Welcome to SM Energy’s First Quarter 2019 Financial and Operating Results Webcast. We have some pretty exciting well results to talk about today. But first, I will point to Slide 2 and remind you that we will be making forward-looking statements about our plans, expectations and assumptions regarding 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. Please refer to the cautionary information about forward-looking statements in today’s earnings release, the related presentation posted to our website, and the Risk Factors section of our Form 10-K filed earlier this year and our Form 10-Q filed for this quarter. The discussion of results for the quarter also includes non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measures and other information about these non-GAAP metrics are provided in our earnings release and related investor relations presentation. Speakers today are President and CEO, Jay Ottoson; EVP and CFO, Wade Pursell; and EVP of Operations, Herb Vogel. With that, I will turn it over to Jay.

Well, thank you. Good afternoon and thanks to all of you for joining our first quarter 2019 review. We executed well in the field during the quarter, overcoming the impact of gas plant force majeure events on our Permian production to deliver production right at the center of our guidance range. At this point, we are right where we expected to be on the path toward our 2019 priority objectives. Our top priority for this year is to continue growing while generating free cash flow in the second half of 2019. As we turn that corner to generating free cash flow, our leverage metrics will begin to improve, which is our second priority, and we will have the opportunity to accelerate that process through debt reduction. Our third priority is to continue to prove up and grow our economic drilling inventory on our existing acreage, and we made good progress on that front during the first quarter. Wade and Herb will review our quarter results and forward guidance for you in just a moment. Before we do that, however, I wanted to say that we share investor disappointment about the recent underperformance of our stock. We are so close to growing within cash flow now that we can almost taste it. We believe that reaching this important milestone in our transformation of the company, followed by demonstrated strengthening of our balance sheet, should reduce the apparent asymmetric impact on our valuation from industry volatility, and drive improvements in our valuation over coming quarters. Now, let me turn the call over to Wade and Herb to give you the details on our performance and plan. Wade?

Thank you, Jay. The key message today is that we are right on track with our 2019 plan and on track to begin growing production while generating free cash flow in the second half of this year and continuing into 2020 and beyond. I will start on Slide 4. Stepping back and looking at the first quarter, operational execution was right on track and on budget, even slightly better than expected, which Herb will elaborate on shortly. Capital came in at $316 million, which was below our guidance of $325 million to $350 million. While we continue to drive cost saving measures, for purposes of modeling, I would assume the lower capital spend is related to timing and that we still expect to spend about 60% of our capital budget in the first half of the year. Production was spot on guidance despite some additional third-party temporary issues in March, which continued through April, that affected both gas and oil sales volumes. We provided realized pricing a couple of weeks ago for the first quarter, which seemed to be the biggest variable. Regional pricing in the Permian for both oil at Midland and natural gas at Waha is expected to be volatile into the fall of this year. First quarter realizations in the Permian were also affected by the force majeure events that effectively reduced our contract rates for the NGL uplift in Permian gas. Gas plants are now essentially back in service. Otherwise, first quarter line items were generally in line noting G&A was a little higher in the first quarter due to timing of expenditures. Turning to hedging on Slide 5. All of the hedge detail is in the appendix to the slide deck by quarter. However, I will point out that we have hedges in place for…

Thanks Wade. Let me start by simply stating that we are focused on execution. As I walk through today’s update on our Permian and South Texas operations, I plan to focus on three elements related to outstanding execution. I’m on Slide 8. First, well performance. We are using a data-driven approach to optimize spacing, steer to the best landing zones and customize our completion designs while delivering on a clear target for financial returns. Second, capital efficiency. Our well costs are among the lowest of our competitors on a like-for-like basis, and coupled with outstanding well performance, this translates directly to high returns. Third, value creation. By testing new intervals in our stacked pay areas and continually improving well designs, each of which build inventory, we are continually driving to build value. Turning now to Slide 9 and our Permian operations. We are currently running six rigs and four completion crews. We completed 27 net wells in the Permian in the first quarter and expect to complete 35 in the second quarter. This implies that just over 60% of our 2019 wells are brought on line in the first half. We are running slightly ahead of schedule given efficiency improvements in operations that I’ll cover in a moment. Our biggest accomplishment in the first quarter was, of course, the seamless execution of the Merlin Maximus 25-well development which was on time and on budget. I’m pleased to say that all wells on production to date are performing at or better than expectations, and overall are ahead of expectations. Let’s look at results to date in a little more detail on Slide 10. Here is a terrific example of continued top tier well performance. The chart on the left shows that the 24 wells producing to date on average are matching…

Thanks, Herb. As we have all said multiple times during this discussion, we’re on track to deliver on our 2019 plan. Our well performance has been outstanding and we continue to execute with excellence. We’re generating high returns and we’ll shortly be growing while generating free cash flow. Given our current market valuation, we believe that SM shares at this point are an outstanding opportunity for investors. Thank you all for your interest in our company and we’ll be happy to take your questions on our call tomorrow morning.

Good morning, everyone, and thank you for joining us. I thought I’ll kick off our Q&A session this morning with a question for you all. In Herb’s prepared remarks he references straws in the milkshake. What movie is that from? It’s a busy morning. I need to quickly remind you all that we may discuss forward-looking statements about our plans, expectations and assumptions regarding 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. Please refer to the cautionary information about forward-looking statements in today’s release, the first quarter IR presentation and the Risk Factors section of our Form 10-K filed in February and our Form 10-Q filed this morning, all of which are posted to our website. Our discussion today may include discussion of non-GAAP financial measures that we believe are useful in understanding and evaluating our performance. Reconciliation of those measures to most directly comparable GAAP measures and other information about these non-GAAP metrics are provided in our earnings release and IR presentation. Here to answer your questions this morning, our President and CEO Jay Ottoson; EVP and CFO, Wade Pursell; and EVP of Operations, Herb Vogel. I will now turn it back to Chris to take our first question.

[Operator Instructions] Your first question comes from Gabe Daoud of Cowen & Company. Your line is open.

Hey, good morning everyone. I appreciate the comments last night, nice Sarah Connor well name there, but could you maybe just talk a little bit about the Dean and the Wolfcamp D. And what you learned, how you think about these zones over the next couple of years? And what this could potentially mean for inventory?

Okay. This is Herb, Gabe. Thanks for questions. So, in the yesterday’s remarks, we talked about how the Wolfcamp D is separated and the Middle Spraberry are separated from the Wolfcamp A, B and Lower Spraberry. So those are two separate intervals, and they’re relatively thick in the – just in the Rock Ridge area. The Middle Spraberry is about 250 feet thick and the Wolfcamp D is about 330 feet thick, and there is an entire Wolfcamp C section in between those. So – what we really see – like about it is that they can be independently developed. The Dean is quite productive and at the 200-foot thick interval in the Rock Ridge area. So when you look at those, there is quite a bit of oil in place, and that’s really what we like. And then over time, we’ll be delineating out along with quite a few other parties who are operating near us. So we feel quite good about those intervals and the ultimate potential for inventory and reserves.

Great, great. Thanks for that. And just a follow-up obviously, it looks like you’re on track for second half free cash flow generation and you’ve been pretty clear about usage of free cash flow. Just curious about how you think about like the A&D environment or the M&A environment, if there is any interest in looking to continue to bulk up the Permian position. Or are you satisfied for now? And thanks everyone, I’ll leave it there. Thank you.

Yes. This is Jay and I’ll take that one. While we’re open to ideas that would clearly accelerate meaningful value realizations, we are not going to consider doing anything that would not be both an obvious step in the same direction as our current planned priorities and accretive to our shareholders. At this point, we don’t need to buy inventory. And as I said, we wouldn’t do anything for the sake of scale that wouldn’t be clear with our priorities and accretive to our shareholders.

Thanks, Jay.

Your next question comes from Mike Scialla of Stifel. Your line is open.

Yes. Good morning. I think to answer Jennifer’s question, and There Will Be Blood if I remember my movie script.

Not at all.

There’s going to be a prize for that.

I’ll collect that later. Just want to follow up first on Gabe’s question on the Dean and Wolfcamp D. Pretty encouraging results there. Any chance of testing those further this year? Or is that a 2020 event?

This is Herb, Mike and we will be looking at how these are performing, very early days. I mean, we just had these on a week and a couple of weeks. And so we’ll be – plan out seeing how they perform and then we’ll be integrating them into our development plans for 2020 and beyond. So no, we’re not going to be doing anymore on those this year.

Got it. Okay. Also looks like pretty encouraging results out of the second Austin Chalk well. Wondering if you’re looking at that zone any differently now on your acreage on other parts of the plate, I think I’ve asked you in the past, if you see it as more of a resource play or more of a conventional type play. Any updated thoughts there?

Hey, it’s Herb again, Mike. The Austin Chalk, we’re really excited about it, because it overlies pretty much all of our acreage, gets thicker to the West, a little bit thinner to the East. And it’s quite a good interval. I’d view it as an unconventional play. We’re putting pretty big fracs on it. And we really like the liquids content relative to the intervals below. We can extend our high liquids content to the South quite a bit compared to the Eagle Ford. And obviously, the revenues from the NGLs and the condensate are – really help the economics. So we’re encouraged with it, and you can see we’re putting one more well in that, and that’s really just shifting some completion dollars around from another Eagle Ford well, so it’s not incremental to our capital program. Excited with what we got there, and we’ll integrate it with the lower Eagle Ford and upper Eagle Ford development.

Very good. Thank you.

Your next question comes from Oliver Huang of Tudor, Pickering, Holt & Co. Your line is open.

Good morning and thanks for taking my questions. On the Merlin Maximus pads that came online, I was wondering if you can provide some color around what some of the key learnings throughout the project were that can be carried forward? And how we should be thinking about optimal pad and project sizing going forward?

Hey, Oliver, there’s a lot to that Merlin Maximus pad. So I’ll just summarize by saying we drilled it with four rigs starting in April last year. We started completing and we used three frac spreads and we moved from East to West as we were completing the wells and kind of hopped the first frac spread over the fourth location – fourth slice of well. So the key thing we were also doing some spacing testing in there, and we were working to improve Wolfcamp B performance, so the sequence wasn’t necessary always top to bottom. We were trying some things to see how we could enhance Wolfcamp B performance and contain Lower Spraberry fracs. So the main learning we’ll see as the production proceeds over the next year or so. And that’s when we’ll see how it performs, particularly given the different tests that we’ve got integrated and what we’ve done. Does that helps?

Yes, that’s helpful. And as a follow up, you had a slide on the Permian showing, I guess, co- development projects versus some of your peers. Just wondering if there is any incremental color to the prepared remarks on what SM is doing differently to drive that outperformance?

Yes. I think it’s really in just what you’re trying to achieve. And I think I mentioned that in there, as clear as I could. We target that 25% return on the last well. So we have a pretty – a very, very good correlation with all the data we have on what impacts are as we space tighter and tighter and what happens as you get tighter and tighter vertically also. And so the key thing is we’re really striving to get that 25% return on the first – last well. So that means overall the returns will be higher. So that’s why the milkshake analogy. If you put too many straws in there, you’re not going to get as good a performance per well, and so you really have to understand that in designing these co-developments. That’s really the point of the whole slide there.

Okay, perfect. Thank you very much.

Your next question comes from Paul Grigel of Macquarie. Your line open.

Hi, good morning. I was wondering if you guys could maybe elaborate on the Lower and Middle Spraberry initial peak rates and the subsequent lower declines as compared to maybe the upper Wolfcamp wells and try to put some numbers or some directional color to just how big the difference may be there.

Yes. So there’s not a single answer to that one, Paul. It depends where it’s located. So for example, on the 2018 program, our Lower Spraberry wells actually performed stronger than Wolfcamp A from an overall standpoint. But if you look over time, you’ll see that even when you shift to where the Lower Spraberry has come on a little bit slower, they ultimately have a lower decline. So the economics in 2018 were actually slightly better for the Lower Spraberry and in 2019, we expect them to be slightly lower. And it’s simply where it’s located, the thickness of the section and the spacing we are using. And what we’re doing is targeting a certain rate of return by putting all those factors together, the spacing horizontally, the spacing vertically to get that 25% return on the last well, so that the overall DSU has a much higher return. We have a lot of control, it’s not like it just happens. We have the ability to influence the returns we get on these wells. I think that’s really the point we want to make on all these.

No. Understood. Great color there. And I guess, maybe turning to the CapEx budget. You guys have noted before today and then again today the kind of front-end loaded of 2019 and lower CapEx in the back half of 2019. I realize it’s early, but how should we think about cadence in 2020. Is this a seasonal aspect that could be front-end loaded and that may be the situation? Is it based on just when large pads like Merlin Maximus come on? How should we think about just from how you operate the business kind of beyond 2019 as you move towards free cash flow?

Paul, it’s Wade. Some of all of that. I mean, as we approach 2020, we’ll give a lot more color on cadence and specifics with respect to those questions, but I’ll just reiterate that 202, we do – our plan does show us generating free cash flow and reducing debt during that year – during the year. So again, as we get closer, we’ll give you more detail on the cadence.

Okay. Thanks.

I would now like to return the call to Jay Ottoson, President and CEO. Please go ahead, sir.

Well, thank you. I guess, I’ll take the minimal number of questions today as a sign that our materials were clear and comprehensive. Obviously, we’re thrilled about our new well results and Jennifer will be happy to address any subsequent questions you have. Thank you for your interest this morning, and we’ll let you go. Thanks.

This concludes today’s conference call. You may now disconnect.