Phu Pham

Phu Pham, an Equity Research Associate at ROTH Capital Partners, asked for clarification on SM Energy's capital and production cadence, specifically if Q1 capital would be the highest and if production would peak in Q2 2026, given the H2 2026 production guidance. He also inquired about the expectation for cash taxes in 2026.

Answer

President and CEO Beth McDonald explained that the plan prioritizes maximizing free cash flow, noting a significant 14% decline in inherited assets in January. She directed focus to the clean H2 2026 run rate of 420-430 MBOE/day at 55% oil, which represents 45% of the year's capital and indicates future capital efficiency. EVP and CFO Wade Purcell confirmed minimal cash taxes for 2026, attributing it to IDCs and other benefits, even after a divestiture gain.

Phu Pham asked for clarification on the capital and production cadence, specifically if the first quarter's capital will be the highest of the year and if production will peak in the second quarter of 2026. He also inquired about the expectation for cash taxes in 2026.

Answer

President and CEO Beth McDonald reiterated the focus on prioritizing value over volume to maximize free cash flow. She acknowledged variables in Q1 and Q2, including a significant 14% decline inherited from Civitas assets in January, and emphasized that the second half of 2026 (45% of capital, 55% oil mix) represents the clean, go-forward run rate. EVP and CFO Wade Pursell added that this run rate is built to roll into 2027. Wade Pursell also reported that cash taxes for 2026 are projected to be minimal, benefiting from IDCs, the 'Big Beautiful Bill,' and even after accounting for the divestiture gain.

Phu Pham inquired about the East Texas project, asking if it's still awaiting final investment decision (FID) given that internal FID was reached in December. He also asked about the company's current M&A concerns, particularly beyond the Bedrock acquisition.

Answer

Eric Jacobsen, President of Upstream, clarified that internal FID is stage one for the East Texas project, with the final FID timeline not yet public, though documents and agreements are in place. He confirmed drilling of the injection well this year, with an anticipated startup in 2027, and noted it's a Class II natural gas processing project expected to generate $48 per ton EBITDA margin. Chris Kalnin, CEO, stated that BKV has a proven M&A track record, with Bedrock integration progressing well. He highlighted the Barnett as a core M&A target with over 1 Bcf of opportunities and affirmed that BKV continuously evaluates accretive, risk-adjusted transactions in Gulf Coast mid-tenure gas basins to scale its integrated business model.

Phu Pham inquired about the status of the East Texas project, specifically if it's still awaiting final investment decision despite reaching internal FID in December. He also asked about BKV's current M&A focus and concerns following the Bedrock acquisition.

Answer

President of Upstream Eric Jacobsen clarified that internal FID is stage one, and the final FID timeline is not yet public, though they will be drilling the injection well this year with an anticipated startup in 2027, targeting $48 per ton EBITDA margin. CEO Chris Kalnin stated that the Barnett remains BKV's core M&A target for roll-up opportunities (over 1 BCF), and the company will continue to evaluate accretive, risk-adjusted transactions in the Gulf Coast to scale its business model, leveraging its expertise in managing mid-tenure gas basins.

Phu Pham of Roth Capital Partners requested more details regarding the operational issues at the Sunspear well, specifically the cause of the shutdown, and asked for an explanation for the delay of the non-operated Marmalade greenfield project.

Answer

President and CEO Paul Goodfellow explained that the Sunspear well was shut in due to a premature failure of a critical subsurface safety valve. He noted the West Vela rig will be mobilized for the repair. Regarding Marmalade, a non-operated well, he stated the partner has faced drilling and completion challenges but the well is expected to be online soon.