Kimmeridge not giving up, issues open letter to SBOW shareholders. Maybe they should try making a realistic proposal (one that values SBOW close to their proved reserves).
Remains ready to engage in good faith negotiations with SilverBow towards value-enhancing combination
Publishes comprehensive financial and operational data on KTG to support shareholders in analyzing Kimmeridge's proposal
SilverBow made no contact with Kimmeridge before rejecting the March 13 proposal, and then claimed SilverBow needs more information to effectively evaluate the transaction
SilverBow prioritizes launch of highly misleading PR campaign and Board / management entrenchment rather than undertaking actions in the best interests of shareholders
NEW YORK and DENVER, April 1, 2024 /PRNewswire/ -- Kimmeridge, an alternative asset manager focused on the energy sector and the largest shareholder of SilverBow Resources ("SilverBow") holding 12.9% of outstanding shares, today issued an open letter to shareholders highlighting SilverBow's lack of engagement following Kimmeridge's March 13 proposal to combine Kimmeridge Texas Gas ("KTG") and SilverBow. Kimmeridge is also making available supplemental financial and operational information about KTG to support shareholders as they analyze the combination and the value it will deliver.
Kimmeridge also filed preliminary proxy materials with the Securities and Exchange Commission regarding its nomination of three highly-qualified, independent directors to SilverBow's Board of Directors for election at its 2024 annual shareholder meeting.
Additional information regarding Kimmeridge's proposal and KTG's asset base can be found at www.Kimmeridge.com/sbow/.
SBOW - Kimmeridge Open Letter 4/1/24
Re: SBOW - Kimmeridge Open Letter 4/1/24
The full text of Kimmeridge's letter to SilverBow shareholders is included below.
Fellow Shareholders,
On March 13, 2024, Kimmeridge delivered a financed, premium proposal to combine Kimmeridge Texas Gas ("KTG") and SilverBow Resources ("SilverBow" or the "Company"), with an associated $500 million equity investment. The combination would create a preeminent pure-play Eagle Ford shale operator with an estimated enterprise value of approximately $3.6 billion. The accretive transaction offers SilverBow shareholders a unique opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford. Unfortunately, weeks have passed and SilverBow has done little to genuinely evaluate this offer.
SilverBow's Misleading Claims Regarding Its Engagement
It is important for shareholders to be aware of the gross mischaracterizations contained in SilverBow's press releases and solicitation materials regarding our most recent engagement with the Company – as it speaks to their lack of credibility.
As SilverBow stated in its solicitation materials, on February 21 Kimmerige met with the SilverBow Board of Directors (the "Board") and presented several options to address the Company's track record of underperformance. This presentation emphasized the importance of scale to the Company's long-term performance and suggested eight different potential strategic transactions the Company could pursue to establish a foundation for long-term value creation. One of the presented options was Kimmeridge's currently announced proposal for a combination with KTG and the associated capital injection.
During this meeting, we were asked by a SilverBow director whether Kimmeridge would put a proposal in writing, to which we responded affirmatively. Following that meeting, on February 26, SilverBow CEO Sean Woolverton called to thank us for the meeting. He claimed that the Board was "open to proposals", and requested a formal proposal for a combination with KTG with confirmation of financing – details conspicuously absent from the description of our engagement in SilverBow's letters to shareholders and SEC filings.
To our surprise on March 1, and prior to our submission of any formal proposal, SilverBow filed a letter to shareholders misrepresenting the historical discussions with Kimmeridge. In our desire to have a constructive dialogue, and hope that the Board was open to considering the best interests of shareholders, we chose to ignore the tone and inaccuracies contained in that filing and formally submitted the requested proposal on March 13 (the "March 13 Proposal").
In the two weeks that followed, none of SilverBow's management team, Board or advisors made any outreach to Kimmeridge or our representatives. Likewise, no one requested access to our pre-populated data room, the draft merger agreement or asked any diligence questions that could have permitted the Board and its advisors to properly evaluate the March 13 Proposal. Other shareholders communicated to us that SilverBow claimed to have been engaging with Kimmeridge during this time period – that is completely false.
We received no communication from SilverBow until after the Company filed its proxy and associated inaccurate press release on March 28. Hours later, SilverBow's CEO sent a letter to Kimmeridge rejecting our proposal and also asking for additional information on KTG, which they could have requested at any time in the preceding weeks, and which we are today gladly providing to the market.
SilverBow's Incumbent Board & Management Strategy
We are puzzled that the Board rejected the March 13 Proposal before evaluating it in an informed manner. In light of the Company's lack of engagement, we cannot help but question the Board's commitment to pursuing the best interests of shareholders. At this point, it appears that the Board and management team are singularly focused on fighting Kimmeridge – at all times and at all costs. Their strategy is to entrench themselves – while summarily rejecting compelling proposals and denying shareholders the right to fiduciaries who will independently analyze opportunities to maximize long-term value.
We have submitted a highly compelling, accretive and credit enhancing premium proposal. Since that time, we have heard from other shareholders regarding their belief in the merits of a combination with KTG, and stand ready to engage in good faith negotiations with the Company. Unfortunately, SilverBow has taken a different course.
Since our February 21 meeting, the Board has dedicated vast resources towards:
Filing a preliminary proxy statement renominating the same incumbent directors;
Undertaking a defensive and minimal refreshment of the Board;
Launching a misleading PR campaign; and
Summarily rejecting our proposal – without conducting necessary due diligence or engagement
It is no surprise that SilverBow's share price declined on March 28 following the Board's rejection of our March 13 Proposal – a day when the Dow Jones Industrial Average hit a record high and virtually every other oil & gas company's share price was up significantly.
We believe that a strong majority of shareholders support authentic engagement and would vote in favor of the March 13 Proposal if the incumbent Board didn't stand in the way. In our view, the Board and management's desire to maintain the status quo (including their positions and compensation) prevents the Board from presenting this value-creating transaction to shareholders.
KTG's High Quality Asset Base
Today we are making available all the information that SilverBow has just requested and more. Shareholders can visit www.Kimmeridge.com/sbow/ to access this information, containing additional detail on KTG's financials and asset base, including well data, operating statistics and inventory maps. We were prepared to share this data with SilverBow earlier in our pre-populated data room, had they requested it before rejecting the March 13 Proposal.
We suspect SilverBow will do little with the data apart from use it to justify their own inaction. However, by publishing the data, shareholders, whose opinions we believe should be heard, will be able to directly compare KTG's assets with those of SilverBow. We hope that SilverBow will publicly disclose the same level of information about its finances and operations.
To briefly summarize, the data set includes the following:
A comparative analysis of well performance based on public data, indicating that KTG's wells have consistently outperformed SilverBow on an EUR per barrel of oil equivalent basis utilizing both a 6:1 conversion, and a 20:1 conversion for natural gas. Kimmeridge has also provided proprietary data on recent wells to the end of February showing that this performance gap has continued and expanded.
Line by line responses to SilverBow's diligence request – investors can clearly compare KTG's performance metrics vs SilverBow.
Current production information. Since the startup of the recent Apollo pad in Karnes County, KTG's net production is now 374 MMcfe/d (80% gas / 11% oil / 9% NGL).
Detailed cost data for the existing asset base. KTG's estimated operating costs for 2024 are $0.44/Mcfe for LOE and taxes, $0.36/Mcfe for GP&T and $0.15/Mcfe for G&A. KTG's estimated drilling and completion costs for 2024 are respectively $223/md ft and $645/CLAT.
Inventory Analysis. Since the formation of KTG in 2022, Kimmeridge has increased its leasehold organically and through acquisition – more than doubling production and acreage – with peer-leading expertise in drilling deep gas wells.
A copy of the Board's letter to Kimmeridge, dated March 28, 2024. Shareholders can consider the Board's artful use of language to describe their failure to make any attempt at a good-faith evaluation of our proposal prior to rejecting it.
The Path Ahead
Kimmeridge believes that its highly-compelling March 13 Proposal is the best opportunity to maximize value for all SilverBow stakeholders. To that end, we would bring our deep operational, financial and transactional expertise to bear on behalf of the combined company – working collaboratively to position the new company for consolidation and related measures to unlock its significant value potential for all. Kimmeridge would also install best-in-class governance and executive compensation practices that limit the existing management team's ability to use owners' capital for their personal enrichment irrespective of performance.
We are confident that our accretive, credit-enhancing transaction presents all SilverBow shareholders with a unique opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford.
Should the Board continue to stonewall, mislead investors, and fail to provide all SilverBow shareholders the full benefit of independent oversight of the management team and assessment of the March 13 Proposal, then we believe the best path forward will be for SilverBow shareholders to elect our three, independent, highly-qualified, nominees to the Board. This will ensure that all paths to value creation for the Company are fully and fairly analyzed.
Our nominees are not associated with Kimmeridge, KTG or the March 13 Proposal. Rather, they are highly skilled independent directors, with a commitment to executing their fiduciary duties – not job preservation. They will evaluate all proposals on a comparable basis and make decisions that are in the best interests of all shareholders.
As we move forward, we will continue to be fully transparent with all shareholders and encourage you to review our materials.
It is our hope that the Board reverses course and starts engaging in a constructive dialogue around our value-enhancing proposal.
Thank you,
Ben Dell, Co-Founder and Managing Partner of Kimmeridge
Additional information
Additional information regarding Kimmeridge's proposal and KTG's asset base, including SilverBow's March 28 letter to Kimmeridge, can be found at www.Kimmeridge.com/sbow/.
About Kimmeridge
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is an alternative asset manager focused on the energy sector. The firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management, proven sustainability track record and proprietary research and data gathering.
Fellow Shareholders,
On March 13, 2024, Kimmeridge delivered a financed, premium proposal to combine Kimmeridge Texas Gas ("KTG") and SilverBow Resources ("SilverBow" or the "Company"), with an associated $500 million equity investment. The combination would create a preeminent pure-play Eagle Ford shale operator with an estimated enterprise value of approximately $3.6 billion. The accretive transaction offers SilverBow shareholders a unique opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford. Unfortunately, weeks have passed and SilverBow has done little to genuinely evaluate this offer.
SilverBow's Misleading Claims Regarding Its Engagement
It is important for shareholders to be aware of the gross mischaracterizations contained in SilverBow's press releases and solicitation materials regarding our most recent engagement with the Company – as it speaks to their lack of credibility.
As SilverBow stated in its solicitation materials, on February 21 Kimmerige met with the SilverBow Board of Directors (the "Board") and presented several options to address the Company's track record of underperformance. This presentation emphasized the importance of scale to the Company's long-term performance and suggested eight different potential strategic transactions the Company could pursue to establish a foundation for long-term value creation. One of the presented options was Kimmeridge's currently announced proposal for a combination with KTG and the associated capital injection.
During this meeting, we were asked by a SilverBow director whether Kimmeridge would put a proposal in writing, to which we responded affirmatively. Following that meeting, on February 26, SilverBow CEO Sean Woolverton called to thank us for the meeting. He claimed that the Board was "open to proposals", and requested a formal proposal for a combination with KTG with confirmation of financing – details conspicuously absent from the description of our engagement in SilverBow's letters to shareholders and SEC filings.
To our surprise on March 1, and prior to our submission of any formal proposal, SilverBow filed a letter to shareholders misrepresenting the historical discussions with Kimmeridge. In our desire to have a constructive dialogue, and hope that the Board was open to considering the best interests of shareholders, we chose to ignore the tone and inaccuracies contained in that filing and formally submitted the requested proposal on March 13 (the "March 13 Proposal").
In the two weeks that followed, none of SilverBow's management team, Board or advisors made any outreach to Kimmeridge or our representatives. Likewise, no one requested access to our pre-populated data room, the draft merger agreement or asked any diligence questions that could have permitted the Board and its advisors to properly evaluate the March 13 Proposal. Other shareholders communicated to us that SilverBow claimed to have been engaging with Kimmeridge during this time period – that is completely false.
We received no communication from SilverBow until after the Company filed its proxy and associated inaccurate press release on March 28. Hours later, SilverBow's CEO sent a letter to Kimmeridge rejecting our proposal and also asking for additional information on KTG, which they could have requested at any time in the preceding weeks, and which we are today gladly providing to the market.
SilverBow's Incumbent Board & Management Strategy
We are puzzled that the Board rejected the March 13 Proposal before evaluating it in an informed manner. In light of the Company's lack of engagement, we cannot help but question the Board's commitment to pursuing the best interests of shareholders. At this point, it appears that the Board and management team are singularly focused on fighting Kimmeridge – at all times and at all costs. Their strategy is to entrench themselves – while summarily rejecting compelling proposals and denying shareholders the right to fiduciaries who will independently analyze opportunities to maximize long-term value.
We have submitted a highly compelling, accretive and credit enhancing premium proposal. Since that time, we have heard from other shareholders regarding their belief in the merits of a combination with KTG, and stand ready to engage in good faith negotiations with the Company. Unfortunately, SilverBow has taken a different course.
Since our February 21 meeting, the Board has dedicated vast resources towards:
Filing a preliminary proxy statement renominating the same incumbent directors;
Undertaking a defensive and minimal refreshment of the Board;
Launching a misleading PR campaign; and
Summarily rejecting our proposal – without conducting necessary due diligence or engagement
It is no surprise that SilverBow's share price declined on March 28 following the Board's rejection of our March 13 Proposal – a day when the Dow Jones Industrial Average hit a record high and virtually every other oil & gas company's share price was up significantly.
We believe that a strong majority of shareholders support authentic engagement and would vote in favor of the March 13 Proposal if the incumbent Board didn't stand in the way. In our view, the Board and management's desire to maintain the status quo (including their positions and compensation) prevents the Board from presenting this value-creating transaction to shareholders.
KTG's High Quality Asset Base
Today we are making available all the information that SilverBow has just requested and more. Shareholders can visit www.Kimmeridge.com/sbow/ to access this information, containing additional detail on KTG's financials and asset base, including well data, operating statistics and inventory maps. We were prepared to share this data with SilverBow earlier in our pre-populated data room, had they requested it before rejecting the March 13 Proposal.
We suspect SilverBow will do little with the data apart from use it to justify their own inaction. However, by publishing the data, shareholders, whose opinions we believe should be heard, will be able to directly compare KTG's assets with those of SilverBow. We hope that SilverBow will publicly disclose the same level of information about its finances and operations.
To briefly summarize, the data set includes the following:
A comparative analysis of well performance based on public data, indicating that KTG's wells have consistently outperformed SilverBow on an EUR per barrel of oil equivalent basis utilizing both a 6:1 conversion, and a 20:1 conversion for natural gas. Kimmeridge has also provided proprietary data on recent wells to the end of February showing that this performance gap has continued and expanded.
Line by line responses to SilverBow's diligence request – investors can clearly compare KTG's performance metrics vs SilverBow.
Current production information. Since the startup of the recent Apollo pad in Karnes County, KTG's net production is now 374 MMcfe/d (80% gas / 11% oil / 9% NGL).
Detailed cost data for the existing asset base. KTG's estimated operating costs for 2024 are $0.44/Mcfe for LOE and taxes, $0.36/Mcfe for GP&T and $0.15/Mcfe for G&A. KTG's estimated drilling and completion costs for 2024 are respectively $223/md ft and $645/CLAT.
Inventory Analysis. Since the formation of KTG in 2022, Kimmeridge has increased its leasehold organically and through acquisition – more than doubling production and acreage – with peer-leading expertise in drilling deep gas wells.
A copy of the Board's letter to Kimmeridge, dated March 28, 2024. Shareholders can consider the Board's artful use of language to describe their failure to make any attempt at a good-faith evaluation of our proposal prior to rejecting it.
The Path Ahead
Kimmeridge believes that its highly-compelling March 13 Proposal is the best opportunity to maximize value for all SilverBow stakeholders. To that end, we would bring our deep operational, financial and transactional expertise to bear on behalf of the combined company – working collaboratively to position the new company for consolidation and related measures to unlock its significant value potential for all. Kimmeridge would also install best-in-class governance and executive compensation practices that limit the existing management team's ability to use owners' capital for their personal enrichment irrespective of performance.
We are confident that our accretive, credit-enhancing transaction presents all SilverBow shareholders with a unique opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford.
Should the Board continue to stonewall, mislead investors, and fail to provide all SilverBow shareholders the full benefit of independent oversight of the management team and assessment of the March 13 Proposal, then we believe the best path forward will be for SilverBow shareholders to elect our three, independent, highly-qualified, nominees to the Board. This will ensure that all paths to value creation for the Company are fully and fairly analyzed.
Our nominees are not associated with Kimmeridge, KTG or the March 13 Proposal. Rather, they are highly skilled independent directors, with a commitment to executing their fiduciary duties – not job preservation. They will evaluate all proposals on a comparable basis and make decisions that are in the best interests of all shareholders.
As we move forward, we will continue to be fully transparent with all shareholders and encourage you to review our materials.
It is our hope that the Board reverses course and starts engaging in a constructive dialogue around our value-enhancing proposal.
Thank you,
Ben Dell, Co-Founder and Managing Partner of Kimmeridge
Additional information
Additional information regarding Kimmeridge's proposal and KTG's asset base, including SilverBow's March 28 letter to Kimmeridge, can be found at www.Kimmeridge.com/sbow/.
About Kimmeridge
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is an alternative asset manager focused on the energy sector. The firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management, proven sustainability track record and proprietary research and data gathering.
Re: SBOW - Kimmeridge Open Letter 4/1/24
dont understand why they dont submit a much higher bid to consider if they think it is worth so much
Re: SBOW - Kimmeridge Open Letter 4/1/24
They don't have the financing and their offer is not cash but a trade of crappy NG assets. The BOD of SBOW already shot it down.
Maybe their real goal is to put this name in play for a real bidder at 40-50 and then they cash out.
Maybe their real goal is to put this name in play for a real bidder at 40-50 and then they cash out.