SilverBow Resources (SBOW) Update - Jan 16

[dan_s]

SilverBow Resources is a new addition to our Small-Cap Growth Portfolio. My recent profile on the company can be found under the Small-Cap Tab on our website. The share price is up 14.3% since I added it on 12/29/2020.

SBOW closed at $5.82 on Friday, Jan 15
I have updated my forecast/valuation model and I've increased my valuation to $15.00/share.
The company has just under 12 million shares outstanding, so small changes in the model assumptions have significant impact on the price target.

Silverbow returned ~20,mcfe per day of previously shut-in production back to production in the 4th quarter. They also added a rig at the beginning of the fourth quarter, commencing a nine-well gas development program in Webb County. For the full year 2020, SilverBow is guiding to a production range of 181-184 MMcfe/d with natural gas volumes expected to comprise 138-140 MMcf/d. I am using the mid-point of the guidance in my model, but I think their actual production will be higher.
SilverBow drilled the first three Webb County wells in the Upper Eagle Ford at Fasken with first production in December. The other six wells comprise the second, co-developed La Mesa pad. The first pad was drilled and completed last year and has demonstrated some of the strongest returns in the Company's portfolio. SilverBow expects to finish the drilling and completion of the six-well La Mesa pad in early 2021, with first sales expected by the end of the first quarter.

EOG Resources (EOG) is also active in Webb County and they are reporting outstanding well results.

SilverBow generated free cash flow from operations during each quarter of 2020 and used it to pay down debt. Their 2021 D&C program will be fully funded with cash flow from operations and should generate over $30 million of free cash flow that they intend to use to pay down debt. My 2021 forecast is based on conservative realized commodity prices of $2.60/mcf for natural gas, $48.75/bbl for crude oil and $15.00/bbl for NGLs. Realize prices include the cash settlements on their hedges and regional price differentals. Eagle Ford production has good market access and gets close to NYMEX prices.
The Company's 2021 production mix should be approximately 76% natural gas, 14% crude oil and 10% NGLs.

Here is what I like most: Silverbow should generate over $10/share of operating cash flow this year. In 2020 they generated close to $13/share of cash flow, which included more than $6/share of cash settlements on their hedges. So, this is a small-cap with FCF and modest production growth that is trading for less than 1X operating cash flow per share. Go read the profile.