Full Transcript: SM Energy Q2 2026 Earnings Call

SM Energy (NYSE: SM ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary SM Energy reported $467 million in adjusted free cash flow for Q2 2026, returning $137 million to shareholders and achieving 95% of their merger synergy target.

The company increased its second half production outlook, reaffirmed its full-year capital plan, and emphasized its disciplined capital framework aimed at enhancing free cash flow and returns. SM Energy closed the Galvan divestiture, significantly reducing debt and planning to redeem remaining 2027 senior notes, thereby strengthening the balance sheet. 4 billion in adjusted EBITDAX and $526 million in adjusted net income, with capital expenditures of $717 million, below guidance. Operational highlights include enhanced efficiencies and innovations in the Permian, DJ Basin, and Uinta, with ongoing focus on capital efficiency and production innovation.

Management emphasized the successful integration post-merger, strong execution on strategic plans, and a commitment to shareholder returns through dividends and buybacks. Full Transcript OPERATOR Greetings and 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-0 on your telephone keypad. Please note that this conference is being recorded. I would now like to turn the conference over to Megan Hayes, SM Energy's Vice President, Investor Relations. Thank you, Megan.

You may begin. Megan Hayes, Vice President, Investor Relations Yes, thank you. Good morning and welcome to SM Energy's second quarter 2026 earnings call. I'm Megan Hayes, 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 Purcell, our Executive Vice President and CFO; and Blake McKenna, our Executive Vice President and COO. Today's discussion will reference forward-looking statements. Please see slide 2 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. 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 allows us to get more of your questions in today. With that, I'll turn it over to Beth.

Beth McDonald — President and Chief Executive Officer Thanks, Megan. Good morning, everyone. The second quarter was our first full quarter operating as the combined SM. 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.

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.

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 barrels 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. 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. 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.

In addition, with the cash on hand at quarter end, we provided a 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. 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 Purcell — Executive Vice President and Chief Financial Officer Thanks, Beth. Good morning, everyone. Our financial results were strong. 4 billion.

19 per diluted share, and we generated $467 million of adjusted free cash flow. Capital expenditures for the quarter totaled $717 million, below our guidance midpoint of $835 million. 85 billion. So 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 1-times area calculated with mid-cycle commodity pricing, we anticipate increasing the percentage to buybacks. 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, and yesterday we called the remaining 2027 notes for redemption, leaving no senior note maturities until mid-2028. Turning to guidance, we are raising our second half production outlook to a range of 435 to 440,000 barrels of oil equivalent per day, with oil at approximately 238,000 barrels 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. Full-year 2026 ranges are in the release, but with a partial year of Civitas 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 McKenna — Chief Operating Officer 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 — Simulfrac in particular — continue to drive real capital efficiencies. This is a low-cost, high-margin business, and the consolidated footprint has made pad design, scheduling, and the cost structure much more competitive. In South Texas, the Galvan sale strengthened 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.

This year, our team has standardized our Uinta development program to pair completion innovations with faster flowback and longer laterals. Together, these changes are meaningfully improving well economics and cycle times and, as a result, pulling cash flow forward. We are developing our position with 4-mile laterals, which our contiguous acreage makes possible. 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 Simulfrac 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 feet per day, which is more than double our early 2026 rate. And these initiatives are delivering more than a million dollars 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 and together they are making this oil basin a more efficient, higher-value part of SM's portfolio.

And 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. And with that, I'll turn it back to Beth. Beth McDonald — President and Chief Executive Officer Thanks, Blake. Before we go to Q&A, let me leave you with four things that show our value creation flywheel is turning today.

8 billion. Second, we are generating substantial free cash flow and returning it to stockholders. As leverage moves toward low one-times 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. And 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.

Thank you. 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-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star-2 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.

And 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 Dave Doubt with Truist. Please proceed with your questions. Dave Doubt — Analyst at Truist Good morning, everyone.

Beth and team, appreciate the time. I was hoping we 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. So the Zizou 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 Chief Executive Officer 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 — Chief Operating Officer And 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. Dave Doubt — Analyst at Truist Got it, got it.

Okay. Okay, sounds good, that's helpful. And then maybe second follow-up, another ops-related question. Just curious — offsetting the Zizou wells, it looks like some 4-mile laterals that have maybe targeted or have gone back to a DSU that hasn't maybe been touched in a few years and it looks like these wells are performing pretty well.

So curious if you can maybe talk a little bit about that and maybe if some enhanced completion designs have kind of led to some outperformance here. Thank you. Blake McKenna — Chief Operating Officer Thank you. Yeah, appreciate the question.

Four-mile laterals have been a big win for us. And then 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. Dave Doubt — Analyst at Truist Okay, great. Thanks, guys.

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.

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 Purcell — Executive Vice President and Chief Financial Officer Yeah.

Hi, Mike, great question. We're obviously very pleased with the pace of the delevering that's been happening, and 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. You know, I would say going forward, we've mentioned that kind of the target to get to really what we consider — we want a really, really strong balance sheet, and that's that low-ones area at a mid-cycle commodity price. Obviously, right now the trailing second quarter I don't think anybody would consider that mid-cycle.

So 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 — kind of setting that 20% as a minimum — and then we'll just be tracking it as we go forward the rest of this year. Michael Scialla — Analyst at Stephens Understood.

And want to get your latest thoughts on some of the newer zones you've been testing — maybe the Woodford and the Delaware Barnett in the Midland. Blake McKenna — Chief Operating Officer 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, so to my comment earlier, we want to stay away from the specifics of it, but the 4-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 Chief Executive Officer 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, you know, several years ago — we just continue to compound our best practices and capital efficiency there to continue to drive the returns. And so we were a little bit ahead of the game there. I think most of the industry is catching up in the Midland Basin, but we're continuing to push the limits just like we've always done, with success.

Michael Scialla — Analyst at Stephens Great, thank you. OPERATOR Our next questions come from the line of Jeff J. with Daniel Energy Partners. Please proceed with your questions.

Jeff J. — Analyst at Daniel Energy Partners Hey, just kind of interested in this fast flowback effort. Can you give me a little more color on that? And then I wondered if this is something that you sort of imported to the Uinta from another basin, or if this is potentially a technology or practice you could export to your other basins.

Right. Blake McKenna — Chief Operating Officer Great question, Jeff. Appreciate it.