SM Energy Co

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Summary of Significant Accounting Policies

Description of Operations

SM Energy Company, together with our consolidated subsidiaries (collectively, “SM Energy”, the “Company”, “we”, “us”, or “our”), is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in Texas, Colorado, New Mexico, and Utah.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include our accounts and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Regulation S-X. These financial statements do not include all information and notes required by GAAP for annual financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2025 Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of interim financial information, have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year. As a result of the Merger, we expanded our Permian Basin position by increasing our Midland Basin footprint and establishing a new presence in the Delaware Basin in West Texas and New Mexico. Accordingly, positions and activity previously presented as “Midland Basin” are now included within “Permian Basin”.

Significant Accounting Policies

The significant accounting policies we follow are set forth in Note 1 - Summary of Significant Accounting Policies in the 2025 Form 10-K and are supplemented by the notes to the unaudited condensed consolidated financial statements included in this report, and in the policy description below. These unaudited condensed consolidated financial statements should be read in conjunction with the 2025 Form 10-K.

Recently Issued Accounting Guidance

As of June 30, 2026, and through the filing of this report, no accounting guidance applicable to us has been issued and not yet adopted in 2026 that would have a material effect on our unaudited condensed consolidated financial statements and related disclosures. For information about accounting guidance issued in previous years but not yet adopted by us, refer to Note 1 - Summary of Significant Accounting Policies in the 2025 Form 10-K.

Note 2 - Mergers, Acquisitions, and Divestitures

Merger

On January 30, 2026, (the “Closing Date”) we completed our previously announced merger with Civitas Resources, Inc. (“Civitas”), through which we acquired 100 percent of the outstanding voting equity interests of Civitas (“Merger”). Civitas was an independent exploration and prod uction company focused on the acquisition, development, and production of crude oil and associated liquids-rich natural gas primarily in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico. We believe the Merger enhances our premier portfolio across high-return U.S. shale basins, enables the realization of operational and cost synergies, and provides opportunities for increased free cash flow to drive long-term differentiated stockholder value.

Under the terms of the Agreement and Plan of Merger (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. Upon completion of the Merger, we issued 124 million shares to holders of Civitas common stock. The Merger was structured as a tax-free reorganization for United States federal income tax purposes.

We incurred $17 million of transaction-related costs in connection with the Merger during the six months ended June 30, 2026. These costs primarily consist of success fees paid to financial advisors and legal fees that have been expensed as incurred and are included in other operating expense in the accompanying unaudited condensed consolidated statements of operations (“accompanying statements of operations”).

Consideration Transferred and Purchase Price Allocation

The Merger was accounted for as a business combination using the acquisition method of accounting under Accounting Standard Codification (“ASC”) Topic 805, Business Combinations(“ASC 805”), with SM Energy treated as the accounting acquirer.

Under the acquisition method of accounting, we recorded all assets acquired and liabilities assumed from Civitas at their fair values as of the acquisition date, which was determined to be the Closing Date of the Merger. The purchase price allocation for the Merger is preliminary, and we will continue to assess the fair values of the Civitas assets acquired and liabilities assumed.

Determining the fair value of the assets and liabilities of Civitas requires judgment and the use of significant assumptions by our management at the time of acquisition. The most significant fair value estimates relate to the valuation of oil and gas properties, derivative assets and liabilities, and current and long-term debt. Oil and gas properties were valued using an income valuation technique based on Level 3 inputs including estimates of: (i) reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; (v) risk adjustment factors; and (vi) a market participant-based weighted-average cost of capital. Derivative assets and liabilities were valued using Level 2 inputs, consistent with our existing commodity derivative instruments, and current and long-term debt were valued using a market approach with observable Level 1 inputs. Refer to Note 9 - Fair Value Measurements for additional discussion of valuation techniques.

The following table presents consideration transferred and the preliminary purchase price allocation to the identifiable assets acquired and liabilities assumed based on respective estimated fair values as of the Closing Date of the Merger:

(1)Cash consideration transferred consists of $201 million of cash paid to extinguish Civitas’ revolving credit facility balance on the Closing Date, and $25 million of cash paid related to an employee retention program contemplated by the Merger Agreement which required no post-closing service condition and was fully earned prior to the Closing Date.

(2) Based on the closing stock price of SM Energy common stock on January 30, 2026.

(3) Amount represents non-cash investing activity and is calculated using actual shares issued, rounded to the nearest million.

(4)Deferred tax amounts are recorded on a net basis by jurisdiction. Civitas’ deferred tax assets have been offset against our deferred tax liabilities, resulting in a net deferred tax liability balance.

Revenue and Earnings of the Acquiree

The results of operations of Civitas subsequent to the Closing Date are included in our unaudited consolidated financial statements for the three and six months ended June 30, 2026. Revenue attributable to Civitas included in our accompanying statements of operations for the three and six months ended June 30, 2026, was $1.3 billion and $2.0 billion, respectively. We have determined that it is impracticable to disclose the amount of net income included in the accompanying statements of operations that is attributable to the Civitas assets, as the acquired operations were immediately integrated into our operations to leverage synergies. As a result, a significant portion of post-Merger expenses relate to the combined Company, and allocating these expenses would require significant assumptions by management.

Pro Forma Financial Information

The results of Civitas’ operations have been included in our consolidated financial statements since the Closing Date. The following unaudited pro forma financial information for the three and six months ended June 30, 2026, is based on historical consolidated financial statements adjusted to reflect the Merger as if it had occurred on January 1, 2025. The pro forma information is based on historical data and certain management assumptions and reflects accounting adjustments for transaction costs, certain integration costs, depletion, depreciation, and amortization (“DD&A”) expense, interest expense, and estimated tax effects related to the Merger.

The pro forma information is not necessarily indicative of the results that might have occurred had the transaction actually occurred on January 1, 2025, and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma information because of normal production declines, changes in commodity prices, future acquisitions and divestitures, future development and exploration activities, and other factors.

South Texas Divestiture

On April 30, 2026, we completed the previously announced sale of all of our rights, titles, and interests in certain producing and non-producing assets encompassing approximately 61,000 net acres located in our southern Maverick Basin position in Webb County, Texas (the “South Texas Divestiture”) to Caturus Energy, LLC, a Delaware limited liability company. During the six months ended June 30, 2026, we received cash proceeds of $896 million after preliminary purchase price adjustments and selling costs (referred to throughout this report as “net cash proceeds”). The final purchase price remains subject to customary post-closing adjustments and final settlement is expected to occur in the third quarter of 2026. We recorded an estimated gain of $262 million related to the South Texas Divestiture for the three and six months ended June 30, 2026.

The South Texas Divestiture is considered to be a significant disposal group. The asset sale does not qualify for discontinued operations under GAAP because it does not represent a strategic shift in our operations that has or will have a significant effect on our operations and financial results.

Earnings before income taxes attributable to the assets included in the South Texas Divestiture were $16 million and $25 million for the three months ended June 30, 2026, and 2025, respectively, and $61 million and $69 million for the six months ended June 30, 2026, and 2025, respectively. As the South Texas Divestiture closed on April 30, 2026, the 2026 amounts presented reflect one month and four months of activity for the three and six months ended June 30, 2026, respectively. Earnings before income taxes reflect oil, gas, and NGL production revenue, less oil, gas, and NGL production expense; DD&A expense; and exploration expense. Depletion expense ceased upon classification of the assets as held for sale during the first quarter of 2026.

Note 3 - Revenue from Contracts with Customers

We recognize our share of revenue from the sale of produced oil, gas, and NGLs from our Permian Basin, DJ Basin, South Texas, and Uinta Basin assets. Oil, gas, and NGL production revenue presented within the accompanying statements of operations reflects revenue generated from contracts with customers.

The table below presents oil, gas, and NGL production revenue by product type for each of our operating areas. The Permian Basin and DJ Basin results reflect activity from the assets acquired in the Merger only after the Closing Date of January 30, 2026, and the South Texas results reflect activity from the assets sold in the South Texas Divestiture only for the period from January 1, 2026, through the divestiture date of April 30, 2026.

As of June 30, 2026, there wereno material unsatisfied or partially unsatisfied performance obligations.

Accrued oil, gas, and NGL production revenue included in accounts receivable in the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”) as of June 30, 2026, and December 31, 2025, was $620 million and $193 million, respectively.

Note 4 - Income Taxes

The provision for income taxes consisted of the following:

Income tax expense or benefit differs from the amount that would be calculated by applying the statutory United States federal income tax rate to income or loss before income taxes. These differences can relate to the effect of federal and state tax credits, state income taxes, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on compensation of covered individuals, and the cumulative effect of other smaller permanent differences. The quarterly effective tax rate and the resulting income tax expense or benefit can also be affected by the proportional effects of forecast net income or loss and the correlative effect on the valuation allowance for each of the periods presented in the table above. Income tax expense or benefit can also reflect a period change from the remeasurement of deferred tax assets and liabilities resulting from a statutorily enacted tax rate change or a change in the composition of income and activities among multiple state tax jurisdictions due to a corporate reorganization. Due to the Merger and resulting increase in activity in the state of Colorado, we recorded a remeasurement tax expense during the first quarter of 2026, related to SM Energy’s historical net deferred tax balances.

As a result of the Merger, it was determined that an ownership change occurred under Sections 382 and 383 of the Internal Revenue Code (“IRC”), changing the timing of when we can utilize certain tax attributes. We have assessed the recoverability of our deferred tax assets by considering whether it is more likely than not that all or a portion of the combined Company’s deferred tax assets will be realized. In making such a determination, we considered both the positive and negative evidence, including our recent history of profitability, and concluded that no additional valuation allowance is currently required. We will continue to assess the realizability of our acquired tax attributes considering any potential impacts under IRC 382, as permitted under ASC 805.

We comply with authoritative accounting guidance regarding uncertain tax positions. The entire amount of unrecognized tax benefit we have reported would affect our effective tax rate if recognized. We do not expect a significant change to our recorded unrecognized tax benefits in 2026.

We are no longer subject to United States federal or state income tax examinations by tax authorities for tax years prior to 2022. However, tax years in which net operating losses or tax credit carryforwards were generated remain subject to examination until such losses or credits are fully utilized or expire.

Note 5 - Equity

Stock Repurchase Program

Our stock repurchase program, which our Board of Directors authorized through December 31, 2027, for the repurchase of up to $500 million in aggregate value of our outstanding common stock, permits us to repurchase our shares from time to time in open market transactions (including pursuant to Rule 10b5-1 trading plans), through privately negotiated transactions or by other means in accordance with federal securities laws and subject to certain provisions of our Credit Agreement and the indentures governing our Senior Notes, as defined in Note 6 - Long-Term Debt(“Stock Repurchase Program”).

During the three and six months ended June 30, 2026, we repurchased and subsequently retired 2,643,506 shares of our common stock at a weighted-average share price of $31.73, for a total cost of $84 million, excluding excise taxes, commissions, and fees. We didnot repurchase any shares of our common stock during the three and six months ended June 30, 2025.

As of June 30, 2026, $404 million remained available for repurchases of our outstanding common stock through December 31, 2027, under our Stock Repurchase Program.

Dividends

During the first quarter of 2026, our Board of Directors approved a 10 percent increase to our fixed dividend policy to $0.88 per share annually, to be paid in quarterly increments of $0.22 per share. Beginning with the first quarter of 2026, dividends are declared and paid within the same quarter, rather than being paid in the quarter subsequent to declaration. As a result of this change in timing, during the six months ended June 30, 2026, we paid dividends that were declared in the fourth quarter of 2025 and the first and second quarters of 2026, totaling $0.64 per share, or $135 million.

Common Stock

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. Upon completion of the Merger, we issued 124 million shares of our common stock to holders of Civitas common stock. Refer to Note 2 - Mergers, Acquisitions, and Divestitures for additional discussion.

Note 6 - Long-Term Debt

Credit Agreement

Our Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $5.0 billion. The semi-annual borrowing base redetermination was most recently completed in April 2026. Our lenders reaffirmed both our borrowing base and aggregate lender commitments at existing amounts, after giving effect to the South Texas Divestiture. Accordingly, as of June 30, 2026, the borrowing base and aggregate revolving lender commitments under the Credit Agreement were $5.0 billion and $2.5 billion, respectively. The next borrowing base redetermination is scheduled to occur on October 1, 2026. In connection with the closing of the Merger on January 30, 2026, we entered into the Fourth Amendment to the Credit Agreement (“Fourth Amendment”) with our lenders to, among other things: (i) permit the assumption of outstanding Civitas senior unsecured notes and add the subsidiaries of Civitas as guarantors under the Credit Agreement, (ii) extend the scheduled maturity date for elected revolving commitments to January 30, 2031, (iii) increase the aggregate revolving lender commitments available under the Credit Agreement from $2.0 billion to $2.5 billion and add three new lender counterparties, (iv) increase the borrowing base from $3.0 billion to $5.0 billion, (v) eliminate the credit spread adjustment applicable to term SOFR loans (as defined in the Credit Agreement), and (vi) make certain other amendments to the financial covenant definitions and provide additional flexibility under certain affirmative covenants, negative covenants and events of default.

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in Note 5 - Long-Term Debt in the 2025 Form 10-K. At our election, borrowings under the Credit Agreement may be in the form of Secured Overnight Financing Rate (“SOFR”) revolving loans, Alternate Base Rate (“ABR”) revolving loans, or Swingline loans. SOFR revolving loans accrue interest at SOFR plus the applicable margin from the utilization grid, and ABR revolving loans and Swingline loans accrue interest at a market-based floating rate, plus the applicable margin from the utilization grid. Commitment fees are accrued on the unused portion of the aggregate revolving lender commitment amount at rates from the utilization grid.

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement:

(1)Unamortized deferred financing costs attributable to the revolving credit facility are presented as a component of the other noncurrent assets line item in the accompanying balance sheets and totaled $21 million and $15 million as of June 30, 2026, and December 31, 2025, respectively. These costs are being amortized over the term of the Credit Agreement on a straight-line basis.

(2)Letters of credit outstanding reduce the amount available under the revolving credit facility on a dollar-for-dollar basis.

Assumption of Civitas Senior Notes and Payoff of Civitas Revolving Credit Facility

In connection with the completion of the Merger, as contemplated by the Merger Agreement, we assumed $4.9 billion in aggregate principal amount of outstanding unsecured senior notes previously issued by Civitas (“Civitas Senior Notes”). Our Civitas Senior Notes were recorded at their respective fair values as of the Closing Date. Because the fair values exceeded the aggregate principal amounts outstanding, we recorded a premium, which is being amortized over the remaining terms of the notes.

On the Closing Date of the Merger, as contemplated by the Merger Agreement, we used cash on hand to repay in full the outstanding borrowings under the Civitas revolving credit facility, including accrued and unpaid interest and applicable fees, resulting in a total payment of $201 million. This repayment extinguished the related obligations and resulted in the release of all associated liens. This payment was made by SM Energy on behalf of Civitas and has been reflected as consideration transferred in the preliminary purchase price allocation in accordance with ASC 805, as presented in Note 2 - Mergers, Acquisitions, and Divestitures.

Senior Notes

The table below summarizes the interest rates, maturity dates, and semi-annual interest payment dates related to our Senior Notes (collectively referred to as “Senior Notes”) as of June 30, 2026:

(1)Civitas Senior Notes assumed as part of the Merger.

The Senior Notes, net line items in the accompanying balance sheets as of June 30, 2026, and December 31, 2025, consisted of the following:

(1)As of June 30, 2026, the 6.625% Senior Notes due 2027 (“2027 Senior Notes”) are presented in the current liabilities section of the accompanying balance sheets.

(2) Civitas Senior Notes assumed as part of the Merger.

(1)As of December 31, 2025, the 6.75% Senior Notes due 2026 (“2026 Senior Notes”), are presented in the current liabilities section of the accompanying balance sheets.

On March 4, 2026, we commenced a cash tender offer (“Tender Offer”) to purchase up to $750 million aggregate principal amount of the outstanding $1.35 billion aggregate principal amount of our 8.375% Senior Notes due 2028 (“2028 Civitas Senior Notes”), originally issued by Civitas, at a price equal to 103.175 percent of the principal amount outstanding on the date of repurchase, plus accrued and unpaid interest on all notes validly tendered by March 17, 2026.

On March 9, 2026, we issued $1.0 billion in aggregate principal amount of our 6.625% Senior Notes at par with a maturity date of April 15, 2034 (“2034 Senior Notes”). We received net proceeds of $984 million after deducting fees of $16 million, which are being amortized as deferred financing costs over the life of the 2034 Senior Notes. A majority of the net proceeds from the issuance of the 2034 Senior Notes were used to repurchase a portion of our 2028 Civitas Senior Notes pursuant to the Tender Offer.

On March 18, 2026, we increased the maximum aggregate principal amount to be accepted in the Tender Offer up to $1.0 billion and amended the terms of the Tender Offer to provide that all notes validly tendered at or prior to April 1, 2026, would be eligible to receive the early tender premium. During the six months ended June 30, 2026, pursuant to the Tender Offer, we repurchased $894 million in aggregate principal amount of our 2028 Civitas Senior Notes and paid total consideration, including early tender premiums but excluding accrued interest, of $922 million. We recorded a loss on extinguishment of debt of $3 million, which included the early tender premium offset by the accelerated recognition of the related portion of unamortized fair value premium recorded on the Closing Date of the Merger. As of June 30, 2026, $456 million in aggregate principal amount of our 2028 Civitas Senior Notes remained outstanding.

On May 11, 2026, pursuant to the terms of the governing indenture, we redeemed all $400 million aggregate principal amount outstanding of our 5.0% Senior Notes due October 15, 2026 (“2026 Civitas Senior Notes”) at a redemption price equal to 100 percent of the principal amount outstanding of our 2026 Civitas Senior Notes, plus accrued and unpaid interest. In connection with the redemption of our 2026 Civitas Senior Notes, we satisfied all remaining obligations under the indenture. Our redeemed 2026 Civitas Senior Notes and related guarantees were cancelled upon settlement.

On June 1, 2026, pursuant to the terms of the governing indenture, we redeemed all $419 million aggregate principal amount outstanding of our 2026 Senior Notes at a redemption price equal to 100 percent of the principal amount outstanding of the 2026 Senior Notes, plus accrued and unpaid interest. In connection with the redemption of our 2026 Senior Notes, we satisfied all remaining obligations under the indenture, as they related to our 2026 Senior Notes. Our redeemed 2026 Senior Notes and related guarantees were cancelled upon settlement.

On August 5, 2026, we instructed the trustee under our 2027 Senior Notes to issue a notice of full redemption of the $417 million aggregate principal amount outstanding, plus accrued and unpaid interest, to the holders of such notes. We intend to redeem our 2027 Senior Notes on September 4, 2026. Following the redemption, we will have no remaining Senior Notes maturities in 2027.

Our Senior Notes are unsecured senior obligations and rank equal in right of payment with all of our existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt. We may redeem some or all of our Senior Notes prior to their maturity at redemption prices that may include a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Notes. The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of our existing subsidiaries that guarantee the Credit Agreement.

Covenants

We are subject to certain financial and non-financial covenants under the Credit Agreement and the indentures governing our Senior Notes that, among other terms, limit our ability to incur additional indebtedness, make restricted payments including dividends, sell assets, create liens that secure debt, enter into transactions with affiliates, make certain investments, or merge or consolidate with other entities. We were in compliance with all financial and non-financial covenants as of June 30, 2026, and through the filing of this report.

Capitalized Interest

Capitalized interest costs for the three months ended June 30, 2026, and 2025, totaled $13 million and $9 million, respectively, and for the six months ended June 30, 2026, and 2025, totaled $28 million and $18 million, respectively. The amount of interest we capitalize generally fluctuates based on the amount borrowed, our capital program, and the timing and amount of costs associated with capital projects that are considered in progress. Capitalized interest costs are included in total costs incurred.

Note 7 - Commitments and Contingencies

We assumed various commitments through the Merger which are included in our commitments and contingencies disclosures as of June 30, 2026. Other than the items discussed below, there have been no changes in commitments and contingencies that differ materially from those disclosed in the 2025 Form 10-K through the filing of this report.

Commitments

Drilling and Completion Commitments. During the six months ended June 30, 2026, we entered into an agreement that requires us to drill and complete minimum lateral footage requirements on certain existing leases. Failure to satisfy these obligations by March 31, 2028, will require us to pay liquidated damages based on the difference between the actual footage drilled and completed and the minimum requirements. As of June 30, 2026, the liquidated damages could range from zero to a maximum of $80 million, with the maximum exposure assuming no additional development activity occurs prior to March 31, 2028. As of the filing of this report, we expect to meet our obligations under this agreement.

In connection with the Merger, we assumed certain oil, gas, and produced water gathering agreements that collectively contain a drilling commitment. The commitment requires us to drill and complete a total of 106 qualifying wells by December 31, 2026, unless our obligation is excused under the terms of the agreements. As of June 30, 2026, we do not expect to meet this commitment; however, we believe our nonperformance is excused under the terms of the agreements. We cannot reasonably estimate the amount of damages, if any, that might be incurred if our position is not sustained.

Delivery Commitments. As of June 30, 2026, we have material, long-term transportation and delivery commitments with various parties. These agreements, some of which we assumed through the Merger, require us to make periodic deficiency payments for any shortfalls in delivering specified minimum volume commitments. In connection with the Merger, we assumed delivery commitments under which, as of June 30, 2026, we are required to deliver a minimum of 61 MMBbl of oil through 2030 and 49 Bcf of gas through 2029. As of June 30, 2026, if we fail to deliver any product under all applicable agreements, the aggregate undiscounted deficiency payments would total approximately $214 million. We do not expect to incur material penalties or shortfalls with regard to these commitments.

Contingencies

We are subject to litigation and claims arising in the ordinary course of business. We accrue for such items when a liability is both probable and the amount can be reasonably estimated. As of the filing of this report, in the opinion of management, the anticipated results of any pending litigation and claims are not expected to have a material effect on our results of operations, our financial position, or our cash flows.

Note 8 - Derivative Financial Instruments

Summary of Oil, Gas, and NGL Derivative Contracts in Place

We regularly enter into commodity derivative contracts to mitigate a portion of our exposure to oil, gas, and NGL price volatility and location differentials, and the associated effect on cash flows. All commodity derivative contracts that we enter into are for other-than-trading purposes. Our commodity derivative contracts consist of price swap and collar arrangements for oil and gas production, and price swap arrangements for NGL production.

In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap price, we receive the difference between the index price and the agreed upon swap price. If the index price is higher than the swap price, we pay the difference. For collar arrangements, we receive the difference between an agreed upon index price and the floor price if the index price is below the floor price. We pay the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices.

We have entered into fixed price oil and gas basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where our production is sold. As of June 30, 2026, we had basis swap contracts with fixed price differentials between:

•NYMEX WTI and Argus WTI Midland (“WTI Midland”) for a portion of our Permian Basin oil production with sales contracts that settle at WTI Midland prices;

•NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“WTI Houston MEH”) for a portion of our South Texas oil production with sales contracts that settle at WTI Houston MEH prices;

•NYMEX Henry Hub (“HH”) and Inside FERC (“IF”) Waha hub in West Texas (“Waha”) for a portion of our Permian Basin gas production with sales contracts that settle at IF Waha prices; and

•NYMEX Henry Hub and Colorado Interstate Gas (“CIG Rockies”) for a portion of our DJ Basin natural gas production with sales contracts that settle at CIG Rockies prices.

We have also entered into oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which we pay the periodic variable Roll Differential and receive a weighted-average fixed price differential. The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.

As of June 30, 2026, we had commodity derivative contracts with terms through the second quarter of 2028 as summarized in the table below:

Derivative Assets and Liabilities Fair Value

Our commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities, with the exception of derivative instruments that meet the “normal purchase normal sale” exclusion. We do not designate our commodity derivative contracts as hedging instruments. The fair value of commodity derivative contracts at June 30, 2026, and December 31, 2025, was a net asset of $16 million and $85 million, respectively.

The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets:

Offsetting of Derivative Assets and Liabilities

As of June 30, 2026, and December 31, 2025, all derivative instruments held were subject to master netting arrangements with various financial institutions. In general, our agreements with counterparties provide for the offsetting of amounts payable or receivable, at the election of both parties, for transactions that settle on the same date and in the same currency. Our agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Our accounting policy is to not offset these positions in our accompanying balance sheets.

The following table provides a reconciliation between the gross assets and liabilities reflected in the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of our commodity derivative contracts:

We recognize all gains and losses from changes in commodity derivative fair values immediately in earnings rather than deferring such amounts in accumulated other comprehensive income (loss). We had no commodity derivative contracts designated as hedging instruments as of June 30, 2026, and December 31, 2025. Refer to Note 9 - Fair Value Measurements for more information regarding our derivative instruments, including our valuation techniques.

The following table summarizes the commodity components of the net derivative settlement gain (loss), and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:

Credit Related Contingent Features

We only enter into derivative contracts with members of our Credit Agreement lender group and as of June 30, 2026, all of our derivative counterparties were members of our lender group. Under the Credit Agreement, we are required to provide mortgage liens on assets having a value equal to at least 85 percent of the total PV-9, as defined in the Credit Agreement, of our proved oil and gas properties evaluated in the most recent reserve report. Collateral securing indebtedness under the Credit Agreement also secures our derivative agreement obligations.

Note 9 - Fair Value Measurements

We follow fair value measurement accounting guidance for all assets and liabilities measured at fair value. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:

•Level 1 – quoted prices in active markets for identical assets or liabilities

•Level 2 – quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

•Level 3 – significant inputs to the valuation model are unobservable

The following table is a listing of our assets and liabilities that are measured at fair value on a recurring basis in the accompanying balance sheets and where they are classified within the fair value hierarchy:

Both financial and non-financial assets and liabilities are categorized within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies we use as well as the general classification of such instruments pursuant to the above fair value hierarchy.

Derivatives

We use Level 2 inputs to measure the fair value of oil, gas, and NGL commodity derivative instruments. Fair values are based upon interpolated data. We derive internal valuation estimates taking into consideration forward commodity price curves, counterparties’ credit ratings, our credit rating, and the time value of money. These valuations are then compared to the respective counterparties’ mark-to-market statements. The considered factors result in an estimated exit price that management believes provides a reasonable and consistent methodology for valuing derivative instruments. The commodity derivative instruments we utilize are not considered by management to be complex, structured, or illiquid. The oil, gas, and NGL commodity derivative markets are highly active. Refer to Note 8 - Derivative Financial Instruments for more information regarding our derivative instruments.

Acquisition of Proved and Unproved Properties

Assets acquired and liabilities assumed in transactions that meet the definition of a business combination under ASC 805 are recognized at their estimated fair values as of the acquisition date and are valued using an income valuation technique based on Level 3 inputs. Refer to Note 2 - Mergers, Acquisitions, and Divestituresfor discussion of the valuation technique used for the Merger.

Long-Term Debt

The following table reflects the fair value of our Senior Notes obligations measured using Level 1 inputs based on quoted secondary market trading prices. The Senior Notes were not presented at fair value in the accompanying balance sheets as of June 30, 2026, or December 31, 2025, as the Senior Notes were recorded at carrying value, net of any unamortized premium or unamortized deferred financing costs. Refer to Note 6 - Long-Term Debt for additional information.

Note 10 - Earnings Per Share

Basic net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the basic weighted-average number of common shares outstanding for the respective period. Diluted net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the diluted weighted-average number of common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for this calculation consist primarily of non-vested restricted stock units (“RSU” or “RSUs”) and contingent performance share units (“PSU” or “PSUs”), which were measured using the treasury stock method as presented below. Refer to Note 12 - Stock-Based Compensationin this report and Note 9 - Earnings Per Shareand Note 10 - Stock-Based Compensationin the 2025 Form 10-K for additional detail on these potentially dilutive securities.

The following table sets forth the calculations of basic and diluted net income per common share:

(1)Amount includes shares issued in connection with the Merger that were outstanding during a portion of the six months ended June 30, 2026.

Note 11 - Segment Reporting

We haveone reportable segment: the oil, gas, and NGL exploration and production segment (“E&P Segment”), which operates exclusively in the United States. Following the Merger, management determined that we continue to operate as a single reportable segment. The E&P Segment constitutes all of the consolidated entity and the accompanying unaudited condensed consolidated financial statements and the notes to the accompanying unaudited condensed consolidated financial statements are representative of such amounts for the E&P Segment. Midstream operations acquired in the Merger are considered ancillary to, and are managed as part of, the E&P Segment.

Our Chief Operating Decision Maker (“CODM”) is the President and Chief Executive Officer. The CODM uses net income (loss) as presented in the accompanying statements of operations to measure E&P Segment profit or loss, and to evaluate income generated from E&P Segment assets in deciding whether to reinvest profits into operational activities or to use profits for other purposes, such as debt reduction, acquisitions, or our Stock Repurchase Program. Additionally, net income (loss) is used in assessing budget versus actual results and in benchmarking to our competitors. The measure of segment assets is reported on the accompanying balance sheets as total assets, and capital expenditures are reported in the accompanying statements of cash flows.

The following table summarizes the results of our segment revenue, significant expenses, and net income during the periods presented:

(1)Interest income is included in the Other non-operating income, net line item on the accompanying statements of operations.

(2)There are no reconciling items between net income presented in the accompanying statements of operations and E&P Segment net income.

Note 12 - Stock-Based Compensation

As of June 30, 2026,3.0 million shares of common stock were available for grant under the SM Energy Company 2025 Equity Incentive Compensation Plan and 3.8 million shares were available for grant under the Civitas Resources, Inc. 2024 Long Term Incentive Plan acquired as part of the Merger.

In connection with the closing of the Merger on January 30, 2026, we converted outstanding Civitas equity awards into RSUs of the Company. The converted awards were measured at fair value as of the Closing Date in accordance with ASC 805, and the portion attributable to post-combination service will be recognized as stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation.

In total,2.5 million RSUs were issued in the conversion, with an aggregate fair value of $49 million. Of this amount, $20 million was attributable to future service and was recorded as unrecognized stock-based compensation, which will be recognized over the remaining requisite service periods of the awards. Other than the impact of the converted awards, there were no material changes to our stock-based compensation arrangements during the three and six months ended June 30, 2026.

Note 13 - Restructuring Costs

During 2026, in connection with the Merger and the South Texas Divestiture, we announced workforce reductions to better align staffing levels and the organizational structure with our strategy. During the three and six months ended June 30, 2026, we incurred restructuring costs of $25 million and $122 million, respectively, which are included in G&A expense in the accompanying statements of operations. These restructuring costs represent a component of total one-time Merger integration costs and consist primarily of employee severance and retention and accelerated vesting of stock-based compensation awards. We expect to incur an additional $7 million of restructuring costs and anticipate that substantially all remaining costs will be incurred and paid during 2026.

The following table summarizes restructuring cost activity during the six months ended June 30, 2026, and our restructuring cost liabilities included in the accounts payable and accrued expenses line item in the accompanying balance sheets as of the periods presented:

(1)Restructuring costs incurred exclude $33 million of other G&A integration costs including systems integration, advisory, and legal expenses, and salaries for transition employees.