Key Highlights

  • USD 93 million: third quarter Net Income at SM Energy (NYSE:SM), or USD 0.39 per diluted share, versus adjusted net income of USD 465 million, or USD 1.95 per share, after a USD 477 million non-cash derivative loss.
  • USD 6.0 billion: net Debt at quarter-end, down from USD 7.4 billion at March 31, 2026, after redeeming all USD 417 million of 6.625% senior notes due 2027 at par.
  • USD 400 million: run-rate Merger synergies actioned following the Civitas deal, twice the original USD 200 million target and USD 25 million above the revised USD 375 million target.
  • 220 to 222 thousand barrels a day: the 2026 oil production guidance, lowered 1% on Permian downtime and Uinta Basin takeaway constraints, with total production guided to 420 to 422 MBoe/d.

A USD 477 Million Derivative Loss Separates GAAP From Adjusted Earnings

SM Energy reported third quarter 2026 results on November 3, 2026. Net income was USD 93 million, or USD 0.39 per diluted share, which includes a USD 477 million non-cash loss from changes in the Fair Value of Commodity derivative contracts. Adjusted net income, a non-GAAP measure that strips out items like that, was USD 465 million, or USD 1.95 per share. Hedges typically lose mark-to-market value when prices rise, so GAAP profit can look weaker than cash generation, though the release does not detail the cause. Operating Cash Flow was USD 1.1 billion and adjusted EBITDAX was USD 1.3 billion. Income tax expense of USD 30 million included current tax of USD 37 million, which the company tied to higher realized oil prices.

Debt Reduction and Capital Returns Funded by USD 397 Million of Adjusted Free Cash Flow

Capital expenditures were USD 711 million, or USD 747 million before changes in accruals, and adjusted free cash flow was USD 397 million. The company returned USD 133 million, about 34% of adjusted free cash flow, through USD 81 million of Buybacks of 2.3 million shares and a USD 0.22 per share dividend. It redeemed USD 417 million of notes, leaving no maturities until mid-2028, and net debt fell to USD 6.0 billion. Management said it remains on track for low one-times Leverage at mid-cycle prices by year-end 2026. It also said it has substantially completed integrating Civitas, which closed on January 30, 2026, lifting the NPV-10 of merger synergies to USD 2.0 billion from USD 1.8 billion.

Production of 433 MBoe/d and Why Oil Guidance Was Cut

Production averaged 433 MBoe/d, including 230 MBbl/d of oil. Oil was held back by about 2 MBbl/d from Permian downtime tied to compliance and safety work on acquired Assets and temporary well shut-ins, plus about 4 MBbl/d of takeaway constraints in the Uinta Basin. The Permian issues have been addressed, while the Uinta constraints are expected to be resolved in early 2027. Fourth quarter production is guided to 435 to 445 MBoe/d with capital spending near USD 610 million, and full-year capital is about USD 2.75 billion. Risks include oil price swings, any Uinta takeaway delay and service-cost inflation. A call is scheduled for 10 a.m. ET on November 4, 2026.

Where Things Stand

The gap comes from accounting for hedges, not from weak operations. SM Energy (NYSE:SM) booked a USD 477 million non-cash derivative loss that cut GAAP net income to USD 93 million, while adjusted net income was USD 465 million and operating cash flow was USD 1.1 billion. The picture is improving on debt, with net debt of USD 6.0 billion and no maturities until mid-2028, but oil output is lagging, as guidance was trimmed to 220 to 222 MBbl/d. Watch the Uinta takeaway fix in early 2027, the fourth quarter production target and whether leverage reaches the year-end goal.