SM Energy Q2 2026 Earnings Report

SM Energy EPS Results

• Actual EPS: $2.19
• Consensus EPS: $1.96
• Beat/Miss: Beat by +$0.23
• One Year Ago EPS: $1.50

SM Energy Revenue Results

• Actual Revenue: $2.50 billion
• Expected Revenue: $2.02 billion
• Beat/Miss: Beat by +$475.00 million
• YoY Revenue Growth: +215.30%

SM Energy Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 10:00AM ET

SM Energy (NYSE:SM) (NYSE: SM) is an independent energy company engaged in the exploration, development and production of oil, natural gas and natural gas liquids. Its operations focus on acquiring and developing oil and gas properties and producing hydrocarbons from onshore assets in the United States.

The company’s principal operations are concentrated in the Permian Basin of West Texas and the South Texas region. SM Energy has also expanded its U.S. operating portfolio through acquisitions, including assets in Utah’s Uinta Basin. Its products are sold to customers in energy and industrial markets through regional pipeline and other transportation networks.

Founded in 1908 as St. Mary Land & Exploration Company, the business adopted the name SM Energy Company in 2010. The company is headquartered in Denver, Colorado, and its activities are focused on responsible development of domestic oil and natural gas resources.

SM Energy Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Free cash flow and shareholder returns strengthened: SM Energy generated $467 million of adjusted free cash flow in the second quarter and returned $137 million to shareholders, including $84 million in share repurchases.
• Positive Sentiment: Integration and cost savings are ahead of plan: The company has actioned approximately 95% of its $375 million run-rate merger synergy target and lowered full-year recurring G&A guidance by about $50 million at the midpoint.
• Positive Sentiment: Balance-sheet deleveraging accelerated: Net debt fell by roughly $1.1 billion to $6.25 billion, the 2026 notes were redeemed, and the remaining 2027 notes were called, leaving no senior note maturities until mid-2028.
• Positive Sentiment: Production and operational efficiency outlook improved: Second-half production guidance was raised to 435,000–440,000 barrels of oil equivalent per day, while Uinta development initiatives—including four-mile laterals and faster completion processes—are generating more than $1 million in drilling and completion savings per well.

Presentation

[Operator]

Greetings. Welcome to the SM Energy second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I would now like to turn the conference over to Megan Hays, SM Energy's Vice President, Investor Relations. Thank you, Megan. You may begin.

[Megan Hays, VP of Investor Relations at SM Energy]

Yes, thank you. Good morning. Welcome to SM Energy's second quarter 2026 earnings call. I'm Megan Hays, Vice President of Investor Relations. It's a busy morning for everyone, so we'll jump right in. Joining me are Beth McDonald, our President and CEO, Wade Pursell, our Executive Vice President and CFO, and Blake McKenna, our Executive Vice President and COO.

[Megan Hays, VP of Investor Relations at SM Energy]

Today's discussion will reference forward-looking statements. Please see slide two of our earnings presentation, as well as the risk factors section of our most recent Form 10-K for risks and uncertainties that could cause actual results to differ materially. We will also reference non-GAAP financial metrics throughout the call.

[Megan Hays, VP of Investor Relations at SM Energy]

You can find definitions and reconciliations to the closest comparable GAAP metrics in yesterday's earnings release, Form 10-Q, and in the slide deck available on our website. When we get to Q&A, please limit your inquiries to one question and one follow-up, as this simply allows us to get more of your questions in today. With that, I'll turn it over to Beth.

[Beth McDonald, President and CEO at SM Energy]

Thanks, Megan. Good morning, everyone. The second quarter was our first full quarter operating as a combined entity. We generated $467 million of adjusted free cash flow, returned $137 million to stockholders, and have now actioned approximately 95% of our merger synergy target.

[Beth McDonald, President and CEO at SM Energy]

Together, those results demonstrate that SM is already stronger, more cash generative, and more valuable than either legacy business on its own, and they underscore why this platform is materially undervalued today. Integrate, execute, bolster. The framework for 2026 hasn't changed, and this quarter is proof that it's working. I'll take each in turn. On integrate, we have now actioned approximately $355 million of our $375 million run rate synergy target, which we raised last quarter to nearly double the original.

[Beth McDonald, President and CEO at SM Energy]

The organizational capability we brought to this merger is real, and it's now showing up directly in our cost structure, including a lower G&A outlook that Wade will cover. Overall, we are ahead of the pace that we laid out when we announced the merger. On execute, production averaged approximately 440,000 bbl of oil equivalent per day within our guidance range and building into the second half of 2026, pro forma for the divestiture of our Galvan assets in South Texas.

[Beth McDonald, President and CEO at SM Energy]

On the strength of that trajectory, we are increasing our second half production outlook and reaffirming our full year capital plan. Wade will take you through that detail, but the takeaway is clear: we are executing within a disciplined capital framework and turning the combined platform into a higher free cash flow, higher return business for our stockholders.

[Beth McDonald, President and CEO at SM Energy]

On bolster, we closed the Galvan divestiture, substantially achieving our billion-dollar divestiture target within a year of the merger and directed the proceeds to debt reduction, putting us on a visible path to low one times leverage. Alongside that, we also repurchased $84 million of shares this quarter under our capital return framework.

[Beth McDonald, President and CEO at SM Energy]

In addition, with the cash on hand at quarter end, we provided notice to redeem the remaining 2027 senior notes, underscoring the rapid progress we've made in strengthening the balance sheet. That combination, a stronger balance sheet and rising free cash flow with buybacks already underway, is a key part of why we believe SM's equity is so attractive today.

[Beth McDonald, President and CEO at SM Energy]

In short, this quarter shows we are doing what we said we would do: integrating at pace, executing the plan, strengthening the balance sheet, and demonstrating the free cash flow and returns power of SM. I'll now turn the call over to Wade, who will cover the second quarter results and our guidance updates.

[Wade Pursell, EVP and CFO at SM Energy]

Thanks, Beth. Good morning, everyone. Our financial results were strong. Adjusted EBITDAX was $1.4 billion. Adjusted net income was $526 million, or $2.19 per diluted share. We generated $467 million of adjusted free cash flow. Capital expenditures for the quarter totaled $717 million, below our guidance midpoint of $835 million, primarily driven by D&C timing. We are reaffirming full year capital guidance of $2.65 billion-$2.85 billion.

[Wade Pursell, EVP and CFO at SM Energy]

Again, we generated $467 million of adjusted free cash flow for the quarter. We returned 30% of it, or $137 million, to shareholders through the dividend and share buybacks, the dividend being $53 million and $84 million used to jumpstart our buybacks, consistent with our 80/20 framework that we've discussed. Leverage continues to fall, and as it enters the low one times area calculated with mid-cycle commodity pricing, we anticipate increasing the percentage to buybacks.

[Wade Pursell, EVP and CFO at SM Energy]

Speaking of leverage and turning to the balance sheet, we reduced net debt by about $1.1 billion during the quarter, ending with net debt of approximately $6.25 billion. That includes $620 million of cash and an undrawn revolver. We used the Galvan divestiture proceeds to redeem all $819 million of our senior notes due in 2026. Yesterday, we called the remaining 2027 notes for redemption, leaving no senior note maturities until mid-2028.

[Wade Pursell, EVP and CFO at SM Energy]

Turning to guidance, we are raising our second half production outlook to a range of 435,000-440,000 bbl of oil equivalent per day, with oil at approximately 238,000 bbl per day. As we've said, the second half average production rate is the right framing for 2027. We're in the early stages of building the 2027 plan. You should expect a disciplined capital program focused on maximizing free cash flow, and we'll provide more color on the volume and capital cadence as we approach year-end.

[Wade Pursell, EVP and CFO at SM Energy]

Full year 2026 ranges are in the release, with a partial year of Civitas Resources and the Galvan divestiture both in this year's numbers, the second half average is the cleaner baseline to model. Additionally, reflecting accelerated integration and full capture of our G&A synergies, we are lowering full year recurring G&A guidance by approximately $50 million at the midpoint. This is a durable run rate reduction with a significant free cash flow benefit. On that note, I'll hand it to Blake for a review of asset performance. Blake?

[Blake McKenna, EVP and COO at SM Energy]

Thanks, Wade. Our results start at the asset level, so let me walk through the basins briefly. In the Permian, our combined footprint delivers procurement and scheduling efficiencies and gives us more flexibility. We're using our scale and technical team to continue unlocking the value of this high return inventory. In the DJ Basin, our combined company completion practices, simul-frac in particular, continue to drive real capital efficiencies.

[Blake McKenna, EVP and COO at SM Energy]

It is a low cost, high margin business. The consolidated footprint has made pad design, scheduling, and the cost structure much more competitive. In South Texas, the Galvan sales strengthen our balance sheet and high graded the remaining position toward higher margin liquids-rich development, weighted towards the Austin Chalk. I want to spend a moment on the Uinta and the work our team is doing to drive efficiency and productivity.

[Blake McKenna, EVP and COO at SM Energy]

This year, our team has standardized our Uinta development program to pair completion innovations with faster flow back and longer laterals. Together, these changes are meaningfully improving well economics and cycle times, as a result, pulling cash flow forward. We are developing our position with four-mile laterals, which our contiguous acreage makes possible.

[Blake McKenna, EVP and COO at SM Energy]

Our blocked up acreage is a structural advantage few operators can match, and long lateral development is a deliberate capital efficiency lever that improves returns across the program. On the completion side, we've deployed several innovations, including simul-frac operations using natural gas frac fleet, remote frac equipment, a sand slurry pipeline, and dual-string coil drill outs across our long lateral program. Our completion pace has increased over 2,600 ft per day, which is more than double our early 2026 rate.

[Blake McKenna, EVP and COO at SM Energy]

These initiatives are delivering more than $1 million per well in drilling completion and equipment cost savings that we have realized over the past six months. We have several compelling levers to pull in the Uinta. Together they are making this oil basin a more efficient, higher value part of SM's portfolio. More importantly, the Uinta is one example of a broader advantage at SM, a technical organization that systematically captures, shares, and scales innovation across our portfolio, multiplying the impact of every improvement. With that, I'll turn it back to Beth.

[Beth McDonald, President and CEO at SM Energy]

Thanks, Blake. Before we go to Q&A, let me leave you with four things that show our value creation flywheel is turning today. First, the merger is delivering, with 95% of our synergies actioned at a present value of $1.8 billion. Second, we are generating substantial free cash flow and returning it to stockholders.

[Beth McDonald, President and CEO at SM Energy]

As leverage moves toward low 1x at mid-cycle pricing, you should expect the mix of that free cash flow to shift progressively to buybacks. At today's valuation, we see repurchasing SM shares as a highly compelling use of our capital, and our 80/20 framework is designed to get us to the right leverage level while taking advantage of that opportunity along the way. Third, we are de-risking the balance sheet with no senior note maturities until mid-2028.

[Beth McDonald, President and CEO at SM Energy]

Fourth, we are constantly high-grading our assets and using our scale to ensure our capital goes to the highest return opportunities. We expect 2027 to showcase the full earnings power of this platform. A full year of the combined company, one-time costs behind us, synergies at run rate, and a balance sheet built for returns. I look forward to your questions.

[Megan Hays, VP of Investor Relations at SM Energy]

Thank you, Beth. Operator, please open the line for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

[Operator]

As a reminder, we ask that you please limit yourself to one question and one follow-up question. Our first questions come from the line of Gabe Daoud with Truist. Please proceed with your questions. Gabe, could you please check if you're self-muted?

[Gabe Daoud, Analyst at Truist]

Thanks, operator. Sorry about that. Morning, everyone, Beth and team. Appreciate the time. I was hoping could maybe start off with an ops question, maybe circling back to what I asked last quarter. Just really curious about Howard County and the progress there, particularly with these U-turn wells. The Zuzu wells, it looks like maybe just south of that, you're targeting co-development of the Lower Spraberry Wolfcamp D and Wolfcamp A. Is that a new development pattern for you guys in that area?

[Beth McDonald, President and CEO at SM Energy]

No, I would say I'll start off, and then I'll hand it to Blake to add anything that he wants to. That's not a new development for us. As you know, SM has been in Howard County and has really delivered strength in our returns profile there from the Spraberry, the Dean, and the Wolfcamp throughout that section. What I would say is we're using the best practices that we've pulled together from a strengthened SM after the merger in order to be able to unlock additional acreage in and around Howard County.

[Blake McKenna, EVP and COO at SM Energy]

Just to follow up on that, we feel great about our U-turns with the combined team and the work that the DJ team has done on U-turns as well successfully. We have a high degree of confidence in the operational ability of our teams to execute U-turns.

[Gabe Daoud, Analyst at Truist]

Got it. Okay, sounds good. That's helpful. Maybe second follow-up, another ops related question. Just curious, offsetting the Zuzu wells or looks like some four-mile laterals that have maybe targeted or have gone back to a DSU that hasn't maybe been touched in a few years, and looks like these wells are performing pretty well. Curious if you can maybe talk a little bit about that and maybe if some enhanced completion designs have led to some outperformance here. Thank you.

[Blake McKenna, EVP and COO at SM Energy]

Yep, appreciate the question. Four-mile laterals have been a big win for us. On the completion design front, we generally like to not comment too much on it, but I think looking at the performance of the wells should give you an indicator of the progress we're making as a team.

[Gabe Daoud, Analyst at Truist]

Okay, great. Thanks, guys.

[Beth McDonald, President and CEO at SM Energy]

Thanks.

[Operator]

Thank you. Our next questions come from the line of Michael Scialla with Stephens. Please proceed with your questions.

[Michael Scialla, Analyst at Stephens]

Hi, good morning.

[Beth McDonald, President and CEO at SM Energy]

Good morning.

[Michael Scialla, Analyst at Stephens]

Morning. Looks like you're getting pretty close to your leverage target, and you've pushed off the nearest maturities. I want to see if we should anticipate any change to the return framework. Are you still planning to direct 80% of the post-dividend free cash flow to the balance sheet?

[Wade Pursell, EVP and CFO at SM Energy]

Yeah. Hi, Mike. Great question. We're obviously very pleased with the pace of the delevering that's been happening. We're very pleased with our ability to buy back $84 million of stock during the second quarter, hitting that 20% target with the higher amount. I would say going forward, we've mentioned that the target to get to really what we consider. We want a really strong balance sheet, and that's that low ones area at a mid-cycle commodity price.

[Wade Pursell, EVP and CFO at SM Energy]

Obviously, right now, the trailing second quarter, I don't think anybody would consider that mid-cycle. That's our direction. We're getting there, though. I would just say to answer your question specifically, for now, just anticipating us buying back at the same pace and kind of setting that 20% as a minimum. Then we'll just be tracking it as we go forward the rest of this year.

[Michael Scialla, Analyst at Stephens]

Understood. I want to get your latest thoughts on some of the newer zones you've been testing, maybe the Woodford and the Delaware, Barnett, and the Midland.

[Blake McKenna, EVP and COO at SM Energy]

Yep. We're really happy with some of the extension and step-outs we've had. It's very much still in progress and in process. To my comment earlier, want to stay away from the specifics of it. The four-mile laterals and the great technical work of the team, I think have allowed us to go execute on what we've done so far and feel good about future potential.

[Beth McDonald, President and CEO at SM Energy]

The only thing I would add, Mike, to that is that, as you look at the history of SM and what we've been able to do in pushing the technical limits of all the zones and showing through our numbers the success of that, we did that in the Woodford several years ago, and we just continue to compound our best practices and capital efficiency there to continue to drive the returns. We were a little bit ahead of the game there. I think most of the industry is catching up in the Midland Basin, we're continuing to push the limits just like we've always done with success.

[Michael Scialla, Analyst at Stephens]

Great. Thank you.

[Operator]

Thank you. Our next question has come from the line of Zach Parham with TD Cowen. Please proceed with your questions.

[Beth McDonald, President and CEO at SM Energy]

Hey, Zach.

[Operator]

Zach, could you please check if you're self-muted?

[Beth McDonald, President and CEO at SM Energy]

Operator, we can go to the next question, we'll circle back to Zach.

[Operator]

Our next question has come from the line of Geoff Jay with Daniel Energy Partners. Please proceed with your questions.

[Geoff Jay, Analyst at Daniel Energy Partners]

Hey. I was kind of interested in this fast back, flow back effort. Can you give me a little more color on that? Then I wondered if this is something that you sort of imported to the Uinta from another basin, or if this is a potentially a technology or practice you could export to your other basins.

[Blake McKenna, EVP and COO at SM Energy]

Yeah, great question, Geoff. Appreciate it. For us, it's part of our larger full development package that we do in the Uinta. We aim for a high level of capital efficiency, right? That means making sure our rig cadence, frac cadence is there, and it's part of our efforts to continue to improve timing and cost reductions.

[Blake McKenna, EVP and COO at SM Energy]

What that fast flow back is going to mean getting larger equipment out there temporarily to get higher volume flows back and working with the team to have more closer simultaneous operations to reduce the timing from when we spend the first dollar to when we produce the first barrel of oil. It's a part of that whole process that you would kind of see in our slide deck as well. It's integrating into our full entire operations cadence to bring our drills forward a little bit on the Uinta, which has been baked into our budget for this year.

[Geoff Jay, Analyst at Daniel Energy Partners]

Excellent. Thank you.

[Operator]

Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Michael Scialla with Stephens. Please proceed with your questions.

[Michael Scialla, Analyst at Stephens]

Yeah, I just wanted to follow up and get your latest thoughts on, divestitures. I know the Galvan sale got you near your target. I want to see if you're still thinking about additional sales or have you changed your mind there?

[Beth McDonald, President and CEO at SM Energy]

Thanks, Mike. The answer really hasn't changed for us, so there's no real update. The Galvan sale substantially achieved our $1 billion target, strengthened the company in a short time frame. With our expanded scale, this really creates a larger candidate set for accretive non-core divestitures. We've observed recent transactions and where those have traded. We'll persistently review our portfolio and consider those trends as we move forward.

[Michael Scialla, Analyst at Stephens]

Got it. I wanted to ask Blake, on slide eight, those capital efficiencies in the Uinta, are those reflecting the SM design wells? If so, can you say how the well productivity of those maybe compares to what you were seeing with XTO?

[Blake McKenna, EVP and COO at SM Energy]

Yep, great question. There has been a great knowledge transfer from XTO into the SM team, and so I think you see that reflected with some of the completions innovations with Simulfrac, NetGas into the RemoteFrac. Kind of through three is where a lot of those innovations the team integrated into SM at acquisition.

[Blake McKenna, EVP and COO at SM Energy]

Then we've continued to the sand slurry dual-string coil drill outs as well as these IP accelerations, right? That's where those innovations have continued into the SM team. When we're talking about SM drilled, spaced, designed completions, we have a large pad coming on in September, which is our Miracle Pad, and that will be the culmination of our new program.

[Michael Scialla, Analyst at Stephens]

Got it. Thank you, guys.

[Operator]

Thank you. We have reached the end of our question and answer session. I would now like to hand the floor back over to Beth McDonald for any closing comments.

[Beth McDonald, President and CEO at SM Energy]

Thanks, Daryl. Thank you all for joining us this morning and for your continued interest in SM. What this quarter shows is that our value creation flywheel is working and sustainable. Strong free cash flow, a stronger balance sheet, and growing returns to stockholders. We're focused on executing the second half and compounding that value into 2027. We appreciate your time today and look forward to speaking to many of you soon. Have a good day.

[Operator]

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.

Participants

Executives

• Megan Hays, VP of Investor Relations
• Beth McDonald, President and CEO
• Wade Pursell, EVP and CFO
• Blake McKenna, EVP and COO

Analysts

• Gabe Daoud, Analyst at Truist
• Michael Scialla, Analyst at Stephens
• Geoff Jay, Analyst at Daniel Energy Partners