Silverbow fundamentals

[Petroleum economist]

Silverbow ranks in the top 5 of the 72 companies that I track. Due to the ongoing Kimmeridge saga, little attention is been paid to the medium-term Silverbow fundamentals. Silverbow is a small company with ample reserves, growing production, a mediocre balance sheet and good profitable. It will provide no shareholder returns in 2024/2025.

Size
Silverbow is a small cap. Market value is $ 850 M. Daily 350-400 K shares (1.2-1.4% of the 25.7 M total) are traded.

Reserves
Proven reserves are 448 M BoE (2.675 tcfe) consisting of 21.3% oil, 16.0% NGL and 62.7% gas
Reserves are equivalent to an ample 13.5 years of 2024 production, well above industry average of 9.5-10.0 years.
2023 RRR was -2.20, mainly due to -0.42 tcf de-booking of gas reserves. The gas de-booking reflected lower gas prices and changes in 5-year development plans.
The reserves allow ample growth of production.

Production
Production will grow by 52.4% from 59.3 K BoE/d (2023) to 90.4 K BoE/d (2024) and to 100-105 K BoE/d thereafter. The outlook for 2024 is 85.2-95.3 K BoE/d.
Most of the 2024 growth (32 K BoE/d) stems from the $ 700 M Q4 2023 Eagleford acquisition from Chesapeake.
Silverbow is focusing on liquids. Liquid production (oil +73%, NGL +97%) grows faster in 2024 than gas production (+34%). 28% of the 2024 production is oil and 18% NGL.
In 2024 59% of the oil and 79% of the gas production are hedged. This reduces to 35% and 50% in 2025. Silverbow is not sensitive to the current low gas prices.

Balance sheet
The balance sheet is an area of concern.
Solvency is 43.5% (2023) and needs to be restored to well above 50%. For this $ 270-300 M is required. Debt/EBITDA late 2023 was a high 1,172/860 = 1.77.
With the FCF 100% committed to the balance sheet, assuming WTI=$ 80/bbl, the debt/EBITDA can reduce to 1.29 (late 2024) and to 0.99 (late 2025). The solvency can increase to 47.7% (late 2024) and to 52.6% (late 2025).
No earl shareholder returns are possible in 2024/2025. Shareholder returns can start earliest in Q1 2026.

Profitability
With WTI = $80-85/bbl and HH =$ 2.36/MM Btu, Silverbow can earn in 2024 $270-280 M (eps = $ 10.61-10.90 and PE = 3.0-3.1). The low PE reflects the state of the balance sheet.
Unit costs - in view of the gas content – are highish at $ 26/BoE.
In the unit costs, $ 5/BOE is due to the $ 130 M/year interest payments.
Silverbow is a profitable company. Profitability can improve with down payments on the debt and reduced interest rates.

Shareholder returns
The balance sheet does not allow returns of funds to shareholder in 2024/2025
If in 2026 40% of the FCF would be directed to shareholders, then this can equate to $ 5.00 per share or a very high yield of 16%.
The 2026 PE should reflects this and the share price therefor should increase considerable in 2024/2025.

Conclusion
After the $ 700 Eagleford acquisition, Silverbow will needs two years (until early 2026) to get its financial house in order. In 2026 Silverbow will be an attractive investment.
Silverbow is a good investment for shareholders with patience and a medium long investment horizon.

The merger saga with Kimmeridge Texas Gas should be laid to rest at the upcoming annual meeting on the 21st of May.

[dan_s]

Good stuff.
Ignore the hostile takeover attempt by Kimmeridge. It comes with the territory. Actually, it helped draw more attention to this grossly under-valued stock.

[mitchl]

I appreciate your posts Petroleum Economist. They supplement Dan’s regular posts well along with those of the other members.

[dan_s]

FYI "Petroleum Economist" is a new EPG member that lives in Europe. He keeps a database of upstream oil companies that he ranks based on proved reserves and other fundamentals. Note that several of our model portfolio companies are at the top of his list.

EPG was established in 2001 as a networking group for industry professionals and investors. Networking and sharing of ideas are how we beat the market.

I have a conference call with Riley Exploration Permian (REPX) to go over several of the assumption in my forecast model.

[Fraser921]

I established a position in Riley today.
I’d be interested in engineer telling us who the other 4 are in his top 5