SilverBow Resorces, Inc.

Good morning, and welcome to Silver Bow Resources' fourth quarter and full year 2021 conference call. Please note, this event is being recorded. I will now turn the conference over to Jeff Maggins, Director of Finance and Investor Relations for Silver Bow Resources. Please go ahead.

Thank you, Cheryl, and good morning, everyone. Thank you very much for joining us for our fourth quarter and full year 2021 conference call. With me on the call today are Sean Wolverton, our CEO, Steve Adam, our COO, and Chris Abundus, 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 their closest GAAP measure and 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 now turn the call over to Sean.

Thank you, Jeff, and thank you, everyone, for joining our call this morning. 2021 was a year in which we turned challenges into opportunities. We delivered on our key objectives, set Silver Bowl records, were named as one of Houston's top workplaces, and realized an incredible shareholder return of more than 300%. In addition to our many accomplishments this year, the company is well positioned to realize further upside through numerous catalysts in 2022. including production and EBITDA growth, inventory expansion through further Austin Chalk delineation, a third year of significant free cash flow, and a balance sheet that is less than one times levered with substantial liquidity. With that as an introduction, I will start by providing some additional color on our 21 results before turning to our outlook for 22 and beyond. Our first objective for 21 was to grow our production in EBITDA while living within cash flow. We achieved this by increasing production by 17% and adjusted EBITDA by 68% year over year. We generated 84 million of free cash flow, the highest mark in Silver Bow's history, all while operating with a reinvestment rate of approximately 60%. Our full year cash flow represents more than a 20% free cash flow yield based upon our recent share price. Our second objective was to expand our high return inventory. We were able to do this through a mix of Austin Chalk delineation and accretive acquisitions. The returns demonstrated by our three chalk wells drilled in 2021 and our core Webb County gas area have exceeded our expectations. We are very pleased with the overall success of the play. In fact, Webb County is now the most active county in the Eagle Ford trend with 14 drilling rooms. Last year we closed three accretive acquisitions which added multiple rig years spanning both the oil and gas windows. All in all, we exited 2021 with over 10 rig years of core high return drilling locations. Our third objective was to maintain and improve our capital efficiencies and cost structure. Our team lowered drilling and completion costs per well and further reduced DNC costs per lateral foot by 13% year over year. As a result, we realized 10 million in CapEx savings compared to our planned costs which equates to nearly 10% of our full year capital spend. Last but not least, our fourth objective was to further enhance our balance sheet. The 84 million in free cash flow was allocated to pay down 53 million of debt, an equivalent of over $3 per share, while the remaining 31 million was used to fund acquisitions. For the year, we cut our leverage ratio in half down to 1.25 times and increased our liquidity to $234 million, up more than $150 million from the prior year. Looking ahead to 2022 and beyond, we expect to deliver double-digit production in EBITDA growth while maintaining a conservative reinvestment rate. The midpoint of our 22 guidance calls for $85 million of free cash flow and $190 million of CapEx, which implies another year of greater than 20% free cash flow yield at a 70% reinvestment rate. Our growth objective of 10% to 20% will drive shareholder returns through multiple avenues while increasing Silver Bow's size and scale. Near term, we plan to use free cash flow to convert enterprise value from debt to equity. Our 22 free cash flow guidance of $85 million equates to over $5 per share of net debt reduction. Our decade of premium drilling inventory supports a multi-year outlook of annual free cash flow above recent levels. Additionally, increasing our EBITDA in tandem with debt reduction should provide for a greater overall equity value. That being said, I will add that our capital budget is not just focused on one year. We are growing production in EBITDA, expanding inventory and net asset value, driving capital efficiencies, and further strengthening our balance sheet. Our team has established a track record of delivering on key objectives in the face of volatility in industry headwinds. We have been successful on a number of fronts, including accretive acquisitions. We see a robust pipeline of opportunities going forward. Our ability to transact at the right time and at the right price is a proven strategy that has and will continue to unlock value for our stakeholders.