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SilverBow Resources Announces Second Quarter 2018 Results

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SilverBow Resources, Inc. (NYSE:SBOW) ("SilverBow" or the "Company")
today announced operating and financial results for the second quarter
2018. Highlights include:

  • Total production averaged approximately 160 million cubic feet of
    natural gas equivalent per day ("Mmcfe/d")
    • Current production of ~200 Mmcfe/d representing ~33% growth in
      last 30 days
    • Third Quarter production guidance of 187 - 204 Mmcfe/d
  • Latest Upper Eagle Ford wells outperforming type curves
  • Revenues of $51.3 million, Net Income of $2.3 million, and Adj. EBITDA
    (a non-GAAP measure) of $31.3 million
  • Lease operating expenses of $0.26/Mcfe which represents the Company's
    first full quarter of LOE without the previously divested AWP Olmos
    wells
  • Crude oil and natural gas realizations in the second quarter were 101%
    and 105% of WTI and Henry Hub, respectively, excluding hedging, as a
    result of favorable basis pricing in the Eagle Ford
  • Maintained strong balance sheet with $255 million of liquidity

MANAGEMENT COMMENTS

Sean Woolverton, SilverBow's Chief Executive Officer, commented, "The
second quarter marked another solid performance for the Company as we
continued to deliver consistent results across our asset base. While we
are encouraged by results to date, the third quarter results will be a
pivot point in the growth trajectory of the Company and will more fully
reflect the pace and nature of our drilling program. The midpoint of our
third quarter 2018 guidance reflects a significant increase in
production over our second quarter 2018 results. Additionally, our
two-rig program has allowed us to secure key completion services, which
greatly enhance our ability to control the quality, timing and costs of
our capital program."

"While our drilling and completion activities have increased, our team
continues to find efficiencies in our business to lower our cost
structure. Our lease operating expenses on a per unit basis were
$0.26/Mcfe in the second quarter compared to $0.36/Mcfe in the same
period a year ago - a 28% decrease. Our general and administrative costs
on a per unit basis declined 22% year-over-year to $0.40/Mcfe.
Additionally, our results in the quarter benefited from strong crude oil
and natural gas differentials resulting from advantaged pricing dynamics
in the Eagle Ford. We continue to advance our Eagle Ford growth strategy
and believe we are positioned for an impressive production ramp over the
back half of this year. Our operations team is executing on several
growth initiatives, including testing stacked pay zones on our acreage,
optimizing stimulations and further delineating the Southern Eagle Ford
gas fairway. The improved performance of our Upper Eagle Ford wells at
Fasken reflect our completion optimization efforts. Our goal to be a
leading low-cost gas company is now being realized with our intense
focus on per unit costs. We are excited about where the Company is now
positioned."

OPERATIONS HIGHLIGHTS

The second quarter marked the first full quarter of running two drilling
rigs for the Company. As such, capital activity expanded accordingly,
and the growth is now being realized as wells from this activity are
being completed and brought to sales. For the first half of the year,
the Company brought seven net wells to sales. For the second half of the
year, the Company expects to bring 18-20 net wells to sales, of which
eight were brought on in the month of July.

During the second quarter 2018, the Company spud seven gross (seven net)
wells while completing seven gross (six net) wells. The Company produced
137 Mmcf/d of gas in the second quarter, driven by four completions
spread across its Oro Grande and AWP areas and three completions (two
net) in Fasken. Oil production of 1,546 Bbls/d was driven by better than
anticipated performance from operational enhancements at the Company's
Artesia and Northern AWP assets. For the full year, the Company remains
on track to drill 31-33 and complete 25-27 net wells with the majority
of the activity occurring in the second half of the year.

The Company continues to evaluate completion designs across its asset
base, assessing stage lengths, clusters per stage, fluid volumes and
proppant types and concentrations. The Company is integrating new
concepts to improve asset performance, increase capital efficiency and
reduce operating costs.

PRODUCTION VOLUMES, OPERATING COSTS, AND REALIZED PRICES

SilverBow's total net production for the second quarter averaged
approximately 160 Mmcfe/d. Production mix for the quarter consisted of
approximately 86% natural gas, 8% NGLs, and 6% oil.

Lease operating expenses during the second quarter of $0.26/Mcfe came in
better than the Company's guidance range, primarily driven by continued
cost reduction initiatives.

General and administrative costs of $0.40/Mcfe were lower than the
$0.51/Mcfe reported in the second quarter of 2017. After deducting $1.3
million of non-cash compensation expense, cash general and
administrative costs were $4.5 million, which compared favorably to
guidance due to ongoing efforts to streamline the workforce and reduce
associated administrative costs.

Transportation and processing expenses came in at $0.37/Mcfe while
production and ad valorem taxes were 5.2% of oil and gas revenues for
the quarter. Production and ad valorem taxes were lower compared to
first quarter levels primarily due to severance tax adjustments on wells
qualifying for reduced rates. The Company's ad valorem taxes are based
on the value of developed reserves, which increased significantly during
2017.

The Company's average realized natural gas price, excluding the effect
of hedging, was $2.93/Mcf compared to $3.00/Mcf in the first quarter of
2018. The average realized crude oil selling price, excluding the effect
of hedging, was $68.53/Bbl in the quarter, up from $64.59/Bbl in the
first quarter. The average realized NGL selling price in the quarter was
$25.36/Bbl versus $22.39/Bbl in the first quarter.

FINANCIAL RESULTS

The Company reported total oil and gas revenues of $51.3 million for the
second quarter 2018. On a GAAP basis, the Company reported net income
of $2.3 million for the quarter, which includes a loss on the value of
the Company's hedge portfolio of $10.8 million.

The Company reported Adjusted EBITDA of $31.3 million in the quarter.
Adjusted EBITDA is a non-GAAP financial measure. Please see the tables
included with today's news release for a reconciliation of net income to
Adjusted EBITDA.

Capital expenditures incurred during the quarter totaled approximately
$72 million.

2018 GUIDANCE

The Company reiterated its 2018 capital expenditure budget of $245 to
$265 million and tightened its average full year production to 179 - 191
MMcfe/d from 175 - 195 MMcfe/d. For the third quarter 2018, the Company
is guiding for 187 - 204 Mmcfe/d. Additional detail concerning the
Company's third quarter 2018 and full year financial and operational
guidance can be found in the table included with today's news release
and the Corporate Presentation uploaded to the Investor Relations
section of the Company's website before the conference call.

HEDGING UPDATE

Hedging continues to be an important element of SilverBow's strategy.
The Company maintains an active hedging program to provide predictable
cash flows while still allowing for flexibility in capturing increases
in prices. SilverBow has approximately 70% of total production volumes
hedged for the remainder of 2018 as of June 30, 2018, using the
mid-point of production guidance. The Company continues to layer on
additional hedges when prices are favorable. Please see SilverBow's Form
10-Q filing, which the Company expects to be filed on Wednesday, August
8, 2018, for a detailed summary of derivative contracts.

CAPITAL STRUCTURE AND LIQUIDITY

The Company had liquidity of $255 million as of June 30, 2018, primarily
consisting of availability on the Company's $330 million bank credit
facility. As of August 1, 2018, the Company had 11.7 million total
common shares outstanding.

CONFERENCE CALL & UPDATED INVESTOR PRESENTATION

SilverBow will host a conference call for investors on Wednesday, August
8, 2018, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time).
Interested investors can listen to the call by dialing 1-877-420-2751
(U.S.) or 1-442-275-1680 (International) and requesting SilverBow's
Second Quarter 2018 Earnings Conference Call or by visiting our website.

A simultaneous webcast of the call may be accessed over the internet by
visiting our website at www.sbow.com,
clicking on "Investor Relations" and "Events and Presentations" and then
clicking on the "Second Quarter 2018 Earnings Conference Call" link. The
webcast will be archived for replay on the SilverBow website for 14
days. Additionally, an updated Corporate Presentation will be uploaded
to the Investor Relations section of the Company's website before the
conference call.

ABOUT SILVERBOW RESOURCES, INC.

SilverBow Resources, Inc. (NYSE:SBOW) is a Houston-based energy company
actively engaged in the exploration, development, and production of oil
and gas in the Eagle Ford Shale in South Texas. With almost 30 years of
history operating in South Texas, the Company possesses a significant
understanding of regional reservoirs which we leverage to assemble high
quality drilling inventory while continuously enhancing our operations
to maximize returns on capital invested. For more information, please
visit www.sbow.com.

FORWARD-LOOKING STATEMENTS

This release includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are subject to a number of risks and
uncertainties, many of which are beyond our control. All statements,
other than statements of historical fact included in this press release,
regarding our strategy, future operations, financial position, estimated
production levels, expected oil and natural gas pricing, estimated oil
and natural gas reserves or the present value thereof, reserve
increases, capital expenditures, budget, projected costs, prospects,
plans and objectives of management are forward-looking statements.

Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to, the following
risks and uncertainties:

  • volatility in natural gas, oil and NGL prices;
  • future cash flows and their adequacy to maintain our ongoing
    operations;
  • liquidity, including our ability to satisfy our short- or long-term
    liquidity needs;
  • our borrowing capacity, future covenant compliance, cash flows and
    liquidity;
  • operating results;
  • asset disposition efforts or the timing or outcome thereof;
  • ongoing and prospective joint ventures, their structure and substance,
    and the likelihood of their finalization or the timing thereof;
  • the amount, nature and timing of capital expenditures, including
    future development costs;
  • timing, cost and amount of future production of oil and natural gas;
  • availability of drilling and production equipment or availability of
    oil field labor;
  • availability, cost and terms of capital;
  • drilling of wells;
  • availability and cost for transportation of oil and natural gas;
  • costs of exploiting and developing our properties and conducting other
    operations;
  • competition in the oil and natural gas industry;
  • general economic conditions;
  • opportunities to monetize assets;
  • effectiveness of our risk management activities;
  • environmental liabilities;
  • counterparty credit risk;
  • governmental regulation and taxation of the oil and natural gas
    industry;
  • developments in world oil markets and in oil and natural gas-producing
    countries; and
  • uncertainty regarding our future operating results.

All forward-looking statements speak only as of the date this news
release. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and
expectations reflected in or suggested by the forward-looking statements
we make in this release are reasonable, we can give no assurance that
these plans, intentions or expectations will be achieved. We disclose
important factors that could cause our actual results to differ
materially from our expectations under "Risk Factors" in Item 1A of our
annual report on Form 10-K for the year ended December 31, 2017. These
cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.

All subsequent written and oral forward-looking statements attributable
to us or to persons acting on our behalf are expressly qualified in
their entirety by the foregoing. We undertake no obligation to publicly
release the results of any revisions to any such forward-looking
statements that may be made to reflect events or circumstances after the
date of this release or to reflect the occurrence of unanticipated
events.

(Financial Highlights to Follow)

 

Condensed Consolidated Balance Sheets

SilverBow Resources, Inc. and Subsidiaries (in thousands, except
share amounts)

 
        June 30, 2018       December 31, 2017
   
ASSETS
Current Assets:
Cash and cash equivalents $ 6,611 $ 7,806
Accounts receivable, net 22,057 27,263
Fair value of commodity derivatives 1,775 5,148
Other current assets 3,090   2,352  
Total Current Assets 33,533   42,569  
Property and Equipment:

Property and Equipment, full cost method, including $53,865 and
$50,377

of unproved property costs not being amortized at the end of each
period

796,052 712,166
Less – Accumulated depreciation, depletion, amortization & impairment (242,997 ) (216,769 )
Property and Equipment, Net 553,055 495,397
Fair value of long-term commodity derivatives 3,332 2,553
Other Long-Term Assets 7,076   10,751  
Total Assets $ 596,996   $ 551,270  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 35,350 $ 44,437
Fair value of commodity derivatives 11,742 5,075
Accrued capital costs 41,821 10,883
Accrued interest 2,597 2,106
Undistributed oil and gas revenues 10,953   12,996  
Total Current Liabilities 102,463   75,497  
 
Long-Term Debt, net 274,577 265,325
Deferred Tax Liabilities 328
Asset Retirement Obligations 4,258 8,678
Fair value of long-term commodity derivatives 5,427 2,758
Other Long-Term Liabilities 2,500 5,554
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none
issued

Common stock, $.01 par value, 40,000,000 shares authorized,
11,733,036

and 11,621,385 shares issued and 11,667,165 and 11,570,621 shares

outstanding, respectively

117 116
Additional paid-in capital 282,726 279,111
Treasury stock, held at cost, 65,871 and 50,764 shares (1,870 ) (1,452 )
Retained earnings (Accumulated deficit) (73,530 ) (84,317 )
Total Stockholders' Equity 207,443   193,458  
Total Liabilities and Stockholders' Equity $ 596,996   $ 551,270  
 
 

Condensed Consolidated Statements of Operations

SilverBow Resources, Inc. and Subsidiaries (in thousands, except
per-share amounts)

 
       

Three Months

Ended June 30, 2018

     

Three Months

Ended June 30, 2017

Revenues:
Oil and gas sales $ 51,347 $ 45,782
 
Operating Expenses:
General and administrative, net 5,794 6,811
Depreciation, depletion, and amortization 13,096 10,828
Accretion of asset retirement obligations 84 576
Lease operating costs 3,760 4,776
Transportation and gas processing 5,421 4,761
Severance and other taxes 2,662   2,280  
Total Operating Expenses 30,817   30,032  
 
Operating Income (Loss) 20,530 15,750
 
Non-Operating Income (Expense)
Gain (loss) on commodity derivatives, net (10,752 ) 5,132
Interest expense, net (6,585 ) (4,642 )
Other income (expense), net (546 ) 1  
 
Income (Loss) Before Income Taxes 2,647 16,241
 
Provision (Benefit) for Income Taxes 328    
 
Net Income (Loss) $ 2,319   $ 16,241  
 
Per Share Amounts-
 
Basic: Net Income (Loss) $ 0.20 $ 1.41
 
Diluted: Net Income (Loss) $ 0.20 $ 1.41
 
Weighted Average Shares Outstanding - Basic 11,655 11,487
 
Weighted Average Shares Outstanding - Diluted 11,757 11,554
 
 
       

Six Months Ended

June 30, 2018

   

Six Months Ended

June 30, 2017

Revenues:
Oil and gas sales $ 104,099       $ 88,194  
 
Operating Expenses:
General and administrative, net 11,370 16,645
Depreciation, depletion, and amortization 26,228 20,543
Accretion of asset retirement obligations 243 1,140
Lease operating costs 8,721 10,549
Transportation and gas processing 10,446 9,146
Severance and other taxes 5,692       3,898  
Total Operating Expenses 62,700       61,921  
 
Operating Income (Loss) 41,399 26,273
 
Non-Operating Income (Expense)
Gain (loss) on commodity derivatives, net (17,107 ) 16,068
Interest expense, net (12,474 ) (8,249 )
Other income (expense), net (703 ) (141 )
 
Income (Loss) Before Income Taxes 11,115 33,951
 
Provision (Benefit) for Income Taxes 328    
 
Net Income (Loss) $ 10,787   $ 33,951  
 
Per Share Amounts-
 
Basic: Net Income (Loss) $ 0.93 $ 2.99
 
Diluted: Net Income (Loss) $ 0.92 $ 2.97
 
Weighted Average Shares Outstanding - Basic 11,629 11,360
 
Weighted Average Shares Outstanding - Diluted 11,742 11,445
 
 

Condensed Consolidated Statements of Cash Flows

SilverBow Resources, Inc. and Subsidiaries (in thousands)

 
       

Six Months

Ended June

30, 2018

     

Six Months

Ended June

30, 2017

Cash Flows from Operating Activities:      
Net income (loss) $ 10,787 $ 33,951
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation, depletion, and amortization 26,228 20,543
Accretion of asset retirement obligations 243 1,140
Deferred income taxes 328
Share-based compensation expense 2,675 3,136
(Gain) Loss on derivatives, net 17,107 (16,068 )
Cash settlement (paid) received on derivatives (1,935 ) (2,586 )
Settlements of asset retirement obligations (144 ) (1,894 )
Write down of debt issuance cost 2,401
Other 3,374 482
Change in operating assets and liabilities-
(Increase) decrease in accounts receivable and other current assets 2,332 (1,486 )
Increase (decrease) in accounts payable and accrued liabilities (8,439 ) 4,437
Increase (decrease) in accrued interest 491         (90 )
Net Cash Provided by (used in) Operating Activities 53,047         43,966  
Cash Flows from Investing Activities:
Additions to property and equipment (84,097 ) (85,655 )
Proceeds from the sale of property and equipment 26,924 460
Payments on property sale obligations (6,042 )
Transfer of company funds from restricted cash         (15 )
Net Cash Provided by (Used in) Investing Activities (63,215 )       (85,210 )
Cash Flows from Financing Activities:
Proceeds from bank borrowings 122,300 300,000
Payments of bank borrowings (113,300 ) (287,000 )
Net proceeds from issuances of common stock 708 39,244
Purchase of treasury shares (418 ) (618 )
Payments of debt issuance costs (317 )       (4,073 )
Net Cash Provided by (Used in) Financing Activities $ 8,973         $ 47,553  
 
Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash (1,195 ) 6,309
Cash, Cash Equivalents and Restricted Cash, at Beginning of Period 8,026         497  
Cash, Cash Equivalents and Restricted Cash at End of Period $ 6,831         $ 6,806  
 
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest, net of amounts capitalized $ 10,926 $ 8,847
Changes in capital accounts payable and capital accruals $ 35,299 $ 5,356
Changes in other long-term liabilities for capital expenditures $ (2,500 ) $
 

SilverBow Resources, Inc.

Non-GAAP Financial Measures

Reconciliation of Net Income (GAAP) to Adjusted EBITDA
(Non-GAAP)

(In thousands)

(Unaudited)

We present adjusted EBITDA attributable to common stockholders
("Adjusted EBITDA") in addition to our reported net income (loss) in
accordance with U.S. GAAP. Adjusted EBITDA is a non-GAAP financial
measure that is used as a supplemental financial measure by our
management and by external users of our financial statements, such as
investors, commercial banks and others, to assess our operating
performance as compared to that of other companies in our industry,
without regard to financing methods, capital structure or historical
costs basis. It is also used to assess our ability to incur and service
debt and fund capital expenditures.

Our Adjusted EBITDA should not be considered an alternative to net
income (loss), operating income (loss), cash flows provided by (used in)
operating activities or any other measure of financial performance or
liquidity presented in accordance with U.S. GAAP. Our Adjusted EBITDA
may not be comparable to similarly titled measures of another company
because all companies may not calculate Adjusted EBITDA in the same
manner.

       
 

Three Months Ended

June 30, 2018

   

Three Months Ended

June 30, 2017

Net Income (Loss) $ 2,319     $ 16,241
Plus:
Depreciation, depletion and amortization 13,096 10,828
Accretion of asset retirement obligations 84 576
Interest expense 6,585 4,642
Derivative (gain)/loss 10,752 (5,132 )
Derivative cash settlements collected/(paid) (1) (3,212 ) (1,621 )
Income tax expense/(benefit) 328
Share-based compensation expense 1,316       1,632  
Adjusted EBITDA $ 31,268       $ 27,166  

(1) This includes accruals for settled contracts covering
commodity deliveries during the period where the actual cash
settlements

occur outside of the period.

 
         

Six Months Ended

June 30, 2018

   

Six Months Ended

June 30, 2017

Net Income (Loss) $ 10,787     $ 33,951
Plus:
Depreciation, depletion and amortization 26,228 20,543
Accretion of asset retirement obligations 243 1,140
Interest expense 12,474 8,249
Derivative (gain)/loss 17,107 (16,068 )
Derivative cash settlements collected/(paid) (1) (2,476 ) (2,289 )
Income tax expense/(benefit) 328
Share-based compensation expense 2,675       3,136  
Adjusted EBITDA $ 67,366       $ 48,662  

(1) This includes accruals for settled contracts covering
commodity deliveries during the period where the actual cash
settlements

occur outside of the period.

 
 

Production Volumes & Pricing (Unaudited)

SilverBow Resources, Inc. and Subsidiaries

 
     

Three Months Ended

June 30, 2018

     

Three Months Ended

June 30, 2017

Production volumes:      
Oil (MBbl) (1) 141 139
Natural gas (MMcf) 12,433 11,078
Natural gas liquids (MBbl) (1) 211         228
Total (MMcfe) 14,540         13,282
 
Oil, Natural gas and Natural gas liquids sales:
Oil $ 9,638 $ 6,527
Natural gas 36,369 35,043
Natural gas liquids 5,339         4,215
Total $ 51,347         $ 45,785
 
Average realized price:
Oil (per Bbl) $ 68.53 $ 46.82
Natural gas (per Mcf) 2.93 3.16
Natural gas liquids (per Bbl) 25.36         18.49
Average per Mcfe $ 3.53         $ 3.45
 
(1) Oil and NGLs are converted at the rate of one barrel of oil
equivalent to six Mcfe
 
 

Six Months Ended

June 30, 2018

     

Six Months Ended

June 30, 2017

Production volumes:
Oil (MBbl) (1) 318 286
Natural gas (MMcf) 24,349 21,182
Natural gas liquids (MBbl) (1) 459         432
Total (MMcfe) 29,009         25,488
 
Oil, Natural gas and Natural gas liquids sales:
Oil $ 21,078 $ 13,728
Natural gas 72,136 66,106
Natural gas liquids 10,900         8,363
Total $ 104,113         $ 88,197
 
Average realized price:
Oil (per Bbl) $ 66.33 $ 48.07
Natural gas (per Mcf) 2.96 3.12
Natural gas liquids (per Bbl) 23.75         19.36
Average per Mcfe $ 3.59         $ 3.46
 
(1) Oil and NGLs are converted at the rate of one barrel of oil
equivalent to six Mcfe
 
 

Third Quarter 2018 & Full Year 2018 Guidance

     
        Guidance
3Q 2018       FY 2018
Production Volumes:      
Oil (Bbls/d) 1,475 - 1,600 1,625 - 1,750
NGLs (Bbls/d) 2,825 - 3,050 2,615 - 2,850
Natural Gas (Mmcf/d)       161 - 176       153 - 163
Million Cubic Feet of Gas Equivalent (Mmcfe/d)       187 - 204       179 - 191
 

Operating Costs & Expenses:

Lease Operating Expense ($/Mcfe) $0.25 - $0.27 $0.26 - $0.27
Transportation & Processing Expense ($/Mcfe) $0.36 - $0.38 $0.34 - $0.36
Production & Ad Val Taxes (% of O&G Revenue) 5.0% - 6.0% 5.0% - 6.0%
Cash G&A, net (in millions) $4.6 - $5.2 $18.1 - $19.1
DD&A Expense ($/Mcfe) $0.90 - $0.95 $0.90 - $0.95
Cash Interest Expense ($MM) $5.5 - $6.5 N/A

Product Pricing:

Natural Gas NYMEX Differential (per Mcf) $0.00 - $0.06 N/A
Crude Oil NYMEX Differential (per Bbl) $0.50 - $1.50 N/A
Natural Gas Liquids (% of WTI) 33% - 36% N/A

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