SM Energy, Civitas to merge in $12.8B deal creating Permian powerhouse
The all-stock transaction aims for significant scale and synergies, but a tepid market response suggests investor skepticism over the deal's premium.
SM Energy and Civitas Resources have agreed to combine in an all-stock merger, creating a formidable independent producer in the prolific Permian Basin with a combined enterprise value of approximately $12.8 billion.
The deal, announced Monday, underscores a continuing wave of consolidation in the U.S. energy sector, as companies seek greater scale to drive efficiency and boost shareholder returns. The combined entity will hold a significant footprint of roughly 823,000 net acres and is projected to generate over $1.4 billion in annual free cash flow.
Under the terms of the agreement, Civitas shareholders will receive 1.45 shares of SM Energy common stock for each share they own. Based on pre-announcement prices, this values Civitas at a modest 5% premium. Upon closing, Civitas shareholders will own approximately 52% of the combined company, with SM Energy shareholders holding the remaining 48%.
Despite the strategic rationale touted by executives, investors gave the merger a cool reception. In Monday trading, shares of SM Energy (NYSE: SM) fell sharply by 8.8% to $19.05, touching a 52-week low. Civitas Resources (NYSE: CIVI) also declined, dropping 3.1% to $27.95, suggesting market apprehension about the deal's structure and value creation.
Herb Vogel, CEO of SM Energy, framed the transaction as a strategic imperative. "This strategic combination creates a leading oil and gas company with enhanced scale, numerous value-adding synergies, and significant free cash flow," Vogel stated in a press release. The companies anticipate realizing between $200 million and $300 million in annual synergies through operational and administrative efficiencies.
The merger brings together two significant operators in the Denver-Julesburg and Permian basins. Wouter van Kempen, interim CEO of Civitas, called the deal a "pivotal" moment that "unlocks new potential to deliver enhanced stockholder value and achieve outcomes beyond the reach of either company alone," according to World Oil.
The combined company will operate under the SM Energy name and ticker and will be headquartered in Denver. The leadership structure reflects a merger of equals, with SM Energy's Herb Vogel serving as the initial Chief Executive Officer. A planned succession will see SM Energy's current President, Beth McDonald, take over as CEO on March 1, 2026. The new 11-member board will be composed of six directors from SM Energy and five from Civitas, with Julio Quintana serving as Non-Executive Chairman.
This transaction is the latest in a series of high-value deals reshaping the U.S. oil patch. A recent outlook from KPMG noted a trend towards larger, more strategic combinations as the industry matures. While M&A volume in the third quarter of 2025 was subdued, analysts have widely expected consolidation to accelerate as companies with strong balance sheets look to acquire high-quality inventory.
The deal is expected to close in the first quarter of 2026, pending approvals from both companies' shareholders and regulatory authorities.