SilverBow Resources, Inc. has announced the successful completion of its acquisition of Chesapeake Energy Corporation’s oil and gas assets in South Texas. The transaction, valued at $700 million, includes a $650 million upfront cash payment at closing and an additional $50 million deferred cash payment due in 12 months. The purchase was funded through cash on hand, borrowings under the credit facility, and proceeds from the sale of additional second lien notes. Chesapeake may also receive up to $50 million in additional contingent cash consideration based on future commodity prices. SilverBow has also provided updated guidance for 2023 and a preliminary outlook for 2024.
SilverBow’s CEO, Sean Woolverton, expressed excitement about the acquisition, stating that it significantly increases the company’s presence in South Texas and positions it as the largest public pure-play Eagle Ford operator. Woolverton emphasized that the acquisition strengthens the company’s balance sheet, expands its commodity mix, and provides a portfolio of locations in a strategically advantageous basin. The acquired assets will enhance SilverBow’s ability to allocate capital to high-return projects and will immediately compete for capital.
Looking ahead, SilverBow plans to develop the acquired assets through an expanded capital program, with three rigs operating across its portfolio in 2024. The company expects strong production growth, generating significant free cash flow that will be used to pay down debt and reduce leverage. SilverBow aims to maintain a leverage ratio of 1.0x and below while remaining opportunistic in pursuing its strategic objectives.
In terms of financial outlook, SilverBow’s updated guidance for 2023 remains consistent with previous plans, with two drilling rigs operating across its acreage and no additional capital expenditure expected for the acquired assets. The company expects free cash flow for 2023 to range between $40 million and $60 million, representing a 67% increase from the previous range. For 2024, SilverBow plans to operate three drilling rigs, including one dedicated to the newly acquired assets. Oil production is projected to increase by approximately 70% year-over-year, with an average daily production of 25,000 barrels. The company’s production mix for the year is expected to be over 40% oil/NGLs.
To manage the impact of commodity price fluctuations, SilverBow utilizes financial derivative contracts. For 2024, the company has entered into hedges covering approximately 55% of its estimated total production. This includes natural gas production hedged at an average floor price of $3.83 per MMBtu and an average ceiling price of $4.21 per MMBtu, as well as oil production hedged at an average floor price of $74.02 per barrel and an average ceiling price of $76.46 per barrel. NGLs production is also hedged at an average price of $25.92 per barrel.
Regarding its capital structure and liquidity, SilverBow increased its borrowing base and elected commitment amount under its Senior Secured Revolving Credit Agreement from $775 million to $1.2 billion in connection with the Chesapeake Transaction. The company also issued and sold an additional $350 million principal amount of second lien notes, bringing the total outstanding to $500 million. The maturity date of the second lien notes was extended to December 15, 2028, and certain other terms were modified. As of November 30, 2023, SilverBow had approximately $464 million of liquidity, including undrawn capacity and cash on hand.
For more information visit www.sbow.com
