Bulking Up In The Permian Basin August 2016

Transcription

1 Bulking Up In The Permian Basin August 2016

2 Please Read This presentation makes reference to: Forward-looking statements This release 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 release include, among other things, expectations regarding the benefits and expected timing of acquisitions. General risk factors include 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 uncertainty of negotiations to result in an agreement or a completed transaction; 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 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 Permian Acquisition Summary Acreage: 24,783 net acres in Howard County, Texas (1) Production: 4,900 net Boe/d (2) plus two new wells August 2016; ~140 wells producing Proved developed producing reserves: 6 MMBoe Producing and prospective intervals: Lower Spraberry, Wolfcamp A and B, Middle Spraberry Purchase Price: $980 million (3) Funding: equity and convertible notes offerings (4), asset sales, credit facility Expected closing date October 4, 2016 (5) ; effective date September 1, 2016 (1) Estimated more than 85% operated; 81% average working interest (2) July average, 3-stream (3) Seller is Rock Oil Holdings LLC (4) Equity and convertible notes offerings expected to close August 12, 2016 (5) The pending acquisition is subject to the satisfaction of customary closing conditions, and there can be no assurance it will close on time or at all. 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 SM Energy Premier Operator of Permian Assets Track record 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 *Full Year Estimate is 2016 avg. Numerical reservoir simulation with frac modeling capability to identify optimal landing zones Continually enhancing and refining completion designs 5

6 Permian Acquisition Why Howard County? Significant stacked pay area Excellent source rock Original-oil-in-place of up to 130 MMBbls per section ~1,000 feet shallower targets than west side of the basin while maintaining thermal maturity Strong early well performance that derisks the area Substantial oil and gas infrastructure in the area Potential exploration targets in Wolfcamp C and Wolfcamp D Operationally friendly area Wolfcamp C 6

7 Howard County Actively being de-risked (1) Historical Industry Activity 160+ horizontal wells in key horizons Lower Spraberry 39 wells Wolfcamp A 89 wells Wolfcamp B 36 wells Additional zones in area also being tested Middle Spraberry 1 well Wolfcamp C 6 wells Wolfcamp D 27 wells (1) Source: IHS 7

8 Permian Acquisition Substantial Multi-Bench Inventory Potential development model Up to 40 wells / section 24,783 net acres across 4 benches yields nearly 100,000 net equivalent acres Exploration potential in the Wolfcamp C and Wolfcamp D Lateral lengths extended from 6,100 feet in 2013 to 7,500 feet in 2015 Unrisked inventory of 1,200 gross locations in four benches 8

9 Equivalent Oil Rate (BOE/D) Well Count Permian Acquisition Strong Well Results Well Count Wells Type Curve Average 10,000 Oil Rate Normalized to 7,500' 180 1, Months Seven operated horizontal wells have been drilled and are online to date Recent 7,500 lateral IP-30 s of over ~1,300 Boe/d in the Wolfcamp A and ~1,000 Boe/d in Lower Spraberry, on and offset to acreage position Recent Ogre Wolfcamp A well has produced 1,640 Boe/d (90% oil) in last 30 days online 9

10 IRR Permian Acquisition Lower Spraberry and Wolfcamp A IRR Sensitivity Acquisition expected to deliver competitive Midland Basin Tier 1 economics Howard County, Texas 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 10

11 Operated Rigs Permian Program SM Development Plan (1) Projected rig count increase over the next two years expected to drive high margin oil growth Q Sweetie Peck Howard County (1) Based on current planning assumptions 11

12 SM Energy Proven Track Record Improving Performance J.P. Morgan 90-day oil cumulative production 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 12

13 Premier Permian Basin Operator Sweetie Peck Success Ability to Leverage Sweetie Peck Experience and Expertise in Howard County Spud to total depth time reduced 43% since 2015 Drilling and completion efficiency gains continuing 53% cost improvement over 2014 Better wells through completion and landing zone optimization 13

14 Permian Acquisition Funding Expected funding through new equity, convertible notes and non-core divestitures $480 MM common shares offering (1) $150 MM convertible notes offering (2) $172.5 MM of announced non-core asset sales applied to reduce credit facility, providing ample liquidity on $1,250 MM borrowing base Additional planned non-core asset sales including Eagle Ford non-op position (Q216 net production: 27,350 Boe/d net (3) ), and associated midstream (1) Gross proceeds; closing expected August 12, 2016 (2) Gross proceeds; closing expected August 12, 2016 (3) Eagle Ford non-op production during 2Q16 14

15 Permian Acquisition Funding Substantial liquidity to bridge transaction timing $1,250 MM Commitments & Borrowing Base Debt Maturities June 30, 2016, pro forma transaction (in millions) $1,250 $1,000 ~ Available funds post $172.5 MM divestiture proceeds $750 $150 (1) $500 $331 MM Borrowings as of 6/30/16 Less ($172.5 MM) divestiture proceeds $ $ $ $ $ $250 $0 (1) Convertible Notes 15

16 Permian Acquisition SM Expands to 46,750 net acres Following closing, Tier 1 Permian scale comparable to FANG and RSPP Permian Players Core Acreage (1) FANG: ~54,100 net acres SM: ~41,200 net acres (2) RSPP: ~39,250 net acres (1) FANG and RSPP core acreage per Evercore ISI: Permian Resource Expansion, July 26, Core acreage defined as acreage within the following counties: SW Martin, Midland, N. Upton, Reagan, Howard, and Glasscock. (2) SM Energy has an additional ~5,500 net acres in Halff East which was excluded from this acreage total. 16

17 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 17

18 Contact Information Jennifer Martin Samuels Senior Director, Investor Relations