EX-99.1 2 exhibit991_080111.htm EXHIBIT 99.1 08.01.11 exhibit991_080111.htm
Exhibit 99.1

For Information
Brent A. Collins
303-861-8140

FOR IMMEDIATE RELEASE


SM ENERGY REPORTS RESULTS FOR
SECOND QUARTER OF 2011

·  
Record quarterly production of 39.8 BCFE, or an average of 437 MMCFE/d; exceeding second quarter guidance range of 396-429 MMCFE/d

·  
Quarterly GAAP net income of $124.5 million, or $1.86 per diluted share

·  
Adjusted net income of $61.1 million, or $0.91 per diluted share


DENVER, CO  August 1, 2011 – SM Energy Company (NYSE: SM) announces financial results from the second quarter of 2011.  In addition, a new presentation for the Company’s second quarter earnings and operational update will be posted on the Company’s website at www.sm-energy.com.  This presentation will be referenced during the conference call scheduled for 8:00 a.m. Mountain time (10:00 a.m. Eastern time) on August 2, 2011.  Information for the earnings call can be found below.


SECOND QUARTER 2011 RESULTS

SM Energy reported net income for the second quarter of 2011 of $124.5 million, or $1.86 per diluted share.  This compares to net income of $18.1 million, or $0.28 per diluted share, for the same period of 2010.  The increase in net income between these two periods is due primarily to a gain on divestiture activity, increased production, increased commodity prices, and unrealized derivative gains recognized in the Company’s income statement in the second quarter of 2011.  Adjusted net income for the quarter was $61.1 million, or $0.91 per diluted share, versus adjusted net income of $10.2 million, or $0.16 per diluted share, for the second quarter of 2010.  Adjusted net income excludes certain items that the Company believes affect the comparability of operating results.  Items excluded are generally non-recurring items or items whose timing and/or amount cannot be reasonably estimated, and large non-cash items, such as unrealized gains or losses from derivative activity.  A summary of the adjustments made to arrive at adjusted net income is presented in the table below:



Adjusted Net Income Reconciliation
  
(In thousands, except per share data)
  
   
Reconciliation of Net Income (GAAP)
To Adjusted Net Income (Non-GAAP):
  
   
For the Three Months Ended June 30,
  
   
2011
    
2010
  
             
Reported Net Income (GAAP)
   $ 124,533     $ 18,068  
Adjustments, net of tax: (1)
                
Change in Net Profits Plan liability
   $ (8,823 )   $ (3,907 )
Unrealized portion of derivative (gain) loss
   $ (36,500 )   $ (1,236 )
Gain on divestiture activity
   $ (18,940 )   $ (4,156 )
Abandonment & impairment of unproved properties
   $ 780     $ 1,406  
                 
Adjusted Net Income (Non-GAAP)
   $ 61,050     $ 10,175  
                 
Adjusted Net Income per common share:
                
Basic
   $ 0.96     $ 0.16  
Diluted
   $ 0.91     $ 0.16  
                 
Weighted-average common shares outstanding:
                
Basic
     63,638       62,917  
Diluted
     66,909       64,566  
                 
NOTE: Totals may not add due to rounding
  
                 
(1) Adjustments are shown net of tax using the effective income tax rate as calculated by dividing the income tax expense by income before income taxes as stated on the consolidated statement of operations.
  
                 

Operating cash flow, a non-GAAP measure, increased to $226.7 million for the second quarter of 2011 from $119.2 million for the same period of 2010.  Net cash provided by operating activities increased to $213.3 million for the second quarter of 2011 from $116.3 million for the same period of 2010.

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 39.8 BCFE, or an average of 437 MMCFE/d for the second quarter of 2011.  This was above second quarter average daily production guidance of 396-429 MMCFE/d.

Revenues and other income for the second quarter were $377.9 million compared to $211.7 million for the same period of 2010.  Below is a table that displays, by product type, the average realized price received by the Company, as well as the adjusted price received after taking into account cash settlements for derivative transactions.

 
Average Realized Commodity Prices for Quarter Ended June 30, 2011
  
   
Before the impact of derivative cash settlements
    
After the impact of derivative cash settlements
  
             
Oil ($/Bbl)
   $ 97.51     $ 84.40  
Gas ($/Mcf)
   $ 4.63     $ 5.01  
Natural gas liquids ($/Bbl)
   $ 54.02     $ 47.49  
Equivalent ($/MCFE)
   $ 8.40     $ 7.89  
 
 
 
The table below presents production and per MCFE cost metrics as reported for the quarter along with previously issued second quarter guidance for 2011:

Production
  
Reported
    
2Q11 Guidance
  
             
Average daily production (MMCFE/d)
     436.9       396 - 429  
Total production (BCFE)
     39.8       36 - 39  
                 
Costs
                
LOE ($/MCFE)
   $ 0.84       $0.98 - $1.03  
Transportation ($/MCFE)
   $ 0.42       $0.50 - $0.55  
Production taxes (% of pre-derivative oil, gas, and NGL revenue)
     1.0 %     7.0 %
                 
G&A – Cash ($/MCFE)
   $ 0.43       $0.47 - $0.50  
G&A – Cash NPP ($/MCFE)
   $ 0.13       $0.13 - $0.15  
G&A – Non-cash ($/MCFE)
   $ 0.13       $0.11 - $0.13  
Total G&A ($/MCFE)
   $ 0.69       $0.71 - $0.78  
                 
DD&A ($/MCFE)
   $ 2.90       $2.90 - $3.10  
Non-cash interest expense ($MM)
   $ 7.7     $ 7.3  

The variance between reported and guided production taxes as a percentage of pre-derivative oil, gas, and NGL revenue is primarily due to severance tax incentives that were realized in the Company’s Eagle Ford shale program.

 
FINANCIAL POSITION AND LIQUIDITY

As of June 30, 2011, the Company’s debt-to-book capitalization ratio was 32%.  At the end of the second quarter 2011, SM Energy has total long-term debt of $630.3 million, which consisted of its 6.625% senior notes and 3.50% senior convertible notes, net of debt discount.  The convertible notes are accounted for as if they will be net-share settled.

As of June 30, 2011, the Company had $101.1 million in cash and no outstanding borrowings under its long-term secured credit facility.  As previously disclosed, the Company amended its credit facility during the second quarter of 2011.  Currently the borrowing base for the facility stands at $1.3 billion and the commitment amount is $1.0 billion.  As of the end of the second quarter 2011, SM Energy is in compliance with all the covenants associated with this facility.


EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss these results and other operational matters on August 2, 2011, at 8:00 a.m. Mountain time (10:00 a.m. Eastern time).  The call participation number is 800-573-4842 and the participant passcode is 91627792.  An audio replay of the call will be available approximately two hours after the call at 888-286-8010, with the passcode 51587016.  International participants can dial 617-224-4327 to take part in the conference call, using passcode 91627792, and can access a replay of the call at 617-801-6888, using passcode 51587016.  Replays can be accessed through August 9, 2011.

In addition, the call will be webcast live and can be accessed at SM Energy’s website at www.sm-energy.com.  An audio recording of the conference call will be available at that site through August 9, 2011.


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, natural gas, and natural gas liquids prices, the uncertain nature of the expected benefits from the acquisition, divestiture, or joint venture of oil and gas properties, the uncertain nature of announced divestiture, joint venture, farm down or similar efforts and the ability to complete such transactions, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, the ability of midstream service providers to purchase or market the Company’s production, the ability of purchasers of production to pay for those sales, 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 derivative counterparties to settle derivative contracts 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 commodity price risk management strategy, uncertainty regarding the ultimate impact of potentially dilutive securities, and other such matters discussed in the “Risk Factors” section of SM Energy’s 2010 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 is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas, natural gas liquids 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 www.sm-energy.com.


 
 
 
 

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2011
 
Guidance Comparison
  
For the Three Months
  
   
Ended June 30, 2011
  
   
Actual
    
Guidance Range
  
             
Average daily production (MMCFE per day)
     436.9       396 - 429  
Total production (BCFE)
     39.8       36.0 - 39.0  
                 
Lease operating expense (per MCFE)
   $ 0.84       $0.98 - $1.03  
Transportation expense (per MCFE)
   $ 0.42       $0.50 - $0.55  
Production taxes, as a percentage of pre-derivative oil, gas, and NGL revenue
     1.0 %     7 %
                 
General and administrative - cash (per MCFE)
   $ 0.43       $0.47 - $0.50  
General and administrative - cash related to Net Profits Plan (per MCFE)
   $ 0.13       $0.13 - $0.15  
General and administrative - non-cash (per MCFE)
   $ 0.13       $0.11 - $0.13  
General and administrative - TOTAL (per MCFE)
   $ 0.69       $0.71 - $0.78  
                 
Depreciation, depletion, and amortization (per MCFE)
   $ 2.90       $2.90 - $3.10  
 
 
 
 
Production Data
  
For the Three Months
    
For the Six Months
  
   
Ended June 30,
    
Ended June 30,
  
   
2011
    
2010
    
Percent Change
    
2011
    
2010
    
Percent Change
  
                                     
Average realized sales price, before the effects of
                                    
derivative cash settlements: (1)
                                    
Oil (per Bbl)
   $ 97.51     $ 70.92       37 %   $ 91.76     $ 71.86       28 %
Gas (per Mcf)
     4.63       4.54       2 %     4.50       5.34       -16 %
NGL (per Bbl)
     54.02       -    
NM
       50.80       -    
NM
  
Equivalent (MCFE)
   $ 8.40     $ 6.99       20 %   $ 8.04     $ 7.64       5 %
                                                 
Average realized sales price, including the effects of
                                                
derivative cash settlements: (1)
                                                
Oil (per Bbl)
   $ 84.40     $ 65.17       30 %   $ 79.82     $ 66.10       21 %
Gas (per Mcf)
     5.01       5.59       -10 %     5.02       6.21       -19 %
NGL (per Bbl)
     47.49       -    
NM
       44.60       -    
NM
  
Equivalent (MCFE)
   $ 7.89     $ 7.36       7 %   $ 7.67     $ 7.88       -3 %
                                                 
Production: (1)
                                                
Oil (MMBbls)
     1.9       1.4       31 %     3.6       2.9       24 %
Gas (Bcf)
     23.9       16.7       43 %     45.6       33.2       37 %
NGL (MMBbls)
     0.8       -    
NM
       1.4       -    
NM
  
BCFE (6:1)
     39.8       25.2       58 %     75.9       50.9       49 %
                                                 
Average daily production: (1)
                                                
Oil (MBbls per day)
     20.4       15.5       31 %     20.1       16.2       24 %
Gas (MMcf per day)
     262.7       183.3       43 %     252.2       183.7       37 %
NGL (MBbls per day)
     8.7       -    
NM
       7.8       -    
NM
  
MMCFE per day (6:1)
     436.9       276.4       58 %     419.3       281.1       49 %
                                                 
Per MCFE Data:
                                                
Realized price
   $ 8.40     $ 6.99       20 %   $ 8.04     $ 7.64       5 %
Lease operating expense
     (0.84 )     (1.15 )     -27 %     (0.87 )     (1.16 )     -25 %
Transportation costs
     (0.42 )     (0.20 )     110 %     (0.42 )     (0.18 )     133 %
Production taxes
     (0.08 )     (0.44 )     -82 %     (0.28 )     (0.50 )     -44 %
General and administrative
     (0.69 )     (1.01 )     -32 %     (0.70 )     (0.96 )     -27 %
Operating profit, before the effects of derivative cash settlements
   $ 6.37     $ 4.19       52 %   $ 5.77     $ 4.84       19 %
Derivative cash settlements
     (0.51 )     0.37       -238 %     (0.37 )     0.24       -254 %
Operating profit, including the effects of derivative cash settlements
   $ 5.86     $ 4.56       29 %   $ 5.40     $ 5.08       6 %
Depletion, depreciation, amortization, and
                                                
asset retirement obligation liability accretion
   $ 2.90     $ 3.17       -9 %   $ 2.91     $ 3.10       -6 %
                                                 
(1) NGL production volumes, revenues, and prices for 2010 have not been reclassified to conform to the current presentation given the immateriality of the volumes in that period. Please refer to additional discussion in the Company's Form 10-Q for the quarter ended March 31, 2011.
 
 
 
 
 
 
Consolidated Statements of Operations
                        
(In thousands, except per share amounts)
  
For the Three Months
    
For the Six Months
  
 
  
Ended June 30,
    
Ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Operating revenues and other income:
                        
Oil, gas, and NGL production revenue
   $ 333,934     $ 175,887     $ 610,247     $ 388,774  
Realized hedge gain (loss)*
     (6,330 )     9,329       (7,705 )     11,924  
Gain on divestiture activity
     30,019       7,021       54,934       127,999  
Marketed gas system and other operating revenue
     20,250       19,460       35,726       43,135  
Total operating revenues and other income
     377,873       211,697       693,202       571,832  
                                 
Operating expenses:
                                
Oil, gas, and NGL production expense
     53,342       45,168       119,154       93,508  
Depletion, depreciation, amortization,
                                
and asset retirement obligation liability accretion
     115,382       79,770       220,738       157,535  
Exploration
     9,603       14,498       22,315       28,396  
Abandonment and impairment of unproved properties
     1,237       2,375       4,316       3,279  
General and administrative
     27,310       25,398       53,171       48,884  
Change in Net Profits Plan liability
     (13,984 )     (6,599 )     211       (33,871 )
Unrealized and realized derivative (gain) loss*
     (43,876 )     (2,087 )     44,553       (9,822 )
Marketed gas system and other expense
     17,152       16,385       37,009       39,383  
Total operating expenses
     166,166       174,908       501,467       327,292  
                                 
Income from operations
     211,707       36,789       191,735       244,540  
 
                                
Nonoperating income (expense):
                                
Interest income
     227       54       355       183  
Interest expense
     (14,550 )     (6,343 )     (24,264 )     (13,130 )
                                 
Income before income taxes
     197,384       30,500       167,826       231,593  
Income tax expense
     (72,851 )     (12,432 )     (61,796 )     (87,347 )
                                 
Net income
   $ 124,533     $ 18,068     $ 106,030     $ 144,246  
                                 
Basic weighted-average common shares outstanding
     63,638       62,917       63,543       62,855  
                                 
Diluted weighted-average common shares outstanding
     66,909       64,566       66,695       64,493  
                                 
Basic net income per common share
   $ 1.96     $ 0.29     $ 1.67     $ 2.29  
                                 
Diluted net income per common share
   $ 1.86     $ 0.28     $ 1.59     $ 2.24  
                                 
* As of January 1, 2011, the Company elected to de-designate all commodity derivative contracts that had previously been designated as cash flow hedges as of December 31, 2010, and to discontinue hedge accounting prospectively.  Accordingly, beginning January 1, 2011, gains and losses from commodity price management activities, both realized and unrealized, will be included in the income statement on the line titled “Unrealized and realized derivative (gain) loss”. Hedging balances accounted for in the balance sheet line titled “accumulated other comprehensive loss” as of December 31, 2010 will now be recognized in the income statement line titled “Realized hedge gain (loss)” as they are realized.  For the six months ended June 30, 2011, our adjusted oil price was negatively impacted by $43.4 million of realized oil derivative cash settlements, our adjusted natural gas price was positively impacted by $24.0 million of realized natural gas derivative cash settlements, and our adjusted NGL price was negatively impacted by $8.7 million of realized NGL derivative cash settlements. For the three months ended June 30, 2011, our adjusted oil price was negatively impacted by $24.3 million of realized oil derivative cash settlements, our adjusted natural gas price was positively impacted by $9.1 million of realized natural gas derivative cash settlements, and our adjusted NGL price was negatively impacted by $5.2 million of realized NGL derivative cash settlements.
  
 
 
 
 
 
 
Consolidated Balance Sheets
            
(In thousands)
  
June 30,
    
December 31,
  
ASSETS
  
2011
    
2010
  
             
Current assets:
            
Cash and cash equivalents
   $ 101,080     $ 5,077  
Accounts receivable
     173,557       163,190  
Refundable income taxes
     3,134       8,482  
Prepaid expenses and other
     32,281       45,522  
Derivative asset
     28,985       43,491  
Deferred income taxes
     7,086       8,883  
Total current assets
     346,123       274,645  
                 
Property and equipment (successful efforts method), at cost:
                
Land
     1,526       1,491  
Proved oil and gas properties
     3,799,844       3,389,158  
Less - accumulated depletion, depreciation, and amortization
     (1,532,670 )     (1,326,932 )
Unproved oil and gas properties
     89,317       94,290  
Wells in progress
     245,650       145,327  
Materials inventory, at lower of cost or market
     15,915       22,542  
Oil and gas properties held for sale
     130,077       86,811  
Other property and equipment, net of accumulated depreciation
                
of $17,550 in 2011 and $15,480 in 2010
     61,831       21,365  
      2,811,490       2,434,052  
                 
Other noncurrent assets:
                
Derivative asset
     10,624       18,841  
Other noncurrent assets
     51,656       16,783  
Total other noncurrent assets
     62,280       35,624  
                 
Total Assets
   $ 3,219,893     $ 2,744,321  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
          
                 
Current liabilities:
                
Accounts payable and accrued expenses
   $ 413,048     $ 417,654  
Derivative liability
     70,100       82,044  
Deposit associated with oil and gas properties held for sale
     -       2,355  
Total current liabilities
     483,148       502,053  
                 
Noncurrent liabilities:
                
Long-term credit facility
     -       48,000  
3.50% Senior Convertible Notes, net of unamortized
                
discount of $7,209 in 2011 and $11,827 in 2010
     280,291       275,673  
6.625% Senior Notes
     350,000       -  
Asset retirement obligation
     72,273       69,052  
Asset retirement obligation associated with oil and gas properties held for sale
     92       2,119  
Net Profits Plan liability
     133,419       135,850  
Deferred income taxes
     496,405       443,135  
Derivative liability
     38,233       32,557  
Other noncurrent liabilities
     16,866       17,356  
Total noncurrent liabilities
     1,387,579       1,023,742  
                 
Commitments and contingencies
                
                 
Stockholders' equity:
                
Common stock, $0.01 par value - authorized:  200,000,000 shares;
                
issued:  63,764,421 shares in 2011 and 63,412,800 shares in 2010;
                
outstanding, net of treasury shares: 63,683,354 shares in 2011
                
and 63,310,165 shares in 2010
     638       634  
Additional paid-in capital                          
     215,704       191,674  
Treasury stock, at cost:  81,067 shares in 2011 and 102,635 shares in 2010
     (1,544 )     (423 )
Retained earnings
     1,144,972       1,042,123  
Accumulated other comprehensive loss
     (10,604 )     (15,482 )
Total stockholders' equity
     1,349,166       1,218,526  
                 
Total Liabilities and Stockholders' Equity
   $ 3,219,893     $ 2,744,321  
 
 
 
 
 
 
Consolidated Statements of Cash Flows
                        
(In thousands)
  
For the Three Months
    
For the Six Months
  
   
Ended June 30,
    
Ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
Cash flows from operating activities:
                        
                         
Net income
   $ 124,533     $ 18,068     $ 106,030     $ 144,246  
Adjustments to reconcile net income to net cash
                                
provided by operating activities:
                                
Gain on divestiture activity
     (30,019 )     (7,021 )     (54,934 )     (127,999 )
Depletion, depreciation, amortization,
                                
and asset retirement obligation liability accretion
     115,382       79,770       220,738       157,535  
Exploratory dry hole expense
     9       164       49       327  
Abandonment and impairment of unproved properties
     1,237       2,375       4,316       3,279  
Stock-based compensation expense*
     6,286       6,261       11,837       11,864  
Change in Net Profits Plan liability
     (13,984 )     (6,599 )     211       (33,871 )
Unrealized derivative (gain) loss
     (57,852 )     (2,087 )     24,160       (9,822 )
Amortization of debt discount and deferred financing costs
     7,674       3,366       11,294       6,657  
Deferred income taxes
     70,415       14,212       52,241       78,820  
Plugging and abandonment
     (1,395 )     (3,988 )     (1,430 )     (6,222 )
Other
     (3,917 )     1,988       (5,888 )     2,937  
Changes in current assets and liabilities:
                                
Accounts receivable
     (26,755 )     20,872       (10,370 )     7,628  
Refundable income taxes
     1,618       (3,445 )     5,348       9,558  
Prepaid expenses and other
     (5,267 )     (1,637 )     15,692       (148 )
Accounts payable and accrued expenses
     25,811       (5,103 )     (2,530 )     26,299  
Excess income tax benefit from the exercise of stock awards
     (488 )     (938 )     (6,791 )     (938 )
Net cash provided by operating activities
     213,288       116,258       369,973       270,150  
                                 
Cash flows from investing activities:
                                
Net proceeds from sale of oil and gas properties
     58,929       8,751       97,952       247,998  
Capital expenditures
     (352,681 )     (172,182 )     (662,372 )     (304,627 )
Receipts from (deposits to) restricted cash
     -       16,565       -       (19,595 )
Other
     -       8       (2,355 )     (6,492 )
Net cash used in investing activities
     (293,752 )     (146,858 )     (566,775 )     (82,716 )
                                 
Cash flows from financing activities:
                                
Proceeds from credit facility
     -       26,500       102,000       204,059  
Repayment of credit facility
     -       (26,500 )     (150,000 )     (392,059 )
Debt issuance costs related to credit facility
     (8,525 )     -       (8,525 )     -  
Net proceeds from 6.625% Senior Notes
     -       -       341,435       -  
Proceeds from sale of common stock
     1,469       2,648       4,929       2,916  
Dividends paid
     (3,181 )     (3,144 )     (3,181 )     (3,144 )
Excess income tax benefit from the exercise of stock awards
     488       938       6,791       938  
Other
     (1 )     (17 )     (644 )     (544 )
Net cash provided by (used in) financing activities
     (9,750 )     425       292,805       (187,834 )
                                 
Net change in cash and cash equivalents
     (90,214 )     (30,175 )     96,003       (400 )
Cash and cash equivalents at beginning of period
     191,294       40,424       5,077       10,649  
Cash and cash equivalents at end of period
   $ 101,080     $ 10,249     $ 101,080     $ 10,249  
                                 
* 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 June 30, 2011 and 2010, approximately $1.3 million and $1.7 million, respectively, of stock-based compensation expense was included in exploration expense. For the three months ended June, 30, 2011 and 2010, approximately $5.0 million and $4.6 million, respectively, of stock-based compensation expense was included in general and administrative expense. For the six months ended June 30, 2011 and 2010, approximately $2.8 million and $3.4 million, respectively, of stock-based compensation expense was included in exploration expense. For the six monhts ended June 30, 2011 and 2010, approximately $9.0 million and $8.5 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 (GAAP)
  
For the Three Months
    
For the Six Months
  
to Adjusted net income (Non-GAAP):
  
Ended June 30,
    
Ended June 30,
  
   
2011
    
2010
    
2011
    
2010
  
                         
                         
Reported net income (GAAP)
   $ 124,533     $ 18,068     $ 106,030     $ 144,246  
                                 
Adjustments net of tax: (2)
                                
Change in Net Profits Plan liability
     (8,823 )     (3,907 )     133       (21,102 )
Unrealized derivative (gain) loss
     (36,500 )     (1,236 )     15,264       (6,119 )
Gain on divestiture activity
     (18,940 )     (4,156 )     (34,706 )     (79,743 )
Abandonment and impairment of unproved properties
     780       1,406       2,727       2,043  
                                 
Adjusted net income (Non-GAAP) (3)
   $ 61,050     $ 10,175     $ 89,448     $ 39,325  
                                 
Adjusted net income per share (Non-GAAP)
                                
Basic
   $ 0.96     $ 0.16     $ 1.41     $ 0.63  
Diluted
   $ 0.91     $ 0.16     $ 1.34     $ 0.61  
                                 
Weighted-average common shares outstanding
                                
Basic
     63,638       62,917       63,543       62,855  
Diluted
     66,909       64,566       66,695       64,493  
                                 
(2) Adjustments are shown net of tax using the effective income tax rate; calculated by dividing the income tax expense by income before income taxes as stated on the consolidated statement of operations.
  
                                 
                                 
(3) Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are non-recurring 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, abandonment and impairment of unproved properties, and gain on divestiture activity. 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,
  
   
2011
    
2010
    
2011
    
2010
  
                         
Net cash provided by operating activities (GAAP)
   $ 213,288     $ 116,258     $ 369,973     $ 270,150  
                                 
Changes in current assets and liabilities
     5,081       (9,749 )     (1,349 )     (42,399 )
                                 
Exploration
     9,603       14,498       22,315       28,396  
      Less:  Exploratory dry hole expense
     (9 )     (164 )     (49 )     (327 )
      Less:  Stock-based compensation expense included in exploration
     (1,284 )     (1,684 )     (2,806 )     (3,438 )
                                 
Operating cash flow (Non-GAAP) (4)
   $ 226,679     $ 119,159     $ 388,084     $ 252,382  
                                 
(4) 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.