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Silverbow Resources First Quarter 2022 Results

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   |    Monday,May 09,2022

SilverBow Resources, Inc. announced operating and financial results for the first quarter of 2022.

Highlights:

• Reported net production of 226 million cubic feet of natural gas equivalent per day ("MMcfe/d") (77% natural gas) for the first quarter of 2022, at the midpoint of guidance

• Reported a net loss of $64 million, which includes a net unrealized loss on the value of the Company's derivative contracts of $112 million, Adjusted EBITDA of $74 million and free cash flow ("FCF") of $28 million for the first quarter of 2022. Adjusted EBITDA and FCF are non-GAAP measures defined and reconciled in the tables below

• Reduced total debt by $27 million quarter-over-quarter. Leverage ratio of 1.24x¹ at quarter end; targeting year-end 2022 leverage ratio below 1.0x¹

• SilverBow's Austin Chalk wells in Webb County continue to exceed expectations. Brought online in early 2022 the Company's fourth Austin Chalk well, and two more Austin Chalk wells are currently being completed as part of an eight-well La Mesa pad drilled in the first quarter of 2022

• Increased borrowing base under SilverBow's senior secured revolving credit facility ("Credit Facility") to $525 million as of April 12, 2022; a 14% increase from prior borrowing base

• Announced agreements to acquire the assets of Sundance Energy, Inc. and certain affiliated entities (collectively, "Sundance") for a total consideration of approximately $354 million and SandPoint Operating, LLC, a subsidiary of SandPoint Resources, LLC, (collectively, "SandPoint") for a total consideration of approximately $71 million (the "Acquisitions")

• The Acquisitions are expected to enhance SilverBow's pro forma production, Adjusted EBITDA, FCF and FCF per share while allowing the Company to achieve a leverage ratio of less than 1.0x by year-end 2022

• Updated full year 2022 guidance and upsized borrowing base amount expected to be announced in conjunction with the closing of the Acquisitions

Sean Woolverton, SilverBow's Chief Executive Officer, commented, "First quarter financial results were exceptional, with SilverBow generating $28 million of free cash flow and reducing total debt by $27 million since year-end 2021. In June, we will see a significant ramp in production as we bring online 11 new wells leading to double-digit growth year-over-year on the existing assets with a re-investment rate less than 70%. Strong commodity prices combined with a full rig line of efficiencies have helped drive financial performance above expectations and offset inflation in the service market. With increased liquidity from our upsized borrowing base and strong free cash flow generation, SilverBow is well-positioned to fund future growth and expand its portfolio, both through the drill-bit and through accretive acquisitions."

Mr. Woolverton commented further, "In April, we announced agreements to acquire the assets of Sundance and SandPoint, which we expect to have an immediate impact upon close. The base production, future locations and acreage overlap with our La Salle and McMullen areas drive compelling industrial logic, increase our production and oil mix, and add nearly a decade of high-return inventory spanning Eagle Ford and Olmos zones. These acquisitions are accretive to key financial and operational metrics and allows us to quickly scale our cash flows within a favorable commodity environment while providing SilverBow a platform to continue our consolidation strategy. On a pro forma basis, SilverBow is expected to increase Adjusted EBITDA, further delever the balance sheet and further expand liquidity through an upsized borrowing base."

Operations Highlights

During the first quarter of 2022, SilverBow drilled nine net wells, completed one well and brought one well online. The Company's first quarter activity focused primarily on its La Mesa area, where one Austin Chalk well drilled to a lateral length of approximately 9,800 feet was brought online, representing the longest lateral SilverBow has drilled in the Austin Chalk to date. Additionally, SilverBow drilled an eight-well La Mesa pad, the largest pad in the Company's history. The eight wells were co-developed using a wine-rack configuration, of which three targeted the Lower Eagle Ford, three targeted the Upper Eagle Ford and two targeted the Austin Chalk. First production from this pad is expected towards the end of the second quarter of 2022.

SilverBow's drilling rig will shift its focus from our Webb County Gas and Austin Chalk assets in the first quarter towards our La Salle and McMullen oil assets in the second quarter. In the back half of the year, the Company anticipates drilling a mix of Webb County Gas wells and locations acquired in 2021. SilverBow anticipates adding a second rig upon closing of the Sundance acquisition. The Company continues to optimize its drilling schedule based on commodity prices and first production timing.

Production Details

SilverBow's total net production for the first quarter of 2022 averaged 226 MMcfe/d. Production mix for the first quarter consisted of 77% natural gas, 13% oil and 10% natural gas liquids ("NGLs"). Natural gas comprised 60% of total oil and gas sales for the first quarter, compared to 73% in the first quarter of 2021.

For the first quarter of 2022, lease operating expenses ("LOE") were $0.48 per Mcfe, transportation and processing expenses ("T&P") were $0.31 per Mcfe and production and ad valorem taxes were 6.0% of oil and gas sales. Total production expenses, which include LOE, T&P and production taxes, were $1.18 per Mcfe for the first quarter. Net general and administrative ("net G&A") expenses for the first quarter of 2022 were $4.8 million, or $0.24 per Mcfe. After deducting $1.0 million of non-cash compensation expense, cash general and administrative ("cash G&A") (a non-GAAP measure) expenses were $3.7 million for the first quarter of 2022, or $0.18 per Mcfe.

The Company continues to benefit from strong basis pricing in the Eagle Ford. Crude oil and natural gas realizations in the first quarter were 98% of West Texas Intermediate ("WTI") and 100% of Henry Hub, respectively, excluding hedging. The Company's average realized natural gas price for the first quarter of 2022, excluding hedging, was $4.96 per thousand cubic feet of natural gas ("Mcf") compared to $4.98 per Mcf in the first quarter of 2021. The average realized crude oil selling price in the first quarter of 2022, excluding hedging, was $92.59 per barrel compared to $55.49 per barrel in the first quarter of 2021. The average realized NGL selling price in the first quarter, excluding hedging, was $34.89 per barrel (37% of WTI benchmark) compared to $22.30 per barrel (39% of WTI benchmark) in the first quarter of 2021. Please refer to the tables included with today's news release for production volumes and pricing information.

Financial Results

SilverBow reported total oil and gas sales of $129.7 million for the first quarter of 2022. The Company reported a net loss of $64.3 million, which includes a net unrealized loss on the value of the Company's derivative contracts of $112.0 million.

For the first quarter of 2022, SilverBow generated Adjusted EBITDA (a non-GAAP measure) of $73.9 million and FCF (a non-GAAP measure) of $27.6 million. For the twelve months ended March 31, 2022, the Company reported Adjusted EBITDA for Leverage Ratio (a non-GAAP measure) of $281.4 million, which, in accordance with the Leverage Ratio calculation in its Credit Facility, includes contributions from acquired assets prior to their closing dates totaling $25.3 million.

Capital expenditures incurred during the first quarter of 2022 totaled $40.4 million on an accrual basis.

Second Quarter Guidance

For the second quarter of 2022, SilverBow, on a standalone basis (excluding the Acquisitions), is guiding to estimated production of 219-232 MMcfe/d, with natural gas volumes expected to comprise 175-185 MMcf/d or 80% of total production at the midpoint. The Company plans to release updated 2022 guidance in conjunction with the closing of the Sundance transaction. As always, SilverBow maintains a high degree of flexibility in its drilling schedule as it closely monitors commodity prices and the service cost environment.

Hedging

Hedging continues to be an important element of SilverBow's strategy to protect cash flow. The Company's active hedging program provides greater predictability of cash flows and is structured to preserve exposure to higher commodity prices while staying in compliance with the financial covenants under SilverBow's debt facilities. In conjunction with the acquisition announcements, the Company layered on additional commodity derivatives for oil, natural gas and NGLs.

As of April 29, 2022, SilverBow, on a standalone basis (excluding the production volumes and hedges associated with the Acquisitions), has 131 MMcf/d of natural gas production hedged, 3,929 Bbls/d of oil hedged and 2,780 Bbls/d of NGLs hedged for the remainder of 2022. For 2023, the Company has 134 MMcf/d of natural gas production hedged, 2,873 Bbls/d of oil hedged and 2,250 Bbls/d of NGLs hedged. The hedged amounts are inclusive of both swaps and collars.

Please see SilverBow's Corporate Presentation and Form 10-Q filing for the first quarter of 2022, which the Company expects to file on Thursday, May 5, 2022, for a detailed summary of its derivative contracts.

Capital Structure & Liquidity

As of March 31, 2022, SilverBow's liquidity position was $261.6 million, consisting of $1.6 million of cash and $260.0 million of availability under the Credit Facility. SilverBow's net debt as of March 31, 2022 was $348.4 million, calculated as total long-term debt of $350.0 million less $1.6 million of cash, a $27.5 million, or 7%, decrease from December 31, 2021.

In conjunction with its regularly scheduled semi-annual redetermination, SilverBow entered into the Ninth Amendment to its Credit Facility, effective April 12, 2022, which increased the borrowing base under the Credit Facility to $525 million. Adjusted for the increase to the borrowing base, the Company had $325.0 million of undrawn capacity and $1.6 million of cash, resulting in $326.6 million of liquidity before giving effect to the cash consideration payments for the pending Acquisitions.

As of April 29, 2022, SilverBow had 16.9 million total common shares outstanding.