form8k_080210.htm

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 availab ility 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.< /div>

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 Comparison	For the Three Months
	Ended June 30, 2010
	Actual			Guidance Range

Oil and gas production (MMCFE per day)		276.4			253 - 274

Lease operating expense (per MCFE)	$	1.15		$	1.24 - $1.32
Transportation expense (per MCFE)	$	0.20		$	0.18 - $0.20
Production taxes, as a percentage of pre-hedge revenue		6	%		7	%

General and administrative - cash	$	0.61		$	0.53 - $0.55
General and administrative - cash related to Net Profits Plan	$	0.22		$	0.22 - $0.24
General and administrative - non-cash	$	0.18		$	0.19 - $0.21
General and administrative - TOTAL	$	1.01		$	0.94 - $1.00

Depreciation, depletion, and amortization	$	3.17		$	2.90 - $3.10



Production Data	For the Three Months									For the Six Months
	Ended June 30,									Ended June 30,
		2010			2009		Percent Change				2010		2009	Percent 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 day)		15.5			18.1			-14	%		16.2		18.2		-11	%
Gas (MMcf per day)		183.3			201.4			-9	%		183.7		203.6		-10	%
MMCFE per day (6:1)		276.4			310.1			-11	%		281.1		312.6		-10	%

Margin analysis per MCFE:
Average realized sales price, before hedging	$	6.99		$	5.15			36	%	$	7.64	$	4.87		57	%

Average realized sales price, net of hedging		7.36			6.68			10	%		7.88		6.62		19	%
Lease operating expense		1.15			1.26			-9	%		1.16		1.36		-15	%
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 administrative		1.01			0.64			58	%		0.96		0.61		57	%
Operating margin	$	4.56		$	4.29			6	%	$	5.08	$	4.14		23	%
Depletion, depreciation, amortization, and
asset retirement obligation liability accretion	$	3.17		$	2.49			27	%	$	3.10	$	2.87		8	%

Consolidated Statements of Operations
(In thousands, except per share amounts)	For the Three Months						For the Six Months
	Ended June 30,						Ended June, 30,
	2010			2009			2010			2009

Operating revenues and other income:
Oil and gas production revenue	$	175,887		$	145,279		$	388,774		$	275,696
Realized oil and gas hedge gain		9,329			43,279			11,924			98,899
Gain on divestiture activity		7,021			1,244			127,999			645
Marketed gas system and other operating revenue		19,460			15,396			43,135			29,178
Total operating revenues and other income		211,697			205,198			571,832			404,418

Operating expenses:
Oil and gas production expense		45,168			49,465			93,508			105,294
Depletion, depreciation, amortization,
and asset retirement obligation liability accretion		79,770			70,391			157,535			162,103
Exploration		14,498			19,490			28,396			33,088
Impairment of proved properties		-			6,043			-			153,092
Abandonment and impairment of unproved properties		2,375			11,631			3,279			15,533
Impairment of materials inventory		-			2,719			-			11,335
General and administrative		25,398			18,160			48,884			34,559
Change in Net Profits Plan liability		(6,599	)		2,449			(33,871	)		(20,842	)
Marketed gas system expense		15,807			13,609			37,853			26,992
Unrealized derivative (gain) loss		(2,087	)		11,288			(9,822	)		13,134
Other expense		578			5,814			1,530			11,456
Total operating expenses		174,908			211,059			327,292			545,744

Income (loss) from operations		36,789			(5,861	)		244,540			(141,326	)

Nonoperating income (expense):
Interest income		54			105			183			127
Interest expense		(6,343	)		(7,663	)		(13,130	)		(13,759	)

Income (loss) before income taxes		30,500			(13,419	)		231,593			(154,958	)
Income tax benefit (expense)		(12,432	)		5,097			(87,347	)		59,013

Net income (loss)	$	18,068		$	(8,322	)	$	144,246		$	(95,945	)

Basic weighted-average common shares outstanding		62,917			62,418			62,855			62,377

Diluted weighted-average common shares outstanding		64,566			62,418			64,493			62,377

Basic net income (loss) per common share	$	0.29		$	(0.13	)	$	2.29		$	(1.54	)

Diluted net income (loss) per common share	$	0.28		$	(0.13	)	$	2.24		$	(1.54	)

Consolidated Balance Sheets
(In thousands, except share amounts)	June 30,			December 31,
ASSETS	2010			2009

Current assets:
Cash and cash equivalents	$	10,249		$	10,649
Accounts receivable		108,427			116,136
Refundable income taxes		23,215			32,773
Prepaid expenses and other		14,284			14,259
Derivative asset		45,481			30,295
Deferred income taxes		-			4,934
Total current assets		201,656			209,046

Property and equipment (successful efforts method), at cost:
Land		1,483			1,371
Proved oil and gas properties		3,066,300			2,797,341
Less - accumulated depletion, depreciation, and amortization		(1,203,841	)		(1,053,518	)
Unproved oil and gas properties, net of impairment allowance
of $62,507 in 2010 and $66,570 in 2009		138,531			132,370
Wells in progress		97,312			65,771
Materials inventory, at lower of cost or market		31,305			24,467
Oil and gas properties held for sale less accumulated depletion,
depreciation, and amortization		7,115			145,392
Other property and equipment, net of accumulated depreciation
of $16,478 in 2010 and $14,550 in 2009		15,472			14,404
		2,153,677			2,127,598

Other noncurrent assets:
Derivative asset		30,169			8,251
Restricted cash subject to Section 1031 Exchange		19,595			-
Other noncurrent assets		12,288			16,041
Total other noncurrent assets		62,052			24,292

Total Assets	$	2,417,385		$	2,360,936

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	270,030		$	236,242
Derivative liability		37,903			53,929
Deposit associated with oil and gas properties held for sale		-			6,500
Deferred income taxes		4,970			-
Total current liabilities		312,903			296,671

Noncurrent liabilities:
Long-term credit facility		-			188,000
Senior convertible notes, net of unamortized
discount of $16,288 in 2010, and $20,598 in 2009		271,212			266,902
Asset retirement obligation		64,284			60,289
Asset retirement obligation associated with oil and gas properties held for sale		1,526			18,126
Net Profits Plan liability		136,420			170,291
Deferred income taxes		408,997			308,189
Derivative liability		24,046			65,499
Other noncurrent liabilities		15,164			13,399
Total noncurrent liabilities		921,649			1,090,695

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 shares in 2009		631			629
Additional paid-in capital		174,973			160,516
Treasury stock, at cost: 102,635 shares in 2010 and 126,893 shares in 2009		(489	)		(1,204	)
Retained earnings		992,685			851,583
Accumulated other comprehensive income (loss)		15,033			(37,954	)
Total stockholders' equity		1,182,833			973,570
Total Liabilities and Stockholders' Equity	$	2,417,385		$	2,360,936

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 (loss)	$	18,068		$	(8,322	)	$	144,246		$	(95,945	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on divestiture activity		(7,021	)		(1,244	)		(127,999	)		(645	)
Depletion, depreciation, amortization,
and asset retirement obligation liability accretion		79,770			70,391			157,535			162,103
Exploratory dry hole expense		164			4,573			327			4,667
Impairment of proved properties		-			6,043			-			153,092
Abandonment and impairment of unproved properties		2,375			11,631			3,279			15,533
Impairment of materials inventory		-			2,719			-			11,335
Stock-based compensation expense*		6,261			3,733			11,864			7,509
Change in Net Profits Plan liability		(6,599	)		2,449			(33,871	)		(20,842	)
Unrealized derivative (gain) loss		(2,087	)		11,288			(9,822	)		13,134
Loss related to hurricanes		-			5,027			-			7,120
Amortization of debt discount and deferred financing costs		3,366			3,611			6,657			5,703
Deferred income taxes		14,212			(7,758	)		78,820			(63,148	)
Plugging and abandonment		(3,988	)		(337	)		(6,222	)		(2,355	)
Other		1,988			430			2,937			1,619
Changes in current assets and liabilities:
Accounts receivable		20,872			5,446			7,628			49,149
Refundable income taxes		(3,445	)		-			9,558			13,161
Prepaid expenses and other		(1,637	)		(1,677	)		(148	)		(7,091	)
Accounts payable and accrued expenses		(5,103	)		8,583			26,299			(12,338	)
Excess income tax benefit from the exercise of stock options		(938	)		-			(938	)		-
Net cash provided by operating activities		116,258			116,586			270,150			241,761

Cash flows from investing activities:
Net proceeds from sale of oil and gas properties		8,751			18			247,998			1,081
Capital expenditures		(172,182	)		(82,201	)		(304,627	)		(215,826	)
Acquisition of oil and gas properties		-			9			-			(44	)
Deposits to restricted cash		-			-			(19,595	)		-
Receipts from restricted cash		16,565			10,050			-			14,398
Receipts from short-term investments		-			1,002			-			1,002
Other		8			-			(6,492	)		-
Net cash used in investing activities		(146,858	)		(71,122	)		(82,716	)		(199,389	)

Cash flows from financing activities:
Proceeds from credit facility		26,500			576,000			204,059			1,766,000
Repayment of credit facility		(26,500	)		(600,000	)		(392,059	)		(1,791,000	)
Debt issuance costs related to credit facility		-			(11,060	)		-			(11,060	)
Proceeds from sale of common stock		2,648			894			2,916			1,066
Dividends paid		(3,144	)		(3,120	)		(3,144	)		(3,120	)
Excess income tax benefit from the exercise of stock options		938			-			938			-
Other		(17	)		-			(544	)		-
Net cash provided by (used in) financing activities		425			(37,286	)		(187,834	)		(38,114	)

Net change in cash and cash equivalents		(30,175	)		8,178			(400	)		4,258
Cash and cash equivalents at beginning of period		40,424			2,211			10,649			6,131
Cash and cash equivalents at end of period	$	10,249		$	10,389		$	10,249		$	10,389

* 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 (loss) (GAAP)	For the Three Months						For the Six Months
to Adjusted net income (Non-GAAP):	Ended June 30,						Ended June 30,
	2010			2009			2010			2009

Reported net income (loss) (GAAP)	$	18,068		$	(8,322	)	$	144,246		$	(95,945	)

Adjustments net of tax: (1)
Change in Net Profits Plan liability		(3,907	)		1,519			(21,102	)		(12,901	)
Unrealized derivative (gain) loss		(1,236	)		7,000			(6,119	)		8,130
Gain on divestiture activity		(4,156	)		(771	)		(79,743	)		(399	)
Loss related to hurricanes (2)		-			3,117			-			4,407

Adjusted net income (loss), before impairment adjustments		8,769			2,543			37,282			(96,708	)

Non-cash impairments net of tax: (1)
Impairment of proved properties		-			3,748			-			94,790
Abandonment and impairment of unproved properties		1,406			7,213			2,043			9,618
Impairment of materials inventory		-			1,686			-			7,017
Adjusted net income, non-recurring items
& non-cash impairments (Non-GAAP) (3)	$	10,175		$	15,190		$	39,325		$	14,717

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 operating activities	For the Three Months						For the Six Months
(GAAP) to Operating cash flow (Non-GAAP):	Ended June 30,						Ended June 30,
	2010			2009			2010			2009

Net cash provided by operating activities (GAAP)	$	116,258		$	116,586		$	270,150		$	241,761

Changes in current assets and liabilities	$	(9,749	)	$	(12,352	)	$	(42,399	)	$	(42,881	)

Exploration	$	14,498		$	19,490			28,396			33,088
Less: Exploratory dry hole expense	$	(164	)	$	(4,573	)		(327	)		(4,667	)
Less: Stock-based compensation expense included in exploration	$	(1,684	)	$	(1,309	)		(3,438	)		(2,864	)

Operating cash flow (Non-GAAP) (4)	$	119,159		$	117,842		$	252,382		$	224,437



(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.

EX-99.2 3 exhibit992.htm EXHIBIT 99.2 QUARTERLY OPERATIONS UPDATE exhibit992.htm

Exhibit 99.2

For Information

Brent A. Collins

303-861-8140

FOR IMMEDIATE RELEASE

SM ENERGY PROVIDES QUARTERLY OPERATIONS UPDATE

·	Company announces solid performance in Eagle Ford and Bakken/Three Forks programs and successful results from Granite Wash and Niobrara plays;

·	SM Energy increases capital investment budget to $871 million from $725 million based primarily on success in Eagle Ford shale, Bakken/Three Forks, and horizontal Granite Wash programs

·	Production guidance range for 2010 increased roughly 5% to 104 - 108 BCFE, up from 98 – 104 BCFE

DENVER, August 2, 2010 – SM Energy Company (NYSE: SM), formerly named St. Mary Land & Exploration Company, today announces an update of its operational activities and its production outlook and performance guidance for the remainder of 2010.

MANAGEMENT COMMENTARY

Tony Best, President and CEO, commented, "The operational update we are providing today underscores the significant improvements we have made in our prospect inventory over the last several years. We are seeing positive results in both development and exploratory programs. As a result we are raising our capital investment budget in order to increase activity in programs that are working well and leverage our exposure to oil and rich gas opportunities. We have the credit facility capacity to fund this increase while maintaining a strong balance sheet. Our higher levels of activity in these successful plays not only increases forecast production for 2010, but also establishes a path for growth in 2011 and beyond.”

EAGLE FORD SHALE

SM Energy has had 2 operated rigs running on its acreage for all of 2010. The Company now has 25 operated wells completed and turned to sales, 18 of which were completed in 2010. Current gross production from the operated Eagle Ford program is approximately 41 MMCF/d of rich gas and 1,375 BPD of condensate, which is an increase from 23 MMCF/d and 420 BPD at the end of the first quarter of 2010. The Company is currently limited in its rich gas production due to temporary infrastructure limitations, and expectations are that take away capacity will ramp to between 70 MMCFE/d and 80 MMCFE/d early in the fourth quarter of 2010. As previously disclosed, SM Energy recently committed to a large tranche of firm offtake capacity that will become available in mid-2011. The Company continues to work with potential downstream and midstream partners to address both near and longer term infrastructure needs for the operated program.

As a result of improved drilling efficiencies that have been realized throughout the year, 40 wells are now expected to be drilled in 2010 versus the 34 that were initially planned for the year. The Company continues to test ways to optimize the development of the play, including different completion designs, simultaneous fracturing (“simul-fracing”) of offset wells, and restricting initial production rates. The Company has recently completed its first simul-frac pilot with two wells and commenced drilling of its first well in La Salle County, Texas. To date, SM Energy has restricted rates on 11 producing wells. Early results do not indicate that restricted flowback rates will change the estimated ultimate recovery (“EUR”) of these wells significantly. The Company will continue to monitor the performance of these wells and will not restrict the rate on future completed wells, pending the availability of takeaway capacity.

The operating partner on the non-operated portion of SM Energy’s acreage position is currently operating six drilling rigs in the program, as opposed to the two rigs that were in the initial budget. Year to date, the Company has participated in the drilling of 43 wells as well as the infrastructure build-out in the non-operated program.

WILLISTON BASIN (BAKKEN & THREE FORKS)

SM Energy had two operated rigs running in the Williston Basin during the second quarter of 2010. The focus of this operated program has been on Bakken and Three Forks wells. Following are some recent well results from this program:

Johnson 16-34H (SM 58% WI) – this is the first operated well in the Company’s Raven prospect area, which is located in central McKenzie County, North Dakota, west of the Nesson Anticline. This Bakken well was drilled with a 9,500 ft lateral and was completed using a 10-stage completion. The completed well cost was approximately $5.6 million. The 7- and 30-day average production rates were roughly 680 BOE/d and 700 BOE/d, respectively.

Radenic 14-20H (SM 85% WI) – this well is the most recent completion in the Company’s Gooseneck prospect area in Divide County, North Dakota and targeted the Three Forks interval. The well was the fastest 18,000 ft well drilled to date in the Gooseneck program with a spud to rig release time of 20 days. The 7- and 30-day average production rates were approximately 670 BOE/d and 420 BOE/d.

SM Energy plans to continue operating two drilling rigs in the play for the remainder of the year and is increasing the number of gross wells it will drill from 17 to 19. Funding is also being increased for continued participation in partner operated wells.

HORIZONTAL GRANITE WASH

The Company recently completed its first two operated horizontal Granite Wash wells in the Mayfield area of western Oklahoma. The results of the first two wells were as follows:

Wester 2-34H (SM 73% WI) – the first horizontal well drilled in the Mayfield area targeted the Skinner formation and was completed in late April of 2010. Although the well is productive, the completion appears to have fractured into a water bearing formation. As a result, the 7- and 30-day average production rates were lower than expected at roughly 5.8 MMCFE/d (5.8 MMcf/d and 11 BOC/d) and 4.8 MCFE/d (4.7 MMcf/d and 8 BOC/d). The well continues to produce at a relatively flat decline with significant amounts of water production.

McEntire 2-27H (SM 68% WI) – the second horizontal well drilled in the Mayfield area was completed in June of 2010. This well targeted the Marmaton B formation and was successfully completed with a 4,400 ft horizontal lateral. The 7- and 30-day average production rates were roughly 14.0 MMCFE/d (11.0 MMcf/d and 500 BOC/d) and 12.9 MMCFE/d (10.0 MMcf/d and 480 BOC/d). The BTU content of the gas production is approximately 1300 BTU/Scf. The Company does not break out NGL’s that could be extracted from the gas as a separate volume stream because the rich gas is sold at the wellhead.

SM Energy has drilled its third well in the Mayfield area, which targeted the Marmaton B formation and will complete that well in August. The Company will be picking up an additional operated rig in the play in the third quarter of this year and is increasing its planned gross well count in 2010 to 7 wells from 4 wells. The Company has 34,000 net acres in the play, all of which are held by production.

NIOBRARA

SM Energy completed its first horizontal well targeting the Niobrara in mid-May 2010. The Atlas 1-19H (SM 94% WI), which is located just south of the Silo Field in Laramie County, Wyoming, was drilled to a vertical depth of roughly 8,000 ft and a total measured depth of approximately 12,000 ft. The 7-day initial production average for the well was 1,075 BOE/d, and as of July 27, 2010, the well was making roughly 500 BOPD. SM Energy is currently working to secure a drilling rig to drill a second test well in this program later this year. The Company has approximately 25,000 net acres leased in this portion of the Niobrara play, which is located in the northern part of the Denver-Julesburg Basin.

2010 CAPITAL INVESTMENT BUDGET UPDATE

The capital expenditure budget for 2010 is being increased to $871 million, up from $725 million. The primary reason for the increase is success in a number of the Company’s emerging resource plays. Additionally, the new capital budget reflects the increased cost environment to drill and complete wells which industry is currently experiencing. A large portion of this increase has been pre-funded with higher than budgeted divestiture proceeds from sales earlier this year. A summary of the program is provided below:

	May 3, 2010 Capital Update		Change			August 2, 2010 Capital Update
Exploration & drilling capital			(in $ millions)
Operated Eagle Ford shale	$	169	$	30		$	199
Non-operated Eagle Ford shale		115		44			159
Bakken/Three Forks		80		37			117
Horizontal Granite Wash		17		24			41
Wolfberry		48					48
Other drilling		110		9			119
Subtotal		539					683

Non-drilling capital
Land & seismic		86		(14	)		72
Facilities		63		16			79
Overhead		37					37
Subtotal		186					188

Grand Total	$	725				$	871

INCREASED PRODUCTION FORECAST & UPDATED PERFORMANCE GUIDANCE

The Company’s updated guidance for the remainder of 2010 is as follows:

Production

	1Q10A	2Q10A	3Q10E	4Q10E	FY 2010E
Average daily production (MMCFE/d)	286	276	277 – 299	294 – 321	284 – 296
Total production (BCFE)	25.7	25.2	25.5 – 27.5	27.0 – 29.5	104.0 – 108.0

Quarterly production in the back half of 2010 is being raised to reflect the additional capital investment being made in the second half of 2010, resulting in a 5% increase in anticipated full year production compared to prior guidance.

Reported production for the first quarter of 2010 includes slightly over 1 BCFE of production related to non-core properties that were divested during the quarter.

Costs

	3Q10	4Q10	FY 2010
LOE ($/MCFE)	$1.20 - $1.25	$1.20 - $1.25	$1.18 - $1.23
Transportation ($/MCFE)	$0.21 - $0.23	$0.23 - $0.25	$0.20 - $0.22
Production Taxes (% of pre-hedge O&G revenue)	7%	7%	7%

G&A - cash NPP ($/MCFE)	$0.19 - $0.21	$0.18 - $0.20	$0.21 - $0.23
G&A - other cash ($/MCFE)	$0.65 - $0.67	$0.58 - $0.60	$0.59 - $0.61
G&A - non-cash ($/MCFE)	$0.20 - $0.22	$0.18 - $0.20	$0.18 - $0.20
G&A TOTAL ($/MCFE)	$1.04 - $1.10	$0.94 - $1.00	$0.98 - $1.04

DD&A ($/MCFE)	$2.90 - $3.10	$2.90 - $3.10	$2.90 - $3.10
Non-cash interest expense ($MM)	$3.4	$3.4	$13.5
Effective income tax rate range			37.4% - 37.9%
% of income tax that is current			<10%

G&A – other cash for the third quarter of 2010 includes the recognition of a one-time, non-recurring charge associated with the pending retirement of the Company’s general counsel which was disclosed on a Form 8-K on July 22, 2010.

A summary of the Company’s current hedge position is included in the appendix in the investor relations presentation that will supplement the Company’s earnings call scheduled for August 3, 2010. The presentation can be found in the Investor Relations section of the Company’s website at sm-energy.com.

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,” “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, the uncertain nature of the expected benefits from the acquisition and divestiture of oil and gas properties, uncertainties inherent in projecting future rates of production fro m drilling activities and acquisitions, the ability of purchasers of production to pay for those sales, 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 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 l ooking statements, it disclaims any commitment to do so except as required by securities laws.

ABOUT THE COMPANY

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Delaware	001-31539	41-0518430
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)

(d)	Exhibits.	The following exhibits are furnished as part of this report:
	Exhibit 99.1	Press release of SM Energy Company dated August 2, 2010, entitled SM Energy Reports Results for Second Quarter of 2010
	Exhibit 99.2	Press release of SM Energy Company dated August 2, 2010, entitled SM Energy Provides Quarterly Operations Update

Date:	August 2, 2010	By:	/s/ MARK T. SOLOMON
			Mark T. Solomon
			Controller

	For the Three Months Ended June 30,
	2010						2009
Weighted-average diluted share count (in millions)					64.6						62.4
	$ in millions			Per Diluted Share			$ in millions			Per Diluted Share
Reported net income (loss)	$	18.1		$	0.28		$	(8.3	)	$	(0.13	)
Adjustments net of tax:
Change in Net Profits Plan liability	$	(3.9	)	$	(0.06	)	$	1.5		$	0.02
Unrealized derivative (gain) loss	$	(1.2	)	$	(0.02	)	$	7.0		$	0.11
Gain on divestiture activity	$	(4.2	)	$	(0.06	)	$	(0.8	)	$	(0.01	)
Loss related to hurricanes		-			-		$	3.1		$	0.05

Adjusted net income (loss), before impairments	$	8.8		$	0.14		$	2.5		$	0.04

Non-cash impairments net of tax:
Impairment of proved properties		-			-		$	3.7		$	0.06
Abandonment and impairment of unproved properties	$	1.4		$	0.02		$	7.2		$	0.12
Impairment of materials inventory		-			-		$	1.7		$	0.03

Adjusted net income	$	10.2		$	0.16		$	15.2		$	0.24

NOTE: Totals may not add due to rounding