SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Production Data

For the Three Months Ended
 March 31,

Percent
Change
Between
Periods

2018

2017

Oil (per Bbl)

$

61.25

$

47.55

29

%

Gas (per Mcf)

$

3.14

$

2.98

5

%

NGLs (per Bbl)

$

25.53

$

22.06

16

%

Per Boe

$

37.76

$

27.55

37

%

Average realized sales price, including the effects of derivative settlements:

Oil (per Bbl)

$

56.39

$

44.97

25

%

Gas (per Mcf)

$

3.39

$

3.50

(3)

%

NGLs (per Bbl)

$

19.44

$

19.18

1

%

Equivalent (per Boe)

$

35.34

$

27.55

28

%

Production:

Oil (MMBbl)

4.3

3.5

21

%

Gas (Bcf)

25.2

33.9

(26)

%

NGLs (MMBbl)

1.7

2.9

(43)

%

MMBoe

10.1

12.1

(16)

%

Average daily production:

Oil (MBbl/d)

47.4

39.2

21

%

Gas (MMcf/d)

280.2

376.6

(26)

%

NGLs (MBbl/d)

18.6

32.5

(43)

%

MBoe/d

112.7

134.4

(16)

%

Per Boe data:

Realized price, before the effects of derivative settlements

$

37.76

$

27.55

37

%

Lease operating expense

4.95

3.82

30

%

Transportation costs

4.63

5.88

(21)

%

Production taxes

1.68

1.17

44

%

Ad valorem tax expense

0.67

0.55

22

%

General and administrative^{(1) (2)}

2.73

2.38

15

%

Operating margin, before the effects of derivative settlements ⁽²⁾

23.10

13.75

Derivative settlement loss

(2.42)

—

(100)

%

Operating margin, including the effects of derivative settlements ⁽²⁾

$

20.68

$

13.75

50

Depletion, depreciation, amortization, and

asset retirement obligation liability accretion

$

12.87

$

11.39

13

%

⁽¹⁾ Includes non-cash stock-based compensation expense per Boe of $0.40 and $0.34 for the three-month periods ending March 31, 2018 and 2017, respectively.

⁽²⁾ Certain prior period amounts have been adjusted to conform to the current period presentation due to an accounting standards update.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Condensed Consolidated Balance Sheets

(in thousands, except share data)

March 31,

December 31,

 ASSETS

2018

2017

Current assets:

Cash and cash equivalents

$

643,337

$

313,943

Accounts receivable

192,562

160,154

Derivative assets

77,296

64,266

Prepaid expenses and other

9,997

10,752

Total current assets

923,192

549,115

Property and equipment (successful efforts method):

Proved oil and gas properties

5,824,014

6,139,379

Accumulated depletion, depreciation, and amortization

(2,893,674)

(3,171,575)

Unproved oil and gas properties

1,986,070

2,047,203

Wells in progress

405,549

321,347

Oil and gas properties held for sale, net

234,618

111,700

Other property and equipment, net of accumulated depreciation of $52,483 and $49,985, respectively

112,972

106,738

Total property and equipment, net

5,669,549

5,554,792

Noncurrent assets:

Derivative assets

35,128

40,362

Other noncurrent assets

32,119

32,507

Total noncurrent assets

67,247

72,869

Total assets

$

6,659,988

$

6,176,776

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

468,108

$

386,630

Derivative liabilities

181,068

172,582

Total current liabilities

649,176

559,212

Noncurrent liabilities:

Revolving credit facility

—

—

Senior Notes, net of unamortized deferred financing costs

2,770,979

2,769,663

Senior Convertible Notes, net of unamortized discount and deferred financing costs

141,269

139,107

Asset retirement obligations

85,407

103,026

Asset retirement obligations associated with oil and gas properties held for sale

23,139

11,369

Deferred income taxes

178,423

79,989

Derivative liabilities

53,712

71,402

Other noncurrent liabilities

45,786

48,400

Total noncurrent liabilities

3,298,715

3,222,956

Stockholders' equity:

Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 111,687,016 and 111,687,016 shares, respectively

1,117

1,117

Additional paid-in capital

1,747,035

1,741,623

Retained earnings ⁽¹⁾

980,444

665,657

Accumulated other comprehensive loss ⁽¹⁾

(16,499)

(13,789)

Total stockholders' equity

2,712,097

2,394,608

Total liabilities and stockholders' equity

$

6,659,988

$

6,176,776

¹⁾ The Company reclassified $3.0 million of tax effects stranded in accumulated other comprehensive loss to retained earnings as of January 1, 2018 due to an accounting standards update.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

For the Three Months Ended
March 31,

2018

2017

(as adjusted)

Operating revenues and other income:

Oil, gas, and NGL production revenue

$

382,886

$

333,198

Net gain on divestiture activity

385,369

37,463

Other operating revenues

1,340

2,077

Total operating revenues and other income

769,595

372,738

Operating expenses:

Oil, gas, and NGL production expense

120,879

138,046

Depletion, depreciation, amortization, and asset retirement obligation liability accretion

130,473

137,812

Exploration⁽¹⁾

13,727

11,817

Abandonment and impairment of unproved properties

5,625

—

General and administrative⁽¹⁾

27,682

28,817

Net derivative (gain) loss⁽²⁾

7,529

(114,774)

Other operating expenses

4,612

4,859

Total operating expenses

310,527

206,577

Income from operations

459,068

166,161

Interest expense

(43,085)

(46,953)

Loss on extinguishment of debt

—

(35)

Other non-operating income (expense), net

409

(233)

Income before income taxes

416,392

118,940

Income tax expense

(98,991)

(44,506)

Net income

$

317,401

$

74,434

Basic weighted-average common shares outstanding

111,696

111,258

Diluted weighted-average common shares outstanding

112,879

111,329

Basic net income per common share

$

2.84

$

0.67

Diluted net income per common share

$

2.81

$

0.67

Dividends per common share

$

0.05

$

0.05

⁽¹⁾  Non-cash stock-based compensation included in:

Exploration expense

$

1,316

$

1,408

G&A expense

4,096

4,047

Total non-cash stock-based compensation

$

5,412

$

5,455

⁽²⁾  The net derivative (gain) loss line item consists of the following:

Settlement (gain) loss

$

24,528

$

(7)

Gain on fair value changes

(16,999)

(114,767)

Total net derivative (gain) loss

$

7,529

$

(114,774)

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Condensed Consolidated Statements of Cash Flows

(in thousands)

For the Three Months Ended
March 31,

2018

2017

(as adjusted)

Cash flows from operating activities:

Net income

$

317,401

$

74,434

Adjustments to reconcile net income to net cash provided by operating activities:

Net (gain) loss on divestiture activity

(385,369)

(37,463)

Depletion, depreciation, amortization, and asset retirement obligation liability accretion

130,473

137,812

Abandonment and impairment of unproved properties

5,625

—

Stock-based compensation expense

5,412

5,455

Net derivative (gain) loss

7,529

(114,774)

Derivative settlement gain (loss)

(24,528)

7

Amortization of debt discount and deferred financing costs

3,866

4,946

Loss on extinguishment of debt

—

35

Deferred income taxes

98,366

33,225

Other, net

(2,527)

3,376

Changes in current assets and liabilities:

Accounts receivable

(4,464)

30,407

Prepaid expenses and other

755

178

Accounts payable and accrued expenses

(8,825)

(5,497)

Accrued derivative settlements

(3,579)

2,838

Net cash provided by operating activities

140,135

134,979

Cash flows from investing activities:

Net proceeds from the sale of oil and gas properties

490,780

744,333

Capital expenditures

(301,521)

(154,401)

Acquisition of proved and unproved oil and gas properties

—

(75,105)

Net cash provided by investing activities

189,259

514,827

Cash flows from financing activities:

Proceeds from credit facility

—

397,500

Repayment of credit facility

—

(397,500)

Cash paid to repurchase Senior Notes

—

(2,344)

Cash paid for extinguishment of debt

—

(13)

Other, net

—

(160)

Net cash used in financing activities

—

(2,517)

Net change in cash, cash equivalents, and restricted cash

329,394

647,289

Cash, cash equivalents, and restricted cash at beginning of period

313,943

12,372

Cash, cash equivalents, and restricted cash at end of period

$

643,337

$

659,661

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Adjusted EBITDAX (Non-GAAP)⁽¹⁾

(in thousands)

Reconciliation of net income (GAAP) and net cash provided by operating activities (GAAP) to adjusted EBITDAX (Non-GAAP)

For the Three Months Ended
March 31,

2018

2017

Net income (GAAP)

$

317,401

$

74,434

Interest expense

43,085

46,953

Interest income⁽²⁾

(849)

(335)

Income tax expense

98,991

44,506

Depletion, depreciation, amortization, and asset retirement obligation liability accretion

130,473

137,812

Exploration⁽³⁾⁽⁴⁾

12,411

10,409

Abandonment and impairment of unproved properties

5,625

—

Stock-based compensation expense

5,412

5,455

Net derivative (gain) loss

7,529

(114,774)

Derivative settlement gain (loss)

(24,528)

7

Net gain on divestiture activity

(385,369)

(37,463)

Loss on extinguishment of debt

—

35

Other

7

4,986

Adjusted EBITDAX (Non-GAAP)⁽⁴⁾

210,188

172,025

Interest expense

(43,085)

(46,953)

Interest income⁽²⁾

849

335

Income tax expense

(98,991)

(44,506)

Exploration⁽³⁾⁽⁴⁾

(12,411)

(10,409)

Amortization of debt discount and deferred financing costs

3,866

4,946

Deferred income taxes

98,366

33,225

Other, net ⁽⁴⁾

(2,534)

(1,610)

Changes in current assets and liabilities

(16,113)

27,926

Net cash provided by operating activities (GAAP)⁽⁴⁾

$

140,135

$

134,979

⁽¹⁾ Adjusted EBITDAX represents net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items.  Adjusted EBITDAX excludes certain items that we believe affect the comparability of operating results and can exclude items that are generally one-time in nature or whose timing and/or amount cannot be reasonably estimated.  Adjusted EBITDAX is a non-GAAP measure that we present because we believe it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt.  We are also subject to financial covenants under our Credit Agreement based on adjusted EBITDAX ratios.  In addition, adjusted EBITDAX 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 EBITDAX should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by operating activities, or other profitability or liquidity measures prepared under GAAP.  Because adjusted EBITDAX excludes some, but not all, items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies.  Our credit facility provides a material source of liquidity for us.  Under the terms of our Credit Agreement, if we failed to comply with the covenants that establish a maximum permitted ratio of senior secured debt to adjusted EBITDAX and a minimum permitted ratio of adjusted EBITDAX to interest, we would be in default, an event that would prevent us from borrowing under our credit facility and would therefore materially limit our sources of liquidity.  In addition, if we are in default under our credit facility and are unable to obtain a waiver of that default from our lenders, lenders under that facility and under the indentures governing our outstanding Senior Notes and Senior Convertible Notes would be entitled to exercise all of their remedies for default.

⁽²⁾ Interest income is included within the other non-operating income (expense), net line item on the Company's condensed consolidated statements of operations.

⁽³⁾ Stock-based compensation expense is a component of exploration expense and general and administrative expense on the accompanying condensed consolidated statements of operations.  Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the Company's accompanying condensed consolidated statements of operations for the component of stock-based compensation expense recorded to exploration expense.

⁽⁴⁾ Certain prior period amounts have been adjusted to conform to the current period presentation on the condensed consolidated financial statements due to accounting standards updates.

SM ENERGY COMPANY

FINANCIAL HIGHLIGHTS (UNAUDITED)

March 31, 2018

Adjusted Net Income (Loss) (Non-GAAP)

(in thousands, except per share data)

For the Three Months Ended
March 31,

2018

2017

Net income (GAAP)

$

317,401

$

74,434

Net derivative (gain) loss

7,529

(114,774)

Derivative settlement gain (loss)

(24,528)

7

Net gain on divestiture activity

(385,369)

(37,463)

Abandonment and impairment of unproved properties

5,625

—

Loss on extinguishment of debt

—

35

Other, net⁽¹⁾

807

4,986

Tax effect of adjustments⁽²⁾

86,710

53,142

Adjusted net income (loss) (Non-GAAP)⁽³⁾

$

8,175

$

(19,633)

Diluted net income per common share (GAAP)

$

2.81

$

0.67

Net derivative (gain) loss

0.07

(1.03)

Derivative settlement gain (loss)

(0.22)

—

Net gain on divestiture activity

(3.41)

(0.34)

Abandonment and impairment of unproved properties

0.05

—

Loss on extinguishment of debt

—

—

Other, net⁽¹⁾

0.01

0.04

Tax effect of adjustments⁽²⁾

0.76

0.48

Adjusted net income (loss) per diluted common share (Non-GAAP)⁽⁴⁾

$

0.07

$

(0.18)

Basic weighted-average common shares outstanding (GAAP)

111,696

111,258

Diluted weighted-average common shares outstanding (GAAP)

112,879

111,329

Note: Amounts may not calculate due to rounding.

⁽¹⁾ For the three-month period ended March 31, 2018, the adjustment is related to bad debt expense and an accrual for a non-recurring matter.  For the three-month period ended March 31, 2017, the adjustment is related to impairment of materials inventory and the change in the Net Profits Plan liability.  These items are included in other operating expenses on the Company's condensed consolidated statements of operations.

⁽²⁾ The tax effect of adjustments is calculated using a tax rate of 21.9% and 36.1% for the three-month periods ended March 31, 2018, and March 31, 2017, respectively.  These rates approximate the Company's statutory tax rate for the respective periods, as adjusted for ordinary permanent differences.

⁽³⁾ Adjusted net income (loss) 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 and other adjustments, such as derivative gains and losses net of settlements, impairments, net (gain) loss on divestiture activity, materials inventory loss, and gains or losses on extinguishment of debt.  The non-GAAP measure of adjusted net income (loss) 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 (loss) 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 (loss) should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, cash provided by operating activities, or other income, profitability, cash flow, or liquidity measures prepared under GAAP.  Since adjusted net income (loss) excludes some, but not all, items that affect net income (loss) and may vary among companies, the adjusted net income (loss) amounts presented may not be comparable to similarly titled measures of other companies.

⁽⁴⁾ For periods where the Company reports adjusted net loss, basic weighted-average common shares outstanding are used in the calculation of adjusted net loss per diluted common share.