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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

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): June 6, 2022

SilverBow Resources, Inc.
(Exact name of Registrant as specified in its charter)
Delaware001-875420-3940661
(State or other jurisdiction
of incorporation)		(Commission File Number)(IRS Employer
Identification No.)
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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSBOWNew York Stock Exchange
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. ☐
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Item 8.01.    Other Events
On April 13, 2022, SilverBow Resources, Inc. (the “Company” or “SilverBow”) and its operating subsidiary, SilverBow Resources Operating, LLC, entered into a purchase and sale agreement with Sundance Energy, Inc. (“Sundance”) and certain of its subsidiaries pursuant to which the Company will acquire oil and gas assets in the Eagle Ford formation (the “Transaction”). Sundance’s audited consolidated financial statements as of December 31, 2021 and 2020, and for each of the years in the two-year period ended December 31, 2021, and the Company’s unaudited pro forma condensed combined financial statements for the Transaction as of and for the period ended December 31, 2021 are included in the Company’s definitive proxy statement filed with the U.S. Securities and Exchange Commission on May 9, 2022.
This Form 8-K provides:
(i)the unaudited consolidated balance sheet of Sundance as of March 31, 2022 and as of December 31, 2021, and the unaudited consolidated statements of operations, statements of cash flows and statements of members’ common equity of Sundance for the three-month periods ended March 31, 2022 and 2021, and the notes related thereto, attached as Exhibit 99.1, which are incorporated herein by reference; and
(ii)the unaudited pro forma condensed combined balance sheet of the Company as of March 31, 2022 and the unaudited pro forma condensed combined statements of operations of the Company for the three-month period ended March 31, 2022, attached as Exhibit 99.2, which are incorporated herein by reference.
Item 9.01.    Financial Statements and Exhibits
(d) Exhibits
Exhibit
Number		Description
99.1
99.2
104
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: June 6, 2022
SilverBow Resources, Inc.
By:/s/ Christopher M. Abundis
Christopher M. Abundis
Executive Vice President, Chief Financial Officer and General Counsel

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Additional Information and Where to Find It
This communication does not constitute an offer to buy, or solicitation of an offer to sell, any securities of SilverBow. This communication relates to a proposed transaction involving SilverBow and Sundance that is the subject of a proxy statement filed with the U.S. Securities and Exchange Commission (the “SEC”) that provides full details of the proposed transaction and the attendant benefits and risk. This communication is not a substitute for the proxy statement or any other document that SilverBow may file with the SEC or send to its shareholders in connection with the proposed transaction. INVESTORS AND SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT SILVERBOW AND THE PROPOSED TRANSACTION. Investors and shareholders are able to obtain these materials and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov. In addition, copies of the proxy statement and other relevant documents may be obtained free of charge by accessing SilverBow’s website at www.sbow.com by clicking on the “Investors” link, or upon written request to SilverBow, 920 Memorial City Way, Suite 850, Houston, Texas 77024, Attention: Investor Relations. Shareholders may also read and copy any reports, statements and other information filed by SilverBow with the SEC, at the SEC at 1-800-SEC-0330 or on the SEC’s website.

Participants in the Solicitation
SilverBow and certain of its directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from shareholders in respect of the transaction under the rules of the SEC. Information regarding SilverBow’s directors and executive officers is available in its definitive proxy statement filed with the SEC on March 30, 2022 in connection with its 2022 annual meeting of shareholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, are contained in SilverBow’s proxy statement and other relevant materials filed with the SEC. Investors should read the proxy statement and other relevant documents carefully before making any voting or investment decisions.

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SUNDANCE ENERGY INC.

Consolidated Financial Statements

For the Quarterly Period Ended March 31, 2022





























SUNDANCE ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(all amounts in thousands except share information)
Successor
March 31, 2022December 31, 2021
ASSETS
Current assets:$10,563 $4,674 
Cash and cash equivalents17,946 20,234 
Accounts receivable trade and other118 131 
Income tax receivable5,633 2,866 
Other current assets312,505 311,267 
Assets held for sale346,765 339,172 
Total current assets
Other long-term assets:
Other property and equipment, net of accumulated depreciation of $530 and $480570 621 
Operating lease right-of-use assets4,780 5,295 
Other long-term assets2,272 2,547 
TOTAL ASSETS$354,387 $347,635 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade$26,447 $50,081 
Current portion of long-term debt10,000 7,500 
Accrued liabilities7,449 14,400 
Derivative liabilities24,401 10,655 
Operating lease liabilities - current3,171 3,613 
Liabilities related to assets held for sale5,500 5,363 
Total current liabilities76,968 91,612 
Long-term liabilities:
Long-term debt115,521 103,032 
Operating lease liabilities - long term1,617 1,685 
Derivative financial instruments12,897 7,370 
Other long-term liabilities14 15 
Total long-term liabilities130,049 112,102 
Total liabilities207,017 203,714 
Commitments and contingencies (Note 11)
Stockholders' Equity:
Successor common stock, $0.001 value, 686,716 shares authorized; 645,513 issued and outstanding at March 31, 2022 and December 31, 20211 1 
Additional paid-in capital175,804 175,804 
Accumulated deficit(28,435)(31,884)
Total stockholders' equity147,370 143,921 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$354,387 $347,635 
The accompanying notes are an integral part of these consolidated financial statements.
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SUNDANCE ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)
(all amounts in thousands)
SuccessorPredecessor
Three Months EndedThree Months Ended
March 31, 2022March 31, 2021
Revenues:
Oil sales$45,023 $22,328 
Natural gas sales3,298 3,352 
Natural gas liquid sales6,384 2,328 
Total revenues54,705 28,008 
Operating expenses:
Lease operating and workover expense9,510 7,725 
Gathering, processing and transportation expense3,624 2,147 
Production taxes3,807 1,902 
Exploration expense1 10 
Depreciation, depletion and amortization expense273 10,792 
General and administrative expense1,727 11,811 
Loss on commodity derivative financial instruments29,818 11,568 
Other expense, net207 296 
Total operating expenses48,967 46,251 
Income (loss) from operations:5,738 (18,243)
Other income (expense)
Interest expense(2,289)(11,611)
Reorganization items, net— (11,210)
Realized foreign currency loss— (673)
Total other expense(2,289)(23,494)
Income (loss) before income taxes3,449 (41,737)
Income taxes:
Current benefit— — 
Deferred benefit— 222 
Total income tax benefit— 222 
Net income (loss)$3,449 $(41,515)

The accompanying notes are an integral part of these consolidated financial statements.

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SUNDANCE ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
(all amounts in thousands except share information)
Accumulated
Additionalother
Common stockPaid-inAccumulatedcomprehensive
SharesAmountCapitalDeficitlossTotal
BALANCES - January 1, 2021 (Predecessor)6,876,422 $7 $633,526 $(649,606)$(673)$(16,746)
Stock-based compensation— — 13 — — 13 
Net loss— — — (41,515)— (41,515)
Foreign currency translation— — — — 673 673 
BALANCES - March 31, 2021 (Predecessor)6,876,422 $7 $633,539 $(691,121)$— $(57,575)
BALANCES - January 1, 2022 (Successor)645,513 $1 $175,804 $(31,884)$— $143,921 
Net income— — — 3,449 — 3,449 
BALANCES - March 31, 2022 (Successor)645,513 $1 $175,804 $(28,435)$— $147,370 

The accompanying notes are an integral part of these consolidated financial statements.
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SUNDANCE ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(all amounts in thousands)
SuccessorPredecessor
Three Months EndedThree Months Ended
March 31, 2022March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$3,449 $(41,515)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization expense273 10,792 
Stock-based compensation— 13 
Payable-in-kind interest— 1,279 
Deferred income tax benefit— (222)
Loss on commodity derivative financial instruments29,818 11,568 
Net cash settlements received on commodity derivative contracts(10,545)(2,681)
Realized foreign currency loss— 673 
Amortization of deferred debt issuance cost365 931 
Loss (gain) on disposal of oil and gas properties and corporate assets— 299 
Non cash reorganization expenses, net— 8,682 
Other— 10 
Changes in assets and liabilities:
Accounts receivable trade and other2,288 (1,667)
Income tax receivable11 — 
Accounts payable trade(8,711)3,853 
Accrued liabilities(1,298)8,175 
Other assets and liabilities, net377 (1,573)
Net cash provided by (used in) operating activities16,027 (1,383)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for proved oil and gas properties(24,895)(3,838)
Capital expenditures for unproved oil and gas properties(82)— 
Other property and equipment— (6)
Net cash used in investing activities(24,977)(3,844)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings14,900 10,000 
Payments of debt issuance costs— (1,000)
Principal payments on finance lease obligations(61)(77)
Net cash provided by financing activities14,839 8,923 
Net change in cash and cash equivalents5,889 3,696 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period4,674 5,261 
Effect of exchange rates on cash— (2)
End of period$10,563 $8,955 
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income tax refund received$11 $— 
Interest paid, net of amounts capitalized$2,087 $2,894 
Operating lease right-of-use assets obtained in exchange for lease liabilities$643 $112 
Cash paid for reorganization items, net$— $3,517 
NON-CASH INVESTING AND FINANCING ACTIVITIES
Accounts payable and accrued expenses for oil and gas properties$7,442 $5,730 
The accompanying notes are an integral part of these consolidated financial statements.
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SUNDANCE ENERGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations

Sundance Energy Inc., a Delaware corporation, is an independent oil and gas company engaged in the development, production and exploration of oil, natural gas and natural gas liquids (“NGLs”) primarily targeting the Eagle Ford basin in South Texas. Unless otherwise specified, all references in these notes to the “Company” are to Sundance Energy Inc, and its wholly owned subsidiaries Sundance Energy, Inc., SEA Eagle Ford, LLC, Armadillo E&P, Inc, as well as Sundance Energy Australia Ltd and New Standard Energy PEL570 Ltd, through January 2021, at which time they were dissolved.

Basis of Preparation

The Company’s condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain disclosures required by accounting principles generally accepted in the United States and normally included in annual reports have been omitted. Although management believes that the disclosures in these interim financial statements are adequate, they should be read in conjunction with the financial statements, summary of significant accounting policies, and footnotes for the year ended December 31, 2021. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s financial statements as of December 31, 2021.

In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly, in all material respects, the Company’s interim results.  However, operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.  The condensed consolidated financial statements as of December 31, 2021 is derived from audited financial statements.

Voluntary Reorganization under Chapter 11 of the Bankruptcy Code

On March 9, 2021 (the “Petition Date”), the Company and all of its subsidiaries (collectively the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions,” and the cases commenced thereby, collectively, the “Chapter 11 Cases”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Texas (the “Bankruptcy Court”).  The Debtors also filed with the Bankruptcy Court the proposed Joint Prepackaged Plan of Reorganization for Sundance Energy Inc. and its Affiliate Debtors under Chapter 11 of the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”). On April 19, 2021, the Bankruptcy Court confirmed the Plan and on April 23, 2021 (the “Emergence Date:”), the Debtors satisfied all conditions required for Plan effectiveness and emerged from the Chapter 11 Cases.

Upon emergence, the Company adopted fresh start accounting in accordance with FASB ASC Topic 852 –Reorganizations (“ASC 852”), which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings.  The application of fresh start accounting resulted in assets and liabilities being recorded at fair value. To the extent the Emergence Date fair value of the Company’s assets and liabilities differed from the recorded values of its assets and liabilities as reflected in the consolidated financial statements immediately prior to emergence, adjustments were recorded on the consolidated statement of operations as reorganization items, net.

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Additionally, after application of fresh start accounting, the Company became a new entity for financial reporting purposes.  As a result of the implementation of the Plan and the application of fresh start accounting, the consolidated financial statements after the Emergence Date are not comparable to the consolidated financial statements before that date, and the historical financial statements on or before the Emergence Date are not a reliable indicator of its financial condition and results of operations for any period after the Company’s adoption of fresh start accounting.  Refer to Note 2 for more information.  References to “Successor” refer to the Company and its financial position and results of operations after the Emergence Date.  References to “Predecessor” refer to the Company and its financial position and results of operations on or before the Emergence Date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Items subject to such estimates and assumptions include (i) oil and natural gas reserves; (ii) impairment tests of long-lived assets; (iii) depreciation, depletion and amortization; (iv) asset retirement obligations; (v) income taxes; (vi) accrued liabilities; (vii) valuation of derivative instruments; (vii) accrued revenue and related receivables; and (viii) fresh start accounting.  Although management believes these estimates are reasonable, actual results could differ from these estimates. Further, these estimates and other factors, including those outside of the Company’s control, such as the impact of lower commodity prices, may have a significant negative impact to the Company’s business, financial condition, results of operations and cash flows.

Recently Issued and Adopted Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.  Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is evaluating the options provided by ASU 2020-04 and has not determined the full impact on its consolidated financial statements and related disclosures.

NOTE 2 — FRESH START ACCOUNTING

In connection with the Company’s emergence from bankruptcy and in accordance with ASC 852, the Company qualified for and adopted fresh start accounting on the Emergence Date.  In accordance with ASC 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with FASB ASC Topic 820 – Fair Value Measurement (“ASC 820”) and FASB ASC Topic 805 – Business Combinations (“ASC 805”).  Reorganization value represents the fair value of the Successor assets before considering certain liabilities and is intended to represent the approximate amount a willing buyer would pay for the Company’s assets immediately after reorganization.

For further information on the Company’s reorganization value and the resulting fresh start adjustments made on the Emergence Date, refer to the “Fresh Start Accounting” footnote in the notes to the Company’s financial statements for the year ended December 31, 2021.

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Reorganization Items, Net
Gains and losses that were realized or incurred between the Petition Date and the Emergence Date and as a direct result of the Chapter 11 Cases were recorded in reorganization items, net in the Company’s condensed consolidated statements of operations.  The following table summarizes the components of reorganization items, net for the periods presented (in thousands):

SuccessorPredecessor
Three Months EndedThree Months Ended
March 31, 2022March 31, 2021
Legal and professional advisory fees$— $(2,528)
Write-off of unamortized debt issuance costs— (7,682)
Other fees— (1,000)
Total reorganization items, net$— $(11,210)

NOTE 3 — ASSETS HELD FOR SALE

Assets Held For Sale

The condensed consolidated balance sheet includes assets and liabilities held for sale, comprised of the following (in thousands):

Successor
Assets held for sale:March 31, 2022December 31, 2021
Oil and gas properties - Eagle Ford$312,505 $311,267 
Liabilities related to assets held for sale:
Asset retirement obligations(5,500)(5,363)
Net assets held for sale$307,005 $305,904 

    The Company classifies property as held for sale when management commits to a plan to sell the property, the plan has appropriate approvals, the sale of the property is highly probable within the next 12 months, and certain other criteria are met. At such time, the respective assets and liabilities are presented separately on the Company’s consolidated balance sheet and depletion is no longer recognized. Assets held for sale are reported at the lower of their carrying amount or their estimated fair value, less the costs to sell the assets.

In December 2021, the Company committed to a plan to sell 100% of its Eagle Ford oil and gas assets in Texas, and the Company determined it met the requirements of assets held for sale as of December 31, 2021. The assets to be sold include producing wells, proved undeveloped oil and gas locations and undeveloped properties. The Company’s owners are selling the assets in order to monetize them in the favorable price environment.

On April 12, 2022, the Company entered into a purchase and sale agreement to sell assets to SilverBow Resources, Inc (refer to Note 12 for additional information regarding the sale). The divestiture of the assets represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Company determined that the expected divestiture met the disclosure requirements of discontinued operations. As these assets make up substantially all of the oil and gas properties and the asset retirement obligations on the condensed consolidated balance sheet, substantially all of the revenue and operating expenses on the consolidated statement of operations, and substantially all of the cash flows from operating and investing activities, the operating results have not been presented as discontinued operations. As of March 31, 2022, the estimated fair value less costs to sell of the assets was greater than the carrying value, which was based on the sale price per the purchase and sale agreement.

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The Exit Facilities are secured by the Company’s oil and gas properties. Upon completion of the sale, the Company expects it will be required to repay all outstanding balances under the Exit Facilities.

NOTE 4 — LONG-TERM DEBT

The following is a summary of long-term debt as of March 31, 2022 and December 31, 2021 (in thousands):
Successor
March 31, 2022December 31, 2021
Revolving Facility$96,050 $81,150 
Second Out Term Loan30,000 30,000 
Total principal126,050 111,150 
Unamortized debt issuance costs (529)(618)
Total long-term debt125,521 110,532 
Less: current portion of long-term debt (1)
(10,000)(7,500)
Total long-term debt, net of current portion$115,521 $103,032 
(1) The Exit Facilities credit agreement requires that Company repay $2.5 million of principal on the last business day of each quarter beginning the second quarter of 2022.

Exit Facilities

On the Emergence Date, the Company entered into a new first-out senior secured revolving credit facility with Toronto Dominion (Texas) LLC, as administrative agent, and the other lenders from time to time party thereto (the “Revolving Facility”) and a second-out senior secured term loan credit facility (the “Second Out Term Loan” and, together with the Revolving Credit Facility, the “Exit Facilities”) by amending and restating the company’s existing credit agreement (as so amended and restated, the “Amended and Restated Credit Agreement”). The Revolving Facility provides for revolving loans in an aggregate amount of up to $250 million, subject to borrowing base capacity. Letters of credit will be available up to the lesser of (a) $20 million and (b) the aggregate unused amount of commitments under the Revolving Facility then in effect. On the Emergence Date, the Company borrowed $30 million in term loans under the Second Out Term Loan .The Exit Facilities will mature on April 23, 2024. Beginning on the last business day of the second quarter of 2023, the Company will have to repay $2.5 million of principal on the Second Out Term Loan on a quarterly basis.  The Exit Facilities are secured by the Company’s oil and gas properties.

The Revolving Facility is subject to a borrowing base, which is generally redetermined at least semi-annually and depends on the volumes of the Company’s proved oil and gas reserves, commodity prices, estimated cash flows from these reserves and other information deemed relevant by the Revolving Facility lenders.  The initial borrowing base was set at $107.5 million. If, upon any downward adjustment of the borrowing base, the outstanding borrowings are in excess of the revised borrowing base, the Company may have to repay its indebtedness in excess of the borrowing base immediately, or in five equal monthly installments. The next borrowing base redetermination is scheduled for July 2022.

As of March 31, 2022, the Company had letters of credit of $11.4 million outstanding on the Revolving Facility and no available borrowing capacity.  

Interest under the Revolving Facility accrues at the Company’s option at either i) an adjusted LIBOR rate plus an applicable margin between 3.00% and 4.00% per annum depending the level of funds borrowed or ii) a base rate for a base rate loan plus a margin between 2% and 3% per annum depending on the level of funds borrowed. Borrowings under the Second Out Term Loan accrue interest at a floating rate at the Company’s option, which can be either an adjusted LIBOR rate plus 8.00% per annum or a base rate plus an applicable margin of 7.00% per annum.  At March 31, 2022, the stated weighted average interest rate on the Revolving Facility and Second Term Loan was 5.0%. and 9.0%, respectively. The Company pays a fee of 0.5% per annum on any unused borrowing capacity under the Revolving Facility.

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Under the Exit Facilities, the Company is required to maintain the following financial ratios:
•a minimum Current Ratio, consisting of consolidated current assets (as defined in the agreement) including undrawn borrowing capacity to consolidated current liabilities (as defined in the Revolving Facility), of not less than 1.0 to 1.0 as of the last day of any fiscal quarter; and
•a maximum Leverage Ratio, consisting of consolidated Total Debt to adjusted consolidated EBITDAX (as defined in the Revolving Facility), of not greater than 3.5 to 1.0 as of the last day of any fiscal quarter.

In addition, under the Exit Facilities, general and administrative expenditures, as defined, is limited to $10 million per rolling 12 months and the Company had certain limits on its capital expenditures through its first borrowing base redetermination.

Debtor-in-Possession Facility
Under the Plan, the Company entered into a new up to $50 million junior priority DIP Facility provided by certain of the Predecessor Term Loan lenders. The DIP Facility provided financing for the Chapter 11 Cases. During the three months ended March 31, 2021, the Predecessor expensed upfront fees of $1.0 million related to the DIP Facility, which was recorded in reorganization items, net on the condensed consolidated statement of operations. Interest on the DIP Facility accrued interest at a rate of an adjusted LIBOR rate, plus 8%. On the Emergence Date, the DIP Facility was terminated and outstanding borrowings of $45 million was converted to Successor common stock.

Predecessor Revolving Facility and Predecessor Term Loan
The Company had a syndicated Predecessor Revolving Facility with Toronto Dominion (Texas) LLC, as administrative agent, which, prior to Chapter 11 Cases, was scheduled to mature in October 2022.
The Company had a $250.0 million syndicated Predecessor Term Loan with Morgan Stanley Capital Administrators Inc., as administrative agent, which, prior to Chapter 11 Cases, was scheduled to mature in April 2023. On the Emergence Date, the Predecessor Term Loan was terminated and the outstanding borrowings of $250 million, accrued interest of $14.4 million and payable in kind interest of $4.6 million was converted to Successor common stock.
Interest Incurred on Long-Term Debt

For the three months ended March 31, 2022, the Successor incurred interest expense on long-term debt of $1.9 million. The Predecessor incurred interest expense on long-term debt of $10.6 million during the three months ended March 31, 2021. The Company did not capitalize any interest during the three months ended March 31, 2022 or 2021.

Debt Maturity Schedule

The Company’s long-term debt as of March 31, 2022 will mature as follows (in thousands):
Payments Due by Year
Remaining 202220232024Total
Revolving Facility$— $— $96,050 $96,050 
Second Out Term Loan7,500 10,000 12,500 30,000 
Total$7,500 $10,000 $108,550 $126,050 

NOTE 5 — ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations represent the present value of estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage, and
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land restoration in accordance with applicable lease terms, local, state and federal laws. The following table summarizes the changes in the Company’s asset retirement obligations in the three months ended March 31, 2022 (in thousands):

Successor
For the Three Months Ended
March 21, 2022
Balance, beginning of period (1)
$5,363 
Accretion expense137 
Balance, end of period (1)
$5,500 
(1) The asset retirement obligation as of March 31, 2022 and December 31, 2021 is classified as held for sale on the condensed consolidated balance sheet. See Note 3 for additional information.

NOTE 6 — DERIVATIVE FINANCIAL INSTRUMENTS

Commodity Derivatives
The Company uses derivative instruments to mitigate volatility in commodity prices.  While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future cash flow from favorable price changes.  The Exit Facilities credit agreement requires the Company to hedge at least 75% of the reasonably projected oil and gas production from the Proved Reserves classified as “Developed Producing Reserves” for the first 12 months following the Exit Facility effective date, and at least 50% of the reasonably projected production from the Proved Reserves for months 13-36.

As of March 31, 2022, the Company had oil and natural gas swaps and collars in place. For collars, the Company receives the difference between the published index price and a floor price if the index price is below the floor price, or pays the difference between the ceiling price and the index price if the index price is above the ceiling price.  No amounts are paid or received if the index price is between the floor and the ceiling prices. By using a collar, the minimum and maximum prices on the underlying production are fixed.

A summary of the Company’s commodity derivative positions as of March 31, 2022 follows:

Oil Swaps - WTI (1)
YearVolumes (Bbl)Weighted Average Price per Bbl
2022 (remaining)637,000 $76.05 
2023599,750 72.18 
202491,000 79.20 

Oil Collars - WTI
YearVolumes (Bbl)Weighted Average Price per Bbl - FloorWeighted Average Price per Bbl - Ceiling
2022 (remaining)171,000 $40.00 $66.00 
2023224,250 42.87 61.52 
2024134,300 45.00 60.72 

10

Natural Gas Swaps
Price Swaps - HH (2)
Price Swaps - HSC (3)
YearVolumes (MMBtu)Weighted Average Price per MMBtuVolumes (MMBtu)Weighted Average Price per MMBtu
2022 (remaining)1,025,600 $3.14 $428,000 $2.78 
2023680,000 2.51 240,000 2.64 
2024265,000 2.67 
The following is a list of index prices:
(1) WTI crude oil as quoted on NYMEX.
(2) Henry Hub (“HH”) natural gas as quoted on the NYMEX.
(3) Houston Ship Channel (“HSC”) natural gas as quoted in Platt’s Inside FERC.

Offsetting of Derivative Assets and Liabilities. 

The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The following tables summarize the location and fair value amounts of all the Company's derivative instruments in the consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the condensed consolidated balance sheets (in thousands):

Successor
March 31, 2022
GrossGrossNet Recognized
RecognizedAmountsFair Value
Balance Sheet ClassificationAssets/LiabilitiesOffsetAssets/Liabilities
DERIVATIVE ASSETS:
Current:
Commodity contractsDerivative financial instruments$642 (642)$— 
Long-term:
Commodity contractsDerivative financial instruments377 (377)— 
Total derivative assets642 — 
DERIVATIVE LIABILITIES:
Current:
Commodity contractsDerivative financial instruments25,043 (642)24,401 
Long-term:
Commodity contractsDerivative financial instruments13,274 (377)12,897 
Total derivative liabilities$38,317 $37,298 


11

Successor
December 31, 2021
GrossGrossNet Recognized
RecognizedAmountsFair Value
Balance Sheet ClassificationAssets/LiabilitiesOffsetAssets/Liabilities
DERIVATIVE ASSETS:
Current:
Commodity contractsDerivative financial instruments$188 (188)$— 
     Total derivative assets188 — 
DERIVATIVE LIABILITIES:
Current:
Commodity contractsDerivative financial instruments10,843 (188)10,655 
Long-term:
Commodity contractsDerivative financial instruments7,370 — 7,370 
     Total derivative liabilities$18,213 $18,025 

Gain (Loss) Recognized in Income
SuccessorPredecessor
Not designated as ASC 815 HedgesStatement of Operations ClassificationThree months ended March 31, 2022Three months ended March 31, 2021
Commodity contractsLoss on commodity derivative financial instruments$(29,818)$(11,568)

Contingent Features in Financial Derivative Instruments.

None of the Company’s derivative instruments contain credit-risk related contingent features. Most of the counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions and that are lenders under Sundance’s credit agreement. The Company generally uses credit agreement participants to hedge with, since these institutions are secured equally with the holder’s of Sundance’s bank debt, which eliminates the need to post collateral when Sundance is in a derivative liability position. The Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.

Refer to Note 7 for additional information regarding the valuation of derivative instruments.

NOTE 7 — FAIR VALUE MEASUREMENT
The Company follows ASC 820, which establishes a three-level valuation hierarchy for disclosure of fair value measurements.  The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement.  The three levels are defined as follows:

Level 1:        Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:       Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived from observable market data by correlation or other means.
Level 3:        Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
12

    The Level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. The financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are grouped into the fair value hierarchy as follows (in thousands):
Successor
March 31, 2022
Level 1Level 2Level 3Total
Assets measured at fair value
Derivative commodity contracts$— $— $— $— 
Liabilities measured at fair value
Derivative commodity contracts— (37,298)— (37,298)
Net fair value$— $(37,298)$— $(37,298)

Successor
December 31, 2021
Level 1Level 2Level 3Total
Assets measured at fair value
Derivative commodity contracts$— $— $— $— 
Liabilities measured at fair value
Derivative commodity contracts— (23,552)— (23,552)
Net fair value$— $(23,552)$— $(23,552)


During the three months ended March 31, 2022 and year ended December 31, 2021, there were no transfers between Level 1 and Level 2 fair value measurements and no transfer into or out of Level 3 fair value measurements.

Measurement of Fair Value

a)Derivatives
The Company’s derivative instruments consist of commodity contracts (primarily swaps and collars). The Company utilizes present value techniques and option-pricing models for valuing its derivatives. Inputs to these valuation techniques include published forward prices, volatilities, and credit risk considerations, including the incorporation of published interest rates and credit spreads. All of the significant inputs are observable, either directly or indirectly; therefore, the Company’s derivative instruments are included within the Level 2 fair value hierarchy.

b)           Credit Facilities
As of March 31, 2022, the Successor had $30 million of principal debt outstanding on its Second Out Term Loan and $96.1 million of principal debt outstanding on its Revolving Facility, respectively. Both credit facilities were entered into during April 2021, and their carrying value approximates fair value as of March 31, 2022.

c)           Other Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term nature.


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NOTE 8 — OTHER BALANCE SHEET DETAIL

The following table summarizes components of selected balance sheet accounts as of the dates presented (in thousands):
Successor
March 31, 2022December 31, 2021
Accounts receivable trade and other$17,637 $19,846 
Oil, natural gas and NGL sales (1)
309 388 
$17,946 $20,234 
Accrued liabilities
Oil and natural gas properties:
Capital expenditures$1,148 $6,798 
Operating expenses4,810 5,598 
Accrued interest payable450 632 
General and administrative expense879 1,207 
Fiance lease liabilities162 165 
$7,449 $14,400 
(1) Receivables are from contracts with customers.

NOTE 9 — INCOME TAXES

Income tax expense during interim periods is generally determined by applying an estimated annual effective income tax rate to year-to-date income and adjusting for any significant unusual or infrequently occurring items which are recorded in the interim period.  For the three months ended March 31, 2022, no income tax expense was recorded due to the valuation allowance recorded against the Company’s deferred tax assets.

As of December 31, 2021 the Company had US federal NOL carryforwards of $312.1 million. The Company also has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and that can thereby impact the amount of such carryforwards. If unutilized, the majority of the federal NOLs will expire between 2033 and 2037 and the sta1e NOLs will expire between 2021 and 2038. Any federal NOLs generated in 2018 or subsequent do not expire.

In connection with the Company's emergence from bankruptcy, the Company was required to reduce its tax attributes in accordance with Internal Revenue Code Sections 382 and 108 in lieu of recognizing taxable income for discharge of indebtedness. As a result, the Company's federal NOLs were reduced by $204.4 million.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. Such evidence includes the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, projected future taxable income, and tax planning strategies in making this assessment. Judgment is required in considering the relative weight of negative and positive evidence. The Company continues to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits, and other deferred tax assets will be utilized prior to their expiration. As a result, it may be determined that a deferred tax asset valuation allowance should be established or released. Any increases or decreases in a deferred tax asset valuation allowance would impact net income through offsetting changes in income tax expense.

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NOTE 10 — EQUITY

The Successor adopted the Sundance Energy Inc. 2021 Stock Incentive Plan providing for the issuance from time to time, as approved by the new board of directors, of equity and equity-based awards, in the aggregate and on a fully-diluted basis, of up to 41,203 shares of new common stock, representing 6% of the new common stock issued or to be issued as of the Emergence Date. No awards have been granted under the 2021 Long-Term Incentive Plan.

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Leases

The Company enters into leases as lessee to conduct its normal operations. At March 31, 2022, the Company had operating leases in place primarily for its use of compression equipment, land right of way and surface use arrangements, office facilities, and other production equipment and finance leases in place for its use of field vehicles and office equipment. Most of the Company’s leasing arrangements include extension and termination options, including evergreen provisions, all of which provide the Company flexibility in retaining the underlying facilities and equipment, as well as some protection from future price variability. The Company recognizes options to extend or terminate its leases as part of its assessment of the lease term, when it is reasonably certain to exercise the option.

The Company has applied judgment to determine the lease term for some of its lease contracts which include renewal or termination options. Certain of the Company’s leases include an “evergreen” provision that allows the contract term to continue on a month-to-month or year-to-year basis following expiration of the initial term included in the contract. The term of the lease is determined to be the non-cancelable period in the contract, plus the period beyond that cancellation period that the Company believes it is reasonably certain it will need the equipment for operational purposes.

The Company’s lease obligations as of March 31, 2022 will mature as follows (in thousands):

Operating LeasesFinance Leases
Less than one year:$3,340 $110 
1-2 years717 9 
2-3 years135 — 
3-4 years88 — 
4-5 years88 — 
Thereafter1,355 — 
Total lease payments$5,723 $119 
Less: Interest(819)(2)
Total discounted lease payments$4,904 $117 

Marketing, Gathering, Processing and Transportation Commitments

In 2018, the Predecessor entered into contracts with a large midstream company to gather, process, transport and market oil, NGL and natural gas production for certain acquired properties. The contracts contain a Minimum Revenue Commitment (“MRC”) that requires payment of minimum annual fees for those services. Fixed fees are expensed as incurred and settled with the purchaser on a monthly basis. If, at the end of each calendar year, the Company fails to satisfy the MRC, the Company is required to pay a shortfall. If the volumes and associated fees under a contract exceed the MRC for any contractual year, the overage can be applied to reduce the commitment under that contract, if any, in the following year. Current production from the producing wells dedicated under these agreements is not sufficient to meet the MRC for the agreements.

The amount of the anticipated shortfall that will be incurred during 2022 under the crude oil and condensate purchase is allocated to each barrel of oil sold during the contract period, reducing the amount of revenue recognized
15

from the sale. During the three months ended March 31, 2022 and 2021, the Company recorded contra revenue of $1.2 million and $1.1 million, respectively.

The total remaining MRC is as follows (in thousands):

2022 (remaining)
Hydrocarbon gathering and handling agreements$5,021 
Crude oil and condensate purchase agreements3,325 
Total MRC$8,346 

Litigation
The Company is involved in various legal proceedings in the ordinary course of business and recognizes a contingent liability when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. While the outcome of these lawsuits and claims cannot be predicted with certainty, it is the opinion of management that, as of the date of this report, it is not probable that these claims and litigation will have a material adverse impact on the Company. Accordingly, no material amounts for loss contingencies associated with litigation, claims or assessments have been accrued as of March 31, 2022.

NOTE 12 — SUBSEQUENT EVENTS

On April 12, 2022, the Company entered into a purchase and sale agreement with SilverBow Resources, Inc. (the “Buyer”) to sell its oil and gas properties for a purchase price of $354 million, consisting of cash of $225 million and 4.1 million shares of the Buyer’s common stock, valued at $129 million (based on its 30-day volume weighted average price as of April 8, 2022), subject to customary adjustments. In addition, the Company may receive up to $15 million of contingent payments based on future commodity prices. If the WTI oil price averages or is greater than $95 per barrel for the period April 13 through December 31, 2022, the Company would receive an additional cash payment of $7.5 million. If the WTI oil prices averages or is greater than $85 per barrel during 2023, the Company would receive an additional cash payment of $7.5 million.
The transaction has an effective date of May 1, 2022 and is subject to approval by SilverBow shareholders. The Company expects the transaction to close in June or July 2022.
Management has evaluated subsequent events for recognition or disclosure in the condensed consolidated financial statements through June 1, 2022, the date the condensed consolidated financial statements were available to be issued.
16

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Acquisition of Assets of Sundance Energy, Inc.

On April 13, 2022, SilverBow Resources, Inc. (“SilverBow” or the “Company”) and its operating subsidiary, SilverBow Resources Operating, LLC, entered into a definitive agreement (the “Purchase Agreement”) with Sundance Energy, Inc. and certain affiliated entities (collectively, “Sundance”), under which SilverBow will acquire substantially all of Sundance's' right, title and interest in its oil and gas properties and related assets located in Atascosa, La Salle, Live Oak and McMullen Counties, Texas (the “Sundance Transaction”). Consideration for the Sundance Transaction includes approximately $225 million in cash and 4,148,472 shares of common stock of SilverBow (“Common Stock”). As part of the Purchase Agreement, the purchase price will be reduced by $16.5 million related to SilverBow assuming Sundance's outstanding commodity derivatives positions (“Hedge Book”). The Sundance Transaction also includes up to two earn-out payments of $7.5 million per year for each of 2022 and 2023, contingent upon the average monthly settlement price of NYMEX West Texas Intermediate (“WTI”) crude oil exceeding $95 per barrel for the period from April 13, 2022 to December 31, 2022 and $85 per barrel for fiscal year 2023 (“Contingent Consideration”).

The cash portion of the Sundance Transaction is expected to be funded primarily with borrowings under SilverBow's existing credit facility and cash on hand.

Unaudited Pro Forma Condensed Combined Financial Statements

The following unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of SilverBow and Sundance and its consolidated subsidiaries.

The Company expects to account for the Sundance Transaction as an asset acquisition under accounting principles generally accepted in the United States of America, as the assets and operations acquired in the Sundance 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 is concentrated in a single asset group.

Certain historical amounts of Sundance and its consolidated subsidiaries have been reclassified to conform to SilverBow’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of March 31, 2022, presented below was prepared as if the Sundance Transaction and related financing had occurred on March 31, 2022. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2022, presented below was prepared as if the Sundance Transaction and related financing had occurred on January 1, 2022.

The unaudited pro forma condensed combined financial statements reflect the following Sundance Transaction-related pro forma adjustments, based on available information and certain assumptions that SilverBow believes are reasonable:

•the Sundance Transaction is accounted for as an asset acquisition;
•the Sundance Transaction financing includes $0.5 million paid from existing cash on hand, $213 million borrowing on SilverBow’s credit facility to fund the remaining cash portion of the Sundance Transaction and 4,148,472 shares issued related to the equity consideration;
•adjustments to conform Sundance’s historical accounting policies related to oil and natural gas properties from the successful efforts method of accounting to the full cost method of accounting used by SilverBow;
•adjustments to conform the classification of certain assets and liabilities in Sundance’s historical balance sheet to SilverBow’s classification for similar assets and liabilities; and
•adjustments to conform the classification of revenues and expenses in Sundance’s historical statement of operations to SilverBow’s classification for similar revenues and expenses.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements. In SilverBow’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to the Sundance Transaction and the related financing.

The acquisition method of accounting as it relates to the Sundance Transaction is dependent upon certain valuations and other studies that, as of the date hereof, have yet to commence or progress to a stage where there is sufficient information


for a definitive measure. SilverBow has performed a preliminary valuation analysis of the relative fair value of the assets to be acquired and liabilities to be assumed from Sundance and its consolidated subsidiaries and has made certain adjustments to the historical book values of the assets and liabilities of Sundance and its consolidated subsidiaries to reflect preliminary estimates of the relative fair value necessary to prepare the unaudited pro forma condensed combined financial statements. A final determination of the relative fair value of such assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Sundance that exist as of the closing date of the Sundance Transaction and, therefore, cannot be made prior to the completion of the Sundance Transaction. In addition, the value of the consideration to be paid by SilverBow upon the consummation of the Sundance Transaction will be determined based on the closing price of Common Stock on the closing date of the Sundance Transaction. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements presented below. SilverBow estimated the fair value of assets and liabilities of Sundance and its consolidated subsidiaries based on discussions with the management of Sundance, preliminary valuation studies, due diligence, and information presented in Sundance’s historical financial statements. Any increases or decreases in the relative fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the unaudited pro forma condensed combined balance sheet and/or statement of operations. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.
The unaudited pro forma condensed combined financial information is not intended to represent what SilverBow’s financial position or results of operations would have been had the Sundance Transaction actually been consummated on the assumed dates nor does it purport to project the future operating results or financial position of the combined company following the Sundance Transaction. The unaudited pro forma condensed combined financial information does not reflect future events that may occur after the Sundance Transaction, including, but not limited to, the anticipated realization of ongoing savings from potential operating efficiencies, asset dispositions, cost savings, or economies of scale that the combined company may achieve with respect to the combined operations. Specifically, the unaudited pro forma condensed combined statement of operations does not include projected synergies expected to be achieved as a result of the Sundance Transaction and any associated costs that may be required to be incurred to achieve the identified synergies. The unaudited pro forma condensed combined statement of operations includes the effects of approximately $5 million of estimated costs associated with the Sundance Transaction.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes contained in SilverBow’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 and Sundance’s historical financial statements and accompanying notes as of and for the three-month period ended March 31, 2022 included as an exhibit to the accompanying Current Report on Form 8-K.

2

SilverBow Resources, Inc and Subsidiary Pro Forma Condensed Combined Balance Sheet As of March 31, 2022 (Unaudited)
(in thousands, except per share amounts)SilverBow HistoricalSundance HistoricalReclassification Adjustments
(Note 3)		Acquisition Adjustments (Note 3)Pro Forma Combined
ASSETS  
Current Assets:  
Cash and cash equivalents$1,645 $10,563 $— $(11,066)(b)$1,142 
Accounts receivable, net46,095 17,946 — (17,946)(c)$46,095 
Fair value of commodity derivatives1,679 — — — $1,679 
Income tax receivable— 118 — (118)(c)$— 
Other current assets2,164 5,633 — (5,633)(c)$2,164 
Assets held for sale— 312,505 (312,505)(a)— $— 
Total Current Assets51,583 346,765 (312,505)(34,763)51,080 
Property and Equipment:
Property and equipment1,651,497 — 341,841 (a)82,622 (g)2,075,960 
Less – Accumulated depreciation, depletion, amortization & impairment(891,158)— (29,336)(a)29,336 (g)(891,158)
Property and Equipment, Net760,339 — 312,505 111,958 1,184,802 
Other property and equipment, net of accumulated depreciation570 — (570)(c)— 
Right of Use Assets16,163 4,780 — 8 (i)20,951 
Fair Value of Long-Term Commodity Derivatives76 — — — 76 
Other Long-Term Assets3,629 2,272 — (2,272)(c)3,629 
Total Assets$831,790 $354,387 $— $74,361 $1,260,538 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities$41,909 $26,447 6,738 (a)(33,185)(c)$41,909 
Accrued liabilities— 7,449 (7,449)(a)— — 
Current portion of long term debt— 10,000 — (10,000)(d)— 
Fair value of commodity derivatives140,941 24,401 — — 165,342 
Accrued capital costs11,128 — — — 11,128 
Accrued interest862 — — — 862 
Current lease liability7,998 3,171 — — 11,169 
Undistributed oil and gas revenues18,731 — 711 (a)— 19,442 
Liabilities related to assets held for sale— 5,500 (5,500)(a)— — 
Total Current Liabilities221,569 76,968 (5,500)(43,185)249,852 
Long-Term Debt, Net346,003 115,521 — 97,479 (d)559,003 
Non-Current Lease Liability8,427 1,617 — — 10,044 
Deferred Tax Liabilities3,613 — — — 3,613 
Asset Retirement Obligations5,644 — 5,500 (a)— 11,144 
Fair Value of Long-Term Commodity Derivatives19,089 12,897 — — 31,986 
Fair Value of Contingent Consideration— — — 7,237 (e)7,237 
Other Long-Term Liabilities1,663 14 — (14)(c)1,663 
Stockholders' Equity:
Preferred stock— — — — — 
Common stock171 1 — 41 (f)213 
Additional paid-in capital414,127 175,804 — (15,632)(f)574,299 
Treasury stock, held at cost(6,592)— — — (6,592)
Accumulated deficit(181,924)(28,435)— 28,435 (h)(181,924)
Total Stockholders’ Equity225,782 147,370 — 12,844 385,996 
Total Liabilities and Stockholders’ Equity$831,790 $354,387 $— $74,361 $1,260,538 
See accompanying notes to unaudited pro forma condensed combined financial information.
3

SilverBow Resources, Inc and Subsidiary Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2022 (Unaudited)
(in thousands, except per share amounts)SilverBow Historical
Sundance Historical
Sundance Reclassification and Conforming Adjustments (Note 3)Sundance Acquisition Adjustments (Note 3)Pro Forma Combined
Revenues: 
Oil and gas sales$129,656 $— $54,705 (a)$— $184,361 
Oil sales— 45,023 (45,023)(a)— — 
Gas sales— 3,298 (3,298)(a)— — 
NGL sales— 6,384 (6,384)(a)— — 
Total Revenues129,656 54,705 — — 184,361 
Operating Expenses:
General and administrative, net4,786 1,727 — — 6,513 
Depreciation, depletion, and amortization21,154 273 (137)(a)14,691 (j)35,981 
Accretion of asset retirement obligations99 — 137 (a)— 236 
Lease operating expenses9,125 9,510 (1,058)(a)— 17,577 
Workovers647 — 1,058 (a)— 1,705 
Transportation and gas processing6,352 3,624 — — 9,976 
Severance and other taxes7,764 3,807 — — 11,571 
Loss on commodity derivative financial instruments— 29,818 (29,818)(a)— — 
Other expense, net— 208 — — 208 
Total Operating Expenses49,927 48,967 (29,818)14,691 83,767 
Operating Income (Loss)79,729 5,738 29,818 (14,691)100,594 
Non-Operating Income (Expense)
Gain (loss) on commodity derivatives, net(140,242)— (29,818)(a)— (170,060)
Interest expense, net(6,557)(2,289)— 50 (k)(8,796)
Other income (expense), net61 — — — 61 
Total Non-Operating Income (Expense)(146,738)(2,289)(29,818)50 (178,795)
Income (Loss) Before Income Taxes(67,009)3,449 — (14,641)(78,201)
Provision (Benefit) for Income Taxes(2,754)— — — (2,754)
Net Income (Loss)$(64,255)$3,449 $— $(14,641)$(75,447)
Per Share Amounts:
Basic: Loss Per Share$(3.84)$(3.62)
Diluted: Loss Per Share$(3.84)$(3.62)
Weighted-Average Shares Outstanding - Basic16,719 — — 4,148 20,867 
Weighted-Average Shares Outstanding - Diluted16,719 — — 4,148 20,867 
See accompanying notes to unaudited pro forma condensed combined financial information.
4

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(1) Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information has been derived from the historical consolidated financial statements of SilverBow and Sundance and its consolidated subsidiaries. Certain of Sundance’s historical amounts have been reclassified to conform to SilverBow’s financial statement presentation. The unaudited pro forma condensed combined balance sheet as of March 31, 2022, gives effect to the Sundance Transaction and related financing as if it had occurred on March 31, 2022. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2022, gives effect to the Sundance Transaction and related financing as if it had been completed on January 1, 2022.

The unaudited pro forma condensed combined financial statements reflect pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions that SilverBow believes are reasonable, however, actual results may differ from those reflected in these statements. In SilverBow’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The unaudited pro forma condensed combined financial statements do not purport to represent what SilverBow’s financial position or results of operations would have been if the Sundance Transaction had actually occurred on the dates indicated above, nor are they indicative of SilverBow’s future financial position or results of operations. These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes of SilverBow and Sundance, as applicable, for the period presented.

The unaudited pro forma condensed combined financial information includes adjustments to conform Sundance’s accounting policies to SilverBow’s accounting policies, including adjusting Sundance’s oil and gas properties to the full cost method. Sundance follows the successful efforts method of accounting for oil and gas properties, while SilverBow follows the full cost method of accounting for oil and gas properties. Certain costs that are expensed under the successful efforts method are capitalized under the full cost method, including unsuccessful exploration drilling costs, geological and geophysical costs, delay rentals on leases and general and administrative expenses directly related to exploration and development activities. Under the full cost method of accounting, property acquisition costs, costs of wells, related equipment and facilities and future development costs are all included in a single full cost pool, which is amortized on a units-of-production basis over total proved reserves. Under the successful efforts method of accounting, property acquisition costs are amortized on a units-of-production basis over total proved reserves, while costs of wells and related equipment and facilities are amortized on a units-of-production basis over proved developed reserves.

(2) Pro Forma Adjustments

SilverBow expects to account for the Sundance Transaction 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 is concentrated in a single asset group. The allocation of the preliminary estimated purchase price is based upon management’s estimates of and assumptions related to the relative fair value of assets to be acquired and liabilities to be assumed as of March 31, 2022, using currently available information. Due to the fact that the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. SilverBow expects to finalize its allocation of the purchase consideration as soon as practicable after completion of the proposed transaction.

The preliminary purchase price allocation is subject to change due to several factors, including but not limited to:

•changes in the estimated fair value of Common Stock included as consideration, based on SilverBow’s share price at the date of closing of the Sundance Transaction;
•changes in the estimated fair value of Sundance’s assets acquired and liabilities assumed as of the date of the closing of the Sundance Transaction, resulting from the finalization of SilverBow’s detailed valuation analysis, including changes in future oil and gas commodity prices, reserve estimates, interest rates and other factors;
•valuation of ASC 842 Leases as it relates to Sundance’s lease obligations and right of use assets expected to be recorded as part of purchase accounting upon the closing of the Sundance Transaction;
•changes in the estimated fair value of the Contingent Consideration as of the date of the closing of the Sundance Transaction; and
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•changes in the estimated fair value of the Hedge Book as of the date of the closing of the Sundance Transaction.

The preliminary consideration to be transferred and the relative fair value of assets acquired and liabilities assumed is as follows:

(in thousands)
Total Cost
Cash consideration$208,503 
Equity consideration(1)
160,214 
Fair value of contingent consideration(2)
7,237 
   Total Consideration$375,954 
Transaction Costs5,000 
Total Cost of Transaction $380,954 
Allocation of Total Consideration
Assets
Oil and gas properties424,463 
Right of use assets4,788 
Total assets acquired$429,251 
Liabilities
Undistributed oil and gas revenues 711 
Current lease liability3,171 
Current portion of fair value of commodity derivatives24,401 
Non-current lease liability1,617 
Asset retirement obligation5,500 
Non-current portion of fair value of commodity derivatives 12,897 
Total liabilities assumed$48,297 
Net Assets Acquired and Liabilities Assumed$380,954 
(1) Based on 4,148,472 shares of Common Stock at $38.62 per share (closing prices as of May 31, 2022)
(2) Fair value of contingent consideration based on available data on April 13, 2022

The final fair value of the equity consideration of the Sundance Transaction will be determined based on the market price of Common Stock on the closing date of the Transaction. A 20% increase or decrease in the closing price of a share of Common Stock, as compared to the May 31, 2022, closing price of $38.62, would increase or decrease the purchase price by approximately $32.0 million, assuming all other factors are held constant.

(3) Pro Forma Adjustments

The following adjustments have been made to the accompanying unaudited pro forma condensed combined financial statements:

(a)    The following reclassifications and conforming adjustments were made as a result of the Sundance Transaction to conform to SilverBow’s presentation and full-cost accounting methodology for oil and gas properties:

Pro Forma Condensed Combined Balance Sheet as of March 31, 2022:

•Reflects reclassification of approximately $312.5 million from assets held for sale to property and equipment and accumulated depreciation, depletion, amortization and impairment;
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•Reflects reclassification of approximately $6.7 million from accrued liabilities to accounts payable and accrued liabilities;
•Reflects reclassification of approximately $0.7 million from accrued liabilities to undistributed oil and gas revenues; and
•Reflects reclassification of approximately $5.5 million from liabilities related to assets held for sale to asset retirement obligation.

Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2022:

•Reflects reclassification of approximately $54.7 million to oil and gas sales from the respective sales revenues by product ($45.0 million for oil sales, $3.3 million for gas sales and $6.4 million for NGL sales);
•Reflects reclassification of approximately $0.1 million from depreciation, depletion and amortization to accretion of asset retirement obligations; and
•Reflects reclassification of approximately $1.1 million from lease operating expenses to workovers.

(b)    Reflects Sundance cash and cash equivalents not acquired. Adjustment also reflects $0.5 million funding of the Transaction with cash on hand.

(c)    Amounts are to adjust Sundance's historical balance sheet for assets not acquired and liabilities not assumed in the Sundance Transaction; including accounts receivable, income tax receivable, other current assets, other property and equipment, other long-term assets, accounts payable and accrued liabilities and other long-term liabilities.
(d)    The adjustment reflects an approximately $87.5 million net increase in debt related to the $213.0 million increase in SilverBow's credit facility as part of the financing of the Sundance Transaction, partially offset by the $125.5 million of Sundance debt not assumed by SilverBow in the Sundance Transaction.

(e)    Reflects the fair value of the Contingent Consideration, as of April 13, 2021, included in the Sundance Transaction.

(f)     Reflects the elimination of Sundance’s historical common stock and additional paid-in capital, partially offset by the estimated fair value of equity consideration transferred (based on the closing price of Common Stock of $38.62 per share at May 31, 2022).

(g)    Reflects the allocation of the estimated fair value of consideration transferred (based on the closing price of Common Stock of $38.62 per share at May 31, 2022 and the Contingent Consideration fair value at April 13, 2022) and liabilities assumed to the assets acquired on a relative fair value basis.

(h)    Reflects the cumulative impact of the Sundance Transaction and related financing after the allocation of relative fair value of assets acquired and liabilities assumed. Also includes the elimination of Sundance's accumulated deficit.

(i)    Reflects the incremental fair value of the right of use assets acquired in the Sundance Transaction.

(j)    Reflects the pro forma depreciation, depletion and amortization expense calculated in accordance with the full cost method of accounting for oil and gas properties, which was based on the preliminary purchase price allocation of the Sundance Transaction.

(k)    Interest expense associated with the borrowings under the Company’s credit facility associated with the Sundance Transaction.


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