SM Energy Co (SM)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes forward-looking statements. Refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements. Throughout the following discussion, we explain changes between the three months ended June 30, 2026, and the three months ended March 31, 2026 (“sequential quarterly” or “sequentially”), and the year-to-date (“YTD”) change between the six months ended June 30, 2026, and the six months ended June 30, 2025 (“YTD 2026-over-YTD 2025”).

Overview of the Company

General Overview

Our purpose. Our purpose is to improve communities by providing affordable, reliable energy. We are a premier operator of top-tier assets, utilizing state-of-the-art digital technology, data analytics, and artificial intelligence in our operations, and continually pursuing innovative ideas to optimize capital efficiency and well performance, while reducing our impact on shared natural resources and operating in an efficient, safe, and responsible manner.

Strategic vision and value creation. Our asset portfolio consists of high-quality assets in the Midland Basin and Delaware Basin, both of which are part of the larger Permian Basin of West Texas and New Mexico; the DJ Basin of Northeast Colorado; the Maverick Basin of South Texas; and the Uinta Basin of Northeast Utah. We believe our assets are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility. Through disciplined capital spending, active portfolio management, and continued development and optimization, we seek to maximize returns and increase the value of our top-tier asset base while maintaining financial flexibility and a sustainable approach to long-term value creation.

Our long-term vision and strategy are focused on sustainably growing value for all of our stakeholders by deploying our technical excellence and exceptional execution to improve and optimize our high-quality asset portfolio, generate cash flows, and maintain a disciplined, strong balance sheet. Our team executes our strategy by prioritizing safety, technological innovation, and stewardship of natural resources, which are foundational to our corporate culture. Our near-term strategic focus is post-Merger integration; maintaining safe operations; delivering consistent operational execution; maximizing free cash flow; and bolstering our balance sheet.

Responsible operations and governance. We are committed to exceptional safety, health, and environmental stewardship; supporting the professional development of a diverse and thriving team of employees; building and maintaining partnerships with our stakeholders by investing in and connecting with the communities where we live and work; and transparency in reporting our progress in these areas. The Operations and EHS Committee of our Board of Directors oversees, among other things, the effectiveness of our sustainability policies, programs and initiatives, monitors and responds to emerging trends, issues, and associated risks, and, together with management, reports to our Board of Directors regarding such matters. Further demonstrating our commitment to sustainable operations and environmental stewardship, compensation for our executives and employees under certain aspects of our compensation plans is calculated based on Company-wide performance metrics that include key financial, operational, environmental, health, and safety measures.

Merger with Civitas

On November 2, 2025, we entered into the Merger Agreement with Civitas. On January 27, 2026, our stockholders voted in favor of both proposals necessary to complete the Merger, which included approval of (i) the issuance of shares of SM Energy common stock to Civitas stockholders as contemplated by the Merger Agreement, and (ii) an amendment of our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 400 million shares.

On January 30, 2026, we completed the Merger in accordance with the terms of the Merger Agreement. Civitas was an independent exploration and production company focused on the acquisition, development, and production of crude oil and associated liquids-rich natural gas in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. We believe that the Merger enhances our premier portfolio across high-return U.S. shale basins, enabling the realization of operational efficiencies and cost synergies and providing opportunities for increased free cash flow to drive long-term differentiated stockholder value.

Under the terms of the Merger Agreement, subject to certain exceptions, each share of Civitas common stock was converted into the right to receive 1.45 shares of SM Energy common stock, with cash paid in lieu of fractional shares. On January 30, 2026, we issued 124 million shares to holders of Civitas common stock, representing 52 percent of the shares of SM Energy’s common stock outstanding immediately following the closing of the Merger. Based on the closing price of SM Energy common stock on January 30, 2026, the total stock consideration was valued at $2.4 billion.

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South Texas Divestiture

On April 30, 2026, we completed the South Texas Divestiture and received net cash proceeds of $896 million. The final purchase price remains subject to customary post-closing adjustments. The South Texas Divestiture substantially achieved our target of selling more than $1.0 billion in assets within one year of the completion of the Merger, which has enabled us to reduce debt and strengthen our capital structure. See Note 2 - Mergers, Acquisitions, and Divestitures in Part I, Item 1 of this report for additional discussion.

Debt Optimization

During the six months ended June 30, 2026, and into the subsequent period, we made meaningful progress toward strengthening our debt structure and addressing near-term maturities of certain of our Senior Notes. We issued our 2034 Senior Notes and used the majority of the net proceeds to repurchase $894 million in aggregate principal amount of our higher-coupon 2028 Civitas Senior Notes. After the completion of the South Texas Divestiture, we used the net cash proceeds to fully redeem our 2026 Civitas Senior Notes and our 2026 Senior Notes at par, on May 11, 2026, and June 1, 2026, respectively. Subsequent to June 30, 2026, on August 5, 2026, we instructed the trustee under the 2027 Senior Notes to issue a notice of full redemption of the $417 million aggregate principal amount outstanding, plus accrued and unpaid interest, and intend to complete such redemption on September 4, 2026. Our semi-annual borrowing base redetermination was completed in April 2026, reaffirming our borrowing base and aggregate lender commitments at their existing levels. As of June 30, 2026, we had no outstanding borrowings under our revolving credit facility.

Areas of Operations

Our oil-weighted, liquids-rich asset base spans four operating areas within the United States. Across all areas, gas composition is amenable to processing for NGL extraction, and each area provides future development and exploration opportunities within multiple proven formations.

Our Permian Basin assets comprise approximately 233,000 net acres located in the Midland Basin and Delaware Basin of West Texas and New Mexico (collectively referred to as the “Permian Basin”) with future development and exploration opportunities in the Spraberry, Wolfcamp, and Woodford formations in the Midland Basin; and the Avalon, Bone Spring, and Wolfcamp formations in the Delaware Basin.

Our DJ Basin assets comprise approximately 301,000 net acres located primarily in northeastern Colorado (“DJ Basin”) with future development and exploration opportunities in the Niobrara and Codell formations.

Following the completion of the South Texas Divestiture, our South Texas assets comprise approximately 95,000 net acres located in Dimmit and Webb counties, Texas (“South Texas”) with future development and exploration opportunities across our overlapping acreage position covering a portion of the western Eagle Ford shale and Austin Chalk formations.

Our Uinta Basin assets comprise approximately 99,000 net acres in northeastern Utah (“Uinta Basin”), including acreage in Utah previously reported as other non-core acreage that has been reclassified to the Uinta Basin, with future development and exploration opportunities in the Lower Green River and Wasatch formations.

Market Trends and Uncertainties

During the six months ended June 30, 2026, benchmark oil prices reached their highest levels since 2022, reflecting strong global demand and ongoing supply-side constraints resulting from geopolitical developments in the Middle East. Despite the resulting price volatility, we have not made material changes to our 2026 development plan and do not currently anticipate making material changes for the remainder of 2026.

Benchmark gas prices have been volatile throughout 2026, and our realized gas prices have been negatively impacted by basis differentials in both the Permian Basin and the DJ Basin. In the Permian Basin, gas gathering and takeaway capacity constraints contributed to significant basis differentials at the Waha hub throughout the first and second quarters of 2026, with differentials widening in April and May before narrowing in June. In June, additional pipeline capacity entered service and we expect additional pipeline capacity during the second half of 2026 to provide adequate takeaway capacity out of the Permian Basin. In the DJ Basin, unfavorable differentials at CIG Rockies persisted through the second quarter of 2026 as elevated storage inventories and continued spring shoulder season demand weakness kept regional prices below benchmark levels, with only modest improvement late in the second quarter as summer cooling demand increased.

As global commodities, the prices of oil, gas, and NGLs, as well as broader financial markets, remain subject to heightened uncertainty and volatility. Market conditions are influenced by factors including real or perceived geopolitical risks; War and Geopolitical Instability; Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”) production decisions; fluctuations in global supply and demand (including demand from China); U.S. Federal Reserve monetary policy; movements in the strength of the U.S. dollar; shipping channel constraints and disruptions including restrictions in and closures of the Strait of Hormuz; tariffs and trade restrictions; the potential for economic recession in the U.S.; and

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changes in global oil inventory in storage. These factors have resulted in commodity price volatility, contributed to instances of supply chain disruptions, inflation, and interest rate fluctuations, and could have further industry-specific impacts that may require us to adjust our business plan.

Historically, tariffs have led to increased costs for products exchanged in international trade, and have heightened global political tensions. Changes in the U.S. and international trade policies, including the imposition, modification, or repeal of tariffs, continue to contribute to economic and market uncertainty. In recent periods, U.S. tariff policies and related trade actions have shifted frequently, and retaliatory measures or additional policy changes by other countries remain possible, and could contribute to broader economic and market instability.

The timing and magnitude of future effects of the factors discussed above are inherently unpredictable and could have a material adverse effect on our business, financial condition, and results of operations to an extent we are unable to reasonably e

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes forward-looking statements. Refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements. For discussion related to changes in financial condition and results of operations for the year ended December 31, 2024, compared with the year ended December 31, 2023, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025.

Overview of the Company

Merger with Civitas

On November 2, 2025, we entered into the Merger Agreement with Civitas. On January 27, 2026, our stockholders voted in favor of both proposals necessary to complete the Civitas Merger, which included approval of (i) the issuance of shares of SM Energy common stock to Civitas stockholders as contemplated by the Merger Agreement, and (ii) an amendment of our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 200 million shares to 400 million shares.

On January 30, 2026, we completed the Civitas Merger in accordance with the terms of the Merger Agreement. Civitas was an independent exploration and production company focused on the acquisition, development, and production of crude oil and associated liquids-rich natural gas in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. We believe that the Merger will create a premier portfolio across the highest-return U.S. shale basins, driving significant free cash flow, enhancing stockholder value, and enabling the realization of significant operational and cost efficiencies.

Under the terms of the Merger Agreement, subject to certain exceptions, each share of Civitas common stock was converted into the right to receive 1.45 shares of SM Energy common stock, with cash paid in lieu of fractional shares. On January 30, 2026, we issued approximately 124 million shares to holders of Civitas common stock, representing 52 percent of the outstanding shares of SM Energy’s common stock upon the closing of the Merger. Based on the closing price of SM Energy common stock on January 30, 2026, the total stock consideration was valued at $2.4 billion.

Refer to Note 17 – Mergers, Acquisitions, and Divestitures in Part II, Item 8 of this report for additional discussion.

South Texas Asset Divestiture

On February 17, 2026, we entered into the PSA with Caturus to sell certain of our South Texas assets for a Purchase Price of $950 million, subject to certain customary purchase price adjustments set forth in the PSA. This Transaction is expected to advance our deleveraging goals and position us to substantially achieve our commitment to complete at least $1.0 billion of divestitures within one year following the closing of the Civitas Merger. Refer to Note 17 – Mergers, Acquisitions, and Divestitures in Part II, Item 8 for additional discussion and the definitions of Purchase Price and Transaction.

General Overview

Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to domestic energy security and prosperity, and having a positive impact in the communities where we live and work. We are a premier operator of top-tier assets in the Midland Basin, South Texas, and the Uinta Basin, utilizing state-of-the-art digital technology, data analytics, and AI in our operations, and continually seeking innovative ideas to help us optimize capital efficiency and well performance, while reducing our impact on shared natural resources and operating in an efficient, safe, and responsible manner.

Following the closing of the Civitas Merger, our asset portfolio consists of high-quality assets in the Midland Basin and Delaware Basin, both of which are part of the larger Permian Basin of Texas and New Mexico, the Maverick Basin of South Texas, the Uinta Basin of northeast Utah, and the DJ Basin of northeast Colorado. We believe our assets are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility. Through disciplined capital spending, strategic acquisitions and divestitures, and continued development and optimization, we seek to maximize returns and increase the value of our top-tier asset base while maintaining financial flexibility and a sustainable approach to long-term value creation.

Our long-term vision and strategy are focused on sustainably growing value for all of our stakeholders by deploying our technical excellence and exceptional execution to improve and optimize our high-quality asset portfolio, generate cash flows, and maintain a disciplined, strong balance sheet. Our team executes our strategy by prioritizing safety, technological innovation, and stewardship of natural resources, which are foundational to our corporate culture. Our near-term strategic focus is the successful integration of Civitas following the closing of the Merger on January 30, 2026. Integration is centered on maintaining safe operations, delivering consistent operational execution, and continuing to generate cash flows that enable us to return value to stockholders through fixed dividend payments, debt reduction, and share repurchases. Refer to Outlook for discussion of our 2026 capital program.

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We are committed to exceptional safety, health, and environmental stewardship; supporting the professional development of a diverse and thriving team of employees; building and maintaining partnerships with our stakeholders by investing in and connecting with the communities where we live and work; and transparency in reporting our progress in these areas. The Governance and Sustainability Committee of our Board of Directors oversees, among other things, the effectiveness of our sustainability policies, programs and initiatives, monitors and responds to emerging trends, issues, and associated risks, and, together with management, reports to our Board of Directors regarding such matters. Further demonstrating our commitment to sustainable operations and environmental stewardship, compensation for our executives and employees under certain aspects of our compensation plans is calculated based on Company-wide performance metrics that include key financial, operational, environmental, health, and safety measures. Refer to our Definitive Proxy Statement on Schedule 14A for the 2026 annual meeting of stockholders to be filed within 120 days from December 31, 2025, for additional discussion of our compensation program.

Market Trends and Uncertainties

As global commodities, the prices of oil, gas, and NGLs, as well as broader financial markets, remain subject to heightened uncertainty and volatility. Market conditions are influenced by factors including real or perceived geopolitical risks, War and Geopolitical Instability, OPEC+ production decisions, fluctuations in global supply and demand (including demand from China), U.S. Federal Reserve monetary policy, movements in the strength of the U.S. dollar, shipping channel constraints and disruptions, tariffs or trade restrictions, and changes in global oil inventory in storage. These factors have resulted in commodity price volatility, contributed to instances of supply chain disruptions, inflation, and interest rate fluctuations, and could have further industry-specific impacts that may require us to adjust our business plan. The timing and magnitude of future effects are inherently unpredictable.

Historically, tariffs have led to increased costs for products exchanged in international trade, and have heightened global political tensions. Recent U.S. government policies, including new and higher tariffs on imported goods, have increased economic uncertainty. These tariffs, along with retaliatory tariffs from other countries, could lead to reduced trade resulting from increased costs for imported goods and decreased demand for U.S. exports, as well as reduced investment and technological exchange between major economies. These outcomes could negatively impact global economic conditions, financial market stability, and commodity prices. Volatility in political, trade, regulatory, and economic conditions could have a material adverse effect on our financial condition or results of operations. We are unable to reasonably estimate the period of time that these market conditions will exist or the extent to which they will impact our business, results of operations, and financial condition.

Continuing volatility in political, trade, regulatory and economic conditions could impact supply and demand fundamentals, and any related declines in oil, gas, and NGL prices could lead to proved and unproved property impairments in the future. Future impairments of proved and unproved properties are difficult to predict, especially in a volatile price environment.

Outlook

We expect our total 2026 capital program to be approximately $2.65 billion to $2.85 billion, excluding acquisitions, which we expect to fund with cash flows from operations, with any remaining cash needs being funded by borrowings under our revolving credit facility. We plan to focus our 2026 capital program on highly economic oil development projects in our Midland Basin, South Texas, Uinta Basin, and DJ Basin assets. Refer to Outlook in Part I, Items 1 and 2 of this report for additional discussion.

2025 Financial and Operational Highlights

During 2025:

•We completed the integration of the Uinta Basin assets into our portfolio. Refer to Note 17 – Mergers, Acquisitions, and Divestitures in Part II, Item 8 of this report for additional discussion of the Uinta Basin Acquisition.

•Net equivalent production of 75.5 MMBOE drove net income of $648 million, net cash provided by operating activities of $2.0 billion, and Adjusted EBITDAX, a non-GAAP financial measure, of $2.3 billion. Refer to Non-GAAP Financial Measures below for additional discussion, including our definition of adjusted EBITDAX and reconciliations to net income and net cash provided by operating activities.

•Strong operating cash flow enabled us to reduce debt through $69 million in net repayments on our revolving credit facility, increase cash on hand to $368 million, and return capital to stockholders. We repurchased and subsequently retired 444,705 shares of our common stock at a cost of $12 million, excluding excise taxes, commissions, and fees, and paid $92 million in dividends.

Financial and Operational Results. Oil, gas, and NGL production revenue increased 17 percent to $3.1 billion for the year ended December 31, 2025, compared with $2.7 billion for 2024. This increase was primarily driven by a 21 percent increase in average net daily equivalent production to 206.8 MBOE, reflecting a full year of production from our Uinta Basin assets and continued strong well performance, partially offset by a three percent decrease in total realized price per BOE due to lower oil and NGL benchmark commodity prices. Oil, gas, and NGL production expense on a per BOE basis increased 15 percent to $11.72 per BOE for the year ended December 31, 2025, compared with 2024.

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We recorded net derivative gains of $178 million and $50 million for the years ended December 31, 2025, and 2024, respectively. These amounts include net derivative settlement gains of $132 million and $69 million for the years ended December 31, 2025, and 2024, respectively.

Operational activities during the year ended December 31, 2025, resulted in the following:

•Net cash provided by operating activities of $2.0 billion, compared with $1.8 billion for 2024.

•Net income of $648 million, or $5.64 per diluted share, compared with net income of $770 million, or $6.67 per diluted share for 2024.

•Adjusted EB

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