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Wednesday, Nov. 5, 2025 at 10 a.m. ET CALL PARTICIPANTS President and Chief Executive Officer — Herbert S. Vogel Executive Vice President and Chief Financial Officer — Wade Pursell Executive Vice President, Operations — Elizabeth Anne McDonald Executive Vice President, Corporate Development — Patrick Allen Lytle Need a quote from a Motley Fool analyst? Email [email protected] Pro Forma Production -- Approximately 526,000 barrels of oil equivalent per day reported for the combined company as of June 30, 2025. Pro Forma Proved Reserves -- Estimated at nearly 1.5 billion barrels of oil equivalent as of year-end 2024. Net Acreage -- The combined company holds over 800,000 net acres across four contiguous states. Permian Basin Exposure -- About 50% of production and remaining locations are in the Permian Basin. Annual Synergy Targets -- Identified and achievable annual run-rate synergies of $200 million, with upside potential to $300 million. Synergy Breakdown -- $70 million identified in G&A savings (with $25 million upside), $100 million in drilling and completion synergies (with $50 million upside), and $30 million in cost-of-capital savings (with $25 million upside); subtotal does not sum due to category overlap. Dividend Policy -- The company will maintain a fixed quarterly dividend of $0.20 per share until the leverage target of 1.0x is reached. Share Repurchase Authorization -- The previously authorized $500 million share repurchase program remains in effect. Leverage Targets -- The company plans to reach 1.0x net leverage by year-end 2027, assuming $65 WTI, or 1.4x at $60 WTI. Liquidity -- Pro forma liquidity at the end of the quarter totaled $4.4 billion. Synergy Timing -- Vogel said, "we're not assuming any synergies for 2026. So this is really the run rate for 2027." Asset Divestiture Plans -- Management stated that decisions on potential asset divestitures are expected "more into 2026." Management Transition -- Elizabeth Anne McDonald will assume the Chief Executive Officer role after the merger is completed. Shareholder Returns -- The policy is to direct free cash flow to debt reduction before increasing dividends and pursuing additional share buybacks. The combination results in SM Energy Company (SM +1.34%) becoming a top 10 U.S. independent oil-focused producer by enterprise value and production. Management projects substantial synergy realization starting in 2027, with no synergies built into 2026 financial expectations. Pro forma leverage targets are based on $65 and $60 WTI scenarios, with identified pathways to accelerate deleveraging through potential asset sales and an optimized drilling program. No integration of Civitas’ prior optimization programs is assumed in the current synergy forecast, and projected run-rate synergies are incremental to each company’s prior standalone plans. Leadership reaffirmed the commitment to stockholder returns through a fixed quarterly dividend and ongoing share repurchases, contingent upon achieving leverage targets. Patrick Allen Lytle said, "This transaction is highly accretive on a per-share basis," referencing the expected impact of the merger. Management is focused on coordinated integration and achieving the forecast synergy run-rate by 2027, with capital allocation remaining purposeful around free cash flow and leverage discipline. The company will develop specific non-core asset divestiture plans in 2026 after successful completion of integration activities. No material change in tax carryforwards or anticipated near-term federal cash tax payments was disclosed for the combined entity. G&A and cost of capital synergy targets are described as "relatively low" according to Elizabeth Anne McDonald and achievable, with upward potential seen by management in operational synergy realization. Operational efficiencies are expected from combining technical teams and leveraging longer laterals and completion technologies unique to each legacy company. INDUSTRY GLOSSARY BOE (Barrels of Oil Equivalent): A standardized unit of measure that combines oil, natural gas, and NGL volumes using energy equivalency. G&A: General and Administrative expenses related to corporate overhead. D&C: Drilling and Completion costs associated with the development of oil and gas wells. Net Leverage: The ratio of net debt to annualized adjusted EBITDA, indicating balance sheet leverage. WTI: West Texas Intermediate, a benchmark crude oil price. LOE: Lease Operating Expense, ongoing costs to operate and maintain production from oil and gas properties. Pro forma: Financial information presented as if a merger or acquisition has occurred, combining the relevant results of both companies. Full Conference Call Transcript Patrick Allen Lytle: Thank you, Valder. I'll begin on Slide four. As Herbert S. Vogel said, this is a remarkable opportunity. One that creates a company with value-enhancing scale consisting of a premier portfolio across the highest return U.S. Basins. Delivers a step change in free cash flow enabling sustained capital returns, and enhances trading liquidity with broader investor appeal. We have brought together two highly complementary portfolios and teams to generate value-driven synergies which are identifiable, achievable, and deliverable by proven management. The synergies are expected to drive greater accretion, accelerate debt reduction, and deliver through cycle returns. Our returns-based technical focus will unlock significant value in our people, processes, and infrastructure will work together to capture identified synergies and accelerate integration. Stockholders will benefit from accretion on key financial metrics and from the substance of this transaction. Which is the expected significant free cash flow that the combined company will generate. On a per-share basis, the transaction provides significant cash flow debt-adjusted cash flow, free cash flow, and NAV accretion. Even before synergies. We will prioritize applying free cash flow, along with any proceeds from opportunistic divestitures we plan to pursue to debt reduction while maintaining a sustainable quarterly fixed dividend of $0.20 per share until we reach our leverage target of one time. Upon reaching our target, we plan to direct our free cash flow towards growing our regular dividend, and upholding a consistent stock repurchase program. Finally, but certainly not last, we are proud of the excellent safety and environmental record. Of both companies. And are committed to continuing that legacy. Turning to Slide five, this combination results in a step change in scale showcasing a premier portfolio. Pro forma as of 06/30/2025, the company holds over 800,000 net acres in four contiguous states. And production totaled approximately 526,000 barrels of oil equivalent per day. Estimated net proved reserves pro forma as of year-end 2024 totaled nearly 1,500,000,000 barrels of oil equivalent. The combined company has approximately 50% of the production in remaining locations in the Permian Basin. This step change in scale across these top-tier assets will drive differentiated free cash flow and sustain stockholder value. On Slide six, you can see the contribution to value-enhancing scale that is provided by our positions in the highest return US shale basin. Each of these basins provides unique value. And competitive returns will further strengthen our technical expertise, and bolster our ability to deliver synergies across all assets. I'm now on Slide seven. As the combined company's cornerstone asset, the Permian position represents nearly half of the pro forma BOE production, and just under half of the year-end 2024 estimated net proved reserves on an oil equivalent basis. This premier asset is also a source of potential inventory growth in New Horizons that we are currently delineating. We are excited about each of our four core areas as they will deliver strong free cash flow, generate highly economic returns, and collectively provide multiple opportunities for inventory growth. With Slide eight, we will showcase the value-enhancing scale this combination provides through a relative size comparison. The transaction transforms the pro forma company into a top 10 U.S. Independent oil-focused producer. Better positioned as an attractive investment, due to the step change in free cash flow, net equivalent production, and enterprise value. We expect this expanded scale will appeal to a broader universe of institutional investors and will increase pro forma trading liquidity. We now turn our attention to the value-driven synergies that bolster this combination. The combined technical expertise is expected to unlock significant value and drive synergies. Our proven technical team has repeatedly demonstrated differentiated technical abilities generating meaningful value across SM Energy Company's legacy core assets. By leveraging advanced technology and fostering a collaborative, inquisitive culture, that challenges paradigms and solves complex problems, we achieve operational excellence. Our recent integration success by exceptional talent, streamlined process, robust technology instills confidence in our ability to deliver a cohesive outcome. We recognize the great performance of the Civitas team, and a similar culture of technical excellence. I look forward to welcoming members to collaborate and learn from each other to create value for our stockholders together. Moving to slide 10, let's spend a few minutes looking at our plans to enhance stockholder value by delivering identifiable, and achievable annual synergies totaling $200,000,000 with upside potential to $300,000,000. We believe the complementary operations lead to significant pro forma annual synergies that are achievable post-integration. We have identified approximately $70,000,000 of overhead in G and A synergies with $25,000,000 of potential upside driven by a streamlined corporate structure and optimized G and A across the combined asset base. On the drilling and completion side, we have identified approximately $100,000,000 of synergies, with the potential for an additional $50,000,000. We expect to achieve these synergies through improved capital efficiency, and optimized drilling program, and lower LOE with integration and scale. The combined company will benefit from swapping learnings to lower drilling and completion costs while continuing to deliver highly economic wells. On the operations front, we expect the combined company to benefit from several opportunities from Civitas' low-cost operations and SM Energy Company's technical focus to lower cost and increase performance. We anticipate gaining purchasing power, debundling services, bringing recurring costs in-house, and optimizing our operations with machine learning and AI. Reducing our cost of capital is the next and achievable synergy that will enhance stockholder value. The previously mentioned costs and operating synergies will accelerate debt reduction and provide interest savings. And we also expect to be able to opportunistically refinance certain tranches of debt at a lower cost of capital due to an improved credit profile. Estimate achievable cost of capital savings at $30,000,000 with potential upside for an additional $25,000,000. Neither of these estimates include the potential for cost of capital synergies if we achieve investment-grade status. As is apparent from our diligence to date, we believe that identified and achievable synergies will enhance stockholder value in the near term, reduce debt faster, and create a sustainable return of capital program. Next slide 11 how the combination of our two companies provides for value accretive substance as we realize significant accretion across key financial metrics before synergies. The identified and achievable value-enhancing annual run rate synergies $200,000,000 to $300,000,000 meaningfully increase the free cash flow generation of the pro forma company. We plan to prioritize free cash flow to debt reduction with a path to one times net leverage by year-end 2027 at $65 WTI. At $60 WTI, leverage is expected to be slightly higher at 1.4 times at year-end '27. While we are encouraged that leverage is at a manageable level, we will seek to reduce debt faster through opportunistic asset sales at the appropriate time. Scale diversification synergy enhanced free cash flow strengthen the pro forma company's credit profile. Several opportunities to accelerate the achievement of our leverage target exist, through an optimized drilling program and as mentioned before potential asset sales. We will evaluate those as a part of our effort to continue to maximize free cash flow generation and improve the pro forma balance sheet. Turning to stockholder returns, remain firmly committed to our sustainable quarterly dividend fixed dividend, at $0.20 per share. The previous Board authorized $500,000,000 share repurchase program remains in effect. This transaction is highly accretive on a per-share basis. Which is why our near-term policy and priority is reducing debt and strengthening the balance sheet. Once we achieve our leverage target of near one times, five will become a larger part of our capital return program, Even before then, we never rule out the possibility of opportunistically repurchasing shares. Taken together, this financial policy provides stockholders with value accretive substance through an attractive mix of disciplined balance sheet prioritization consistent capital returns through a sustainable fixed dividend, and future share buybacks upon achieving our one times leverage target. I'm now on slide 12 looking at the manageable maturities of the pro forma debt profile. As of Q3, liquidity totaled $4,400,000,000. The well-staggered maturities provide opportunity to reduce debt with the significant free cash flow generated pro forma through potential asset sales, and through reduced interest cost upon refinancing enabled by an enhanced credit profile. Moving to Slide 13. The pro forma company will be recognized as a dependable leader of sustainability and stewardship. Building stronger communities through responsible action. Each of the top-tier assets contributes to this recognition as a premier operator. Stepping back, I'm now on Slide 14. This strategic combination is transformational. Delivering superior value to stockholders. Immediate and significant per-share accretion and long-term value creation. This merger is about creating something stronger together than either company would achieve on its own. Sherry, we are now ready to take questions. Thank you. A confirmation tone will indicate your line is in the question queue. Operator: You may press star 2 if you would like to remove your question from the queue. For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Scott Hanold with RBC Capital Markets. Please proceed. Scott Hanold: Yes. Thanks all. Hey, for my first question this morning, I was wondering if you could give us a little bit of color on the process in terms of how you all came up with the value allocation to each, in the merger ratio. I guess I was a bit surprised that SM shareholders aren't a majority owner here. Scott, I'll start and then see if Bauder has wants to add anything on that. He was pretty much balanced based on ways the market traded over time. And, we looked at the appropriate shares based on our market trading and the values of the assets that both were contributing. So it was pretty logical, straightforward sort of approach. Herbert S. Vogel: Yeah. Not nothing to add. And on a per-share basis, the results are quite accretive. Scott Hanold: Okay. Thanks. And I guess my follow-up is on I guess, Elizabeth Anne McDonald, had mentioned a few times potential asset divestitures to help get leverage on it. I think, obviously, that's going to be an important aspect of this merger and seeing that leverage ratio get down, you know, faster than hopefully you know, than you all provided here. So hopefully, that's been conservative. But can you give us a sense of, like, when you think about, like, divestitures, what would you consider as like non-core type assets? What would be at the top of the pecking order? Patrick Allen Lytle: I think it's a little bit premature or early to tell you specifics about what asset we would go after. Think if you look back at what the assets are that we really value are ones that generate high free cash flow but in turn, ones that have a runway of strong, highly economic returns. And so we'll balance those as well as the commodity price environment as we look to what assets we could potentially sell. Scott Hanold: Okay. This is this a process that may take a while? Like, when will you have those potential assets? Do you guys have something in mind? Or will it be something, you know, more into 2026 as you get the combined kinda entity together? Patrick Allen Lytle: Yes. Scott, it'll be more into 2026. Our focus right now is on successful integration of the two businesses and making sure that execution happens in a safe way as well. And so we'll be focusing. Leo Mariani: Thank you. Yeah. Hi. Good morning. Wanted to just follow-up a little bit on the synergies here. So you guys identified kind of as your base case, $200,000,000. Can you provide a little bit of color kind of around the timing there? And then with respect to the, basically, kind of operational synergies of kind of a $100,000,000 to a $150,000,000, which I guess is the upside case, Can you provide a little bit more color around kind of how you get there? I mean, there's not too much in the way of asset overlap between the two companies. So just wanted to dive a little bit more into the synergies here, please. Herbert S. Vogel: Hey, Leo. Thanks for joining. I'll just start by saying we're not assuming any synergies for 2026. So this is really the run rate for 2027, and Elizabeth Anne McDonald can elaborate on all the synergies that we've assumed. Elizabeth Anne McDonald: Yeah. So I'll quickly hit on the fact that we think on a G and A front as well as the cost of capital front, those are the seventy and thirty are relatively low. We think we can reach the upside potential there. Then as it relates to the operational synergies, there's really quite a bit actually when you look at the overall technical team. Let's start with the fact that we'll combine the best people and the best practices among both of these great organizations. Beyond there, we know that we can do swap we can swap our learnings. We have joint learnings that we know that they drill some of the longest laterals in the DJ Basin, and with that combined with our landing zones and completion designs, think can be differential for performance. When you look across the planning, side of the Permian and within the Midland Basin, we can really plan for efficiency. So when you look at our drilling rigs, frac fleets, our drill out crews, the faster that we go, the more efficient that we go, and in a safe way, we can actually get to greater capital efficiency together with a combined activity levels. So there's those pieces as well as what I mentioned on the call, which were really bundling debundling services bringing recurring costs in house, think chemicals, utilizing field gas and recycled water. Those kind of things just continue to elevate with scale. And so we really see that there is differential operational synergies in this transaction. Herbert S. Vogel: I might add on the cost of capital just to be clear on the cost of capital. I think we've been pretty modest on the assumption there. Something like a 100 basis point savings. And if you look at the combined know, the improvement of the credit profile and look at where the coupons are versus know, where we could be going in the market, that's pretty easy to see. We certainly haven't assumed anything in the investment-grade area. This is a path toward that. Pretty good check mark on the scale side. Now focused on getting leverage down below one times and enhancing that further. And if we could just add one Leo, and one other thing that it's just when we look at reflect back on our combination with XCL, we found that know, some teams can get quite complacent in the way they do things and that gets challenged when you look real closely and you're working together with another. And it's how much more shows up than you expect because of that fresh look. And we expect to see fresh looks from both sides here. On this one. Okay. Very thorough answer. Appreciate that. Leo Mariani: And then just also wanted to just kind of ask on the leverage side, So you guys kind of spoke to a couple cases, kind of the 65 and $60, you know, oil case. Obviously, strip is unfortunately a little closer to 60 over the next, know, couple years. So as you're looking at it, you know, in the $60 scenario, do you have a better sense of when you guys get to that kind of one times, you know, leverage in your models here? Herbert S. Vogel: Yeah. You know, it'll depend on several things, Leo. One is we don't you know, we haven't put forth our plan for next year from an activity standpoint. You know, if it stays down in that area, you know, you know that we focus on free cash flow maximization, not certainly not production. So it would be, I think it would be logical to assume that just putting the two companies together and if prices stay low, you might have an activity profile that's you know, that's somewhat less than the combined looks right now. Just again, based on free cash flow generation and that would certainly enhance the delivering effort. That'll be one factor then certainly a big factor will be divestiture, you know, opportunities and when that happens. Other than that, it's hard to project too far ahead beyond next year at this point. Leo Mariani: Okay. And your and your kind of assumptions on leverage, I assume, don't assume any divestiture opportunities. That's more just paying off debt with free cash flow over time. Herbert S. Vogel: That would be the base case. Exactly. Okay. Leo Mariani: Thank you. Operator: Thank you. Our next question is from Philip Jungworth with BMO Capital Markets. Please proceed. Philip Jungworth: Thanks. Good morning, guys. In Midland, SM Energy Company has always operated in the North and western sides of the basin. A lot of the Civitas acreage is gonna be more Southeast. How do you view the different trade-offs, opportunities, and also challenges of this part of the basin versus where you've historically operated? Elizabeth Anne McDonald: Yes. Hi, Philip. It's Elizabeth Anne McDonald. Just wanted to have a little point of clarification there. One of our anchor assets that really was a foothold into the Midland Basin was Sweetiepec, and so that's actually in the southern part of the Midland Basin, And we have an extreme amount of knowledge of the entire Midland Basin and the geology changes across that. And so we'll continue to just look at that and really bolster our technical abilities by combining both teams together. So we look at it just like we would our Sweetiepec acreage. As well as a complimentary base for the Howard you know, Howard County acreage. And you know, we see significant synergies there. Philip Jungworth: Okay. Great. And then following up on the prior question, just in the deck, did know 1.4 times high-level framework or assumptions you're using here? I assume it's just kind of a maintenance production and CapEx outlook, but want to make sure. Herbert S. Vogel: It's a very conservative that type of outlook. Exactly. Operator: Okay. Thanks. Our next question is from John Abbott with Wolfe Research. Please proceed. John Abbott: Thank you very much for taking our questions. My first question is back to the synergies. Now, like Civitas had and it's really on are some of these sort of synergies driven also by the individual programs that the companies were already executing on. For example, Civitas was already executing on a $100,000,000 optimization program. You know? And then maybe they would expand upon that. But so I guess when you come to that synergy number, how much of this is already being baked in on an individual company basis versus the pro forma basis? Elizabeth Anne McDonald: Yes. Hey, John. There are none that are baked in from the Civitas plan. These are actually going forward with the new pro forma company. And the synergies that are we identified and we believe are achievable together. John Abbott: Appreciate it. And then my next question is really for Wade Pursell. I you know, if we go if we go back to second quarter results, you know, there was the discussion of the desire for you know, looking for more consistent operation performance and that would drive value I mean, we haven't seen that as of yet. The deal's been announced before that. So why do the deal why was this the appropriate decision for Civitas at this time? We're just letting the execution operations side play out first. Wade Pursell: Yes. So thanks, John. Obviously, we're not announcing our earnings here today. We're announcing our earnings on Friday. So can't talk about that. But in the end, you can't you can never time deals in a perfect way. And you never know what shows up at what time. I can tell you that, from our side and the Civitas side and the entire Civitas team, everybody's been working really, really hard on the third quarter. To make sure that we deliver on the promises that we're making And in the end, And we had those discussions at our at our August conference call this is the right time to do this. This is the right opportunity. This makes both companies a lot stronger. So we're very excited about it. John Abbott: Thank you very much for taking our questions. Operator: Our next question is from Oliver Huang with TPH and Company. Please proceed. Oliver Huang: Good morning all, and thanks for taking the questions. For my first question, maybe just a follow-up in terms of just when we're thinking about each of your respective basins on a pro forma basis, is there one where you would potentially look to let oil volumes roll a bit more meaningfully? We're talking about oil prices being in the 50 to $55 range next year? Elizabeth Anne McDonald: I would say at this point, it's a little premature to answer that question. We love all four of our basins. And if you look at slide six in the presentation, it really focuses on advantages and the unique value that each of those bring. And so we'll use that in conjunction as we build our 2026 pro forma plan. Oliver Huang: Okay. That makes sense. And for my second question, just had a quick question around inventory. Was doing some rough math around your pro forma net locations highlighted in slide five. If we think about the SM Energy Company and Civitas stand-alone programs this year, I think it's roughly 400 net 10,000-foot equivalent locations of lateral turn in lines. That imply roughly six years of inventory. So trying to get a better understanding of what is included within the assumption of that 2,400 total shown in the slide and what you all feel might fall into the upside bucket that would not have been reflected in that figure. Elizabeth Anne McDonald: Yeah. So really when you're looking at the Enveris inventory, we all kinda know that's backward-looking. So that's really the minimum amount of inventory that we would expect going forward. It doesn't include a lot of the upside that we're excited about and that we've talked about you know, as far as Woodford Barnett, Upper Cube, know. So there's multiple zones that we're delineating now. That aren't reflected in that amount right now, and so we see upside there. Also, as you as you heard Wade Pursell talk about future and we look at the current commodity price environment, and the activity level there will probably slow down a bit. Again, we're focused on free cash flow generation and maximization of that free cash flow to increase time to debt reduction, but at resulting factor that comes out of that is that your inventory is prolonged a bit. Oliver Huang: Okay. Sounds good. Thanks for the time. Operator: Our next question is from David Deckelbaum with TD Cowen. Please proceed. David Deckelbaum: Congrats Herbert S. Vogel, Wade Pursell, and Elizabeth Anne McDonald. You guys taking my questions. I'm curious as you looked at the synergies, particularly just given you know, the increased scale in areas like the Midland do the announced synergies envision any cap capital optimization between assets, perhaps emphasizing capital allocation to the Midlands. Versus perhaps, some other areas or should we mostly assume that those slides are kinda combining the current plans as we see them today? Elizabeth Anne McDonald: It's a combination of both, David. So it's a combination of combining the plans to an optimal drilling program but it's also really around capital efficiency and learnings. Right? So we also think that we have price negotiation potential purchasing power with scale. And that we can really plan for efficiency through our drilling completions and drill out crews. Keeping those busy within the Midland Basin among all of our acreage. Will just help drive those efficiencies even further. David Deckelbaum: Appreciate that. And I know you've been asked you know, a few times already about asset sales, and you mentioned them earlier. You also laid out obviously, the priority on deleveraging, post this deal. You know, perhaps at the expense of returns of capital to shareholders. So I guess, how do you think about the priority of divesting noncore assets and do you already internally have, you know, sort of an absolute dollar target that you would be looking to pursue? Elizabeth Anne McDonald: No. Not at this time. We you know, it's really early in the process. And like I said before, we're really focused on the execution and the integration of the deal. In the meantime, we'll prioritize what assets really make sense especially as we go into the current commodity price environment we just have more work to do, and there's not a specific dollar amount that we're targeting. You could back into dollar amounts that could show you what asset sales are needed with these synergies to get us to one times faster. Wouldn't be a lot. Herbert S. Vogel: Yeah. Yeah. Don't take it. It's not a lot. David Deckelbaum: Thank you all. Operator: Our next question is from Noel Parks with Tuohy Brothers. Please proceed. Noel Parks: Hi, good morning. Just had a couple. I think one thing I found interesting is that in the Permian, the degree of overlap is not particularly high between the two companies. So it's a nice and larger combined footprint. Any thoughts on I guess, just as you looked at various Permian opportunities, just what your thinking was in terms of you know, whether you're looking more for expansion of footprint, consolidation of footprint. And also, I'm not really familiar with your gas infrastructure strategy. In the Permian. I just wondered if you could talk a little bit about that and how that shift with the with the merger. Elizabeth Anne McDonald: Yeah. I'll start with just talking high level about the synergies that we see from the combined put And I know I'm repeating myself a little bit, but we have joint learnings that we have between the two companies. We know that in certain zones, we outperform each other. We can combine those learnings as well as the Civitas long lateral learning And we think that will really drive down our cost on the drilling side As far as our technical expertise, we think SM Energy Company really can unlock value on a performance side. So we think the combined operational excellence as well as the scale purchasing power, you know, debundling, Can really drive that efficiency. Know, as far as the gas infrastructure, know we've really been focused on increasing our margins there and getting that gas to market as much as we can, So you're very familiar probably with Waha prices. And so we've been doing a great job there on the hedging side to really cover us. As far as Waha is concerned, but we've never had any takeaway issues. So we don't expect those to continue. Herbert S. Vogel: No. I'll just chime in and just say that, you know, if you can thought of the Southern Midland Basin five, six years ago, people underestimated how good the economics were there. And over time, people have recognized there's more zones there that are economic, we can actually do better in them, and that's partly technology and partly lateral length. So that's the way to look at it is there's opportunity to improve on historical Southern Midland Basin potential for the industry as a whole. Noel Parks: Got it. Thanks. And I'm just wondering in terms of post-deal accounting, is there anything for us to be aware of as far as tax carry forwards? Of course, we're have some tax legislative changes for 2026. But just wondering if there are any considerations there. Herbert S. Vogel: Yeah. I mean, it's a great question in this environment especially. You know, I nothing significant to answer your question about the you know, impact the tax could, you know, carry forwards or anything like that. We're both benefiting from the from the big beautiful bill. No question. As far as how much federal taxes we both have that Civitas very similar to us. In that regard. So minimal taxes in the in the foreseeable future, I would say. A similar a similar story on a combined basis. Noel Parks: Great. Thanks a lot. Herbert S. Vogel: Thank you. Operator: Our next question is from Bill Dezellem with Titan Capital Management. Please proceed. Bill Dezellem: Thank you. Would you please discuss your strategy for production growth and what goals you do or do not have? And how that interrelates with cash flow generation, please? Herbert S. Vogel: Yeah. Bill, this is Herbert S. Vogel. Just briefly if you followed us for a long time, you know we plan each year looking forward the next two to three years. And maximize free cash flow generation. So production is not an input or a goal. It's an output. Of that maximization, and it's driven by commodity price and commodity price mix. And we continue to drive that, and that's been very successful for us in achieving our targets on the debt side. Free cash flow generation and return to capital. So that's the way to look at it. Don't think of production targets. Think of maximizing free cash flow generation. Wade Pursell: To a point, I mean we target we shoot for flattish I mean, obviously, we could generate a ton of free cash by letting fall. So it's it's not but looking at it over a multi-year period, I think is the key to Yep. Bill Dezellem: Yep. Thank you both. Operator: As a reminder, the star one on your telephone keypad if you would like to ask Our next question is from Jeff Jay with Daniel Energy Partners. Jeff Jay: Hi. Good morning. Just one for me. As I look at the D and C synergy number, I'm just wondering, and I'm sorry if I missed it, is there a reduction in activity that's kind of contemplated in that figure? Or is it really efficiency, pricing, etcetera? Elizabeth Anne McDonald: Hey, Jeff. It's efficiency and pricing. Only. So we have not baked in anywhere any sort of change in activity. Jeff Jay: So Okay. Thank you. Elizabeth Anne McDonald: Yep. Operator: Our final question is from Scott Hanold with a follow-up with RBC Capital Markets. Please proceed. Scott Hanold: Yes, thanks. Appreciate the follow-up. And just a question on the management structure moving forward. Obviously, in the first part of next year, this merger is expected to happen and Elizabeth Anne McDonald will be taking over the CEO role. Can you discuss what are the plans to you know, back to the COO role? And, you know, with Elizabeth Anne McDonald, like, you know, look, you're you're stepping up into a new role and certainly, you know, with the merger, it's it's gonna create a lot of work and potential complexities. Can you talk to your priorities, as you take the reins? Herbert S. Vogel: Let me just start that we haven't announced the leadership fully. We got in mind where we're gonna go and really be focused on getting the synergies and having an effective integration And that's. Elizabeth Anne McDonald: And I would just say the priorities of where we're taking SM Energy Company haven't changed. They're long-lasting, and they're really focused, especially as it relates to this deal, on debt reduction keeping our fixed dividend, and then growing that over time once we get back to that one-time level, and then going back to the share repurchases. And so that is the continuation of what we've been doing as well as adding to our inventory for a sustainable and repeatable program long term. Scott Hanold: Okay. I appreciate that. Well, we'll look forward to seeing that. And just real quick, I think you kind of in this or said this, but just to make sure I'm, you know, got my, thoughts straight. But the way we should look at the combined company moving forward in terms of allocation of activity between the ace the basins. It should be very similar to what individual companies have at this point, pending, you know, any decisions you make later on. Elizabeth Anne McDonald: Yeah. I think that's a good assumption for right now, Scott. Scott Hanold: Okay. Thank you. Herbert S. Vogel: Thank you. Operator: There are no further questions. I would like to turn the conference over to Herbert S. Vogel for closing remarks. Herbert S. Vogel: Thank you, Sherry, and thank you all for joining us today. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
