Silverbow fundamentals
Posted: Mon Apr 15, 2024 2:01 pm
Silverbow ranks in the top 5 of the 72 companies that I track. Due to the ongoing Kimmeridge saga, little attention is been paid to the medium-term Silverbow fundamentals. Silverbow is a small company with ample reserves, growing production, a mediocre balance sheet and good profitable. It will provide no shareholder returns in 2024/2025.
Size
Silverbow is a small cap. Market value is $ 850 M. Daily 350-400 K shares (1.2-1.4% of the 25.7 M total) are traded.
Reserves
Proven reserves are 448 M BoE (2.675 tcfe) consisting of 21.3% oil, 16.0% NGL and 62.7% gas
Reserves are equivalent to an ample 13.5 years of 2024 production, well above industry average of 9.5-10.0 years.
2023 RRR was -2.20, mainly due to -0.42 tcf de-booking of gas reserves. The gas de-booking reflected lower gas prices and changes in 5-year development plans.
The reserves allow ample growth of production.
Production
Production will grow by 52.4% from 59.3 K BoE/d (2023) to 90.4 K BoE/d (2024) and to 100-105 K BoE/d thereafter. The outlook for 2024 is 85.2-95.3 K BoE/d.
Most of the 2024 growth (32 K BoE/d) stems from the $ 700 M Q4 2023 Eagleford acquisition from Chesapeake.
Silverbow is focusing on liquids. Liquid production (oil +73%, NGL +97%) grows faster in 2024 than gas production (+34%). 28% of the 2024 production is oil and 18% NGL.
In 2024 59% of the oil and 79% of the gas production are hedged. This reduces to 35% and 50% in 2025. Silverbow is not sensitive to the current low gas prices.
Balance sheet
The balance sheet is an area of concern.
Solvency is 43.5% (2023) and needs to be restored to well above 50%. For this $ 270-300 M is required. Debt/EBITDA late 2023 was a high 1,172/860 = 1.77.
With the FCF 100% committed to the balance sheet, assuming WTI=$ 80/bbl, the debt/EBITDA can reduce to 1.29 (late 2024) and to 0.99 (late 2025). The solvency can increase to 47.7% (late 2024) and to 52.6% (late 2025).
No earl shareholder returns are possible in 2024/2025. Shareholder returns can start earliest in Q1 2026.
Profitability
With WTI = $80-85/bbl and HH =$ 2.36/MM Btu, Silverbow can earn in 2024 $270-280 M (eps = $ 10.61-10.90 and PE = 3.0-3.1). The low PE reflects the state of the balance sheet.
Unit costs - in view of the gas content – are highish at $ 26/BoE.
In the unit costs, $ 5/BOE is due to the $ 130 M/year interest payments.
Silverbow is a profitable company. Profitability can improve with down payments on the debt and reduced interest rates.
Shareholder returns
The balance sheet does not allow returns of funds to shareholder in 2024/2025
If in 2026 40% of the FCF would be directed to shareholders, then this can equate to $ 5.00 per share or a very high yield of 16%.
The 2026 PE should reflects this and the share price therefor should increase considerable in 2024/2025.
Conclusion
After the $ 700 Eagleford acquisition, Silverbow will needs two years (until early 2026) to get its financial house in order. In 2026 Silverbow will be an attractive investment.
Silverbow is a good investment for shareholders with patience and a medium long investment horizon.
The merger saga with Kimmeridge Texas Gas should be laid to rest at the upcoming annual meeting on the 21st of May.
Size
Silverbow is a small cap. Market value is $ 850 M. Daily 350-400 K shares (1.2-1.4% of the 25.7 M total) are traded.
Reserves
Proven reserves are 448 M BoE (2.675 tcfe) consisting of 21.3% oil, 16.0% NGL and 62.7% gas
Reserves are equivalent to an ample 13.5 years of 2024 production, well above industry average of 9.5-10.0 years.
2023 RRR was -2.20, mainly due to -0.42 tcf de-booking of gas reserves. The gas de-booking reflected lower gas prices and changes in 5-year development plans.
The reserves allow ample growth of production.
Production
Production will grow by 52.4% from 59.3 K BoE/d (2023) to 90.4 K BoE/d (2024) and to 100-105 K BoE/d thereafter. The outlook for 2024 is 85.2-95.3 K BoE/d.
Most of the 2024 growth (32 K BoE/d) stems from the $ 700 M Q4 2023 Eagleford acquisition from Chesapeake.
Silverbow is focusing on liquids. Liquid production (oil +73%, NGL +97%) grows faster in 2024 than gas production (+34%). 28% of the 2024 production is oil and 18% NGL.
In 2024 59% of the oil and 79% of the gas production are hedged. This reduces to 35% and 50% in 2025. Silverbow is not sensitive to the current low gas prices.
Balance sheet
The balance sheet is an area of concern.
Solvency is 43.5% (2023) and needs to be restored to well above 50%. For this $ 270-300 M is required. Debt/EBITDA late 2023 was a high 1,172/860 = 1.77.
With the FCF 100% committed to the balance sheet, assuming WTI=$ 80/bbl, the debt/EBITDA can reduce to 1.29 (late 2024) and to 0.99 (late 2025). The solvency can increase to 47.7% (late 2024) and to 52.6% (late 2025).
No earl shareholder returns are possible in 2024/2025. Shareholder returns can start earliest in Q1 2026.
Profitability
With WTI = $80-85/bbl and HH =$ 2.36/MM Btu, Silverbow can earn in 2024 $270-280 M (eps = $ 10.61-10.90 and PE = 3.0-3.1). The low PE reflects the state of the balance sheet.
Unit costs - in view of the gas content – are highish at $ 26/BoE.
In the unit costs, $ 5/BOE is due to the $ 130 M/year interest payments.
Silverbow is a profitable company. Profitability can improve with down payments on the debt and reduced interest rates.
Shareholder returns
The balance sheet does not allow returns of funds to shareholder in 2024/2025
If in 2026 40% of the FCF would be directed to shareholders, then this can equate to $ 5.00 per share or a very high yield of 16%.
The 2026 PE should reflects this and the share price therefor should increase considerable in 2024/2025.
Conclusion
After the $ 700 Eagleford acquisition, Silverbow will needs two years (until early 2026) to get its financial house in order. In 2026 Silverbow will be an attractive investment.
Silverbow is a good investment for shareholders with patience and a medium long investment horizon.
The merger saga with Kimmeridge Texas Gas should be laid to rest at the upcoming annual meeting on the 21st of May.