SM Energy Company (SM) investor relations material

Strategic overview and merger rationale

• Recent merger with Civitas will more than double the company's size, expanding assets across four top-tier basins and leveraging operational expertise and technical innovation for significant synergies.

• Annual run-rate synergies of $200 million–$300 million are expected, mainly from drilling, completion, and lease operating expense efficiencies, with additional savings from overhead and cost of capital.

• The combined entity is targeting $1 billion+ in divestitures within the first year to strengthen the balance sheet and accelerate deleveraging.

• Rating agencies responded favorably, with some indicating a positive outlook and the potential for an investment-grade profile due to increased scale and diversification.

• The merger is expected to close in the first quarter, with integration and synergy realization prioritized in 2026 and full run-rate benefits by 2027.

Financial and operational impacts

• Pro forma free cash flow is projected at approximately $1.5 billion for the year, with early focus on debt reduction and eventual return of capital to shareholders.

• Cost of capital savings are estimated at $30 million–$45 million annually, with further reductions anticipated as refinancing occurs and divestiture proceeds are realized.

• Synergy savings, if sustained for seven years, could represent $1 billion–$1.5 billion in present value, about 30% of the combined market cap.

• No immediate plans for asset sales before deal close; divestiture candidates will be evaluated based on factors like commodity mix, inventory upside, and regulatory environment.

• The company expects to maintain a strong balance sheet, aiming to return leverage to the low one-times area post-divestitures.

Capital allocation and market environment

• Capital allocation will focus on maximizing free cash flow over a two- to three-year horizon, with activity levels likely reduced if commodity prices remain at or below $60.

• Anticipates a deflationary environment for service costs, with early indications of lower vendor pricing as industry activity slows.

• Ongoing technical innovation and operational diligence are expected to drive further productivity gains and capital efficiency, especially as best practices are shared across the expanded asset base.

• Centralized supply chains and increased purchasing power are expected to enhance cost savings.

• No current marketing constraints for oil and gas delivery across basins; the team continues to seek cost reduction opportunities.