SM Energy (SM)

Management Discussion

• During the second quarter of 2022, we remained committed to our goal of reducing the principal balance of our outstanding debt through cash flow generation. For the three months ended June 30, 2022, net cash provided by operating activities exceeded net cash used in investing activities by $327.0 million, and we reduced the principal balance of our total outstanding long-term debt by $446.7 million by redeeming the 2025 Senior Secured Notes. We executed on this goal through strong operational performance and a diligent focus on cost management. We also benefited from increased commodity prices.
• Our 2022 capital program is expected to be between $870.0 million and $900.0 million, which is an increase from our original expectation of $750.0 million. This increase incorporates higher than expected inflation and adjustments to our capital program to ensure continuous and efficient operations. Our financial and operational flexibility allows us to continually monitor the economic environment and adjust our activity level as warranted. Our 2022 capital program remains focused on highly economic oil development projects in both our Midland Basin and South Texas assets. We believe that our high-quality asset portfolio is capable of generating strong returns in the current macroeconomic environment, which we expect will enable us to grow cash flows, improve leverage metrics, and maintain strong financial flexibility. Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2022 capital program.
• Financial and Operational Results. Average net daily equivalent production for the three months ended June 30, 2022, decreased four percent sequentially to 146.6 MBOE, primarily driven by a decrease in NGL volumes of nine percent, or 2.0 MBbl per day, and a decrease in oil volumes of six percent, or 4.3 MBbl per day, due to the timing of well completions.