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spk00: Hello, and welcome to the Silver Bowl Resources third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. Jeff Maggots. Please go ahead, sir.
spk05: Thank you, Lisa, and good morning, everyone. Thank you very much for joining us for our third quarter 2021 conference call. With me on the call today are Sean Wolverton, our CEO, Steve Adam, our COO, and Chris Abundance, our CFO. Yesterday afternoon, we posted a new corporate presentation to our website and will occasionally refer to it during this call. We encourage listeners to download the latest materials. Please note that we may make references to certain non-GAAP financial measures which are reconciled to the closest GAAP measure in the earnings press release. Our discussion today may include forward-looking statements which are subject to risks and uncertainties, many of which are beyond our control. These risks and uncertainties are described more fully in our documents on file with the SEC, which are also available on our website. With that, I will turn the call over to Sean.
spk06: Thank you, Jeff, and thank you, everyone, for joining our call this morning. I am extremely proud of Silver Bow's third quarter results and the progress we have made toward our key objectives, which we show on slide six of our presentations. During the quarter, we focused on maximizing our full-year free cash flow, adding high return inventory in both the Eagleford and Austin Chalk, and executing on accretive M&A. Since the beginning of August, we have announced three acquisitions, which are accretive across key financial metrics and further our strategic objectives. Our first objective is to grow production in EBITDA while living within cash flow. Third quarter oil production increased nearly 50% sequentially as we wrapped up the remainder of our mid-year liquids development. For the full year, we increased our production guidance by 4% at the midpoint, and we now expect 16% growth year over year. Inclusive of acquisitions, our exit rate production in December should increase roughly 45% year-over-year. We also increased our free cash flow guidance for the third time this year and now expect free cash flow in the range of $80 to $90 million, a 70% increase at the midpoint from our prior range. Our updated guidance implies a reinvestment rate of 60% and a free cash flow yield greater than 20%. Our second objective is focused on expanding our inventory through Austin Chalk delineation and accretive acquisitions. Our recent acquisitions add five to six years of rig life in drilling inventory, spanning both the Eagleford and Austin Chalk. In regards to organic development, we brought our second Webb County Austin Chalk Well online during the third quarter. As Steve will detail further, the second well has produced over 12 MMCF per day on average through the first 60 days and is performing similar to the first well. In addition, we recently brought online our third Austin Chalk Well in Webb County, and we like what we are seeing from the early results. Year-to-date, we have added over 50 Austin Chalk drilling locations in Webb County through M&A in our successful appraisal and development program. Our third objective is to drive peer-leading capital efficiency and cost structure. We have continued to reduce our D&C costs per lateral foot this year, which are 14% lower in 2021 compared to 2020. In the third quarter, our efficiency gains equated to roughly $9 million of savings on our completion costs. Furthermore, we lowered our full-year G&A guidance and did not expect a material change to G&A even as we integrate the recent acquisitions. Our lean cost structure allows us to generate attractive full-cycle returns And Silver Bow is at the high end of our peers on free cash flow yield, which we highlight on slide 27 of our presentation. Last but not least, we seek to delever our balance sheet through debt reduction and accretive transactions. Year over year, we reduced our total debt by $55 million and have paid down $92 million of total debt since the end of the first quarter of 2020. At quarter end, our leverage ratio was 1.7 times, down from 2.5 times at year end 2020. We anticipate our leverage to further decrease to 1.25 times by year end. We also expect to significantly increase our liquidity as we generate free cash flow and complete our semi-annual borrowing-based redetermination in the coming weeks. We plan to resume drilling at La Mesa in December, and as we look into next year, our latest expectation is to run at a one-rig pace throughout 2022, compared to an approximately three-quarter rig run rate this year. This will drive double-digit annual production growth, inclusive of full-year contributions from recent acquisitions. At the same time, we expect to reinvest approximately 75% of our free cash flow as warranted by our return thresholds. Reinvesting at the right time in the right wells provides for increased EBITDA, sustained free cash flow, and lower leverage as we look to 22 and beyond. Our recently acquired properties and the associated Eagleford and Austin Chalk locations only add to that equation. With that, I will turn the call over to Steve to provide an operational update.
spk04: Steve, please go ahead. Thank you, Sean. In the third quarter, we drilled six net wells and completed 11 net wells. Our completion activity was focused on the remainder of our mid-year liquids development program, the majority of which was in our LaSalle condensate area. We also delivered these completed wells $9 million below planned AFE cost as we reduce our cycle times and further optimize well designs. In our LaSalle condensate area, we are seeing strong well performance from our recent development program. We brought online a two-well pad with a 30-day rate of 2,500 DOE per day and a 72% liquids cut. We also brought online a four-well pad with a 30-day rate of 4,200 DOE per day and a 78% liquids cut. In our McMullen oil asset, we brought a single well online in the NBR area. This confirmation well is currently outperforming expectations and provides additional inventory of high-return oil locations. As Sean mentioned, the Austin Chalk has been a key area of focus for Silver Bowl this year. In February, we brought online our first Austin Chalk well in Webb County. Today, this well has cumulatively produced 2.7 BCF, or about 11 mm CF per day on average over the first 250 days. In August, we brought online our second Webb County Chalk Well, which has produced over 12 mm CF per day through the first 60 days, or more than 0.6 BCF cumulatively. In addition to our successful Austin Chalk Program that has added 50 drilling locations, we have added significant inventory through our recent acquisitions. As shown on slide eight of our presentation, we outline our high return inventory that exists across our asset base. On the operational efficiency front, our team continued to reduce cycle times during the quarter as our drilling times averaged approximately seven days per well in the third quarter compared to nine days in 2020. As shown on slides 21 and 22 of our presentation, we drilled 10% more feet per day compared to 2020. On the completion side, we completed 3% more stages per day and reduced completion costs per well by 17%. Taken together, we reduced our total D&C costs per level foot by 14% compared to 2020. On our last call in August, we announced and closed an acquisition of incremental working interest and adjacent acreage at our La Mesa position in Webb County. Later in the month, we announced a second acquisition of 40,000 net acres in the Eagleford, which bolstered our AWP and southern Eagleford positions. This also expanded our footprint north into the oil window of Atascosa County and to the northeast in Fayette and Lavaca Counties. In October, we announced a third acquisition of 17,000 net acres in the oil window of LaSalle, McMullen, DeWitt, and Lavaca Counties. Altogether, these three acquisitions bring an additional 5,500 BOE per day of production, 85 net producing wells, and over 200 future drilling locations in the Eagleford and Austin Chalk formations. The second acquisition closed on October 1st, and we expect the third acquisition to close later this year. Our team is currently in the process of integrating these assets into Silver Bowl's larger operating structure, and we expect to realize cost synergies across these assets as a result of greater size and scale. Our third quarter production averaged 212 MMCFE per day near the high end of guidance. As a result of the well performance in our LaSalle condensate area, Third quarter oil production increased nearly 50% sequentially. Silverville also continued its streak of zero recordable incidents, and as mentioned before, a cultural point of pride amongst our organization. It has been over 1,200 days since our last lost time accident and over 800 days since our last recordable incident. For the fourth quarter, we are guiding to a production range of 240 to 250 MMCFE per day with natural gas representing 75% at the midpoint. For full year 2021, we are increasing our production guidance to a range of 210 to 215 MMCFE per day. Our guidance includes the impact from the two acquisitions which have closed. We expect to deliver 16% production growth year over year. It pertains to service and supply costs. We are currently experiencing various pockets of inflation for select markets on both the capital and operating sides of the business. Much of the inflationary impact is around price increases for tubular goods, trucking, pressure pumping, profit, production chemicals, and labor. To date, we have been able to commercially offset these cost pressures through improved efficiencies and other optimizations. However, we are planning for a net increase of 7% to 10% in capital costs and 3% to 5% in operating costs as we look forward towards year-end and 2022. Maintaining a low-cost structure has been key to Silver Bowl success, and we expect to continue this competitive cost structure for the foreseeable future as we work with our vendors and critical contractors. Capital expenditures for the third quarter totaled $51 million on an accrual basis. Our full-year CapEx guidance is unchanged at $115 to $130 million. However, given the cost savings identified in the third quarter and a favorable returns environment, we have completed four Rio Bravo wells, which are now online. These wells were originally planned to be completed in early 2022. Additionally, we plan to resume drilling at our La Mesa asset in December. With the majority of our full-year CapEx being incurred through the third quarter, the fourth quarter is expected to generate substantial free cash flow. While we are in the process of finalizing our drilling schedule and capital budget for next year, our balanced portfolio will allow us to remain flexible and adaptable to market conditions. As always, we continue to operate with a strict returns-driven mindset in regards to any future developments. With that, I will turn it over to Chris.
spk01: Thanks, Steve, and good morning, everyone. In my comments this morning, I will highlight our third quarter financial results, as well as our price realizations, hedging program, operating costs, and capital structure. For the third quarter, revenue was $99 million, excluding derivatives, with natural gas representing 77% of production and 63% of oil and gas sales. For the quarter, our realized oil price was 97% of NYMEX WTI. Our realized gas price was 103% of NYMEX Henry Hub, and our realized NGL price was 44% of NYMEX WTI. Notably, our realized gas price was $0.13 per MCF, higher than the benchmark Henry Hub prices, highlighting the attractiveness of operating in the Gulf Coast markets. Our realized hedging loss on contracts for the quarter was approximately $19 million. Based on the midpoint of our guidance in our hedge book as of October 29th, our total estimated production is 64% hedged for the remainder of 2021. The company has 66% of natural gas production hedged, 73% of oil hedged, and 44% of NGLs hedged. For 2022, Silver Bow has 113 MMCF per day of natural gas production hedged and approximately 3,000 barrels per day of oil hedged. The hedged amounts are inclusive of both swaps and collars. A detailed summary of our derivative contracts is contained in our presentation and Form 10-Q filing for the third quarter of 2021, which we expect to file later today. Risk management is a key aspect of our business. and we are proactive in adding oil and gas basis and calendar month average roll swaps to further supplement our hedging strategy. As shown on slide 26 of our corporate presentation, we have historically realized prices close to NYMEX benchmarks. Turning to cost, lease operating expenses were $0.38 per MCFE. Transportation and processing costs were $0.30 per MCFE. Production taxes were 5% of oil and gas sales. Adding our LOE, T&P, and production taxes together, total production expenses were $0.93 per MCFE, continuing our trend of total production expenses of less than $1 per MCFE. Cash G&A costs for the quarter were $4 million, a 15% decrease year over year. For the full year, we lowered our cash G&A guidance to below $16 million and do not anticipate a meaningful increase to G&A related to our recent acquisitions. We consider our lean cost structure to be a competitive advantage, allowing Silver Bowl to sustain profitability during periods of volatile commodity prices. Adjusted EBITDA for the quarter was $58 million, exclusive of amortized derivative contract gains and pro forma contributions from closed acquisitions. As reconciled in our earnings materials, we generated a slight deficit in cash flow during the quarter. This was a timing effect as a large portion of our full-year DNC spend occurred in the third quarter. As Steve noted, we identified a significant amount of savings on our DNC spending, which helped to offset some of the timing impact to cash flows. For the full year, we have increased our cash flow guidance from a midpoint of $50 million to a midpoint of $85 million, a 70% increase. Turning to our balance sheet, we reduced our total debt by $55 million year over year and held our debt flat quarter over quarter. Strong cash flows and proceeds from our ATM program allowed us to hold our net debt flat in a quarter, which had a $13 million cash outlay for acquisition payments and $51 million for CapEx. The $51 million represents 40% of our full-year CapEx budget. In regards to our ATM program, during the quarter we issued roughly 700,000 shares and raised approximately $13 million in net proceeds. As I mentioned, this raise offset the cash payment for one of our recent acquisitions. As of September 30th, we had $198 million outstanding under our credit facility, approximately $1 million of cash on hand, and $103 million of liquidity. The company is currently undergoing its semiannual volume-based redetermination and anticipates a sizable increase to availability under its revolving credit line. I would like to thank our banks and the gift for their continued support and look forward to constructively working with them as we further our Eagleford and Austin Chalk consolidation efforts. In conjunction with the unwinding of oil derivative contracts related to production periods in 2020 and 2021, Silver Bow is able to amortize $38 million it received in March of 2020 as ad-bag gains in discrete amounts extending from April 2020 through December of 2021. The amortized hedge gains factor into Silver Bow's adjusted EBITDA calculation for covenant purposes over the same time period, and therefore is important for our investors and research analysts to understand when tracking our leverage ratio. Additionally, Silver Bow includes pro forma contributions from acquired assets in adjusted EBITDA for purposes of calculating its leverage ratio. For the third quarter of 2021, the ad backs totaled approximately $5 million. On a last 12-month basis, the add-back totaled $27 million, bringing our LTM-adjusted EBITDA for covenant purposes to $229 million and our quarter-end leverage ratio to 1.73 times. At the end of the third quarter, we were in full compliance with our financial covenants and had sufficient headroom. And with that, I will turn it over to Sean to wrap up our prepared remarks.
spk06: Thanks, Chris. To summarize, Silver Bow is positioned to grow EBITDA and expand inventory while generating substantial free cash flow and de-levering the balance sheet. The recent strength in commodity prices broadens the optionality of our high-return inventory as evidenced by the real-time optimizations we make to our development program. Year-to-date, Silverbow has been one of the best-performing oil and gas stocks across all market caps, both large and small. We continue to deliver on accretive and organic growth while remaining opportunistic in the market. Our winning strategy is built on solid execution, efficient operations, financial resilience, and a low-cost structure. We see additional tailwinds to our outlook given the favorable price environment, continued strengthening of our balance sheet, and ongoing Eagleford expansion and Austin Chalk delineation. It is an exciting time to be at Silver Bow. What sets us apart from others is our quality assets, exceptional track record, and strong capital structure. As it stands today, we have all three in place in a culture designed to harness the full potential of our greatest asset, our people. We look forward to providing further updates on our next call. And with that, I will turn the call back to the operator for questions.
spk00: At this time, I would like to remind everyone, if you would like to ask a question, start number one on your telephone keypad. Your first question comes from the line of Neil Bingerman with Truist Securities.
spk03: Morning there and afternoon, guys. Sean, nice job so far. Obviously, your data M&A has been quite good. My question is, just wondering out there, does the M&A market, you know, given the run-up we've seen in prices, does it look as robust out there? And, you know, if so, is your preference these days look more towards the oil or the gas side?
spk06: Hey, good morning, Neil. We continue to see a number of assets in market in the Eagleford across both the gas and oil windows. We're open to expanding our position on both commodities as we look to further balance our inventory position going forward. You know, your comment of run-up in prices obviously sets expectations higher from the seller side, but we're going to continue to be very pragmatic and thoughtful on any transactions we do. and target transactions that grow our inventory while at the same time keeps our leverage at where we're currently at or accretive to our current position. So very happy with the deals we've done. We've done them from an accretive valuation standpoint and look forward to trying to get additional transactions done here as we move into 2022.
spk03: Nice job so far. And then I'm just wondering, obviously, a nice upside on the hostage stock. Just wondering thoughts on any thoughts changed on the, you know, let's say even the plans. I know you don't have a 22 budget out yet or a guide, but just thoughts now on that plan for this that you've had.
spk06: Yeah, definitely Austin Chalk, the first two wells where we have at least 60 days of data on both look very attractive and rank very high in our inventory in terms of returns. We did just recently bring on a third well. That well's been on just a couple of weeks but is tracking similar to the first two wells' performance. So as we think about next year, our current plan is to continue expanding our Austin Chalk drilling and start to look at probably some spacing test as we get into 22 as well. So very excited about the opportunity set there. And we continue to look for additional acquisition opportunities in the Western Austin Chalk trend as well as grassroot leasing opportunities.
spk03: Very good. Thanks.
spk06: Appreciate the questions.
spk00: Your next question comes from the line of Charles Meade with Johnson Rice.
spk02: Hi, good morning. This is Michael Furrow filling in for Charles. Good morning, Michael. Hi. So I've kind of hit on it already a little bit, but just kind of going back to the A&D market, you know, you all have announced three deals since August, you know, adding over five years of inventory in a pretty short period. So obviously that market is looking pretty, you know, opportunistic right now. how should we expect the current pace that you guys are making deals at to change, if at all? And, you know, could you give us more insight of some potential deals that you might be currently looking at now?
spk06: Yeah, no, great question. You know, we've been very active in the A&D market in the basin for a number of years. Through that activity, we've built relationships with a number of sellers, right? And so, again, Many of these transactions that we've done just didn't occur overnight but took time to build relationships with, especially with sellers' desire to take Silver Bow stock. I think it shows a reflection of the upside that sellers have seen in our stock as well as comfort in the way we manage properties. I would tell you that there's additional relationships that we've built, and we continue to have open discussions with a number of folks. In terms of telegraphing, additional deals probably can't do that, but we look forward to getting some more transactions across the line as we move forward.
spk02: Great. Thank you. That's good news to hear. Sort of an unrelated follow-up regarding the full rig you plan on running. You know, what sort of operational efficiencies or details can you kind of explain to us how it works to us on the cell side that might not be as obvious for us as it is for you all?
spk06: Yeah, why don't I let Steve answer that question.
spk04: Yes, thank you, Michael. Up to date, we have, you know, not had a full rig line schedule. We've had an inconsistent rig line schedule here. So with a full rig line schedule beginning here in the middle of December, going forward through 22 and likely into 23, it's going to do a couple things for us. One, we're going to get that not only well-to-well, but that pad-to-pad efficiency. We've had a lot of well-to-well efficiency so far, but now we're going to get pad-to-pad efficiency. And then as we design and work through our drill schedule for the year, we're optimizing our rig moves around that. So that's on the rig side. And then furthermore, as I mentioned in comments there, where we're seeing some of the greater costs at least on the drilling side, encasing in oil country tubular goods. This allows us to plan out further and to get some scale along with that pricing, as well as some of the optimizations that go with not only procuring that pipe, but logistically and getting it sourced at the rig level. trucking aside. So there's some opportunities there. Then the other thing about it on the drilling side that gives us opportunity is as we go from area to area, as you know, we cover the basin from north to south on the west side. And now as we go more towards the east, in all of those different bands, we have different opportunities with respect to the muds we use, as well as the motor assemblies, bottom hole assemblies. and other tools that we use. And this will allow us now to kind of go with focused areas on each one of those, whereas before we've kind of maybe had to go back and forth to different areas a little prematurely because of the drill schedule. So those are some of the real clear operational efficiencies that we see. And then, of course, we're always looking at our unit costs, not to mention those process costs. On the completion side, it'll take us even further because we'll be able to pretty much lock in with one consistent trailing frack spread. And as many people have commented and as you know, That consistent frack spread has a lot of inherent efficiencies to it rather than picking up one versus another or even a different company. So we'll be able to maintain that trailing frack spread with a high degree of personnel efficiencies, process knowledge, as well as the way in which we do things from both the downhole perspective as well as the surface logistical support. So we're looking for either more efficiencies on the completion side versus that of on the drilling side. And again, trucking aside.
spk02: Thank you. That's a very good color. I appreciate y'all taking my questions. Thanks, Michael.
spk00: At this time, there are no further questions. I would like to turn the call back to Sean Wilberton, CEO, for closing remarks.
spk06: Well, I want to again thank everyone for their interest in Silver Bow and their attendance of our call this morning. We look forward to sharing additional updates with you as we report our year-end results in March of next year. Everyone have a nice day.
spk00: This concludes today's conference. You may now disconnect.
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