SilverBow Resources Announces Third Quarter 2022 Results
Net production at midpoint of guidance; increased 26% quarter-over-quarter
Capturing higher returns with two rigs currently drilling in Webb County Gas area
Closed accretive bolt-on liquids-weighted acquisition in DeWitt and Gonzales counties
Established new dry gas position in Dorado play of Webb County
HOUSTON–(BUSINESS WIRE)–SilverBow Resources, Inc. (NYSE: SBOW) (“SilverBow” or the “Company”) today announced operating and financial results for the third quarter of 2022. Highlights include:
- Reported net production of 299 million cubic feet of natural gas equivalent per day (“MMcfe/d”) (70% natural gas) for the third quarter of 2022, at the midpoint of guidance
- Reported net income of $143 million, which includes a net unrealized gain on the value of the Company’s derivative contracts of $89 million, and Adjusted EBITDA of $115 million for the third quarter of 2022. Adjusted EBITDA is a non-GAAP measure defined and reconciled in the tables below
- Reduced total debt by $14 million quarter-over-quarter. Leverage ratio of 1.27x1 at quarter-end; targeting leverage ratio of less than 1.0x1
- Established new 7,500 net acre block in the Dorado play of Webb County, adding over 50 net locations of stacked pay, co-development inventory across the Austin Chalk and Eagle Ford formations. Approximately $38 million of the total $45 million spend in the area was incurred during the third quarter of 2022
- Closed the acquisition of incremental working interests and new adjacent acreage in the Karnes trough of DeWitt and Gonzales counties for $87 million, subject to customary closing adjustments, on October 31, 2022. Adds 5,200 net acres, net production of 1,100 barrels of oil equivalent per day (“Boe/d”), and over two rig-years of stacked pay inventory. Consolidated acreage block provides for extended laterals and more efficient development
- Recently shifted both drilling rigs to Webb County given the strong Austin Chalk performance in the Dorado play. Increased working interest in 12 of the 16 wells planned for this area over the third and fourth quarters of 2022 from 64% to 100% which represents an incremental PV-10 value of approximately $100 million
- Guided to 2023 production growth of ~50% year-over-year with plans to potentially add a third rig in the second half of 2023 to develop Karnes trough assets; Expanded capital program contingent upon commodity price environment
- Proved Developed Producing (“PDP”) PV-10 of $2.1 billion2 as of September 30, 2022 using the U.S. Securities and Exchange Commission (“SEC”) pricing
- Average realized prices for crude oil and natural gas were 100% and 95% of West Texas Intermediate (“WTI”) and Henry Hub, respectively, excluding hedging, as a result of favorable basis pricing in the Eagle Ford
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “Our strong third quarter results highlight the success of our differentiated strategy to deliver growth while maintaining balance sheet discipline. We increased total production more than 40% year-over-year, with oil production up more than 100%, reflecting the impact of our seven strategic acquisitions over the past five quarters. We are proud of all that we accomplished in the quarter, including the announcement of a new dry gas position in the Dorado play of Webb County, which adds stacked pay development opportunities to our near-term drilling schedule. We also acquired incremental working interest and adjacent properties located at our liquids-weighted Karnes trough area. The enhanced economics and development potential of this area compete for drilling capital within our portfolio and warrant a dedicated drilling rig, which we currently plan to activate during the middle of 2023. The culmination of our acquisitions to date is reflected in our PDP PV-10 of $2.1 billion.”
Mr. Woolverton commented further, “Looking ahead, both our 2023 production and EBITDA are set to increase over 50% year-over-year. We have visibility and have taken significant steps towards reaching a key scale target during 2024 of over 0.5 billion cubic feet equivalent per day of production. Our capital spend range provides SilverBow with the flexibility to adjust our drilling activity in line with commodity prices. Adding a third rig focused on liquids in the second half of 2023 supports our objective of having a 50/50 mix of oil and gas revenue while driving double digit production growth into 2025. As our leverage declines below 1.0x, we have a range of options to deploy capital, including re-investing in the drillbit, financing further in-basin consolidation and implementing a shareholder returns plan. We are pleased with the execution of our disciplined growth strategy and opportunities ahead for SilverBow as we balance organic growth and acquisitions while prioritizing significant cash flow generation.”
OPERATIONS HIGHLIGHTS
During the third quarter of 2022, SilverBow drilled 13 net wells and completed and brought online 11 net wells. In its Webb County Gas area, the Company completed and brought online a two-well pad which produced a 30-day average of 30 MMcf/d (100% gas). Of the two wells, one targeted the Austin Chalk formation and represents SilverBow’s best performing Austin Chalk well to date. In its Central Oil area, the Company completed and brought online a two-well pad which had been drilled by the previous operator prior to SilverBow taking ownership on June 30, 2022. Performance from the wells has exceeded expectations with a 30-day average of 2,400 Boe/d (94% liquids), however the drilling rig experienced operational delays prior to SilverBow taking ownership and, ultimately, a third well that was drilled on the pad had to be abandoned due to a mechanical failure. The Company also brought online a three-well pad in its Central Oil area early in the fourth quarter with initial results exceeding expectations.
Net equivalent production for the third quarter of 2022 was at the midpoint of guidance. Gas volumes came in at the high-end of guidance, with NGL volumes exceeding guidance. Oil volumes were lower than anticipated due to the mechanical failure on the aforementioned two-well pad and resultant timing delays of the remaining wells drilled during the third quarter. However, as mentioned above, the performance to date from the wells in the Central Oil area remains strong and is exceeding expectations. The rig subsequently returned to expected efficiency levels by the end of July. The Company does not expect any other impact outside of first sales occurring later in the year than what was originally planned. As detailed further in the 2022 guidance section, SilverBow is guiding to estimated production of 315-329 MMcfe/d (70% gas) for the fourth quarter of 2022 and 270-274 MMcfe/d (73% gas) for full year 2022.
SilverBow operated two drilling rigs for the entirety of the third quarter, and the Company intends to continue at this pace for the remainder of 2022. At the beginning of October, SilverBow moved both its drilling rigs to its Webb County Gas area. This decision was based on the continued strong Austin Chalk results in the Dorado play. Combining the third and fourth quarters, the Company will have drilled 16 wells at its Fasken property, with 15 of them targeting the Austin Chalk and 1 targeting the Upper Eagle Ford. The returns SilverBow is generating in the Austin Chalk warranted this shift and much of this development should benefit from strong winter gas prices. In addition, the Company’s non-op partner elected not to participate in 12 of the 16 wells which will add an incremental 4.5 net wells to SilverBow’s 2022 development as it increases its working interest in those wells from 64% to 100%. Management believes this near-term drilling opportunity will result in significant accretion to reserve PV-10 value and increased gas production beyond 2022, which more than offsets the lower near-term oil production from the recent scheduling changes. As a returns-focused company, SilverBow has continued to benefit from its ability to be nimble and deploy capital where the economics make the largest impact.
SilverBow revised its 2022 capital budget to a range of $320-$340 million. The 5% increase to the capital budget reflects the higher working interest captured across the aforementioned Webb County Gas wells drilled in the fourth quarter and land and leasing spend of approximately $7.5 million. Inflationary pressures remain persistent in the current service market but had previously been factored into SilverBow’s 2022 capital budget outlook and were not a primary driver of the updated range. With two fully utilized rigs, the Company has greater line of sight into upcoming activity levels and is addressing cost inflation through enhanced procurement initiatives, pre-ordering key materials and employing a range of short and long-term contracts. As always, SilverBow optimizes its drilling schedule based on commodity prices, returns on investment and strategically proving up additional inventory within the portfolio.
PRODUCTION VOLUMES, OPERATING COSTS AND REALIZED PRICES
SilverBow’s total net production for the third quarter of 2022 averaged 299 MMcfe/d. Production mix for the third quarter consisted of 70% natural gas, 17% oil and 13% natural gas liquids (“NGLs”). Natural gas comprised 62% of total oil and gas sales for the third quarter, compared to 63% in the third quarter of 2021.
For the third quarter of 2022, lease operating expenses (“LOE”) were $0.65 per Mcfe, transportation and processing expenses (“T&P”) were $0.35 per Mcfe and production and ad valorem taxes were 5.2% of oil and gas sales. Total production expenses, which include LOE, T&P and production taxes, were $1.46 per Mcfe for the third quarter. Net general and administrative (“net G&A”) expenses for the third quarter of 2022 were $4.3 million, or $0.16 per Mcfe. After deducting $1.2 million of non-cash compensation expense, cash general and administrative (“cash G&A”) (a non-GAAP measure) expenses were $3.2 million for the third quarter of 2022, or $0.11 per Mcfe.
The Company continues to benefit from strong basis pricing in the Eagle Ford. Crude oil and natural gas realizations in the third quarter were 100% of WTI and 95% of Henry Hub, respectively, excluding hedging. SilverBow’s average realized natural gas price for the third quarter of 2022, excluding hedging, was $7.81 per thousand cubic feet of natural gas (“Mcf”) compared to $4.14 per Mcf in the third quarter of 2021. The average realized crude oil selling price in the third quarter of 2022, excluding hedging, was $91.93 per barrel compared to $68.54 per barrel in the third quarter of 2021. The average realized NGL selling price in the third quarter, excluding hedging, was $33.34 per barrel (36% of WTI benchmark) compared to $30.92 per barrel (44% of WTI benchmark) in the third 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 $242.2 million for the third quarter of 2022. The Company reported net income of $142.5 million, which includes a net unrealized gain on the value of the SilverBow’s derivative contracts and WTI contingency payouts of $89 million.
For the third quarter of 2022, the Company generated Adjusted EBITDA (a non-GAAP measure) of $114.7 million. For the twelve months ended September 30, 2022, SilverBow reported Adjusted EBITDA for Leverage Ratio (a non-GAAP measure) of $495.1 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 $139.3 million.
Capital expenditures incurred during the third quarter of 2022 totaled $110.0 million on an accrual basis.
2022 GUIDANCE AND 2023 OUTLOOK
SilverBow is currently running its two rigs in Webb County, which will result in higher gas production and greater returns in 2023. Together, the near-term Webb County drilling and recent leasing activity totals approximately $30 million of incremental spend in 2022. The Company is increasing its full year 2022 capex by $15 million, or 5%, at the midpoint to a range of $320-$340 million. For the fourth quarter of 2022, SilverBow is guiding to estimated production of 315-329 MMcfe/d, with natural gas volumes comprising 218-230 MMcf/d or 70% of total production at the midpoint. For the full year 2022, the Company is guiding to a production range of 270-274 MMcfe/d, with natural gas volumes comprising 73% of total production at the midpoint. Incorporated in the fourth quarter guidance range is previously unscheduled plant maintenance on third party systems. It is anticipated that these maintenance projects will impact dry gas volumes out of Webb County during the quarter.
SilverBow maintains a high degree of flexibility in its drilling and completion schedule. The Company’s 2023 capital plan is contingent upon meeting certain thresholds, including a re-investment rate below 75% and a leverage ratio between 0.5x-1.0x. For 2023, SilverBow anticipates running 2 to 2.5 rigs on average. The Company is increasing its production outlook from 380 MMcfe/d to 400-420 MMcfe/d, an 8% increase compared to the Company’s prior outlook. The production increase is driven by a higher working interest and a greater gas mix from SilverBow capturing higher returns on its gas development in the near-term. Full year 2023 capital is expected to range between $450-$550 million, with the high end reflecting a third rig added in the second half of 2023.
Additional detail concerning the Company’s fourth 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 the 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.
As of October 28, 2022, SilverBow has 167 MMcf/d of natural gas production hedged, 8,418 Bbls/d of oil hedged and 3,750 Bbls/d of NGLs hedged for the remainder of 2022. For 2023, the Company has 179 MMcf/d of natural gas production hedged, 7,291 Bbls/d of oil hedged and 3,750 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 third quarter of 2022, which the Company expects to file on Thursday, November 3, 2022, for a detailed summary of its derivative contracts.
CAPITAL STRUCTURE AND LIQUIDITY
As of September 30, 2022, SilverBow had $1.9 million of cash and $480.0 million of outstanding borrowings under its Credit Facility. The Company’s liquidity position was $296.9 million consisting of $1.9 million of cash and $295.0 million of availability under the Credit Facility. SilverBow’s net debt as of September 30, 2022 was $628.1 million, calculated as total long-term debt of $630.0 million less $1.9 million of cash.
As of October 28, 2022, SilverBow had 22.3 million total common shares outstanding.
CONFERENCE CALL AND UPDATED INVESTOR PRESENTATION
SilverBow will host a conference call for investors on Thursday, November 3, 2022, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). Investors and participants can listen to the call by dialing 1-888-415-4465 (U.S.) or 1-646-960-0140 (International) and requesting SilverBow Resource’s Third Quarter 2022 Earnings Conference Call or by visiting the Company’s website. A simultaneous webcast of the call may be accessed over the internet by visiting SilverBow’s website at www.sbow.com, clicking on “Investor Relations” and “Events and Presentations” and then clicking on the “Third Quarter 2022 Earnings Conference Call” link. The webcast will be archived for replay on the Company’s website for 14 days. Additionally, an updated Corporate Presentation will be uploaded to the Investor Relations section of SilverBow’s website before the conference call.
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 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 our 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 our strategy, the benefits of the acquisitions, future operations, guidance and outlook, 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, service costs, impacts of inflation, 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 “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “budgeted,” “guidance,” “expect,” “may,” “continue,” “predict,” “potential,” “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, the following risks and uncertainties: the severity and duration of world health events, including the COVID-19 pandemic, related economic repercussions, including disruptions in the oil and gas industry, supply chain disruptions, and operational challenges including remote work arrangements and protecting the health and well-being of our employees; further actions by the members of the Organization of the Petroleum Exporting Countries, Russia and other allied producing countries with respect to oil production levels and announcements of potential changes in such levels; risk related to recently completed acquisitions; volatility in natural gas, oil and NGL prices; future cash flows and their adequacy to maintain our ongoing operations; liquidity, including our ability to satisfy our short- or long-term liquidity needs; our borrowing capacity future covenant compliance; cash flow and liquidity; operating results; asset disposition efforts or the timing or outcome thereof; ongoing and prospective joint ventures, their structures and substance, and the likelihood of their finalization or the timing thereof; the amount, nature and timing of capital expenditures, including future development costs; timing, cost and amount of future production of oil and natural gas; availability of drilling and production equipment or availability of oil field labor; availability, cost and terms of capital; timing and successful drilling and completion of wells; availability and cost for transportation of oil and natural gas; costs of exploiting and developing our properties and conducting other operations; competition in the oil and natural gas industry; general economic and political conditions, including inflationary pressures, further increases in interest rates, a general economic slowdown or recession, political tensions and war (including future developments in the ongoing Russia-Ukraine conflict); opportunities to monetize assets; our ability to execute on strategic initiatives; effectiveness of our risk management activities, including hedging strategy; environmental liabilities; counterparty credit risk; actions by third parties, including customers, service providers and shareholders; governmental regulation and taxation of the oil and natural gas industry; developments in world oil and natural gas markets and in oil and natural gas-producing countries; uncertainty regarding our future operating results; and other risks and uncertainties discussed in the Company’s reports filed with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K.
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)
1 Leverage ratio is defined as total long-term debt, before unamortized discounts, divided by Adjusted EBITDA for Leverage Ratio (a non-GAAP measure defined and reconciled in the tables included with today’s news release) for the trailing twelve-month period.
2 Based on management’s estimates of reserve volumes and values using an effective date and SEC prices as of September 30, 2022. Inclusive of acquired assets with closing date on or before September 30, 2022. Figures reported as unaudited.
(Financial Highlights to Follow)
|
Condensed Consolidated Balance Sheets (Unaudited) SilverBow Resources, Inc. and Subsidiary (in thousands, except share amounts) |
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|
|
September 30, 2022 |
|
December 31, 2021 |
||||
|
ASSETS |
|
|
|
||||
|
Current Assets: |
|
|
|
||||
|
Cash and cash equivalents |
$ |
1,924 |
|
|
$ |
1,121 |
|
|
Accounts receivable, net |
|
102,691 |
|
|
|
49,777 |
|
|
Fair value of commodity derivatives |
|
33,205 |
|
|
|
2,806 |
|
|
Other current assets |
|
6,468 |
|
|
|
1,875 |
|
|
Total Current Assets |
|
144,288 |
|
|
|
55,579 |
|
|
Property and Equipment: |
|
|
|
||||
|
Property and equipment, full cost method, including $17,478 and $17,090, respectively, of unproved property costs not being amortized at the end of each period |
|
2,345,317 |
|
|
|
1,611,953 |
|
|
Less – Accumulated depreciation, depletion, amortization & impairment |
|
(959,139 |
) |
|
|
(869,985 |
) |
|
Property and Equipment, Net |
|
1,386,178 |
|
|
|
741,968 |
|
|
Right of use assets |
|
13,669 |
|
|
|
16,065 |
|
|
Fair value of long-term commodity derivatives |
|
27,410 |
|
|
|
201 |
|
|
Other long-term assets |
|
18,368 |
|
|
|
5,641 |
|
|
Total Assets |
$ |
1,589,913 |
|
|
$ |
819,454 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
||||
|
Current Liabilities: |
|
|
|
||||
|
Accounts payable and accrued liabilities |
$ |
80,107 |
|
|
$ |
35,034 |
|
|
Fair value of commodity derivatives |
|
108,618 |
|
|
|
47,453 |
|
|
Accrued capital costs |
|
54,210 |
|
|
|
7,354 |
|
|
Accrued interest |
|
2,385 |
|
|
|
697 |
|
|
Current lease liability |
|
8,579 |
|
|
|
7,222 |
|
|
Undistributed oil and gas revenues |
|
32,318 |
|
|
|
23,577 |
|
|
Total Current Liabilities |
|
286,217 |
|
|
|
121,337 |
|
|
Long-term debt, net |
|
626,351 |
|
|
|
372,825 |
|
|
Non-current lease liability |
|
5,379 |
|
|
|
9,090 |
|
|
Deferred tax liabilities |
|
14,012 |
|
|
|
6,516 |
|
|
Asset retirement obligations |
|
8,255 |
|
|
|
5,526 |
|
|
Fair value of long-term commodity derivatives |
|
29,950 |
|
|
|
8,585 |
|
|
Other long-term liabilities |
|
2,764 |
|
|
|
3,043 |
|
|
Commitments and Contingencies |
|
|
|
||||
|
Stockholders’ Equity: |
|
|
|
||||
|
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued |
|
— |
|
|
|
— |
|
|
Common stock, $0.01 par value, 40,000,000 shares authorized, 22,663,135 and 16,822,845 shares issued, respectively, and 22,309,740 and 16,631,175 shares outstanding, respectively |
|
227 |
|
|
|
168 |
|
|
Additional paid-in capital |
|
574,885 |
|
|
|
413,017 |
|
|
Treasury stock, held at cost, 353,395 and 191,670 shares, respectively |
|
(7,534 |
) |
|
|
(2,984 |
) |
|
Retained earnings (Accumulated deficit) |
|
49,407 |
|
|
|
(117,669 |
) |
|
Total Stockholders’ Equity |
|
616,985 |
|
|
|
292,532 |
|
|
Total Liabilities and Stockholders’ Equity |
$ |
1,589,913 |
|
|
$ |
819,454 |
|
Contacts
Jeff Magids
Director of Finance & Investor Relations
(281) 874-2700, (888) 991-SBOW
