SM Energy(SM) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record operating cash flow, adjusted EBITDAX, production, and oil volumes for 2025, with oil comprising 53% of total production [3][4] - Net debt was reduced by $437 million, resulting in a leverage ratio of approximately 1 times at year-end [4] - A total of $104 million was returned to stockholders through dividends and share repurchases [4] Business Line Data and Key Metrics Changes - The company plans to allocate about 45% of its capital investments to high-margin Permian activities, with total expected CapEx for 2026 being approximately 14% lower than pro forma 2025 [7] - Production volumes in the second half of 2026 are expected to range between 420,000 and 430,000 BOE per day, with 55% oil [7][8] Market Data and Key Metrics Changes - The company anticipates operating in a $60 oil and $3.50 gas environment for its 2026 plan [7] - The merger with Civitas is expected to unlock up to $1.5 billion in present value synergies, representing nearly 30% of the company's market cap [5] Company Strategy and Development Direction - The company has three strategic objectives for 2026: integrate, execute, and bolster [5][8] - The integration of Civitas is progressing well, with $185 million of the targeted $200 million-$300 million in synergies already actioned [5][88] - The focus is on maximizing sustainable free cash flow and strengthening the balance sheet while returning capital to stockholders [5][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maximize free cash flow and reduce debt, emphasizing a safety-first mindset in operations [5][12] - The company is focused on capital efficiency and optimizing its asset development to enhance returns [5][12] Other Important Information - The company announced a 10% increase in the fixed dividend to $0.88 per share annually, providing a current yield of just under 4% [12] - Remaining free cash flow will be allocated 80% to debt reduction and 20% to stock repurchases [12] Q&A Session Summary Question: Total production guidance for the year and impact of three-stream to two-stream conversions - Management clarified that the production change is not significantly different when normalized for moving items, with specific allocations for NGLs in different basins [18][19] Question: Capital expenditure and rig count throughout the year - Management confirmed that the first quarter will see higher CapEx due to starting with 15 rigs, which will decrease to an average of 11 rigs by year-end [22][23] Question: Leverage profile and inventory life considerations - Management stated that they are comfortable with a leverage ratio in the mid-ones area and are focused on improving inventory life through high-quality locations [30][32] Question: Composition of the Permian program and activity split - Management indicated that the program will allocate about one-third to Delaware and two-thirds to Midland Basin, with ongoing optimization efforts [55] Question: Production growth expectations in various areas - Management noted that Uinta and South Texas are expected to be growth areas, while the focus remains on maximizing free cash flow across the portfolio [71] Question: Decision to increase the dividend - Management emphasized that the increase was based on confidence in the company's future and not due to investor pressure [73]