PR Newswire | Oct 29, 2020 04:16PM EDT

Debt

10/29 15:15 CDT

SM Energy Reports Third Quarter 2020 Results, Generating Cash Flow And Reducing Debt DENVER, Oct. 29, 2020

DENVER, Oct. 29, 2020 /PRNewswire/ -- SM Energy Company (the "Company") (NYSE: SM) today announced operating and financial results for the third quarter 2020 and provided updates to its 2020 guidance.

During the third quarter of 2020, the Company continued its focus on the following priorities:

* Capital discipline. Capital expenditures demonstrated continued capital efficiencies as well as timing of certain activity. Capital expenditures of $109.6 million adjusted for increased capital accruals of $11.5 million totaled $121.1 million. * Generating significant cash flows. Third quarter net cash provided by operating activities of $201.6 million before net change in working capital of $16.8 million totaled $184.8 million. The Company generated free cash flow of $63.7 million (a non-GAAP measure defined and reconciled below). Free cash flow for the first nine months of 2020 was $172.1 million and on a trailing 12-month basis was $233.1 million, or a 128% yield to market capitalization of approximately $182 million as of September 30, 2020. * Absolute debt reduction. The outstanding principal amount of long-term debt was reduced by $106.5 million, as free cash flow was used to repurchase certain unsecured senior notes due 2022 and 2024 at market rates. Net debt-to-Adjusted EBITDAX was 2.4 times at quarter-end (a non-GAAP measure defined and reconciled below). * Reducing 2020 capital expenditures. 2020 capital expenditure guidance is further reduced and narrowed to $605-610 million. Compared with original 2020 guidance at the mid-point, capital expenditure guidance is reduced 27% while production remains in-line.

Chief Executive Officer Jay Ottoson comments: "Exceptional third quarter results are due to continued capital discipline, aggressive cost management, better than expected well performance and adherence to strict financial objectives to generate free cash flow and reduce absolute debt. The entire SM Energy team is working diligently toward our common 2020 goals and objectives and we congratulate our employees on our success year-to-date, especially during a particularly challenging time.

"As we look ahead, we intend to stay-the-course and continue to prioritize generating free cash flow and reducing leverage."

THIRD QUARTER 2020 RESULTSPRODUCTION, REALIZED PRICES AND CERTAIN OPERATING COSTS

PRODUCTION:



Midland Basin South Texas Total

Oil (MBbl / MBbl/d) 5,023 / 54.6 487 / 5.3 5,510 / 59.9

Natural Gas (MMcf / MMcf/d) 12,275 / 133.4 13,785 / 149.826,060 / 283.3

NGLs (MBbl / MBbl/d) nm / - 1,755 / 19.1 1,764 / 19.2

Total (MBoe / MBoe/d) 7,077 / 76.9 4,539 / 49.3 11,617 / 126.3

Note: Totals may not calculate due to rounding.



REALIZED PRICES:



Midland Basin South Texas Total (Pre/Post-hedge)

Oil ($/Bbl) $38.73 $26.90 $37.69 / $50.20

Natural Gas ($/Mcf) $1.90 $1.90 $1.90 / $1.94

NGLs ($/Bbl) nm $14.07 $14.07/ $14.35

Per Boe $30.80 $14.11 $24.28 / $30.33



Note: Totals may not calculate due to rounding

* Total production volumes were down 6% compared with the same period in 2019 and up 4% sequentially. Production during the quarter was positively affected by South Texas Austin Chalk well performance exceeding expectations and reduced flaring in the Midland Basin. * Total production volumes of 35.2 MMBoe for the first nine months of 2020 were relatively flat with the same period in 2019. * Benchmark pricing for the quarter included NYMEX WTI oil at $40.93/Bbl, NYMEX Henry Hub natural gas at $1.98/MMBtu and Hart Composite OPIS NGLs at $19.13/Bbl. * The average realized price per Boe of $24.28 was down 23% compared with the same period in 2019 yet up 60% sequentially as commodity prices came off second quarter lows. Including the effect of realized hedges, the average realized price per Boe was $30.33, resulting in approximately $70.3 million of realized net hedge gains for the quarter. * Lease operating expenses of $3.65 per Boe were down 23% compared with the same period in 2019 and up 11% sequentially. Lower year-over-year costs are the result of aggressive cost management, while the sequential increase reflects additional workover expense. Transportation costs of $3.11 per Boe were down 22% from the same period in 2019 and nearly flat sequentially. Transportation charges year-over-year benefit from a lower proportion of production from South Texas, where transportation costs are higher, as well as a relative increase in production from the Austin Chalk, which has lower transportation costs per Boe. * Largely as a result of cost management and hedge gains, the operating margin per Boe for the first nine months of 2020 was up 5% compared with the first nine months of 2019, despite significantly lower benchmark commodity prices.

For additional operating metrics and regional detail, please see the Financial Highlights section below and the accompanying 3Q20 slide deck.

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

Third quarter 2020 net loss was ($98.3) million, or ($0.86) per diluted common share, which compared with net income of $42.2 million, or $0.37 per diluted common share, in the same period in 2019. The current period included a $63.9 million net derivative loss, while the prior year period included a $100.9 million net derivative gain. For the first nine months of 2020, net loss was ($599.4) million, or ($5.28) per diluted common share, which compares with a loss of ($0.76) per diluted common share in the same period in 2019.

Third quarter 2020 net cash provided by operating activities of $201.6 million before net change in working capital of $16.8 million totaled $184.8 million, which was down ($28.1) million, or 13%, from $212.8 million in the comparable prior year period. The decline in cash flow before the net change in working capital was primarily due to the 9% decline in price per Boe after the effect of realized hedge gains and the 6% decline in production, partially offset by lower costs per unit. For the first nine months of 2020, net cash provided by operating activities of $534.1 million before net change in working capital of $40.4 million totaled $574.5 million, up 1% from the same period in 2019.

ADJUSTED EBITDAX, ADJUSTED NET INCOME AND NET DEBT-TO-ADJUSTED EBITDAX

The following paragraphs discuss non-GAAP measures including Adjusted EBITDAX, adjusted net loss, adjusted net loss per diluted share and net debt-to-Adjusted EBITDAX. Please reference the definitions and reconciliations of these measures to the most directly comparable GAAP financial measures at the end of this release.

Third quarter 2020 Adjusted EBITDAX was $232.5 million, down $25.3 million, or 10%, from $257.8 million in the same period in 2019. The decrease in Adjusted EBITDAX was due to lower realized prices and production, partially offset by lower costs per unit. For the first nine months of 2020, Adjusted EBITDAX was $720.0 million, up 2% from $707.2 million for the first nine months of 2019.

Third quarter 2020 adjusted net loss was ($5.5) million, or ($0.05) per diluted common share, which compares with adjusted net loss of ($12.1) million, or ($0.11) per diluted common share, for the same period in 2019. For the first nine months of 2020, adjusted net loss was ($28.5) million, or ($0.25) per diluted common share, compared with an adjusted net loss of ($48.5) million, or ($0.43) per diluted common share, in the first nine months of 2019.

At September 30, 2020, net debt-to-Adjusted EBITDAX was 2.4 times.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL EXPENDITURES

On September 30, 2020, the outstanding principal amount of the Company's long-term debt was $2.42 billion, down from $2.77 billion at year-end 2019. Long-term debt was comprised of $1.73 billion in unsecured senior notes, $446.7 million in secured senior notes, $65.5 million in secured senior convertible notes, plus $178.0 million drawn on the Company's senior secured revolving credit facility.

On September 30, 2020, the Company's borrowing base and commitments under its senior secured revolving credit facility were $1.1 billion. The Company's available liquidity was $880 million, which includes $178.0 million drawn and a $42 million letter of credit. The cash balance was approximately zero. The Company expects to complete its fall redetermination process in November 2020.

Capital expenditures before capital accruals for the third quarter of 2020 were $121.1 million. During the third quarter 2020, the Company drilled 19 net wells and added 24 net flowing completions. For the nine months of 2020 the Company drilled 72 net wells and added 54 net flowing completions.

COMMODITY DERIVATIVES

Commodity hedge positions as of September 30, 2020:

* Approximately 90%+ of expected 4Q20 oil production is hedged to WTI. The average floor price on collars is $55/Bbl and the average price on swaps is $57/Bbl. Approximately 18 MMBbls of 2021 oil production is hedged to WTI. The average floor price on collars is approximately $49/Bbl and the average price on swaps is approximately $40/Bbl. * Approximately 85-90% of expected 4Q20 Midland Basin oil production basis is hedged to the local price point at $(0.38)/Bbl. * Approximately 40% of expected 4Q20 natural gas production is hedged at an average price of $2.39/MMBtu to HSC, and approximately 65% of expected 4Q20 Midland natural gas production is hedged at an average price of $1.21/MMBtu to WAHA. * NGL hedges are by individual product and include only propane.

A detailed schedule of these and other hedge positions are provided in the 3Q20 accompanying slide deck.

GUIDANCE FULL YEAR 2020:

* Capital expenditures: $605-610 million, further reduced to reflect continued capital efficiency and timing. Fourth quarter 2020 is expected to range between $203-208 million, which will include the addition of a second completions crew in the Midland Basin and a partial quarter crew in South Texas. Capital will include costs associated with wells that will be turned-in-line in January 2021. * Production: 45.2-46.2 MMBoe, or 123.5-126.2 MBoe/d, at 49% oil. Fourth quarter 2020 is expected to range between 10.0-11.0 MMBoe, or 109-120 MBoe/d, at 48% oil. * G&A: ~$110 million including approximately $20 million non-cash compensation. * Exploration/Capitalized overhead: ~$40 million. * LOE: ~$4.00 significantly reduced due to cost reductions, specifically faster connections to the electric grid, and fewer workovers. * Transportation: $3.10-$3.30, unchanged. * Production and ad valorem taxes: ~4.5% of pre-hedge revenue + ~ $0.40. Approximately $1.40 combined. * DD&A: $17-$18/Boe.

SCHEDULE FOR THIRD QUARTER REPORTINGOctober 29, 2020 - In conjunction with this release, the Company posts to its website a pre-recorded webcast discussion, a written transcript of the webcast, and an associated IR presentation. Please visit ir.sm-energy.com.

October 30, 2020 - Please join SM Energy management at 8:00 a.m. Mountain time/10:00 a.m. Eastern time for the third quarter 2020 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. In order to join the live conference call, please register at the link below for dial-in information.

* Live Conference Call Registration: http://www.directeventreg.com/registration/event/7275226 * Replay (conference ID 7275226) - Domestic toll free/International: 800-585-8367/416-621-4642

The call replay will be available approximately one hour after the call and until November 6, 2020.

UPCOMING CONFERENCE PARTICIPATION

* November 18, 2020 - Stephens Annual Investment Conference 2020. President and Chief Operating Officer Herb Vogel will be present at 11:00 a.m. Eastern time. This event 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 November 18, 2020. * November 30, 2020. Bank of America Securities 2020 Leveraged Finance Virtual Conference. EVP and Chief Financial Officer Wade Pursell will present at 12:00 p.m. Eastern time. This event 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 November 30, 2020.

FORWARD LOOKING STATEMENTSThis release contains forward-looking statements within the meaning of securities laws. The words "assumes," "anticipate," "estimate," "expect," "forecast," "generate," "guidance," "implied," "maintain," "plan," "project," "objectives," "outlook," "sustainable," "target," "will" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this release include, among other things, certain guidance for the full year and fourth quarter 2020, including capital expenditures, production, operating costs and DD&A; and, the Company's 2020 goals, which include generating free cash flow and reducing leverage. 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, 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, specifically the third quarter 2020 Form 10-Q. 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.

ABOUT THE COMPANYSM Energy Company is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural 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 CONTACTJennifer Martin Samuels, jsamuels@sm-energy.com, 303-864-2507

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Production Data

For the Three Months Ended For the Nine Months Ended September 30, September 30,

2020 2019 Percent2020 2019 Percent Change Change

Realized sales price (before the effects of derivative settlements):

Oil (per Bbl) $37.69$53.99(30)% $35.92$53.31(33) %

Gas (per Mcf) $1.90 $2.17 (12)% $1.59 $2.38 (33) %

NGLs (per Bbl) $14.07$15.73(11)% $12.81$17.09(25) %

Equivalent (per $24.28$31.39(23)% $22.92$32.00(28) %Boe)

Realized sales price (including the effects of derivative settlements):

Oil (per Bbl) $50.20$53.57(6) % $51.08$52.39(3) %

Gas (per Mcf) $1.94 $2.59 (25)% $1.80 $2.55 (29) %

NGLs (per Bbl) $14.35$22.87(37)% $14.58$21.01(31) %

Equivalent (per $30.33$33.38(9) % $31.06$32.68(5) %Boe)

Net production volumes: ^(1)

Oil (MMBbl) 5.5 5.4 2 % 17.2 15.7 10 %

Gas (Bcf) 26.1 29.5 (12)% 78.6 81.7 (4) %

NGLs (MMBbl) 1.8 2.1 (15)% 4.8 6.2 (22) %

MMBoe 11.6 12.4 (6) % 35.2 35.5 (1) %

Average net daily production: ^(1)

Oil (MBbls/d) 59.9 59.0 2 % 62.9 57.5 9 %

Gas (MMcf/d) 283.3 320.6 (12)% 286.7 299.2 (4) %

NGLs (MBbls/d) 19.2 22.5 (15)% 17.7 22.8 (22) %

MBoe/d 126.3 134.9 (6) % 128.3 130.1 (1) %

Per Boe data:

Realized price (before the effects$24.28$31.39(23)% $22.92$32.00(28) %of derivative settlements)

Lease operating 3.65 4.73 (23)% 3.93 4.67 (16) %expense

Transportation 3.11 4.00 (22)% 3.11 4.02 (23) %costs

Production taxes 1.04 1.29 (19)% 0.94 1.30 (28) %

Ad valorem tax 0.40 0.39 3 % 0.41 0.52 (21) %expense

General and 2.10 2.63 (20)% 2.25 2.69 (16) %administrative ^(2)

Operating margin (before the effects13.98 18.35 (24)% 12.28 18.80 (35) %of derivative settlements)

Derivative 6.05 1.99 204 % 8.14 0.67 1,115%settlement gain

Operating margin (including the effects of $20.03$20.34(2) % $20.42$19.475 %derivative settlements)

Depletion, depreciation, amortization, and $15.64$17.02(8) % $16.95$16.761 %asset retirement obligation liability accretion

^(1) Amounts and percentage changes may not calculate due to rounding.

^(2) Includes non-cash stock-based compensation expense per Boe of $0.30 and$0.44 for the three months ended September 30, 2020, and 2019, respectively,and $0.36 and $0.42 for the nine months ended September 30, 2020, and 2019,respectively.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Balance Sheets

(in thousands, except share data) September 30,December 31,

ASSETS 2020 2019

Current assets:

Cash and cash equivalents $10 $10

Accounts receivable 136,613 184,732

Derivative assets 128,046 55,184

Prepaid expenses and other 10,221 12,708

Total current assets 274,890 252,634

Property and equipment (successful efforts method):

Proved oil and gas properties 8,307,165 8,934,020

Accumulated depletion, depreciation, and (4,713,442) (4,177,876)amortization

Unproved oil and gas properties 907,864 1,005,887

Wells in progress 226,452 118,769

Other property and equipment, net of accumulated 37,062 72,848 depreciation of $66,025 and $64,032, respectively

Total property and equipment, net 4,765,101 5,953,648

Noncurrent assets:

Derivative assets 31,509 20,624

Other noncurrent assets 50,785 65,326

Total noncurrent assets 82,294 85,950

Total assets $5,122,285 $6,292,232

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses $287,777 $402,008

Derivative liabilities 76,969 50,846

Other current liabilities 12,532 19,189

Total current liabilities 377,278 472,043

Noncurrent liabilities:

Revolving credit facility 178,000 122,500

Senior Notes, net 2,175,038 2,610,298

Asset retirement obligations 87,014 84,134

Deferred income taxes 34,582 189,386

Derivative liabilities 33,068 3,444

Other noncurrent liabilities 52,197 61,433

Total noncurrent liabilities 2,559,899 3,071,195

Stockholders' equity:

Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 1,146 1,130 114,572,800 and 112,987,952 shares, respectively

Additional paid-in capital 1,827,836 1,791,596

Retained earnings 365,872 967,587

Accumulated other comprehensive loss (9,746) (11,319)

Total stockholders' equity 2,185,108 2,748,994

Total liabilities and stockholders' equity $5,122,285 $6,292,232

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Statements of Operations

(in thousands, except For the Three Months Ended For the Nine Months Ended per share data) September 30, September 30,

2020 2019 2020 2019

Operating revenues and other income:

Oil, gas, and NGL $ 282,012 $ 389,419 $806,035 $1,136,749production revenue

Net gain on - - 91 323 divestiture activity

Other operating (997) 898 255 1,347 revenues

Total operating revenues and other 281,015 390,317 806,381 1,138,419 income

Operating expenses:

Oil, gas, and NGL 95,257 129,042 295,254 373,397 production expense

Depletion, depreciation, amortization, and 181,708 211,125 596,053 595,201 asset retirement obligation liability accretion

Exploration ^(1) 8,547 11,626 29,683 33,851

Impairment 8,750 6,337 1,007,263 25,092

General and 24,452 32,578 79,126 95,584 administrative ^(1)

Net derivative (gain) 63,871 (100,889) (314,269) (3,463) loss ^(2)

Other operating 1,562 1,021 10,174 422 expense, net

Total operating 384,147 290,840 1,703,284 1,120,084 expenses

Income (loss) from (103,132) 99,477 (896,903) 18,335 operations

Interest expense (41,519) (40,584) (123,385) (118,191)

Gain on extinguishment25,070 - 264,546 - of debt

Other non-operating (1,680) (548) (2,359) (1,427) expense, net

Income (loss) before (121,261) 58,345 (758,101) (101,283) income taxes

Income tax (expense) 22,969 (16,111) 158,662 16,337 benefit

Net income (loss) $ (98,292)$ 42,234 $(599,439)$(84,946)



Basic weighted-average common shares 114,371 112,804 113,462 112,441 outstanding

Diluted weighted-average 114,371 113,334 113,462 112,441 common shares outstanding

Basic net income (loss) per common $ (0.86) $ 0.37 $(5.28) $(0.76) share

Diluted net income (loss) per common $ (0.86) $ 0.37 $(5.28) $(0.76) share

Dividends per common $ 0.01 $ 0.05 $0.02 $0.10 share



^(1) Non-cash stock-based compensation included in:

Exploration expense $ 665 $ 1,285 $2,713 $3,781

General and 3,499 5,481 12,724 14,977 administrative expense

Total non-cash stock-based $ 4,164 $ 6,766 $15,437 $18,758 compensation



^(2) The net derivative (gain) loss line item consists of the following:

Settlement gain $ (70,305)$ (24,722) $(286,270)$(23,843)

(Gain) loss on fair 134,176 (76,167) (27,999) 20,380 value changes

Total net derivative $ 63,871 $ (100,889)$(314,269)$(3,463) (gain) loss

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data and dividends per share)

Total Common Stock Accumulated Stockholders' Additional Retained Other Equity Paid-in Earnings Comprehensive Shares Amount Capital Loss

Balances, December 31, 112,987,952$1,130$1,791,596$967,587$(11,319) $2,748,994 2019

Net loss - - - (411,895)- (411,895)

Other comprehensive- - - - 190 190 income

Cash dividends declared, - - - (1,130) - (1,130) $0.01 per share

Issuance of common stock upon vesting of RSUs, net 730 - (3) - - (3) of shares used for tax withholdings

Stock-based compensation - - 5,561 - - 5,561 expense

Balances, March 31, 112,988,682$1,130$1,797,154$554,562$(11,129) $2,341,717 2020

Net loss - - - (89,252) - (89,252)

Other comprehensive- - - - 188 188 income

Issuance of common stock under 297,013 3 944 - - 947 Employee Stock Purchase Plan

Stock-based compensation 267,576 3 5,709 - - 5,712 expense

Issuance of - - 21,520 - - 21,520 warrants

Balances, 113,553,271$1,136$1,825,327$465,310$(10,941) $2,280,832 June 30, 2020

Net loss - - - (98,292) - (98,292)

Other comprehensive- - - - 1,195 1,195 income

Cash dividends declared, - - - (1,146) - (1,146) $0.01 per share

Issuance of common stock upon vesting of RSUs and settlement of1,019,529 10 (1,567) - - (1,557) PSUs, net of shares used for tax withholdings

Stock-based compensation - - 4,164 - - 4,164 expense

Other - - (88) - - (88)

Balances, September 30,114,572,800$1,146$1,827,836$365,872$(9,746) $2,185,108 2020

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Statements of Stockholders' Equity (Continued)

(in thousands, except share data and dividends per share)



Accumulated Additional Other Total Common Stock Paid-in Retained ComprehensiveStockholders'Capital Earnings Loss Equity Shares Amount

Balances, December 31, 112,241,966$1,122$1,765,738$1,165,842$(12,380) $ 2,920,3222018

Net loss - - - (177,568) - (177,568)

Other comprehensive- - - - 263 263 income

Cash dividends declared, - - - (5,612) - (5,612) $0.05 per share

Issuance of common stock upon vesting of RSUs, net 2,579 - (18) - - (18) of shares used for tax withholdings

Stock-based compensation - - 5,838 - - 5,838 expense

Balances, March 31, 112,244,545$1,122$1,771,558$982,662 $(12,117) $ 2,743,2252019

Net income - - - 50,388 - 50,388

Other comprehensive- - - - 119 119 income

Issuance of common stock under 184,079 2 1,957 - - 1,959 Employee Stock Purchase Plan

Issuance of common stock upon vesting of RSUs, net 290 - (2) - - (2) of shares used for tax withholdings

Stock-based compensation 96,719 1 6,153 - - 6,154 expense

Other - - (1) 1 - -

Balances, 112,525,633$1,125$1,779,665$1,033,051$(11,998) $ 2,801,843June 30, 2019

Net income - - - 42,234 - 42,234

Other comprehensive- - - - 190 190 income

Cash dividends declared, - - - (5,643) - (5,643) $0.05 per share

Issuance of common stock upon vesting of RSUs, net 331,530 4 (1,644) - - (1,640) of shares used for tax withholdings

Stock-based compensation - - 6,766 - - 6,766 expense

Balances, September 30,112,857,163$1,129$1,784,787$1,069,642$(11,808) $ 2,843,7502019

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Statements of Cash Flows

(in thousands) For the Three Months EndedFor the Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Cash flows from operating activities:

Net income (loss) $(98,292) $42,234 $(599,439)$(84,946)

Adjustments to reconcile net loss to net cash provided by operating activities:

Net gain on divestiture activity- - (91) (323)

Depletion, depreciation, amortization, and asset 181,708 211,125 596,053 595,201 retirement obligation liability accretion

Impairment 8,750 6,337 1,007,263 25,092

Stock-based compensation expense4,164 6,766 15,437 18,758

Net derivative (gain) loss 63,871 (100,889)(314,269) (3,463)

Derivative settlement gain 70,305 24,722 286,270 23,843

Amortization of debt discount 4,506 3,921 13,084 11,554 and deferred financing costs

Gain on extinguishment of debt (25,070) - (264,546) -

Deferred income taxes (22,796) 19,617 (159,064) (13,620)

Other, net (2,376) (1,004) (6,203) (2,291)

Net change in working capital 16,843 (9,673) (40,411) 11,781

Net cash provided by operating 201,613 203,156 534,084 581,586 activities



Cash flows from investing activities:

Net proceeds from the sale of - - 92 12,520 oil and gas properties ^(1)

Capital expenditures (109,568) (212,515)(419,777) (788,642)

Acquisition of proved and (7,075) (2,900) (7,075) (2,581) unproved oil and gas properties

Net cash used in investing (116,643) (215,415)(426,760) (778,703) activities



Cash flows from financing activities:

Proceeds from revolving credit 324,500 428,000 1,165,500 1,124,500 facility

Repayment of revolving credit (339,500) (417,000)(1,110,000)(995,500) facility

Debt issuance costs related to 10.0% Senior Secured Notes due (2,395) - (12,886) - 2025

Cash paid to repurchase Senior (65,944) - (94,262) - Notes

Repayment of 1.50% Senior - - (53,508) - Convertible Notes due 2021

Net proceeds from sale of common- - 947 1,959 stock

Dividends paid - - (1,130) (5,612)

Other, net (1,631) (1,640) (1,985) (2,684)

Net cash provided by (used in) (84,970) 9,360 (107,324) 122,663 financing activities



Net change in cash, cash - (2,899) - (74,454) equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of 10 6,410 10 77,965 period

Cash, cash equivalents, and $10 $3,511 $10 $3,511 restricted cash at end of period

Less: Restricted cash ^(1) - (3,501) - (3,501)

Cash and cash equivalents $10 $10 $10 $10

^(1) As of September 30, 2019, a portion of net proceeds from the sale of oiland gas properties was restricted for future property acquisitions.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Condensed Consolidated Statements of Cash Flows (Continued)

(in thousands) For the Three Months EndedFor the Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Supplemental schedule of additional cash flow information and non-cash activities:

Operating activities:

Cash paid for interest, net of capitalized $ (39,861)$(45,476) $(122,174)$(113,122)interest



Investing activities:

Increase (decrease) in capital expenditure $ 11,491 $44,975 $(17,405) $34,878 accruals and other

DEFINITIONS OF NON-GAAP MEASURES AS CALCULATED BY THE COMPANYThe 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. A non-GAAP measure 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, 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, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. 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 2019 Form 10-K and third quarter 2020 Form 10-Q for discussion of the Credit Agreement and its covenants.

Adjusted net loss Adjusted net 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, gains and losses on extinguishment of debt, and accruals for non-recurring matters.

Free cash flowFree 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.

Free cash flow yield to market capitalizationFree cash flow yield to market capitalization is calculated as Free cash flow (defined above) divided by market capitalization.

Net Debt The total principal amount of outstanding senior secured notes and senior unsecured notes plus amounts drawn on the revolving credit facility (also referred to as total funded debt) less cash and cash equivalents.

Net debt-to-Adjusted EBITDAX Net debt-to-Adjusted EBITDAX is calculated as Net Debt (defined above) divided by Adjusted EBITDAX (defined above). 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.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Adjusted EBITDAX Reconciliation ^(1)

(in thousands)



Reconciliation of net income (loss) (GAAP) and net cash provided For the Three Months EndedFor the Nine Months Endedby operating activitiesSeptember 30, September 30, (GAAP) to Adjusted EBITDAX (non-GAAP)

2020 2019 2020 2019

Net income (loss) $(98,292)$ 42,234 $(599,439)$(84,946)(GAAP)

Interest expense 41,519 40,584 123,385 118,191

Income tax expense (22,969) 16,111 (158,662) (16,337) (benefit)

Depletion, depreciation, amortization, and asset181,708 211,125 596,053 595,201 retirement obligation liability accretion

Exploration ^(2) 7,882 10,341 26,970 30,070

Impairment 8,750 6,337 1,007,263 25,092

Stock-based 4,164 6,766 15,437 18,758 compensation expense

Net derivative (gain) 63,871 (100,889) (314,269) (3,463) loss

Derivative settlement 70,305 24,722 286,270 23,843 gain

Net gain on divestiture- - (91) (323) activity

Gain on extinguishment (25,070) - (264,546) - of debt

Other, net 615 434 1,651 1,129

Adjusted EBITDAX 232,483 257,765 720,022 707,215 (non-GAAP)

Interest expense (41,519) (40,584) (123,385) (118,191)

Income tax (expense) 22,969 (16,111) 158,662 16,337 benefit

Exploration ^(2) (7,882) (10,341) (26,970) (30,070)

Amortization of debt discount and deferred 4,506 3,921 13,084 11,554 financing costs

Deferred income taxes (22,796) 19,617 (159,064) (13,620)

Other, net (2,991) (1,438) (7,854) (3,420)

Net change in working 16,843 (9,673) (40,411) 11,781 capital

Net cash provided by operating activities $201,613 $ 203,156 $534,084 $581,586 (GAAP)

^(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

^(2) Stock-based compensation expense is a component of the explorationexpense and general and administrative expense line items on the accompanyingcondensed consolidated statements of operations. Therefore, the explorationline items shown in the reconciliation above will vary from the amount shown onthe accompanying unaudited condensed consolidated statements of operations forthe component of stock-based compensation expense recorded to explorationexpense.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

September 30, 2020



Adjusted Net Loss Reconciliation ^(1)

(in thousands, except per share data)



Reconciliation of net income (loss) (GAAP) toFor the Three Months Ended For the Nine Months Endedadjusted net loss September 30, September 30, (non-GAAP):

2020 2019 2020 2019

Net income (loss) $ (98,292)$ 42,234 $(599,439)$(84,946)(GAAP)

Net derivative (gain) 63,871 (100,889) (314,269) (3,463) loss

Derivative settlement 70,305 24,722 286,270 23,843 gain

Net gain on divestiture- - (91) (323) activity

Impairment 8,750 6,337 1,007,263 25,092

Gain on extinguishment (25,070) - (264,546) - of debt

Other, net ^(2) 615 435 1,767 1,347

Tax effect of (25,708) 15,058 (155,457) (10,090) adjustments ^(3)

Valuation allowance on - - 10,017 - deferred tax assets

Adjusted net loss $ (5,529) $ (12,103) $(28,485) $(48,540)(non-GAAP)



Diluted net income (loss) per common share$ (0.86) $ 0.37 $(5.28) $(0.76) (GAAP)

Net derivative (gain) 0.56 (0.89) (2.77) (0.03) loss

Derivative settlement 0.61 0.22 2.52 0.21 gain

Net gain on divestiture- - - - activity

Impairment 0.08 0.06 8.88 0.22

Gain on extinguishment (0.22) - (2.33) - of debt

Other, net ^(2) 0.01 - 0.02 0.01

Tax effect of (0.23) 0.13 (1.38) (0.09) adjustments ^(3)

Valuation allowance on - - 0.09 - deferred tax assets

Adjusted net loss per diluted common share $ (0.05) $ (0.11) $(0.25) $(0.43) (non-GAAP)



Basic weighted-average common shares 114,371 112,804 113,462 112,441 outstanding

Diluted weighted-average common114,371 113,334 113,462 112,441 shares outstanding

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 months and nine months ended September 30, 2020, andSeptember 30, 2019, the adjustments related to bad debt expense and impairmentsof materials inventory and other property.

^(3) The tax effect of adjustments for each of the three and nine months endedSeptember 30, 2020, and 2019, was calculated using a tax rate of 21.7%. Thisrate approximates the Company's statutory tax rate for the respective periods,as adjusted for ordinary permanent differences.

Reconciliation of Net Debt^ (1)

(in thousands)

As of September 30, 2020

Senior Secured Notes ^(2) $ 512,160

Senior Unsecured Notes ^(2) 1,732,658

Revolving credit facility ^(2) 178,000

Total funded debt 2,422,818

Less: Cash and cash equivalents10

Net Debt $ 2,422,808

^(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

^(2) Amounts are from Note 5 - Long-term Debt in Part I, Item I of theCompany's Form 10-Q for the quarter ended September 30, 2020.

Free Cash Flow ^(1)

(in thousands)

For the Three Months Ended For the Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Net cash provided by operating activities $ 201,613$ 203,156 $534,084$581,586 (GAAP)

Net change in working 16,843 (9,673) (40,411) 11,781 capital

Cash flow from operations before net $ 184,770$ 212,829 $574,495$569,805 change in working capital



Capital expenditures 109,568 212,515 419,777 788,642 (GAAP)

Increase (decrease) in capital expenditure 11,491 44,975 (17,405) 34,878 accruals and other

Capital expenditures before accruals and $ 121,059$ 257,490 $402,372$823,520 other



Free cash flow $ 63,711 $ (44,661) $172,123$(253,715)

^(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

Free Cash Flow ^(1)

(in thousands)

For the Twelve Months Ended September 30,

2020

Net cash provided by operating activities (GAAP) $ 776,065

Net change in working capital (35,340)

Cash flow from operations before net change in working capital$ 811,405



Capital expenditures (GAAP) 654,904

Increase (decrease) in capital expenditure accruals and other (76,572)

Capital expenditures before accruals and other $ 578,332



Free cash flow $ 233,073



Market capitalization at September 30, 2020 $ 182,171



Free cash flow yield 128 %

^(1) See "Definitions of non-GAAP Measures as Calculated by the Company" above.

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SOURCE SM Energy Company