SM Energy Co Q1 2025 Earnings Call- Q&A Session Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tim Rezvan - KeyBanc Capital Markets Inc. - Analyst : My first one, I don't know if this is for Herb or Beth, but I'm trying to get an understanding on the shape and the oil skew on 2025 production. First quarter was 53%. You got to a little higher oil cut in the second quarter, but you didn't touch the full year kind of guide for oil. So I was curious if you -- are there timing issues with that Uinta wells coming online that we should be aware of or is this just simply you not touching most annual guidance items at this point? Just trying to understand how the year is going to shake out.

Question: Tim Rezvan - KeyBanc Capital Markets Inc. - Analyst : And then my second one, I guess maybe more for Wade on the topic of cash returns. Your path back to 1 times leverage is now a little steeper with oil below 60. But we didn't really see the balance sheet get there around year end. So is it safe to assume repurchases are going to be off the table this year until you get there or do you feel compelled to maybe step in and defend the equity with where shares are now?

Question: Oliver Huang - Tudor Pickering Holt & Co - Analyst : I just wanted to start out in the Uinta. Looking at slide 7 in your deck, the one showing productivity charts by various key regions. I know the Lower Cube is the primary focus for you all today in the Utelem. And I imagine the data set from Enverus that's being cited there likely shows a heavy lean into the Utelem and Butte as the most developed pay zone within that part of the stack. So my question is, what is the expectation for being able to hit the underwritten assumptions for the Lower Cube when you're co-developing with other zones like the Wasatch and the Douglas Creek, which haven't been quite as prolific historically speaking on an oil per foot basis?

Question: Tim Rezvan - KeyBanc Capital Markets Inc. - Analyst : And maybe for a follow up just on an LOE. I know you all called out a few items impacting the corporate LOE guide for this year. Maybe a greater mix of horizontal wells and the Uinta should help over time in addition to getting some of the costs associated with getting facilities and whatnot up to SM spec. So question is, as we think through the uplifted cost in this year's program on a corporate basis, should we view this as more one time in nature type of impact or there's some of these costs that are going to be much more sticky beyond this year, if you could walk through that.

Question: Michael Furrow - Pickering Energy Partners - Analyst : Last quarter, Herb, when I asked about capital allocation between your assets, you mentioned that returns were really comparable across the three areas. But if prices moved, that the company would have the ability to kind of flex between regions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Michael Furrow - Pickering Energy Partners - Analyst : No, that answers my question. That's understood. It's not so easy to just drop a rig and pick one up as quickly as we'd like. So for my follow up, I just want to ask a quick question on the Uinta. Now that the company's had more time to kind of look into the acquire assets, how are they looking versus the original expectations and is there anything that the company is learning that would alter the drilling or completion designs that you guys get to have in 2026 versus the prior operators designs?

Question: Mike Scialla - Stephens, Inc. - Analyst : I wanted to see if you could say how much oil went to the local refinery or refineries in the Uinta during the quarter and kind of the difference in transportation costs there between the two. And what determines that split from quarter to quarter?

Question: Mike Scialla - Stephens, Inc. - Analyst : Is that just based on capacity? There's no contracts that are underwriting or underpinning how much goes to one area or the other?

Question: Mike Scialla - Stephens, Inc. - Analyst : And it looks like you had pretty minor non-op activity in the first quarter, anticipating a little bit in the second quarter as well. I just want to see if you have any better visibility on the remainder of the year. If you think there will be any material change to that $1.3 billion of CapEx that you have planned for the year.

Question: Zach Parham - JP Morgan Securities, Inc. - Analyst : Could you talk a little bit more about your operational plans for the year and going into '26? You've gone from nine rigs to seven rigs. You're planning to drop to six. As you see things today, would you plan to add back a rig in 2026, or is six the run rate going forward for the pro forma company with the three assets?

Question: Zach Parham - JP Morgan Securities, Inc. - Analyst : Just to follow up, I think you've messaged in the past. You could generate single digit growth at kind of flat CapEx year over year. Is it fair to say if you were going to go to a maintenance program, CapEx would be down year over year based on cost that we're seeing now? Obviously, you could have service cost deflation as well.

Question: Zach Parham - JP Morgan Securities, Inc. - Analyst : And with those 6 rigs, you could hold flat next year. Is that fair?

Question: Gabe Daoud - TD Cowen - Analyst : I was hoping maybe you could just start with a clarification on the trajectory for the second half of this year. Did you say earlier that 3Q should show -- I guess it'll show sequential growth, but is 3Q growth more than the type of growth that we will see or that you guided to in 2Q? Is that fair?

Question: Gabe Daoud - TD Cowen - Analyst : And then maybe this is a follow up. If we could maybe get a one on one type explanation around how you went to production/ sales is booked from a revenue standpoint. And just given the lag between when the barrels get transported versus your revenue recognition, will there always be a mismatch between sales volumes and production at the wellhead, and should we expect a true up at some point to make you whole on that, or will there always just simply be a little bit of a discrepancy between those two? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.