SilverBow Resources (SBOW) Update - Aug 14

[dan_s]

SilverBow announced a SIGNIFICANT acquisition from Chesapeake Energy that is expected to close mid-Q4 2023. It doubles the size of SBOW and adds a lot more high-quality "running room".

I am updating my forecast/valuation model this morning. It will be posted to the EPG website this afternoon.

CHESAPEAKE SOUTH TEXAS ASSET HIGHLIGHTS

Adds ~42,000 net acres in Dimmit and Webb counties across the highly prolific, liquids-heavy window of South Texas

Expected production of ~31,000-33,000 Boe/d (~60% oil/NGLs) for the fourth quarter of 2023

~$850 million of Proved Developed Producing ("PDP") PV-10 reserves value compared to the $700 million purchase price

~300 additional high-confidence drilling locations across the Austin Chalk and Eagle Ford formations which immediately compete for capital

STRATEGIC RATIONALE

Compelling Strategic Fit & Increased Scale: Substantial industrial logic that significantly increases South Texas scale supporting greater operational efficiency

Immediately Accretive: Attractively valued at 2.3x NTM EBITDA with a >20% unlevered free cash flow yield, generating double-digit accretion to key financial metrics

Supplements High-Return Inventory: Fortifies decade-plus inventory life with Austin Chalk and Eagle Ford locations that immediately compete for capital and provide hydrocarbon optionality < Additional running room will increase the valuation multiple that I use to value SBOW.

Enhances Capital Efficiency and Margins: Significantly increases pro forma SilverBow’s free cash flow generation and lowers the pro forma 2024 re-investment rate to ~65%

Maintains Balance Sheet Strength: Conservative pro forma leverage profile and incremental free cash flow generation provides a path to a return of capital strategy

Positioned for Further Consolidation: Enhanced scale and strong balance sheet positions SilverBow for future South Texas acquisitions where the Company has a tremendous track record of execution excellence

REVISED HEDGE POSITION < This is a smart more that lowers the acquisition risk.

To protect the significant financial benefits of the Chesapeake Transaction, SilverBow plans to hedge a significant portion of the Company’s expected volume for the next three years. At a minimum, SilverBow is expected to enter into incremental derivative contracts accounting for 75% of the combined Company’s expected oil and gas PDP volumes for the first two years and 60% for the third year. The incremental hedged amounts are expected to include a combination of swaps and collars over the specified period.