NYSE: SM sm-energy.com. Coring Up in the Midland Basin October 2016

Transcription

1 NYSE: SM sm-energy.com Coring Up in the Midland Basin October 2016

2 Please Read This presentation makes reference to: Forward-looking statements This presentation contains forward-looking statements within the meaning of securities laws. The words anticipate, assume, believe, budget, estimate, expect, forecast, guidance, intend, plan, project, will 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. Forward-looking statements in this presentation include, among other things, expectations regarding growth strategy, consummation of pending transactions, anticipated drilling plans and capital expenditures, anticipated growth in cash flows, the expected benefits, financing sources and timing of acquisitions, and the expected benefits and likelihood of completing divestitures. General risk factors include the uncertain nature of acquisition, divestiture, joint venture, farm down or similar efforts and the ability to complete any such transactions; the uncertain nature of expected benefits from the actual or expected acquisition, divestiture, joint venture, farm down or similar efforts; the uncertainty of negotiations to result in an agreement or a completed transaction; the availability of and access to capital markets; the availability, proximity and capacity of gathering, processing and transportation facilities; the volatility and level of oil, natural gas, and natural gas liquids prices, including any impact on the Company s asset carrying values or reserves arising from price declines; uncertainties inherent in projecting future rates of production or other results from drilling and completion activities; the imprecise nature of estimating oil and gas reserves; uncertainties inherent in projecting future drilling and completion activities, costs or results, including from pilot tests; the availability of additional economically attractive exploration, development, and acquisition opportunities for future growth and any necessary financings; unexpected drilling conditions and results; unsuccessful exploration and development drilling results; the availability of drilling, completion, and operating equipment and services; 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 2015 Annual Report on Form 10-K, as such risk factors may be updated from time to time in the Company's other periodic reports filed with the Securities and Exchange Commission. The forwardlooking statements contained herein speak as of the date of this announcement. 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. Non-GAAP financial measures: See appendix for reconciliations Reserves and resources: See appendix for disclosure statements 2

3 President & CEO Jay Ottoson Creating Differential Value 3

4 SM Energy Creating Differential Value Vision Premier Operator, Top Tier Assets This transaction: High quality acreage in Tier 1 area Opportunity to apply our demonstrated expertise Midland Basin scale to transform portfolio 4

5 Inventory Locations SM Energy Creating Differential Value What we are achieving with QStar and Rock transactions: Midland Basin Scale 82,450 net acres in the Midland Basin Massive Permian inventory increase 80% oil content = high margins Midland Basin focus brings economies of scale 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Blocky leasehold position sets up optimal development/longer laterals Sweetie Peck Sweetie Peck + 1/1/16 Rock Oil Sweetie Peck + Rock Oil + QStar Coring up portfolio and re-investing in Tier 1 assets Potential locations 1/1/16 previously disclosed locations plus risk-weighted locations from acquisition analysis 5

6 Permian Program Value Creation SM Permian production growth outlook exceeds pure play peers 180% Permian Production Growth Rate (1) 160% 140% 120% 100% 80% 60% 40% 20% 2016e EV/EBITDAX (2) 0% SM Company A Company B Company C Company D e EV/EBITDAX (2) (1) SM production growth based on current planning assumptions; peer growth rate obtained from FactSet. Companies include FANG, CPE, PE, and RSPP (2) Estimated 2016 EV/EBITDAX obtained from FactSet. 6

7 Permian Acquisition QStar Summary Acreage: 43,500 gross/35,700 net acres in Howard and Martin Counties, Texas (1) Production: 2,400 net Boe/d (2) Producing and prospective intervals: Lower Spraberry, Wolfcamp A and B, Middle Spraberry Purchase Price: $1.6 billion (3) Funding: Raven/Bear-Den expected divestiture (4), equity issued to seller, line of credit Expected closing by year-end 2016 (4) ; effective date of September 1, 2016 (1) Approximately 82% working interest; 95% operated (2) July average; current production includes legacy vertical wells with average oil % of ~60%; newer horizontal wells expected to average 80-85% oil. (3) Seller is QStar LLC and a related entity (4) The pending acquisition and divestiture are subject to the satisfaction of customary closing conditions, and there can be no assurance that either transaction will close on time or at all. 7

8 Executive Vice President - Operations Herb Vogel Delivering Growth in the Midland Basin 8

9 SM Energy Outstanding Permian Performance Premier operator of Permian assets Track record of delivering better wells and lower costs at operated Sweetie Peck asset Best in class initial production rates in the Midland Basin Cost benchmarking indicates best in class performance Organizational capacity to ramp up activity Increasing value and performance through advanced technologies Numerical reservoir simulation with frac modeling capability to identify optimal landing zones Continually enhancing and refining completion designs 9

10 SM Energy Outstanding Permian Performance J.P. Morgan: SM ranks #1 in Midland Basin SM wells outperformed the average peer by ~97% and the nearest peer by ~26% in 2015 SM wells outperformed the average peer by ~98% and the nearest peer by ~21% in 2015 Source: J.P Morgan North American Equity Research, June 13, 2016, E&P: Revisiting the Permian 10

11 Average of Boe 16:1/ft % Oil (Two Stream) Howard County Outstanding Permian Performance BMO: On a lateral adjusted basis, Howard County is the most productive (1) Howard County Ranks Best Based on Cumulative Production per Well (2) Howard County Ranks Among Highest Based on Oil Percentage by County Month 6 Month 9 Month 12 Month 100% 90% 80% 70% 60% 50% 40% Month Andrews Crockett Ector Glasscock Howard Irion Martin Midland Reagan Upton Total Source: BMO Capital Markets: 8/18/16 Research Report Got Wolfcamp? (1) BMO Capital Markets quotation (2) Chart data sources BMO Capital Markets and HPDI. Based on TRCC data. Cumulative production per well on a lateral-adjusted basis using 16:1 conversion ratio for natural gas. Data includes wells with first production beginning in 2014; excludes monthly production data points in which more than one well is reported per lease. 11

12 Cumulative Oil Barrels Rock Oil Acquisition Outstanding Performance Actual well results exceeding expectations 140, , ,000 80,000 60,000 40,000 20, Producing Days Wiley Bob WA 5H Ripley 10-2WA #15H El Guapo 2-47 A #5WA Papagiorgio A #11 WA Ogre 47-2 A #1 WA Falkor 4-8 A #5 LS Venkman A 15WA Oil Type Curve 12

13 QStar Acquisition Impact of Transaction Contiguous blocks of acreage = longer laterals (1) Combination with Rock Oil acquisition enables: - Economies of scale - Lower service and transportation costs Three intervals largely de-risked (1) 52% of leasehold held by production 13

14 Top Tier Regional Well Performance: Howard County Silver City A 1HWA Callon IP30: 2,123 BOED Eastland 15 2WH Apache IP30*: 587 BOED *Short Lateral Adams 4231WA Oxy IP30: 1,636 BOED Ponderosa L 1H Callon IP30: 915 BOED Phillips-Hodnett 1WA Diamondback IP30: 1,387 BOED Phillips-Hodnett 1WB Diamondback IP30: 1,295 BOED Martin County Howard County Wright SH Element IP30: 880 BOED Wright H Element IP30: 958 BOED Talbot 3 WellPad (LS) Legacy IP30: 1,012 BOED each Ogre 47-2 A #1WA SM Energy 1,640 BOED Gratis 32R 1HB Crownquest IP30: 980 BOED El Guapo 2-47 A #5WA SM Energy 650 BOED Guitar Galusha #1HA Crownquest IP30: 1,438 BOED Falkor 4-8 A #5LS SM Energy 1,077 BOED 14

15 Substantial Inventory Upside Beyond Acquisition Assumptions ACQUISITION BASIS UPSIDE 15

16 IRR Lower Spraberry and Wolfcamp A IRR Sensitivity Acquisition will deliver Tier 1 economics QStar and Rock Oil 80% Lower Spraberry and Wolfcamp A IRR Range (1) 70% 60% 50% 40% 30% 20% 10% 0% $45 $50 $55 NYMEX WTI Lower Spraberry Well Cost: $5.2 MM Lateral Length: 7,600 Wolfcamp A Well Cost: $5.5 MM Lateral Length: 7,600 (1) Well costs include drill, complete, and equip; assumes 2016 estimated CWC, $3.00/MMBtu gas 16

17 NPV Recent Strip Pricing (1) ($MM) Driving Value Creation Longer lateral lengths and higher sand loading improve returns $10 $8 Wolfcamp A Central Single Well Economics $6 $4 $2 $0 1,370 lbs/ft 2,000 lbs/ft 1,370 lbs/ft 2,000 lbs/ft 2,000 lbs/ft 5,000' Lateral 7,500' Lateral 10,000' Lateral (1) Strip pricing as of 10/11/16 17

18 Operated Rig Count Expanding Rig Program Impact of Transactions (1) Projected rig count: accelerated program adds value Q Sweetie Peck Rock QStar (1) Based on current planning assumptions 18

19 Rig Count SM Company-wide Rig Program Historical and Projected Plenty of organizational capacity to ramp up in the Midland Basin E 2017E 2018E 19

20 Sizable Inventory Upside Gross location summary Previously Disclosed / Risked Sweetie Peck (16,440 net acres) Rock Oil (~25,000 net acres) QStar (~36,000 net acres) Total Lower and Middle Spraberry Wolfcamp A and B Subtotal ,038 Additional Lower and Middle Spraberry ,607 Wolfcamp A and B ,426 Wolfcamp C and D Subtotal 383 1,032 1,718 3,133 Total 734 1,241 2,196 4,171 20

21 Production Boe/d Production: Significant High-Margin Growth (1) Projected SM Midland Basin net production 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Sweetie Peck Rock QStar (1) Based on current planning assumptions 21

22 Chief Financial Officer Wade Pursell Prioritizing Debt Metrics and Liquidity While Delivering Competitive Scale 22

23 Financial Discipline Stability Balance sheet strength and flexibility, with ample liquidity Current Balance Sheet Liquidity ~$1.3 billion No bond maturities until 2021 Coverage metrics (1) offer flexibility: Senior Secured Debt:TTM Adjusted EBITDAX at 0 times; max ratio allowed 2.75 times TTM Adjusted EBITDAX:Interest at 5.7 times; minimum ratio required 2.0 times Debt Maturities as of October 14, 2016 (in millions) Borrowing Base - $1.35 billion Commitments - $1.25 billion $1,500 $1,250 $1,000 $750 $172.5 $ $0 drawn $ $ $ $ $ $ $250 $0 (1) TTM Adjusted EBITDAX as of September 30, 2016 Corporate ratings: S&P BB-, Moody s B2 23

24 QStar Acquisition Funding Expected funding through divestiture, equity issued to seller, credit facility Credit Facility $315 MM Common Stock Issued to Seller (2) Raven/Bear-Den Divestiture $785 MM (1) $500 MM (1) Gross proceeds (2) 13.4 million shares of SM common stock; $ per share using 30 calendar day VWAP. 24

25 Financial Discipline Stability Balance sheet strength and flexibility, with ample liquidity Pro-forma Balance Sheet Liquidity ~$925 million No bond maturities until 2021; 2021 notes callable in November 2016 Coverage metrics (1) offer flexibility: Senior Secured Debt:TTM Adjusted EBITDAX at 0.34 times; max ratio allowed 2.75 times TTM Adjusted EBITDAX:Interest at 5.7 times; minimum ratio required 2.0 times Debt Maturities Pro-Forma Transactions (in millions) Commitments and Borrowing Base - $1.20 billion $1,250 $1,000 $750 $315 million drawn $172.5 $347 $562 $395 $500 $500 $500 $500 $ $0 (1) Based on internal projection Corporate ratings: S&P BB-, Moody s B2 25

26 in millions Funding Estimated Cash Flow (1) v. Capex (2) Accelerated program drives rapid growth in cash flow; projected outspend expected to be funded through further portfolio management including sale of Eagle Ford non-op assets $700 Estimated Outspend $600 $500 $400 $300 $300 $200 $175 $100 $0 $ $ Expected Eagle Ford non-op sale proceeds expected to exceed estimated outspend Expect to align CAPEX and cash flow in 2019 No current plans to sell equity (1) Calculated as EBITDAX less interest payments (2) Based on current planning assumptions; strip pricing 26

27 SM Energy Coring Up in the Midland Basin Parsley Energy RSP Permian Diamondback SM + QStar PF (1) ~90,000 Net Acres ~53,000 Net Acres ~86,000 Net Acres 82,450 Net Acres Source: PLS, ITG and Company investor presentations. Note: Net acreage totals include Midland Basin only. (1) Pro forma for contemplated sale of northern Midland Basin assets consisting of approximately 10,000 net acres. 27

28 SM Energy Creating Differential Value Vision Premier Operator, Top Tier Assets This transaction: High quality acreage in Tier 1 area Opportunity to apply our demonstrated expertise Midland Basin scale to transform portfolio 28

29 Contact Information Jennifer Martin Samuels Senior Director, Investor Relations