SilverBow Resources Announces Transformational Acquisition of Chesapeake’s South Texas Position
- SilverBow Resources to acquire Chesapeake Energy's South Texas assets for $700 million, increasing net production and free cash flow in 2024. The acquisition is expected to be immediately accretive to key financial and operating metrics.
- None.
Accelerates SilverBow’s Long-Term Strategic Objectives
The Chesapeake Transaction has an effective date of February 1, 2023 and is expected to close by year-end 2023, subject to satisfaction or waiver of certain customary closing conditions, including the accuracy of the representations and warranties of each party, compliance by each party in all material respects with its covenants and the satisfaction of certain consent requirements.
The Chesapeake Transaction is expected to be funded with cash on hand, borrowings under the Company’s First Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 19, 2017, and amended as of June 22, 2022 (the “Credit Facility”), among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, and the Company’s amended second lien notes (“Second Lien Notes”) led by EIG. In conjunction with the Chesapeake Transaction, the Company has secured
SilverBow plans to hold a conference call to discuss the Chesapeake Transaction at 7:30 a.m. Central Time on Monday, August 14, 2023. Participation details are included within this release.
IMPACT TO SILVERBOW
The estimated impact to SilverBow from the Chesapeake Transaction is described below. SilverBow intends to provide updated guidance in conjunction with the closing of the Chesapeake Transaction.
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Increases expected fourth quarter of 2023 net production to 87,000-99,000 Boe/d (~
50% oil/NGLs) -
Adds critical scale with
~ of pro forma next 12 months EBITDA1$825 -$925 million -
Free cash flow in 2024 expected to increase by more than
80% , driving material accretion to both cash flow per share and free cash flow per share1 - Leverage neutral at year-end 2023 with expected 1.0x leverage ratio forecasted by year-end 20241
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “SilverBow is well positioned to convert this premium resource into tangible value for its stakeholders. The Chesapeake Transaction transforms SilverBow into the largest public pure-play Eagle Ford operator. This acquisition advances all our long-term strategic objectives, by materially increasing our scale, enhancing our decade-plus high-return inventory, improving our capital efficiency and providing balanced commodity exposure, all while maintaining a strong balance sheet.”
Mr. Woolverton continued, “This acquisition is immediately accretive to all key financial and operating metrics, and offers compelling industrial logic that increases the Company’s size and scale by approximately
CHESAPEAKE
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Adds ~42,000 net acres in
Dimmit andWebb counties across the highly prolific, liquids-heavy window ofSouth Texas -
Expected production of ~31,000-33,000 Boe/d (~
60% oil/NGLs) for the fourth quarter of 2023 -
~ of Proved Developed Producing (“PDP”) PV-10 reserves value2 compared to the$850 million purchase price$700 million - ~300 additional high-confidence drilling locations across the Austin Chalk and Eagle Ford formations which immediately compete for capital
STRATEGIC RATIONALE
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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 EBITDA1 with a >
20% unlevered free cash flow yield1,3, 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
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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% 1 - Maintains Balance Sheet Strength: Conservative pro forma leverage profile and incremental free cash flow generation provides a path to a return of capital strategy
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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
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
CONFERENCE CALL INFORMATION, INVESTOR PRESENTATION AND OTHER DETAILS
The Company plans to host a conference call to discuss the Chesapeake Transaction at 7:30 a.m. Central Time on Monday, August 14, 2023. To participate in the call, please dial 888-415-4465 (
SilverBow has posted a transaction presentation under the “Investor Relations” section of the Company’s website. Investors are encouraged to review for additional details and information.
Further terms of the Chesapeake Transaction are set forth in the Purchase Agreement, which will be filed by SilverBow with the Securities and Exchange Commission (“SEC”) and will be available for viewing under www.sec.gov or on the Company’s website.
ADVISORS
Mizuho Securities is serving as financial advisor to SilverBow. Legal advisors for SilverBow include Gibson, Dunn & Crutcher LLP on the Chesapeake Transaction and Vinson & Elkins LLP on the debt financing.
ABOUT SILVERBOW RESOURCES, INC.
SilverBow Resources, Inc. (NYSE: SBOW) is a
FORWARD-LOOKING STATEMENTS
This release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent management's expectations or beliefs concerning future events, and it is possible that the results described in this release will not be achieved. These forward-looking statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this press release, including those regarding our strategy, the anticipated benefits of the Chesapeake Transaction, future productions and reserves, including the present value thereof, of SilverBow and the Chesapeake South Texas Assets, 2023 guidance and preliminary outlook for SilverBow and the Chesapeake South Texas Assets, financial position, including anticipated borrowings and availability under the Credit Facility, well expectations and drilling plans, expected oil and natural gas pricing, capital expenditures, budget, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “budgeted,” “guidance,” “expect,” “may,” “continue,” “predict,” “potential,” “plan,” “project,” “should” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risks and uncertainties: further actions by the members of the Organization of the Petroleum Exporting Countries,
All forward-looking statements speak only as of the date of this news release. You should not place undue reliance on these forward-looking statements. The Company’s capital budget, operating plan, service cost outlook and development plans are subject to change at any time. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this release are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. The risk factors and other factors noted herein and in the Company's SEC filings could cause its actual results to differ materially from those contained in any forward-looking statement. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to publicly release the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, except as required by law.
(Footnotes)
- Reference to non-GAAP financial measure(s), the definitions of which appear at the end of this release
- Based on management's estimates of reserve volumes and values based on a 2/1/23 effective date and NYMEX strip pricing as of 8/4/23
- Unlevered free cash flow yield is estimated by dividing the Chesapeake South Texas asset EBITDA minus CAPEX for the referenced time period by the purchase price (excluding contingent payments)
(Definition of Non-GAAP Measures as Calculated by the Company) (Unaudited)
The following non-GAAP measures are presented in this news release as SilverBow believes these metrics and performance measures are widely used by the investment community, including investors, research analysts and others, to evaluate and useful in comparing investments among upstream oil and gas companies in making investment decisions or recommendations. These measures, as presented, may have differing calculations among companies and investment professionals and may not be directly comparable to the same measures provided by others. A non-GAAP measure should not be considered in isolation or as a substitute for the related GAAP measure or any other measure of a company's financial or operating performance presented in accordance with GAAP. These measures may not be comparable to similarly titled measures of other companies.
EBITDA: The Company presents EBITDA attributable to common stockholders in addition to reported net income (loss) in accordance with GAAP. EBITDA is calculated as net income (loss) plus (less) depreciation, depletion and amortization, accretion of asset retirement obligations, interest expense, impairment of oil and natural gas properties, net losses (gains) on commodity derivative contracts, amounts collected (paid) for commodity derivative contracts held to settlement, income tax expense (benefit); and share-based compensation expense. EBITDA excludes certain items that SilverBow believes affect the comparability of operating results, including items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. EBITDA is used by the Company's management and by external users of SilverBow's financial statements, such as investors, commercial banks and others, to assess the Company's operating performance as compared to that of other companies, without regard to financing methods, capital structure or historical cost basis. It is also used to assess SilverBow's ability to incur and service debt and fund capital expenditures. EBITDA should not be considered an alternative to net income (loss), operating income (loss), cash flows provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Company has provided forward-looking next 12 months EBITDA estimate; however, SilverBow is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure because the items necessary to estimate such forward-looking GAAP measure are not accessible or estimable at this time without unreasonable efforts. The reconciling items in future periods could be significant.
Free Cash Flow, Free Cash Flow Yield and Free Cash Flow per Share: Free cash flow is calculated as EBITDA (defined above) plus (less) monetized derivative contracts, cash interest expense, capital expenditures and current income tax (expense) benefit. The Company believes that free cash flow is useful to investors and analysts because it assists in evaluating SilverBow's operating performance, and the valuation, comparison, rating and investment recommendations of companies within the oil and gas industry. Free cash flow yield is calculated by taking free cash flow divided by the market capitalization of the Company at a given date. Free cash flow per share is calculated by taking free cash flow divided by the number of common shares outstanding of the Company at a given date. SilverBow uses this information as one of the bases for comparing its operating performance with other companies within the oil and gas industry. Free cash flow should not be considered an alternative to net income (loss), operating income (loss), cash flows provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. The Company has provided forward-looking free cash flow, free cash flow yield and free cash flow per share estimates; however, SilverBow is unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most directly comparable forward-looking GAAP measure because the items necessary to estimate such forward-looking GAAP measure are not accessible or estimable at this time without unreasonable efforts. The reconciling items in future periods could be significant.
Total Debt to EBITDA (Leverage Ratio): Leverage Ratio is calculated as total debt, defined as long-term debt excluding unamortized discount and debt issuance costs, divided by EBITDA (defined above) for the most recently completed 12-month period. The Company has provided a forward-looking Leverage Ratio estimate; however, SilverBow is unable to provide a quantitative reconciliation of this forward-looking non-GAAP measure to the most directly comparable forward-looking GAAP measure because the items necessary to estimate such forward-looking GAAP measure are not accessible or estimable at this time without unreasonable efforts. The reconciling items in future periods could be significant.
PV-10: PV-10 is a non-GAAP measure that represents the estimated future net cash flows from estimated proved reserves discounted at an annual rate of 10 percent before giving effect to income taxes. PV-10 is most comparable to the Standardized Measure which represents the discounted future net cash flows of the after-tax estimated future cash flows from estimated proved reserves discounted at an annual rate of 10 percent, determined in accordance with GAAP. The Company uses non-GAAP PV-10 value as one measure of the value of its estimated proved reserves and to compare relative values of proved reserves amount exploration and production companies without regard to income taxes. Management believes PV-10 value is a useful measure for comparison of proved reserve values among companies because, unlike standardized measure, it excludes future income taxes that often depend principally on the characteristics of the owner of the reserves rather than on the nature, location and quality of the reserves themselves. The Company has provided a PV-10 estimate; however, SilverBow is unable to provide a quantitative reconciliation of this non-GAAP measure to the most directly comparable GAAP measure because the items necessary to estimate such GAAP measure are not accessible or estimable at this time without unreasonable efforts. The reconciling items in future periods could be significant.
Re-Investment Rate: Re-investment rate is calculated as capital expenditures divided by the sum of capital expenditures and free cash flow (defined above) for a given time period. SilverBow believes that re-investment rate is useful to investors because it reflects the magnitude of capital needed to be invested back into the Company's operations, relative to the total potential cash flows to which stakeholders could have received. Within the oil and gas industry, shale development typically requires substantial, ongoing capital investments to sustain production due to the nature of high-decline rates in shale wells. SilverBow uses re-investment rate to supplement its analysis of future capital investments to the business against returns for stakeholders. Re-investment rate could vary in definition from company to company, and a higher or lower measure does not necessarily indicate better or worse; therefore re-investment rate should not be considered an alternative to operating income (loss), cash flows provided by (used in) operating activities, cash flows provided by (used in) investing activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230814274368/en/
Jeff Magids
Vice President of Finance & Investor Relations
(281) 874-2700, (888) 991-SBOW
Source: SilverBow Resources, Inc.
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