Executive Summary

Q2 2023 delivered liquids-driven execution: revenue was $126.4M, diluted EPS $1.10, Adjusted EBITDA $111.7M, with net oil production up 184% YoY as oil/NGLs comprised ~75% of revenue versus <33% a year ago .
Production was near the high end of guidance at 330 MMcfe/d and net oil production of 12.5 MBbls/d exceeded guidance; management cut FY23 capex 11% mid-point to $400–$425M while maintaining production guidance .
Strategic progress on Webb County gas: the company entered gas gathering agreements to expand takeaway and added 2,200 net acres, setting up optionality to complete up to eight DUCs by year-end contingent on prices and midstream timing .
Introduced FY23 Free Cash Flow guidance of $10–$30M and reiterated “growth within cash flow” as the operating framework; hedge coverage stands at 73% of total production for the balance of 2023 (midpoint of guidance) .
Estimates comparison was unavailable due to a S&P Global CIQ mapping issue; results vs Wall Street consensus could not be validated via SPGI in this session (see Estimates Context) [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

Liquids pivot worked: oil/NGLs drove ~75% of revenue in Q2, reflecting the oil-focused program; net oil production averaged 12,491 Bbls/d, +184% YoY, and beat guidance high end .
Capital efficiency: D&C costs per lateral foot were 11% lower vs 2022; stages/day +17% and pumping efficiency +18% YoY, enabling the 11% capex mid-point reduction without impacting FY23 production targets .
Operational delivery: multiple pads achieved strong 30-day rates in Central Oil and Eastern Extension areas, supporting repeatable oil program results; CEO reiterated strategy of “operational flexibility and real-time capital allocation” .

What Went Wrong

Commodity realizations: average realized gas price fell to $1.77/Mcf (ex-hedging) vs $7.29/Mcf YoY; average per-Mcfe price dropped to $4.21 (ex-hedging), highlighting pricing headwinds .
Midstream constraints: Webb County gas production was limited to contracted firm capacity, with limited interruptible takeaway expected until late 2023, constraining near-term gas growth .
Margin compression vs prior year: operating income was $30.5M (vs $123.5M in Q2 2022) driven by lower commodity prices for gas and NGLs and higher DD&A; interest expense also rose to $18.2M in Q2 2023 .

Financial Results

Core P&L and Cash Metrics

Metric	Q2 2022	Q4 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$182.6	$199.0	$140.0	$126.4
Diluted EPS ($)	$4.95	$7.65	$4.17	$1.10
Net Income ($USD Millions)	$88.8	$173.4	$94.5	$24.9
Operating Income ($USD Millions)	$123.5	$106.6	$45.8	$30.5
Adjusted EBITDA ($USD Millions)	$85.4	$119.1	$111.0	$111.7
Operating Margin (%)	67.6% (Derived from $123.5/$182.6)	53.6% (Derived from $106.6/$199.0)	32.8% (Derived from $45.8/$140.0)	24.1% (Derived from $30.5/$126.4)
Net Margin (%)	48.6% (Derived from $88.8/$182.6)	87.1% (Derived from $173.4/$199.0)	67.5% (Derived from $94.5/$140.0)	19.7% (Derived from $24.9/$126.4)

Notes: Margins are calculated from cited revenue and income values.

Commodity Sales Mix and Volumes

Metric	Q2 2022	Q2 2023
Sales – Oil ($USD ‘000)	$44,014	$80,151
Sales – Natural Gas ($USD ‘000)	$123,296	$33,805
Sales – NGL ($USD ‘000)	$15,295	$12,443
Production – Oil (MBbl)	400	1,137
Production – Gas (MMcf)	16,918	19,124
Production – NGL (MBbl)	387	677
Total Production (MMcfe)	21,643	30,004
Avg Realized Price (ex-hedging) – Oil ($/Bbl)	$109.94	$70.51
Avg Realized Price (ex-hedging) – Gas ($/Mcf)	$7.29	$1.77
Avg Realized Price (ex-hedging) – NGL ($/Bbl)	$39.51	$18.39
Avg Price per Mcfe (ex-hedging) ($/Mcfe)	$8.44	$4.21

Operating KPIs

KPI	Q1 2023	Q2 2023
LOE ($/Mcfe)	$0.78	$0.67
T&P ($/Mcfe)	$0.42	$0.39
Production Taxes (% of Revenue)	6.7%	6.9%
Net G&A ($MM)	$7.7	$5.3
Net G&A ($/Mcfe)	$0.28	$0.18
Cash G&A ($MM)	$6.5	$3.9
Cash G&A ($/Mcfe)	$0.24	$0.13
Avg Price per Mcfe (ex-hedging) ($/Mcfe)	$5.12	$4.21

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Capital Expenditures ($MM)	FY 2023	$450–$475	$400–$425	Lowered
Total Production (MMcfe/d)	FY 2023	325–345	325–345	Maintained
Oil Volumes (Bbls/d)	FY 2023	13,750–15,000	13,750–15,000	Maintained
Cash G&A ($MM)	FY 2023	$19.0–$20.0	$18.5–$19.5	Lowered
LOE ($/Mcfe)	FY 2023	$0.73–$0.77	$0.69–$0.73	Lowered
T&P ($/Mcfe)	FY 2023	$0.39–$0.43	$0.38–$0.42	Lowered
Production Taxes (% of Revenue)	FY 2023	6.5%–7.5%	6.5%–7.5%	Maintained
Total Production (MMcfe/d)	Q3 2023	N/A	329–352	New quarterly guide
Oil Volumes (Bbls/d)	Q3 2023	N/A	15,100–15,900	New quarterly guide
Free Cash Flow ($MM)	FY 2023	N/A	$10–$30	Introduced

Hedging posture update: 73% of total production hedged for remainder of 2023 (midpoint), including gas 182 MMcf/d at $3.90/MMBtu, oil 8,885 Bbls/d at $73.63/Bbl, NGL 3,750 Bbls/d at $32.86/Bbl .

Earnings Call Themes & Trends

Note: The Q2 2023 earnings call transcript could not be retrieved due to a database inconsistency; themes below reflect prepared remarks and prior-quarter disclosures.

Topic	Previous Mentions (Q4 2022, Q1 2023)	Current Period (Q2 2023)	Trend
Midstream takeaway (Webb County)	Producing at firm capacity; deferring completions until 2024 given capacity and prices	Entered gas gathering agreements to increase takeaway; expect improved deliverability by year-end	Improving capacity trajectory
Liquids mix shift	Plan to operate two rigs on oil; liquids to reach ~45% of mix by Q4’23	~75% revenue from oil/NGLs; oil volumes beat guidance; liquids to be 40–50% of mix by Q4’23	Accelerating liquids contribution
Capital efficiency	Mitigated inflation via procurement/efficiency; D&C near plan in 2022	D&C per lateral foot down 11% vs 2022; stages/day +17%, pumping +18%	Efficiency gains sustained
Hedge strategy	~72–73% total production hedged for FY23	73% total hedged; 93% gas hedged at $3.90/MMBtu	Stable protection
Austin Chalk delineation	High-return Austin Chalk results; inventory upside	Initial Chalk test in Eastern Extension encouraging; added 2,200 net acres in Webb	Continued delineation/inventory build
Financial policy (FCF, leverage)	ROCE 24% FY22; leverage ratio ~1.35x	Introduced FY23 FCF $10–$30M; leverage ratio 1.56x LTM as of 6/30/23	Emphasis on FCF; leverage modestly higher

Management Commentary

“Strong performance from our oil assets drove second quarter net oil production above our guidance range... our second quarter revenue mix, of which approximately 75% was attributable to oil and NGLs compared to less than 33% a year ago.” – CEO Sean Woolverton .
“We are seeing significant efficiency gains and cost savings... allowing us to lower our 2023 capital budget guidance by over 10% for the year.” – CEO Sean Woolverton .
“We are guiding to free cash of $10–$30 million for full year 2023, and we expect our free cash to expand significantly in 2024 due to the increase in our oil production this year and our plan to ramp up gas production next year...” – CEO Sean Woolverton .
Prior tone (Q1): “Two-rig oil development program... expect to double 2023 oil production year-over-year... strategy emphasizes operational flexibility and pivoting between oil and gas.” – CEO Sean Woolverton .

Q&A Highlights

The Q2 2023 earnings call transcript could not be retrieved due to a database inconsistency, so Q&A highlights and any clarifications vs prepared remarks are unavailable in this session.

Estimates Context

Wall Street consensus estimates via S&P Global were unavailable due to a CIQ company mapping error for SBOW; as a result, we cannot provide a validated comparison vs consensus for Q2 2023 in this session [GetEstimates error].
Implication: Sell-side models may need to reflect the steeper liquids mix, lower FY23 capex, maintained FY23 production, and higher Q3 oil guide; we expect estimate adjustments to focus on EBITDA sensitivity to liquids and Q3 volumes .

Key Takeaways for Investors

Liquids-led growth is delivering: oil/NGLs contributed ~75% of Q2 revenue, with oil production +184% YoY; this materially improves cash margins per Mcfe despite weak gas prices .
Capex cut without growth sacrifice: FY23 capex reduced to $400–$425M, with FY23 production guide maintained at 325–345 MMcfe/d; immediate capital efficiency benefits and potential FCF yield improvement .
Near-term catalysts: Q3 oil guidance 15.1–15.9 MBbls/d and gas gathering agreements in Webb County suggest volume stability in Q3 and potential gas deliverability uplift by year-end .
Risk management intact: 73% total production hedged (93% gas on guidance) limits downside; focus remains on “growth within cash flow” with FY23 FCF $10–$30M now introduced .
Margin trajectory: Operating and net margins compressed vs prior year due to commodity price declines, but operating efficiencies (lower LOE/T&P and G&A) support resiliency as liquids mix increases .
Balance sheet: Liquidity of ~$200.1M and leverage ratio 1.56x LTM provide runway; net debt $724.9M as of 6/30/23 warrants continued FCF execution and disciplined capital allocation .
Strategic optionality: Ability to pivot between oil and gas development plus newly secured midstream capacity and added acreage underpin multi-year inventory (650 locations, ~10 years) and flexible 2024 ramp prospects .

SILVERBOW RESOURCES, INC. (SBOW)·Q2 2023 Earnings Summary