SM Energy's Record Year Paves Way for Bold Strategic Transformation

DENVER, CO – February 26, 2026 – SM Energy Company (NYSE: SM) has capped a year of record-breaking operational and financial performance with a series of bold strategic moves, including a transformative merger and a significant asset sale, positioning the company for a new era of growth and efficiency. The Denver-based firm announced record full-year 2025 production and operating cash flow, demonstrating resilience in a fluctuating energy market.

"SM Energy enters its next chapter as a century‑strong, future‑ready company," said President and CEO Beth McDonald in a statement. "In 2025, we delivered record cash flow from operations and record net production. We've built great momentum for 2026 with expanded scale and a clear strategic plan to create differentiating value."

Record Performance in a Challenging Market

The company's full-year 2025 results underscore a period of intense operational success. SM Energy reported a record net production of 75.5 million barrels of oil equivalent (MMBoe), a 21% increase over the previous year. This surge in output, of which 53% was oil, drove record operating cash flow of $2.01 billion and a record adjusted EBITDAX of $2.26 billion, up 13% from 2024.

Remarkably, these milestones were achieved against a challenging macroeconomic backdrop that saw benchmark oil prices decline by 14%. The company's ability to boost profitability despite lower commodity prices points to significant operational efficiencies and high-quality assets, particularly following the successful integration of its Uinta Basin properties. While the operational metrics soared, full-year net income stood at $648 million, a decrease from the $770 million reported in 2024, reflecting the broader pricing pressures. The fourth quarter of 2025 saw net income of $109 million, or $0.95 per diluted share, which fell slightly short of some analyst expectations and triggered a modest dip in the company's stock price following the announcement.

A Strategic Pivot: Reshaping the Portfolio

Beyond the impressive numbers, 2025 and early 2026 are defined by two pivotal transactions that are fundamentally reshaping SM Energy. The first was the closing of its merger with Civitas Resources on January 30, 2026. This all-stock deal creates a top-tier independent producer with a combined enterprise value of approximately $12.8 billion and a premier asset base centered in the Permian Basin. The company expects the merger to deliver between $200 million and $300 million in annual synergies, driven by reduced overhead and enhanced operational efficiencies. Credit rating agencies have responded favorably, with S&P Global Ratings upgrading SM Energy to 'BB' in recognition of its increased scale and diversity.

The second major move is a significant divestiture. The company announced an agreement to sell its Galvan Ranch assets in South Texas to Caturus Energy, LLC for $950 million in cash. The sale, which includes approximately 61,000 net acres in the Maverick Basin, substantially achieves the company's stated goal of divesting over $1.0 billion in assets. This strategic pruning allows SM Energy to concentrate on its highest-return assets while providing a massive influx of cash dedicated to strengthening its financial position.

Balancing Disciplined Growth with Shareholder Returns

A core theme of SM Energy's strategy is a dual focus on growth and returning capital to shareholders. The company used its strong 2025 cash flow to reduce net debt by $437 million, improving its leverage ratio to 1.05x. The proceeds from the South Texas asset sale are earmarked primarily for further debt reduction, underscoring a commitment to a robust balance sheet.

Shareholders have also been a key beneficiary of the company's performance. SM Energy returned $104 million to stockholders in 2025 through dividends and share buybacks. Looking ahead, the board has approved a 10% increase in the quarterly dividend to $0.22 per share. The company's 2026 capital allocation framework is clear: after dividends, 80% of free cash flow will be directed toward debt reduction, with the remaining 20% allocated to its share repurchase program. This disciplined framework signals management’s confidence in its ability to generate substantial free cash flow from the newly combined and streamlined asset base.

The Path Forward: 2026 Outlook and Execution

With the merger and divestiture setting a new foundation, SM Energy's 2026 outlook reflects a strategy of disciplined investment. The company plans a capital expenditure budget of $2.65–$2.85 billion, a 14% reduction compared to pro forma 2025 spending, while projecting total net production of 146–153 MMBoe. This plan involves operating fewer rigs and completion crews, focusing capital on the highest-return development projects across its expanded portfolio in the Permian, DJ, Uinta, and remaining South Texas basins.

The primary strategic priorities for the year are clear: successfully integrate the Civitas assets, capture the identified synergies, and use the enhanced scale to maximize free cash flow. While the market has rewarded the company's long-term strategic vision with improved credit ratings, the slight miss on fourth-quarter earnings serves as a reminder that investors will be watching execution closely. The path forward for the newly enlarged SM Energy is one of integration and optimization, with the ultimate goal of proving that its bold strategic pivot can deliver sustained, superior returns in the competitive energy landscape.