SM Energy CoSM

SM Energy Co Commitments Disclosure

10-KFiled Feb 26, 20263 min read
Note 6 – Commitments and Contingencies
Commitments
As of December 31, 2025, the Company had entered into various types of agreements as discussed below. The following table presents the annual minimum payments related to these agreements for the next five years, and the total minimum payments thereafter as of December 31, 2025:
For the Years Ending December 31,
20262027202820292030
Thereafter
Total
(in millions)
Delivery commitments (1) (2)
$46 $32 $20 $4 $4 $7 $113 
Drilling rig contracts (3)
29 — — — — — 29 
Office space leases (4)
5 5 5 5 5 21 46 
Electrical power purchase contracts
17 17 17 2 — — 53 
Compression service contracts
23 17 7 3 1 — 51 
Railcar agreements
16 15 11 8 3 3 56 
Other (5)
12 9 3 — — — 24 
Total
$148 $95 $63 $22 $13 $31 $372 
____________________________________________
Note: The Company does not expect to incur material penalties or shortfalls with regard to its commitments.
(1)    The Company has transportation throughput, terminal services, transloading, and delivery commitments with various third-parties that require delivery of a minimum amount of oil. As of December 31, 2025, the Company had commitments to deliver a minimum of 49 MMBbl of oil through December of 2032. Certain of these oil delivery commitments may be fulfilled with the same single barrel of oil. The Company would be required to make periodic deficiency payments for any shortfalls in delivering the minimum volume commitments under certain agreements.
(2)    The Company expects to fulfill the delivery commitments from a combination of production from existing productive wells, future development of net proved undeveloped reserves, and future development of resources not yet characterized as proved reserves. Under certain of the Company’s commitments, if the Company is unable to deliver the minimum quantity from its production, it may deliver production acquired from third-parties to satisfy its minimum volume commitments.
(3)    As of December 31, 2025, the Company’s drilling rig commitments had contract terms extending through the third quarter of 2026. If all of these contracts were terminated as of December 31, 2025, the Company would avoid a portion of the contractual service commitments; however, the Company would be required to pay $20 million in early termination fees. No material expenses related to early termination or standby fees were incurred by the Company during the year ended December 31, 2025.
(4)    The Company leases office space under various operating leases, including maintenance, with certain terms extending into 2035. Rent expense was $3 million, $2 million, and $3 million for the years ended December 31, 2025, 2024, and 2023, respectively.
(5)    Primarily consists of IT contracts, water purchase agreements, a sand purchase agreement, and vehicle leases.
Contingencies
The Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. As of the filing of this report, in the opinion of management, the anticipated results of any pending litigation and claims are not expected to have a material effect on the results of operations, the financial position, or the cash flows of the Company.

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Feb 20, 2025
2023Feb 22, 2024
2022Feb 23, 2023
2021Feb 25, 2022
2020Feb 18, 2021
2019Feb 20, 2020
2018Feb 21, 2019
2017Feb 21, 2018
2016Feb 23, 2017
2015Feb 24, 2016

About Commitments Disclosures

Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.

Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.

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