Good day, ladies and gentlemen, and welcome to the SM Energy Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jennifer Samuels, Director of Investor Relations. Please go ahead.

Thank you, Abigail. Good morning, everyone, and thank you for joining us. A few housekeeping items before we get started, first, I need to remind everyone that we will be making forward-looking statements during this call about our plans, expectations, and assumptions regarding our future performance, including discussing full year guidance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday, the presentation posted to our website for this call, and the Risk Factors section of our Form 10-K that we filed, oh, I guess about an hour ago, that is posted to our website. We will also discuss certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly-comparable GAAP measures and other information about these non-GAAP metrics are also described in our earnings release from yesterday. Following the call today, we will head up to Vail for the Credit Suisse conference, where we hope to see many of you. We will also attend the Simmons and Raymond James conferences in the coming weeks and again hope to see many of you there. Speaking this morning will be: Jay Ottoson, President and Chief Operating (sic) [Executive] (1:49) Officer; Wade Pursell, Executive Vice President and Chief Financial Officer; and I am very pleased to introduce Herb Vogel, our EVP of Operations, who will cover certain operational accomplishments in 2015 and how what we learned in 2015 shapes our 2016 plans, as well as reserves in economic inventory. Herb is covering a lot of good information today, so get out your notepads. After the prepared remarks,…

Thank you, Wade, and good morning, everyone. Behind the metrics of the 2016 plan that Wade just discussed, we're doing a number of things operationally that are driving performance, building drilling inventory and, ultimately, value. Simply stated, we are continually delivering better wells at lower cost, which are imperative in the current price environment. During 2015, our regional Operations teams executed drilling and completion tests in each of our core areas that improved well performance and, importantly, significantly increased our view of viable inventory at five-year strip pricing. This, in turn, is shaping our 2016 plan to optimize returns from our capital program. I will speak to overall inventory growth in a few minutes, but let me first touch on some of these 2015 accomplishments and what we learned and speak to how they feed the 2016 plan. I'm at Slide 10. There's some headlines there about the Eagle Ford, but, in the interest of time, I'm going to jump right to Slide 11 and talk about our Eagle Ford Pilot Test, where we made substantial progress in 2015 executing on our pilot. Across the five pilots that have commenced production to-date, we have reached several general and, in some cases, preliminary conclusions that will drive our future plans. First, increasing sand loading to the 1,700 to 2,200 pound per lateral foot range substantially enhances well economics across the vast majority of our acreage. The only exception to-date is at the eastern end of our acreage position in Galvan, where the Lower Eagle Ford is somewhat thinner and our older, lower sand loading levels are appropriate and optimal. Second, the Upper Eagle Ford is productive across our acreage position. We see very similar early production profiles in the Upper and Lower Eagle Ford in lower yield areas. In higher yield…

Thank you. Our first question comes from the line of Pearce Hammond with Simmons & Company. Your line is open. Pearce Wheless Hammond - Simmons & Company International: Yes. Good morning. I was intrigued with your commentary about liquidity and the importance thereof, but also the opportunities to buy back some of the distressed debt. How do year bridge that gap, where you can maintain that liquidity that's important to you but take advantage of the opportunity that the debt market is offering you? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Hey, Pearce. This is Wade. I don't want to get too detailed on things we might be looking at, but you said it very well. We're not going to simply just use liquidity. It would be other sources of capital, whether that's other financing alternatives or from some asset divestitures, things like that. Pearce Wheless Hammond - Simmons & Company International: Now, would that be above and beyond the $100 million of asset divestitures that you targeted in the release last evening? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Possibly. Possibly. I would lean more toward the other financing sources, but, yeah, that's something we'd be looking at also. Pearce Wheless Hammond - Simmons & Company International: Great. And then my follow-up, Wade, would be on the credit agreement covenants. Are you looking to get some relief on that front through a renegotiation? A. Wade Pursell - Chief Financial Officer & Executive Vice President: That's what I said. I don't want to get too detailed. I'm obviously not going to speak for the banks, but we are intending to get some relief, as you call it, or amendments to our covenants as we go into the spring borrowing base. Pearce Wheless Hammond - Simmons & Company International: Okay. Thank you very much. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Thanks.

Thank you. Our next question comes from the line of David Tameron with Wells Fargo. Your line is open.

Good morning. Javan D. Ottoson - President, Chief Executive Officer & Director: Morning.

Page 23 that you referenced, I kind of missed the number. You said at current strip, it was 1.1 billion barrels. Is that what I heard you say, Herb?

Yeah. This is Herb. Yeah, that's correct. It's 1.1 billion barrels with the assumptions we have for year-end 2015.

Okay. Okay. And then, just not to get into too much detail, but is the reduction there from that 1.8 billion barrels, do I think about that as mostly Eagle Ford and a little Bakken, how should I think about that?

Oh, yeah. You know, the Eagle Ford dominates our inventory, so it's mostly Eagle Ford.

Okay. That was a simple answer. And then, Jay, if I just think about big picture, I don't know, if you go back a year, year and a half, you guys had 20 rigs running. You take it down to your current of four, how does the organization right-size for that? Meaning, I assume there's been layoffs through attrition, et cetera, but how do you think about when you come out of this on the other side, assuming we do get some higher oil prices and you start to ramp back up? How do you envision that? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, I think if you look back right now, David, and I think it's a great question and certainly my organization is asking that question, too. And I'm not going to say anything today that I haven't said to them. If you look back at the peak, we were at about 903 or 904 people. Today, we're at about 780. That's a consequence of us closing our Tulsa office last year and exiting the Mid-Continent, attrition. And then, some small reductions we've taken just recently as a part of downsizing our exploration program. So we're down 12%, 13% in terms of total head count and you can see that already in our G&A reductions. We're obviously managing every G&A line item, every cost item, as closely as we can. I think when you look into the future, clearly, activity is way down. And we really believe that this first six months of 2016 is going to be very ugly from a price standpoint and then you'll start to see some improvement. And that's certainly what most people believe, too. I mean, it's a hopelessly conventional perspective, I guess, but we're trying not to…

Okay. No, that's good answer. And then just final question, service costs, since even December, it sounds like a number of producers are seeing additional service cost reductions. You kind of alluded to that. Is that what you're seeing on your end as well?

Yeah. David, this is Herb. Yes, we are both on the rig side and the completion side. I would say we didn't see as big a reduction as last year in the Bakken. And in December, January, we did see further declines there. So, yes, we do see runway for lower service costs, given price levels where they are. A. Wade Pursell - Chief Financial Officer & Executive Vice President: And then that's baked into the guidance. I think we've assumed 5% to 10% reduction. In 2016, we're already seeing 5%-ish, right? Javan D. Ottoson - President, Chief Executive Officer & Director: Yep.

Okay. I appreciate the Q&A. Thanks.

Thank you. Our next question comes from the line of Kevin Smith with Raymond James. Your line is open. Kevin C. Smith - Raymond James & Associates, Inc.: Good morning. Appreciate all the prepared remarks, especially the roadmap you laid out for the next few years as far as debt levels. And you hit on some of this in your prepared remarks, but would you mind discussing your Bakken completion activity, specifically maybe the change in completion activity in the Bakken you were contemplating three versus six months ago versus today's budget?

Okay. I think I understand your question, Kevin. This is Herb. So our program, we completed 11 Divide Bakken wells in 2015. Previously, it was all Three Forks. Because of the results there being positive, we plan to complete 22 Divide Bakken wells in 2016, and we've gone from the swell-packer sliding sleeve design to the plug-and-perf. Is that your question? Sand loadings are similar to what they were before. Kevin C. Smith - Raymond James & Associates, Inc.: Yeah, right. I was trying to get to I think before. Last quarter, you were talking about getting very aggressive with the completion activity, and now it seems like you're slowing some of it down. And so I was trying to figure out what you were thinking about for the DUC inventory?

No. I see where you're going. So we are draining our DUC count fairly significantly in the Bakken. And this is just from memory, it's around 50 DUCs at the end of the year and we're dropping down to about 20. So we are completing quite a few wells in the Bakken/Three Forks that have already been drilled. Kevin C. Smith - Raymond James & Associates, Inc.: Gotcha. And then one more question and I'll jump off. On your targeted divestitures, did I hear correctly you're targeting selling 4,000 barrels a day, and that's been fully removed from all 2016 guidance? A. Wade Pursell - Chief Financial Officer & Executive Vice President: That was 400,000 barrels of oil equivalent in the fourth quarter of 2016, is what's been removed. That's what been removed from the guidance. Kevin C. Smith - Raymond James & Associates, Inc.: Okay. Perfect. Thanks for clarifying that. Thank you.

Thank you. Our next question comes from the line of Matt Portillo with TPH. Your line is open. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning. Javan D. Ottoson - President, Chief Executive Officer & Director: Morning, Matt. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Just wanted to circle around on the preservation of liquidity and just, I guess, ask a philosophical question on spending at an EBITDAX level versus spending at a cash flow level. So, obviously, as we include interest expense in the line items, there's some incremental debt being added this year. Just wanted to understand how you guys think about that philosophically? And what would be the triggers to potentially reduce your capital budget further if we progress through this year? Javan D. Ottoson - President, Chief Executive Officer & Director: You know, Matt, it's a question that we really put an enormous amount of thought into, and it really comes down to preserving acreage. If you look at our Eagle Ford position, and even to our Bakken position, to some extent, we have to drill a certain number of wells. We have to maintain a certain level of activity to hold all our acreage. And the way we look at the future, that's very valuable acreage for the future value of the company. When this thing turns around, as I assume everybody on this call thinks it's going to, or we wouldn't even be on the call anymore, that acreage is going to have real value to us. And we don't want to give it up. And so in order to keep, like, for example, acreage in the Eagle Ford, where, frankly, our margins aren't that great right now, and still have significant cash flows by…

Thank you. Our next question comes from the line of Brad Carpenter with Cantor Fitzgerald. Your line is open.

Hey, morning, everyone. Thanks for fielding my questions. In the 8-K you put out this week regarding the gas gathering agreement with Regency, and sorry if I missed this in the prepared remarks, but I was hoping you could provide some additional details on that. Did you have to make any payments to Regency to cancel the contract? And I guess secondly, what gathering agreements or commitments do you now have in place in the Eagle Ford?

Okay, Brad, I can cover this. This is Herb. So you're probably aware early in 2015, we entered into a contract to expand the gas gathering capacity in the Eagle Ford from 580 million cubic feet a day to 980 million cubic feet a day. That was not actually to be at that level until mid-2017. So Regency had really not commenced the work yet, so it was not a difficult negotiation. I think both parties got together and we are having some expansions done that are more around efficiency across the gathering system that will give us some nominal increases, but it significantly reduced our commitment. You're probably aware our downstream takeaway commitments feather down over the next couple of years. So we've worked it out to extend some of that with ETC on our long-haul transport, but not with a ship-or-pay commitment. So I would say we're quite robust on the takeaway side, long distance and on gathering, and we don't see any ship-or-pay risk in the next two years. Javan D. Ottoson - President, Chief Executive Officer & Director: Yeah, thanks, Herb. And I'll say just in general, we're working in every area we can to minimize the number of commitments we have in areas that, frankly, from a discretionary standpoint, we'd prefer not to drill. So every area like that, we're working on ways to reduce commitment levels, reduce our required spend to be able to get to lower levels.

Okay, great. I appreciate that. And then, I guess, staying in the Eagle Ford, I think previously, you've said you needed two rigs running down there to hold all your acreage, but with the new 2016 plan, looks like you're dropping to zero by the end of the year. How should we think about that? Are you able to hold it just by drawing-down on the – I think you show 76 DUCs down there in the Eagle Ford? And if so, what do you expect to exit 2016 as far as your DUC inventory in the Eagle Ford?

Okay, Brad. This is Herb again. I'll address that one. So on the acreage commitments, the way our arrangements are, we're real fortunate, first of all, that we're with these big ranches and have consolidated drilling arrangements. So we were able to bank previous drilled wells that in a given year, you can draw-down that bank on wells that you've already completed. So that defers the day where you have to have activity higher. So that is basically during 2016 and into 2017; one ranch, we're staying above the minimum, and then the other ranch, we're drawing down those commitments. And we have the ability to also do cash payout if necessary. Obviously, we're working with our lessors closely. They understand the environment. They're sophisticated landowners and we'll be working that down. Does that answer your question, Brad?

It does. Yeah. I appreciate that. And have you discussed a kind of year-end DUC number for your Eagle Ford that you're planning on hitting?

Yeah. We drained the DUC count in the Eagle Ford also. I don't recall exactly where it is, but it's got to be in the 20s or 30s, the number of DUCs at the end of the year versus probably around 50 at the end of the year.

Okay. Got you. Javan D. Ottoson - President, Chief Executive Officer & Director: I think it'd be fair to say that given – we assume we're going to have to do some drilling in the Eagle Ford in 2017.

Yeah. Javan D. Ottoson - President, Chief Executive Officer & Director: In any plan that we've built.

Yeah. Javan D. Ottoson - President, Chief Executive Officer & Director: But it's not a lot. And we've been able to reduce those commitments quite a bit. And we're still working on reducing them further.

Yeah. In 2016, we drill 17 wells in the Eagle Ford in the budget, and then we complete 40.

Okay, great. All right. Thank you. That's helpful.

Thank you. Our next question comes from the line of Mike Kelly with Seaport Global. Your line is open.

Hey, guys. Good morning. Wade gave an expected oil cut I think of 34% for Q4 2016. Was just hoping you could give us an annual figure for 2016 and then maybe just talk in ballpark terms for how you expect this percentage to really trend in 2017 as you put on more Permian wells? Thanks. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Thanks, Mike. This is Wade. You know, for 2016, I did mention we'd go from 30% currently to around 34% by the end of the year. I think if you just assumed adding a percent per quarter, you'd get to that level by the fourth quarter. I think that gets you pretty close. As far as 2017, we're being very high level with respect to 2017, and not really giving specific guidance, but maintaining that level I think would be something you could assume. Now, you would have to replace some oily divestitures in the fourth quarter of 2016, but, as we said, that's about 400,000 barrels for the fourth quarter.

Got it. And are you assuming those divestitures all happen in the fourth quarter of 2016? I just want to make sure I understand that. A. Wade Pursell - Chief Financial Officer & Executive Vice President: We are.

Okay. Got it. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yeah, exactly.

Okay. And then second question for me, on the PV-10 number, that $1.8 billion, I was I guess a little surprised at the magnitude of the drop year-over-year and I just wanted to get your comments on this. And really, do you think that $1.8 billion value is a fair representation of the total value there of your proved reserves at a $50 oil, $2.60 gas number? Or is there something that isn't really being accounted for, whether it's further cost declines, efficiency gains, et cetera, that you think that that could be biased higher? Thanks. Javan D. Ottoson - President, Chief Executive Officer & Director: Well, Mike, obviously, we understand these are SEC numbers. They're run at current costs essentially. And so obviously, costs can come down further. Let me make a couple comments about that, though. You quote the $1.8 billion number. You're leaving out our hedges, which are a very important number. It's a big number and when you look at borrowing base and other assets, you really have to include that. All the hedges get counted in our borrowing base. Second, you're ignoring the fact that, and we've said this in the release, that we pushed out a number of proven cases into the future because of five-year rule. And those cases are still technically proven. They still have the same value. They just are occurring in another category now, because our budget program doesn't get them drilled within five years. They're still there. They still have the same value.

Right. Javan D. Ottoson - President, Chief Executive Officer & Director: So those need to be added back on. And I saw one comment where people were comparing that number to our debt numbers, and that's not a reasonable comparison at all. I mean, first of all, you've got to discount the debt. The debt's not due until after 2021. So, you know, I think people... A. Wade Pursell - Chief Financial Officer & Executive Vice President: And it's unsecured. Javan D. Ottoson - President, Chief Executive Officer & Director: And it's unsecured. Okay. And we've got plenty of interest coverage. So I think the relevant question, and I think Wade answered it well, is what's going to happen to our borrowing base. And we answered that. We think it is likely to come in under our current commitment, which is the $1.5 billion number, but not a lot under. And then the real issue with liquidity, of course, is as you go forward in time, is what happens to the borrowing base in the fall and next year. And I will come back to the point – if you're worried about that with us, there are a whole lot of people you should be a lot more worried about first. And I don't think we get credit for that, frankly. And I don't mean to sound irritated about it, but it seems to me like we're getting a sort of throwing the baby out with the bath water on some of this stuff.

No, that's fair. Thanks for answering that.

Thank you. Our next question comes from the line of Welles Fitzpatrick with Johnson Rice. Your line is open. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: Hey, good morning. Javan D. Ottoson - President, Chief Executive Officer & Director: Hi, Welles. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Hey, Welles. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: So I think you're perfectly allowed to sound irritated, by the way. It is striking how well-positioned your balance sheet is, given the pullback. But I suppose that's neither here nor there. Can we get an update on the GORs off the Upper versus the Lower Eagle Ford offsets in the north and south? And then, it looks like you added 17,000 acres in the Eagle Ford since the last presentation. Any color on that would be helpful.

Yeah. This is Herb. I'll address that. So the interesting thing, and we've learned a lot with the Lower Eagle Ford and Upper Eagle Ford, and if you look down to the far south, let's say Pilot #4 and then southeast of there, the Upper Eagle Ford wells have a higher yield than the Lower Eagle Ford. So it would be like in some of these 70 barrels per million versus 30 barrels per million. So we were expecting them all to be the same. So in that case, the Upper winds up better. If you go up to the north, that's inverted. It's the other way around on the yield. And then in terms of productivity, the productivity of the Upper and Lower are very similar when you go to the southeast, whereas there's lower productivity in the Upper as you move to the very northwest. So that's the yield level. And you can just invert that if you want to convert it to GOR. Your other question, Welles? Javan D. Ottoson - President, Chief Executive Officer & Director: Acreage. Why the acreage number changed?

Oh, the acreage. So the total net acreage we have on all the leases in the Eagle Ford is 161,000. Previously, we had a polygon around the area that we were developing. That was 144,000 acres. So all it is, is we wanted to be consistent on when we represented the 10-K what our net acreage position is. That's the 161,000. When you look at where we're developing or potentially developing, that's 144,000. That's the difference. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: Okay. That's perfect. Thank you.

Thank you. Our next question comes from the line of Subash Chandra with Guggenheim. Your line is open.

Yeah, hey, Jay. Good morning. What is your comfort with having bank debt outstanding? There's big liquidity numbers out there. Some folks like it at zero. Other folks don't mind carrying a little bit on it. What are your thoughts heading into 2017? A. Wade Pursell - Chief Financial Officer & Executive Vice President: This is Wade. I'll give you my thoughts first. Look, it'd be great to have zero secured debt. We have a very sizeable borrowing base, though, and we just talked about what we think that's going to go down to. So there's substantial liquidity between our outstanding and that number. I'll just tell you internally, we don't mind carrying a little secured debt. It's very low cost. It seems prudent, but to a degree. Those of you that know us well know we have an internal policy that we would never draw more than half of our borrowing base at any time. That's an internal governor we put on ourself, but we look out in the future and try to predict what might happen with our borrowing base, and we act accordingly. You see us term-out secured debt a lot. That's why we have a good layered ladder of very long-term unsecured tranches of high yield debt, but that's essentially my thoughts on how we manage the level of secured debt. Javan D. Ottoson - President, Chief Executive Officer & Director: I want to tell a little story. When we first started talking to the banks about the covenant, the initial reaction we got was, first of all, why? And second, well, we got a lot of other people we're dealing with right now. We'd really like to deal with you later. So we have a super relationship with the banks. We are at very good credit. We have probably the lowest cost revolver out there in terms of what rates we pay at. So we don't have a problem carrying a little bit of a balance here and certainly our bankers don't have a problem with it either.

Okay. Second question is so as these hedges roll off this year and you prepare for that in 2017, I think I heard you say you would spend below EBITDAX maybe a different phrasing than the 2016 spending at EBITDAX and I don't know if I heard that correctly, but are there any other ways here of preparing for those hedges to roll off? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, I'll make one comment. I'll turn it to Wade. First of all, we're going to be below EBITDAX a little bit this year, too, but certainly the plan is to be more below EBITDAX in 2017. Go ahead, Wade. A. Wade Pursell - Chief Financial Officer & Executive Vice President: No, that's the plan. And we have some hedges in 2017 as well, which will be rolling off, as you say, but we've made some assumptions with respect to what we're going to be drilling. And I've given you the commodity prices that we assume in 2017. And I've also declared that we think if we don't see the recovery by 2017, that we think costs will continue to fall. So that's baked in as well. I think I said 5% or 10%. And we would likely be, Jay said earlier, looking at every line of costs. And if we see recovery is not going to happen any time soon, then we'll be making some adjustments to the cost structure. And we would reflect those in future forecasts. The outputs speak for themselves, which I shared with you earlier.

Yeah. I guess I was getting at if there are plans for further asset sales, if there would be anything meaningful remaining in the non-core portfolio after the 4Q sale this year, if you have any intentions in 2017. Javan D. Ottoson - President, Chief Executive Officer & Director: Our current 2017 plan doesn't have a lot of asset sales in it. I think if you really get in that lower for longer scenario, there's always some things. You'd have to look at operating margins and make some really hard decisions about is there a time when you sell this stuff. And I think the first decision you would make would be to stop holding acreage in those areas and cut your capital program in those areas first. And then, there's always these really difficult decisions about, okay, if I sell this now, I'm going to get X value for it. If I get any price recovery at all, I get much higher price for it. You got to make that decision. At some point, I think as an industry, people are going to capitulate and start selling assets. And I think you're going to start seeing some of that here in the second half. But we'll see. Those are tough choices you have to make. The first choice you would make would be to cut your capital program in areas where you'd start to lose acreage, and that's probably the first thing we would do.

Okay. And a final real quick one, there was a reference to how many Sweetie Peck horizontals were producing. I missed it; if you could repeat that number.

Yeah. It's something over 20. We just added a couple, so it's 20-plus. Javan D. Ottoson - President, Chief Executive Officer & Director: And we've just brought on two so far this year.

Okay, terrific. Thank you.

Thank you. That does conclude today's Q&A session. I'd like to turn the call back to management for closing remarks. Javan D. Ottoson - President, Chief Executive Officer & Director: Well, thank you for those who you stuck with us through this whole process. And we really feel strongly that we're going to be positioned well to perform well for shareholders as we go forward. We're continually focusing on how to be a top quartile debt-adjusted per share metrics company. And we're going to continue to focus on that and on our liquidity and making better wells, so better wells, lower costs. Thank you for your time today.

Ladies and gentlemen, thank you for your participation. That does conclude the program. You may all disconnect. Everyone, have a great day.