Quarterly / Earnings Reports | Second Quarter (2Q) Update

Silverbow Resources Reports Q2 2019 Results

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SilverBow Resources, Inc. announced operating and financial results for the second quarter of 2019.

Highlights include:

• Net production averaged approximately 235 million cubic feet of natural gas equivalent per day ("MMcfe/d"), coming in above the high end of guidance
• Net liquids production averaged approximately 9,100 barrels per day ("Bbls/d"), 49% of which was oil, exceeding the high end of guidance. Net liquids production increased 43% and 136% over the first quarter of 2019 and the second quarter of 2018, respectively
• Drilled six net wells and completed 12 net wells as the Company continues to create greater operational efficiencies and execute on its liquids-focused development program, primarily in the La Salle Condensate area
• Added approximately 1,000 net acres directly offsetting the Company's prolific Fasken property, which provides for 12 high-return, long-lateral locations
• Recently completed the Hayes two-well pad in McMullen Oil area with 30-day pad rate of 2,560 gross barrels of oil equivalent per day ("Boe/d") (85% liquids) and Briggs three-well pad in La Salle Condensate area with 30-day pad rate of 2,930 gross Boe/d (75% liquids)
• Reiterating full-year 2019 capital expenditure guidance of $250-$260 million and tightening full-year 2019 production guidance to 230-234 MMcfe/d, with the midpoint unchanged from prior guidance
• Oil and gas revenue of $74.7 million, net income of $64.7 million, and Adjusted EBITDA (as defined herein) (a non-GAAP measure) of $58.4 million
• Lease operating expenses ("LOE") of $0.23/Mcfe for the quarter, comparing favorably to guidance. Full-year 2019 guidance range reduced from $0.30-$0.33/Mcfe to $0.24-$0.26/Mcfe
• Cash general and administrative expenses of $5.0 million (a non-GAAP measure calculated as $6.6 million in net general and administrative costs less $1.6 million of share-based compensation), or $0.23/Mcfe, in line with guidance
• Average realized prices for crude oil and natural gas were 103% and 101% of West Texas Intermediate ("WTI") and Henry Hub, respectively, excluding hedging, as a result of favorable basis pricing in the Eagle Ford
• Adjusted EBITDA margin of 78% for the quarter driven by significant increase in liquids production while maintaining low operating expenses
• Balance sheet remains strong with $140 million of liquidity as of June 30, 2019

Sean Woolverton, SilverBow's Chief Executive Officer, commented, "Our second quarter highlights the quality of SilverBow's oil and liquids-rich assets. Through the first half of the year, we have successfully delivered some of our strongest wells to date in the La Salle Condensate and McMullen Oil areas. Total oil and natural gas liquids ("NGL") production averaged approximately 9,100 Bbls/d, a 43% and a 136% increase compared to last quarter and one year ago, respectively. Further, liquids volumes comprised 23% of our overall production, compared to just 14% of our overall production one year ago. The greater emphasis on liquids production, coupled with strong operational performance, led to an 87% increase in Adjusted EBITDA compared to one year ago."

Mr. Woolverton commented further, "SilverBow is a returns-driven operator, and continues to build a single basin asset model with the ability to allocate capital towards either oil or gas development depending on prevailing product prices. Our asset base is under-pinned by a low-cost structure and proximity to premium Gulf Coast markets. SilverBow's execution and capital allocation over the past year exemplifies the Company's ability to deliver on its strategy amidst a volatile commodity price environment."

Operation Highlights

During the second quarter, the Company drilled six gross (six net) wells while completing 12 gross (12 net) wells and bringing 16 gross (15 net) wells online. Activity primarily focused on the La Salle Condensate area where seven net wells were completed during the quarter. The Company remains focused on capital efficiencies while optimizing well designs. For the second quarter, the Company realized an 28% improvement in drilling times over the full-year 2018 average, resulting in an average cost per lateral foot of $267, a 27% decrease over the same time frame. On the completions side, the Company averaged eight stages per day, an 80% increase over the full-year 2018 average, and lowered completion costs per well by 43% over the same time frame.

The Company continues to see strong results in its McMullen Oil and La Salle Condensate assets. The Hayes two-well pad in the McMullen Oil area was brought online early in the second quarter, and produced a 30-day per well average of 1,280 Boe/d (85% liquids). Both Hayes wells exceeded 11,000 feet in lateral length, while utilizing 2,400 pounds of proppant and 50 barrels of fluid per lateral foot. To date, both wells are performing in-line with the McMullen Oil area type curve on a per lateral foot basis. The Company plans to complete three additional McMullen Oil wells in the second half of the year. In the La Salle Condensate area, the Company completed its Briggs three-well pad, which was brought online in late May and produced a 30-day per well average of 977 Boe/d (75% liquids). The Company completed the three wells in an average of nine days, with costs coming in 10% below expectations.

Production, Realized Prices

The Company's total net production for the second quarter averaged approximately 235 MMcfe/d, which was above the high end of guidance. Production mix for the second quarter consisted of approximately 77% natural gas, 12% NGLs, and 11% oil. Liquids comprised 42% of total revenue for the second quarter, compared to 29% in the second quarter of 2018.

Lease operating expenses of $0.23/Mcfe for the second quarter were lower than the $0.26/Mcfe reported in the second quarter of 2018, a decrease of 11%. Lease operating expenses for the second quarter came in below the low end of the Company's guidance range, primarily driven by the continued focus on cost reduction initiatives and surface efficiency improvements. The Company's commitment to being a low-cost operator is evident even as its operations have become more liquids-focused.

After deducting $1.6 million of non-cash compensation expense, cash general and administrative costs of $5.0 million for the second quarter compared favorably to guidance.

Transportation and processing expenses came in at $0.31/Mcfe while production and ad valorem taxes were 5.3% of oil and gas revenue for the second quarter. Both metrics also came in at or below the low end of the Company's guidance range.

The Company continues to benefit from strong basis pricing in the Eagle Ford. Average realized prices for crude oil and natural gas were 103% and 101% of WTI and Henry Hub, respectively, excluding hedging. The Company's average realized natural gas price, excluding the effect of hedging, was $2.66/Mcf compared to $2.93/Mcf in the second quarter of 2018. The average realized crude oil selling price, excluding the effect of hedging, was $61.60/Bbl compared to $68.53/Bbl in the second quarter of 2018. The average realized NGL selling price in the quarter was $14.53/Bbl, compared to $25.36/Bbl in the second quarter of 2018.

Financial Results

The Company reported total oil and gas revenue of $74.7 million for the second quarter, up 45% over the second quarter of 2018. On a GAAP basis, the Company reported net income of $64.7 million for the second quarter of 2019, which includes an unrealized gain on the value of the Company's hedge portfolio of $24.9 million and a $20.7 million net deferred tax benefit resulting from the release of a valuation allowance against our net deferred tax assets.

The Company reported Adjusted EBITDA of $58.4 million for the second quarter, up 87% over the second quarter of 2018. On a per unit basis, the Company's reported Adjusted EBITDA of $2.73/Mcfe for the second quarter came in 27% higher than the second quarter of 2018.

Capital expenditures incurred during the second quarter totaled approximately $70 million.

Adjusted EBITDA is a non-GAAP financial measure. Please see the tables included with today's news release for a reconciliation of net income to Adjusted EBITDA.

2019 Guidance

The Company reaffirmed its full-year capital budget range of $250-$260 million, and tightened its full-year equivalent production guidance to 230-234 MMcfe/d, with the midpoint unchanged from prior guidance. The liquids component for full-year 2019 has increased by approximately 800 Bbls/d while the gas component has decreased by 5,000 Mcf/d. For the third quarter, the Company is guiding for average estimated production of 236-240 MMcfe/d, with average estimated liquids production over 10,500 Bbls/d at the midpoint. Total liquids volumes for full-year 2019 are expected to comprise 24% of production, an increase from prior full-year guidance of 22%. On the cost side, the range for full-year 2019 operating expenses has been reduced even as the liquids component grows as a percentage of the Company's total production.

The Company continued to run one super-spec drilling rig for the second quarter, focused on liquids-rich areas, and anticipates remaining at one rig for the balance of the year. The Company expects to drill 26-27 net wells and to complete 30-31 net wells for full-year 2019, and retains considerable flexibility to modify its drilling program based on well results, commodity prices and other strategic opportunities. Additional detail concerning the Company's third quarter and full-year financial and operational guidance can be found in the table included with today's news release and the Corporate Presentation uploaded to the Investor Relations section of the Company's website.

Hedging

Hedging continues to be an important element of SilverBow's strategy. The Company maintains an active hedging program to provide predictable cash flows while still allowing for flexibility in capturing price increases. As of June 30, 2019, the Company had approximately 68% of total estimated production volumes hedged for the remainder of 2019, using the midpoint of production guidance. The Company continues to layer on additional hedges when prices are favorable, including both oil and gas basis. Please see the Company's Form 10-Q filing for the second quarter of 2019, which the Company expects to file on Thursday, August 8, 2019, for a detailed summary of its derivative contracts.

Liquidity

The Company's liquidity as of June 30, 2019, was $140 million, primarily consisting of approximately $3 million of cash and $137 million of availability under the Company's credit facility. As of August 1, 2019, the Company had 11.8 million total common shares outstanding.