SM SM Energy Company

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.

For the Three Months Ended September 30,   2010         2009 Weighted-average diluted share count (in millions)     64.8     62.5

$ inmillions

PerDilutedShare

$ inmillions

PerDilutedShare

Reported net income (loss) $15.5 $0.24 ($4.4 ) ($0.07 ) Adjustments net of tax: Change in Net Profits Plan liability $2.5 $0.04 $4.3 $0.07 Unrealized derivative loss $3.6 $0.06 $2.6 $0.04 (Gain) loss on divestiture activity ($2.6 ) ($0.04 ) $7.1 $0.11 Loss related to hurricanes -   -   $0.7   $0.01     Adjusted net income (loss), before impairments $19.0   $0.29   $10.3   $0.16     Non-cash impairments net of tax: Impairment of proved properties - - $0.1 $0.00 Abandonment and impairment of unproved properties $1.1 $0.02 $3.0 $0.05 Impairment of materials inventory -   -   $1.3   $0.02     Adjusted net income $20.0   $0.31   $14.7   $0.23     NOTE: Totals may not add due to rounding

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 COMPANYFINANCIAL HIGHLIGHTSSeptember 30, 2010

Guidance Comparison

For the Three Months Ended September 30, 2010 Actual     Guidance Range   Oil and gas production (MMCFE per day) 298.4 277 - 299   Lease operating expense (per MCFE) $ 1.06 $1.20 - $1.25 Transportation expense (per MCFE) $ 0.18 $0.21 - $0.23 Production taxes, as a percentage of pre-hedge revenue 5.4% 7%   General and administrative - cash (per MCFE) $ 0.61 $0.65 - $0.67 General and administrative - cash related to Net Profits Plan (per MCFE) $ 0.14 $0.19 - $0.21 General and administrative - non-cash (per MCFE) $ 0.21 $0.20 - $0.22 General and administrative - TOTAL (per MCFE) $ 0.96 $1.04 - $1.10   Depreciation, depletion, and amortization (per MCFE) $ 3.05 $2.90 - $3.10

Production Data

For the Three Months           For the Nine Months     Ended September 30,   Ended September 30,   2010     2009

PercentChange

2010     2009

PercentChange

  Average realized sales price, before hedging: Oil (per Bbl) $ 68.56 $ 61.93 11% $ 70.70 $ 49.82 42% Gas (per Mcf) 4.93 3.37 46% 5.20 3.49 49%   Average realized sales price, net of hedging: Oil (per Bbl) $ 64.28 $ 62.65 3% $ 65.46 $ 54.32 21% Gas (per Mcf) 5.81 4.95 17% 6.07 5.44 12%   Production: Oil (MMBbls) 1.6 1.5 4% 4.5 4.8 -6% Gas (Bcf) 17.9 17.2 4% 51.2 54.1 -5% BCFE (6:1) 27.5 26.4 4% 78.3 83.0 -6%   Daily production: Oil (MBbls per day) 17.3 16.6 4% 16.6 17.6 -6% Gas (MMcf per day) 194.8 187.1 4% 187.4 198.0 -5% MMCFE per day (6:1) 298.4 286.7 4% 286.9 303.8 -6%   Margin analysis per MCFE: Average realized sales price, before hedging $ 7.19 $ 5.79 24% $ 7.48 $ 5.16 45%   Average realized sales price, net of hedging 7.51 6.86 9% 7.75 6.70 16% Lease operating expense 1.06 1.30 -18% 1.12 1.34 -16% Transportation 0.18 0.20 -10% 0.18 0.19 -5% Production taxes 0.39 0.34 15% 0.46 0.33 39% General and administrative 0.96 0.79 22% 0.96 0.67 43% Operating margin $ 4.92 $ 4.23 16% $ 5.03 $ 4.17 21% Depletion, depreciation, amortization, and asset retirement obligation liability accretion $ 3.05 $ 2.54 20% $ 3.08 $ 2.76 12%

Consolidated Statements of Operations

                  (In thousands, except per share amounts) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009   Operating revenues and other income: Oil and gas production revenue $ 197,354 $ 152,651 $ 586,128 $ 428,347 Realized oil and gas hedge gain 8,847 28,331 20,771 127,230 Gain (loss) on divestiture activity 4,184 (11,277 ) 132,183 (10,632 ) Marketed gas system and other operating revenue 16,499   16,082   59,634   45,260   Total operating revenues and other income 226,884   185,787   798,716   590,205     Operating expenses: Oil and gas production expense 44,606 48,634 138,114 153,928 Depletion, depreciation, amortization,

and asset retirement obligation liability accretion

83,800 66,958 241,335 229,061 Exploration 14,437 15,733 42,833 48,821 Impairment of proved properties - 91 - 153,183 Abandonment and impairment of unproved properties 1,719 4,761 4,998 20,294 Impairment of materials inventory - 2,114 - 13,449 General and administrative 26,219 20,790 75,103 55,349 Change in Net Profits Plan liability 4,086 6,804 (29,785 ) (14,038 ) Marketed gas system expense 14,697 14,360 52,550 41,352 Unrealized derivative (gain) loss 5,727 4,117 (4,095 ) 17,251 Other expense 541   968   2,071   12,424   Total operating expenses 195,832   185,330   523,124   731,074     Income (loss) from operations 31,052 457 275,592 (140,869 )   Nonoperating income (expense): Interest income 85 90 268 217 Interest expense (6,339 ) (7,565 ) (19,469 ) (21,324 )   Income (loss) before income taxes 24,798 (7,018 ) 256,391 (161,976 ) Income tax benefit (expense) (9,346 ) 2,603   (96,693 ) 61,616     Net income (loss) $ 15,452   $ (4,415 ) $ 159,698   $ (100,360 )   Basic weighted-average common shares outstanding 63,031   62,505   62,914   62,420     Diluted weighted-average common shares outstanding 64,794   62,505   64,599   62,420     Basic net income (loss) per common share $ 0.25   $ (0.07 ) $ 2.54   $ (1.61 )   Diluted net income (loss) per common share $ 0.24   $ (0.07 ) $ 2.47   $ (1.61 )

Consolidated Balance Sheets

      (In thousands, except share amounts) September 30, December 31, ASSETS 2010 2009   Current assets: Cash and cash equivalents $ 7,089 $ 10,649 Accounts receivable 121,010 116,136 Refundable income taxes 1,371 32,773 Prepaid expenses and other 12,847 14,259 Derivative asset 56,199 30,295 Deferred income taxes -   4,934   Total current assets 198,516   209,046     Property and equipment (successful efforts method), at cost: Land 1,483 1,371 Proved oil and gas properties 3,137,262 2,797,341 Less - accumulated depletion, depreciation, and amortization (1,234,802 ) (1,053,518 ) Unproved oil and gas properties, net of impairment allowance of $62,395 in 2010 and $66,570 in 2009 79,466 132,370 Wells in progress 129,102 65,771 Materials inventory, at lower of cost or market 27,810 24,467 Oil and gas properties held for sale less accumulated depletion, depreciation, and amortization 114,863 145,392 Other property and equipment, net of accumulated depreciation of $17,301 in 2010 and $14,550 in 2009 19,048   14,404   2,274,232   2,127,598     Other noncurrent assets: Derivative asset 29,444 8,251 Other noncurrent assets 16,805   16,041   Total other noncurrent assets 46,249   24,292     Total Assets $ 2,518,997   $ 2,360,936     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable and accrued expenses $ 316,179 $ 236,242 Derivative liability 53,732 53,929 Deposit associated with oil and gas properties held for sale - 6,500 Deferred income taxes 1,143   -   Total current liabilities 371,054   296,671     Noncurrent liabilities: Long-term credit facility 2,000 188,000 Senior convertible notes, net of unamortized discount of $14,096 in 2010, and $20,598 in 2009 273,404 266,902 Asset retirement obligation 64,286 60,289 Asset retirement obligation associated with oil and gas properties held for sale 3,076 18,126 Net Profits Plan liability 140,506 170,291 Deferred income taxes 422,021 308,189 Derivative liability 25,450 65,499 Other noncurrent liabilities 14,749   13,399   Total noncurrent liabilities 945,492   1,090,695     Commitments and contingencies   Stockholders' equity: Common stock, $0.01 par value: authorized - 200,000,000 shares; issued: 63,147,163 shares in 2010 and 62,899,122 shares in 2009; outstanding, net of treasury shares: 63,044,978 shares in 2010 and 62,772,229 shares in 2009 631 629 Additional paid-in capital 183,203 160,516 Treasury stock, at cost: 102,635 shares in 2010 and 126,893 shares in 2009 (456 ) (1,204 ) Retained earnings 1,004,984 851,583 Accumulated other comprehensive income (loss) 14,089   (37,954 ) Total stockholders' equity 1,202,451   973,570   Total Liabilities and Stockholders' Equity $ 2,518,997   $ 2,360,936  

Consolidated Statements of Cash Flows

              (In thousands) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2010 2009 2010 2009 Cash flows from operating activities:   Net income (loss) $ 15,452 $ (4,415 ) $ 159,698 $ (100,360 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Gain) loss on divestiture activity (4,184 ) 11,277 (132,183 ) 10,632 Depletion, depreciation, amortization, and asset retirement obligation liability accretion 83,800 66,958 241,335 229,061 Exploratory dry hole expense (38 ) 182 289 4,849 Impairment of proved properties - 91 - 153,183 Abandonment and impairment of unproved properties 1,719 4,761 4,998 20,294 Impairment of materials inventory - 2,114 - 13,449 Stock-based compensation expense* 7,989 5,469 19,853 12,978 Change in Net Profits Plan liability 4,086 6,804 (29,785 ) (14,038 ) Unrealized derivative (gain) loss 5,727 4,117 (4,095 ) 17,251 Loss related to hurricanes - 1,153 - 8,273 Amortization of debt discount and deferred financing costs 3,365 3,219 10,022 8,922 Deferred income taxes 6,875 (5,934 ) 85,695 (69,082 ) Plugging and abandonment (884 ) (9,755 ) (7,106 ) (12,110 ) Other (6,022 ) (187 ) (3,085 ) 1,432 Changes in current assets and liabilities: Accounts receivable (12,565 ) 9,695 (4,937 ) 58,844 Refundable income taxes 21,844 (2,821 ) 31,402 10,340 Prepaid expenses and other 660 (1,569 ) 512 (8,660 ) Accounts payable and accrued expenses 20,824 20,132 47,123 7,794 Excess income tax benefit from the exercise of stock options (438 ) -   (1,376 ) -   Net cash provided by operating activities 148,210   111,291   418,360   353,052     Cash flows from investing activities: Net proceeds from sale of oil and gas properties 11,503 56 259,501 1,137 Proceeds from insurance settlement - 15,336 - 15,336 Capital expenditures (184,057 ) (76,640 ) (488,684 ) (292,466 ) Acquisition of oil and gas properties (685 ) (14 ) (685 ) (58 ) Deposits to restricted cash 19,595 - - - Receipts from restricted cash - - - 14,398 Receipts from short-term investments - - - 1,002 Other -   -   (6,492 ) -   Net cash used in investing activities (153,644 ) (61,262 ) (236,360 ) (260,651 )   Cash flows from financing activities: Proceeds from credit facility 111,000 132,500 315,059 1,898,500 Repayment of credit facility (109,000 ) (172,500 ) (501,059 ) (1,963,500 ) Debt issuance costs related to credit facility - (14 ) - (11,074 ) Proceeds from sale of common stock 200 113 3,116 1,179 Dividends paid - - (3,144 ) (3,120 ) Excess income tax benefit from the exercise of stock options 438 - 1,376 - Other (364 ) -   (908 ) -   Net cash provided by (used in) financing activities 2,274   (39,901 ) (185,560 ) (78,015 )   Net change in cash and cash equivalents (3,160 ) 10,128 (3,560 ) 14,386 Cash and cash equivalents at beginning of period 10,249   10,389   10,649   6,131   Cash and cash equivalents at end of period $ 7,089   $ 20,517   $ 7,089   $ 20,517     * Stock-based compensation expense is a component of exploration expense and general and administrative expense on the consolidated statements of operations. For the three months ended September 30, 2010, and 2009, approximately $2.3 million and $1.5 million, respectively of stock-based compensation expense was included in exploration expense. For the three months ended September 30, 2010, and 2009, approximately $5.7 million and $4.0 million, respectively of stock-based compensation expense was included in general and administrative expense. For the nine months ended September, 30, 2010, and 2009, approximately $5.7 million and $4.4 million, respectively of stock-based compensation expense was included in exploration expense. For the nine months ended September, 30, 2010 and 2009, approximately $14.1 million and $8.6 million, respectively of stock-based compensation expense was included in general and administrative expense.

Adjusted Net Income

          (In thousands, except per share data)   Reconciliation of net income (loss) (GAAP) For the Three Months For the Nine Months to Adjusted net income (Non-GAAP): Ended September 30, Ended September 30, 2010 2009 2010 2009   Reported net income (loss) (GAAP) $ 15,452 $ (4,415 ) $ 159,698 $ (100,360 )   Adjustments net of tax: (1) Change in Net Profits Plan liability 2,546 4,281 (18,552 ) (8,699 ) Unrealized derivative (gain) loss 3,569 2,590 (2,551 ) 10,689 (Gain) loss on divestiture activity (2,607 ) 7,094 (82,333 ) 6,588 Loss related to hurricanes (2) - 725 - 5,126         Adjusted net income (loss), before impairment adjustments 18,960   10,275   56,262   (86,656 )   Non-cash impairments net of tax: (1) Impairment of proved properties - 57 - 94,912 Abandonment and impairment of unproved properties 1,071 2,995 3,113 12,574 Impairment of materials inventory - 1,330 - 8,333 Adjusted net income, non-recurring items         & non-cash impairments (Non-GAAP) (3) $ 20,031   $ 14,657   $ 59,375   $ 29,163     Adjusted net income per share (Non-GAAP) Basic $ 0.32   $ 0.23   $ 0.94   $ 0.47   Diluted $ 0.31   $ 0.23   $ 0.92   $ 0.47     Average number of shares outstanding Basic 63,031   62,505   62,914   62,420   Diluted 64,794   62,505   64,599   62,420     (1) Adjustments are shown net of tax using the effective income tax rate; calculated by dividing the income tax benefit (expense) by income (loss) before income taxes as stated on the consolidated statement of operations. Effective income tax rates for the three months ended September 30, 2010 and 2009, were 37.7% and 37.1% respectively. Effective income tax rates for the nine months ended September 30, 2010 and 2009, were 37.7% and 38.0% respectively.   (2) The loss related to hurricanes is included within line item other expense on the consolidated statements of operations.   (3) Adjusted net income excludes certain items that the Company believes affect the comparability of operating results. Items excluded generally are one-time items or are items whose timing and/or amount cannot be reasonably estimated. These items include non-cash adjustments and impairments such as the change in the Net Profits Plan liability, unrealized derivative (gain) loss, impairment of proved properties, abandonment and impairment of unproved properties, impairment of materials inventory, (gain) loss on divestiture activity, and loss related to hurricanes. The non-GAAP measure of adjusted net income is presented because management believes it provides useful additional information to investors for analysis of SM Energy's fundamental business on a recurring basis. In addition, management believes that adjusted net income is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Adjusted net income should not be considered in isolation or as a substitute for net income, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income excludes some, but not all, items that affect net income and may vary among companies, the adjusted net income amounts presented may not be comparable to similarly titled measures of other companies.

Operating Cash Flow

          (In thousands)   Reconciliation of net cash provided by operating activities For the Three Months For the Nine Months (GAAP) to Operating cash flow (Non-GAAP): Ended September 30, Ended September 30, 2010 2009 2010 2009   Net cash provided by operating activities (GAAP) $ 148,210 $ 111,291 $ 418,360 $ 353,052   Changes in current assets and liabilities $ (30,325 ) $ (25,437 ) $ (72,724 ) $ (68,318 )   Exploration $ 14,437 $ 15,733 42,833 48,821 Less: Exploratory dry hole expense $ 38 $ (182 ) (289 ) (4,849 ) Less: Stock-based compensation expense included in exploration $ (2,286 ) $ (1,533 ) (5,724 ) (4,397 )         Operating cash flow (Non-GAAP) (4) $ 130,074   $ 99,872   $ 382,456   $ 324,309       (4) Beginning in the third quarter of 2009 the Company changed its definition of operating cash flow. Prior periods have been conformed to the current definition and the change in the definition did not result in a material variance to results under the prior definiton. Operating cash flow is computed as net cash provided by operating activities adjusted for changes in current assets and liabilities and exploration, less exploratory dry hole expense, and stock-based compensation expense included in exploration. The non-GAAP measure of operating cash flow is presented because management believes that it provides useful additional information to investors for analysis of SM Energy's ability to internally generate funds for exploration, development, acquisitions, and to service debt. In addition, operating cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Operating cash flow should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since operating cash flow excludes some, but not all items that affect net income and net cash provided by operating activities and may vary among companies, the operating cash flow amounts presented may not be comparable to similarly titled measures of other companies. See the consolidated statements of cash flows herein for more detailed cash flow information.