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SILVERBOW RESOURCES, INC. (SBOW)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 delivered record Adjusted EBITDA of $141.4M, above internal guidance, on strong liquids growth; GAAP diluted EPS was $(0.21) due to a $72.4M unrealized derivative loss, while free cash flow was $18.1M .
  • Production averaged 357 MMcfe/d, above the high end of guidance; net oil production rose 81% YoY to 15.3 Mbbl/d as mix shifted to liquids, improving realized pricing resilience .
  • Guidance updates: FY23 production raised to 336–342 MMcfe/d; FY23 free cash flow guidance increased to $20–$40M; capex maintained at $400–$425M; 4Q23 production guided at 353–375 MMcfe/d .
  • Strategic catalyst: announced $700M acquisition of South Texas assets from Chesapeake, expected to enhance scale, EBITDA and FCF; financing lined up via upsized revolver ($1.2B upon close), upsized second lien ($500M), and a $148M follow-on equity offering; leverage targeted to 1.0x by YE24 .

What Went Well and What Went Wrong

  • What Went Well

    • Production exceeded guidance, with oil up 81% YoY and liquids mix improvement (oil 26% of volumes, 65% of sales), supporting record quarterly Adjusted EBITDA of $141.4M .
    • Operational efficiencies: highest quarterly pumping efficiency YTD; drilling costs per lateral foot ~13% lower vs 2022; accelerated completions to bolster 2024 production while preserving FY23 capex range .
    • Balance sheet progress: reduced total debt by $78M QoQ (including a $50M deposit for the Chesapeake deal); leverage ratio declined to 1.34x (LTM Adjusted EBITDA for leverage ratio $485.1M) .
    • CEO tone: “Strong third quarter results reflect our leading operational and capital efficiencies… Production exceeded the high end of our guidance range… capital expenditures were below planned costs.” .

  • What Went Wrong

    • Commodity headwinds: GAAP net loss of $4.8M and diluted EPS of $(0.21) driven by a $54.6M loss on commodity derivatives and WTI contingency impacts; realized gas price fell to $2.30/Mcf vs $7.81/Mcf YoY .
    • Cost pressure: LOE rose to $0.71/Mcfe and T&P to $0.42/Mcfe vs prior year, reflecting acquisitions and contractual fees; interest expense increased to $19.8M with higher borrowings/rates .
    • Gas takeaway constraints persisted, limiting flexibility; management expects alleviation with new pipelines and secured throughput agreements, but near-term capacity remained tight earlier in the year .

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$242.2 $140.0 $126.4 $174.0
Net Income ($USD Millions)$142.5 $94.5 $24.9 $(4.8)
Diluted EPS ($)$6.29 $4.17 $1.10 $(0.21)
Adjusted EBITDA ($USD Millions)$114.7 $111.0 $111.7 $141.4
Free Cash Flow ($USD Millions)$(5.6) $(13.7) $(22.7) $18.1

Operating cost and production KPIs

KPIQ3 2022Q1 2023Q2 2023Q3 2023
Total Production (MMcfe)27,505 27,345 30,004 32,847
Avg Daily Production (MMcfe/d)299 304 330 357
Net Oil Production (Bbl/d)8,468 [calc from 781 MBbl/90 days] 11,362 12,491 15,326
LOE ($/Mcfe)$0.65 $0.78 $0.67 $0.71
T&P ($/Mcfe)$0.35 $0.42 $0.39 $0.42
Cash G&A ($/Mcfe)—$0.24 $0.13 $0.09
Realized Oil Price (ex-hedge, $/Bbl)$91.93 $73.01 $70.51 $79.76
Realized Gas Price (ex-hedge, $/Mcf)$7.81 $2.94 $1.77 $2.30
Leverage Ratio (Total Debt / LTM Adj EBITDA for leverage)1.27x 1.44x 1.56x 1.34x
Net Debt ($USD Millions)—$706.8 $724.9 $646.3

Segment breakdown (Sales and Volumes)

AreaQ3 2022 Sales ($MM)Q3 2022 Volumes (MMcfe)Q3 2023 Sales ($MM)Q3 2023 Volumes (MMcfe)
Webb County Gas$106.1 13,514 $33.1 14,445
Western Condensate$39.7 4,623 $26.9 5,261
Southern Eagle Ford$29.3 3,913 $7.3 2,474
Central Oil$59.6 4,727 $92.4 8,968
Eastern Extension$7.3 682 $13.6 1,637
Non Core$0.2 46 $0.7 62
Total$242.2 27,505 $174.0 32,847

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Production (MMcfe/d)FY 2023325–345 336–342 Raised
Oil (Bbl/d)FY 202313,750–15,000 13,900–14,100 Narrowed/maintained midpoint
Total Production (MMcfe/d)Q4 2023—353–375 New Q4 guide
Oil (Bbl/d)Q4 2023—16,400–17,000 New Q4 guide
Capex ($MM)FY 2023$400–$425 (lowered in Q2) $400–$425 Maintained
Free Cash Flow ($MM)FY 2023$10–$30 $20–$40 Raised
LOE ($/Mcfe)FY 2023$0.69–$0.73 $0.70–$0.74 Slightly higher range
T&P ($/Mcfe)FY 2023$0.38–$0.42 $0.38–$0.42 Maintained
Production Taxes (% of revenue)FY 20236.5%–7.5% 6.0%–7.0% Slightly lower range
Cash G&A ($MM)FY 2023$18.5–$19.5 $17.4–$17.9 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
Liquids-led growth & D&C efficienciesTwo-rig oil program; pumping efficiency records; D&C costs trending lower; FY23 oil ~100% YoY growth “Strong results… capital efficiencies”; lowest drilling cost per foot; accelerated completions to bolster 2024 Improving execution
Gas takeaway & LNG demandLimited interruptible capacity until late 2023; entered gas gathering agreements to increase takeaway Expect capacity alleviation; bullish on longer-term gas/LNG; Q4 investments ramp gas in early ’24 Turning positive
Hedging & price risk management>90% gas hedged for 2023; collars/swaps detailed 79% total production hedged for remainder of 2023; detailed oil/gas/NGL hedge stacks Consistent discipline
Balance sheet & leverageLTM Adj EBITDA for leverage ratio $492.8M; leverage 1.44x; net debt $706.8M LTM Adj EBITDA for leverage $485.1M; leverage 1.34x; net debt $646.3M; target ~1.0x by YE24 post-CHK deal Deleveraging
M&A scale and inventoryConsolidating Eagle Ford acreage; optionality across oil/gas projects $700M Chesapeake deal; “largest pure play public Eagle Ford operator” post-close; ~300 high-confidence locations Transformative

Management Commentary

  • CEO on Q3 performance: “Strong third quarter results reflect our leading operational and capital efficiencies. Production exceeded the high end of our guidance range and capital expenditures were below planned costs… cost savings and drilling efficiencies… bolster 2024 production while also remaining within our stated 2023 capital budget range.”
  • Strategy on Chesapeake acquisition: “Expected to drive significant production and free cash flow growth… portfolio of high-return locations provides for 10+ years of inventory life… excited about… Gulf Coast LNG projects increasing regional demand for natural gas.”
  • Call highlight (Sean Woolverton): “Adjusted EBITDA of $141 million… highest quarterly EBITDA in SilverBow’s history… we generated $18 million of free cash flow and reduced debt by $78 million… increasing our full year free cash flow guidance to a range of $20 million to $40 million.”
  • Call on Q4 guidance composition: “The guide we put out… was for standalone SilverBow only… once we close [Chesapeake] and update… you’ll see a true-up with… projections.”

Q&A Highlights

  • Guidance vs consensus: Management clarified Q4 guidance excludes any Chesapeake contribution; analysts likely modeled mid-quarter close—true-up will follow post-close .
  • Capital allocation pivot: After an oil-focused YTD program, one rig moved back to Webb County gas with a four-well pad flowing back; positioning for gas uplift in early 2024 .
  • Deleveraging path: Target to delever to ~1.0x by YE24 supported by acquisition synergies and enhanced liquidity from upsized facilities and equity raise .
  • Pipeline takeaway: Management expects constraints to ease as new capacity comes online; multi-year agreements underpin gas development .

Estimates Context

  • S&P Global Wall Street consensus data was unavailable for SBOW due to a mapping error in the SPGI feed (GetEstimates failure). We therefore reference third-party sources for directional context.
  • External consensus previews: revenue est ~$178.0M and EPS est ~$2.27 ahead of the print; actual reported revenue was $174.0M and adjusted EPS was cited at ~$2.28 by AP, implying slight revenue miss and EPS beat on a non-GAAP basis .
  • TipRanks noted revenue consensus $167.8M vs actual $174.0M—an alternative dataset implying a beat; datapoints differ across aggregators—investors should anchor future estimate comparisons to S&P Global once mapping is restored .

Key Takeaways for Investors

  • Liquids mix shift and oil growth drove resilient cash generation despite weak gas pricing; operational efficiencies and lower D&C costs underpin margins into 2024 .
  • Q3 was a fundamental inflection with record Adjusted EBITDA and positive FCF; leverage fell to 1.34x, and net debt declined ~$79M QoQ including the acquisition deposit .
  • Near-term trading catalyst: clarity on Chesapeake close and pro forma updates (borrowing base to $1.2B; second lien to $500M), plus Q4 gas uplift from Webb County pad completions and easing takeaway .
  • FY23 outlook improved (production and FCF raised) with capex held; Q4 guide is standalone—expect post-close revisions to align with analysts’ pro forma modeling .
  • Hedging remains robust (79% of total production hedged for remainder of 2023), mitigating commodity downside while preserving upside via collars/swaps .
  • Watch cost metrics: LOE and T&P per Mcfe elevated vs prior year due to acquisitions/fees; continued efficiency gains and scale from the acquisition should drive unit cost improvements .
  • Medium-term thesis: scaled Eagle Ford pure-play, balanced commodity exposure, expanding inventory, and a path to ~1.0x leverage by YE24—positioned for multiple compression and FCF yield expansion on execution .