SM Energy : 2020 SASB Reporting

2020 DATA

SUSTAINABILITY ACCOUNTING STANDARDS BOARD REPORT

FORWARD LOOKING STATEMENTS

SM Energy's Sustainability Accounting Standards Board (SASB) report contains "forward-looking statements" within the meaning of securities laws, including discussion of potential future risks, and the Company's processes, intentions, objectives and expectations in managing potential future risks. These statements involve known and unknown risks, which may cause SM Energy's actual results to differ materially from information expressed or implied by the forward-looking statements. All statements, other than statements of historical fact, included in the SASB report that address processes, intentions, objectives and expectations of SM Energy are forward-looking statements. Such statements are subject to assumptions, risks and uncertainties that are beyond SM Energy's control. Future results, plans, objectives, expectations and forecasts may be impacted by the risks discussed in the Risk Factors section of SM Energy's most recent Annual Report on Form 10-K, Form 10-Q or other filings with the SEC. The forward-looking statements contained herein speak as of the date of this report. 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.

2 | SM| ENERGY

E N V I R O N M E N TA L STA N DA R D S

2020

SASB

TOPIC

Greenhouse Gas (GHG) Emissions

ACCOUNTING METRIC

Gross global Scope 1 emissions, percentage methane, percentage covered under emissions-limiting regulations

CATEGORY

Quantitative

UNIT OF MEASURE

Metric tons (mT) CO2e, Percentage (%)

CODE

EM-EP-110a.1

SM RESPONSE

477,808 metric tons (mT) CO2e. Methane: 11.4% of total gross global Scope 1 emissions. None covered under emission-limiting

regulations. Comment: As reported per EPA GHG Mandatory Reporting Rule 40 CFR 98 Subpart W.

ACCOUNTING METRIC

Amount of gross global Scope 1 emissions from: (1) flared hydrocarbons, (2) other combustion, (3) process emissions,

(4) other vented emissions, and (5) fugitive emissions

CATEGORY

Quantitative

UNIT OF MEASURE

Metric tons (mT) CO2e

CODE

EM-EP-110a.2

SM RESPONSE

Amount of gross global Scope 1 emissions from: 1) Flared: 111,750 mT CO₂e (includes flaring of associated gas and tank

vapors); 2) Combustion (other than flaring): 321,685 mT CO₂e; 3) Process emissions: none; 4) Other vented emissions (includes gas pneumatic devices and pumps, liquids unloading, well venting with hydraulic fracturing, gas well venting without hydraulic fracturing, and reciprocating compressors): 31,942 mT CO₂e; 5) Fugitive emissions: 12,431 mT CO₂e.

ACCOUNTING METRIC

Discussion of long-term and short-term strategy or plan to manage Scope 1 emissions, emissions reduction targets, and an analysis of performance against these targets

CATEGORY

Discussion and Analysis

UNIT OF MEASURE

n/a

CODE

EM-EP-110a.3

SM RESPONSE

KEY EMISSIONS METRICS - (We report annual required GHG emissions data to the EPA and on our website) In 2020:

• GHG emissions were 7.87 mT CO₂e/MBoe.
  • This was a 37% improvement over 2019 at 12.41 mT CO2e/MBoe.

(CONTINUED)

3 | SM| ENERGY

E N V I R O N M E N TA L STA N DA R D S

2020

SASB

• Methane intensity was 0.04 mT CH4/MBoe.
• • This ranked top quartile among industry peers who reported;
  • and was a 20% improvement over 2019 at 0.05 mT CH4/MBoe.
• Flaring percentage was 0.81% (gas flared/gas produced)
• • This was a 67% improvement over 2019 at 2.42%.

COMPENSATION TIED TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") PERFORMANCE - SM Energy's 2020 short- term compensation program for all employees was tied to environmental and safety targets, including air emissions (specifically greenhouse gas intensity and methane intensity), as well as spill volumes per 1,000 barrels produced and total recordable incident rate (TRIR). The goal with respect to these metrics was to achieve top quartile performance compared to reporting American Exploration and Production Council ("AXPC") members based on the trailing three-yearaverage of survey responses and publicly available data from AXPC members. Additionally, short-termincentive compensation for 2020 was tied to the completion of a triennial EHS compliance audit and for putting systems in place to track broader ESG metrics to enable increased reporting in the future and increased employee awareness.

SM Energy's performance-basedlong-term incentive compensation grants that were made to the executive team and qualifying employees in 2020 were based in part on ESG performance metrics for emissions, safety and spills. The weighting of these ESG metrics constituted 20% of the overall award, with one-half of the ESG target tied to a reduction in GHG emissions intensity over the three-year program period from the base year 2019. The remainder is tied to employee and contractor safety as measured by TRIR and spill volume rates.

DISCUSSION OF EMISSIONS REDUCTION EFFORTS AND PERFORMANCE - At SM Energy, we are combining collaboration among our teams with innovation to identify and solve for ways in which we can reduce emissions. In managing Scope 1 emissions, the emissions control factors most relevant to our business include CO₂ and CH4 emissions. Areas of particular opportunity include reduced flaring, improved vapor recovery, application of improved controller technology, and increased sophistication of leak detection technology. Our strategy to manage Scope 1 emissions includes actions in each of these areas, which we intend to pursue in the near, mid, and long-term.

Here are examples of some of our efforts to reduce emissions:

REDUCING FLARING - SM Energy desires to eliminate or minimize flaring by setting targets, developing the appropriate monitoring tools, and identifying projects that support that objective. Each year a flaring goal is set and is monitored using daily operational data that provides operations management with the information needed to identify root causes for flaring and to take actions. Actions could include notifying and working with our midstream gas purchasers to identify and install gas off-loads to other purchasers, de-bottle necking and optimizing pipelines and equipment, and rescheduling capital expenditures in order to allow infrastructure to catch-up with development, thus eliminating or minimizing flaring. We are also members of The Environmental Partnership and Texas Methane and Flaring Coalition, both of which are focused on reducing flaring. We had a Midland Basin flaring target for 2020.

In response to potential increased regulation of CO2e emissions, the Company's operations team set a flaring goal for our Midland

Basin operations of 5.5% for 2020.	During 2020, SM exceeded this goal by reducing flaring to 2.2% of total Midland Basin gas
production. Total Company flaring	was 0.81% of total natural gas production. Flaring is reduced by minimizing gas processing
system capacity restraints.

• SM Energy developed a gas flare reporting tool that provides daily information used to support our operational decision making and ESG goals. The system is linked to a dashboard where members of our operations team can monitor flaring levels from locations daily.
• We strive to capture emissions attributable to well completions on all of our assets - a process commonly referred to as green completions - through constructing infrastructure that routes production flowback directly to facilities and pipelines, thereby minimizing releases into the atmosphere.
• In 2019 and 2020, the Company collaborated with downstream purchasers on an interconnection project that
  involved constructing strategic interconnections that allow the Company to redirect natural gas in the event an individual third-party processor is unable to receive it. This serves to reduce potential flaring caused by downstream capacity constraints.
• In addition, at various times, the Company has shut-in production of certain wells to avoid flaring gas.

(CONTINUED)

4 | SM| ENERGY

E N V I R O N M E N TA L STA N DA R D S

2020

SASB

IMPROVING VAPOR RECOVERY - We seek to reduce emissions by installing vapor recovery units (VRUs) and combustors at our production facilities. VRUs are small compressors that remove valuable vapors and gases from storage tanks at many of our facilities and route them to pipelines for sale. This strategy allows us to capture, recover, and sell regulated air emissions (VOCs), as well as methane, as part of our value chain to increase efficiency while reducing GHG emissions. We have VRUs installed at facilities covering an estimated 95% of oil production and had a 99% functionality rate.

UPGRADING CONTROLLERS - Additional methane emissions reductions can be achieved by converting pneumatic controllers. Prior to the EPA's NSPS OOOO regulation in 2011 prohibiting high-bleed gas pneumatic controllers, we employed a proactive approach to reducing emissions that utilized intermittent or low-bleed gas pneumatics on many of our facilities. We have converted certain pneumatic devices to operate on a compressed instrument air system, which replaces pressurized natural gas with atmospheric air, eliminating methane emissions.

• These systems have been installed at our new facilities in our Midland Basin assets since 2017.
• At our South Texas assets, we are replacing gas pneumatic devices with solar and wind powered electronic controllers.
• During 2020, we installed 535 zero emissions and non-gas pneumatic controllers resulting in a significant reduction in methane emissions.

MORE SOPHISTICATED LEAK DETECTION AND REPAIR TO REDUCE FUGITIVE EMISSIONS - We utilize various techniques, including audio/visual/olfactory inspections (AVO) and optical gas imaging (OGI) cameras, across SM Energy operations to monitor fugitive emissions. Since 2017, we have been using a leak detection and repair (LDAR) program at all new facilities in accordance with the EPA NSPS OOOOa rules and undertake voluntary efforts over and above regulatory requirements, such as our use of an OGI camera to conduct LDAR as part of our maintenance program in both our Midland Basin and South Texas assets. In conjunction with our participation in The API Environmental Partnership, the Company sets targets above and beyond regulatory requirements.

• During 2020, SM Energy focused on leak detection and repair (LDAR) at our production facilities in both operating areas, the Midland Basin and South Texas. This focus was voluntary, but industry programs like this could result in being better prepared for additional government regulations of methane emissions. In response to potential increased regulation of fugitive emissions, SM Energy Operations set a goal to implement LDAR at 50% of facilities in 2020. This exceeded government regulations and included the Company's commitment to the API Environmental Partnership, which sets targets far beyond regulatory requirements. During 2020, SM exceeded this goal by implementing LDAR at 60% of Midland Basin and 60% of South Texas facilities. This successful project resulted in approximately 31,200 Mcf of reduced methane emissions during the year.
• SM participates in two programs that are part of The API Environmental Partnership that reduce methane emissions. Under the Leak Program, SM conducted surveys at 1,173 sites in 2020, which resulted in 12,250 mT CO2e emissions savings. Under the Pneumatics Program, SM installed 535 zero-emission (instrument air or electronic) controllers, which resulted in less methane/ CO2e emissions.
• SM Energy has implemented goals for methane emissions that impact compensation for every employee.

SUPPLY CHAIN

The Company has identified opportunities to reduce emissions in the supply chain. In 2020, the Company pilot tested dual fuel technology for its completions operations, which substitutes compressed natural gas or conditioned field gas for diesel fuel for lower combustion emissions. While outside Scope 1 emissions, but within the Company's control, in 2015 the Company sourced its sand from the Northern U.S., and by 2019 the Company was using 100% local sand. The transition to locally sourced sand is estimated to reduce emissions from sand transport by an estimated 70%.

5 | SM| ENERGY