SilverBow Resources (SBOW) Updated Valuation - Aug 5

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

SilverBow Resources (SBOW) Updated Valuation - Aug 5

Post by dan_s »

At the time of this post SBOW was trading at $39.72. First Call's price target is $70.50.

SilverBow reported outstanding Q2 results based on production of 39,663 Boepd, up from 37,667 Boepd in Q1.

SilverBow has closed two VERY SIGNIFICANT acquisitions (Sundance and Sandpoint) that have the Company on a clear path to production of ~50,000 Boepd in Q3 and ~56,500 Boepd in Q4. They have also provided detailed guidance for 2H 2022 and full year 2023. I have a HIGH level of confidence in my forecast model. Therefore, I feel comfortable raising my valuation multiple from 5.0 to 5.5 X annualized operating cash flow per share.

I am raising my current valuation $4 to $104/share.

Why?
> SilverBow is primarily a "gasser", so the recent pullback in oil prices has very little impact on my valuation. Higher natural gas and NGL prices more than offset the lower realized oil price for all future periods.
> SilverBow's production mix for 2022 based on their guidance is approximately 71% natural gas, 17% crude oil and 12% NGLs.
> My 2023 forecast based on their detailed guidance and conservative commodity prices (net of estimated cash settlements on their hedges) of $4.70/mcf for ngas, $84.00/bbl for crude oil and $32.00/bbl for NGLs shows SilverBow generating $607 million ($26.98/share) of operating cash flow next year. Assuming they run two operated drilling rigs all year, their capital expenditure budget should be in the $400 to $450 million range.
> SilverBow is an "Aggressive Growth" company. The KEY TO MY VALUATION is that their production growth of 17% in 2021, 29% in 2022 and 38% in 2023 is being fully funded by operating cash flow, while they should continue to generate free cash flow.

My updated forecast/valuation model for SBOW will be posted to the EPG website this afternoon.
Dan Steffens
Energy Prospectus Group
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