SM Energy Reports Results for Second Quarter of 2010
-- Quarterly production of 276 MMCFE/d exceeds guidance of 253 -274 MMCFE/d
-- Company reports net income of $18.1 million, or $0.28 per diluted share
-- Adjusted net income of $10.2 million, or $0.16 per diluted share
DENVER--(BUSINESS WIRE)-- SM Energy Company (NYSE: SM), formerly named St. Mary Land & Exploration Company, today reports financial results from the second quarter of 2010. In addition, a new presentation for the second quarter earnings and operational update will be posted on the Company's 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 August 3, 2010. Information for the earnings call can be found below.
MANAGEMENT COMMENTARY
Tony Best, CEO and President, remarked, "SM Energy has had another strong quarter. We beat production targets and performed very well on most of our cost guidance. Through mid-year, we continue to execute well on our business plan for 2010. We are well positioned with a strong inventory of projects and ample liquidity to fund our programs through the second half of this year."
SECOND QUARTER 2010 RESULTS
SM Energy posted net income for the second quarter of 2010 of $18.1 million, or $0.28 per diluted share. This compares to a net loss of ($8.3 million), or ($0.13) per diluted share, for the same period in 2009. Adjusted net income for the quarter was $10.2 million, or $0.16 per diluted share, versus an adjusted net income of $15.2 million, or $0.24 per diluted share, for the second quarter of 2009. 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. A summary of the adjustments made to arrive at adjusted net income is presented in the table below.
For the Three Months Ended June 30,
2010 2009
Weighted-average diluted share 64.6 62.4
count (in millions)
$ in Per $ in Per
millions Diluted millions Diluted
Share Share
Reported net income (loss) $18.1 $0.28 ($8.3 ) ($0.13 )
Adjustments net of tax:
Change in Net Profits Plan ($3.9 ) ($0.06 ) $1.5 $0.02
liability
Unrealized derivative (gain) ($1.2 ) ($0.02 ) $7.0 $0.11
loss
Gain on divestiture activity ($4.2 ) ($0.06 ) ($0.8 ) ($0.01 )
Loss related to hurricanes - - $3.1 $0.05
Adjusted net income (loss), $8.8 $0.14 $2.5 $0.04
before impairments
Non-cash impairments net of tax:
Impairment of proved properties - - $3.7 $0.06
Abandonment and impairment of $1.4 $0.02 $7.2 $0.12
unproved properties
Impairment of materials - - $1.7 $0.03
inventory
Adjusted net income $10.2 $0.16 $15.2 $0.24
NOTE: Totals may not add due to
rounding
Operating cash flow increased to $119.2 million for the second quarter of 2010 from $117.8 million in the same period last year. Net cash provided by operating activities decreased to $116.3 million for the second quarter of 2010 from $116.6 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 276.4 MMCFE/d, which was above the guidance range of 253 to 274 MMCFE/d. Production came in above guidance primarily due to strong results in the Eagle Ford.
Revenues and other income for the quarter were $211.7 million compared to $205.2 million for the same period in 2009. For the second quarter of 2010, the average equivalent price per MCFE, net of hedging, was $7.36 per MCFE, which is an increase of 10% from the $6.68 per MCFE realized in the comparable period in 2009. Average realized prices, inclusive of hedging activities, were $5.59 per Mcf and $65.17 per barrel in the second quarter of 2010, which is an increase of 8% and 15%, 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 $1.15 per MCFE in the second quarter of 2010 was below the Company's guidance of $1.24 to $1.32 per MCFE. Lease operating expense for the quarter represents a 9% decrease from the $1.26 per MCFE in the comparable period last year. The divestiture of higher per unit cost assets was the primary reason for lower per unit LOE costs year over year. Sequentially, LOE declined 2% or $0.02 per MCFE in the second quarter of 2010 from the preceding quarter.
Transportation expense of $0.20 per MCFE in the second quarter of 2010 was within guidance of $0.18 to $0.20 per MCFE. The reported per unit expense increased from $0.16 per MCFE for the comparable period in 2009. Sequentially, transportation expense was up $0.04 per MCFE from the first quarter of 2010. Transportation costs, both on a year over year and sequential basis, reflects increased production contributed from areas with higher per unit transportation costs, such as the Eagle Ford shale.
Commodity price increases over the past year for both oil and natural gas resulted in year over year increases in production taxes, both on a per MCFE basis and in absolute dollars. Between the second quarters of 2009 and 2010, production taxes on a per MCFE basis increased 33% from $0.33 to $0.44. The Company's realized production tax rate for the second quarter was 6%, which was slightly below the provided guidance of 7% of pre-hedge oil and natural gas revenue.
Total general and administrative ("G&A") expense for the second quarter of 2010 was $1.01 per MCFE, which was slightly above the guidance range provided by the Company. Cash G&A expense was $0.61 per MCFE for the quarter, compared to a guidance range of $0.53 to $0.55 per MCFE. The Cash G&A expense came in above guidance primarily due to the recognition of certain administrative and legal items in the second quarter. Non-cash G&A for the second quarter was $0.18 per MCFE versus a guidance range of $0.19 to $0.21 per MCFE. G&A related to cash payments from the Company's legacy Net Profits Plan (NPP) program was $0.22 per MCFE in the quarter compared to a guidance range of $0.22 to $0.24 per MCFE.
Depletion and depreciation expense ("DD&A") increased to $3.17 per MCFE in the second quarter of 2010, which was above the Company's guidance range of $2.90 to $3.10 per MCFE. DD&A in the comparable period of 2009 was $2.49 per MCFE. Sequentially, DD&A increased 5% from $3.02 per MCFE in the first quarter of 2010. The Company's DD&A rate was impacted by the Company's divestiture of lower cost basis properties in the first quarter of 2010. Additionally, infrastructure costs that are incurred at the beginning of the development of emerging plays are also increasing the DD&A rate.
In the second quarter of 2010, SM Energy recognized a pre-tax non-cash benefit of $6.6 million as a result of a decrease 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 June 30, 2010, SM Energy had total long-term debt of $271.2 million, which was comprised entirely of the Company's 3.50% Senior Convertible Notes, net of debt discount. The Company's debt-to-book capitalization ratio was 19% as of the end of the quarter.
SM Energy currently has no outstanding borrowing under its long-term credit facility. The Company has a commitment amount of $678 million from the Company's bank group with a borrowing base of $900 million. SM Energy is in compliance with all the covenants associated with this facility.
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference to discuss the second quarter results on August 3, 2010 at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 866-788-0539 and the participant passcode is 18765995. An audio replay of the call will be available approximately two hours after the call at 888-286-8010, with the passcode 82316400. International participants can dial 857-350-1677 to take part in the conference call, using passcode 18765995 and can access a replay of the call at 617-801-6888, using passcode 82316400. Replays can be accessed through August 17, 2010.
In addition, the call will be 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 August 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," 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, 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 imprecise nature of estimating oil and gas reserves, the availability of additional economically attractive exploration, development, and property acquisition opportunities for future growth and any necessary financings, unexpected drilling conditions and results, unsuccessful exploration and development drilling, drilling, completion, and operating service availability, the risks associated with the Company's hedging strategy, 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
June 30, 2010
Guidance For the Three Months
Comparison
Ended June 30, 2010
Actual Guidance
Range
Oil and gas
production 276.4 253 - 274
(MMCFE per day)
Lease operating $1.24 -
expense (per $ 1.15 $1.32
MCFE)
Transportation $0.18 -
expense (per $ 0.20 $0.20
MCFE)
Production
taxes, as a
percentage of 6 % 7 %
pre-hedge
revenue
General and $0.53 -
administrative - $ 0.61 $0.55
cash
General and
administrative - $ 0.22 $0.22 -
cash related to $0.24
Net Profits Plan
General and $0.19 -
administrative - $ 0.18 $0.21
non-cash
General and $0.94 -
administrative - $ 1.01 $1.00
TOTAL
Depreciation, $2.90 -
depletion, and $ 3.17 $3.10
amortization
Production Data For the Three Months For the Six Months
Ended June 30, Ended June 30,
2010 2009 Percent 2010 2009 Percent
Change Change
Average realized
sales price,
before hedging:
Oil (per Bbl) $ 70.92 $ 53.96 31 % $ 71.86 $ 44.21 63 %
Gas (per Mcf) 4.54 3.07 48 % 5.34 3.54 51 %
Average realized
sales price, net
of hedging:
Oil (per Bbl) $ 65.17 $ 56.72 15 % $ 66.10 $ 50.45 31 %
Gas (per Mcf) 5.59 5.19 8 % 6.21 5.66 10 %
Production:
Oil (MMBbls) 1.4 1.6 -14 % 2.9 3.3 -11 %
Gas (Bcf) 16.7 18.3 -9 % 33.2 36.8 -10 %
BCFE (6:1) 25.2 28.2 -11 % 50.9 56.6 -10 %
Daily
production:
Oil (MBbls per 15.5 18.1 -14 % 16.2 18.2 -11 %
day)
Gas (MMcf per 183.3 201.4 -9 % 183.7 203.6 -10 %
day)
MMCFE per day 276.4 310.1 -11 % 281.1 312.6 -10 %
(6:1)
Margin analysis
per MCFE:
Average realized
sales price, $ 6.99 $ 5.15 36 % $ 7.64 $ 4.87 57 %
before hedging
Average realized
sales price, net 7.36 6.68 10 % 7.88 6.62 19 %
of hedging
Lease operating 1.15 1.26 -9 % 1.16 1.36 -15 %
expense
Transportation 0.20 0.16 25 % 0.18 0.18 0 %
Production taxes 0.44 0.33 33 % 0.50 0.33 52 %
General and 1.01 0.64 58 % 0.96 0.61 57 %
administrative
Operating margin $ 4.56 $ 4.29 6 % $ 5.08 $ 4.14 23 %
Depletion,
depreciation,
amortization,
and
asset retirement
obligation $ 3.17 $ 2.49 27 % $ 3.10 $ 2.87 8 %
liability
accretion
Consolidated
Statements of
Operations
(In thousands,
except per share For the Three Months For the Six Months
amounts)
Ended June 30, Ended June, 30,
2010 2009 2010 2009
Operating
revenues and
other income:
Oil and gas $
production $ 175,887 $ 145,279 388,774 $ 275,696
revenue
Realized oil and 9,329 43,279 11,924 98,899
gas hedge gain
Gain on
divestiture 7,021 1,244 127,999 645
activity
Marketed gas
system and other 19,460 15,396 43,135 29,178
operating
revenue
Total operating
revenues and 211,697 205,198 571,832 404,418
other income
Operating
expenses:
Oil and gas
production 45,168 49,465 93,508 105,294
expense
Depletion,
depreciation,
amortization,
and asset
retirement
obligation 79,770 70,391 157,535 162,103
liability
accretion
Exploration 14,498 19,490 28,396 33,088
Impairment of
proved - 6,043 - 153,092
properties
Abandonment and
impairment of 2,375 11,631 3,279 15,533
unproved
properties
Impairment of
materials - 2,719 - 11,335
inventory
General and 25,398 18,160 48,884 34,559
administrative
Change in Net
Profits Plan (6,599 ) 2,449 (33,871 ) (20,842 )
liability
Marketed gas 15,807 13,609 37,853 26,992
system expense
Unrealized
derivative (2,087 ) 11,288 (9,822 ) 13,134
(gain) loss
Other expense 578 5,814 1,530 11,456
Total operating 174,908 211,059 327,292 545,744
expenses
Income (loss) 36,789 (5,861 ) 244,540 (141,326 )
from operations
Nonoperating
income
(expense):
Interest income 54 105 183 127
Interest expense (6,343 ) (7,663 ) (13,130 ) (13,759 )
Income (loss)
before income 30,500 (13,419 ) 231,593 (154,958 )
taxes
Income tax
benefit (12,432 ) 5,097 (87,347 ) 59,013
(expense)
Net income $ 18,068 $ (8,322 ) $ $ (95,945 )
(loss) 144,246
Basic
weighted-average 62,917 62,418 62,855 62,377
common shares
outstanding
Diluted
weighted-average 64,566 62,418 64,493 62,377
common shares
outstanding
Basic net income
(loss) per $ 0.29 $ (0.13 ) $ 2.29 $ (1.54 )
common share
Diluted net
income (loss) $ 0.28 $ (0.13 ) $ 2.24 $ (1.54 )
per common share
Consolidated
Balance Sheets
(In thousands,
except share June 30, December 31,
amounts)
ASSETS 2010 2009
Current assets:
Cash and cash $ 10,249 $ 10,649
equivalents
Accounts 108,427 116,136
receivable
Refundable 23,215 32,773
income taxes
Prepaid expenses 14,284 14,259
and other
Derivative asset 45,481 30,295
Deferred income - 4,934
taxes
Total current 201,656 209,046
assets
Property and
equipment
(successful
efforts method),
at cost:
Land 1,483 1,371
Proved oil and 3,066,300 2,797,341
gas properties
Less -
accumulated
depletion, (1,203,841 ) (1,053,518 )
depreciation,
and amortization
Unproved oil and
gas properties,
net of
impairment
allowance
of $62,507 in
2010 and $66,570 138,531 132,370
in 2009
Wells in 97,312 65,771
progress
Materials
inventory, at 31,305 24,467
lower of cost or
market
Oil and gas
properties held
for sale less
accumulated
depletion,
depreciation, 7,115 145,392
and amortization
Other property
and equipment,
net of
accumulated
depreciation
of $16,478 in
2010 and $14,550 15,472 14,404
in 2009
2,153,677 2,127,598
Other noncurrent
assets:
Derivative asset 30,169 8,251
Restricted cash
subject to 19,595 -
Section 1031
Exchange
Other noncurrent 12,288 16,041
assets
Total other
noncurrent 62,052 24,292
assets
Total Assets $ $
2,417,385 2,360,936
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts payable
and accrued $ 270,030 $ 236,242
expenses
Derivative 37,903 53,929
liability
Deposit
associated with
oil and gas - 6,500
properties held
for sale
Deferred income 4,970 -
taxes
Total current 312,903 296,671
liabilities
Noncurrent
liabilities:
Long-term credit - 188,000
facility
Senior
convertible
notes, net of
unamortized
discount of
$16,288 in 2010, 271,212 266,902
and $20,598 in
2009
Asset retirement 64,284 60,289
obligation
Asset retirement
obligation
associated with 1,526 18,126
oil and gas
properties held
for sale
Net Profits Plan 136,420 170,291
liability
Deferred income 408,997 308,189
taxes
Derivative 24,046 65,499
liability
Other noncurrent 15,164 13,399
liabilities
Total noncurrent 921,649 1,090,695
liabilities
Commitments and
contingencies
Stockholders'
equity:
Common stock,
$0.01 par value:
authorized -
200,000,000
shares;
issued:
63,110,068
shares in 2010
and 62,899,122
shares in 2009;
outstanding, net
of treasury
shares:
63,007,433
shares in 2010
and 62,772,229 631 629
shares in 2009
Additional 174,973 160,516
paid-in capital
Treasury stock,
at cost: 102,635
shares in 2010 (489 ) (1,204 )
and 126,893
shares in 2009
Retained 992,685 851,583
earnings
Accumulated
other 15,033 (37,954 )
comprehensive
income (loss)
Total
stockholders' 1,182,833 973,570
equity
Total
Liabilities and $ $
Stockholders' 2,417,385 2,360,936
Equity
Consolidated
Statements of
Cash Flows
(In thousands) For the Three Months For the Six Months
Ended June 30, Ended June 30,
2010 2009 2010 2009
Cash flows from
operating
activities:
Net income $ 18,068 $ (8,322 ) $ $ (95,945 )
(loss) 144,246
Adjustments to
reconcile net
income (loss) to
net cash
provided by
operating
activities:
Gain on
divestiture (7,021 ) (1,244 ) (127,999 ) (645 )
activity
Depletion,
depreciation,
amortization,
and asset
retirement
obligation 79,770 70,391 157,535 162,103
liability
accretion
Exploratory dry 164 4,573 327 4,667
hole expense
Impairment of
proved - 6,043 - 153,092
properties
Abandonment and
impairment of 2,375 11,631 3,279 15,533
unproved
properties
Impairment of
materials - 2,719 - 11,335
inventory
Stock-based
compensation 6,261 3,733 11,864 7,509
expense*
Change in Net
Profits Plan (6,599 ) 2,449 (33,871 ) (20,842 )
liability
Unrealized
derivative (2,087 ) 11,288 (9,822 ) 13,134
(gain) loss
Loss related to - 5,027 - 7,120
hurricanes
Amortization of
debt discount 3,366 3,611 6,657 5,703
and deferred
financing costs
Deferred income 14,212 (7,758 ) 78,820 (63,148 )
taxes
Plugging and (3,988 ) (337 ) (6,222 ) (2,355 )
abandonment
Other 1,988 430 2,937 1,619
Changes in
current assets
and liabilities:
Accounts 20,872 5,446 7,628 49,149
receivable
Refundable (3,445 ) - 9,558 13,161
income taxes
Prepaid expenses (1,637 ) (1,677 ) (148 ) (7,091 )
and other
Accounts payable
and accrued (5,103 ) 8,583 26,299 (12,338 )
expenses
Excess income
tax benefit from (938 ) - (938 ) -
the exercise of
stock options
Net cash
provided by 116,258 116,586 270,150 241,761
operating
activities
Cash flows from
investing
activities:
Net proceeds
from sale of oil 8,751 18 247,998 1,081
and gas
properties
Capital (172,182 ) (82,201 ) (304,627 ) (215,826 )
expenditures
Acquisition of
oil and gas - 9 - (44 )
properties
Deposits to - - (19,595 ) -
restricted cash
Receipts from 16,565 10,050 - 14,398
restricted cash
Receipts from
short-term - 1,002 - 1,002
investments
Other 8 - (6,492 ) -
Net cash used in
investing (146,858 ) (71,122 ) (82,716 ) (199,389 )
activities
Cash flows from
financing
activities:
Proceeds from 26,500 576,000 204,059 1,766,000
credit facility
Repayment of (26,500 ) (600,000 ) (392,059 ) (1,791,000 )
credit facility
Debt issuance
costs related to - (11,060 ) - (11,060 )
credit facility
Proceeds from
sale of common 2,648 894 2,916 1,066
stock
Dividends paid (3,144 ) (3,120 ) (3,144 ) (3,120 )
Excess income
tax benefit from 938 - 938 -
the exercise of
stock options
Other (17 ) - (544 ) -
Net cash
provided by
(used in) 425 (37,286 ) (187,834 ) (38,114 )
financing
activities
Net change in
cash and cash (30,175 ) 8,178 (400 ) 4,258
equivalents
Cash and cash
equivalents at 40,424 2,211 10,649 6,131
beginning of
period
Cash and cash
equivalents at $ 10,249 $ 10,389 $ 10,249 $ 10,389
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 six months ended June 30, 2010, and 2009, approximately
$3.4 million and $2.9 million, respectively of stock-based compensation
expense was included in exploration expense. For the six months ended June 30,
2010, and 2009, approximately $8.5 million and $4.6 million, respectively
of stock-based compensation expense was included in general and administrative
expense. For the three months ended June, 30, 2010, and 2009,
approximately $1.7 million and $1.3 million, respectively of stock-based
compensation expense was included in exploration expense. For the three months
ended June, 30, 2010 and 2009, approximately $4.6 million and $2.4 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 Six Months
(loss) (GAAP)
to Adjusted net
income Ended June 30, Ended June 30,
(Non-GAAP):
2010 2009 2010 2009
Reported net $
income (loss) $ 18,068 $ (8,322 ) 144,246 $ (95,945 )
(GAAP)
Adjustments net
of tax: (1)
Change in Net
Profits Plan (3,907 ) 1,519 (21,102 ) (12,901 )
liability
Unrealized
derivative (1,236 ) 7,000 (6,119 ) 8,130
(gain) loss
Gain on
divestiture (4,156 ) (771 ) (79,743 ) (399 )
activity
Loss related to - 3,117 - # 4,407
hurricanes (2)
Adjusted net
income (loss),
before 8,769 2,543 37,282 (96,708 )
impairment
adjustments
Non-cash
impairments net
of tax: (1)
Impairment of
proved - 3,748 - 94,790
properties
Abandonment and
impairment of 1,406 7,213 2,043 9,618
unproved
properties
Impairment of
materials - 1,686 - 7,017
inventory
Adjusted net
income,
non-recurring
items
& non-cash
impairments $ 10,175 $ 15,190 $ 39,325 $ 14,717
(Non-GAAP) (3)
Adjusted net
income per share
(Non-GAAP)
Basic $ 0.16 $ 0.24 $ 0.63 $ 0.24
Diluted $ 0.16 $ 0.24 $ 0.61 $ 0.24
Average number
of shares
outstanding
Basic 62,917 62,418 62,855 62,377
Diluted 64,566 62,418 64,493 62,377
(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 June 30, 2010 and 2009, were 40.8% and
38.0% respectively. Effective income tax rates for the six months ended June
30, 2010 and 2009, were 37.7% and 38.1% 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 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 For the Three Months For the Six Months
operating
activities
(GAAP) to
Operating cash Ended June 30, Ended June 30,
flow (Non-GAAP):
2010 2009 2010 2009
Net cash
provided by $
operating $ 116,258 $ 116,586 270,150 $ 241,761
activities
(GAAP)
Changes in $
current assets $ (9,749 ) $ (12,352 ) (42,399 ) $ (42,881 )
and liabilities
Exploration $ 14,498 $ 19,490 28,396 33,088
Less:
Exploratory dry $ (164 ) $ (4,573 ) (327 ) (4,667 )
hole expense
Less:
Stock-based
compensation $ (1,684 ) $ (1,309 ) (3,438 ) (2,864 )
expense included
in exploration
Operating cash $
flow (Non-GAAP) $ 119,159 $ 117,842 252,382 $ 224,437
(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 definition. 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 August 2, 2010