SM Energy Reports Results for Third Quarter of 2010
-- Quarterly production of 298.4 MMCFE/d at high end of guidance of 277-299
MMCFE/d
-- Sequential equivalent daily production growth of 8%; daily oil
production grows 12% from second quarter of 2010
-- Company reports net income of $15.5 million, or $0.24 per diluted share
-- Adjusted net income of $20.0 million, or $0.31 per diluted share
-- Costs within or below guidance for the quarter
DENVER--(BUSINESS WIRE)-- SM Energy Company (NYSE: SM) today reports financial results from the third quarter of 2010. In addition, a new presentation covering these results and updating the Company's operating activities will be posted on its website at 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 November 3, 2010. Information for the earnings call can be found below.
MANAGEMENT COMMENTARY
Tony Best, CEO and President, remarked, "SM Energy has had another very solid quarter. We performed very well against our guidance and continue to execute well on our business plan. We look to have a strong finish to 2010 and position ourselves for even greater success in 2011."
THIRD QUARTER 2010 RESULTS
SM Energy posted net income for the third quarter of 2010 of $15.5 million, or $0.24 per diluted share. This compares to a net loss of ($4.4 million), or ($0.07) per diluted share, for the same period in 2009. Adjusted net income for the quarter was $20.0 million, or $0.31 per diluted share, versus adjusted net income of $14.7 million, or $0.23 per diluted share, for the third quarter of 2009. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded are generally one-time items or are items whose timing and/or amount cannot be reasonably estimated. A summary of the adjustments made to arrive at adjusted net income is presented in the table below.
For the Three Months Ended September 30,
2010 2009
Weighted-average diluted share 64.8 62.5
count (in millions)
$ in Per $ in Per
millions Diluted millions Diluted
Share Share
Reported net income (loss) $15.5 $0.24 ($4.4 ) ($0.07 )
Adjustments net of tax:
Change in Net Profits Plan $2.5 $0.04 $4.3 $0.07
liability
Unrealized derivative loss $3.6 $0.06 $2.6 $0.04
(Gain) loss on divestiture activity ($2.6 ) ($0.04 ) $7.1 $0.11
Loss related to hurricanes - - $0.7 $0.01
Adjusted net income (loss), before $19.0 $0.29 $10.3 $0.16
impairments
Non-cash impairments net of tax:
Impairment of proved properties - - $0.1 $0.00
Abandonment and impairment of $1.1 $0.02 $3.0 $0.05
unproved properties
Impairment of materials inventory - - $1.3 $0.02
Adjusted net income $20.0 $0.31 $14.7 $0.23
NOTE: Totals may not add due to
rounding
Operating cash flow increased to $130.1 million for the third quarter of 2010 from $99.9 million in the same period last year. Net cash provided by operating activities also increased to $148.2 million for the third quarter of 2010 from $111.3 million in the same period in 2009.
Adjusted net income and operating cash flow are non-GAAP financial measures - please refer to the respective reconciliation in the accompanying Financial Highlights section at the end of this release for additional information about these measures.
SM Energy reported quarterly production of 298.4 MMCFE/d, which was at the high end of the guidance range of 277 to 299 MMCFE/d. Production came in at the high end of guidance primarily due to strong results in the Company's Eagle Ford shale program. Sequentially equivalent production grew 8% from 276.4 MMCFE/d in the second quarter of 2010 driven by a 12% increase in oil production.
Revenues and other income for the current quarter were $226.9 million compared to $185.8 million for the same period in 2009. For the third quarter of 2010, the average equivalent price per MCFE, net of hedging, was $7.51 per MCFE, which is an increase of 9% from the $6.86 per MCFE realized in the comparable period in 2009. Average realized prices, inclusive of hedging activities, were $5.81 per Mcf and $64.28 per barrel in the third quarter of 2010, which is an increase of 17% and 3%, respectively, from the same period a year ago. SM Energy reports its gas volumes on a "wet gas" basis, meaning that revenue dollars associated with natural gas liquids ("NGLs") are reported within the Company's natural gas revenues.
Lease operating expense ("LOE") of $1.06 per MCFE in the third quarter of 2010 was below the Company's guidance of $1.20 to $1.25 per MCFE. Lease operating expense for the quarter represents an 18% decrease from the $1.30 per MCFE in the comparable period last year. Sequentially, LOE declined 8% or $0.09 per MCFE in the third quarter of 2010 from the preceding quarter. A decline in workover activity in the Rocky Mountain region resulting from the divestiture of non-core assets early in the year was a driver for the decline in LOE. LOE on a per MCFE basis is also being driven lower by higher production.
Transportation expense of $0.18 per MCFE in the third quarter of 2010 was below guidance of $0.21 to $0.23 per MCFE. The reported per unit expense decreased from $0.20 per MCFE for the comparable period in 2009. Sequentially, transportation expense was also down 10% from $0.20 per MCFE in the second quarter of 2010.
Production taxes on a per MCFE basis increased 15% from $0.34 to $0.39 between the third quarters of 2009 and 2010. The increase is a function of commodity price realizations, which on a pre-hedge basis were higher in the third quarter of 2010 compared to the same period last year. The Company's realized production tax rate for the third quarter was 5.4%, which was below the provided guidance of 7% of pre-hedge oil and natural gas revenue. The difference from guidance is related to severance tax holidays benefitting the Mid-Continent region in the third quarter of 2010.
Total general and administrative ("G&A") expense for the third quarter of 2010 was $0.96 per MCFE, which was below the guidance range of $1.04 to $1.10 per MCFE provided by the Company. Cash G&A expense was $0.61 per MCFE for the quarter, compared to a guidance range of $0.65 to $0.67 per MCFE. Non-cash G&A for the third quarter was $0.21 per MCFE versus a guidance range of $0.20 to $0.22 per MCFE. G&A related to cash payments from the Company's legacy Net Profits Plan ("NPP") program was $0.14 per MCFE in the quarter compared to a guidance range of $0.19 to $0.21 per MCFE.
Depletion and depreciation expense ("DD&A") was $3.05 per MCFE in the third quarter of 2010, which was within the Company's guidance range of $2.90 to $3.10 per MCFE. Sequentially, DD&A decreased 4% from $3.17 per MCFE in the second quarter of 2010. The Company's DD&A rate is impacted by a number of factors, including divestitures and the accounting treatment of assets held for sale.
In the third quarter of 2010, SM Energy recognized a pre-tax non-cash expense of $4.1 million as a result of an increase in the NPP liability. The NPP liability is a significant management estimate that is highly sensitive to a number of assumptions including future commodity prices, production rates, and operating costs. The last pool created under this legacy compensation plan was in 2007.
FINANCIAL POSITION AND LIQUIDITY
As of September 30, 2010, SM Energy had total long-term debt of $275.4 million. The balance on the Company's 3.50% Senior Convertible Notes was $273.4 million, net of debt discount, and the Company's long-term credit facility had a balance of $2.0 million. The Company's debt-to-book capitalization ratio was 19% as of the end of the quarter.
The borrowing base for the long-term credit facility was re-determined by SM Energy's bank group on September 21, 2010, and was increased from $900 million to $1.1 billion. The Company has a commitment amount of $678 million from the Company's bank group. SM Energy is in compliance with all of the covenants associated with this facility.
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference to discuss the third quarter results on November 3, 2010 at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 800-573-4752 and the participant passcode is 96275028. An audio replay of the call will be available approximately two hours after the call at 888-286-8010, with the passcode 89724964. International participants can dial 617-224-4324 to take part in the conference call, using passcode 96275028 and can access a replay of the call at 617-801-6888, using passcode 89724964. Replays can be accessed through November 17, 2010.
This call is being webcast live and can be accessed at SM Energy Company's website at sm-energy.com. An audio recording of the conference call will be available at that site through November 17, 2010.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words "will," "believe," "budget," "anticipate," "plan," "intend," "estimate," "forecast," "look," and "expect" 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 such factors as the volatility and level of oil and natural gas prices, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, the availability of debt and equity financing for purchasers of oil and gas properties, the ability of the banks in the Company's credit facility to fund requested borrowings, the ability of hedge counterparties to settle hedges in favor of the Company, the risks associated with the Company's hedging strategy, the uncertain nature of the expected benefits from the divestiture or joint ventures of oil and gas properties, the ability to close announced divestitures or joint venture of oil and gas properties, and other such matters discussed in the "Risk Factors" section of SM Energy's 2009 Annual Report on Form 10-K and subsequent quarterly reports filed on Form 10-Q. 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, formerly named St. Mary Land & Exploration Company, is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas and crude oil. SM Energy routinely posts important information about the Company on its website. For more information about SM Energy, please visit its website at sm-energy.com.
SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September
30, 2010
Guidance Comparison For the Three Months
Ended September 30, 2010
Actual Guidance Range
Oil and gas production (MMCFE per day) 298.4 277 - 299
Lease operating expense (per MCFE) $ 1.06 $1.20 - $1.25
Transportation expense (per MCFE) $ 0.18 $0.21 - $0.23
Production taxes, as a percentage of pre-hedge revenue 5.4% 7%
General and administrative - cash (per MCFE) $ 0.61 $0.65 - $0.67
General and administrative - cash related to Net $ 0.14 $0.19 - $0.21
Profits Plan (per MCFE)
General and administrative - non-cash (per MCFE) $ 0.21 $0.20 - $0.22
General and administrative - TOTAL (per MCFE) $ 0.96 $1.04 - $1.10
Depreciation, depletion, and amortization (per MCFE) $ 3.05 $2.90 - $3.10
Production Data For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2010 2009 Percent 2010 2009 Percent
Change Change
Average realized
sales price,
before hedging:
Oil (per Bbl) $ 68.56 $ 61.93 11% $ 70.70 $ 49.82 42%
Gas (per Mcf) 4.93 3.37 46% 5.20 3.49 49%
Average realized
sales price, net
of hedging:
Oil (per Bbl) $ 64.28 $ 62.65 3% $ 65.46 $ 54.32 21%
Gas (per Mcf) 5.81 4.95 17% 6.07 5.44 12%
Production:
Oil (MMBbls) 1.6 1.5 4% 4.5 4.8 -6%
Gas (Bcf) 17.9 17.2 4% 51.2 54.1 -5%
BCFE (6:1) 27.5 26.4 4% 78.3 83.0 -6%
Daily
production:
Oil (MBbls per 17.3 16.6 4% 16.6 17.6 -6%
day)
Gas (MMcf per 194.8 187.1 4% 187.4 198.0 -5%
day)
MMCFE per day 298.4 286.7 4% 286.9 303.8 -6%
(6:1)
Margin analysis
per MCFE:
Average realized
sales price, $ 7.19 $ 5.79 24% $ 7.48 $ 5.16 45%
before hedging
Average realized
sales price, net 7.51 6.86 9% 7.75 6.70 16%
of hedging
Lease operating 1.06 1.30 -18% 1.12 1.34 -16%
expense
Transportation 0.18 0.20 -10% 0.18 0.19 -5%
Production taxes 0.39 0.34 15% 0.46 0.33 39%
General and 0.96 0.79 22% 0.96 0.67 43%
administrative
Operating margin $ 4.92 $ 4.23 16% $ 5.03 $ 4.17 21%
Depletion,
depreciation,
amortization,
and
asset retirement
obligation $ 3.05 $ 2.54 20% $ 3.08 $ 2.76 12%
liability
accretion
Consolidated
Statements of
Operations
(In thousands, except For the Three Months For the Nine Months
per share amounts)
Ended September 30, Ended September 30,
2010 2009 2010 2009
Operating revenues and
other income:
Oil and gas production $ 197,354 $ 152,651 $ 586,128 $ 428,347
revenue
Realized oil and gas 8,847 28,331 20,771 127,230
hedge gain
Gain (loss) on 4,184 (11,277 ) 132,183 (10,632 )
divestiture activity
Marketed gas system
and other operating 16,499 16,082 59,634 45,260
revenue
Total operating
revenues and other 226,884 185,787 798,716 590,205
income
Operating expenses:
Oil and gas production 44,606 48,634 138,114 153,928
expense
Depletion,
depreciation,
amortization,
and asset retirement
obligation liability 83,800 66,958 241,335 229,061
accretion
Exploration 14,437 15,733 42,833 48,821
Impairment of proved - 91 - 153,183
properties
Abandonment and
impairment of unproved 1,719 4,761 4,998 20,294
properties
Impairment of - 2,114 - 13,449
materials inventory
General and 26,219 20,790 75,103 55,349
administrative
Change in Net Profits 4,086 6,804 (29,785 ) (14,038 )
Plan liability
Marketed gas system 14,697 14,360 52,550 41,352
expense
Unrealized derivative 5,727 4,117 (4,095 ) 17,251
(gain) loss
Other expense 541 968 2,071 12,424
Total operating 195,832 185,330 523,124 731,074
expenses
Income (loss) from 31,052 457 275,592 (140,869 )
operations
Nonoperating income
(expense):
Interest income 85 90 268 217
Interest expense (6,339 ) (7,565 ) (19,469 ) (21,324 )
Income (loss) before 24,798 (7,018 ) 256,391 (161,976 )
income taxes
Income tax benefit (9,346 ) 2,603 (96,693 ) 61,616
(expense)
Net income (loss) $ 15,452 $ (4,415 ) $ 159,698 $ (100,360 )
Basic weighted-average
common shares 63,031 62,505 62,914 62,420
outstanding
Diluted
weighted-average 64,794 62,505 64,599 62,420
common shares
outstanding
Basic net income
(loss) per common $ 0.25 $ (0.07 ) $ 2.54 $ (1.61 )
share
Diluted net income
(loss) per common $ 0.24 $ (0.07 ) $ 2.47 $ (1.61 )
share
Consolidated Balance Sheets
(In thousands, except share amounts) September 30, December 31,
ASSETS 2010 2009
Current assets:
Cash and cash equivalents $ 7,089 $ 10,649
Accounts receivable 121,010 116,136
Refundable income taxes 1,371 32,773
Prepaid expenses and other 12,847 14,259
Derivative asset 56,199 30,295
Deferred income taxes - 4,934
Total current assets 198,516 209,046
Property and equipment (successful efforts
method), at cost:
Land 1,483 1,371
Proved oil and gas properties 3,137,262 2,797,341
Less - accumulated depletion, depreciation, and (1,234,802 ) (1,053,518 )
amortization
Unproved oil and gas properties, net of
impairment allowance
of $62,395 in 2010 and $66,570 in 2009 79,466 132,370
Wells in progress 129,102 65,771
Materials inventory, at lower of cost or market 27,810 24,467
Oil and gas properties held for sale less
accumulated depletion,
depreciation, and amortization 114,863 145,392
Other property and equipment, net of accumulated
depreciation
of $17,301 in 2010 and $14,550 in 2009 19,048 14,404
2,274,232 2,127,598
Other noncurrent assets:
Derivative asset 29,444 8,251
Other noncurrent assets 16,805 16,041
Total other noncurrent assets 46,249 24,292
Total Assets $ 2,518,997 $ 2,360,936
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 316,179 $ 236,242
Derivative liability 53,732 53,929
Deposit associated with oil and gas properties - 6,500
held for sale
Deferred income taxes 1,143 -
Total current liabilities 371,054 296,671
Noncurrent liabilities:
Long-term credit facility 2,000 188,000
Senior convertible notes, net of unamortized
discount of $14,096 in 2010, and $20,598 in 2009 273,404 266,902
Asset retirement obligation 64,286 60,289
Asset retirement obligation associated with oil 3,076 18,126
and gas properties held for sale
Net Profits Plan liability 140,506 170,291
Deferred income taxes 422,021 308,189
Derivative liability 25,450 65,499
Other noncurrent liabilities 14,749 13,399
Total noncurrent liabilities 945,492 1,090,695
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value: authorized -
200,000,000 shares;
issued: 63,147,163 shares in 2010 and 62,899,122
shares in 2009;
outstanding, net of treasury shares: 63,044,978
shares in 2010
and 62,772,229 shares in 2009 631 629
Additional paid-in capital 183,203 160,516
Treasury stock, at cost: 102,635 shares in 2010 (456 ) (1,204 )
and 126,893 shares in 2009
Retained earnings 1,004,984 851,583
Accumulated other comprehensive income (loss) 14,089 (37,954 )
Total stockholders' equity 1,202,451 973,570
Total Liabilities and Stockholders' Equity $ 2,518,997 $ 2,360,936
Consolidated Statements of
Cash Flows
(In thousands) For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2010 2009 2010 2009
Cash flows from operating
activities:
Net income (loss) $ 15,452 $ (4,415 ) $ 159,698 $ (100,360 )
Adjustments to reconcile
net income (loss) to net
cash
provided by operating
activities:
(Gain) loss on divestiture (4,184 ) 11,277 (132,183 ) 10,632
activity
Depletion, depreciation,
amortization,
and asset retirement
obligation liability 83,800 66,958 241,335 229,061
accretion
Exploratory dry hole (38 ) 182 289 4,849
expense
Impairment of proved - 91 - 153,183
properties
Abandonment and impairment 1,719 4,761 4,998 20,294
of unproved properties
Impairment of materials - 2,114 - 13,449
inventory
Stock-based compensation 7,989 5,469 19,853 12,978
expense*
Change in Net Profits Plan 4,086 6,804 (29,785 ) (14,038 )
liability
Unrealized derivative 5,727 4,117 (4,095 ) 17,251
(gain) loss
Loss related to hurricanes - 1,153 - 8,273
Amortization of debt
discount and deferred 3,365 3,219 10,022 8,922
financing costs
Deferred income taxes 6,875 (5,934 ) 85,695 (69,082 )
Plugging and abandonment (884 ) (9,755 ) (7,106 ) (12,110 )
Other (6,022 ) (187 ) (3,085 ) 1,432
Changes in current assets
and liabilities:
Accounts receivable (12,565 ) 9,695 (4,937 ) 58,844
Refundable income taxes 21,844 (2,821 ) 31,402 10,340
Prepaid expenses and other 660 (1,569 ) 512 (8,660 )
Accounts payable and 20,824 20,132 47,123 7,794
accrued expenses
Excess income tax benefit
from the exercise of stock (438 ) - (1,376 ) -
options
Net cash provided by 148,210 111,291 418,360 353,052
operating activities
Cash flows from investing
activities:
Net proceeds from sale of 11,503 56 259,501 1,137
oil and gas properties
Proceeds from insurance - 15,336 - 15,336
settlement
Capital expenditures (184,057 ) (76,640 ) (488,684 ) (292,466 )
Acquisition of oil and gas (685 ) (14 ) (685 ) (58 )
properties
Deposits to restricted 19,595 - - -
cash
Receipts from restricted - - - 14,398
cash
Receipts from short-term - - - 1,002
investments
Other - - (6,492 ) -
Net cash used in investing (153,644 ) (61,262 ) (236,360 ) (260,651 )
activities
Cash flows from financing
activities:
Proceeds from credit 111,000 132,500 315,059 1,898,500
facility
Repayment of credit (109,000 ) (172,500 ) (501,059 ) (1,963,500 )
facility
Debt issuance costs - (14 ) - (11,074 )
related to credit facility
Proceeds from sale of 200 113 3,116 1,179
common stock
Dividends paid - - (3,144 ) (3,120 )
Excess income tax benefit
from the exercise of stock 438 - 1,376 -
options
Other (364 ) - (908 ) -
Net cash provided by (used 2,274 (39,901 ) (185,560 ) (78,015 )
in) financing activities
Net change in cash and (3,160 ) 10,128 (3,560 ) 14,386
cash equivalents
Cash and cash equivalents 10,249 10,389 10,649 6,131
at beginning of period
Cash and cash equivalents $ 7,089 $ 20,517 $ 7,089 $ 20,517
at end of period
* Stock-based compensation expense is a component of exploration expense and
general and administrative expense on the consolidated statements of
operations. For the three months ended September 30, 2010, and 2009,
approximately $2.3 million and $1.5 million, respectively of stock-based
compensation
expense was included in exploration expense. For the three months ended
September 30, 2010, and 2009, approximately $5.7 million and $4.0 million,
respectively
of stock-based compensation expense was included in general and administrative
expense. For the nine months ended September, 30, 2010, and 2009,
approximately $5.7 million and $4.4 million, respectively of stock-based
compensation expense was included in exploration expense. For the nine months
ended September, 30, 2010 and 2009, approximately $14.1 million and $8.6
million, respectively of stock-based compensation expense was included in
general and administrative expense.
Adjusted Net Income
(In thousands, except per
share data)
Reconciliation of net income For the Three Months For the Nine Months
(loss) (GAAP)
to Adjusted net income Ended September 30, Ended September 30,
(Non-GAAP):
2010 2009 2010 2009
Reported net income (loss) $ 15,452 $ (4,415 ) $ 159,698 $ (100,360 )
(GAAP)
Adjustments net of tax: (1)
Change in Net Profits Plan 2,546 4,281 (18,552 ) (8,699 )
liability
Unrealized derivative (gain) 3,569 2,590 (2,551 ) 10,689
loss
(Gain) loss on divestiture (2,607 ) 7,094 (82,333 ) 6,588
activity
Loss related to hurricanes - 725 - 5,126
(2)
Adjusted net income (loss),
before impairment 18,960 10,275 56,262 (86,656 )
adjustments
Non-cash impairments net of
tax: (1)
Impairment of proved - 57 - 94,912
properties
Abandonment and impairment 1,071 2,995 3,113 12,574
of unproved properties
Impairment of materials - 1,330 - 8,333
inventory
Adjusted net income,
non-recurring items
& non-cash impairments $ 20,031 $ 14,657 $ 59,375 $ 29,163
(Non-GAAP) (3)
Adjusted net income per
share (Non-GAAP)
Basic $ 0.32 $ 0.23 $ 0.94 $ 0.47
Diluted $ 0.31 $ 0.23 $ 0.92 $ 0.47
Average number of shares
outstanding
Basic 63,031 62,505 62,914 62,420
Diluted 64,794 62,505 64,599 62,420
(1) Adjustments are shown net of tax using the effective income tax rate;
calculated by dividing the income tax benefit (expense) by income (loss) before
income
taxes as stated on the consolidated statement of operations. Effective income
tax rates for the three months ended September 30, 2010 and 2009, were 37.7% and
37.1% respectively. Effective income tax rates for the nine months ended
September 30, 2010 and 2009, were 37.7% and 38.0% respectively.
(2) The loss related to hurricanes is included within line item other expense on
the consolidated statements of operations.
(3) Adjusted net income excludes certain items that the Company believes affect
the comparability of operating results. Items excluded generally are one-time
items or are items whose timing and/or amount cannot be reasonably estimated.
These items include non-cash adjustments and impairments such as the change in
the Net Profits Plan liability, unrealized derivative (gain) loss, impairment of
proved properties, abandonment and impairment of unproved properties, impairment
of materials inventory, (gain) loss on divestiture activity, and loss related to
hurricanes. The non-GAAP measure of adjusted net income is presented because
management believes it provides useful additional information to investors for
analysis of SM Energy's fundamental business on a recurring basis. In addition,
management believes that adjusted net income is widely used by professional
research analysts and others in the valuation, comparison, and investment
recommendations of companies in the oil and gas exploration and production
industry, and many investors use the published research of industry research
analysts in making investment decisions. Adjusted net income should not be
considered in isolation or as a substitute for net income, income from
operations, cash provided by operating activities or other income,
profitability, cash flow, or liquidity measures prepared under GAAP. Since
adjusted net income excludes some, but not all, items that affect net income and
may vary among companies, the adjusted net income amounts presented may not be
comparable to similarly titled measures of other companies.
Operating Cash Flow
(In thousands)
Reconciliation of net cash
provided by operating For the Three Months For the Nine Months
activities
(GAAP) to Operating cash Ended September 30, Ended September 30,
flow (Non-GAAP):
2010 2009 2010 2009
Net cash provided by $ 148,210 $ 111,291 $ 418,360 $ 353,052
operating activities (GAAP)
Changes in current assets $ (30,325 ) $ (25,437 ) $ (72,724 ) $ (68,318 )
and liabilities
Exploration $ 14,437 $ 15,733 42,833 48,821
Less: Exploratory dry hole $ 38 $ (182 ) (289 ) (4,849 )
expense
Less: Stock-based
compensation expense $ (2,286 ) $ (1,533 ) (5,724 ) (4,397 )
included in exploration
Operating cash flow $ 130,074 $ 99,872 $ 382,456 $ 324,309
(Non-GAAP) (4)
(4) Beginning in the third quarter of 2009 the Company changed its definition of
operating cash flow. Prior periods have been conformed to the current
definition and the change in the definition did not result in a material
variance to results under the prior definiton. Operating cash flow is computed
as net cash
provided by operating activities adjusted for changes in current assets and
liabilities and exploration, less exploratory dry hole expense, and
stock-based compensation expense included in exploration. The non-GAAP measure
of operating cash flow is presented because management believes that it
provides useful additional information to investors for analysis of SM Energy's
ability to internally generate funds for exploration, development, acquisitions,
and to
service debt. In addition, operating cash flow is widely used by professional
research analysts and others in the valuation, comparison, and investment
recommendations of companies in the oil and gas exploration and production
industry, and many investors use the published research of industry research
analysts
in making investment decisions. Operating cash flow should not be considered in
isolation or as a substitute for net income, income from operations, net cash
provided
by operating activities or other income, profitability, cash flow, or liquidity
measures prepared under GAAP. Since operating cash flow excludes some, but not
all
items that affect net income and net cash provided by operating activities and
may vary among companies, the operating cash flow amounts presented may not
be comparable to similarly titled measures of other companies. See the
consolidated statements of cash flows herein for more detailed cash flow
information.
Source: SM Energy
Released November 2, 2010