OPERATING AGREEMENT FOR SM ENERGY MANAGEMENT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY

OPERATING AGREEMENT FOR SM ENERGY MANAGEMENT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY

TABLE OF CONTENTS Page ARTICLE I: DEFINITIONS...1 ARTICLE II: ARTICLES OF ORGANIZATION...3 2.1 Filing Articles of Organization....3 2.2 Name of Company....3 2.3 Address of Company...4 2.4 Agent for Service of Process...4 2.5 Business Purpose....4 2.6 Limited Liability Company...4 2.7 Term of Company s Existence...4 2.8 Manager....4 ARTICLE III: CAPITAL AND CAPITAL CONTRIBUTIONS...4 3.1 Additional Contributions....4 3.2 Withdrawals....4 3.3 No Interest...5 3.4 Limited Liability....5 ARTICLE IV: DISTRIBUTIONS...5 4.1 Distribution of Available Cash from Business Operations...5 4.2 Distribution of Available Cash from Capital Events....5 4.3 Distribution of Noncash Proceeds....5 4.4 Distribution of Liquidating Proceeds...5 ARTICLE V: MANAGEMENT...5 5.1 Member as Member-Manager...5 5.2 Officers of the Company...6 5.3 Authority of Officers...7 5.4 Title to Assets....8 5.5 Banking...8 ARTICLE VI: ACCOUNTS AND ACCOUNTING...8 6.1 Accounts....8 6.2 Accounting...8 6.3 Records....8 6.4 Financial Statements....9 6.5 Income Tax Returns...9 6.6 Tax Election...9 ARTICLE VII: DISSOLUTION AND WINDING UP...9 7.1 Events of Dissolution...9 7.2 Winding Up...9 7.3 Deficits...10 ARTICLE VIII: INDEMNIFICATION...10 8.1 Indemnification...10 ARTICLE IX: GENERAL PROVISIONS...11 9.1 Entire Agreement; Amendment....11 9.2 Governing Law; Severability...11 9.3 Binding Effect...11 9.4 Number and Gender...11 i

9.5 Further Assurances...11 9.6 Member s Other Business...12 9.7 Titles and Headings...12 9.8 Time of the Essence...12 9.9 No Third Party Beneficiary...12 EXHIBIT A EXHIBIT B LLC ARTICLES OF ORGANIZATION OFFICER APPOINTMENTS ii

OPERATING AGREEMENT OF SM ENERGY MANAGEMENT, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY THIS OPERATING AGREEMENT (the Agreement ) is entered into as of March, 2012, by SANTA MARIA PACIFIC HOLDINGS, LLC, a Delaware limited liability company (the Member ), with reference to the following facts. RECITALS A. The Company (as defined herein) is hereby formed as a California limited liability company on March, 2012. B. The Member now enters into this Agreement in order to provide for its governance and the conduct of its business as a single-member, member-managed limited liability company under the Act. AGREEMENT NOW THEREFORE, the Member agrees as follows: ARTICLE I: DEFINITIONS Capitalized terms used in this Agreement have the meanings specified in this Article or elsewhere in this Agreement and when not so defined shall have the meanings set forth in Section 17001 of the Act. 1.1 Act means the Beverly-Killea Limited Liability Company Act (California Corporations Code 17000-17655), including amendments from time to time. 1.2 Affiliate of the Member means (1) any Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member. The term control (including the terms controlled by and under common control with ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through membership, ownership of voting securities, by contract, or otherwise. 1.3 Agreement means this Operating Agreement, as originally executed and as amended from time to time. 1.4 Articles of Organization is defined in Section 17001(b) of the Act, as applied to the Company. 1.5 Assignee means a person who has acquired an Economic Interest in the Company, by way of a Transfer in accordance with the terms of this Agreement, but who has not become a Member. 1

1.6 Available Cash means all net revenues from the Company s operations, including net proceeds from all sales, refinancings, and other dispositions of Company property that the Member-Manager, in the Member-Manager s sole discretion, deems in excess of the amount reasonably necessary for the operating requirements of the Company, including debt reduction and Reserves. 1.7 Capital Contribution means, with respect to any Member, the amount of the money and the Fair Market Value of any property (other than money) contributed to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under IRC Section 752) in consideration of the Percentage Interest held by the Member. A Capital Contribution shall not be deemed a loan. 1.8 Capital Event means a sale or disposition of any of the Company s capital assets, the receipt of insurance and other proceeds derived from the involuntary conversion of Company property, the receipt of proceeds from a refinancing of Company property, or a similar event with respect to Company property or assets. 1.9 Code or IRC means the Internal Revenue Code of 1986, as amended, and any successor provision. 1.10 Company means the company named in Article II, Section 2.2 of this Agreement. 1.11 Corporations Code ( Corp C ) means the California Corporations Code. 1.12 Economic Interest means a Person s right to share in the income, gains, losses, deductions, credit or similar items of, and to receive distributions from, the Company, but does not include any other rights of the Member, including the right to vote or to participate m management. 1.13 Encumbrance means, with respect to any Membership Interest, or any element thereof, a mortgage, pledge, security interest, lien, proxy coupled with an interest (other than as contemplated in this Agreement), option, or preferential right to purchase. 1.14 Holdco LLC Agreement means the Limited Liability Company Agreement of Santa Maria Pacific Holdings, LLC, a Delaware limited liability company, as may be amended from time to time. 1.15 Involuntary Transfer means, with respect to any Membership Interest, or any element thereof, any Transfer or Encumbrance, whether by operation of law, pursuant to court order, foreclosure of a security interest, execution of a judgment or other legal process, or otherwise, including a purported transfer to or from a trustee in bankruptcy, receiver, or assignee for the benefit of creditors. 1.16 Member means the Person identified as such in the preamble to this Agreement, who is the sole member of the Company. 2

1.17 Member-Manager means the Member, acting in its capacity as the sole manager of the Company in accordance with Article II, Section 2.8 and Article V. 1.18 Membership Interest means the Member s rights in the Company, collectively, including the Member s Economic Interest, the right to participate in management, and any right to information concerning the business and affairs of the Company. 1.19 Notice means a written notice required or permitted under this Agreement. A notice shall be deemed given or sent when deposited, as certified mail or for overnight delivery, postage and fees prepaid, in the United States mails; when delivered to Federal Express, United Parcel Service, DHL WorldWide Express, or Airborne Express, for overnight delivery, charges prepaid or charged to the sender s account; when personally delivered to the recipient; when transmitted by electronic means, and such transmission is electronically confirmed as having been successfully transmitted; or when delivered to the home or office of a recipient in the care of a person whom the sender has reason to believe will promptly communicate the notice to the recipient. 1.20 Person means an individual, partnership, limited partnership, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign. 1.21 Regulations ( Reg ) means the income tax regulations promulgated by the United States Department of the Treasury and published in the Federal Register for the purpose of interpreting and applying the provisions of the Code, as such Regulations may be amended from time to time, including corresponding provisions of applicable successor regulations. 1.22 Reserves means the aggregate of reserve accounts that the Member-Manager, in the Member-Manager s sole discretion, deems reasonably necessary to meet accrued or contingent liabilities of the Company, reasonably anticipated operating expenses, and working capital requirements. 1.23 Transfer means, with respect to a Membership Interest or any element of a Membership Interest, any sale, assignment, gift, Involuntary Transfer, Encumbrance, or other disposition of such a Membership Interest or any element of such Membership Interest, directly or indirectly, other than an Encumbrance that is expressly permitted under this Agreement. ARTICLE II: ARTICLES OF ORGANIZATION 2.1 Filing Articles of Organization. Concurrently with the execution of this Agreement, the Member-Manager has caused Articles of Organization, in the form attached to this Agreement as Exhibit A, to be filed with the California Secretary of State. 2.2 Name of Company. The name of the Company is SM Energy Management, LLC. 3

2.3 Address of Company. The principal executive office of the Company shall be 2811 Airpark Drive, Santa Maria, California, 93455, or such other place or places as may be determined by the Member-Manager from time to time. 2.4 Agent for Service of Process. The agent for service of process on the Company shall be Beth A. Marino, whose address is 2811 Airpark Drive, Santa Maria, California, 93455. The Member-Manager may from time to time change the Company s agent for service of process. 2.5 Business Purpose. The primary nature and purposes of the business to be conducted by the Company are: (i) to provide management and/or operational services in respect of the businesses of the Company and/or its Affiliates; and (ii) to do all things and engage in such other activities related or incidental thereto as are reasonable or necessary to accomplish such purposes, all consistent with the lawful activities for which a limited liability company may be organized under the laws of the State of California. 2.6 Limited Liability Company. The Member intends the Company to be a limited liability company under the Act. 2.7 Term of Company s Existence. The term of existence of the Company shall continue until terminated by the provisions of this Agreement or as provided by law. 2.8 Manager. The Member shall be the sole manager of the Company and shall, in such capacity, be referred to as the Member-Manager. ARTICLE III: CAPITAL AND CAPITAL CONTRIBUTIONS 3.1 Additional Contributions. The Member shall not be required to make any additional Capital Contributions. 3.2 Withdrawals. The Member shall not be entitled to withdraw any part of the Member s Capital Contribution or to receive any distributions, whether of money or property, from the Company except as provided in this Agreement 4

3.3 No Interest. No interest shall be paid on Capital Contributions. 3.4 Limited Liability. The Member shall not be bound by, or be personally liable for, the expenses, liabilities, or obligations of the Company except as otherwise provided in the Act or in this Agreement. ARTICLE IV: DISTRIBUTIONS 4.1 Distribution of Available Cash from Business Operations. All Available Cash, other than revenues or proceeds from a Capital Event or the dissolution of the Company, shall be distributed to the Member. The Member intends that Available Cash shall be distributed as soon as practicable following the Member-Manager s determination that such cash is available for distribution. 4.2 Distribution of Available Cash from Capital Events. All Available Cash resulting from a Capital Event (as distinguished from normal business operations or the dissolution of the Company) shall be distributed to the Member. The Member intends that Available Cash shall be distributed as soon as practicable following the Member- Manager s determination that such cash is available for distribution. 4.3 Distribution of Noncash Proceeds. If the proceeds from a sale or other disposition of an item of Company property consist of property other than cash, the value of that property shall be as determined by the Member- Manager. If such noncash proceeds are subsequently reduced to cash, such cash shall be taken into account by the Member-Manager in determining Available Cash and the Member-Manager shall determine whether such cash has resulted from operations or from a Capital Event. 4.4 Distribution of Liquidating Proceeds. Notwithstanding any other provisions of this Agreement to the contrary, when there is a distribution in liquidation of the Company, or when the Member s interest is liquidated, the final distribution to the Member shall be made as provided in Article VII, Section 7.2.4 of this Agreement. 5.1 Member as Member-Manager. ARTICLE V: MANAGEMENT The business of the Company shall be managed by the Member as the Member-Manager. 5

5.2 Officers of the Company. The initial officers of the Company shall be designated by the Member-Manager. The additional or successor officers of the Company shall be chosen by the Member-Manager and shall consist of at least a President, a Secretary and a Treasurer. The Member-Manager may also choose one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. The Member-Manager may appoint such other officers and agents as it shall deem necessary or advisable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Member-Manager. The salaries of all officers and agents of the Company shall be fixed by or in the manner prescribed by the Member-Manager. The officers of the Company shall hold office until their successors are chosen and qualified. Any officer may be removed at any time, with or without cause, by the Member-Manager. Any vacancy occurring in any office of the Company shall be filled by the Member-Manager. The initial officers of the Company designated by the Member-Manager are listed on Exhibit B hereto. The officers, to the extent of their powers set forth in this Agreement or otherwise vested in them by action of the Member-Manager not inconsistent with this Agreement, are agents of the Company for the purpose of the Company s business and, subject to Section 5.3, the actions of the officers taken in accordance with such powers shall bind the Company. 5.2.1 President. The President shall be the chief executive officer of the Company, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Member-Manager are carried into effect. The President or any other officer authorized by the President or the Member-Manager shall execute all bonds, mortgages and other contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed; or (ii) where signing and execution thereof shall be expressly delegated by the Member-Manager to some other officer or agent of the Company. 5.2.2 Vice President. In the absence of the President or in the event of the President s inability to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Member-Manager, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Member-Manager may from time to time prescribe. 5.2.3 Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall record all the proceedings of the meetings of the Company in a book to be kept for that purpose and shall perform like duties for any committees when required, and shall perform such other duties as may be prescribed by the Member-Manager or the President, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Member-Manager (or if there be no such determination, then in order of their election), shall, in the absence of the Secretary or in the event of the Secretary s inability to act, perform the duties and exercise the powers of the 6

Secretary and shall perform such other duties and have such other powers as the Member- Manager may from time to time prescribe. 5.2.4 Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Member-Manager. The Treasurer shall disburse the funds of the Company as may be ordered by the Member-Manager, taking proper vouchers for such disbursements, and shall render to the President and to the Member-Manager, at its regular meetings or when the Member-Manager so requires, an account of all of the Treasurer s transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Member-Manager (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer s inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Member- Manager may from time to time prescribe. 5.3 Authority of Officers. The officers shall be entitled to exercise authority (including the authority delegated under Section 5.2) only as specifically delegated by the Member-Manager after the date of this Agreement; provided, however, the officer (or any of them) shall be permitted to engage in the following actions on behalf of the Company without specific delegation by or consent of the Member-Manager: 5.3.1 Confession of a judgment against the Company or the settlement of any litigation in an amount not in excess of $5,000 for any claim or related group of claims; 5.3.2 Any purchase of real property or any lease of real property with lease terms not in excess of $10,000 per year; 5.3.3 Any sale of assets of the Company involving total consideration not in excess of $10,000; 5.3.4 Any transaction by the Company involving the incurrence of any indebtedness for borrowed money not in excess of $7,500, the entry into any capital lease not in excess of $7,500, unless such transaction or capital lease has previously been provided for and approved in the Pre-Approved Annual Budget (as defined in the Holdco LLC Agreement); and 5.3.5 The incurring of any contractual obligation or series of related contractual obligations with a total cost of not more than $7,500, or the making of any capital expenditures or series of related capital expenditures not in excess of $7,500, unless such contractual obligation or capital expenditure has previously been provided for and approved in the Pre- Approved Annual Budget. 7

5.4 Title to Assets. The Member-Manager and the officers shall cause all assets of the Company, whether real or personal, to be held in the name of the Company. 5.5 Banking. All funds of the Company shall be deposited in one or more accounts with one or more recognized financial institutions in the name of the Company, at such locations as determined by the President. Withdrawal from such accounts shall require the signature of the President, the Treasurer or such other person or persons as the Member-Manager may designate from time to time. 6.1 Accounts. ARTICLE VI: ACCOUNTS AND ACCOUNTING Complete books of account of the Company s business, in which each Company transaction shall be fully and accurately entered, shall be kept at the Company s principal executive office and at such other locations as the Member-Manager shall determine from time to time. 6.2 Accounting. Financial books and records of the Company shall be kept on the method of accounting advised by the Company s certified public accountants, which shall be the method of accounting followed by the Company for federal income tax purposes. The financial statements of the Company shall be appropriate and adequate for the Company s business and for carrying out the provisions of this Agreement. The fiscal year of the Company shall be January 1 through December 31. 6.3 Records. At all times during the term of existence of the Company, and beyond such term, if the Member-Manager deems it necessary, the Member-Manager shall keep or cause to be kept at the Company s principal executive office the books of account referred to in Section 6.2, together with: 6.3.1 A copy of the Articles of Organization, as amended; 6.3.2 Copies of the Company s federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 6.3.3 An original executed copy of this Agreement, as amended; years; and 6.3.4 Financial statements of the Company for the three (3) most recent fiscal 8

6.3.5 The books and records of the Company as they relate to the Company s internal affairs for the current and past three (3) fiscal years. If the Member-Manager deems that any of the foregoing items shall be kept beyond the term of existence of the Company, the repository of said items shall be as designated by the Member-Manager. 6.4 Financial Statements. At the end of each fiscal year of the Company the books of the Company shall be closed and statements reflecting the financial condition of the Company shall be prepared. 6.5 Income Tax Returns. No later than ninety (90) days after the end of each taxable year of the Company, the Company s officers shall provide to the Member all Company information necessary for the Member to complete its federal and state income tax or information returns. The Member shall receive a copy of the Company s federal, state, and local income tax or information returns for each year within ten (10) days of their finalization. 6.6 Tax Election. The Company intends to make an election to be treated as an association taxable as a corporation for United States federal income tax purposes. ARTICLE VII: DISSOLUTION AND WINDING UP 7.1 Events of Dissolution. The Company shall be dissolved upon the first to occur of the following events: 7.1.1 The expiration of the term of existence, if any, of the Company. 7.1.2 The written action of the Member to dissolve the Company. 7.1.3 The sale or other disposition of substantially all of the Company s assets. 7.1.4 Entry of a decree of judicial dissolution under Corp C section 17351. 7.2 Winding Up. On the dissolution of the Company, the Company shall engage in no further business other than that necessary to wind up the business and affairs of the Company. The Member- Manager shall wind up the affairs of the Company by the appointment of delegates. The delegates winding up the affairs of the Company (the Delegates ) shall give Notice of the commencement of winding up by mail to all known creditors and claimants against the Company whose addresses appear in the records of the Company. After paying or adequately providing for the payment of all known debts of the Company (except debts owing to the Member), the remaining assets of the Company shall be distributed or applied in the following order: 9

7.2.1 To pay the expenses of liquidation. 7.2.2 To the establishment of reasonable reserves by the Delegates for contingent liabilities or obligations of the Company. Upon the Delegates determination that such reserves are no longer necessary, said reserves shall be distributed as provided in this Section 7.2. 7.2.3 To repay outstanding loans to the Member. If there are insufficient funds to pay such loans in full, such repayment shall first be credited to unpaid principal and the remainder shall be credited to accrued and unpaid interest. 7.2.4 To the Member. 7.3 Deficits. The Member shall look solely to the assets of the Company for the return of the Member s investment. 8.1 Indemnification. ARTICLE VIII: INDEMNIFICATION The Company shall have the power to indemnify any Person who was or is a party, or who is threatened to be made a party, to any Proceeding by reason of the fact that such Person was or is a Member, Member-Manager, officer, employee, Delegate or other agent of the Company, or was or is serving at the request of the Company as a director, officer, employee, or other Agent of another limited liability company, corporation, partnership, joint venture, trust, or other enterprise, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred by such Person in connection with such proceeding, if such Person acted in good faith and in a manner that such Person reasonably believed to be in the best interests of the Company, and, in the case of a criminal proceeding, such Person had no reasonable cause to believe that the Person s conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Person did not act in good faith and in a manner that such Person reasonably believed to be in the best interests of the Company, or that the Person had reasonable cause to believe that the Person s conduct was unlawful. To the extent that an agent of the Company has been successful on the merits in defense of any Proceeding, or in defense of any claim, issue, or matter in any such Proceeding, the agent shall be indemnified against expenses actually and reasonably incurred in connection with the Proceeding. In all other cases, indemnification shall be provided by the Company only if authorized in the specific case by the Member. Agent, as used in this Section 8.1, shall include a trustee or other fiduciary of a plan, trust, or other entity or arrangement described in Corp C section 207(f). Proceeding, as used in this Section 8.1, means any threatened, pending, or completed action or proceeding, whether civil, criminal, administrative, or investigative. 10

Expenses of each Person indemnified under this Agreement actually and reasonably incurred in connection with the defense or settlement of a proceeding may be paid by the Company in advance of the final disposition of such proceeding, as authorized by the Member- Manager upon receipt of an undertaking by such Person to repay such amount unless it shall ultimately be determined that such Person is entitled to be indemnified by the Company. Expenses, as used in this Section 8.1, includes, without limitation, attorney fees and expenses of establishing a right to indemnification, if any, under this Section 8.1. ARTICLE IX: GENERAL PROVISIONS 9.1 Entire Agreement; Amendment. This Agreement constitutes the complete and exclusive agreement of the Member with respect to the subject matter of this Agreement, and it shall not be modified or amended in any respect except by a written instrument executed by the Member. This Agreement replaces and supersedes all prior written and oral agreements by and among any former members and/or managers of the Company. 9.2 Governing Law; Severability. This Agreement shall be construed and enforced in accordance with the internal laws of the State of California. Venue for any action or proceeding arising out of or related to this Agreement shall be the County of Santa Barbara, California. If any provision of this Agreement is determined by any court of competent jurisdiction or arbitrator to be invalid, illegal, or unenforceable to any extent, that provision shall, if possible, be construed as though more narrowly drawn, if a narrower construction would avoid such invalidity, illegality, or unenforceability or, if that is not possible, such provision shall, to the extent of such invalidity, illegality, or unenforceability, be severed, and the remaining provisions of this Agreement shall remain in effect. 9.3 Binding Effect. This Agreement shall be binding on and inure to the benefit of the Member and its permitted successors and assigns. 9.4 Number and Gender. Whenever used in this Agreement, the singular shall include the plural and the plural shall include the singular, and the neuter gender shall include the male and female as well as a trust, firm, company, or corporation, all as the context and meaning of this Agreement may require. 9.5 Further Assurances. The Member shall do any and all other acts and things reasonably necessary in connection with the performance of its obligations under this Agreement and to carry out the intent of the intent of this Agreement. 11

9.6 Member s Other Business. Except as provided in this Agreement, no provision of this Agreement shall be construed to limit in any manner the Member in the carrying on of its other businesses or activities. 9.7 Titles and Headings. The article, section, and paragraph titles and headings contained in this Agreement are inserted as matter of convenience and for ease of reference only and shall be disregarded for all other purposes, including the construction or enforcement of this Agreement or any of its provisions. 9.8 Time of the Essence. Time is of the essence of every provision of this Agreement that specifies a time for performance. 9.9 No Third Party Beneficiary. This Agreement is made solely for the benefit of the Member and its permitted successors and assigns, and no other person or entity shall have or acquire any right by virtue of this Agreement (Signature page follows) 12

IN WITNESS WHEREOF, the Member has executed or caused to be executed this Agreement on the day and year first above written. "Member" SANTA MARIA PACIFIC HOLDINGS, LLC, a Delaware limited liability company By: David Pratt Title: President

EXHIBIT A LLC ARTICLES OF ORGANIZATION

EXHIBIT B OFFICER APPOINTMENTS President: David L. Pratt VP - Development and Secretary: Ramon Elias VP - Operations: Terry Hurst VP - Finance & Administration: Kevin McMillan VP - Legal & Corporate Affairs: Beth A. Marino