SM Energy used its Q1 2026 earnings call to send a clear message to the market: the Permian Basin remains a cornerstone of the company’s long-term growth strategy, and the recently completed Civitas merger is already unlocking new efficiencies, stronger well performance, and expanded development opportunities.
Just over 100 days after closing the merger, SM says it is outperforming expectations across the basin while positioning itself for stronger free cash flow generation and shareholder returns.
Record Wolfcamp Performance in Howard County
One of the biggest operational highlights from the quarter came from the Midland Basin, where SM drilled what management described as the “longest and fastest Wolfcamp D wells” in company history.
The company turned 25 net wells online during Q1 while improving completion efficiency by 4% compared to 2025 levels. Management credited much of the performance improvement to the operational scale created by the Civitas merger.
According to CEO Beth McDonald, the larger combined company now benefits from:
- greater procurement leverage,
- improved scheduling efficiencies,
- and deeper technical collaboration across the organization.
Howard County continues to be one of SM’s highest-conviction development areas. McDonald noted that SM has a deep understanding of the geology there and continues pushing technical boundaries across multiple stacked zones.
“We really put Howard County on the map,” McDonald told analysts during the call.
U-Turn Wells Become a Bigger Part of the Development Strategy
Another major topic during the call was SM’s increasing confidence in U-turn well designs in the Permian Basin.
Historically viewed cautiously by some operators because of complexity and cost concerns, U-turn wells are now becoming a strategic tool for maximizing recovery and accessing stranded acreage.
COO Blake McKenna said the legacy Civitas team brought extensive operational experience with the design, accelerating SM’s confidence in deploying the technique more broadly.
“We feel highly confident about U-turn wells,” McKenna said, adding that the company has not seen meaningful increases in drilling or completion costs associated with the approach.
The company believes the design will help unlock additional inventory that may have previously been difficult to develop economically.
Multiple Landing Zones Expand Long-Term Inventory
SM also highlighted its confidence in the Permian’s stacked pay potential.
Executives discussed ongoing development work across:
- Wolfcamp A,
- Wolfcamp D,
- Lower Spraberry,
- and other intervals in Howard County.
Importantly, management emphasized that the company’s previously disclosed inventory estimates were based on $60 WTI oil. With prices currently above those levels, SM believes its economic inventory runway grows meaningfully.
The company also pointed out that its published inventory is primarily based on proved and probable (3P) locations, meaning additional upside opportunities are not yet fully reflected in official counts.
Bigger Focus on Free Cash Flow Instead of Production Growth
Despite stronger oil prices, SM made it clear that it is not rushing to aggressively increase drilling activity in the Permian.
Instead, the company is prioritizing:
- free cash flow generation,
- debt reduction,
- and shareholder returns.
Management repeatedly stressed that incremental cash flow from higher commodity prices will primarily support:
- leverage reduction,
- share buybacks,
- and strengthening the balance sheet.
This disciplined approach reflects a broader trend across the shale sector, where operators are increasingly focused on capital efficiency and investor returns rather than rapid production growth.
The Permian Remains Central to SM’s Future
While SM now operates across four major basins following the Civitas merger, the Permian Basin clearly remains one of the company’s most important engines for future value creation.
With:
- longer laterals,
- faster drilling times,
- improving completion efficiencies,
- expanding inventory,
- and new development techniques like U-turn wells,
SM appears confident that its Permian position can generate strong returns well into the future.
And with synergy capture already running ahead of expectations, the company believes the full earnings power of the combined platform will become even more visible in 2027.
SM Energy Wells Drilled YTD – Wells Drilled YTD Summary
SM Energy drilled a total of 65 wells year-to-date across the Permian Basin, with activity split between the Midland Basin and Delaware Basin.
Basin Breakdown
Midland Basin
- Total Wells: 37
- Primary counties:
- Upton County
- Glasscock County
- Martin County
- Howard County
The Midland Basin represented approximately 57% of total drilling activity.
Most Active Midland Rigs
- Ensign T57 — 10 wells
- H&P 632 — 9 wells
- H&P 373 — 6 wells
Delaware Basin
- Total Wells: 28
- Primary counties:
- Lea County
- Loving County
The Delaware Basin represented approximately 43% of total drilling activity.
Most Active Delaware Rigs
- H&P 312 — 7 wells
- H&P 376 — 6 wells
- H&P 628 — 6 wells
Operational Observations
- SM Energy’s drilling activity is weighted slightly toward the Midland Basin, particularly in Upton and Glasscock counties.
- Helmerich & Payne (H&P) rigs dominate activity across both basins.
- The company is utilizing multiple high-spec rigs across the Permian, supporting its comments from the Q1 2026 earnings call about operational scale, longer laterals, and improved drilling efficiencies.
- Activity in Lea County highlights SM’s continued exposure to the New Mexico side of the Delaware Basin.
Overall, the drilling data supports management’s message that the Permian remains one of SM Energy’s core growth and free cash flow engines following the Civitas merger.
Author: phinds
