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Mergers, Acquisitions, and Divestitures | 3 Months Ended
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Mar. 31, 2026
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] |
Mergers, Acquisitions, and Divestitures | Note 2 - Mergers, Acquisitions, and Divestitures Civitas Merger On January 30, 2026, (the “Closing Date”) SM Energy completed its previously announced merger with Civitas Resources, Inc. (“Civitas”), through which SM Energy acquired 100 percent of the outstanding voting equity interests of Civitas (referred to throughout as “Merger” or “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. The Company believes the Merger enhances its pr emier 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 (“Exchange Ratio”) of SM Energy common stock with cash paid in lieu of fractional shares. Upon completion of the Merger, the Company 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. During the three months ended March 31, 2026, the Company incurred $17 million of transaction related costs in connection with the Merger. 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 Civitas 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, SM Energy 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 Civitas Merger is preliminary, and the Company 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 the Company’s 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 the Company’s 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:
| Preliminary Purchase Price Allocation
| (in millions, except shares and per share amount)
Consideration transferred |
Cash consideration transferred (1) | $ | 226 |
Shares of common stock issued | 123,715,771
Closing price per share (2) | $ | 19.47 |
Equity consideration transferred (3) | $ | 2,409 |
Replacement equity award consideration transferred (attributable to pre-combination service) | $ | 29 |
Total consideration transferred | $ | 2,664 |
Assets acquired |
Proved oil and gas properties | $ | 7,537 |
Unproved oil and gas properties | 622 |
Accounts receivable | 433 |
Wells in progress | 386 |
Other assets | 251 |
Cash and cash equivalents | 177 |
Derivative assets | 167 |
Total identifiable assets acquired | 9,573 |
Liabilities assumed |
Senior Notes | 5,090 |
Accounts payable and accrued expenses | 1,314 |
Other noncurrent liabilities | 351 |
Asset retirement obligations | 326 |
Other current liabilities | 90 |
Derivative liabilities | 62 |
Deferred tax liabilities (assets), net (4) | (324) |
Total liabilities assumed | 6,909 |
Net identifiable assets acquired | $ | 2,664 |
____________________________________________ (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. (4) Deferred tax amounts are recorded on a net basis by jurisdiction. Civitas’ deferred tax assets have been offset against the Company’s 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 have been included in SM Energy’s unaudited consolidated financial statements during the three months ended March 31, 2026. Revenue attributable to Civitas included in the Company’s accompanying statements of operations was $736 million for the three months ended March 31, 2026. The Company has 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 the Company’s 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 the Company's consolidated financial statements since January 30, 2026, the Closing Date of the Merger. The following unaudited pro forma financial information for the three months ended March 31, 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 taken place 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.
|  | For the Three Months Ended March 31, |  |
|  | 2026 |  | 2025 |  |  |  |
|  | (in millions, except per share data) |  |  |  |
Pro forma revenue |  | $ | 1,784 |  |  | $ | 2,032 |  |  |  |  |
Pro forma net income (loss) |  | $ | (285) |  |  | $ | 373 |  |  |  |  |
Pro forma basic net income (loss) per common share |  | $ | (1.19) |  |  | $ | 1.56 |  |  |  |  |
Pro forma diluted net income (loss) per common share |  | $ | (1.19) |  |  | $ | 1.55 |  |  |  |  |
South Texas Divestiture On April 30, 2026, the Company completed the previously announced sale of all of its rights, titles and interests in certain producing and non-producing assets encompassing approximately 61,000 net acres located in the Company’s southern Maverick Basin position in Webb County, Texas to Caturus Energy, LLC, a Delaware limited liability company (“Caturus”) (the “South Texas Divestiture”). The Company received net cash proceeds of approximately $900 million, after preliminary purchase price adjustments and estimated selling costs, and the final purchase price remains subject to customary post-closing adjustments. The Company expects to recognize a gain on the South Texas Divestiture in the second quarter of 2026, and the amount of such gain will be finalized upon the completion of post-closing adjustments. In connection with the South Texas Divestiture, properties with a carrying value of $666 million were classified as held for sale as of March 31, 2026, and are presented separately in the accompanying balance sheets. The asset retirement obligation line item in the accompanying balance sheets includes $45 million related to the properties classified as held for sale. 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 the Company’s operations that has or will have a significant effect on the Company’s operations and financial results. Under ASC Topic 360, Property, Plant and Equipment, assets may be classified as held for sale even though discontinued operations classification is not met. Earnings before income taxes attributable to the assets included in the South Texas Divestiture was $46 million and $44 million for the three months ended March 31, 2026, and 2025, respectively. Earnings before income taxes reflects oil, gas, and NGL production revenue, less oil, gas, and NGL production expense; DD&A expense;

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205-20/tableOfContent Reference 2: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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