United States securities and exchange commission logo
September 2, 2022
Herbert S. Vogel
President and Chief Executive Officer
SM Energy Company
1700 Lincoln Street, Suite 3200
Denver, CO 80203
Re: SM Energy Company
Form 10-K for
Fiscal Year Ended December 31, 2021
Filed February 25,
2022
Form 8-K, Filed
February 24, 2022
Response dated July
22, 2022
File No. 001-31539
Dear Mr. Vogel:
We have reviewed your July 22, 2022 response to our comment
letter and have the
following comments. In some of our comments, we may ask you to provide
us with information
so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response to these comments, we may have
additional
comments. Unless we note otherwise, our references to prior comments are
to comments in our
July 13, 2022 letter.
Correspondence Dated July 22, 2022
Form 10-K for Fiscal Year Ended December 31, 2021
Business and Properties
Reserves
Proved Undeveloped Reserves, page 13
1.
We have read your
response to comment 1 and note that a portion of the proved
undeveloped reserves
you added as extension and discoveries are associated with infill
wells. Your discussion
of the changes that occurred in total proved reserves, for the year
ended December 31,
2021, also appears to indicate that a portion of the total proved
Herbert S. Vogel
FirstName
SM EnergyLastNameHerbert S. Vogel
Company
Comapany 2,
September NameSM
2022 Energy Company
September
Page 2 2, 2022 Page 2
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reserves you added as extensions and discoveries are associated with
infill wells.
Please note the staff believes that changes in reserves associated
with infill drilling should
be categorized as revisions of previous estimates, rather than
extensions and discoveries,
based on the guidance in Rule 4-10(a)(14) of Regulation S-X and
subparagraphs (a) and
(d) of FASB ASC 932-235-50-5. Under this guidance, an extension well
is a well drilled
to extend the limits of a known reservoir and results in an extension
of the proved acreage.
However, infill drilling locations are already located within the
previously determined
proved area and result in the recovery of known proved reserves. As a
result, changes in
reserves relating to such wells should be classified as revisions of
previous estimates
pursuant to the guidance in subparagraph (a) of FASB ASC 932-235-50-5.
Please revise
the classifications within your reserves reconciliations and the
associated narratives
accordingly.
Form 8-K, Filed February 24, 2022
Exhibit 99.1
Adjusted Operating Margin Reconciliation, page 20
2. We have reviewed your response to prior comment 1. Please address the
following:
Disclose how adjusted operating margin before the effects of
derivative settlements is
used by management and is useful to investors;
Disclose how adjusted operating margin including the effects of
derivative
settlements is used by management and is useful to investors;
Disclose why you reconcile to an adjusted operating margin
before the effects of
derivative settlements and to adjusted operating margin including
the effects of
derivative settlements; and
Reconcile from your GAAP measure to your non-GAAP measures of
adjusted
operating margin. Your current presentation places greater
prominence on the non-
GAAP measure and is inconsistent with Question 102.10 of the
C&DI's on Non-
GAAP Financial Measures.
3. Adjusted operating margin before the effects of derivative settlements
and including the
effects of derivative settlements appears to be a performance measure.
Please tell us the
following:
How you view an adjusted operating margin that excludes
operating expenses, such
as, DD&A and asset retirement obligation accretions; and
Why you exclude exploration costs and other operating expense,
net from your non-
GAAP measures of adjusted operating margin.
Herbert S. Vogel
SM Energy Company
September 2, 2022
Page 3
You may contact Sandra Wall, Petroleum Engineer at (202) 551-4727, or
John Hodgin,
Petroleum Engineer, at (202) 551-3699 on engineering matters. Please contact
Sondra Snyder,
Senior Staff Accountant at (202) 551-3332 or Gus Rodriguez, Accounting Branch
Chief, at (202)
551-3752 with any other questions.
FirstName LastNameHerbert S. Vogel Sincerely,
Comapany NameSM Energy Company
Division of
Corporation Finance
September 2, 2022 Page 3 Office of Energy &
Transportation
FirstName LastName