On January 30, 2026 (“Closing Date”), we completed our previously announced merger with Civitas Resources, Inc. (“Civitas”), through which we acquired 100 percent of the outstanding voting equity interests of Civitas (“Merger”). Civitas was an independent exploration and production 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. We believe the Merger enhances our asset 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 (“Merger Agreement”), subject to certain exceptions, each share of Civitas common stock was converted into the right to receive 1.45 shares of SM Energy common stock with cash paid in lieu of fractional shares. Upon completion of the Merger, we 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.

We incurred $18 million of transaction-related costs in connection with the Merger during the nine months ended September 30, 2026. 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”).

The Merger was accounted for as a business combination using the acquisition method of accounting under Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with SM Energy treated as the accounting acquirer.

Under the acquisition method of accounting, we 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 Merger is preliminary, and we 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 our 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 our 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.

(4) Deferred tax amounts are recorded on a net basis by jurisdiction. Civitas’ deferred tax assets have been offset against our deferred tax liabilities, resulting in a net deferred tax liability balance.

The results of operations of Civitas subsequent to the Closing Date are included in our unaudited consolidated financial statements for the three and nine months ended September 30, 2026. Revenue attributable to Civitas included in our accompanying statements of operations for the three and nine months ended September 30, 2026, was $1.3 billion and $3.3 billion, respectively. We have 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 our operations to achieve our synergy targets. As a result, a significant portion of post-Merger expenses relates to the combined Company, and allocating these expenses would require significant assumptions by management.

The results of Civitas’ operations have been included in our consolidated financial statements since the Closing Date. The following unaudited pro forma financial information for the three and nine months ended September 30, 2026, and 2025, 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 restructuring and 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 occurred 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 September 30,				For the Nine Months Ended September 30,
	2026		2025		2026		2025

	(in millions, except per share data)
Pro forma oil, gas, and NGL production revenue	$	2,160	$	1,971	$	6,097	$	5,842
Pro forma net income	$	93	$	488	$	898	$	1,330

Pro forma basic net income per common share	$	0.39	$	2.03	$	3.79	$	5.55
Pro forma diluted net income per common share	$	0.39	$	2.02	$	3.77	$	5.53

On April 30, 2026, we completed the previously announced sale of all of our rights, titles, and interests in certain producing and non-producing assets encompassing approximately 61,000 net acres located in our southern Maverick Basin position in Webb County, Texas (“South Texas Divestiture”) to Caturus Energy, LLC, a Delaware limited liability company. Subsequent to September 30, 2026, we completed the final post-closing settlement, resulting in total cash proceeds of $894 million after final purchase price adjustments and selling costs (referred to throughout this report as “net cash proceeds”) and a final gain on divestiture activity of $260 million.

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 our operations that has or will have a significant effect on our operations and financial results.

The following table presents earnings before income taxes attributable to the assets included in the South Texas Divestiture. Earnings before income taxes reflect oil, gas, and NGL production revenue, less oil, gas, and NGL production expense; DD&A expense; and exploration expense. Depletion expense ceased upon classification of the assets as held for sale during the first quarter of 2026.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2026		2025		2026		2025

	(in millions)
Earnings before income taxes attributable to the South Texas Divestiture assets (1)	$	—	$	29	$	61	$	98

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