SM Energy Co

The tables below provide information regarding selected production and financial information for the three months ended December 31, 2023, and the preceding three quarters:

Selected Performance Metrics

Overview of Selected Production and Financial Information, Including Trends

(1) Amounts and percentage changes may not calculate due to rounding.

(2)Net derivative settlements for the years ended December 31, 2023, 2022, and 2021, are included within the net derivative (gain) loss line item in the accompanying consolidated statements of operations (“accompanying statements of operations”).

(3) Please refer to Note 9 – Earnings Per Sharein Part II, Item 8 of this report for additional discussion.

Average net daily equivalent production for the year ended December 31, 2023, increased five percent compared with 2022, as a result of an increased number of completions. In 2024, we expect total production volumes to increase slightly compared with 2023, and we expect a slight increase in oil as a percentage of total production. Please refer to Comparison of Financial Results and Trends Between 2023 and 2022 and Between 2022 and 2021 below for additional discussion.

We present certain information on a per BOE basis in order to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis and discussion.

Our realized price on a per BOE basis decreased $20.58 for the year ended December 31, 2023, compared with 2022, as a result of decreases in oil, gas, and NGL benchmark prices. For the year ended December 31, 2023, we recognized a net gain on the settlement of our commodity derivative contracts of $0.49 per BOE, compared to a net loss of $13.42 per BOE for the same period in 2022.

LOE on a per BOE basis increased two percent for the year ended December 31, 2023, compared with 2022, primarily driven by increases in labor costs. For 2024, we expect LOE on a per BOE basis to increase, compared with 2023, primarily as a result of expected increases in certain operating costs associated with both our Midland Basin and South Texas assets. We anticipate volatility in LOE on a per BOE basis as a result of changes in total production, changes in our overall production mix, timing of workover projects, inflation, and industry activity, all of which affect total LOE.

Transportation costs on a per BOE basis decreased 13 percent for the year ended December 31, 2023, compared with 2022, as a result of the expiration of a long-term contract in South Texas on June 30, 2023. In general, we expect total transportation costs to fluctuate relative to changes in gas and NGL production from our South Texas assets, where we incur a majority of our transportation costs. For 2024, we expect transportation costs on a per BOE basis to decrease compared with 2023, as a result of the expiration of the long-term contract in South Texas previously discussed.

Production tax expense on a per BOE basis for the year ended December 31, 2023, decreased 38 percent compared with 2022, as a result of decreases in realized prices. Our overall production tax rate was 4.4 percent and 4.9 percent for the years ended December 31, 2023, and 2022, respectively. We generally expect production tax expense to correlate with oil, gas, and NGL production revenue on an absolute and per BOE basis. Product mix, the location of production, and incentives to encourage oil and gas development can also impact the amount of production tax expense that we recognize.

Ad valorem tax expense on a per BOE basis decreased 15 percent for the year ended December 31, 2023, compared with 2022, as we were positively impacted by a property tax relief bill that provided for a one-time benefit during 2023. We anticipate volatility in ad valorem tax expense on a per BOE and absolute basis as the valuation of our producing properties changes, which is generally driven by fluctuations in commodity prices, and can be impacted by changes in tax laws.

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis increased nine percent for the year ended December 31, 2023, compared with 2022, due to inflation and higher drilling and completion activity in the Midland Basin, partially offset by increased production related to our South Texas assets, which have a lower DD&A rate than our Midland Basin assets. For 2024, we expect DD&A expense per BOE to remain flat, and DD&A expense on an absolute basis to increase slightly, compared with 2023, primarily as a result of expected increased production. Our DD&A rate fluctuates as a result of changes in our production mix, changes in our total estimated proved reserve volumes, changes in capital allocation, impairments, acquisition and divestiture activity, and carrying cost funding and sharing arrangements with third parties.

General and administrative (“G&A”) expense on a per BOE basis remained relatively flat for the year ended December 31, 2023, compared with 2022, as an increase in G&A expense on an absolute basis related to compensation expense was mostly offset by an increase in production volumes. Certain components of G&A expense, and G&A expense on a per BOE basis, are impacted by the Company’s full year performance against performance targets established at the beginning of the year and, therefore, are subject to variability. For 2024, we expect G&A expense per BOE to remain flat, and G&A expense on an absolute basis to increase compared with 2023, primarily as a result of expected increases in compensation expense due to inflation.

Please refer to Comparison of Financial Results and Trends Between 2023 and 2022 and Between 2022 and 2021 for additional discussion of operating expenses.