Oil and gas company SilverBow Resources, Inc. (NYSE: SBOW) will acquire two oil and gas companies, namely Sundance Energy, Inc. and some of its affiliates as well as SandPoint Resources, in a deal that will expand SilverBow’s acreage in Texas’ oil-rich Eagle Ford region and offer strategic value to the companies.
According to the April 14 agreement, SilverBow will acquire Sundance Energy for $354 million of which $225 million will be in cash and 4.1 million shares of SilverBow common stock valued at $129 million based on its 30-day weighted average price as of April 8, 2022. There will also be up to $15 million of contingent payments depending on future commodity prices. Additionally, there is a $16.5 million downward adjustment to the cash consideration at closing because of the assumption of Sundance’s existing hedge book. The deal has a 9.04% indemnity deductible; the total cap is $32 million.
As stated in the filings, the Sundance deal provides a “compelling industrial logic given highly contiguous acreage to SilverBow’s existing position; adds 39,000 net acres” in four Texas counties. In January 2022, Sundance had a net production of 11,100 Boe/d (84% liquids/65% oil) it had a proved developed producing PV-10 of around $277 million as well as approximately 200 gross/ 155 net de-risked, high return locations with IRRs at more than 200% for April 6, 2022 NYMEX strip pricing. Lastly, it had a 2022E adjusted EBITDA of approximately $170 million, which implies a 2.1x purchase price multiple. It is also expected to add significant free cash flow in 2022.
Additionally, SilverBow also announced that it would be acquiring certain assets from SandPoint Resources, LLC’s subsidiary SandPoint Operating LLC for a total price of $71 million comprised of $31 million in cash and 1.3 million SilverBow shares valued at approximately $40 million based on the 30-day volume weighted average price as of April 8, 2022. Accordingly, the “oil and gas assets target the Eagle Ford and Olmos formations in La Salle and McMullen Counties” in Texas. This deal is expected to close in Q2 2022 pending customary closing conditions.
As noted in the filings, the projected full year 2022 metrics for the pro forma company that will include Sundance and SandPoint are: “net production of 300-330 MMcfe/d (64% gas)”; “adjusted EBITDA of $490-$530 million”; “capital expenditures of $260-$300 million”; and FCF of $180-$250 million.” Reportedly, this increases 2022E FCF per share by approximately 50% compared to just SilverBow and there is expected to by $1 billion in FCF generated through 2024. The deals also increase SilverBow’s acreage to around 198,000 net acres and expands in inventory. The filings list other benefits to the transactions.
“Today’s transformative news builds on our recent series of transactions while advancing a number of our strategic objectives,” Sean Woolverton, SilverBow’s Chief Executive Officer, said in a press release. “These deals mark the fourth and fifth acquisitions we have announced since the second half of last year, which cumulatively total over $550 million of transaction value. We are significantly increasing SilverBow’s size, scale and cash flow while maintaining a conservative balance sheet and a leverage ratio of less than 1.0x by year-end 2022. Pro forma for the transactions, liquids production will comprise a third of our production mix, allowing us to capture margin uplift from the current strength in liquids pricing. SilverBow will now have even greater optionality to allocate capital between both oil and gas development, which has been a cornerstone of the Company’s strategy over the last few years.”
The Sundance transaction is expected to close in Q3 2022 subject to customary closing conditions and SilverBow shareholder approval; the deal has already been approved by both companies’ respective board of directors.
SilverBow intends to finance the cash portion of the transactions with cash on-hand and borrowing from its credit facility.
Sundance Energy is represented by Kirkland & Ellis LLP and its financial advisor is Piper Sandler & Co. and TD Securities (USA) LLC. SilverBow is represented by Gibson, Dunn & Crutcher LLP and its financial advisor is Barclays.
SilverBow’s other recent acquisitions include acquiring assets in the Eagle Ford for approximately $33 million in August 2021 and in October 2021 it announced it would acquire oil-weighted assets in the Eagle Ford from two sellers for $75 million.
Prior to the announcement, SilverBow’s stock was valued at $39.71 on April 13. When it was announced on April 14, its stock was valued at $38.40. Days later on April 18, its stock closed at $38.61.
