RockStar Results JANUARY 31, 2017 CREATING VALUE FROM THE START

Transcription

1 RockStar Results JANUARY 31, 2017 CREATING VALUE FROM THE START 1

2 Please Read - This presentation makes reference to: Forward looking statements This presentation and discussion contain 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 well performance, growth strategy, consummation of pending transactions, anticipated drilling plans, anticipated growth in cash flows, 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 forward-looking 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. 2

3 Midland Basin Premier Operator of Top Tier Assets Well results clearly demonstrate successful operational execution and top tier returns Recent RockStar well results support acquisition geologic model; program designed to evaluate full potential of acreage Midland Basin program expected to deliver significant production growth and margin expansion in 2017 and forward Sweetie Peck Midland Basin ~87,600 net acres Halff East RockStar Blocky, largely contiguous positions enable long laterals ~16,500 Boe/d exit rate production (1) (1) Exit rate production refers to December 2016 production for Midland Basin assets 3

4 Today s Discussion 1. Review outstanding results from first 8 RockStar wells 2. Dive into geologic understanding of Howard County 3. SM operational execution in the Permian Basin well performance and returns 4. Performance to date provides foundation for 2017 plan 4

5 Howard County Eight New Wells All Exceeding Expectations IP rates exceed Company s unrisked acquisition assumptions Successful tests of Wolfcamp A, Wolfcamp B, and Lower Spraberry Tackleberry WA IP-30 of 2,262 Boe/d among highest horizontal well rates per foot recorded in Midland Basin Rambo and Venkman wells all exceed 1,100 Boe/d and support rock quality to southeastern edge of acreage 5

6 Howard County New Well Results Wells drilled across position and into three intervals Well Name Interval Lateral Length IP Rate (BOE/d) IP Days Tackleberry A 1LS LS 7,873 1, day Tackleberry A 1WA WCA 7,861 2, day Tackleberry A 2WB WCB 7,885 1, day Rambo WA WCA 7,546 1, day Rambo WA WCA 7,590 1, day Venkman B 1WA WCA 7,700 1, day Top Gun 1H WCA 7,595 1, day Top Gun 2H LS 7,711 1, day Wells with 20-day IP rates have not hit their peak average 30-day rates 6

7 BOEPD Howard County Update on Blissard Well Longer laterals drive value creation 1,775 Boe/d IP-30 (announced in December) Showing prolonged high oil rate 3,000 2,500 2,000 1,500 Blissard H Cumulative 158,000 Boe in first 97 days 1, Day 53 (12/10/16) Converted to ESP Flowed naturally first 53 days, then installed artificial lift Production Days 9,660 lateral located near Howard Martin County line Blissard well - Confirms the value of longer laterals 7

8 Fundamentals What is Important? Drivers of top tier economic performance Hydrocarbons in place Type of rock porous with interconnected pore space Thermal maturity enabling mobile hydrocarbons Drilling cost depth and penetration rate Completion design and cost 8

9 Howard County Late Entrant to Midland Activity 2013 limited horizontal well data set potential not yet recognized Only 4 modern horizontal wells in

10 Howard County SM on the Leading Edge of Geologic Analysis SM s vast and distinctive database supports geologic potential across Howard County Detailed mapping of key parameters based on analysis of more than 950 modern open-hole log suites SM Energy Database: 950 Well logs Enables sweet-spot top tier area determination New geochemical data defines thermal maturity across position Ability to differentiate key facies and focus drilling on most productive rock in each zone Mudrock: traditional target Porous Carbonate: new target in Howard County Tight Carbonate: to be avoided Enables development focus on top tier locations / optimal landing zone determination 10

11 Cumulative BOE* Howard County Back to the Fundamentals that Matter Understanding the good carbonates in Howard County Extensive log database enabled differentiation of a porous carbonate target Traditional target is mudrock, but porous carbonates have also been proven to be an attractive target Dean Wolfcamp A Example: Ryder unit well drilled into Wolfcamp A well with 72% carbonate facies Ryder unit well now confirmed as a top tier producer IP-30 1,484 MBoe/d Cumulative production of 117 MBoe in first 5 months 7,670 lateral Would have been considered at the edge of prospectivity just 2 years ago Ryder Unit A 2H Wolfcamp B Ryder Unit A 2H 300, , , , ,000 50, *Source: IHS Days of Production 11

12 Howard County Wolfcamp A Evolution of SM Sweet Spot Mapping Database supports 100% of net acreage within sweet spot Industry horizontal drilling to date supports economics on 76% of net acreage November 2014 Confirmed through drilling Sweet Spot Evaluating January 2017 Sweet Spot Confirmed Evaluating through drilling Black dashed lines denote areas supported by horizontal well economics 12

13 Howard County Wolfcamp B Evolution of SM Sweet Spot Mapping Database supports 95% of net acreage within sweet spot Industry horizontal drilling to date supports economics on 34% of net acreage November 2014 Confirmed through drilling Sweet Spot Evaluating January 2017 Sweet Spot Confirmed Evaluating through drilling Black dashed lines denote areas supported by horizontal well economics 13

14 Howard County Lower Spraberry Evolution of SM Sweet Spot Mapping Database supports 83% of net acreage within sweet spot Industry horizontal drilling to date supports economics on 39% of net acreage January 2016 January 2017 Confirmed through drilling Sweet Spot Evaluating Sweet Spot Confirmed Evaluating through drilling Black dashed lines denote areas supported by horizontal well economics 14

15 Howard County Confirming the Sweet Spot Full data set identifies the sweet spot for returns new horizontal wells confirm Interval SM Energy Acreage % Confirmed by HZ drilling % in Sweet Spot Wolfcamp A 76% 100% Wolfcamp B 34% 95% Lower Spraberry 39% 83% Vast majority of acreage identified as Sweet Spot for all 3 intervals 15

16 Midland Basin Wolfcamp Potential is Massive USGS November 2016: Largest continuous oil discovery ever found in U.S. All of SM s Midland Basin acreage is within the USGS Wolfcamp A and Wolfcamp B boundaries According to the USGS report, approximately 18 billion barrels of oil exists in basin Wolfcamp C, Wolfcamp D, and Spraberry intervals expected to provide further upside Source: U.S. Geological Survey, Assessment of Undiscovered Continuous Oil Resources in the Wolfcamp Shale of the Midland Basin, Permian Basin Province, Texas, 2016, November

17 Howard County Summary Growing in Stature Mapping sweet spots and confirming economic returns Long history of vertical drilling provided extensive data base New core enabled modern analysis of key rock characteristics Detailed analysis of all the data available revealed the economic potential Industry recognized the potential once the productive facies were understood Needed to map mudrock, porous carbonate and tight carbonate to see the play potential Industry driving eastward to evaluate economic returns and sweet spot boundaries Well Performance Confirming value 17

18 Howard County Current Drilling Activity Industry confidence drives drilling activity across the county 18

19 Cumulative Production (BOE) Midland Basin Peer Type Curve and 20% IRR Threshold 350, , , , , ,000 50, Months 1 MMBOE Peer Type Curve 20% IRR Type Curve (Peer Type Curve adjusted to meet 20% IRR) Note: Well economics at $50 oil and $3.00 gas; monthly data normalized to days on production. 19

20 Midland Basin SM Wells with > 6,900 Laterals 20

21 Cumulative Production (BOE) Sweetie Peck Top Tier Well Performance SM Energy operated wells with greater than 6,900 lateral lengths 350, , , , , ,000 50, Months 1 MMBOE Peer Type Curve 20% IRR Type Curve (Peer Type Curve adjusted to meet 20% IRR) SM Operated Well Note: Well economics at $50 oil and $3.00 gas; monthly data normalized to days on production. 21

22 Cumulative Production (BOE) RockStar Top Tier Well Performance SM Energy operated wells with greater than 6,900 lateral lengths 200, , ,000 Ogre 140,000 Blissard (1) 120,000 Tackleberry WCA 100,000 80,000 60,000 (2) (3) (4) 40,000 20, Days 1 MMBOE Peer Type Curve 20% IRR Type Curve* SM Operated Well (1) Less than 1,500 lbs/ft sand (2) Low frac fluid volume Sub-optimal completion: (3) Less than 1,500 lbs/ft sand (4) Suspected fault communication Note: Well economics at $50 oil and $3.00 gas; monthly data normalized to days on production. * Peer Type Curve adjusted to meet 20% IRR 22

23 Howard County 2017 Drilling Plan Objectives Value creation through better wells, longer laterals, and increasing wells per section Retain leasehold Evaluate economics of drilling across position Lower Spraberry Wolfcamp A Wolfcamp B Optimize completion designs and maximize number of 10,000 laterals Establish optimum landing zones and well spacing by interval Obtain data to assess productivity of other intervals 23

24 Midland Basin Leading Edge Technology Optimizes Completions Using latest generation fiber optics to optimize completion designs Analyzed number of Fracture Initiation Points (FIP) with variable stage and cluster spacing in the Blissard well Conclusion: Number of fracture initiation points maximized with more clusters and tighter stage spacing Note: Halliburton generated data. 24

25 Midland Basin Leading Edge Technology Optimizes Completions Using micro-seismic to evaluate alternative completion designs Use of micro-seismic to evaluate frac height growth and near wellbore fracture intensity and optimize completion designs and well spacing Simulations tell us that creating a complex fracture system maximizes EUR; micro-seismic provides an actual indicator Note: Sigma Cubed Inc. generated data. 25

26 Midland Basin What Next? Operational execution + well performance to-date an excellent start to program Six rigs in 2017: four currently active, two expected to arrive before 2Q All laterals 7,500 or longer, majority are 10,000 Expect to drill operated wells and complete wells Current well costs ~ $ MM depending on lateral length and science We look forward to sharing our plan February 23 26

27 Midland Basin Premier Operators of Top Tier Assets Well results underscore successful operational execution and top tier returns RockStar well results support geologic model; program designed to evaluate full potential of acreage Midland Basin program expected to deliver significant production growth and margin expansion in 2017 and forward 27

28 Appendix Significant activity and data collection over the past three years has redefined the geology of Howard County and provided new opportunity for early entrants 28

29 Howard County New Well Results Additional Details Well Name Interval Lateral Length IP Rate (BOE/d) IP Days IP per 1, Hour IP Rate Stages Clusters per Stage Proppant (lbs./ft) Oil % Tackleberry A 1LS LS 7,873 1, day 163 1, , Tackleberry A 1WA WCA 7,861 2, day 288 2, , Tackleberry A 2WB WCB 7,885 1, day 179 1, , Rambo WA WCA 7,546 1, day 153 1, , Rambo WA WCA 7,590 1, day 151 1, , Venkman B 1WA WCA 7,700 1, day 168 1, , Top Gun 1H WCA 7,595 1, day 210 1, , Top Gun 2H LS 7,711 1, day 144 1, , Wells with 20-day IP rates have not hit their peak average 30-day rates 29

30 Howard County Sweet Spot Peer A March 2016 June

31 Howard County Sweet Spot Peer B March 2016 May

32 Howard County Sweet Spot Peer C January 2014 October

33 Howard County Operators SM Energy Callon Encana Surge/Yantai Xinchao Diamondback Oxy Energen BreitBurn Sabalo 33

34 Sweetie Peck Operators SM Energy Apache Chevron Concho Devon Diamondback Discovery Endeavor Exxon Legacy Oxy Pioneer Summit Miscellaneous 34

35 Contact Information Jennifer Martin Samuels Senior Director, Investor Relations