SilverBow Resources, Inc. (NYSE: SBOW), a Houston-based oil and gas company, announced on August 14, 2023, that it has entered into an agreement to acquire the remaining Eagle Ford assets of Chesapeake Energy Corporation (NASDAQ: CHK) for $700 million. The deal is expected to close by the end of 2023, subject to customary closing conditions and regulatory approvals.
A Transformational Acquisition for SilverBow
The acquisition of Chesapeake’s Eagle Ford assets will significantly increase SilverBow’s production, reserves, cash flow, and acreage position in the South Texas region. According to the company’s press release, the acquired assets include:
- Approximately 42,000 net acres and 540 wells in Dimmit and Webb counties
- Average net daily production of 29,000 barrels of oil equivalent (boe) in the second quarter of 2023, of which 60% was liquids
- Estimated net proved reserves of 124 million boe as of December 31, 2022
- Associated property, plant, and equipment
SilverBow expects the acquisition to be immediately accretive to its key financial and operational metrics, such as earnings per share, cash flow per share, leverage ratio, and free cash flow. The company also anticipates significant synergies and cost savings from the integration of the assets with its existing operations.
SilverBow’s Chief Executive Officer Sean Woolverton said in a statement: “This is a transformational acquisition for SilverBow that accelerates our long-term strategic objectives and enhances our position as a premier operator in the Eagle Ford Shale. We are acquiring a high-quality asset base that is complementary to our existing portfolio and provides us with substantial growth opportunities, operational efficiencies, and economies of scale. We look forward to welcoming the talented Chesapeake employees to our team and delivering value to our shareholders.”
A Strategic Exit for Chesapeake Energy
The sale of its Eagle Ford assets marks the completion of Chesapeake’s exit from the South Texas region, which began in 2022 with the divestiture of its oil-rich portion to EnerVest Ltd. for $2 billion. The company has now generated more than $3.5 billion from its Eagle Ford exit, which it plans to use to strengthen its balance sheet and repurchase its shares.
Chesapeake’s President and Chief Executive Officer Nick Dell’Osso said in a statement: “We are pleased to have successfully completed the exit of our Eagle Ford asset, allowing us to focus our capital and team on the premium rock, returns and runway of our Marcellus and Haynesville positions. I want to thank our employees who built a culture of safety and excellence, which made this a powerful and attractive asset.”
Chesapeake may also receive an additional contingent payment of up to $50 million from SilverBow, depending on the future oil prices. The agreement stipulates that SilverBow will pay Chesapeake $25 million if the West Texas Intermediate (WTI) crude oil price averages between $75 and $80 per barrel or $50 million if it averages above $80 per barrel during the year following the closing of the transaction.
A Positive Outlook for Both Companies
The acquisition of Chesapeake’s Eagle Ford assets is expected to boost SilverBow’s production guidance for 2023 by 40% to 50%, reaching a range of 55,000 to 60,000 boe per day. The company also expects to increase its capital expenditure budget for 2023 by $100 million to $150 million, while maintaining a strong balance sheet and generating positive free cash flow.
SilverBow’s stock price rose by 7.6% on August 14, 2023, following the announcement of the deal. Analysts at Tudor Pickering Holt & Co. upgraded their rating on SilverBow from hold to buy, citing the attractive valuation and growth potential of the acquisition.
Chesapeake’s stock price also increased by 4.2% on August 14, 2023. Analysts at Raymond James maintained their strong buy rating on Chesapeake, noting that the deal was consistent with the company’s strategy of simplifying its portfolio and reducing its debt.
Both companies are expected to benefit from the favorable market conditions for oil and gas in 2023, as the global demand recovers from the impact of the COVID-19 pandemic and the supply remains constrained by OPEC+ cuts and U.S. shale discipline.
