SM Energy Reports Results for Third Quarter of 2010

SM Energy Company (NYSE: SM) today reports financial results from the third quarter of 2010. In addition, a new presentation covering these results and updating the Company’s operating activities will be posted on its website at 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 November 3, 2010. Information for the earnings call can be found below.

MANAGEMENT COMMENTARY

Tony Best, CEO and President, remarked, "SM Energy has had another very solid quarter. We performed very well against our guidance and continue to execute well on our business plan. We look to have a strong finish to 2010 and position ourselves for even greater success in 2011.”

THIRD QUARTER 2010 RESULTS

SM Energy posted net income for the third quarter of 2010 of $15.5 million, or $0.24 per diluted share. This compares to a net loss of ($4.4 million), or ($0.07) per diluted share, for the same period in 2009. Adjusted net income for the quarter was $20.0 million, or $0.31 per diluted share, versus adjusted net income of $14.7 million, or $0.23 per diluted share, for the third quarter of 2009. Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded are generally one-time items or are items whose timing and/or amount cannot be reasonably estimated. A summary of the adjustments made to arrive at adjusted net income is presented in the table below.

Operating cash flow increased to $130.1 million for the third quarter of 2010 from $99.9 million in the same period last year. Net cash provided by operating activities also increased to $148.2 million for the third quarter of 2010 from $111.3 million in the same period in 2009.

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 298.4 MMCFE/d, which was at the high end of the guidance range of 277 to 299 MMCFE/d. Production came in at the high end of guidance primarily due to strong results in the Company’s Eagle Ford shale program. Sequentially equivalent production grew 8% from 276.4 MMCFE/d in the second quarter of 2010 driven by a 12% increase in oil production.

Revenues and other income for the current quarter were $226.9 million compared to $185.8 million for the same period in 2009. For the third quarter of 2010, the average equivalent price per MCFE, net of hedging, was $7.51 per MCFE, which is an increase of 9% from the $6.86 per MCFE realized in the comparable period in 2009. Average realized prices, inclusive of hedging activities, were $5.81 per Mcf and $64.28 per barrel in the third quarter of 2010, which is an increase of 17% and 3%, respectively, from the same period a year ago. SM Energy reports its gas volumes on a "wet gas” basis, meaning that revenue dollars associated with natural gas liquids ("NGLs”) are reported within the Company’s natural gas revenues.

Lease operating expense ("LOE”) of $1.06 per MCFE in the third quarter of 2010 was below the Company’s guidance of $1.20 to $1.25 per MCFE. Lease operating expense for the quarter represents an 18% decrease from the $1.30 per MCFE in the comparable period last year. Sequentially, LOE declined 8% or $0.09 per MCFE in the third quarter of 2010 from the preceding quarter. A decline in workover activity in the Rocky Mountain region resulting from the divestiture of non-core assets early in the year was a driver for the decline in LOE. LOE on a per MCFE basis is also being driven lower by higher production.

Transportation expense of $0.18 per MCFE in the third quarter of 2010 was below guidance of $0.21 to $0.23 per MCFE. The reported per unit expense decreased from $0.20 per MCFE for the comparable period in 2009. Sequentially, transportation expense was also down 10% from $0.20 per MCFE in the second quarter of 2010.

Production taxes on a per MCFE basis increased 15% from $0.34 to $0.39 between the third quarters of 2009 and 2010. The increase is a function of commodity price realizations, which on a pre-hedge basis were higher in the third quarter of 2010 compared to the same period last year. The Company’s realized production tax rate for the third quarter was 5.4%, which was below the provided guidance of 7% of pre-hedge oil and natural gas revenue. The difference from guidance is related to severance tax holidays benefitting the Mid-Continent region in the third quarter of 2010.

Total general and administrative ("G&A”) expense for the third quarter of 2010 was $0.96 per MCFE, which was below the guidance range of $1.04 to $1.10 per MCFE provided by the Company. Cash G&A expense was $0.61 per MCFE for the quarter, compared to a guidance range of $0.65 to $0.67 per MCFE. Non-cash G&A for the third quarter was $0.21 per MCFE versus a guidance range of $0.20 to $0.22 per MCFE. G&A related to cash payments from the Company’s legacy Net Profits Plan ("NPP”) program was $0.14 per MCFE in the quarter compared to a guidance range of $0.19 to $0.21 per MCFE.

Depletion and depreciation expense ("DD&A”) was $3.05 per MCFE in the third quarter of 2010, which was within the Company’s guidance range of $2.90 to $3.10 per MCFE. Sequentially, DD&A decreased 4% from $3.17 per MCFE in the second quarter of 2010. The Company’s DD&A rate is impacted by a number of factors, including divestitures and the accounting treatment of assets held for sale.

In the third quarter of 2010, SM Energy recognized a pre-tax non-cash expense of $4.1 million as a result of an increase in the NPP liability. The NPP liability is a significant management estimate that is highly sensitive to a number of assumptions including future commodity prices, production rates, and operating costs. The last pool created under this legacy compensation plan was in 2007.

FINANCIAL POSITION AND LIQUIDITY

As of September 30, 2010, SM Energy had total long-term debt of $275.4 million. The balance on the Company’s 3.50% Senior Convertible Notes was $273.4 million, net of debt discount, and the Company’s long-term credit facility had a balance of $2.0 million. The Company’s debt-to-book capitalization ratio was 19% as of the end of the quarter.

The borrowing base for the long-term credit facility was re-determined by SM Energy’s bank group on September 21, 2010, and was increased from $900 million to $1.1 billion. The Company has a commitment amount of $678 million from the Company’s bank group. SM Energy is in compliance with all of the covenants associated with this facility.

EARNINGS CALL INFORMATION

The Company has scheduled a teleconference to discuss the third quarter results on November 3, 2010 at 8:00 a.m. Mountain time (10:00 a.m. Eastern time). The call participation number is 800-573-4752 and the participant passcode is 96275028. An audio replay of the call will be available approximately two hours after the call at 888-286-8010, with the passcode 89724964. International participants can dial 617-224-4324 to take part in the conference call, using passcode 96275028 and can access a replay of the call at 617-801-6888, using passcode 89724964. Replays can be accessed through November 17, 2010.

This call is being webcast live and can be accessed at SM Energy Company’s website at sm-energy.com. An audio recording of the conference call will be available at that site through November 17, 2010.

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,” "look,” 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 and natural gas prices, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, 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 hedge counterparties to settle hedges in favor of the Company, the risks associated with the Company’s hedging strategy, the uncertain nature of the expected benefits from the divestiture or joint ventures of oil and gas properties, the ability to close announced divestitures or joint venture of oil and gas properties, and other such matters discussed in the "Risk Factors” section of SM Energy’s 2009 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, formerly named St. Mary Land & Exploration Company, is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas 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 sm-energy.com.

SM ENERGY COMPANY
FINANCIAL HIGHLIGHTS
September 30, 2010