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    SM
    Earnings call· Jun 2026(Q2 FY26)

    SM Energy Q2 FY26 earnings call SM

    Aug 6, 2026 Source

    Executive summary

    SM Energy Q2 FY26 — Strong Free Cash Flow, Accelerated Synergies, and Deleveraging

    SM Energy delivered strong Q2 FY26 results, driven by rapid merger integration and significant synergy realization, leading to substantial adjusted free cash flow generation. The company accelerated debt reduction and initiated share buybacks, strengthening its balance sheet and capital return framework. Management emphasized the platform's enhanced value and future earnings power, with a focus on disciplined capital and maximizing free cash flow.

    Highlights

    5

    • Generated $467 million of adjusted free cash flow in Q2 FY26.

    • Actioned approximately 95% of the $375 million merger synergy target, ahead of schedule.

    • Reduced net debt by $1.1 billion during the quarter, ending with $6.25 billion.

    • Lowered full-year recurring G&A guidance by approximately $50 million at the midpoint.

    • Closed the Galvan divestiture, substantially achieving the $1 billion divestiture target.

    Guidance & targets

    4
    CategoryTargetConfidence
    Second half production outlook
    435,000 to 440,000 barrels of oil equivalent per day
    high materiality
    High
    Full year capital expenditures
    $2.65 billion to $2.85 billion
    high materiality
    High
    Full year recurring G&A
    lowering by approximately $50 million at the midpoint
    medium materiality
    High
    2027 Capital program
    disciplined capital program focused on maximizing free cash flow
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    DJ Basin
    Combined company completion practices, particularly Simul-frac, continue to drive real capital efficiencies. The consolidated footprint has made pad design, scheduling, and cost structure much more competitive.
    		———low-cost, high-margin business
    South Texas
    The Galvan sale strengthened the balance sheet and high-graded the remaining position towards higher-margin liquids-rich development, weighted towards the Austin Chalk.
    		———higher-margin liquids-rich development
    Uinta
    Standardized development program pairing completion innovations with faster flowback and longer laterals, meaningfully improving well economics and cycle times. Developing position with 4-mile laterals, leveraging contiguous acreage. Innovations include Simul-frac, natural gas frac fleet, remote frac equipment, sand slurry pipeline, and dual-string coil drillouts.
    Completion pace: over 2,600 foot per dayCompletion pace comparison: more than double early 2026 rateD&C cost savings: over $1 million per well
    		————

    Operational metrics

    19
    Adjusted EBITDAX
    $1.4 billion
    Q2 FY26

    Reported strong financial results.

    Adjusted net income
    $526 million
    Q2 FY26

    Reported strong financial results.

    Adjusted diluted EPS
    $2.19
    Q2 FY26

    Reported strong financial results.

    Capital expenditures
    $717 millionbelow guidance midpoint of $835 million
    Q2 FY26

    Primarily driven by D&C timing.

    Capital returned to stockholders
    $137 million
    Q2 FY26

    Represents 30% of adjusted free cash flow, through dividend and share buybacks.

    Dividend
    $53 million
    Q2 FY26

    Part of capital returned to stockholders.

    Share repurchases
    $84 million
    Q2 FY26

    Used to jump start buybacks, consistent with 80/20 framework.

    Merger synergy target actioned
    95%
    Q2 FY26

    Approximately 95% of the $375 million run rate synergy target has been actioned.

    Merger synergy target (total)
    $375 millionnearly double the original
    FY26

    Run rate synergy target, with $355 million actioned to date.

    Merger synergy present value
    $1.8 billion
    Q2 FY26

    Present value of synergies actioned.

    Net debt reduction
    $1.1 billion
    Q2 FY26

    Reduction in net debt during the quarter.

    Net debt
    $6.25 billion
    Q2 FY26

    Ending net debt, including cash and undrawn revolver.

    Cash and undrawn revolver
    $620 million
    Q2 FY26

    Included in net debt calculation.

    Senior notes redeemed (2026)
    $819 million
    Q2 FY26

    All senior notes due in 2026 redeemed using Galvan divestiture proceeds.

    Senior notes called for redemption (2027)
    remaining
    Q2 FY26

    Called the remaining 2027 notes for redemption, leaving no senior note maturities until mid-2028.

    Leverage
    low 1x
    Q2 FY26

    Company is on a visible path to low 1x leverage.

    Uinta completion pace
    over 2,600more than double early 2026 rate
    Q2 FY26

    Increased completion pace due to innovations like Simul-frac and dual-string coil drillouts.

    Uinta D&C cost savings
    over $1 million
    past 6 months

    Realized from drilling, completion, and equipment cost savings due to efficiency initiatives.

    Divestiture target (total)
    $1 billion
    FY26

    Substantially achieved with the Galvan sale within a year of the merger.

    Industry KPIs

    3
    MetricValueDetails
    D c efficiency rig activity2,600foot per day
    Basin level production volume440,000boe/d
    FCF shareholder distributions$137 millionUSD

    Deals & partnerships

    1
    Not statedSale of South Texas assets (Galvan)

    Substantially achieved the company's $1 billion divestiture target within a year of the merger. Proceeds used to redeem $819 million of 2026 senior notes.

    What to watch in Q3 FY26

    5

    Leverage level

    rest of this year
    Currentlow 1x area calculated with mid-cycle commodity pricing
    Targetlow 1s area at a mid-cycle commodity price

    Why it matters

    Reaching target leverage will enable a shift in capital allocation towards a higher percentage of share buybacks.

    I would just say, to answer your question specifically, for now, just anticipating us buying back at the same pace, kind of sitting that 20% as a minimum. And then we'll just be tracking it as we go forward the rest of this year.

    Q&A highlights

    7

    Is the co-development of Lower Spraberry, Wolfcamp D, and Wolfcamp A in Howard County a new development pattern for SM Energy?

    The company stated this is not a new development pattern, as SM has historically delivered strong returns from these zones in Howard County. They are leveraging best practices from the merger to unlock additional acreage and have high confidence in executing U-turn wells.

    “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.”

    asked by Gabe Daoud · answered by Elizabeth McDonald

    2 min read6 chapters

    Detailed Narrative

    01

    Merger Integration and Synergy Realization

    SM Energy has actioned approximately 95% of its $375 million run rate synergy target, which was nearly double the original target. This accelerated integration is ahead of schedule and has resulted in a present value of $1.8 billion in synergies. The organizational capability brought by the merger is directly impacting the cost structure, including a lower G&A outlook.

    02

    Strong Financial Performance and Capital Allocation

    The company generated $467 million in adjusted free cash flow during Q2 FY26. Of this, $137 million was returned to stockholders, comprising $53 million in dividends and $84 million in share repurchases. This aligns with the 80/20 framework, with the company anticipating increasing the percentage to buybacks as leverage moves into the low-1x area at mid-cycle commodity pricing.

    03

    Balance Sheet Strengthening and Deleveraging

    SM Energy reduced net debt by approximately $1.1 billion during the quarter, ending with net debt of $6.25 billion, including $620 million in cash and an undrawn revolver. Proceeds from the Galvan divestiture were used to redeem all $819 million of 2026 senior notes. Additionally, the remaining 2027 notes were called for redemption, pushing senior note maturities out to mid-2028 and placing the company on a visible path to low-1x leverage.

    04

    Operational Execution and Production Outlook

    Production averaged approximately 440,000 barrels of oil equivalent per day in Q2 FY26, falling within guidance. The company is raising its second half production outlook to a range of 435,000 to 440,000 boe/d, with oil at approximately 238,000 barrels per day. The full-year capital plan of $2.65 billion to $2.85 billion has been reaffirmed, demonstrating execution within a disciplined capital framework.

    05

    Uinta Basin Efficiency Gains

    In the Uinta Basin, SM Energy has standardized its development program, combining completion innovations with faster flowback and longer laterals. These changes are significantly improving well economics and cycle times. The company is developing its position with 4-mile laterals and has increased its completion pace to over 2,600 feet per day, more than double the early 2026 rate, resulting in over $1 million per well in D&C cost savings.

    06

    Asset Portfolio High-Grading

    The divestiture of the Galvan assets in South Texas substantially achieved the company's $1 billion divestiture target and high-graded the remaining South Texas position towards higher-margin, liquids-rich development, particularly in the Austin Chalk. In the Permian and DJ Basins, the combined footprint is delivering procurement and scheduling efficiencies, driving capital efficiencies and competitive cost structures.

    AI-generated summary of the company’s earnings call. Not investment advice.