SM Energy Company Q2 FY2026 earnings call

• Merger Integration Progress

  • This was the first full quarter of operating the combined post-merger platform
  • Approximately 95% (or $355 million) of the raised $375 million run-rate synergy target has been actioned, putting the company ahead of the original merger integration timeline
  • Full capture of G&A synergies has reduced the full-year recurring G&A outlook

• Operational Execution

  • Q2 2026 production averaged 440,000 barrels of oil equivalent per day, which was within the prior guidance range
  • The Galvan asset divestiture closed, substantially meeting the $1 billion divestiture target set within one year of the merger
  • Technical innovations and best practices are systematically captured and scaled across the entire portfolio to improve returns across all basins

• Balance Sheet and Capital Returns

  • Divestiture proceeds were directed to debt reduction, putting the company on track to reach leverage of approximately 1x
  • Net debt was reduced by ~$1.1 billion in Q2, ending the quarter at ~$6.25 billion (including $620 million in cash and an undrawn revolver)
  • All 2026 senior notes have been redeemed, and the remaining 2027 senior notes have been called for redemption, leaving no senior note maturities until mid-2028
  • Q2 adjusted free cash flow totaled $467 million; $137 million (30%) was returned to shareholders via $53 million in dividends and $84 million in share repurchases
  • As leverage reaches the low 1x target (calculated at mid-cycle commodity pricing), the share of free cash flow allocated to buybacks will increase

• Financial Results

  • Q2 2026 adjusted EBITDAX was $1.4 billion, adjusted net income was $526 million ($2.19 per diluted share)
  • Q2 capital expenditures totaled $717 million, below the guidance midpoint of $835 million driven by drilling and completion timing

SM Energy reports performance across its operating basins, no explicit segment-level revenue breakdown is provided in the transcript. 1. Permian Basin: The combined post-merger footprint delivers procurement and scheduling efficiencies, enabling more operational flexibility and unlocking value from high-return inventory. 2. DJ Basin: Combined company completion practices (particularly Simulfrac) drive capital efficiencies, creating a low-cost, high-margin business with improved pad design, scheduling and cost competitiveness from the consolidated footprint. 3. South Texas: Following the completed Galvan assets divestiture, the remaining position is high-graded toward higher-margin, liquids-rich development focused on the Austin Chalk. 4. Uinta Basin: Standardized development program pairing completion innovations, faster flowback and longer four-mile laterals has meaningfully improved well economics and cycle times. Completion pace has increased to over 2,600 foot per day (more than double early 2026 rates), delivering over $1 million per well in drilling, completion and equipment cost savings over the past six months. The contiguous blocked-up acreage enables long lateral development, a structural advantage that improves program returns.

• Full-year 2026 capital expenditure guidance is maintained at $2.65 to $2.85 billion
  • Second half 2026 production guidance is raised to a range of 435,000 to 440,000 barrels of oil equivalent per day, with oil production expected to average ~238,000 barrels per day
  • Full-year recurring G&A guidance is lowered by ~$50 million at the midpoint, reflecting a durable run-rate reduction that will generate meaningful free cash flow benefits
  • 2027 capital planning is in early stages; management expects a disciplined capital program focused on maximizing free cash flow, with additional details on production and capital cadence to be released near the end of 2026
  • The second half 2026 average production rate is positioned as a clean baseline for modeling 2027 full-year performance, as 2026 results include a partial year of the Civitas assets and the Galvan divestiture

Management did not discuss new material risks or operational failures during this call. General references to risks and uncertainties that could cause actual results to differ materially from forward-looking statements are noted, pointing participants to the risk factors section of the company's most recent Form 10-K and earnings presentation materials.

Q: Analyst asks if co-development of multiple zones in Howard County, and operational progress with U-turn wells there represents a new development pattern for SM Energy. / A: Management notes co-development in Howard County is not a new practice, as SM has operated in the area and generated strong returns from the Sprayberry, Dean and Wolf Camp zones for some time. The combined post-merger team is now applying consolidated best practices to unlock additional value from acreage in and around Howard County, and the company has high confidence in its ability to execute U-turn well designs. / Q: With the company near its leverage target and having pushed all debt maturities out to 2028, should investors expect a change to the current capital return framework? / A: Management confirms that for now, the current framework remains in place, with 20% of post-dividend free cash flow as the minimum allocation to share buybacks. The company is progressing toward its target of a strong balance sheet with leverage in the low 1x range (calculated at mid-cycle commodity prices) and will adjust allocation as that target is approached later this year. / Q: Can management share details on the fast flowback initiative in the Uinta, and whether this practice can be exported to other SM basins? / A: Fast flowback is part of the broader Uinta development package focused on improving capital efficiency by reducing the timeline from initial capital spending to first oil production. The process uses larger temporary equipment to clear higher initial flow volumes and coordinates tighter simultaneous operations, pulling cash flow forward. It is fully integrated into Uinta operations and already baked into the 2026 budget, with no additional cross-basin details shared. / Q: After closing the Galvan divestiture that met the $1 billion target, is SM still planning additional non-core asset divestitures? / A: Management notes there is no update to existing policy, and the Galvan sale substantially met the original divestiture target. The expanded post-merger scale creates a larger set of potential non-core asset candidates, and the company will continue to systematically review the portfolio and evaluate market transaction trends moving forward.