SilverBow Resources (SBOW) Update - Sept 12

[dan_s]

This is good news.
> Using some equity to close the Chesapeake Acquisition is a good thing as it keeps some debt off the balance sheet.
> SilverBow is growing very fast and it needs more stock in the market to increase trading volume.
> The Company's production should be over 95,000 Boepd when the deal closes, up from 54,904 Boepd in Q2.
> My valuation stays at $75/share.

SILVERBOW RESOURCES ANNOUNCES PROPOSED PUBLIC OFFERING OF COMMON STOCK
09/12/2023
HOUSTON--(BUSINESS WIRE)-- SilverBow Resources, Inc. (NYSE: SBOW) (“SilverBow” or the “Company”) today announced that it has commenced an underwritten public offering of 3,000,000 shares of its common stock (the “Offering”), which includes 2,250,000 shares being offered by the Company and 750,000 shares being offered by an affiliate of Strategic Value Partners, LLC (the “Selling Stockholder”). The Company and the Selling Stockholder intend to grant the underwriters a 30-day option to purchase up to an additional 450,000 shares. The Offering is subject to market and other conditions, and there can be no assurance as to whether or when the Offering may be completed, or as to the actual size or terms of the Offering.

The Company intends to use the net proceeds from the Offering to repay a portion of the amounts outstanding under its senior secured revolving credit facility (“Credit Facility”) and for general corporate purposes, and will subsequently use borrowings under its Credit Facility and proceeds from its amended second lien notes to fund the purchase price for the Company’s pending acquisition of Chesapeake Energy Corporation’s oil and gas assets in South Texas (the “Chesapeake Acquisition”). The Company will not receive any proceeds from any sale of shares by the Selling Stockholder. The consummation of the Offering is not conditioned upon the completion of the Chesapeake Acquisition and the consummation of the Offering is not a condition to the completion of the Chesapeake Acquisition.

Citigroup, Mizuho and Johnson Rice & Company L.L.C. are acting as joint book-running managers for the Offering.

The Offering will be made only by means of a prospectus supplement and the accompanying base prospectus, which were filed as part of an effective shelf registration statement filed with the Securities and Exchange Commission (“SEC”) on Form S-3. Copies of the preliminary prospectus supplement and accompanying base prospectus relating to the Offering, as well as copies of the final prospectus supplement, once available, may be obtained on the SEC’s website at www.sec.gov or by contacting Citigroup, c/o Broadridge Financial Solutions, 1155 Long island Avenue, Edgewood, NY 11717 (Tel: 800-831-9146); Mizuho Securities USA LLC, Attention: U.S. ECM Desk, 1271 Avenue of the Americas, New York, NY 10020, by telephone at (212) 205-7602 or by email at US-ECM@mizuhogroup.com; or Johnson Rice & Company L.L.C., Attention: Equity Capital Markets, 639 Loyola Avenue, Suite 2775, New Orleans, LA 70113, or by phone at (504) 584-1231.

This press release does not constitute an offer to sell, a solicitation to buy or an offer to purchase or sell any securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

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 that it leverages to assemble high quality drilling inventory while continuously enhancing its operations to maximize returns on capital invested.

[Fraser921]

The name is down 8 % on the "good news".
Smart money might be buying today.

[ChuckGeb]

I think it was good move by SBOW as Dan stated above. They need more liquidity in their stock and with a $700 million cash acquisition it makes good sense to raise $100 million in capital. Stock has to be priced to move the 3.45 million shares so it is expected there will be a temporary dip. I think these guys are pretty smart and very well managed.

[ChuckGeb]

That's all I am going to say about that.

[dan_s]

Keep in mind that 25% of the stock being sold is from a large shareholder so it is already in the market. If the maximum number of shares is sold, it will increase SilverBow's outstanding shares by 2,550,000. I'm using 26,000,000 shares in my 2024 forecast.

Per SilverBow, their 2023 production exit rate s/b 99,000 Boepd.

My updated forecast for 2024 is:
> Daily production of 105,000 Boepd (28.6% crude oil, 50.3% natural gas and 21.1% NGLs)
> Oil & gas revenues of $1,479.7 million with 61.6% from oil sales. < Based on realized prices of $83 for oil, $3.15 for ngas and $25 for NGLs
> Net Income per share of $16.54
> Operating cash flow per share of $33.03
* My production mix forecast might end up being too "gassy" since SilverBow has the option to keep their drilling program focused on more oil prone areas.

My current valuation based on just 3.5 X annualized operating CFPS increases by $3 to $78.

I was using a valuation multiple of 3.25 X CFPS. I believe a higher multiple is justified by the increased equity that improves balance sheet ratios.

MY OPINION is that investors overreact to stock offerings (especially since they are so rare these days). The ability to tap into the equity market is a "good thing". With production soon going over 100,000 Boepd (compared to 54,904 Boepd in Q2), SilverBow needs a higher share count on the market. Low trading volumes keeps a lot of hedge funds away from small-caps.

[Fraser921]

Shares priced at $ 37. Last week it was trading at 43.

Kudo's to mgt for knocking shares down 14 % in a market ripping higher

[Fraser921]

Traded BELOW secondary price...36.75!

[aja57]

Fraser… may I suggest you look at KRP chart since August 3 when they did an equity offering to purchase an accretive acquisition. It’s back to its pre Aug 3 trading range. History may not repeat itself but occasional it rhymes.

[Cliff_N]

Great point on KRP. Here is the chart:

[ChuckGeb]

My suggestion is that it is a good time to load up on the stock. These guys are just now going prime time with some great acreage, great management, and can toggle between oil drilling and gas drilling almost at will.