Good day, ladies and gentlemen, and welcome to the SM Energy First Quarter 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 is being recorded. I would now like to introduce your host for today's conference, Mr. David Copeland. Sir, you may begin. David W. Copeland - Secretary, Executive VP & General Counsel: Thank you, Antuan. Good morning to all joining us by telephone and online for SM Energy Company's first quarter of 2016 earnings conference call and operations update. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance. 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 afternoon, the presentation posted to our website for this call, and the Risk Factors section of our Form 10-K that we filed earlier this year and our Form 10-Q filed earlier this morning. We will also discuss certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of these measures to the most directly comparable GAAP measures and other information about these non-GAAP metrics are described in our earnings press release from yesterday. Other company officials on the call this morning are Jay Ottoson, President and Chief Operating Officer; Wade Pursell, Executive Vice President and Chief Financial Officer; Herb Vogel, Executive Vice President – Operations; and Jennifer Samuels, Senior Director, Investor Relations. I'll now turn the call over to…

Thanks, Wade. During the first quarter, our operations teams continue to drive production uptime and deliver on all key metrics, which flowed to the – through to the numbers Wade just shared with you. We executed to our plan in terms of delivering on production targets and maintained tight discipline on our CapEx spend for drilling and completion. In fact, our operated properties delivered production above our expectations, and non-operated properties somewhat below expectations. We delivered additional cost reductions relative to plan largely through efficiency improvements and by taking advantage of further deflation in cost of services. Again, this quarter we were able to consistently deliver better wells at lower cost. Today I'm going to focus on three areas. First, I'll review highlights of our Permian program; second, I'll review a few specific efficiency gains and other initiatives which have achieved lower costs across our other operations; and third, I will talk briefly about progress reducing our deferring commitment to enable us to deploy capital to our highest return areas and maximize cash flows. I'm now on slide 11, which summarizes highlights of our Permian program this year. Since the start of the year, we've completed nine wells at Sweetie Peck out of the 24 completions planned for the year, and have produced six of these wells for over a month now. Of the six, four were completed in the Wolfcamp B and two were completed in the Lower Spraberry. I've highlighted several areas in the slide, but will note in particular that we made significant progress geosteering to optimal intervals. These are the facies which have the properties that are favorable from two perspectives. First, they tend to have high organic porosity to enable rapid drilling penetration rates, and second, they have the mechanical properties conducive to initiating fractures…

Thank you. Our first question comes from Kyle Rhodes from RBC. Your line is open.

Hey, good morning guys.

Good morning.

It looks like well costs in the Eagle Ford and Williston have been better than your expectations to start the year. As you look at your current budget of $705 million, do you think there is downside to that budget, or maybe upside to your activity levels? And I guess if there was upside to activity levels, where would we expect to see that?

Thanks, Kyle. This is Herb. The – yeah, you're right, we've reduced CapEx in our wells and that could leads to some additional CapEx later in the year. We're not planning to increase our activity level at this time. I think Wade mentioned that in his remarks.

Okay. So, fair to say maybe there's some downside to that $705 million budget?

Could be. Javan D. Ottoson - President, Chief Executive Officer & Director: Yeah, could be.

Great. And then I guess on the M&A front, nice bolt-on deal you guys did near Sweetie Peck acreage. Any color you can provide on that deal, and I'm just curious if there are more opportunities like that around your footprint there? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, we've talked about these – this is Javan – we've talked about these bolt-on deals a number of times. I think there are additional opportunities. Again, we're working with a number of operators around us who may not own enough acreage to drill really long laterals. And I think you can see from our performance that people can see that we're making great wells. And in that process, there's opportunity for us to be able to work with others to put together this acreage. So, we do think there is additional opportunity out there.

Great. And then last one for me is, any update you can give on your first Middle Spraberry well over there?

Yeah. This is Herb, Kyle. We're completing that one now.

Okay. Great. Thanks.

Our next question comes from Welles Fitzpatrick from Johnson Rice. Your line is open. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: Hey, guys. Good morning. Good quarter. If cash flows and CapEx do equalize, would the Permian still get the first incremental dollars, or is broader basin diversification, particularly with your constructive NGL view, something that is kind of important from a CapEx perspective, in and of itself? Javan D. Ottoson - President, Chief Executive Officer & Director: You know, Welles, I think right now the incremental dollar goes to the Permian, because the returns are highest, and that's just the way we run our business. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: Okay, perfect. And then, a follow-up on the Middle Spraberry. I believe you guys were also doing some tighter Lower Spraberry tests. Is there any update on that, or what's the timeframe we should be looking for on those?

Well, no, we don't have any tighter well spacing in the Lower Spraberry to report yet from our wells, but later in the year, we should have some. Welles W. Fitzpatrick - Johnson Rice & Co. LLC: Perfect. Thanks so much.

The next question comes from Michael Hall from Heikkinen Energy Advisors. Your line is open.

Thanks. Good morning. Appreciate the time. Curious, just on the well cost improvements, those are some substantial improvements, particularly down in the Eagle Ford. Were there any changes in well design driving that, or is it really the pumping efficiency and drilling efficiency that's been the lion share of the improvement? I'm just curious how much you think is potentially sticky as we move out in the cycle, in terms of those well cost improvements?

Yeah, Michael, the well cost improvements varied somewhat, and in that – those upper – those are upper Eagle Ford wells; those were five. So those are standard completion design with slight modifications on fluid volumes, but in general, we're seeing the efficiencies come through most of the drilling costs on our wells. Obviously if we go further southeast they're going to be deeper, and those will cost a little bit more and if we go shallower up to the northwest, it'd be less. But most of our program is concentrated in that area that we're in now.

Okay, that's helpful. And then I guess one follow up on that. If I were to just look at the $600 per foot versus the last year's $900 per foot, how much of that would you characterize as service cost pricing versus efficiency? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yeah, Michael, that – we've looked at that because we're really looking at what our longer term sustainable costs are, and it varies by our region. In the Eagle Ford, where we already had pad drilling and where we're further along on our optimizations, there's a little bit less that's sustainable and more attributed to sector deflation. If you go to the Permian, it's a much higher percentage that is sustainable, with less that's attributed to sector deflation. So our rule of thumb has been, it's basically between 25% and 45% sustainable reductions, with the Eagle Ford being at the lower end of that sustainable and Permian being at the high end of that. And that's a return – assuming you return to a $80-type world. So if you're talking about $60, then obviously there's more – a more sustainable.

Okay. Yeah, great. That's exactly what I was looking for. And then, I guess two more; one in the Permian. I'm curious on what sort of incremental LOE run rates do you see on the new activity, if you will, relative to the blended total that we've seen in the region? I'm just trying to think through, like maybe how that LOE progresses over the course of 2016 as you bring on more volumes. Does that make sense?

Yeah. Michael, so obviously, when we're doing flow-backs, our LOE ticks up for a bit on the wells. We don't get that much flow-back water, but still there – with the new program, you're going to see an uptick in LOE for water handling, primarily. The other costs wouldn't be that significant an increase. But I can't tell you a percentage increase as a result of that. We don't really look at that way.

Okay. I can maybe follow up. And then, I guess last one, can you just I guess talk a little bit more about capital spending trends through the course of the year? Fully understand that you're drawing down DUCs and so there's some benefit from that, but the spending level in the first quarter relative to that completion count seemed a bit elevated. So I'm trying to think through how we get second-half spending rates materially lower than the first half. Can you just talk a little bit more about that? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, I think if you look at the chart of rig count, it's pretty clear how we get to lower spending rates. You can track our completions by month and our rig count by month, and it's pretty easy to get to significantly lower capital spending levels.

All right. Fair enough. Thanks.

Our next question comes from Matt Portillo from TPH. Your line is open. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, guys. Javan D. Ottoson - President, Chief Executive Officer & Director: Good morning.

Good morning. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Just a quick follow up question in regards to capital allocation decisions. We've obviously seen some improvement on the forward curve in regard to natural gas, and you've highlighted a fairly constructive view on NGL prices. Is there any color you could provide – it's been a while since we've gotten kind of the return metrics around your Eagle Ford assets. Is there any color you could provide, at what price level you would potentially be interested in reaccelerating kind of Eagle Ford growth, either from a gas or NGL perspective, that would drive higher rates of return than your Permian and Bakken assets? Just trying to put some context around that. Javan D. Ottoson - President, Chief Executive Officer & Director: Yeah, if you go back to – about a year, to where gas prices were in that $2.80 kind of range, our returns across the portfolio were very similar. So at that point in time you had, again, gas at $2.80 and oil in the – I think oil was in the mid $40s, and you saw fairly similar returns. And so that what that – what you need in the Eagle Ford really is gas above $2.50 to really be interested in picking up activity. The NGL part by itself probably isn't going to drive more drilling activity. What it does for us is, it adds a lot of cash flow, and then we can deploy that cash flow in the best way possible. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Great. So as we look at the 2017 dynamic today, with oil in the mid to upper $40s and the gas market in the upper $2s, low $3s, it's starting to probably look fairly attractive on a rate-of-return basis versus the Permian? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, we would expect to be drilling again in the Eagle Ford in 2017. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Perfect. And then I guess just a second follow up question around the Permian. Running two rigs there today, could you talk about your ability to scale up the production over time, how many rigs you think you could run on that asset, and if there's any constraints in regards to midstream or additional build out you need to do on the gathering side? Just sort of try to put some context around kind of the ultimate production output that that asset could potentially generate for you?

Yeah. This is Herb. Matt, I'd say the key thing is, we could ramp up with sufficient notice. So we say, hey, we're going to ramp up in six months to 12 months, the team could get there and could increase the rig count. We're not really looking at scenarios in detail of that sort, but if the commodity price environment allowed, I don't have any doubt the team there could ramp up. Matthew Merrel Portillo - Tudor, Pickering, Holt & Co. Securities, Inc.: Thank you very much. Appreciate it.

The next question comes from Gregg Brody from Bank of America. Your line is open.

Good morning, guys. I was wondering if you could provide some additional color around the asset sale program, as – are you prepared to tell us which assets you're thinking about putting on the market? And I – you mentioned that generally larger than your cash flow outspend, but any additional color would be helpful. Javan D. Ottoson - President, Chief Executive Officer & Director: Yeah. I'd be happy to, we're about to send out teasers on these assets anyways. So I'll just summarize generally, we're going to sell some assets in southeast New Mexico, some water-flood properties in southeast New Mexico that we've owned for considerable point in time. Almost all PDP. We're going to sell some assets in the Williston Basin, again, older PDP oil assets. We're going to – we're going to sell some PDP in the Powder River Basin that we own there, and some in East Texas. So it's a scattering I think of things across the company, largely PDP assets, and I think we indicated in the first quarter, and that was through using the strips at the time, and we thought that was PDP alone was worth $100 million or more. That's the basis for our view that we'll be able more than fund our outspend with that. A. Wade Pursell - Chief Financial Officer & Executive Vice President: We said it'd be about 400,000 barrels of production in the fourth quarter. Javan D. Ottoson - President, Chief Executive Officer & Director: In the fourth quarter. that's right.

That's from everything you've just listed? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Right. Yeah. It's 400,000 – our assumption is that we get these deals close in around October, and then we lose 400,000 barrels in the fourth quarter, and that's rolled into our guidance already.

Is that factored into your borrowing base? Or would it be fair to say that you would decline by whatever that, that $100 million PDP was for credit, towards your...? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yeah. At the time that it sold, it would – well, the next redetermination of the borrowing base, it would come out, which would be next spring.

Okay. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yeah. Right.

Okay. And then, in your amendment to the credit facility, you put some flexibility to buy back bonds as well as raise a second lien. Could you talk with us about how you're thinking about using those two tools today, considering where bond prices are, and just as you're looking at potentially high money (34:23) prices? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Sure. The short answer is, where the bonds are trading, the returns are not near as good as drilling in the Permian, for sure. So we're not pursuing anything at this point. The idea was to set ourselves up, when those bonds were trading at such a discount or should they – should that happen again, to be able to do something a lot larger than what we were able to do just in the open market. So, that's the reason for it. As we mentioned, we were able to get some $46 million retired, but we were setting ourselves to do more if it was compelling.

So, it's fair to say, it was more of a return on capital that you were thinking about, and ... A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yes.

...not necessarily a deleveraging target? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yes. That's right.

And just one follow-up, back on the asset sales. Do you think there'll be an associated G&A savings with the value of the assets you're thinking about selling? Or is that pretty minimal? Javan D. Ottoson - President, Chief Executive Officer & Director: There will be some savings. Most of those savings will be field costs, not necessarily G&A.

Do you have any idea what that is? Is it $5 million, $10 million? Javan D. Ottoson - President, Chief Executive Officer & Director: Again it's not a number – the G&A number is, I wouldn't say is material enough to have a – to quote a number on.

All right. I appreciate... Javan D. Ottoson - President, Chief Executive Officer & Director: We're going to – we're continuing to work cost structure issues, and we'll continue to work our G&A and all our other cost structure in an appropriate way based on what we see our activity level being over the next few years.

I appreciate the time and the color, guys. Thank you.

The next question comes from the Brad Carpenter from Cantor Fitzgerald. Your line is open.

Hey, good morning everyone. And thanks for fielding my questions. I guess a quick follow-up on the asset sale process. If you successfully monetize the PDP in the Powder, would that mean a complete basin-wide exit from the Powder for SM? Javan D. Ottoson - President, Chief Executive Officer & Director: No, it's just a portion of the PDP in a particular area. It's not at all an exit from the Powder River Basin.

Got you. Okay. thanks. And then moving down to the Eagle Ford, you talked about it last quarter and again this quarter, how you successfully were able to defer some commitments and enable capital flexibility. And I know in the Q&A you mentioned that you'll likely get back to work in the Eagle Ford in 2017. But could you remind us what your drilling completion commitments, if any, are for 2017 and 2018 in the Eagle Ford?

Yeah. So there's – first of all, there's a marketing commitment, and then there is a leasehold commitment that we work with the lease-owners there – I don't know if you're aware, we work on large ranches and have consolidation agreements for all our leases that define the program. So I would say we're progressing at different times, and 2017 would be different than 2018 on what the drilling and completion commitments would be. For this year, we're at 0.7 rigs and 40 completions. And I would expect next year would be – the commitment level would be sort of at that level also. 2018, I can't speak to where that would be.

Okay. Fair enough. That's helpful. All right, thanks. Thanks for your time, everyone.

Our next question comes from Amy Stepnowski from Hartford. Your line is open.

Hi. I just wanted to follow up about your comments with regard to equity issuance, and obviously you have not done that, like many of your peers. You talked about needing sort of low $50s and high $2s for oil and gas prices. We certainly have gotten a bounce in the last month or so. If we were to see a return to lower oil prices and lower gas prices that would likely drive more cash burn for you, is equity issuance off the table for you? Or could you just give us a little bit more of background around the way you think about that? I mean obviously you've got the ability to do second-lien, so you could do exchanges to reduce debt. But as we think about treatment of equity holders and bond holders and going forward how that is balanced, it would be helpful. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Sure. I will say a few words and Jay can chime in if he wants. The – we set the balance sheet up so that we won't have to do that, at the bottom of the cycle. And what you're talking about would be an extension of the bottom of the cycle. We're very comfortable with our liquidity situation, which I discussed earlier, and we're also – we also have a whole lot of breathing room now with respect to covenants, should prices continue to languish or languish further. So I would not anticipate at all issuing equity in that scenario. Javan D. Ottoson - President, Chief Executive Officer & Director: Yeah. I'll make an additional comment. I take no issue with people who issue equity for accretive acquisitions. And if there's an opportunity somewhere down the road for us to do something that makes sense, I wouldn't rule that out, but Wade's exactly right, we set up our balance sheet, we set up our borrowing arrangements with the bank. We have a lot of flexibility. I don't see any reason in the near-term at all in a lower-for-longer scenario where we would need to issue equity. You do that because you have to; I understand that. We just are not in that position. We managed our business well at the top part of the cycle, so at the bottom part of the cycle we don't have to do that kind of thing.

So you would be more comfortable, then, seeing leverage tick up, even though obviously it wouldn't be out of compliance with your covenants, but leverage could tick up, but you're comfortable that you could live through that without having to issue equity? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, that's an interesting comment you just made. To be very clear, our leverage can tick up, we will not be out of compliance with our covenants.

Right, no, no exactly... Javan D. Ottoson - President, Chief Executive Officer & Director: The four-times covenant is gone and we have plenty of room to be – as we talked about earlier, in our secured debt covenant and our interest coverage, to run at higher leverage ratios for some period of time if we want. I mean, the best way to delever the balance sheet is for prices to go up. Okay? And that's going to happen over time. In the meantime, we don't have any early maturities and we are in no financial jeopardy as a company. So, we don't have any need to issue equity. The problem with companies, all of our – all the companies in our business, is we lose our minds at the top of the cycle and we lose heart at the bottom. And we do things at the bottom because the bankers really want you to, to issue equity and get liquidity. We don't need to do that. We've got a great relationship with our banks, we have a credit line that's very available, $1 billion of liquidity; we don't need to do that at the bottom. So, end of story.

Okay. Thank you.

Your next question comes from Subash Chandra from Guggenheim. Your line is open.

Is he there? Javan D. Ottoson - President, Chief Executive Officer & Director: I don't know if he's there.

Did we lose him, Antwan? Javan D. Ottoson - President, Chief Executive Officer & Director: We must have lost (41:55).

If your phone is on mute, can you please un-mute? Okay. Well, the next question comes from – a follow up question from Michael Hall from Heikkinen Energy Advisors. Your line is open.

Thank you. Appreciate the follow up. I just had a couple more questions. One was on the NGL outlook, you did mention that differentials expanded a bit in the quarter. What's your view as to how that plays out through the rest of the year, relative to a Belvieu basket? A. Wade Pursell - Chief Financial Officer & Executive Vice President: Mike, I don't know that I have a view on how differentials, the NGL differentials, play out for the rest of the year. In general, I'd say the NGL market, if you look at the markets, oil, gas and NGLs, if you look at fundamentals of those markets, NGLs has the most constructive fundamental demand picture going forward of any of those commodities, in the way we look at it. You've got a bunch of – about, I think it's almost 1 million barrels a day of ethane crackers coming in the Gulf Coast over the next few years, and there's some real significant demand uptick on ethane, in particular, and the rest of those commodities. So I think generally people – and it's not just us, there are a lot of experts out there who are looking at this market and saying, hey, this is a constructive picture. And the point we're trying to make today is simply that, look, we've got a lot of exposure to that, and we're absolutely in a great position to benefit from it because we're close to Belvieu. Quarter-to-quarter differentials, I'm no expert on that. I can't predict them.

Let me pipe in on one thing on that, Michael. Given where the frac spread is, the fractionation spread is, what we've been rejecting about 3,300 barrels a day of ethane, and if that moves positively then we could start to capture that ethane and sell it as ethane rather than as methane, and that would be a benefit. Javan D. Ottoson - President, Chief Executive Officer & Director: So we're sort of – we're almost right at that point, right now...

And we do it on a monthly election basis on one of our contracts. So we can play that and optimize as we go through the year.

Okay. So that's maybe what's driving the quarter-to-quarter variability relative to the Belvieu basket is just ethane rejection and how that plays out. Like you said, it's hard to forecast.

No. Michael, that's purely on our ability to respond. Javan D. Ottoson - President, Chief Executive Officer & Director: We haven't been changing our operations. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Yeah. If you're talking about our pricing, we've been talking 80% a month Belvieu pricing is what we net back to the Eagle Ford.

Typically. A. Wade Pursell - Chief Financial Officer & Executive Vice President: Typically, yeah. We were a little bit lower last quarter.

Okay. But that lower level wasn't a function of...?

So, we've been rejecting ethane for quite some time.

Okay, all right. Fair enough.

Michael, we can follow-up on that. Generally it's 80% of Mt. Belvieu, and you can see the Eagle Ford was about 80% of Mt. Belvieu this quarter, there was something in there from the Rockies that skewed the total company this quarter. So, keep it at that 80% of Mt. Belvieu for your own modeling, it's going to be your best estimate.

Okay. That's helpful. Thank you, Jennifer. And then last on my end is just on the Permian, I'll give it a shot. You all said in the update, or in the release I believe it was, that you're tracking above – with the initial wells, tracking above your internal expectations. So I'm just curious what sort of internal EUR expectation you guys are running on that asset right now? Javan D. Ottoson - President, Chief Executive Officer & Director: Mike, we don't do the EUR game. We'll show you our data versus other people's data. The only part of those curves that matter is the first 18 months to two years economically, anyway. And we'll let other people talk, speculate about what's going to happen five years from now on their EURs.

All right. Figured it was worth a try. Thank you.

The next question comes from Jacob Gominski (46:14) from Morgan Stanley. Your line is open.

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

Good morning.

Just a quick philosophical question. When you talk about meeting your internal rates of return at $40 oil, but I think you mentioned in the prepared remarks increasing activity at $50 and high $2s for gas. Could you just kind of help balance those two things? Javan D. Ottoson - President, Chief Executive Officer & Director: Well, basically as we've talked about, we want to increase activity once we're within our cash flows. And right now, we're still outspending cash flow by an amount, our operating cash flow. So on a going-forward basis we want to get cash flow equal to CapEx, and we need those low-$50s kind of numbers in order to balance cash flows before we would start increasing activity.

Okay. Thanks very much. Javan D. Ottoson - President, Chief Executive Officer & Director: Thank you.

I am showing no further questions at this time. I would now like to turn the call over to Mr. Jay Ottoson for any closing remarks. Javan D. Ottoson - President, Chief Executive Officer & Director: Well, thank you guys very much for joining us today, and have a great day. Thank you.