Drilling & Completions | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Hedging | Capital Markets | Capital Expenditure | Drilling Activity | Capex Increase

Silverbow Resources Second Quarter 2022 Results

Email    |    Print    |    Bookmark

You Need to login first

   |    Friday,August 05,2022

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

Highlights include:

• Reported net production of 238 million cubic feet of natural gas equivalent per day ("MMcfe/d") (78% natural gas) for the second quarter of 2022
• Reported net income of $89 million, which includes a net unrealized gain on the value of the Company's derivative contracts of $44 million, and Adjusted EBITDA of $85 million for the second quarter of 2022. Adjusted EBITDA is a non-GAAP measure defined and reconciled in the tables below
• Leverage ratio of 1.42x¹ at quarter-end; targeting year-end 2022 leverage ratio of approximately 1.0x¹
• In conjunction with closing the acquisition of substantially all of the oil and gas assets of Sundance Energy, Inc. and its affiliated entities (collectively, "Sundance"), SilverBow's borrowing base under its senior secured revolving credit facility ("Credit Facility") increased to $775 million from $525 million on June 22, 2022
• Production is estimated to grow approximately 30% per year in both 2022 and 2023 with a 2023 free cash flow yield exceeding 25%². FY22 oil production is expected to increase by 100% compared to 2021
• Proved Developed Producing ("PDP") PV-10 of $1.8 billion³ as of June 30, 2022 using the U.S. Securities and Exchange Commission ("SEC") pricing
• Average realized prices for crude oil and natural gas were 101% and 102% of West Texas Intermediate ("WTI") and Henry Hub, respectively, excluding hedging, as a result of favorable basis pricing in the Eagle Ford

Sean Woolverton, SilverBow's Chief Executive Officer, commented, "During the second quarter, we successfully closed two acquisitions while upsizing our revolver from $525 million to $775 million. The team is integrating these new assets into our operations and is encouraged by the efficiencies that SilverBow stands to gain. Our daily production increased in May as we brought online wells drilled earlier this year, and June's production rate hit a year-to-date high as result. With the closing of the Sundance acquisition, we added a second rig and expect to continue to run at a two-rig pace for the foreseeable future. Given the inventory additions we have made over the last twelve months, SilverBow has over a decade of high-return drilling locations at a two-rig pace. As of June 30th and using SEC prices, our estimated PDP PV-10 value stood at $1.8 billion compared to our enterprise value of approximately $1.6 billion⁴."

Mr. Woolverton commented further, "Looking ahead, our production is expected to ramp significantly through the second half of 2022 and into 2023. We estimate we will grow second half 2022 production by more than 35% compared to the first half of 2022, and increase our oil production by 150% over the same time period. We estimate we will grow production by approximately 30% in both 2022 and 2023 with a 2023 free cash flow yield exceeding 25%. The increased liquidity from our upsized borrowing base and our strong cash flow outlook positions SilverBow to fund future growth and continue expanding its portfolio, both through the drill-bit and through accretive acquisitions."

Operations Overview

During the second quarter of 2022, SilverBow drilled seven net wells and completed and brought online 15 net wells. The Company completed and brought online an eight-well pad in its Webb County Gas area. This was the largest pad developed in SilverBow's history, achieving excellent pad pumping efficiency and averaging 11 stages completed per day comprising 4.6 million pounds of sand per day. Two of the eight wells on this pad were located in the Austin Chalk formation and are the best performing Austin Chalk wells the Company has drilled to date when normalized on a per lateral foot basis. SilverBow also completed and brought online a three-well pad in its Western Condensate area and a three-well pad in its Central Oil area during the second quarter. Both pads are currently outperforming expectations with initial production rates exceeding their respective type curves.

SilverBow operated one drilling rig throughout the second quarter, and as previously planned added a second rig in conjunction with the closing of the Sundance acquisition on June 30, 2022. The Company intends to continue drilling at a two rig pace through the second half of 2022, with one rig drilling primarily gas-weighted locations and one rig drilling primarily liquids-weighted locations. Capital and operating costs continue to face inflationary pressures as a result of high demand for products, materials and services provided by vendors in conjunction with overall supply chain disruptions and tight labor market conditions. SilverBow is addressing cost inflation through enhanced procurement initiatives, pre-ordering key materials and a focus on operational efficiencies. With two fully utilized rigs, the Company has greater line of sight into upcoming activity levels and is employing a range of short and long-term contracts to secure equipment while maintaining cost discipline. As always, SilverBow optimizes its drilling schedule based on commodity prices, returns on investment and strategically proving up additional inventory at key focus areas such as the Austin Chalk. The Company anticipates realizing cost efficiencies on its recently acquired assets as they are fully integrated into SilverBow's cost structure over the second half of the year.

Production Volumes, Operating Costs

SilverBow's total net production for the second quarter of 2022 averaged 238 MMcfe/d. Production mix for the second quarter consisted of 78% natural gas, 11% oil and 11% natural gas liquids ("NGLs"). Natural gas comprised 68% of total oil and gas sales for the second quarter, compared to 67% in the second quarter of 2021.

For the second quarter of 2022, lease operating expenses ("LOE") were $0.47 per Mcfe, transportation and processing expenses ("T&P") were $0.31 per Mcfe and production and ad valorem taxes were 5.4% of oil and gas sales. Total production expenses, which include LOE, T&P and production taxes, were $1.24 per Mcfe for the second quarter. Net general and administrative ("net G&A") expenses for the second quarter of 2022 were $5.7 million, or $0.26 per Mcfe. After deducting $1.7 million of non-cash compensation expense, cash general and administrative ("cash G&A") (a non-GAAP measure) expenses were $4.0 million for the second quarter of 2022, or $0.19 per Mcfe.

The Company continues to benefit from strong basis pricing in the Eagle Ford. Crude oil and natural gas realizations in the second quarter were 101% of WTI and 102% of Henry Hub, respectively, excluding hedging. SilverBow's average realized natural gas price for the second quarter of 2022, excluding hedging, was $7.29 per thousand cubic feet of natural gas ("Mcf") compared to $2.95 per Mcf in the second quarter of 2021. The average realized crude oil selling price in the second quarter of 2022, excluding hedging, was $109.94 per barrel compared to $63.62 per barrel in the second quarter of 2021. The average realized NGL selling price in the second quarter, excluding hedging, was $39.51 per barrel (36% of WTI benchmark) compared to $21.65 per barrel (33% of WTI benchmark) in the second quarter of 2021. Please refer to the tables included with today's news release for production volumes and pricing information.

Financials

SilverBow reported total oil and gas sales of $182.6 million for the second quarter of 2022. The Company reported net income of $88.8 million, which includes a net unrealized gain on the value of the SilverBow's derivative contracts of $44.0 million.

For the second quarter of 2022, the Company generated Adjusted EBITDA (a non-GAAP measure) of $85.4 million. For the twelve months ended June 30, 2022, SilverBow reported Adjusted EBITDA for Leverage Ratio (a non-GAAP measure) of $452.9 million, which, in accordance with the Leverage Ratio calculation in the Company's Credit Facility, includes contributions from acquired assets prior to their closing dates totaling $154.2 million.

Capital expenditures incurred during the second quarter of 2022 totaled $74.5 million on an accrual basis.

2022 Guidance

The Company's forward looking guidance is unchanged from its July update. For the third quarter of 2022, SilverBow is guiding to estimated production of 293-308 MMcfe/d, with natural gas volumes comprising 200-210 MMcf/d or 68% of total production at the midpoint. For the full year 2022, the Company is guiding to a production range of 272-282 MMcfe/d, with natural gas volumes comprising 71% of total production at the midpoint. Production is expected to increase substantially through the second half of 2022, with December exit-rate production approximately 30% higher compared to the SilverBow's June production. The Company anticipates full year 2022 capital expenditures to be $300-$330 million. This capital budget guidance reflects the addition of a second drilling rig on recently acquired assets in the second half of the year and management's latest outlook on cost inflation.

SilverBow's preliminary 2023 guidance assumes a continuous two-rig development program. 2023 average daily production is expected to increase more than 35% year-over-year to approximately 380 MMcfe/d. The Company expects to generate approximately $250 million of free cash flow in 2023 based on $90 WTI and $4.75 Henry Hub pricing. SilverBow estimates that every $5.00 change in WTI oil price would result in a change of $20 million in free cash flow and every $0.50 change in Henry Hub natural gas price results in a change of $20 million in free cash flow, assuming the Company's hedge position as of July 29, 2022. As always, SilverBow maintains a high degree of flexibility in its drilling and completion schedule and operates with a returns-focused mindset.

Additional detail concerning the Company's third quarter and full year 2022 guidance can be found in the table included with today's new release and the Corporate Presentation in the Investor Relations section of SilverBow's website.

Hedging Update

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 closing of the acquisitions, the Company assumed the hedge books and layered on additional commodity derivatives for oil and natural gas.

As of July 29, 2022, SilverBow has 166 MMcf/d of natural gas production hedged, 8,204 Bbls/d of oil hedged and 3,166 Bbls/d of NGLs hedged for the remainder of 2022. For 2023, the Company has 161 MMcf/d of natural gas production hedged, 7,291 Bbls/d of oil hedged and 2,750 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 second quarter of 2022, which the Company expects to file on Thursday, August 4, 2022, for a detailed summary of its derivative contracts.

Capital Structure & Liquidity

As of June 30, 2022, SilverBow had $9.4 million of cash and $494.0 million of outstanding borrowings under its Credit Facility. The Company's liquidity position was $284.3 million consisting of $9.4 million of cash and $274.9 million of availability under the Credit Facility, which factors in $6.1 million in letters of credit. SilverBow's net debt as of June 30, 2022 was $634.6 million, calculated as total long-term debt of $644.0 million less $9.4 million of cash.

On June 22, 2022, in conjunction with the closing of the Sundance acquisition, SilverBow entered into the Tenth Amendment to its Credit Facility which increased the borrowing base to $775 million, extended the maturity date for the credit agreement to October 19, 2026 (or to the extent earlier, the date that is 91 days prior to the scheduled maturity of the Company's Second Lien notes) and reduced the interest rate margin for amounts outstanding, amongst other things.