SilverBow Resources Inc. agreed to an Eagle Ford Shale bolt-on acquisition in the Karnes trough for $87 million on Oct. 3 marking SilverBow’s first transaction since adopting a poison pill last month.
“This transaction fits our disciplined growth strategy of adding production at attractive valuations and increasing our high-quality inventory across both the Eagle Ford and Austin Chalk formations,” SilverBow CEO Sean Woolverton commented in a company release.
On Sept. 20, SilverBow said it adopted a poison pill provision in response to “significant accumulations” of its stock. Activist investor Kimmeridge Energy later disclosed in a regulatory filing that it had spent more than $100 million to acquire 14.7% of SilverBow’s shares, signaling a potential takeover stance toward the small-cap Eagle Ford operator.
Despite the threat of takeover, SilverBow has remained active in the A&D market. According to Woolverton, the acquisition on Oct. 3 marks SilverBow’s seventh transaction announced since August 2021, and the second strategic bolt-on in SilverBow’s liquids-weighted position in the Karnes trough.
“SilverBow continues to identify and execute on strategic opportunities that maximize free cash flow and increase stakeholder value,” he said in the Oct. 3 release.
According to the release, SilverBow entered the agreement to acquire the bolt-on assets in the Karnes trough from an undisclosed seller for $87 million in cash. The acquisition adds 5,200 net acres in the oil and condensate windows of Dewitt and Gonzales counties in South Texas. June net production was approximately 1,100 boe/d (44% oil).
Woolverton said the acquisition is comprised of a mix of incremental working interest on SilverBow’s existing acreage and new adjacent acreage, which provides for “extended lateral lengths, increased drilling locations and enhanced returns for our optimized development program.”
“The enhanced economics from this transaction supports further oil development in this area in 2023,” he said.
In combination with its existing position, SilverBow expects the acquisition to create a consolidated 13,000 net acre block in the Karnes trough with 100 high rate-of-return drilling locations. The combined position will also lead to optimized development by allowing for 70,000 additional lateral ft to be drilled with 12 fewer wells, according to the company release.
Additionally, SilverBow also noted significant upside in the Austin Chalk, which the company said has been de-risked with one well in the center of the acreage block having produced over 200,000 barrels of oil to date.
SilverBow intends to fund the acquisition and related fees and expenses with cash on hand and borrowings under its revolving credit facility. The acquisition has an effective date of June 1, and is expected to close in the fourth quarter.
Gibson, Dunn & Crutcher LLP is advising SilverBow Resources in the acquisition led by partner Stephen Olson and of counsel Adam Whitehouse. The Gibson Dunn corporate team also includes associates Samantha Astrich and Michael Holmes. Partner Michael Cannon is advising on tax aspects.