SilverBow Resources, Inc. have announced that it has entered into an agreement to acquire Chesapeake Energy Corporation’s oil and gas assets in South Texas for a purchase price of $700 million, comprised of a $650 million upfront cash payment due at closing and an additional $50 million deferred cash payment due 12 months post close, subject to customary adjustments. Chesapeake may also receive up to $50 million in additional contingent cash consideration based on future commodity prices.
The Chesapeake Transaction has an effective date of February 1, 2023 and is expected to close by year-end 2023, subject to satisfaction or waiver of certain customary closing conditions, including the accuracy of the representations and warranties of each party, compliance by each party in all material respects with its covenants and the satisfaction of certain consent requirements.
The Chesapeake Transaction is expected to be funded with cash on hand, borrowings under the Company’s First Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 19, 2017, and amended as of June 22, 2022, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent for the lenders, and the Company’s amended second lien notes led by EIG. In conjunction with the Chesapeake Transaction, the Company has secured $425 million of incremental commitments under its Credit Facility from existing and new lenders, which, subject to the closing of the Chesapeake Transaction, will increase lender commitments under the Credit Facility to $1.2 billion, and the Second Lien Notes will be upsized by $350 million, which, subject to the closing of the Chesapeake Transaction, will increase lender commitments under the Second Lien Notes to $500 million and extend the maturity date for the Second Lien Notes to December 15, 2028.
IMPACT TO SILVERBOW
The estimated impact to SilverBow from the Chesapeake Transaction is described below. SilverBow intends to provide updated guidance in conjunction with the closing of the Chesapeake Transaction.
- Increases expected fourth quarter of 2023 net production to 87,000-99,000 Boe/d (~50 percent oil/NGLs)
- Adds critical scale with ~$825-$925 million of pro forma next 12 months EBITDA
- Free cash flow in 2024 expected to increase by more than 80 percent, driving material accretion to both cash flow per share and free cash flow per share
- Leverage neutral at year-end 2023 with expected 1.0x leverage ratio forecasted by year-end 2024
MANAGEMENT COMMENTS
Sean Woolverton, SilverBow’s chief executive officer, commented, “SilverBow is well positioned to convert this premium resource into tangible value for its stakeholders. The Chesapeake Transaction transforms SilverBow into the largest public pure-play Eagle Ford operator. This acquisition advances all our long-term strategic objectives, by materially increasing our scale, enhancing our decade-plus high-return inventory, improving our capital efficiency and providing balanced commodity exposure, all while maintaining a strong balance sheet.”
Mr. Woolverton continued, “This acquisition is immediately accretive to all key financial and operating metrics, and offers compelling industrial logic that increases the Company’s size and scale by approximately 50 percent across a range of metrics. Further, SilverBow’s purchase price is more than fully covered by existing production value, with an estimated $850 million of PDP PV-10 based on strip pricing. The addition of these attractively priced assets is expected to enhance SilverBow’s operational and financial performance and better position the Company for future acquisitions while maintaining balance sheet strength. Upon closing, this will mark SilverBow’s 8th acquisition over the past two years totaling nearly $1.4 billion. We believe the benefits of further consolidation are very compelling, and we strongly believe this is a value-enhancing transaction for SilverBow shareholders.”
For more information visit www.sbow.com/corporate-profile/default.aspx
