SilverBow Resources (SBOW) Update - Dec 2
Posted: Sat Dec 02, 2023 11:26 am
SilverBow Resources Announces Closing of Chesapeake Acquisition and Provides Updated 2023 Guidance & Preliminary 2024 Outlook
Completed transformational acquisition of Chesapeake’s remaining South Texas assets
Preliminary 2024 outlook of 551-611 MMcfe/d; liquids to comprise ~40% of production mix
Anticipated 2024 capex of $550-$580 million supports 3-rig drilling program
The Company now holds over 220,000 net acres with 1,000 drilling locations identified
Capital structure provides for ~$500 million of liquidity by year-end 2023 and extended maturity
HOUSTON, November 30, 2023--(BUSINESS WIRE)--SilverBow Resources, Inc. (NYSE: SBOW) ("SilverBow" or "the Company") announced today the closing of its acquisition of Chesapeake Energy Corporation’s ("Chesapeake") oil and gas assets in South Texas for a purchase price of $700 million, comprised of a $650 million upfront cash payment paid at closing and an additional $50 million deferred cash payment due 12 months post close, subject to customary adjustments (the "Chesapeake Transaction"). Consideration for the purchase was funded with cash on hand, borrowings under the Credit Facility (as defined below) and proceeds from the sale of additional second lien notes. Chesapeake may also receive up to $50 million in additional contingent cash consideration based on future commodity prices. In addition, the Company provided updated 2023 guidance and a preliminary 2024 outlook.
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, "We are excited to close the Chesapeake Transaction, which materially increases our scale in South Texas and transforms SilverBow into the largest public pure-play Eagle Ford operator. Our differentiated growth and acquisition strategy has positioned us with a stronger balance sheet, a broader commodity mix and a portfolio of locations across a single, geographically advantaged basin. The acquired Chesapeake assets further enhance our optionality to continue allocating capital to our highest return projects and will immediately compete for capital."
Mr. Woolverton commented further, "The SilverBow team looks forward to extending its proven track record of integrating and growing assets in South Texas through a combination of its existing team and the new employees recently hired from Chesapeake. We plan to expand our capital program to develop the high return inventory acquired, with three rigs running across our portfolio in 2024. Our current expectation is to run two rigs on our liquids properties and one rig on our dry gas properties. As always, our development plan and capital allocation remain flexible based on prevailing commodity prices. Strong production growth is expected to generate significant free cash flow which will allow us to pay down debt, reduce leverage to 1.0x and below and stay opportunistic towards our strategic objectives."
RISK MANAGEMENT
To help manage the impacts of commodity price movements, SilverBow utilizes various financial derivative contracts to reduce the volatility of its revenues. For 2024, the Company has entered into hedges on approximately 55% of its estimated total production. SilverBow has 217 million cubic feet per day ("MMcf/d") (65% of guidance) of natural gas production hedged at an average floor price of $3.83 per million British thermal units ("MMBtu") and at an average ceiling price of $4.21 per MMBtu. The Company has 12,775 Bbls/d (51% of guidance) of oil production hedged at an average floor price of $74.02 per barrel and at an average ceiling price of $76.46 per barrel. SilverBow has 4,400 Bbls/d (34% of guidance) of NGLs hedged at an average price of $25.92 per barrel. The hedged amounts are as of November 30, 2023 and are inclusive of swaps and collars.
CAPITAL STRUCTURE & LIQUIDITY
In connection with the closing the Chesapeake Transaction, SilverBow increased the borrowing base and aggregate elected commitment amount under the Company’s First Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 19, 2017, and amended by the Eleventh Amendment as of November 30, 2023 (the "Credit Facility"), among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders from $775 million to $1.2 billion. Further, SilverBow issued and sold under the Company’s Note Purchase Agreement, dated as of December 15, 2017, and amended by the Fourth Amendment as of November 30, 2023 (the "Note Purchase Agreement") an additional $350 million principal amount of second lien notes, resulting in $500 million aggregate principal amount of second lien notes outstanding. Additionally, the Company extended the maturity date of its second lien notes from December 15, 2026 to December 15, 2028 and modified certain other terms of the Note Purchase Agreement.
As of November 30, 2023, the Company had $449 million of undrawn capacity and approximately $15 million of cash resulting in approximately $464 million of liquidity.
Completed transformational acquisition of Chesapeake’s remaining South Texas assets
Preliminary 2024 outlook of 551-611 MMcfe/d; liquids to comprise ~40% of production mix
Anticipated 2024 capex of $550-$580 million supports 3-rig drilling program
The Company now holds over 220,000 net acres with 1,000 drilling locations identified
Capital structure provides for ~$500 million of liquidity by year-end 2023 and extended maturity
HOUSTON, November 30, 2023--(BUSINESS WIRE)--SilverBow Resources, Inc. (NYSE: SBOW) ("SilverBow" or "the Company") announced today the closing of its acquisition of Chesapeake Energy Corporation’s ("Chesapeake") oil and gas assets in South Texas for a purchase price of $700 million, comprised of a $650 million upfront cash payment paid at closing and an additional $50 million deferred cash payment due 12 months post close, subject to customary adjustments (the "Chesapeake Transaction"). Consideration for the purchase was funded with cash on hand, borrowings under the Credit Facility (as defined below) and proceeds from the sale of additional second lien notes. Chesapeake may also receive up to $50 million in additional contingent cash consideration based on future commodity prices. In addition, the Company provided updated 2023 guidance and a preliminary 2024 outlook.
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, "We are excited to close the Chesapeake Transaction, which materially increases our scale in South Texas and transforms SilverBow into the largest public pure-play Eagle Ford operator. Our differentiated growth and acquisition strategy has positioned us with a stronger balance sheet, a broader commodity mix and a portfolio of locations across a single, geographically advantaged basin. The acquired Chesapeake assets further enhance our optionality to continue allocating capital to our highest return projects and will immediately compete for capital."
Mr. Woolverton commented further, "The SilverBow team looks forward to extending its proven track record of integrating and growing assets in South Texas through a combination of its existing team and the new employees recently hired from Chesapeake. We plan to expand our capital program to develop the high return inventory acquired, with three rigs running across our portfolio in 2024. Our current expectation is to run two rigs on our liquids properties and one rig on our dry gas properties. As always, our development plan and capital allocation remain flexible based on prevailing commodity prices. Strong production growth is expected to generate significant free cash flow which will allow us to pay down debt, reduce leverage to 1.0x and below and stay opportunistic towards our strategic objectives."
RISK MANAGEMENT
To help manage the impacts of commodity price movements, SilverBow utilizes various financial derivative contracts to reduce the volatility of its revenues. For 2024, the Company has entered into hedges on approximately 55% of its estimated total production. SilverBow has 217 million cubic feet per day ("MMcf/d") (65% of guidance) of natural gas production hedged at an average floor price of $3.83 per million British thermal units ("MMBtu") and at an average ceiling price of $4.21 per MMBtu. The Company has 12,775 Bbls/d (51% of guidance) of oil production hedged at an average floor price of $74.02 per barrel and at an average ceiling price of $76.46 per barrel. SilverBow has 4,400 Bbls/d (34% of guidance) of NGLs hedged at an average price of $25.92 per barrel. The hedged amounts are as of November 30, 2023 and are inclusive of swaps and collars.
CAPITAL STRUCTURE & LIQUIDITY
In connection with the closing the Chesapeake Transaction, SilverBow increased the borrowing base and aggregate elected commitment amount under the Company’s First Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 19, 2017, and amended by the Eleventh Amendment as of November 30, 2023 (the "Credit Facility"), among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders from $775 million to $1.2 billion. Further, SilverBow issued and sold under the Company’s Note Purchase Agreement, dated as of December 15, 2017, and amended by the Fourth Amendment as of November 30, 2023 (the "Note Purchase Agreement") an additional $350 million principal amount of second lien notes, resulting in $500 million aggregate principal amount of second lien notes outstanding. Additionally, the Company extended the maturity date of its second lien notes from December 15, 2026 to December 15, 2028 and modified certain other terms of the Note Purchase Agreement.
As of November 30, 2023, the Company had $449 million of undrawn capacity and approximately $15 million of cash resulting in approximately $464 million of liquidity.