SM Energy Co

Return of Capital Program. In 2023, we continued to execute on our goal of sustainably returning capital to our stockholders through our Stock Repurchase Program and fixed quarterly dividend payments. Our Stock Repurchase Program commenced in September 2022, and originally authorized the repurchase of up to $500.0 million in aggregate value of our common stock through December 31, 2024 (“Stock Repurchase Program”). During the year ended December 31, 2023, we repurchased and subsequently retired 6.9 million shares of our common stock at a cost of $228.0 million, excluding excise taxes, commissions, and fees. As of the filing of this report, $214.9 million remains available for repurchases of our outstanding common stock under the Stock Repurchase Program. During the year ended December 31, 2023, we paid dividends of $0.60 per share, an increase from $0.16 per share paid during the year ended December 31, 2022. Additionally, in November 2023, we announced a 20 percent increase to our fixed dividend to $0.72 per share annually, to be paid in quarterly increments of $0.18 per share, beginning in the first quarter of 2024. Please refer to Note 3 – Equity in Part II, Item 8 of this report for additional discussion.

Acquisition Activity. During 2023, we acquired approximately 20,000 net acres of oil and gas properties in Dawson and northern Martin counties, Texas. Additionally, in the Midland Basin, we added approximately 9,100 net acres through organic leasing activity, we completed an asset exchange, and we acquired additional working interests in certain wells. Please refer to Note 16 – Acquisitions in Part II, Item 8 of this report for additional discussion.

Reserves and Capital Investment. Our total estimated net proved reserves were 604.9 MMBOE as of December 31, 2023, which was an increase of 13 percent from 537.4 MMBOE as of December 31, 2022. This increase primarily consisted of revisions of previous estimates of 113.9 MMBOE related to infill reserves in both our South Texas and Midland Basin programs, partially offset by 55.5 MMBOE of production during 2023. Our proved reserve life index increased to 10.9 years as of December 31, 2023, compared with 10.1 years as of December 31, 2022. Please refer to Areas of Operationand Reserves below for additional discussion regarding revisions of previous estimates due to infill, price, and performance revisions, the removal of certain proved undeveloped reserve cases that are no longer within our development plan over the next five years, and additions from extensions and discoveries. Costs incurred increased 28 percent from 2022 to $1.2 billion in 2023. Please refer to Areas of Operation below, and to Supplemental Oil and Gas Information (unaudited)in Part II, Item 8 of this report for additional discussion.

Production, Pricing and Revenue, and Commodity Derivatives. Our average net daily equivalent production in 2023 increased five percent compared with 2022 to 152.0 MBOE, consisting of 65.1 MBbl of oil, 362.7 MMcf of gas, and 26.4 MBbl of NGLs, as a result of an increased number of completions. Oil production as a percentage of total production decreased to 43 percent in 2023 from 45 percent in 2022, as a result of production from our South Texas assets becoming a higher percentage of total production in 2023.

Realized prices before the effect of net derivative settlements (“realized price” or “realized prices”) for oil, gas, and NGLs decreased 19 percent, 61 percent, and 35 percent, respectively, for the year ended December 31, 2023, compared with 2022. As a result of decreased realized prices, oil, gas, and NGL production revenue decreased 29 percent to $2.4 billion for the year ended December 31, 2023, compared with $3.3 billion for 2022. Oil production revenue was 77 percent and 68 percent of total production revenue for the years ended December 31, 2023, and 2022, respectively.

We recorded a net derivative gain of $68.2 million for the year ended December 31, 2023, compared to a net derivative loss of $374.0 million for the year ended December 31, 2022. These amounts include a net derivative settlement gain of $26.9 million for the year ended December 31, 2023, and a net derivative settlement loss of $710.7 million for the year ended December 31, 2022.

Please refer to Areas of Operation below and Overview of the Company in Part II, Item 7 of this report for additional discussion.