Strategic Acquisitions of Liquids-Weighted
Assets in Western Eagle Ford
Meaningfully Increases Size and Scale
Overlapping, Contiguous Acreage Positions Drive
Compelling Industrial Logic
Accretive to Key Financial & Operational
Metrics
SilverBow Resources, Inc. (NYSE: SBOW) (“SilverBow” or “the
Company”) announced today it has entered into a definitive
agreement to acquire substantially all of the assets of Sundance
Energy, Inc. and certain affiliated entities (collectively,
“Sundance”) for a total purchase price of $354 million and up to
$15 million of contingent payments based on future commodity
prices. The Sundance transaction, which is expected to close in the
third quarter of 2022, has been unanimously approved by the Boards
of Directors of both companies. The closing of the transaction is
subject to SilverBow shareholder approval and satisfaction or
waiver of customary closing conditions.
SilverBow also announced today that it has entered into a
definitive agreement to acquire certain assets from SandPoint
Operating, LLC, a subsidiary of SandPoint Resources, LLC,
(collectively, “SandPoint") for a total purchase price of $71
million. The oil and gas assets target the Eagle Ford and Olmos
formations in La Salle and McMullen counties. The SandPoint
transaction has been unanimously approved by the Boards of
Directors of both companies and is expected to close in the second
quarter of 2022, subject to customary closing conditions.
Sundance Overview:
- Compelling industrial logic given highly contiguous acreage to
SilverBow’s existing position; adds 39,000 net acres in Atascosa,
La Salle, McMullen and Live Oak counties
- January 2022 net production of 11,100 Boe/d (84% liquids / 65%
oil)
- Proved Developed Producing (“PDP”) PV-10 of approximately $277
million1
- Approximately 200 gross / 155 net de-risked, high return
locations with IRRs exceeding 200% at 4/6/22 NYMEX strip
pricing
- 2022E Adjusted EBITDA of approximately $170 million2,3,
implying an attractive 2.1x purchase price multiple. Expected to
add significant free cash flow (“FCF”) in 2022
SandPoint Overview:
- Contiguous acreage in La Salle and McMullen counties, with
~27,000 net acres
- May 2022E net production of 4,650 Boe/d (70% gas, 30% liquids)
with two new wells expected to be coming online in the second
quarter of 2022
- PDP PV-10 of approximately $89 million1
- Approximately 45 gross / 44 net de-risked, high return
locations with IRRs exceeding 80% at 4/6/22 NYMEX strip
pricing
- 2022E Adjusted EBITDA of approximately $29 million2,3, implying
an attractive 2.4x purchase price multiple
Pro Forma Company Including Sundance and
SandPoint:
- Projected full year 2022 key metrics4:
- Net production of 300-330 MMcfe/d (64% gas)
- Adjusted EBITDA of $490-$530 million
- Capital expenditures of $260-$300 million
- FCF of $180-$250 million
- Increases 2022E FCF per share by approximately 50% compared to
standalone SilverBow2,3
- Conservative leverage profile targeting total debt to Adjusted
EBITDA less than 1.0x by YE22
- Double-digit annual production growth with less than 60%
re-investment rate through 2024, expected to generate greater than
$1.0 billion of FCF2,4 during the same time period
- Increases SilverBow’s acreage footprint by 50% to approximately
198,000 net acres
- Deep inventory of more than 645 gross / 507 net high-return
locations across the Company’s Eagle Ford and Austin Chalk focus
areas
- Pro forma PDP reserves of approximately 750 Bcfe and PDP PV-10
of $1.6 billion1,2
- Estimated annual synergies of approximately $15 million with
further potential savings upon integration. Synergies not included
in metrics presented
- SilverBow intends to run one drilling rig on the acquired
assets starting in the second half of 2022 in addition to the one
rig SilverBow is currently running
- Updated full year 2022 guidance and expected upsized borrowing
base amount to be announced in conjunction with the closing of both
transactions
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s Chief Executive Officer, commented,
“SilverBow has a disciplined approach towards growth based on our
strict investment criteria. Today’s transformative news builds on
our recent series of transactions while advancing a number of our
strategic objectives. These deals mark the fourth and fifth
acquisitions we have announced since the second half of last year,
which cumulatively total over $550 million of transaction value. We
are significantly increasing SilverBow’s size, scale and cash flow
while maintaining a conservative balance sheet and a leverage ratio
of less than 1.0x by year-end 2022. Pro forma for the transactions,
liquids production will comprise a third of our production mix,
allowing us to capture margin uplift from the current strength in
liquids pricing. SilverBow will now have even greater optionality
to allocate capital between both oil and gas development, which has
been a cornerstone of the Company’s strategy over the last few
years.”
Mr. Woolverton commented further, “There is strong industrial
logic for these acquisitions as the acreage overlap will allow
SilverBow to drive synergies and optimize development plans. We
estimate we have the ability to generate approximately $450 million
of incremental free cash flow through 2024, with total SilverBow
pro forma free cash flow greater than a $1.0 billion. We have
already identified approximately $15 million of annual synergies
through a combination of operational and corporate efficiency
gains. The significant production and cash flow from existing
wells, coupled with a conservative balance sheet and ample
liquidity, positions SilverBow to self-fund high rate of return
projects and simultaneously further our consolidation efforts.
While we have created significant shareholder value to-date, we are
excited about the prospects that lie ahead. We look forward to
integrating our latest transactions and continuing to unlock value
for our stakeholders moving forward.”
SUNDANCE TRANSACTION DETAILS AND FUNDING
The Sundance transaction has an effective date of May 1, 2022
and is expected to close in the third quarter of 2022. The
aggregate purchase price of approximately $354 million consists of
$225 million in cash, subject to customary closing adjustments, and
4.1 million shares of SilverBow common stock valued at $129 million
based on its 30-day volume weighted average price as of April 8,
2022. Up to an additional $15 million dollars of contingent
payments may be payable to Sundance based upon future commodity
prices. In addition to customary closing adjustments, SilverBow
will benefit from a $16.5 million downward adjustment to cash
consideration at close related to the assumption of Sundance’s
existing hedge book. SilverBow intends to fund the cash portion of
the consideration, fees and expenses with cash on hand and
borrowings under its revolving credit facility.
SANDPOINT TRANSACTION DETAILS AND FUNDING
The SandPoint acquisition also has an effective date of May 1,
2022 and is expected to close in the second quarter of 2022. The
aggregate purchase price of approximately $71 million consists of
$31 million in cash, subject to customary closing adjustments, and
1.3 million shares of SilverBow common stock valued at $40 million
based on its 30-day volume weighted average price as of April 8,
2022. SilverBow intends to fund the cash portion of the
consideration, fees and expenses with cash on hand and borrowings
under its revolving credit facility.
INVESTOR PRESENTATION AND OTHER DETAILS
SilverBow has posted a presentation highlighting the
transactions under the “Investor Relations” section of the
Company’s website, www.sbow.com. Investors are encouraged to access
and review the transaction presentation for additional details and
information.
ADVISORS
Barclays is serving as financial advisor to SilverBow on the
Sundance transaction. Gibson, Dunn & Crutcher, LLP is serving
as legal advisor to SilverBow on both transactions.
Piper Sandler & Co. and TD Securities (USA) LLC are serving
as financial advisors to Sundance. Kirkland & Ellis LLP is
serving as legal advisor to Sundance.
Latham & Watkins, LLP is serving as legal advisor to
SandPoint.
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 which it leverages to assemble high quality
drilling inventory while continuously enhancing its operations to
maximize returns on capital invested. For more information, please
visit www.sbow.com. Information on the Company’s website is not
part of this release.
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 benefits of the
transactions, closing of the transactions, our strategy, future
operations, 2022 guidance and preliminary outlook for SilverBow and
the acquired assets, financial position, well expectations and
drilling plans, estimated production levels, expected oil and
natural gas pricing, estimated oil and natural gas reserves or the
present value thereof, reserve increases, future free cash flow and
expected leverage ratio, capital expenditures, budget, projected
costs, prospects, plans and objectives of management are
forward-looking statements. When used in this report, the words
“could,” “believe,” “anticipate,” “intend,” “estimate,” “budgeted,”
"guidance," “expect,” “may,” “continue,” “predict,” “potential,”
“preliminary,” “plan," “project” 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,
risks and uncertainties discussed in the Company’s reports filed
with the SEC.
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. The issuance of the stock consideration in the
Sundance transaction requires approval of SilverBow stockholders in
accordance with the listing rules of the New York Stock Exchange,
and the Company cannot provide assurances on the timing or outcome
of that approval. 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)
- Based on management’s estimates of reserve volumes and values
based on a 5/1/22 effective date and NYMEX strip prices as
4/5/22.
- Reference to non-GAAP financial measure(s), the definitions of
which appear at the end of this release.
- Financial measures represent full year 2022 results, not actual
contribution to SilverBow.
- Based on management’s estimates utilizing NYMEX strip prices as
of 4/5/22. Assumes a full year of results from SilverBow, Sundance
assets and SandPoint assets. Does not represent 2022 guidance for
SilverBow. Expected SilverBow reported 2022 results will be lower
than Pro Forma based on the effective and closing dates of each
transaction.
(Definition of Non-GAAP Measures as Calculated
by the Company) (Unaudited)
The following non-GAAP measures are presented in addition to
financial statements 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. A reconciliation of each of these non-GAAP measures to the
most directly comparable GAAP measure or measures is presented
below. These measures may not be comparable to similarly titled
measures of other companies.
Adjusted EBITDA: The Company presents Adjusted EBITDA
attributable to common stockholders in addition to reported net
income (loss) in accordance with GAAP. Adjusted 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.
Adjusted 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. Adjusted 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. Adjusted 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. Adjusted EBITDA is important as it is
considered among the financial covenants under the Company's First
Amended and Restated Senior Secured Revolving Credit Agreement with
JPMorgan Chase Bank, National Association, as administrative agent,
and certain lenders party thereto (as amended, the “Credit
Agreement”), a material source of liquidity for SilverBow. Please
reference the Company's 2021 Form 10-K and subsequent 8-Ks for
discussion of the Credit Agreement and its covenants. The Company
has provided forward-looking Adjusted EBITDA 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.
Free Cash Flow and Free Cash Flow per Share: Free cash
flow is calculated as Adjusted 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 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 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 Adjusted EBITDA (Leverage Ratio): Leverage
Ratio is calculated as total debt, defined as long-term debt
excluding unamortized discount and debt issuance costs, divided by
Adjusted 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
FCF (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.
Additional Information and Where to Find It
This communication does not constitute an offer to buy, or
solicitation of an offer to sell, any securities of SilverBow. This
communication relates to a proposed transaction involving SilverBow
and Sundance that will become the subject of a proxy statement to
be filed with the U.S. Securities and Exchange Commission (the
“SEC”) that will provide full details of the proposed transaction
and the attendant benefits and risk. This communication is not a
substitute for the proxy statement or any other document that
SilverBow may file with the SEC or send to its shareholders in
connection with the proposed transaction. INVESTORS AND
SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT SILVERBOW AND THE PROPOSED
TRANSACTION. Investors and shareholders will be able to obtain
these materials (when they are available) and other documents filed
with the SEC free of charge at the SEC’s website, www.sec.gov. In
addition, copies of the proxy statement and other relevant
documents (when they become available) may be obtained free of
charge by accessing SilverBow’s website at www.sbow.com by clicking
on the “Investors” link, or upon written request to SilverBow, 920
Memorial City Way, Suite 850, Houston, Texas 77024, Attention:
Investor Relations. Shareholders may also read and copy any
reports, statements and other information filed by SilverBow with
the SEC, at the SEC at 1-800-SEC-0330 or on the SEC’s website.
Participants in the Solicitation
SilverBow and certain of its directors, executive officers and
other members of management and employees may be deemed to be
participants in the solicitation of proxies from shareholders in
respect of the transaction under the rules of the SEC. Information
regarding SilverBow’s directors and executive officers is available
in its definitive proxy statement filed with the SEC on March 30,
2022 in connection with its 2022 annual meeting of shareholders.
Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
SilverBow’s proxy statement and other relevant materials to be
filed with the SEC when they become available. Investors should
read the proxy statement and other relevant documents carefully
when they become available before making any voting or investment
decisions.
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version on businesswire.com: https://www.businesswire.com/news/home/20220414005335/en/
Jeff Magids Director of Finance & Investor Relations (281)
874-2700, (888) 991-SBOW
SilverBow Resources (NYSE:SBOW)
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