SM Energy Q3 Earnings Call Highlights

Key Points

• SM Energy has actioned $400 million in merger-related synergies, double its original target, and says it remains on track to reach low-one-times leverage by year-end 2026. Net debt fell to $6 billion from $7.4 billion at the end of Q1.
• Q3 production averaged 433,000 barrels of oil equivalent per day, while oil output was affected by temporary Permian shut-ins and Uinta transportation constraints. The company expects Q4 oil production of 229,000–239,000 barrels per day and sees 2027 production of 435,000–440,000 boe/d as a useful baseline.
• SM Energy reported $397 million in adjusted free cash flow and returned $133 million to shareholders through dividends and buybacks. It narrowed full-year capital spending guidance to about $2.75 billion and raised its cash-tax outlook to $100 million–$120 million.

SM Energy NYSE: SM said it has actioned $400 million in merger-related synergies, twice its original target, and remains on track to reach its leverage goal by the end of 2026 as it shifts its focus from integration to improving capital efficiency.

On its third-quarter earnings call, the company reported production of 433,000 barrels of oil equivalent per day and adjusted free cash flow of $397 million. Executives said Permian Basin downtime and transportation constraints in the Uinta Basin reduced oil production, while efficiency gains largely offset inflation in several operating costs.

President and CEO Beth McDonald said the key integration work streams were largely complete. The company substantially achieved its goal of at least $1 billion in divestitures within a year of the merger’s closing through the $950 million Galvan sale, with proceeds directed toward debt reduction, she said.

Production constraints and outlook

Third-quarter oil production was 230,000 barrels per day, within guidance but about 2% below its midpoint. Chief Operating Officer Blake McKenna attributed the shortfall primarily to compliance work and temporary production shut-ins in the Permian, as well as limited takeaway capacity in the Uinta.

The Permian work is complete, McKenna said. In the Uinta, an unplanned refinery outage redirected barrels to rail when terminal capacity was already fully utilized. The refinery has returned to service, but rail capacity is expected to remain constrained until a terminal expansion begins operating in the first quarter of 2027.

McKenna estimated that the Permian and Uinta issues together reduced third-quarter oil volumes by approximately 4,000 barrels per day. For the fourth quarter, SM Energy expects oil production of 229,000 to 239,000 barrels per day and capital spending of approximately $610 million.

McDonald said a production rate of 435,000 to 440,000 barrels of oil equivalent per day, including approximately 238,000 barrels of oil per day, remains a useful baseline for 2027. The company is weighing early-year Uinta takeaway constraints against the possibility of temporarily shifting activity to other basins and plans to provide formal guidance in February.

Cash flow, debt and capital spending

SM Energy generated $1.1 billion in operating cash flow and $1.3 billion in adjusted EBITDAX during the quarter, Chief Financial Officer Wade Pursell said. Capital expenditures before changes in accruals were $747 million.

The company returned $133 million to shareholders through $81 million in share repurchases and $52 million in dividends. It also redeemed $417 million of 2027 notes at par. Net debt ended the quarter at $6 billion, down from $7.4 billion at the end of the first quarter.

Pursell said SM Energy remains on track to reach low one-times leverage at mid-cycle prices by year-end. McDonald said the company’s 80/20 framework will continue to balance debt reduction and share repurchases.

The company narrowed its full-year capital spending guidance to approximately $2.75 billion, the midpoint of its previous range. McDonald said 2026 capital spending, excluding one-time costs, remains a useful starting point for thinking about 2027, although the company continues to assess oil prices, activity and inflation.

SM Energy now expects full-year cash taxes of approximately $100 million to $120 million, up from a previously provided sensitivity of about $50 million at $85 oil. Pursell said tax attributes that offset income earlier in the year have largely been used, leaving incremental taxable income at current commodity prices largely subject to cash taxes at the full applicable rate.

Well performance and costs

McKenna highlighted improved performance from 21 Delaware Basin wells brought online this year across five pads. He said they are producing about 40% more oil per foot than the company’s 2024 wells and are running about 24% ahead of its 2025 wells at six months.

In the Uinta, the first pad fully designed and executed by SM Energy came online in August. Its normalized first 30 days of production delivered the company’s highest rates in the basin, McKenna said, while cautioning that the wells remain early in their productive lives.

Uinta completion costs per lateral foot fell to about $400 in the third quarter from $475 in the first quarter, McKenna said. The company’s operations synergy program actioned $215 million against a raised target of $200 million.

McDonald said the 2026 budget originally included $50 million of the $400 million in actioned synergies. Additional savings are already helping offset inflation, she said, while the company expects the full run-rate benefit of the merger in 2027.

About SM Energy (NYSE:SM)

SM Energy Company is an independent oil and gas company focused on acquiring, exploring, developing and producing crude oil, natural gas and natural gas liquids. Its operations are concentrated in Texas, including the Midland Basin in the Permian Basin and the South Texas region.

The company's business includes developing oil and gas properties and managing the infrastructure and operations needed to bring production to market. Its portfolio has evolved over time as SM Energy has made acquisitions and divested assets to focus on its core areas.

Founded in 1908 as St.

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