SM Energy (SM) Risk Analysis

Our future operations depend on our ability to find or acquire and develop oil, gas, and NGL reserves that are economically producible. Our properties produce oil, gas, and NGLs at a declining rate over time. In order to maintain current production rates, we must locate or acquire and develop new oil, gas, and NGL reserves to replace those being depleted by production. For future acquisitions we may complete, a successful outcome for our business will depend on a number of factors, many of which are beyond our control. These factors include the purchase price and transaction costs for the acquisition; future oil, gas, and NGL prices; the ability to reasonably estimate the recoverable volumes of reserves, rates of future production and future net revenues attainable from reserves; future operating and capital costs; results of future exploration, exploitation, and development activities on the acquired properties; future abandonment and possible future environmental or other liabilities; ability to attract and retain employees and contractors; success in transitioning ownership of the acquired properties; relationships with local regulatory authorities, landowners, and communities; and the ability to review and confirm the seller's title to the subject properties. There are numerous uncertainties inherent in estimating these variables with respect to prospective acquisition targets. Actual results may vary substantially from those assumed in the estimates. Our customary review in connection with acquisitions will not necessarily reveal, or allow us to fully assess, all existing or potential problems and deficiencies with such properties. We do not inspect every well, and even when we inspect a well, we may not discover structural, subsurface, or environmental problems that may exist or arise. We may not be entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities, and we may not be able to obtain representation and warranty or similar insurance products on terms or at a price that efficiently manages the perceived or actual risk profile. We often acquire interests in properties on an "as-is" basis with limited remedies for breaches of representations and warranties. Significant acquisitions can change the nature of our operations and business depending upon the character of the acquired properties. For example, newly acquired properties may have substantially different operating and geological characteristics or be in different geographic locations than our existing properties. To the extent that acquired properties are substantially different than our existing properties, our ability to efficiently realize the expected economic benefits of such transactions may be limited. If we are unable to replace any significant volume declines with additional volumes from other sources, our results of operations and cash flows could be materially and adversely impacted.

To mitigate a portion of the exposure to potentially adverse market changes in oil, gas, and NGL prices and the associated impact on cash flows, we regularly enter into commodity derivative contracts. Our commodity derivative contracts typically include price swaps and collar arrangements for oil, gas, and NGLs. These activities may expose us to the risk of financial loss in certain circumstances, including instances in which: - our production is less than expected;- one or more counterparties to our commodity derivative contracts default on their contractual obligations; or - there is a widening of price differentials between delivery points for our production and the delivery point assumed in the commodity derivative contract arrangement. In addition, commodity derivative contracts may limit the prices we receive for our oil, gas, and NGL sales if oil, gas, or NGL prices rise substantially over the price established by the commodity derivative contract. Refer to Note 7 – Derivative Financial Instruments in Part II, Item 8 of this report for additional detail regarding our commodity derivative contracts.

Hydraulic fracturing is a common practice in the oil and gas industry used to stimulate the production of oil, gas, and NGLs from dense subsurface rock formations. We routinely apply hydraulic fracturing techniques to many of our oil and gas properties, including our unconventional resource plays. Hydraulic fracturing involves injecting water, sand, and certain chemicals under pressure to fracture the hydrocarbon-bearing rock formation to allow the flow of hydrocarbons into the wellbore. The process is typically regulated by state oil and gas commissions. However, the EPA and other federal agencies have asserted federal regulatory authority over certain aspects of hydraulic fracturing activities, as outlined below. The EPA has authority to regulate underground injections that contain diesel in the fluid system under the Safe Drinking Water Act. The EPA also has authority under the Clean Water Act to regulate wastewater generated by unconventional oil and gas operations during the hydraulic fracturing process and discharged to publicly-owned wastewater treatment facilities. Although the Trump administration has signaled a desire for fewer environmental regulations, if the EPA were to implement further regulations of hydraulic fracturing, we may incur additional costs to comply with such requirements that may be significant in nature, experience delays or curtailment in the pursuit of exploration, development, or production activities, and could even be prohibited from drilling and/or completing certain wells. A slowdown in federal regulation of hydraulic fracturing could encourage states, tribes, or localities to implement more or stricter regulations. Certain states have adopted or may adopt, regulations that could impose more stringent permitting, public disclosure, waste disposal, and well construction requirements on hydraulic fracturing operations or otherwise seek to ban fracturing activities altogether. The regulatory burden of each state's respective laws varies. For example, some counties in Colorado have amended their land use regulations to impose new siting and other requirements on oil and gas development, while other local governments have entered memoranda of agreement with oil and gas producers to accomplish the same or similar objectives. Under current Colorado law, local governments can regulate both facility siting and the surface impacts associated with oil and gas development, and local government regulations may be more protective or stricter than state requirements. Texas, Utah, and Colorado require disclosure of chemical ingredients used in hydraulic fracturing fluids. State initiatives relevant to fracturing are often changing and priorities across states differ. On May 14, 2025, the New Mexico Water Quality Control Commission adopted a rule that prohibits the discharge of produced water to New Mexico's ground and surface waters. Also in 2025, New Mexico lawmakers proposed a bill that would ban PFAS in fracking operations. In 2015, Texas Governor Greg Abbott signed a law which preempts municipal and county bans or limits on oil and gas operations, including drilling and hydraulic fracturing, and confirms that regulation of those activities is under the state of Texas' exclusive jurisdiction, while still allowing limited, commercially reasonable, surface-level regulation by local governments. In addition to state laws, local land use restrictions, such as city ordinances or memoranda of understanding, may restrict, or prohibit the performance of drilling in general and/or hydraulic fracturing in particular. Recently, municipalities have passed or proposed zoning ordinances that ban or strictly regulate hydraulic fracturing within city boundaries, setting the stage for challenges by state regulators and third-parties. Similar events and processes are playing out in several cities, counties, and townships across the United States. In the event that tribal, state, local, or municipal legal restrictions are adopted in areas where we are currently conducting, or in the future plan to conduct, operations, we may incur additional costs to comply with such requirements that may be significant in nature, experience delays or curtailment in the pursuit of exploration, development, or production activities, and could even be prohibited from drilling and/or completing certain wells. In the recent past, several federal governmental agencies were actively involved in studies or reviews that focus on environmental aspects and impacts of hydraulic fracturing practices. Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition, including litigation, to oil and gas production activities using hydraulic fracturing techniques. Disclosure of chemicals used in the hydraulic fracturing process could make it easier for third parties opposing such activities to pursue legal proceedings against producers and service providers based on allegations that specific chemicals used in the fracturing process could adversely affect human health or the environment, including groundwater. Litigation resulting in financial compensation for damages linked to hydraulic fracturing, including damages from induced seismicity, could spur future litigation and bring increased attention to the practice of hydraulic fracturing. Judicial decisions could also lead to increased regulation, permitting requirements, enforcement actions, and penalties. Additional legislation or regulation could also lead to operational delays or restrictions or increased costs in the exploration for, and production of, oil, gas, and NGLs, including from the development of shale plays, or could make it more difficult to perform hydraulic fracturing. The adoption of additional state or local laws, or the implementation of new regulations regarding hydraulic fracturing could potentially cause a decrease in the completion of new oil and gas wells, or an increase in compliance costs and delays, which could adversely affect our financial position, results of operations, and cash flows. We will continue to be subject to uncertainty associated with new regulatory suspensions, revisions or rescissions and inconsistent state and federal regulatory mandates that could adversely affect our production.

We generally rely on title due diligence reports when acquiring oil and gas leasehold interests, and we obtain title opinions prior to commencing initial drilling operations on the properties we operate. Title to the properties in which we have an interest may be impaired by title defects that may not be identified in the due diligence title reports or title opinions we obtain, or such defects may not be cured following identification. A material title defect can reduce the value of a property or render it worthless, thus adversely affecting our oil and gas reserves, financial condition, results of operations, and operating cash flow, and may also impair the value of or render adjacent properties uneconomic to develop. Undeveloped acreage has greater risk of title defects than developed acreage and title insurance is not generally available for oil and gas properties.

While courts have generally declined to assign direct liability for climate change to large sources of GHG emissions, some have required increased scrutiny of such emissions by federal agencies and permitting authorities. There is a continuing risk of claims being filed against companies that have significant GHG emissions, and new claims for damages and increased government scrutiny, especially from state and local governments, will likely continue. The United States Congress has from time to time considered adopting legislation to reduce emissions of GHGs, and the majority of states have already taken measures to reduce emissions of GHGs through various measures, including, primarily through the planned development of GHG emission inventories, participation in and/or regional GHG "cap and trade" programs, and/or transition to clean energy. The focus on legislating and/or regulating methane could result in increased scrutiny for sources emitting high levels of methane, including during permitting processes, analysis, regulation and reduction of methane emissions as a requirement for project approval, and actions taken by one agency for a specific industry establishing precedents for other agencies and industry sectors. In 2021, the EPA proposed requirements for methane emission reductions from existing oil and gas equipment. In 2022, the EPA released a supplemental proposal expanding its initial requirements as well as updating requirements, and in 2023, proposed updates to GHG reporting requirements. In 2024, the EPA announced a final rule that facilitates the implementation of Congress's directive in the Inflation Reduction Act of 2022 ("IRA") to collect a waste emissions charge, but on March 14, 2025, President Trump signed a joint resolution of disapproval under the Congressional Review Act, voiding the EPA's final rule on methane waste emission. Scientists have predicted that increasing concentrations of GHGs in the earth's atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods, and other climatic events. If such effects were to occur, our operations could be adversely affected. Potential adverse effects could include disruption of our drilling, completion, and production activities, including, for example, damages to our facilities from flooding or increases in our costs of operation or reductions in the efficiency of our operations. Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process-related services provided by midstream companies, service companies, or suppliers with whom we have a business relationship. We may not be able to recover through insurance some or any of the damages, losses, or costs that may result from potential physical effects of climate change. Federal regulations or policy changes regarding climate change preparation requirements could also impact our costs and planning requirements because emissions of such gases contribute to warming of the earth's atmosphere and other climatic changes.

Substantially all of our accounts receivable result from oil, gas, and NGL sales or joint interest billings to co-owners of oil and gas properties we operate. This concentration of customers and joint interest owners may impact our overall credit risk because these entities may be similarly affected by various economic and other market conditions, including declines in oil, gas, and NGL prices. The loss of one or more of these customers could reduce competition for our products and negatively impact the prices of commodities we sell. We do not believe the loss of any single purchaser would materially impact our operating results, as we have numerous options for purchasers in each of our operating areas for our oil, gas, and NGL production; however, if adverse market conditions or other economic decline affected a substantial number of our customers or joint interest owners, our operations and financial results could be impacted. Refer to Concentration of Credit Risk and Major Customers in Note 1 – Summary of Significant Accounting Policies, in Part II, Item 8 of this report for further discussion of our concentration of credit risk and major customers. Additionally, the inability of our co-owners, some of which have significant non-operated interests in a substantial portion of our oil and gas properties, to pay joint interest billings could negatively impact our cash flows and financial ability to drill and complete current and future wells.

We are subject to cybersecurity risks. The oil and gas industry, and our business, are increasingly dependent on digital technology. We use digital technology, including information technology ("IT") and operational technology ("OT"), to conduct certain aspects of our drilling development, production and gathering activities, manage drilling rigs and completion equipment, gather and interpret seismic data, conduct reservoir modeling, record financial and operating data, and maintain employee and other databases. Our service providers, including those who gather, process, and market our oil, gas, and NGLs, are also increasingly reliant on digital technology. Our and their reliance on this technology increasingly puts us at risk for technology system failures, data or network disruptions, cyberattacks and other breaches in cybersecurity. Power failures, telecommunication or other system failures due to hardware or software malfunctions, computer viruses, vandalism, terrorism, natural disasters, fire, flood, human error or other means could significantly impair our ability to conduct our business. Cybersecurity attacks are evolving and include, but are not limited to, malware (including viruses), phishing, vulnerability exploitation, insider threats, and physical or electronic security breaches, which may result in operational disruption; unauthorized access to or exfiltration of data; and other impacts to the confidentiality, availability, and integrity of systems and information. Geopolitical tensions or conflicts may further heighten the risk of cyberattacks. In particular, sophisticated nation state actors have, and may continue to, target companies operating in industries providing critical infrastructure. Deliberate attacks on, or security breaches in our systems, infrastructure, the systems and infrastructure of third-parties, or cloud-based applications could lead to disclosure of confidential information, a corruption or loss of our proprietary data, delays in production or exploration activities, difficulty in completing or settling transactions, challenges in maintaining our books and records, environmental damage, communication or other operational disruptions, and liability to third parties. Any insurance we might obtain in the future may not provide adequate protection from these risks. Any such events could damage our reputation and lead to financial losses from remedial actions, loss of business or potential liability. As these cyber risks continue to evolve and our dependence on digital technologies grows, we may be required to expend significant additional resources to continue to modify or enhance our protective measures and remediate cyber vulnerabilities. Refer to Cybersecurity in Part 1, Item 1C of this report for discussion of the Audit Committee's role in cybersecurity governance. We did not experience any material cybersecurity incidents during 2025, however there can be no assurance that the measures we have taken to address IT and cybersecurity risks will prove effective in the future.

War and Geopolitical Instability could lead to significant market and other disruptions, including, but not limited to: significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, shipping channel constraints and disruptions, political and social instability, political and economic sanctions, geopolitical shifts, embargoes, changes in consumer or purchaser preferences, the potential destruction of critical oil-related infrastructure, as well as increases in cyberattacks and espionage. These factors could impact our operations and the financial condition of our business as well as the global economy.