Compensation Plans

6 Months Ended

Jun. 30, 2025

Share-Based Payment Arrangement [Abstract]

Compensation Plans

Note 12 - Compensation Plans

On May 22, 2025, the Company’s stockholders approved the 2025 Equity Incentive Compensation Plan (“2025 Equity Plan”), which succeeded the SM Energy Company Equity Incentive Compensation Plan, as amended and restated effective as of May 22, 2018 (“Predecessor Equity Plan” and together with the 2025 Equity Plan, the “Equity Plans”). The Company ceased granting awards under the Predecessor Equity Plan following the approval of the 2025 Equity Plan, however, existing awards remain outstanding under the Predecessor Equity Plan. Among other items, the 2025 Equity Plan authorized an increase in the total number of shares of the Company’s common stock available for grant of approximately 2.0 million shares. As of June 30, 2025, approximately 3.7 million shares of common stock were available for grant under the 2025 Equity Plan.

The Company may grant various types of both short-term and long-term incentive-based awards such as time-based cash awards, performance-based cash awards, and equity awards to eligible employees. Additionally, the Company grants stock-based compensation to its Board of Directors and provides an employee stock purchase plan and a 401(k) plan to eligible employees.

Performance Share Units

The Company has granted PSUs to eligible employees pursuant to its Equity Plans. The number of shares of the Company’s common stock issued to settle PSUs ranges from zero to two times the number of PSUs awarded and is determined based on certain criteria over a three-year performance period. PSUs generally vest on the third anniversary of the grant date or upon other triggering events as set forth in the applicable Equity Plan.

For PSUs granted in 2024 and 2023, which the Company determined to be equity awards, settlement will be determined based on a combination of the following criteria measured over the three-year performance period: the Company’s Total Shareholder Return (“TSR”) relative to the TSR of certain peer companies, the Company’s absolute TSR, free cash flow (“FCF”) generation, and the achievement of certain sustainability targets, in each case as defined by the award agreement. The Company initially records compensation expense associated with the issuance of PSUs based on the fair value of the awards as of the grant date. Because a portion of these awards depends on performance-based settlement criteria, compensation expense may be adjusted in future periods as the expected number of shares of the Company’s common stock issued to settle the units increases or decreases based on the Company’s expected FCF generation and achievement of certain sustainability targets.

Compensation expense for PSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards. Total compensation expense recorded for PSUs was $0.6 million and $1.4 million for the three months ended June 30, 2025, and 2024, respectively, and $2.8 million and $2.4 million for the six months ended June 30, 2025, and 2024, respectively. As of June 30, 2025, there was $7.9 million of total unrecognized compensation expense related to non-vested PSUs, which is being amortized through mid-2027. There were no material changes to the outstanding and non-vested PSUs during the six months ended June 30, 2025.

Subsequent to June 30, 2025, the Company settled PSUs that were granted in 2022, which earned a 0.28 times multiplier based on the same performance criteria described above. The Company and all eligible recipients mutually agreed to net share settle a portion of the awards to cover income and payroll tax withholdings, as provided for in the Predecessor Equity Plan and applicable award agreements. After withholding 26,397 shares to satisfy income and payroll tax withholding obligations, the Company issued 39,475 shares of common stock in accordance with the terms of the applicable award agreement. Additionally, the Company granted a total of 374,692 PSUs with a grant date fair value of $10.3 million pursuant to the 2025 Equity Plan.

Employee Restricted Stock Units

The Company has granted RSUs to eligible employees pursuant to its Equity Plans. Each RSU represents a right to receive one share of the Company’s common stock upon settlement of the award at the end of the specified vesting period. RSUs generally vest in one-third increments on each anniversary of the applicable grant date over the applicable vesting period or upon other triggering events as set forth in the applicable Equity Plan.

The Company records compensation expense associated with the issuance of RSUs based on the fair value of the awards as of the grant date. The fair value of an RSU is equal to the closing price of the Company’s common stock on the grant date. Compensation expense for RSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards. Total compensation expense recorded for RSUs was $4.5 million and $3.8 million for the three months ended June 30, 2025, and 2024, respectively, and $9.1 million and $7.5 million for the six months ended June 30, 2025, and 2024, respectively. As of June 30, 2025, there was $20.8 million of total unrecognized compensation expense related to non-vested

RSUs, which is being amortized through mid-2027. There were no material changes to the outstanding and non-vested RSUs during the six months ended June 30, 2025.

Subsequent to June 30, 2025, the Company settled RSUs upon the vesting of awards granted in previous years. The Company and the majority of eligible recipients mutually agreed to net share settle a portion of the awards to cover income and payroll tax withholdings, as provided for in the Predecessor Equity Plan and applicable award agreements. After withholding 157,426 shares to satisfy income and payroll tax withholding obligations, the Company issued 319,247 shares of common stock in accordance with the terms of the applicable award agreements. Additionally, the Company granted to employees a total of 958,194 RSUs with a grant date fair value of $25.0 million pursuant to the 2025 Equity Plan.

Director Shares

During the six months ended June 30, 2025, and 2024, the Company issued a total of 82,193 and 37,530 shares, respectively, of its common stock to its non-employee directors under the Equity Plans. All shares issued to non-employee directors fully vest during the year in which they are granted.

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15 percent of their eligible compensation, subject to a maximum of 2,500 shares per offering period and a maximum of $25,000 in value related to purchases for each calendar year. The purchase price of the common stock is 85 percent of the lower of the trading price of the common stock on either the first or last day of the six-month offering period. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. There were a total of 90,314 and 56,006 shares issued under the ESPP during the second quarters of June 30, 2025, and 2024, respectively. Total proceeds to the Company for the issuance of these shares was $1.9 million and $1.8 million during the six months ended June 30, 2025, and 2024, respectively. The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model.

The 2025 Equity Plan is included as Exhibit 10.1 to this report. Refer to Note 10 - Compensation Plans in the 2024 Form 10-K for additional detail on the Company’s compensation plans.