SM Energy's Q3 Revenue Jumps, But Net Income Dips Amid Rising Costs

TL;DR

**SM Energy's revenue growth is overshadowed by surging costs and a pending merger, making it a cautious hold until integration clarity emerges.**

AI Summary

SM Energy Co reported a significant increase in oil, gas, and NGL production revenue for the nine months ended September 30, 2025, reaching $2,435,705 thousand, up from $1,835,427 thousand in the same period of 2024. However, net income decreased to $539,022 thousand for the nine months ended September 30, 2025, compared to $582,015 thousand in 2024. This decline occurred despite higher revenues, primarily due to a substantial rise in operating expenses, with oil, gas, and NGL production expense increasing from $422,377 thousand to $678,117 thousand, and depletion, depreciation, and amortization rising from $548,781 thousand to $888,262 thousand. The company also saw a notable increase in capital expenditures, which surged to $1,221,736 thousand for the nine months ended September 30, 2025, from $957,156 thousand in 2024, indicating significant investment in property and equipment. Cash and cash equivalents increased to $162,251 thousand as of September 30, 2025, from zero at December 31, 2024, reflecting improved liquidity. A pending merger with Civitas is highlighted as a key risk and strategic development, with potential impacts on future operations and financial performance.

Why It Matters

For investors, SM Energy's increased revenue but decreased net income signals a need to scrutinize cost controls and capital efficiency, especially with capital expenditures up by 27.6% to $1.22 billion. The pending merger with Civitas introduces significant M&A risk and potential for integration challenges, which could impact shareholder value. Employees may face uncertainty during the integration process, while customers could see changes in service or supply as the combined entity optimizes operations. The broader market will watch this merger closely as it could reshape the competitive landscape in the oil and gas sector, particularly in the Permian and Uinta Basins, influencing regional pricing and production dynamics.

Risk Assessment

Risk Level: high — The risk level is high due to the pending merger with Civitas, explicitly mentioned as a risk factor in the 'Cautionary Information about Forward-Looking Statements,' including the risk of failure to consummate the merger or realize expected benefits. Additionally, the company's net income decreased by $42,993 thousand (7.4%) for the nine months ended September 30, 2025, despite a $600,278 thousand (32.7%) increase in production revenue, driven by a substantial rise in operating expenses, indicating potential operational inefficiencies or cost pressures.

Analyst Insight

Investors should closely monitor the progress and terms of the Civitas merger, as its success or failure will significantly impact SM Energy's future. Given the rising operating expenses and declining net income despite revenue growth, a deeper dive into cost management strategies and capital allocation is warranted before making new investment decisions.

Financial Highlights

debt To Equity

1.34

revenue

$2,449,078

operating Margin

N/A

total Assets

$9,089,500

total Debt

$3,241,087

net Income

$539,022

eps

$1.35

gross Margin

N/A

cash Position

$162,251

revenue Growth

+33.2%

Revenue Breakdown

Key Numbers

• $2,435,705 — Oil, gas, and NGL production revenue (Increased from $1,835,427 thousand in 2024 for the nine months ended September 30, 2025)
• $539,022 — Net income (Decreased from $582,015 thousand in 2024 for the nine months ended September 30, 2025)
• $678,117 — Oil, gas, and NGL production expense (Increased from $422,377 thousand in 2024 for the nine months ended September 30, 2025)
• $888,262 — Depletion, depreciation, and amortization (Increased from $548,781 thousand in 2024 for the nine months ended September 30, 2025)
• $1,221,736 — Capital expenditures (Increased from $957,156 thousand in 2024 for the nine months ended September 30, 2025)
• $162,251 — Cash and cash equivalents (Increased from $0 at December 31, 2024, as of September 30, 2025)
• 114,554,192 — Shares of common stock outstanding (As of October 22, 2025)
• $1.35 — Basic net income per common share (For the three months ended September 30, 2025, down from $2.10 in 2024)
• $0.20 — Net dividends declared per common share (For the three months ended September 30, 2025, consistent with 2024)
• $1,559,088 — Net cash provided by operating activities (Increased from $1,204,645 thousand in 2024 for the nine months ended September 30, 2025)

Key Players & Entities

• SM Energy Company (company) — registrant
• Civitas (company) — merger partner
• New York Stock Exchange (regulator) — exchange where common stock is registered
• SEC (regulator) — filing authority
• Delaware (company) — state of incorporation
• Uinta Basin (company) — asset acquisition location
• Russia (company) — country involved in geopolitical instability
• Ukraine (company) — country involved in geopolitical instability
• Israel (company) — country involved in geopolitical instability
• Hamas (company) — group involved in geopolitical instability

FAQ

Risk Factors

• Merger with Civitas [high — financial]: The pending merger with Civitas introduces significant integration risks and potential disruptions to operations and financial performance. The success of this strategic move is critical and carries inherent uncertainties.
• Commodity Price Volatility [high — market]: SM Energy's financial results are highly sensitive to fluctuations in the prices of oil, natural gas, and NGLs. Significant price declines could materially impact revenues, profitability, and the ability to fund capital expenditures.
• Production Expense Increases [medium — operational]: Operating expenses, particularly oil, gas, and NGL production expense, increased by 60.5% ($255,740 thousand) for the nine months ended September 30, 2025, compared to 2024. This rise in costs could pressure margins if not offset by higher revenues or efficiency gains.
• Depletion, Depreciation, and Amortization (DD&A) [medium — operational]: DD&A expenses rose by 61.9% ($339,481 thousand) for the nine months ended September 30, 2025, compared to 2024. This increase reflects higher capital expenditures and the amortization of producing assets, impacting net income.
• Increased Capital Expenditures [medium — financial]: Capital expenditures surged by 27.6% ($264,580 thousand) to $1,221,736 thousand for the nine months ended September 30, 2025, from $957,156 thousand in 2024. While indicating investment in growth, this higher spending requires careful management of cash flows and debt.
• Environmental Regulations [medium — regulatory]: The company operates under stringent environmental regulations related to oil and gas exploration and production. Changes in these regulations or increased compliance costs could adversely affect operations and financial performance.
• Debt Management [medium — financial]: The company has issued Senior Notes totaling $2,712,711 thousand as of September 30, 2025. Managing this debt, especially in conjunction with increased capital spending and potential merger costs, is crucial for financial stability.
• Wells in Progress [low — operational]: Wells in progress decreased from $481,893 thousand at December 31, 2024, to $424,891 thousand at September 30, 2025. A significant slowdown or halt in drilling activities could impact future production and revenue growth.

Industry Context

SM Energy operates in the highly competitive U.S. oil and gas exploration and production sector. The industry is characterized by significant capital intensity, cyclical commodity prices, and evolving regulatory landscapes. Companies like SM Energy focus on optimizing production from existing reserves, acquiring new acreage, and managing operational costs to remain competitive.

Regulatory Implications

The oil and gas industry faces increasing scrutiny regarding environmental impact and emissions. SM Energy must navigate evolving regulations related to drilling, production, and methane emissions, which could necessitate additional capital investment for compliance and potentially impact operational flexibility.

What Investors Should Do

1. Monitor the progress and integration of the Civitas merger.
2. Analyze the trend of rising operating expenses and DD&A.
3. Evaluate the company's capital allocation strategy.
4. Assess commodity price hedging strategies.
5. Review the company's liquidity and debt management.

Key Dates

• 2025-09-30: Nine months ended September 30, 2025 — Reported increased revenue but decreased net income due to higher operating expenses and DD&A. Significant increase in capital expenditures and cash position.
• 2024-09-30: Nine months ended September 30, 2024 — Prior period for comparison, showing lower revenue and higher net income relative to 2025, with lower operating expenses and capital expenditures.
• 2025-10-22: Shares of common stock outstanding — Reported 114,554,192 shares outstanding, indicating a slight increase from the prior period.
• 2025-12-31: December 31, 2024 — Prior period balance sheet date, showing zero cash and cash equivalents and lower total assets compared to September 30, 2025.

Glossary

NGL

Natural Gas Liquids, which are components of natural gas that become liquid at various temperatures and pressures. They include ethane, propane, butane, and natural gasoline. (Key revenue driver for SM Energy, alongside oil and natural gas.)

Depletion, Depreciation, and Amortization (DD&A)

Non-cash expenses that represent the reduction in the value of a company's natural resource assets (depletion) and its tangible and intangible assets (depreciation and amortization) over time. (A significant expense for SM Energy, impacting profitability and reflecting the consumption of its asset base.)

Successful Efforts Method

An accounting method for oil and gas companies where exploration costs are capitalized only if they lead to the discovery of proved reserves. Costs that do not result in discovery are expensed. (The accounting method used by SM Energy for its property and equipment, influencing the carrying value of its assets.)

Derivative Assets/Liabilities

Financial instruments (like futures, options, or swaps) used to manage exposure to price fluctuations in commodities or interest rates. They can have a positive (asset) or negative (liability) value. (SM Energy uses derivatives, as indicated by the presence of derivative assets and liabilities on its balance sheet, to hedge against commodity price volatility.)

Asset Retirement Obligations

The estimated cost of dismantling, removing, and restoring a site after the extraction of natural resources, recognized when the obligation is incurred. (A liability SM Energy must account for, representing future costs associated with its oil and gas operations.)

Senior Notes

A type of unsecured debt instrument that ranks higher in priority than subordinated debt but lower than secured debt in the event of bankruptcy or liquidation. (SM Energy has issued significant amounts of Senior Notes, impacting its capital structure and debt obligations.)

Year-Over-Year Comparison

SM Energy has demonstrated robust revenue growth, with oil, gas, and NGL production revenue increasing by 33.2% for the nine months ended September 30, 2025, compared to the prior year. However, this top-line expansion has been accompanied by a significant rise in operating expenses, particularly production costs and DD&A, leading to a decrease in net income from $582,015 thousand to $539,022 thousand. Capital expenditures have also surged by 27.6%, indicating aggressive investment in future production. A key new development is the pending merger with Civitas, which introduces a new layer of strategic risk and integration challenges not present in the prior filing.

Key Financial Figures

• $0.01 — ange on which registered Common stock, $0.01 par value SM New York Stock Exchange
• $9.0 million — ded September 30, 2024, did not include $9.0 million in fees paid to secure firm commitments

Filing Documents

• sm-20250930.htm (10-Q) — 1801KB
• exhibit311certificationhvo.htm (EX-31.1) — 7KB
• exhibit312certificationwpu.htm (EX-31.2) — 7KB
• exhibit321906certification.htm (EX-32.1) — 8KB
• exhibit951-minesafetydiscl.htm (EX-95.1) — 16KB
• sm-20250930_g1.jpg (GRAPHIC) — 87KB
• 0000893538-25-000138.txt ( ) — 8172KB
• sm-20250930.xsd (EX-101.SCH) — 45KB
• sm-20250930_cal.xml (EX-101.CAL) — 54KB
• sm-20250930_def.xml (EX-101.DEF) — 187KB
• sm-20250930_lab.xml (EX-101.LAB) — 601KB
• sm-20250930_pre.xml (EX-101.PRE) — 389KB
• sm-20250930_htm.xml (XML) — 1373KB

Financial Statements (unaudited)

Financial Statements (unaudited) 5 Condensed Consolidated Balance Sheets September 30, 2025, and December 31, 2024 5 Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2025, and 2024 6 Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended September 30, 2025, and 2024 7 Condensed Consolidated Statements of Stockholders' Equity Continuous Quarterly Presentation Ended September 30, 2025, and 2024 8 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2025, and 2024 10 Notes to Condensed Consolidated Financial Statements 12 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 43 Item 4.

Controls and Procedures

Controls and Procedures 43 Part II 44 Item 1.

Legal Proceedings

Legal Proceedings 44 Item 1A.

Risk Factors

Risk Factors 44 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 46 Item 4. Mine Safety Disclosures 46 Item 5. Other Information 46 Item 6. Exhibits 47

Signatures

Signatures 48 2 Cautionary Information about Forward-Looking Statements This Report on Form 10-Q ("Form 10-Q" or "this report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements included in this report, other than statements of historical fact, that address activities, conditions, events, or developments with respect to our financial condition, results of operations, business prospects or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words "anticipate," "assume," "believe," "budget," "could," "estimate," "expect," "forecast," "goal," "intend," "pending," "plan," "potential," "projected," "seek," "target," "will," and similar expressions are intended to identify forward-looking statements. Forward-looking statements appear throughout this report, and include statements about such matters as: the amount and nature of future capital expenditures, the resilience of our assets to declining commodity prices, the ability of our assets to generate returns in the current macroeconomic environment, and the availability of liquidity and capital resources to fund capital expenditures; our outlook on prices for future crude oil, natural gas, and natural gas liquids (also referred to throughout this report as "oil," "gas," and "NGLs," respectively), well costs, service costs, production costs, and general and administrative costs, and the effects of inflation, tariffs or trade restrictions on each of these; risks related to the pending Merger with Civitas, including the risk that we may fail to consummate the Merger on the terms or timing currently contemplated, or at all, and the risk we may fail to realize the expected benefits of the

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS SM ENERGY COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) September 30, 2025 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 162,251 $ — Accounts receivable 367,688 360,976 Derivative assets 68,567 48,522 Prepaid expenses and other 34,452 25,201 Total current assets 632,958 434,699 Property and equipment (successful efforts method): Proved oil and gas properties 15,653,507 14,301,502 Accumulated depletion, depreciation, and amortization ( 8,477,647 ) ( 7,603,195 ) Unproved oil and gas properties, net of valuation allowance of $ 12,334 and $ 32,680 , respectively 592,493 764,924 Wells in progress 424,891 481,893 Other property and equipment, net of accumulated depreciation of $ 64,658 and $ 61,737 , respectively 71,669 47,585 Total property and equipment, net 8,264,913 7,992,709 Noncurrent assets: Derivative assets 4,677 3,973 Other noncurrent assets 186,952 145,266 Total noncurrent assets 191,629 149,239 Total assets $ 9,089,500 $ 8,576,647 LIABILITIES AND STOCKHOLDERS ' EQUITY Current liabilities: Accounts payable and accrued expenses $ 674,157 $ 760,473 Senior Notes, net 418,593 — Derivative liabilities 9,888 7,058 Other current liabilities 32,688 22,419 Total current liabilities 1,135,326 789,950 Noncurrent liabilities: Revolving credit facility — 68,500 Senior Notes, net 2,294,118 2,708,243 Asset retirement obligations 150,127 145,313 Net deferred tax liabilities 690,446 545,295 Derivative liabilities 4,852 7,142 Other noncurrent liabilities 101,544 74,947 Total noncurrent liabilities 3,241,087 3,549,440 Commitments and contingencies (note 6) Stockholders' equity: Common stock, $ 0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 114,554,192 and 114,461,934 shares, respectively 1,146 1,145 Additional paid-in capital 1,507,875 1,501,779 Retained earnings 3,205,190 2,735,494 Acc

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