SM Energy Co

The oil and gas terms and other terms defined in this section are used throughout this report. The definitions of the terms “developed reserves,” “exploratory well,” “field,” “proved reserves,” and “undeveloped reserves” have been abbreviated from the respective definitions under Rule 4-10(a) of Regulation S-X. The entire definitions of those terms under Rule 4-10(a) of Regulation S-X can be located on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

Ad valorem tax. A tax based on the value of real estate or personal property.

ASC. Accounting Standards Codification.

ASU. Accounting Standards Update.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil, NGLs, water, or other liquid hydrocarbons.

BBtu. One billion British thermal units.

Bcf. One billion cubic feet, used in reference to gas.

BOE. Barrels of oil equivalent. Oil equivalents are determined using the ratio of six Mcf of gas to one Bbl of oil or NGLs.

Btu. One British thermal unit, the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.

Completion. The installation of equipment for production of oil, gas, and/or NGLs, or in the case of a dry hole, the reporting to the applicable authority that the well has been abandoned.

Conversion rate. Current year conversions of proved undeveloped reserves to proved developed reserves, divided by beginning of the year proved undeveloped reserves (also commonly referred to in our industry as “track record”).

Costs incurred. Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed.

Developed acreage. The number of acres that are allocated or assignable to productive wells or wells capable of production.

Developed reserves. Reserves that can be expected to be recovered: (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole. An exploratory, development, or extension well that proves to be incapable of producing oil, gas, and/or NGLs in sufficient commercial quantities to justify completion, or upon completion, the economic operation of a well (also referred to as “non-productive well”).

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir.

Extension well. A well drilled to extend the limits of a known reservoir.

FASB. Financial Accounting Standards Board.

Fee properties. The most extensive interest that can be owned in land, including surface and mineral (including oil and gas) rights.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Formation. A succession of sedimentary beds that were deposited under the same general geologic conditions.

GAAP. Accounting principles generally accepted in the United States.

Gross acres or gross wells. Acres or wells in which a working interest is owned.

Horizontal wells. Wells that are drilled at angles greater than 70 degrees from vertical.

Lease operating expenses (“LOE”). The expenses incurred in the lifting of oil, gas, and/or NGLs from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, maintenance, allocated overhead costs, and other expenses incidental to production, but not including lease acquisition, drilling, or completion costs.

MBbl. One thousand barrels, used in reference to oil, NGLs, water, or other liquid hydrocarbons.

MBOE. One thousand barrels of oil equivalent.

Mcf. One thousand cubic feet, used in reference to gas.

MMBbl. One million barrels, used in reference to oil, NGLs, water, or other liquid hydrocarbons.

MMBOE. One million barrels of oil equivalent.

MMBtu. One million British thermal units.

MMcf. One million cubic feet, used in reference to gas.

Net acres or net wells. Sum of our fractional working interests owned in gross acres or gross wells.

NGLs. The combination of ethane, propane, isobutane, normal butane, and natural gasoline that when removed from gas become liquid under various levels of higher pressure and lower temperature.

NYMEX WTI. New York Mercantile Exchange West Texas Intermediate, a common industry benchmark price for oil.

NYMEX Henry Hub (“HH”). New York Mercantile Exchange Henry Hub, a common industry benchmark price for gas.

OPEC+. The Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries.

OPIS. Oil Price Information Service, a common industry benchmark for NGL pricing at Mont Belvieu, Texas.

PV-10. PV-10 is a non-GAAP measure. The present value of estimated future revenue to be generated from the production of estimated proved reserves, net of estimated production and future development costs, based on prices used in estimating the proved reserves and costs in effect as of the date indicated (unless such costs are subject to change pursuant to contractual provisions), without giving effect to non-property related expenses such as general and administrative expenses, debt service, future income tax expenses, or depreciation, depletion, and amortization, discounted using an annual discount rate of 10 percent. While this measure does not include the effect of income taxes as it would in the use of the standardized measure of discounted future net cash flows calculation, it does provide an indicative representation of the relative value of the Company on a comparative basis to other companies and from period to period. This measure is presented because management believes it provides useful information to investors for analysis of the Company's fundamental business on a recurring basis.

Productive well. An exploratory, development, or extension well that is producing or is capable of commercial production of oil, gas, and/or NGLs.

Proved reserves. Those quantities of oil, gas, and NGLs that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined, and the price to be used is the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

Recompletion. The completion of an existing wellbore in a formation other than that in which the well has previously been completed.

Reserve life index. Expressed in years, represents the estimated proved reserves as of the end of the year divided by actual production for the preceding 12-month period.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil, gas, and/or associated liquid resources that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Resource play. A term used to describe an accumulation of oil, gas, and/or associated liquid resources known to exist over a large areal expanse, which when compared to a conventional play typically has lower expected geological risk.

Royalty. The amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from oil, gas, and NGLs produced and sold unencumbered by expenses relating to the drilling, completing, and operating of the affected well.

Royalty interest. An interest in an oil and gas property entitling the owner to shares of oil, gas, and NGL production free of costs of exploration, development, and production operations.

Seismic. The sending of energy waves or sound waves into the earth and analyzing the wave reflections to infer the type, size, shape, and depth of subsurface rock formations.

Shale. Fine-grained sedimentary rock composed mostly of consolidated clay or mud. Shale is the most frequently occurring sedimentary rock.

SOFR. Secured Overnight Financing Rate.

Standardized measure of discounted future net cash flows. The discounted future net cash flows related to estimated proved reserves based on prices used in estimating the reserves, year-end costs, and statutory tax rates, at a 10 percent annual discount rate. The information for this calculation is included in Supplemental Oil and Gas Information (unaudited) located in Part II, Item 8 of this report.

Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil, gas, and NGLs regardless of whether such acreage contains estimated proved reserves.

Undeveloped reserves. Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. The applicable SEC definition of undeveloped reserves provides that undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time.

Working interest. The operating interest that gives the owner the right to drill, produce, and conduct operating activities on the property and to share in the production, sales, and costs.