SM Energy Slows the Drill Bit in 2025: What the Data Tells Us About Permian Rig Reductions

In a strategic move aligned with shifting commodity price dynamics, SM Energy is proactively reducing its rig count in the Permian Basin through 2025. The company started the year with 9 active rigs, scaled back to 7 rigs by the end of Q1, and plans to operate just 6 rigs for the remainder of the year. This reduction isn’t reactionary—it’s part of a deliberate capital allocation strategy designed to protect margins and preserve flexibility in a potentially volatile oil market.


📊 SM Energy’s Drilling Trends: January 2023 to May 2025

Using public drilling data for SM Energy wells in Texas, we grouped spud activity by month from January 2023 onward. The results show a moderate but consistent pace of development, with several high-activity months in mid-2024. However, recent data and forecasts suggest this trend is shifting.

In May 2025, for instance, only 3 wells were drilled as of mid-month, with a forecasted total of ~9.27 wells by month’s end. This is well below the monthly highs seen in 2024.


📈 Forecasting the Future: Holt-Winters Model Predicts Decline

To better understand the outlook, we applied Holt-Winters exponential smoothing to forecast spud activity through August 2025. The model predicts:

  • June 2025: ~7.4 wells
  • July 2025: ~6.8 wells
  • August 2025: ~6.3 wells

These figures represent a downward trend compared to the same period in 2024, where SM Energy drilled 4, 15, and 16 wells in June, July, and August respectively.

Month2024 Actual2025 Forecast
June47.4
July156.8
August166.3

While June shows a modest uptick, July and August drilling could fall by more than 50% year-over-year if the current forecast holds.


🛠️ Two Key Rigs Parked: Latshaw 43 and 45

The rig reduction is already tangible in the Permian. SM Energy has parked two of its most active rigs:

RigContractorTotal WellsAvg Days Between SpudsLast Activity
Rig 43Latshaw23 wells16.5 daysApril 9, 2025
Rig 45Latshaw24 wells17.0 daysMarch 13, 2025

These rigs were central to SM’s drilling cadence over the past two years. Taking them offline reflects a shift toward DUC (drilled but uncompleted) inventory building, a strategy SM effectively deployed during the 2020 downturn.


💬 Management’s Take: Margin Protection Over Aggressive Growth

In their Q1 2025 earnings call, SM executives emphasized that the rig reductions were part of a planned moderation in development pace, rather than a knee-jerk reaction to price weakness:

“We intentionally contract our services in a manner to retain flexibility should this circumstance arise.”

The strategy focuses on:

  • Capital discipline
  • Optionality in completions
  • Free cash flow preservation

If oil prices fall below $55/bbl, SM may pause completions (the costliest phase), preserving capital while maintaining the ability to ramp up when market conditions improve.


🔍 Conclusion: Forecasts Align with Strategy

The alignment between SM Energy’s public strategy, drilling data, and statistical forecasts provides a clear narrative: the company is throttling activity in 2025—but doing so intentionally. The data supports their position, with rig reductions already translating to lower spud volumes and slower development pace in the Permian.

For service providers, investors, and analysts, the message is clear—expect fewer rigs, slower spud rates, and a company focused on returns over volume.


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