0000351817false00003518172021-11-192021-11-19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (or Date of Earliest Event Reported): November 19, 2021
SilverBow Resources, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware
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001-8754
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20-3940661
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer
Identification No.)
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920 Memorial City Way, Suite 850
Houston, Texas 77024
(Address of principal executive offices)
(281) 874-2700
(Registrant’s telephone number)
Not Applicable
(Former Name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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SBOW
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New York Stock Exchange
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
EXPLANATORY NOTE
This Current Report on Form 8-K/A amends and supplements the Current Report on Form 8-K of SilverBow Resources, Inc. (the “Company”), dated November 19, 2021 and filed with the Securities and Exchange Commission on November 22, 2021 (the “Initial Form 8-K”), which reported under Item 2.01 that on November 19, 2021, the Company and its operating subsidiary, SilverBow Resources Operating, LLC completed the acquisition of certain oil and gas interests and associated assets (the “Assets”) acquired from Teal Natural Resources, LLC and Castlerock Production, LLC (the “Acquisition”). This amendment is filed to provide the financial statements of a business acquired by the Company and the pro forma financial information of the Company for the Acquisition as required by Item 9.01 of Form 8-K. Except as set forth below, the Initial Form 8-K is unchanged.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired
The audited statement of revenues and direct operating expenses for the Assets for the year ended December 31, 2020, including the notes thereto, are filed herewith as Exhibit 99.1. The unaudited statement of revenues and direct operating expenses for the Assets for the nine months ended September 30, 2021, including the notes thereto, are also as filed herewith as Exhibit 99.1.
(b) Pro forma financial information
The unaudited pro forma condensed combined balance sheet of the Company as of September 30, 2021 and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 and the nine months ended September 30, 2021, including the notes thereto, giving effect to the Acquisition are filed herewith as Exhibit 99.2. The unaudited pro forma financial information gives effect to the Acquisition on the basis, and subject to the assumptions, set forth in accordance with Article 11 of Regulation S-X.
(d) Exhibits
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Exhibit
Number
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Description
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23.1
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99.1
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99.2
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104
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Cover Page Interactive Data File (formatted as Inline XBRL)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: February 2, 2022
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SilverBow Resources, Inc.
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By:
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/s/ Christopher M. Abundis
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Christopher M. Abundis
Executive Vice President, Chief Financial Officer and General Counsel
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EXHIBIT 99.1
Transaction Properties
Table of Contents
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Page
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Report of Independent Auditors
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Statement of Revenues and Direct Operating Expenses of the Transaction Properties for the year ended December 31, 2020 (audited) and for the nine months ended September 30, 2021 (unaudited).
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Notes to Statement of Revenues and Direct Operating Expenses
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Supplemental Oil and Gas Reserve Information (unaudited)
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Independent Auditors’ Report
The Board of Directors and Stockholders of
SilverBow Resources, Inc.
We have audited the accompanying statement of revenues and direct operating expenses of certain oil and gas properties of Teal Natural Resources, LLC and Castlerock Production, LLC acquired by SilverBow Resources, Inc. (the “Transaction Properties”) for the year ended December 31, 2020 and the related notes to the financial statement (the “financial statement”).
Management’s Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of the financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses of the Transaction Properties of Teal Natural Resources, LLC and Castlerock Production, LLC acquired by SilverBow Resources, Inc. for the year ended December 31, 2020 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, as defined in Note 1. The presentation is not intended to be a complete presentation of the financial position, results of operations, or cash flows of the Transaction Properties. Our opinion is not modified with respect to this matter.
/s/ WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
February 2, 2022
Transaction Properties
Statement of Revenues and Direct Operating Expenses
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Year Ended
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(Unaudited)
Nine Months Ended
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December 31, 2020
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September 30, 2021
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Oil and natural gas revenues
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$
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32,085,860
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$
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26,297,849
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Direct operating expenses
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12,853,904
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7,939,561
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Oil and natural gas revenues less direct operating expenses
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$
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19,231,956
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$
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18,358,288
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See Notes to Statement of Revenues and Direct Operating Expenses
Transaction Properties
Notes to Statement of Revenues and Direct Operating Expenses
1. Basis of Presentation
On November 19, 2021, SilverBow Resources, Inc. (“SilverBow”) and its operating subsidiary, SilverBow Resources Operating, LLC (“SilverBow Operating”), closed the previously announced purchase and sale agreement dated October 8, 2021 (the “Purchase Agreement”) with Teal Natural Resources, LLC and Castlerock Production, LLC (the "Company" or the “Sellers”), thereby acquiring oil and gas assets in the Eagle Ford (the “Transaction” and/or "Transaction Properties"). The accompanying Statement of Revenues and Direct Operating Expenses (the "Statement") represent the operated interests in the revenue and direct operating expenses of the Transaction Properties. Consideration for the Transaction was approximately $75.5 million, consisting of $37.6 million paid as cash (“Cash Consideration”) and the remainder paid with 1,351,961 shares of common stock of SilverBow (“Stock Consideration”). The Transaction also includes up to three earn-out payments of $1.6 million per year for each of 2022, 2023 and 2024, contingent upon the average monthly settlement price of NYMEX West Texas Intermediate (“WTI”) crude oil exceeding $70 per barrel for such year (“Contingent Consideration”). The purchase price is subject to customary post-closing adjustments.
The financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the financial position, results of operations, or cash flows of the Transaction Properties, as further discussed below.
The Statement has been derived from the Sellers’ historical financial records and prepared on the accrual basis of accounting. For purposes of these statements, all properties identified in the purchase and sale agreement for the Transaction are included herein. The accompanying Statement varies from a complete income statement in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in that they do not reflect certain expenses incurred in connection with the ownership and operation of the Transaction Properties, including but not limited to depreciation, depletion and amortization, impairments, accretion of asset retirement obligations, general and administrative expenses, interest expense and federal and state income taxes. These costs were not separately allocated to the working interests of the Transaction Properties in the accounting records of the Sellers. In addition, these allocations, if made using historical general and administrative structures and tax burdens, would not produce allocations indicative of the historical performance of the Transaction Properties had they been SilverBow’s properties, due to the differing size, structure, operations and accounting policies of the Sellers as compared to SilverBow. Furthermore, no balance sheet has been presented for the Transaction Properties because the acquired Transaction Properties were not accounted for or operated as a separate subsidiary or division by the Sellers and complete financial statements are not available, nor has information about the Transaction Properties’ operating, investing and financing cash flows been provided for similar reasons. Accordingly, the historical Statement of the Transaction Properties is presented in lieu of the full financial statements required under Item 3-05 of the Securities and Exchange Commission’s Regulation S-X.
The Statement is not indicative of the results of operations for the Transaction Properties on a go forward basis for the reasons including, but not limited to, the omission of various operating expenses.
The accompanying Statement for the nine-month period ended September 30, 2021, is unaudited and has been prepared on the same basis as the annual Statement for the year ended December 31, 2020 and, in the opinion of management, reflects all adjustments necessary to fairly state the Transaction Properties’ excess of revenue over direct operating expenses for the nine-month period ended September 30, 2021.
2. Summary of Significant Accounting Policies
Use of Estimates
The Statement is derived from the historical operating statements of the Sellers. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Statement. Actual results could be different from those estimates.
Revenue Recognition
The Company reported oil and natural gas sales are comprised of revenues from oil, natural gas and natural gas liquids (“NGLs”) sales. Revenues from each product stream are recognized at the point when control of the product is transferred to the customer and collectability is reasonably assured. Prices for our products are either negotiated on a monthly basis or tied to market indices. The Company has determined that these contracts represent performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point. Natural gas revenues are recognized based on the actual volume of natural gas sold to the purchasers. There were no significant imbalances with other revenue interest owners during the year ended December 31, 2020.
The following table provides information regarding our oil and gas sales, by product, reported on the Statement for the year ended December 31, 2020 and the nine months ended September 30, 2021:
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Year Ended
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(Unaudited)
Nine Months Ended
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December 31, 2020
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September 30, 2021
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Oil, natural gas and NGLs sales:
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Oil
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$
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23,051,359
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$
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18,558,968
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Natural gas
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5,096,734
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3,736,106
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NGLs
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3,937,767
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4,002,775
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Total
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$
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32,085,860
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$
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26,297,849
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Direct Operating Expenses
Direct operating expenses are recognized when incurred and consist of the direct expenses associated with the operated interests in the Transaction Properties. Direct operating expenses include lease operating expenses, production taxes and gathering, transportation and processing expenses. Lease operating expenses include lifting costs, compression, well repair expenses, facility maintenance expenses, well workover costs and other field-related expenses. Lease operating expenses also include expenses directly associated with support personnel, support services, equipment and facilities directly related to oil and natural gas production activities. Direct operating expenses do not include corporate overhead, interest expense and income taxes.
3. Commitments and Contingencies
The activities of the Transaction Properties may become subject to potential claims and litigation in the normal course of operations. The Company does not believe that any liability resulting from any pending or threatened litigation will have a material adverse effect on the operations or financial results of the Transaction Properties.
4. Subsequent Events
The Company has evaluated subsequent events through February 2, 2022, the date the Statement was available to be issued, and has concluded that no events need to be reported in relation to this period.
Supplemental Oil and Gas Reserve Information — Unaudited
The following tables summarize the net ownership interest in the estimated quantities of proved oil and natural gas reserves and the standardized measure of discounted future net cash flows (“Standardized Measure”) of the Transaction Properties at December 31, 2020. The proved oil and natural gas reserve estimates and other components of the Standardized Measure are based on reserve studies generally prepared in accordance with the Securities and Exchange Commission. All of the oil and natural gas producing activities related to the Transaction Properties were conducted within the continental United States.
Estimated Quantities of Proved Oil and Natural Gas Reserves
Proved oil and natural gas reserves are the estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions (i.e., prices and costs) existing at the time the estimate is made. Proved developed oil and natural gas reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made.
The following table sets forth the estimated net proved, proved developed and proved undeveloped oil and natural gas reserves related to the Transaction Properties at and for the year ended December 31, 2020.
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Gas
(Mcf)
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Oil
(Bbl)
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NGL
(Bbl)
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Total Mcfe
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2020
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Proved reserves
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Net proved reserves at January 1, 2020
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71,382,258
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16,549,596
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12,626,153
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246,436,752
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Revisions of previous estimates
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(9,506)
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(872,157)
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101,910
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(4,630,991)
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Extensions, discoveries and other additions
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—
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—
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—
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—
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Production
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(2,544,197)
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(662,003)
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(374,349)
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(8,762,306)
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Net proved reserves at December 31, 2020
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68,828,555
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15,015,436
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12,353,714
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233,043,455
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Proved developed reserves, December 31, 2020
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11,100,978
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2,708,072
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1,810,858
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38,214,558
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Proved undeveloped reserves, December 31, 2020
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57,727,577
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12,307,364
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10,542,856
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194,828,897
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Standardized Measure of Discounted Future Net Cash Flows
The Standardized Measure represents the present value of estimated future net cash flows from estimated net oil and natural gas reserves, less future development, production, plugging and abandonment costs, and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows. Production costs do not include depreciation, depletion and amortization of capitalized acquisition, exploration and development costs.
The future cash inflows represent expected revenues from production of period-end quantities of proved reserves based on the 12-month average oil and natural gas index, calculated as the unweighted arithmetic average first-day-of-the-month price for each month during the prior twelve months as prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 932. The average prices (adjusted for quality differentials, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price at the wellhead) related to proved reserves at December 31, 2020 were $37.34/Bbl for oil and $1.84/MMBtu for natural gas.
Estimated future production costs related to period-end reserves are based on period-end costs. Such costs include, but are not limited to, production taxes and direct operating costs. Inflation and other anticipatory costs are not considered until the actual cost change takes effect. Estimated future production costs do not include depreciation, depletion and amortization of capitalized acquisition, exploration and development costs.
Federal income taxes have not been deducted from future production revenues in the calculation of the Standardized Measure as the Sellers’ were pass-through entities for United States income tax purposes and each member is separately taxed on their share of the Transaction Properties’ taxable income. Future income taxes relate to Texas margin taxes associated with Transaction Properties.
The Standardized Measure does not purport, nor should be interpreted, to present the fair market value of the Transaction Properties’ reserves. It is intended to present a standardized disclosure concerning possible future net cash flows from reserves that would result under the assumptions used and ignores future changes in prices and costs and the risks inherent in reserve estimates, among other things. The various assumptions used, including prices, costs, production rates and discount rates, are inherently imprecise. Further, since prices and costs do not remain static, the results are not necessarily indicative of the fair market value of estimated reserves. Accordingly, the estimates of future net cash flows from reserves and the present value thereof may be materially different than actual subsequent results, and the results may not be comparable to estimates disclosed by other oil and natural gas producers.
The following table sets forth the Standardized Measure of discounted future net cash flows related to the Transaction Properties’ estimated net oil and natural gas reserves at December 31, 2020 (in thousands).
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At December 31, 2020
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Future cash inflows
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$
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826,924
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Future production costs
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(256,339)
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Future development costs
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(301,478)
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Future income tax expense
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(4,341)
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Future net cash flows
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264,766
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10% annual discount for estimating timing of cash flows
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(159,113)
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Standardized Measure of discounted future net cash flows
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$
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105,653
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Changes in Standardized Measure of Discounted Future Net Cash Flows
The following table sets forth the changes in Standardized Measure of discounted future net cash flows applicable to estimated net proved oil and natural gas reserves of the Transaction Properties for the period presented (in thousands):
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Net proved reserves at January 1, 2020
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$
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296,097
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Net changes in prices and production costs
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(150,310)
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Net changes in future development costs
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(56)
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Sales of oil and natural gas, net of production costs
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(19,232)
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Revisions of previous quantity estimates
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(38,516)
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Net change in taxes
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1,401
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Accretion of discount
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29,923
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Changes in timing and other
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(13,654)
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Net proved reserves at December 31, 2020
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$
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105,653
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EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On November 19, 2021, SilverBow Resources, Inc. (“SilverBow” or the "Company") and its operating subsidiary, SilverBow Resources Operating, LLC, closed the previously announced purchase and sale agreement dated October 8, 2021 (the “Purchase Agreement”) with Teal Natural Resources, LLC and Castlerock Production, LLC (the “Sellers”), thereby acquiring oil and gas assets in the Eagle Ford (the “Transaction” and/or "Eagle Ford Acquisition"). Consideration for the Transaction was approximately $75.5 million, $37.6 million paid as cash and the remainder paid with 1,351,961 shares of common stock of SilverBow (“Common Stock”). The Transaction also includes up to three earn-out payments of $1.6 million per year for each of 2022, 2023 and 2024, contingent upon the average monthly settlement price of NYMEX West Texas Intermediate (“WTI”) crude oil exceeding $70 per barrel for such year (“Contingent Consideration”). The Contingent Consideration had a fair value of $1.9 million as of the acquisition date.
The cash portion of the Transaction was funded primarily with cash on hand and borrowings of approximately $37.0 million on the Company's existing credit facility.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the nine-month period ended September 30, 2021 and the year ended December 31, 2020 presented below have been prepared based on SilverBow’s historical Consolidated Statements of Operations for such periods and the historical Statement of Revenues and Direct Operating Expenses of properties acquired in the Transaction, and were prepared as if the Transaction and related financing had occurred on January 1, 2020. The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2021 presented below was prepared based on SilverBow’s historical Consolidated Balance Sheet at September 30, 2021 and was prepared as if the Transaction and related financing had occurred on September 30, 2021.
Final working capital and other post-closing adjustments have not been reflected in these unaudited pro forma condensed combined financial information. The Company expects to account for the Eagle Ford Acquisition as an asset acquisition under accounting principles generally accepted in the United States of America, as the assets and operations acquired in the Transaction do not meet the definition of a business under the Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (referred to as "ASC 805"), since substantially all of the fair value of the assets acquired are concentrated in a single asset group. Additionally, the unaudited pro forma condensed combined financial information does not reflect costs of integration activities or benefits that may result from other efficiencies.
The pro forma condensed combined financial statement information is based on assumptions and include adjustments as explained in the notes herein. The underlying pro forma adjustments are based upon currently available information and include certain estimates and assumptions made by the Company’s management; accordingly, actual results could differ materially from the pro forma information. Management believes that the assumptions used to prepare the unaudited pro forma condensed combined financial information and accompanying notes provide a reasonable and reliably determinable basis for presenting the significant effects of the above transactions. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma condensed combined financial information. The following unaudited pro forma condensed combined statements of operations do not purport to represent what the Company’s results of operations would have been if the Transaction had occurred on January 1, 2020. The unaudited pro forma condensed combined financial information should be read together with SilverBow’s Annual Report on Form 10-K for the year ended December 31, 2020 and the historical Statement of Revenues and Direct Operating Expenses of the properties acquired in the Eagle Ford Acquisition and the notes thereto filed as Exhibit 99.1 to the Current Report on Form 8-K of which this Exhibit 99.2 is a part.
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SilverBow Resources, Inc and Subsidiary Pro Forma Condensed Combined Balance Sheet As of September 30, 2021 (Unaudited)
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(in thousands, except per share amounts)
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As Reported
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Eagle Ford Acquisition (b)
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Pro Forma Combined
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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988
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$
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(581)
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(a)
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$
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407
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Accounts receivable, net
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44,190
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—
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44,190
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Fair value of commodity derivatives
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668
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—
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668
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Other current assets
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4,016
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—
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4,016
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Total Current Assets
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49,862
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(581)
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49,281
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Property and Equipment:
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Property and equipment, full cost method, including $24,988 of unproved property costs not being amortized at the end of the period
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1,476,586
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78,278
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1,554,864
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Less – Accumulated depreciation, depletion, amortization & impairment
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(846,822)
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—
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(846,822)
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Property and Equipment, Net
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629,764
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78,278
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708,042
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Right of Use Assets
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15,787
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2,041
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17,828
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Fair Value of Long-Term Commodity Derivatives
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18
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—
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18
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Other Long-Term Assets
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2,904
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—
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2,904
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Total Assets
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$
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698,335
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$
|
79,738
|
|
|
$
|
778,073
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
38,000
|
|
|
$
|
302
|
|
|
$
|
38,302
|
|
|
Fair value of commodity derivatives
|
94,778
|
|
|
—
|
|
|
94,778
|
|
|
Accrued capital costs
|
20,482
|
|
|
—
|
|
|
20,482
|
|
|
Accrued interest
|
846
|
|
|
—
|
|
|
846
|
|
|
Current lease liability
|
6,292
|
|
|
994
|
|
|
7,286
|
|
|
Undistributed oil and gas revenues
|
17,328
|
|
|
344
|
|
|
17,672
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
177,726
|
|
|
1,640
|
|
|
179,366
|
|
|
Long-Term Debt, Net
|
393,726
|
|
|
37,000
|
|
(a)
|
430,726
|
|
|
Non-Current Lease Liability
|
9,723
|
|
|
1,047
|
|
|
10,770
|
|
|
Deferred Tax Liabilities
|
303
|
|
|
—
|
|
|
303
|
|
|
Asset Retirement Obligations
|
4,706
|
|
|
273
|
|
|
4,979
|
|
|
Fair Value of Long-Term Commodity Derivatives
|
21,989
|
|
|
1,855
|
|
|
23,844
|
|
|
Other Long-Term Liabilities
|
846
|
|
|
—
|
|
|
846
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
Common stock
|
136
|
|
|
14
|
|
(a)
|
150
|
|
|
Additional paid-in capital
|
324,106
|
|
|
37,909
|
|
(a)
|
362,015
|
|
|
Treasury stock, held at cost
|
(2,984)
|
|
|
—
|
|
|
(2,984)
|
|
|
Accumulated deficit
|
(231,942)
|
|
|
—
|
|
|
(231,942)
|
|
|
Total Stockholders’ Equity
|
89,316
|
|
|
37,923
|
|
|
127,239
|
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
698,335
|
|
|
$
|
79,738
|
|
|
$
|
778,073
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SilverBow Resources, Inc and Subsidiary Pro Forma Condensed Combined Statement of Operations For Nine Months Ended September 30, 2021 (Unaudited)
|
|
(in thousands, except per share amounts)
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Transaction Accounting Adjustments
|
|
Pro Forma Combined
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
$
|
255,850
|
|
|
$
|
26,298
|
|
(a)
|
$
|
—
|
|
|
$
|
282,148
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative, net
|
14,872
|
|
|
—
|
|
|
—
|
|
|
14,872
|
|
|
Depreciation, depletion, and amortization
|
45,485
|
|
|
—
|
|
|
10,235
|
|
(b)
|
55,720
|
|
|
Accretion of asset retirement obligations
|
226
|
|
|
—
|
|
|
32
|
|
(b)
|
258
|
|
|
Lease operating expenses
|
18,767
|
|
|
5,404
|
|
(a)
|
—
|
|
|
24,171
|
|
|
Workovers
|
512
|
|
|
—
|
|
|
—
|
|
|
512
|
|
|
Transportation and gas processing
|
17,175
|
|
|
976
|
|
(a)
|
—
|
|
|
18,151
|
|
|
Severance and other taxes
|
11,974
|
|
|
1,560
|
|
(a)
|
—
|
|
|
13,534
|
|
|
Total Operating Expenses
|
109,011
|
|
|
7,940
|
|
|
10,267
|
|
|
127,218
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
146,839
|
|
|
18,358
|
|
|
(10,267)
|
|
|
154,930
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income (Expense)
|
|
|
|
|
|
|
|
|
Gain (loss) on commodity derivatives, net
|
(152,879)
|
|
|
—
|
|
|
—
|
|
|
(152,879)
|
|
|
Interest expense, net
|
(21,888)
|
|
|
—
|
|
|
(1,122)
|
|
(c)
|
(23,010)
|
|
|
Other income (expense), net
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
(27,922)
|
|
|
18,358
|
|
|
(11,389)
|
|
|
(20,953)
|
|
|
|
|
|
|
|
|
|
|
|
Provision (Benefit) for Income Taxes
|
(408)
|
|
|
—
|
|
|
61
|
|
(d)
|
(347)
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(27,514)
|
|
|
$
|
18,358
|
|
|
$
|
(11,450)
|
|
|
$
|
(20,606)
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Loss Per Share
|
$
|
(2.24)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1.51)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: Loss Per Share
|
$
|
(2.24)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1.51)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares Outstanding - Basic
|
12,283
|
|
|
1,352
|
|
(e)
|
—
|
|
|
13,635
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares Outstanding - Diluted
|
12,283
|
|
|
1,352
|
|
(e)
|
—
|
|
|
13,635
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SilverBow Resources, Inc. and Subsidiary Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 2020 (Unaudited)
|
|
(in thousands, except per share amounts)
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Transaction Accounting Adjustments
|
|
Pro Forma Combined
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
$
|
177,386
|
|
|
$
|
32,086
|
|
(a)
|
$
|
—
|
|
|
$
|
209,472
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative, net
|
22,608
|
|
|
—
|
|
|
—
|
|
|
22,608
|
|
|
Depreciation, depletion, and amortization
|
64,564
|
|
|
—
|
|
|
17,396
|
|
(b)
|
81,960
|
|
|
Accretion of asset retirement obligations
|
354
|
|
|
—
|
|
|
40
|
|
(b)
|
394
|
|
|
Lease operating expense
|
21,360
|
|
|
8,762
|
|
(a)
|
—
|
|
|
30,122
|
|
|
Workovers
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Transportation and gas processing
|
20,649
|
|
|
2,009
|
|
(a)
|
—
|
|
|
22,658
|
|
|
Severance and other taxes
|
10,514
|
|
|
2,083
|
|
(a)
|
—
|
|
|
12,597
|
|
|
Write-down of oil and gas properties
|
355,948
|
|
|
—
|
|
|
—
|
|
|
355,948
|
|
|
Total Operating Expenses
|
496,005
|
|
|
12,854
|
|
|
17,436
|
|
|
526,295
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
(318,619)
|
|
|
19,232
|
|
|
(17,436)
|
|
|
(316,823)
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income (Expense)
|
|
|
|
|
|
|
|
|
Net gain (loss) on commodity derivatives
|
61,304
|
|
|
—
|
|
|
—
|
|
|
61,304
|
|
|
Interest expense, net
|
(31,228)
|
|
|
—
|
|
|
(1,393)
|
|
(c)
|
(32,621)
|
|
|
Other income (expense), net
|
72
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
(288,471)
|
|
|
19,232
|
|
|
(18,829)
|
|
|
(288,068)
|
|
|
|
|
|
|
|
|
|
|
|
Provision (Benefit) for Income Taxes
|
20,911
|
|
|
—
|
|
|
14
|
|
(d)
|
20,925
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
(309,382)
|
|
|
$
|
19,232
|
|
|
$
|
(18,843)
|
|
|
$
|
(308,993)
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: Net Loss
|
$
|
(25.99)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(23.31)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: Net Income Loss
|
$
|
(25.99)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(23.31)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Basic
|
11,902
|
|
|
1,352
|
|
(e)
|
—
|
|
|
13,254
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Diluted
|
11,902
|
|
|
1,352
|
|
(e)
|
—
|
|
|
13,254
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial information.
|
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(1) Basis of Pro Forma Presentation
The accompanying pro forma condensed combined financial information was prepared based on the historical consolidated financial statements of the Company, and the historical statements of revenues and direct operating expenses of the properties acquired in the Eagle Ford Acquisition (which are based on information provided by the Sellers). The Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 were prepared assuming the Transaction and related financing transactions occurred on January 1, 2020. The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2021 was prepared as if the Transaction and related financing had occurred on September 30, 2021.
The unaudited pro forma condensed combined financial statements and underlying pro forma adjustments are based upon currently available information and certain estimates and assumptions made by the Company’s management; therefore, actual results could differ materially from the pro forma information. However, management believes the assumptions provide a reasonable basis for presenting the significant effects of the Transaction and related financing transactions. The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by the Company. These unaudited pro forma condensed combined financial statements are provided for illustrative and informational purposes only and are not intended to represent or be indicative of what SilverBow’s results of operations would have been had the Transaction occurred as of or on the dates indicated. The unaudited pro forma financial statements also should not be considered representative of our future results of operations.
(2) Pro Forma Adjustments
Balance Sheet. The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2021 reflects the allocation of the total cost of the Transaction to the assets acquired and liabilities assumed.
(a) Consideration for the Transaction was approximately $75.5 million, $37.6 million paid as cash and the remainder paid with 1,351,961 shares of Common Stock valued at $37.9 million. The cash portion of the Transaction was funded primarily with cash on hand and borrowings of approximately $37.0 million on the Company's existing credit facility.
(b) Represents the allocation of the total cost of the Transaction to the assets acquired and liabilities assumed, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total Cost
|
|
|
|
Cash consideration
|
|
$
|
37,581
|
|
|
|
|
|
|
Liabilities Assumed:
|
|
|
|
Asset retirement obligations
|
|
273
|
|
|
Royalty payable suspended funds
|
|
344
|
|
|
Current lease liability
|
|
994
|
|
|
Non-current lease liability
|
|
1,047
|
|
|
Contingent consideration
|
|
1,855
|
|
|
Total liabilities assumed
|
|
4,513
|
|
|
|
|
|
|
Equity consideration
|
|
37,923
|
|
|
|
|
|
|
Transaction costs
|
|
302
|
|
|
|
|
|
|
Total Cost of Transaction
|
|
$
|
80,319
|
|
|
|
|
|
|
Allocation of Total Cost
|
|
|
|
Assets
|
|
|
|
Oil and gas properties
|
|
$
|
78,278
|
|
|
Right of use asset
|
|
2,041
|
|
|
Total Assets
|
|
80,319
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Undistributed oil and gas revenues
|
|
344
|
|
|
Fair value of long-term commodity
|
|
1,855
|
|
|
Asset retirement obligations
|
|
273
|
|
|
Current lease liability
|
|
994
|
|
|
Non-current Lease liability
|
|
1,047
|
|
|
Total Liabilities
|
|
$
|
4,513
|
|
Statements of Operations. The Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 reflect the following adjustments:
(a) Historical revenues and direct operating expenses of the oil and natural gas properties acquired in the Transaction.
(b) Depreciation, depletion and amortization (“DD&A”) and accretion expense relate to the Eagle Ford Acquisition. DD&A was calculated using the unit-of-production method under the full cost method of accounting, and adjusts DD&A for (1) the increase in DD&A reflecting the relative fair values and production volumes attributable to the Eagle Ford Acquisition and (2) the revision to the Company’s DD&A rate reflecting the reserve volumes acquired in the Transaction. The pro forma adjustment for DD&A is $10.2 million and $17.4 million for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively. The pro forma adjustment for accretion expense on ARO is attributable to the Eagle Ford Acquisition for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively.
(c) Interest expense associated with the borrowings under the Company’s credit facility for the periods presented.
(d) Income tax expense for both the nine months ended September 30, 2021 and the year ended December 31, 2020 reflect incremental Texas Margin Tax for the Eagle Ford Acquisition. For income tax purposes, the Company expects the Eagle Ford Acquisition to be treated as an asset purchase such that the tax basis in the assets and liabilities reflect the allocated fair value at closing; therefore, the Company does not anticipate a material tax consequence for deferred income taxes related thereto.
(e) As part of the consideration to the Sellers, 1.4 million shares of SilverBow Common Stock were issued.
(3) Supplemental Oil and Gas Reserve Information
Estimated Quantities of Proved Oil and Natural Gas Reserves
The following tables present information regarding net proved oil and natural gas reserves attributable to the Company's interests in proved properties as of December 31, 2020. The information set forth in the tables regarding reserves is based on proved reserves reports prepared in accordance with Securities and Exchange Commission’s (“SEC") rules. H.J. Gruy and Associates, Inc. (“Gruy”), independent petroleum engineers, prepared the Company's proved reserves reports as of December 31, 2020.
In addition, the following tables also set forth information as of December 31, 2020 about the estimated net proved oil and natural gas reserves attributable to the Eagle Ford Acquisition, and the pro forma estimated net proved oil and natural gas reserves as if the Transaction had occurred on January 1, 2020. The reserve estimates attributable to the Eagle Ford Acquisition at December 31, 2020 presented in the table below were prepared based upon information provided by the Sellers and was prepared in accordance with the authoritative guidance of the FASB and the SEC on oil and natural gas reserve estimation and disclosures.
Reserve estimates are inherently imprecise and are generally based upon extrapolation of historical production trends, analogy to similar properties and volumetric calculations. Accordingly, reserve estimates are expected to change, and such changes could be material and occur in the near term as future information becomes available.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas (Mcf)
|
|
|
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Pro Forma Combined
|
|
Estimates of Proved Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
1,158,352,078
|
|
|
71,382,258
|
|
|
1,229,734,336
|
|
|
Revisions
|
|
(193,642,309)
|
|
|
(9,506)
|
|
|
(193,651,815)
|
|
|
Extensions, discoveries and other additions
|
|
23,120,341
|
|
|
—
|
|
|
23,120,341
|
|
|
Purchases of minerals in place
|
|
11,576,517
|
|
|
—
|
|
|
11,576,517
|
|
|
Sales of minerals in place
|
|
(323,726)
|
|
|
—
|
|
|
(323,726)
|
|
|
Production
|
|
(50,987,958)
|
|
|
(2,544,197)
|
|
|
(53,532,155)
|
|
|
December 31, 2020
|
|
948,094,943
|
|
|
68,828,555
|
|
|
1,016,923,498
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
478,005,141
|
|
|
10,156,911
|
|
|
488,162,052
|
|
|
December 31, 2020
|
|
415,390,459
|
|
|
11,100,979
|
|
|
426,491,438
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
680,346,937
|
|
|
61,225,347
|
|
|
741,572,284
|
|
|
December 31, 2020
|
|
532,704,484
|
|
|
57,727,576
|
|
|
590,432,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Bbl)
|
|
|
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Pro Forma Combined
|
|
Estimates of Proved Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
17,067,606
|
|
|
16,549,596
|
|
|
33,617,202
|
|
|
Revisions
|
|
(4,053,158)
|
|
|
(872,157)
|
|
|
(4,925,315)
|
|
|
Extensions, discoveries and other additions
|
|
1,079,804
|
|
|
—
|
|
|
1,079,804
|
|
|
Purchases of minerals in place
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales of minerals in place
|
|
(41,266)
|
|
|
—
|
|
|
(41,266)
|
|
|
Production
|
|
(1,521,485)
|
|
|
(662,003)
|
|
|
(2,183,488)
|
|
|
December 31, 2020
|
|
12,531,501
|
|
|
15,015,436
|
|
|
27,546,937
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
6,475,646
|
|
|
2,852,129
|
|
|
9,327,775
|
|
|
December 31, 2020
|
|
6,962,826
|
|
|
2,708,072
|
|
|
9,670,898
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
10,591,960
|
|
|
13,697,467
|
|
|
24,289,427
|
|
|
December 31, 2020
|
|
5,568,676
|
|
|
12,307,364
|
|
|
17,876,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Liquids (Bbl)
|
|
|
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Pro Forma Combined
|
|
Estimates of Proved Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
26,613,516
|
|
|
12,626,153
|
|
|
39,239,669
|
|
|
Revisions
|
|
(11,986,475)
|
|
|
101,910
|
|
|
(11,884,565)
|
|
|
Extensions, discoveries and other additions
|
|
342,028
|
|
|
—
|
|
|
342,028
|
|
|
Purchases of minerals in place
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Sales of minerals in place
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Production
|
|
(1,113,881)
|
|
|
(374,349)
|
|
|
(1,488,230)
|
|
|
December 31, 2020
|
|
13,855,188
|
|
|
12,353,714
|
|
|
26,208,902
|
|
|
|
|
|
|
|
|
|
|
Proved Developed Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
10,377,231
|
|
|
1,451,043
|
|
|
11,828,274
|
|
|
December 31, 2020
|
|
8,163,666
|
|
|
1,810,858
|
|
|
9,974,524
|
|
|
|
|
|
|
|
|
|
|
Proved Undeveloped Reserves
|
|
|
|
|
|
|
|
January 1, 2020
|
|
16,236,285
|
|
|
11,175,110
|
|
|
27,411,395
|
|
|
December 31, 2020
|
|
5,691,522
|
|
|
10,542,856
|
|
|
16,234,378
|
|
Changes in commodity prices may significantly impact the Company’s estimates of oil and natural gas reserves. Sustained lower commodity prices can reduce the quantity of the Company’s reserves by causing the economic limit of the proved developed and proved undeveloped wells (the point at which the costs to operate exceed the value of estimated future production, assuming constant prices and costs under SEC rules) to occur earlier in their productive lives than would be the case with higher prices. The undeveloped reserves may also be reduced by the elimination of wells because they would not meet the investment criteria to be economically producible at such prices and costs. The proved undeveloped reserves may also be eliminated by the deferral of drilling of otherwise economic wells beyond the five year proved reserve development horizon as a result of revisions to the Company’s development plan adopted in response to lower prices or otherwise.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following table presents the Standardized Measure of Discounted Future Net Cash Flows relating to the proved oil and natural gas reserves of the Company and of the Eagle Ford Acquisition acquired in the Transaction on a pro forma combined basis as of December 31, 2020. The Standardized Measure shown below represents estimates only and should not be construed as the current market value of the Company’s estimated oil and natural gas reserves or those acquired estimated oil and natural gas reserves attributable to the Eagle Ford Acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Pro Forma Combined
|
|
|
|
|
(In thousands)
|
|
|
Future gross revenues
|
|
$
|
2,652,512
|
|
|
$
|
826,924
|
|
|
$
|
3,479,436
|
|
|
|
Future production costs
|
|
(1,037,498)
|
|
|
(256,339)
|
|
|
(1,293,837)
|
|
|
|
Future development costs
|
|
(426,849)
|
|
|
(301,478)
|
|
|
(728,327)
|
|
|
|
Future income taxes
|
|
(56,576)
|
|
|
(4,341)
|
|
|
(60,917)
|
|
|
|
Future net cash flows
|
|
1,131,589
|
|
|
264,766
|
|
|
1,396,355
|
|
|
|
Discount at 10% per annum
|
|
(618,637)
|
|
|
(159,113)
|
|
|
(777,750)
|
|
|
|
Standardized Measure of discounted future net cash flows
|
|
$
|
512,952
|
|
|
$
|
105,653
|
|
|
$
|
618,605
|
|
|
The following table sets forth the principal changes in the Standardized Measure of discounted future net cash flows applicable to estimated net proved oil and natural gas reserves of the Company and of the Eagle Ford Acquisition on a pro forma combined basis as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Eagle Ford Acquisition
|
|
Pro Forma Combined
|
|
|
|
(In thousands)
|
|
January 1, 2020 balance
|
|
$
|
868,264
|
|
|
$
|
296,097
|
|
|
$
|
1,164,361
|
|
|
Net changes in prices, net of production costs
|
|
(360,260)
|
|
|
(150,310)
|
|
|
(510,570)
|
|
|
Net changes in future development costs
|
|
26,034
|
|
|
(56)
|
|
|
25,978
|
|
|
Net changes due to revisions in quantity estimates
|
|
(112,258)
|
|
|
(38,516)
|
|
|
(150,774)
|
|
|
Accretion of discount
|
|
84,765
|
|
|
29,923
|
|
|
114,688
|
|
|
Other
|
|
(63,944)
|
|
|
(13,654)
|
|
|
(77,598)
|
|
|
Total revisions
|
|
(425,663)
|
|
|
(172,613)
|
|
|
(598,276)
|
|
|
|
|
|
|
|
|
|
|
New field discoveries and extensions, net of future production and development costs
|
|
4,954
|
|
|
—
|
|
|
4,954
|
|
|
Purchase of reserves
|
|
8,480
|
|
|
—
|
|
|
8,480
|
|
|
Sales of minerals in place
|
|
(1,007)
|
|
|
—
|
|
|
(1,007)
|
|
|
Sales of oil and natural gas produced, net of production costs
|
|
(124,855)
|
|
|
(19,232)
|
|
|
(144,087)
|
|
|
Previously estimated development costs
|
|
90,174
|
|
|
—
|
|
|
90,174
|
|
|
Net change in income taxes
|
|
92,605
|
|
|
1,401
|
|
|
94,006
|
|
|
Net change in Standardized Measure of discounted future net cash flows
|
|
(355,312)
|
|
|
(190,444)
|
|
|
(545,756)
|
|
|
December 31, 2020 balance
|
|
$
|
512,952
|
|
|
$
|
105,653
|
|
|
$
|
618,605
|
|