2013.

This call is being webcast live and can be accessed at SM Energy Company's website at www.sm-energy.com. An audio recording of the conference call will be available at that site through May 15, 2013.

INFORMATION ABOUT FORWARD LOOKING STATEMENTS

This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words "anticipate," "assume," "believe," "budget," "estimate," "expect," "forecast," "intend," "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. These risks include factors such as the availability, proximity and capacity of gathering, processing and transportation facilities; the uncertainty of negotiations to result in an agreement or a completed transaction, including, but not limited to, our announced transactions in East Texas and the Powder River Basin; the uncertain nature of announced acquisition, divestiture, joint venture, farm down or similar efforts and the ability to complete any such transactions, including, but not limited to, our announced transactions in East Texas and the Powder River Basin; the uncertain nature of expected benefits from the actual or expected acquisition, divestiture, joint venture, farm down or similar efforts; the volatility and level of oil, natural gas, and natural gas liquids prices; uncertainties inherent in projecting future rates of production from drilling activities and acquisitions; the imprecise nature of estimating oil and gas reserves; 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 2012 Annual Report on Form 10-K. 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 COMPANY
FINANCIAL HIGHLIGHTS
March 31, 2013
      

Guidance Comparison

For the Three Months Ended

March 31, 2013

ActualGuidance Range
 
Average daily production (MBOE per day)115.0110 - 116
Total production (MMBOE)10.359.9 - 10.4
 
Lease operating expense (per BOE)$5.28$4.68 - $4.92
Transportation expense (per BOE)$4.58$4.32 - $4.50
Production taxes, as a percentage of pre-derivative oil, gas, and NGL revenue5.0%5.0% - 5.5%
 
General and administrative - Cash (per BOE)$2.15$2.40 - $2.58
General and administrative - Cash related to Net Profits Plan (per BOE)$0.37$0.30 - $0.42
General and administrative - Non-cash (per BOE)$0.60$0.60 - $0.72
Total General and administrative (per BOE)$3.12$3.30 - $3.72
 
Depreciation, depletion, and amortization (per BOE)$19.20$19.20 - $20.40
 
 
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
March 31, 2013
          

Production Data

For the Three Months Ended
March 31,

20132012

Percent
Change

 
Average realized sales price, before the effects of
derivative cash settlements:
Oil (per Bbl)$91.67$90.671%
Gas (per Mcf)3.572.9023%
NGL (per Bbl)36.65 44.67 (18)%
Equivalent (per BOE)$45.38$42.926%
 
Average realized sales price, including the effects of
derivative cash settlements:
Oil (per Bbl)$91.30$86.356%
Gas (per Mcf)3.903.608%
NGL (per Bbl)37.80 42.98 (12)%
Equivalent (per BOE)$46.51$43.766%
 
Production:
Oil (MMBbls)3.132.5125%
Gas (Bcf)32.2428.6613%
NGL (MMBbls)1.84 1.16 58%
MMBOE10.358.4522%
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