SilverBow Resources (SBOW) Update - Oct 11

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

SilverBow Resources (SBOW) Update - Oct 11

Post by dan_s »

SilverBow Resources, Inc. (NYSE: SBOW) (“SilverBow” or “the Company”) announced today it has entered into a definitive agreement to acquire oil and gas assets in the Eagle Ford from two sellers. < I will update my SilverBow forecast/valuation model by noon and post it to the EPG website.

Acquisition Highlights:

* Total purchase price of approximately $75 million, consisting of $45
million in cash and approximately $30 million in equity
* Expected to be accretive on all key financial metrics
* 17,000 total net acres in the oil-window of La Salle, McMullen, DeWitt and
Lavaca counties
* May 2021 net production of approximately 2,500 barrels of oil equivalent
per day, 71% liquids / 46% oil from 111 PDP wells
* Acquired oil production represents a 30% increase to SilverBow’s current
full year 2021 oil production guidance
* 2021E Adjusted EBITDA of approximately $28 million^(1)
* Over 100 net drilling locations, adding approximately three years of
inventory at SilverBow’s current 1 rig drilling pace

MANAGEMENT COMMENTS

Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “This
acquisition meaningfully increases SilverBow’s oil production and furthers our
Eagle Ford and Austin Chalk consolidation efforts while maintaining a balanced
oil and gas portfolio. This represents our third acquisition since the
beginning of August and the largest to date for SilverBow. This transaction
bolsters our inventory with high rate of return locations and provides us with
development optionality as we plan for 2022 and beyond. The acquisition is
accretive to Adjusted EBITDA and further reduces our pro forma leverage
ratio^(2) given the incremental cash flow. As we have shown over time, we
expect to continue driving our peer-leading capital efficiency and cost
structure as these assets are combined with our existing portfolio.”

Mr. Woolverton commented further, “Today’s announcement is a testament to the
extensive work we have done evaluating opportunities and executing our
in-basin consolidation plan. Furthermore, SilverBow once again utilized a mix
of both cash and stock to fund the purchase price. The use of equity has
allowed us to access a larger opportunity set for strategic growth while
aligning our interests with surrounding peer companies and other key
stakeholders for accretive, long-term value creation. Including the pro forma
contribution of our recent acquisitions, SilverBow is targeting a leverage
ratio of 1.25x at year-end 2021. We plan to share additional details as part
of our third quarter 2021 reporting in November.”

TRANSACTION DETAILS

The acquisition has an effective date of August 1, 2021 and is expected to
close before year-end, subject to customary closing conditions. The total
purchase price is approximately $75 million, consisting of $45 million in cash
and the greater of (i) approximately 1.35 million shares of SilverBow common
stock based on its 30-day volume weighted average price as of October 4, 2021
and (ii) the number of shares equal to $25 million divided by the 30-day
volume weighted average price as of the first trading day preceding the
closing date. SilverBow intends to fund the cash component and fees and
expenses with cash on hand and borrowings under its revolving credit facility.

ABOUT SILVERBOW RESOURCES, INC.

SilverBow Resources, Inc. (NYSE: SBOW) is a Houston-based energy company
actively engaged in the exploration, development, and production of oil and
gas in the Eagle Ford Shale and Austin Chalk in South Texas. With over 30
years of history operating in South Texas, the Company possesses a significant
understanding of regional reservoirs which it leverages to assemble high
quality drilling inventory while continuously enhancing its operations to
maximize returns on capital invested. For more information, please visit
www.sbow.com. Information on the Company’s website is not part of this
release.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: SilverBow Resources (SBOW) Update - Oct 11

Post by dan_s »

I have updated my forecast/valuation model for SBOW and posted it to the EPG website.

SBOW is currently trading for $33.00, up ~12% this morning.

My valuation increases by $10 to $60 per share.
Why?
> The acquisition announced today will be accretive to all per share metrics.
> I have increased my valuation multiple of operating cash flow from 3.0 to 3.5 X annualized CFPS.
> One of my keys to valuation is "running room" and the acquisition announce this morning adds to the company's high value HBP leasehold.
> Plus, I have more confidence in my 2022 forecast as commodity prices continue to move higher. SilverBow now has ~16% YOY production growth locked in for 2021 and production growth should be 40% to 50% in 2022, based on a modest increasing in their drilling budget for next year.
> First Call's price target is currently $52.50, which should go up after the company releases Q3 results and updated full-year guidance.
> The use of equity for part of the acquisition is a good thing because this company needs more outstanding shares. A stock split would be a positive because some fund managers don't like stocks with low trading volume.

SilverBow is a "Gasser" with proforma production mix of approximately 72% natural gas, 13% NGLs and 15% crude oil.
Dan Steffens
Energy Prospectus Group
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