SM Energy Company

Welcome to SM Energy's second quarter 2021 results webcast. Before we get started on our prepared remarks, our discussion today will include forward-looking statements. I direct you to slide two of the accompanying slide deck, page five of the accompanying earnings release, and the risk factors section of our most recently filed 10-K and 10-Q, which describe risks associated with forward-looking statements that can cause actual results to differ. We will also be discussing non-GAAP measures. Please see slides 26 through 28 of the accompanying slide deck and pages 12 through 15 of the accompanying earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. Today's prepared remarks will be given by our President and CEO Herb Vogel and CFO Wade Purcell. I will now turn the call over to Herb.

Thank you, Jennifer. Good afternoon, and thank you for your interest in SM Energy. We're very pleased to report exceptional second quarter financial and operational results. The quarter exceeded expectations on several measures and puts us ahead of schedule in meeting our key priorities. Turning to slide three, I will reiterate our long-term objectives and progress in meeting them. First, maximize cash flow over the next five years, sustaining a reinvestment rate of less than 75%. During the second quarter, we accelerated certain capital activity to effectively make up for lost time as a result of the Texas weather event in the first quarter. Production came in ahead of expectations and capital came in lower, delivering free cash flow neutrality. Our outlook from here for free cash flow and free cash flow yield is highly competitive for our sector and favorable compared to other market sectors. Our second long-term objective is to improve the balance sheet by applying free cash flow to absolute debt reduction, targeting less than two times leverage by year-end 2022 and generating sufficient cash flow to exceed bond maturities due through 2024. Our outlook on leverage is more favorable on two fronts. Given the strengthened price outlook for all three commodities since we constructed our plan in February, The target of less than two times leverage by the end of 2022 is now looking like less than one and a half times leverage at the end of 2022. Secondly, our second quarter bond tender and new issuance reduced near-term maturities by nearly $400 million. We now believe that free cash flow generation through 2024 will be sufficient to cover bond maturity through 2026. I'll let Wade expand upon that great outcome. Our third long-term objective is to maintain top-tier high-return inventory. Our success here may be the most exciting of all. Despite a particularly challenging 2020 and weather-related bumps during the first quarter, our team has continued to delineate and develop the Austin Chalk. This is real value creation, as I will elaborate on later. And the fourth long-term objective is to report differential ESG stewardship. Today, we've posted our responses to the 2020 CDP questionnaire, as well as posted the data in the format of the Task Force on Climate-Related Financial Disclosures, or TCFD. We will be posting additional ESG disclosures in the coming days, including the Sustainability Accounting Standards Board, or SASB, framework updated for 2020 data. Among reported ESG metrics, most notable are a reported 37 percent decline in greenhouse gas emissions intensity in 2020 versus 2019, and a 20 percent decline in methane intensity. Turning briefly to slide four, this chart depicts our highly competitive free cash flow yield as projected for 2022. I'll now turn the call over to Wade to speak to the second quarter results and outlook. Wade?

Thank you, Herb. I'll start on slide five. I think you'll find most of the information straightforward, so I'll just add some context to a few items. Starting with production, we beat the top end of guidance with production at 12.4 million BOE, or 136,500 BOE per day, And this was due mainly to performance from the Austin Chalk, where both base production and new wells were stronger than we had modeled. For the quarter, oil production percentage was a healthy 54%. CapEx of $214 million came in under our guidance range of $230 to $240 million. This related to timing as our capital expenditure estimate for the full year remains unchanged. Drilling and completion activity is on schedule. We drilled 22 and completed 45 net wells in the quarter. For the first half of 2021, capital expenditures totaled $399 million, and we drilled 40 net wells and completed 62 net wells. So we're roughly 60% through our capital program for the year. In general, line item costs are tracking guidance, but I would expect LOE for BOE to pick up to the high end of the range in the third quarter as we have more workovers scheduled during the quarter. Turning to the balance sheet on slide seven, here we see the substantial reduction in near-term maturities due through 2024, which at second quarter end stood at $223 million, including the revolver. I'll also note that since quarter end, we've redeemed the converts, so for modeling purposes, assume that went on the revolver. We turned out approximately $400 million in debt with the issuance of new 6.5% notes due 2028. The tender offer and issuance transactions went extremely well. It was actually oversubscribed by 10 times and served the purpose of strengthening the balance sheet by removing any perceived risk associated with near-term maturities. And it positions us to reduce the highest cost debt sooner. Updating our hedge positions on slide eight, we have 75 to 80% of oil production and about 85% of natural gas production hedged in the second half of 2021. Details by quarter in the appendix. As we've previously stated, our methodology for hedging is aligned with our outlook for leverage. So you can expect a directionally lower percentage of production to be hedged in 2022. To say it again, we now see debt to EBITDAX trending below one and a half times by the end of next year. And that is based on current strip and estimated cost. So now turning to guidance on slide nine. Guidance for the year remains unchanged. We did narrow the range around production to 47.5 to 49.5 million VOE. And that range really relates to ultimate timing of wells coming on. Third quarter production is expected to range between 13 to 13.2 million VOE or 141 to 143,000 VOE per day, 53 to 54% oil. This implies fourth quarter production to be relatively flat with the third quarter. In terms of cadence, the remaining capital activity will be heavier weighted to the third quarter with the third quarter capital guidance range forecasted to be between 170 to $190 million. I think we will lean toward the high end of full year capital guidance, accounting for some inflation that may kick in. We're now expecting full year activity to include about 85 net wells drilled and 100 to 110 net wells completed. This sets us up for low single-digit production growth in 2022 and, of course, substantial growth in free cash flow. I'll now turn it back to Herb to make comments on operations. Herb?