SM Energy CoSM
SM Energy Co Leases Disclosure
Note 13 – Leases
As of December 31, 2025, and 2024, the Company had operating leases for asset classes that include office space, office equipment, drilling rigs, completion crews, midstream agreements, vehicles, railcars, and equipment rentals used in field operations. For operating leases recorded on the accompanying balance sheets, the remaining lease terms range from less than one year to approximately 10 years. Certain leases contain optional extension periods that allow for terms to be extended for up to an additional 10 years; however, in order to maintain financial and operational flexibility, there are no available options to extend that the Company is reasonably certain it will exercise. An early termination option exists for certain leases, some of which allow the Company to terminate a lease within one year; however, there are no leases in which material early termination options are reasonably certain to be exercised by the Company. As of December 31, 2025, and 2024, the Company did not have any agreements in place that were classified as finance leases under Topic 842. As of December 31, 2025, and through the filing of this report, the Company has no material lease arrangements which are scheduled to commence in the future. Refer to Note 1 – Summary of Significant Accounting Policies for additional information on the Company’s policies for lease determination and classification.
The following table reflects the components of the Company’s total lease costs, whether capitalized or expensed, related to operating leases, including short-term leases, and variable lease costs for both short-term and long-term leases for the years ended December 31, 2025, 2024, and 2023. This total does not reflect amounts that may be reimbursed by other third parties in the normal course of business, such as non-operating working interest owners.
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Operating lease cost | $ | 44 | $ | 27 | $ | 16 | |||||||||||
Short-term lease cost (1) | 140 | 86 | 252 | ||||||||||||||
Variable lease cost (2) | 289 | 387 | 12 | ||||||||||||||
| Total lease cost | $ | 473 | $ | 499 | $ | 279 | |||||||||||
____________________________________________
Note: Amounts may not calculate due to rounding.
(1) Costs associated with short-term lease agreements relate primarily to operational activities where underlying lease terms are less than one year. This amount includes drilling and completion activities, most of which are contracted for 12 months or less. It is expected that this amount will fluctuate primarily with the number of drilling rigs and completion crews the Company is operating under short-term agreements.
(2) Variable lease payments relate to the actual volumes delivered under certain midstream agreements, actual usage associated with drilling rigs, completion crews, and vehicles, and variable utility costs associated with the Company’s leased office space. Fluctuations in variable lease payments are primarily driven by actual volumes delivered and the number of drilling rigs and completion crews operating.
Cash paid for amounts included in the measurement of lease liabilities were as follows:
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Operating cash flows related to operating leases | $ | 48 | $ | 11 | $ | 4 | |||||||||||
| Investing cash flows related to operating leases | $ | 19 | $ | 16 | $ | 11 | |||||||||||
Maturities for the Company’s operating lease liabilities included on the accompanying balance sheets as of December 31, 2025, were as follows:
| As of December 31, 2025 | ||||||||
(in millions) | ||||||||
| 2026 | $ | 69 | ||||||
| 2027 | 37 | |||||||
| 2028 | 22 | |||||||
| 2029 | 14 | |||||||
| 2030 | 7 | |||||||
| Thereafter | 16 | |||||||
| Total Lease payments | $ | 165 | ||||||
Less: Imputed interest (1) | (27) | |||||||
| Total | $ | 138 | ||||||
____________________________________________
(1) The weighted-average discount rate used to determine the operating lease liability as of December 31, 2025, was 5.7 percent.
The following table presents supplemental accompanying balance sheet information for operating leases:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
(in millions, except discount rate and lease term) | |||||||||||
| Balance sheet classifications of operating leases: | |||||||||||
| Other noncurrent assets | $ | 210 | $ | 112 | |||||||
| Other current liabilities | $ | 58 | $ | 22 | |||||||
| Other noncurrent liabilities | $ | 80 | $ | 43 | |||||||
| ROU assets obtained in exchange for operating lease liabilities | $ | 77 | $ | 27 | |||||||
| Weighted-average discount rate | 5.7% | 5.5% | |||||||||
| Weighted-average remaining lease term (years) | 4 | 4 | |||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 20, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 18, 2021 | |
| 2019 | Feb 20, 2020 | |
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.