Civitas Resources Inc

Item 1A. Risk Factors.

Our business faces many risks. Any of the risk factors discussed in this Quarterly Report on Form 10-Q or our other SEC filings could have a material impact on our business, financial position, or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operation. For a discussion of our potential risks and uncertainties, see the risk factors identified in Part I, Item 1A in our 2024 Form 10-K, together with other information in this Quarterly Report on Form 10-Q and other reports and materials we may subsequently file with the SEC. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.

Because the Exchange Ratio is fixed and the market price of the Companys common stock and SM Energys common stock has and may continue to fluctuate, the Companys stockholders cannot be certain of the value of the consideration they will receive in the Merger, if consummated.

If the Merger is consummated, each share of the Companys common stock outstanding immediately prior to the Merger will automatically be converted into the right to receive 1.45 shares of SM Energy common stock. Because the Exchange Ratio is fixed, the value of the consideration that the Companys stockholders would receive in connection with the Merger, if consummated, will depend on the market price of SM Energy common stock at the time the Merger is consummated, which is expected to impact the market price of the Companys common stock until such consummation. The value of SM Energys common stock has fluctuated since the date of the announcement of the Merger Agreement and may continue to fluctuate. Accordingly, the Companys stockholders will not be able to determine the market value of the consideration they would receive in connection with the Merger until the consummation thereof. Share price changes may result from a variety of factors, many of which are beyond the control of the Company and SM Energy, including, among others, general market and economic conditions, commodity prices, changes in the Companys and SMs respective businesses, operations and prospects, and market assessments of the likelihood that the requisite closing conditions, including approval of both the stockholders of the Company and SM Energy, will be satisfied and the Merger will be consummated.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.

The Merger Agreement contains restrictions on our ability to solicit or execute any agreement with respect to an alternative Company Acquisition Proposal from third parties, to provide non-public information to third parties, and to engage in discussions with third parties regarding alternative Company Acquisition Proposals, subject to customary exceptions. The Merger Agreement also contains provisions that may require, in certain circumstances, a termination fee or reimbursement of expenses to be payable by Civitas thereunder. Such restrictions may discourage a third party from submitting an alternative Company Acquisition Proposal that might result in greater value to our stockholders than the Merger.

The inability to consummate the Merger on the expected time frame or at all may adversely affect the price of our common stock and our business, financial condition, or results of operations.

The consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including, among others, (i) adoption of the Merger Agreement by the affirmative vote of the holders of a majority of our outstanding shares common stock entitled to vote thereon, (ii) approval of (a) the issuance of SM Energy common stock in connection with the Merger by the affirmative vote of the holders of a majority of the outstanding shares of SM Energy common stock present in person or represented by proxy at a special meeting of the stockholders of SM Energy and entitled to vote thereon and (b) the amendment of SM Energys certificate of incorporation to increase the authorized number of shares of SM Energy common stock to 400,000,000 shares by the votes cast for such amendment exceeding the votes cast against such amendment by the

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holders of outstanding shares of SM Energy common stock, (iii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any other antitrust law relating to the Merger, (iv) no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition being in effect, and no law having been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that, in any such case, prohibits or makes illegal the consummation of the Merger, (v) approval for listing on New York Stock Exchange of the shares of SM Energy common stock to be issued in the First Company Merger, (vi) the effectiveness of the registration statement on Form S-4 to be filed by SM Energy, which will include a joint proxy statement of SM Energy and Civitas and a prospectus of SM Energy, (vii) the accuracy of representations and warranties and compliance with covenants of each party, (viii) absence of a material adverse effect on SM Energy or Civitas, and (ix) receipt by Civitas of an opinion from Civitas counsel that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, in each case subject to the standards set forth in the Merger Agreement. Any such conditions not being satisfied or waived in a timely manner, or at all, may result in the Merger not being consummated, which could adversely affect the market price of our shares of common stock, and our business, results of operations and financial condition. No assurance can be given that the conditions to the Mergers consummation will be satisfied or waived, or that the Merger will be completed in a timely manner or at all.

The pendency of the Merger could adversely affect our business, results of operations and financial condition.

The pendency of the Merger could cause disruptions in our business, which could have an adverse effect on our business, results of operations and financial condition. In particular, the attention of the Companys management and employees may be directed towards the Merger, including obtaining required approvals and other transaction-related considerations and may be diverted from the day-to-day business operations of the Company and matters related to the Merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial us. Any of these matters could adversely affect our business, results of operations, financial condition or cash flows, even if the Merger is consummated.

Even if we and SM Energy complete the Merger, the combined company may fail to realize all of the anticipated benefits of the Merger.

The success of the Merger will depend, in part, on the combined companys ability to realize the anticipated benefits and cost savings from combining Civitas and SM Energys businesses, including operational and other synergies. The anticipated benefits and cost savings of the Merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that we and SM Energy do not currently foresee. The integration process may, for each of Civitas and SM Energy, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Merger that were not discovered in the course of performing due diligence. The foregoing may negatively affect the combined companys ongoing business, operations and financial results following the completion of the Merger.

Our stockholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over the policies of the combined company than they now have on the policies of Civitas.

Immediately after the Merger is completed, it is expected that our current stockholders will own approximately 52% of SM Energys outstanding common stock and current SM Energy stockholders will own approximately 48% of SM Energys outstanding common stock on a fully diluted basis. As a result, our current stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of Civitas.

We will incur significant transaction costs in connection with the Merger.

We have incurred and are expected to continue to incur a number of non-recurring costs associated with the Merger, integrating our business with SM Energys business, and realizing the expected benefits therefrom. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors. Although we expect that the elimination of duplicative costs, as well as the realization of expected benefits related to the integration of our business with SM Energys, will allow us to offset these transaction costs over time, this net benefit may not be achieved in the near term or at all.

Litigation relating to the Merger could result in an injunction preventing the completion of the Merger and/or substantial costs to us.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in

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monetary damages, which could have a negative impact on our liquidity and financial condition. Such lawsuits could also seek, among other things, injunctive relief or other equitable relief, including a request to enjoin us and SM Energy from consummating the Merger.