Higher crude prices have eased investor concerns over debt reduction at SM Energy (SM) and Crescent Energy (CRGY), shifting attention toward acquisition integration and operational execution, UBS said in a Monday note.
UBS said its small- and mid-cap oil and gas coverage climbed about 9% on average in July, rebounding from a 21% average decline in the second quarter as West Texas Intermediate crude rose more than 20% amid Middle East tensions.
The bank said the 2027 West Texas Intermediate strip has risen more than 8% to above $70 per barrel, strengthening cash flows and supporting deleveraging across much of the sector.
Investor feedback following UBS' initiation of coverage on SM Energy and Crescent Energy centered on whether both companies could continue reducing debt if oil prices weaken. UBS said each company can still achieve that goal.
UBS said sustained oil-price strength would likely shift investor attention toward execution on recent acquisitions. The bank expects second-quarter earnings to provide updates on operational improvements and synergy gains at both companies.
Investors expressed confidence in SM Energy's management team and its plans to increase shareholder returns. Most questions focused on whether the company can lower debt enough to support higher capital returns in a weaker oil-price environment.
UBS estimated SM Energy reaches cash-flow neutrality in fiscal 2027 before and after dividends at West Texas Intermediate prices of $49.30/bbl and $52.70/bbl, well below the current 2027 strip of near $71/bbl.
Investors also questioned SM Energy's drilling inventory after the Civitas (CIVI) acquisition. UBS estimated reserve life at about 8.6 years following the South Texas sale, below the preferred 10-year level but broadly competitive with peers.
UBS said additional appraisal across the Midland Basin, including the Woodford-Barnett interval and Wolfcamp D formation, could expand SM Energy's resource base. The bank also highlighted an 11% increase in 2025 Uinta proved reserves.
Investors also sought UBS' view on Crescent Energy's acquisition strategy. The bank expects the company to eventually expand in the Texas Delaware Basin but believes management remains focused on integrating the Vital Energy (VTLE) acquisition and capturing synergies.
UBS said investors viewed Crescent Energy's royalty business favorably and supported its estimate of $2.50 to $3.50 per share in equity value for Crescent Royalties.
UBS said investors expressed fewer concerns about Crescent Energy's debt than SM Energy's despite both companies carrying leverage of about 2x at the end of the second quarter.
Crescent Energy's projected debt of $5.0 billion, versus $6.5 billion for SM Energy, alongside first-quarter synergy capture of more than 120% of target, supports further debt reduction, the bank said.
UBS lowered Crescent Energy's projected gas realizations to reflect weaker Waha pricing during the second quarter while raising expected oil realizations.
The bank expects SM Energy to expand reserves primarily through discoveries and extensions as it develops acreage across its portfolio, rather than pursuing additional acquisitions to build inventory.
UBS said SM Energy continues drilling appraisal and step-out wells across its Midland Basin position and plans to advance secondary bench testing on inherited CIVI acreage, particularly in the Wolfcamp D formation.
UBS said SM Energy's integration of its Uinta assets demonstrates its ability to expand reserves organically.
After acquiring the assets in 2024, the company increased proved reserves to 110.9 million barrels of oil equivalent at year-end 2025, including 37.3 million boe from discoveries, extensions and positive revisions.
The bank expects similar execution on the acquired Permian assets to support future reserve growth and extend inventory.
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