Energy Prospectus

SBOW closed at $36.89 today.

I have updated my forecast/valuation model for their Q3 actual results, which were very good and their fresh guidance.

DON'T READ THIS AS NEGATIVE: I am lowering my valuation from $108 to $92 just because I am using a lower valuation multiple from 5.5X to 4.5X for 2022+2023 annualized operating cash flow per share.
> If the Company's actual results do match my 2023 forecast there may be justification for a $150 share price.
> This one is highly dependent on natural gas prices.
> It also has a very low number of shares outstanding (22.3 million), so small forecast assumption changes will have a big impact on per share results.
> SilverBow is an "Aggressive Growth" company that is going to report ~27% YOY production growth this year and talking about 50% YOY production growth in 2023.

I do expect SilverBow's 2022 reported EPS to exceed $10/share, which will draw lots of eyes to this stock from investors looking for value stocks.

FWIW: First Call's Price Target is $67.50

Note received 11-7-2022 from Neal Dingmann at Truist Financial. His price target for SBOW is $62.

SilverBow Resources, Inc. (SBOW)
Diversified Assets Provide Options and Upside

Silverbow has done a nice job combining solid organic production growth with accretive
deals to put the company in a position for 25%+ production and EBITDA growth the next
two years. While the company recently has been active in Webb County driving solid natural
gas wells, the strategic 2023 plan is to move one of the existing two rigs to an oily area such
as Central Oil and/or the Karnes Trough, then potentially add another rig in the oily area for
2H23 when two thirds of capital will likely be directed toward the liquids regions.
As such, we estimate well over $200mm in FCF next year, which should allow the company
to add scale or initiate some form of shareholder returns if more attractive.

Operational Cost Inefficiencies a Byproduct of Growth Story
It's no secret acquisitions and WI arrangements are critical to SBOW’s growth strategy.
The company has compiled a successful series of accretive acquisitions that have been
complementary to their existing Eagle Ford positions along with helping inventory reach a
key milestone of 10+ years. Further, the combined assets and active operations will likely
help production double next year versus 2021. As part of the operations, SBOW will need
to continue to pay attention to its costs as quarterly LOE/mcfe has grown lock-step with
production since 1Q21. We recognize the casing problem that resulted in a temporary well
abandonment is likely a one-off, and inflationary pressures continue to pose a challenge
to the entire industry, however the company’s assessment of cost inflation reaching a 25%
YoY increase across the basin is among the highest estimates that we have heard to-date.
We believe integration of assets, coupled with a greater focus on supply chain priorities will
reduce SBOW’s LOE unit cost and lay the groundwork for future scaling through acquisitions.

Positive Measures Outlined in Strategic Multi-year Roadmap
SBOW’s roadmap for strategic objectives is directionally positive as it aligns corporate
stewardship to operational activities. The company’s 2-year minimum growth plan of 25%
+ for production and EBITDA is aligned to our 2023 forecast and as highlighted above we
fully support SBOW’s commitment towards capital efficiency and improving cost structures.
We also support SBOW’s decision to add a third rig as the company continues to reduce
its debt through FCF generation. We also support SBOW’s intention to potentially roll out a
share buyback program in the next year.