Kimmeridge Issues Open Letter to SilverBow Shareholders Outlining Proposed Combination with Kimmeridge Texas Gas

News provided by

Mar 13, 2024, 07:00 ET

Would create preeminent pure-play Eagle Ford shale operator

Proposed combination and additional $500 million equity investment represent a premium of 21% to 30-day volume-weighted average price with significant upside potential

Urges SilverBow Board to engage in good faith negotiations and provide shareholders the opportunity to vote on its value-enhancing proposal

Kimmeridge to host investor conference call to discuss its proposal on March 14 at 11:00 am ET

NEW YORK and DENVER, March 13, 2024 /PRNewswire/ -- Kimmeridge, an alternative asset manager focused on the energy sector, today delivered to the SilverBow Resources ("SilverBow") Board of Directors (the "Board") a proposal to combine Kimmeridge Texas Gas ("KTG") and SilverBow. The KTG assets have an equity value of $1.1 billion and an expected enterprise value of $1.4 billion at closing of the proposed transaction (the "Transaction").

Under the terms of the proposal, Kimmeridge would contribute the KTG assets to SilverBow in exchange for 32.4 million shares priced at $34 per share. In addition, Kimmeridge will inject $500 million of fresh equity capital at the same price of $34 per share, in exchange for 14.7 million shares. At closing of the Transaction, Kimmeridge and its affiliates would own a majority of the outstanding shares of the combined company ("CombineCo"), with a total of 50.3 million shares of common stock (inclusive of Kimmeridge's current 3.3 million share position in SilverBow).

The Transaction will be accretive to SilverBow shareholders. The $34 share price represents a premium of 8.5% over SilverBow's closing share price on March 11, 2024 and 21% over the 30-day volume-weighted average price of $28.12 as of March 11, 2024.

Kimmeridge has sufficient capital to fully finance the equity investment of $500 million and intends to use those funds to pay down SBOW's existing long-term debt obligations. Kimmeridge has received highly confident letters from Barclays, RBC Capital Markets and other lenders with respect to the debt consideration required to facilitate the Transaction.

Concurrent with delivering its proposal, Kimmeridge published a formal offer letter and investor presentation on its website (https://kimmeridge.com/sbow/) and issued the following open letter to shareholders:

***

Fellow Shareholders,

As the largest investor in SilverBow, holding 12.9% of outstanding shares, we are writing to share a strategic vision that would position SilverBow to drive compelling value creation for all shareholders. We have sought to engage in a constructive dialogue with SilverBow's Board about a proposal that would create a preeminent pure-play Eagle Ford shale operator, and a partner of choice for future consolidation.

Unfortunately, the company's Board and management have consistently dismissed our efforts. Following the Board's March 1 letter to shareholders, which further solidified their position and misled the investment community as to our efforts, we felt it was critical to give all shareholders the opportunity to evaluate the value-enhancing Transaction we have set forth here.

Creating the Largest Pure-Play Operator in South Texas

The proposed Transaction would immediately create the largest public pure-play Eagle Ford shale operator with enhanced scale, a low-cost, high-margin production base, a strong and flexible balance sheet, and a clear path to compelling shareholder returns. We believe all shareholders will benefit from the opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford.

The combined company would operate at the front end of the cost curve, with over 14 years of high-quality inventory. With a de-levered balance sheet, the company would target a 65-70% reinvestment rate, creating a clear path to access the high-yield market and be positioned to begin returning cash to shareholders in 2025 through a significant dividend.

Kimmeridge would also leverage its deep experience to empower the combined company to become a sustainability leader in the upstream sector – including a commitment to net-zero GHG emissions in 2025 and obtaining gas certification across the consolidated portfolio. By way of example, Kimmeridge pioneered the founding of Civitas Resources, which became Colorado's first carbon-neutral energy producer on day 1 of its operations.

Importantly, under our proposal, the combined company would adopt best-in-class governance practices directly aligned with the interests of shareholders. This new structure would feature: Board and management compensation tied to absolute TSR and higher equity ownership for management, a majority independent, declassified board of directors with vast expertise, a 7-year term limit for directors, and enhanced shareholder rights. The refreshed Board would be comprised of 9 total directors. Kimmeridge would nominate 5 directors, including a Kimmeridge-nominated Chair and 4 independent directors. SilverBow would nominate the remaining 4 directors.

Furthermore, we intend to follow a "best athlete" approach in forming a management team that brings a wealth of experience to benefit the combined company. For continuity, Kimmeridge anticipates retaining key members of the SBOW C-suite while enhancing leadership with additional hires.

Leveraging Our Expertise to Drive Value for All Shareholders

Kimmeridge has a proven history of partnering with management teams across the oil and gas sector to enhance profitability, establish best-in-class sustainability programs, and align with shareholder interests. As part of these efforts, Kimmeridge has developed extensive experience in supporting the consolidation of smaller, disaggregated assets at attractive entry points, as it did with Civitas.

For instance, when Kimmeridge first led the formation of Civitas, the $1.2 billion platform had just emerged from bankruptcy proceedings. Approximately 3 years later, its equity valuation now stands at approximately $7 billion with peer-leading capital returns to shareholders.

Kimmeridge would bring its deep operational and financial expertise to bear on behalf of the combined company. We would work collaboratively to position the new company for consolidation and related measures to unlock its significant value potential for all stakeholders.

Giving Shareholders a Voice

Given the combination's clear strategic and financial merits, and in the interests of full transparency, we are making public our offer letter and supporting deck. Shareholders can assess for themselves the benefits of the proposed merger relative to SilverBow's current standalone trajectory.

If SilverBow is as committed to hearing the perspectives of shareholders as it purports to be, then it will be open to the following proposed process:

Engaging in good faith discussions with Kimmeridge;
Working to reach a definitive agreement by April 26; and
Ultimately taking the Transaction to a shareholder vote – where the owners of the company will have the final say.

Contrary to what the SilverBow Board would have you believe, Kimmeridge's focus throughout our engagement has squarely been on putting forward a highly compelling Transaction that paves the way for value creation for all.

Thank you,

Ben Dell, Co-Founder and Managing Partner of Kimmeridge

***

Investor Conference Call Information

Kimmeridge will host an investor conference call to discuss its proposal on March 14^th at 11:00 a.m. ET. To access the conference call, please dial (800) 579-2543 (U.S. toll-free) or (785) 424-1789 (international) and reference conference ID 265573. The conference call will also be available as a listen-only webcast here. As noted above, the slide presentation that accompanies the proposal is available on the Kimmeridge website (https://kimmeridge.com/sbow/).

For more information on this proposal, please see the associated Offer Letter here and Supporting Slides here.

About Kimmeridge

Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is an alternative asset manager focused on the energy sector. The firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management and proprietary research and data gathering.

Media

Kekst CNC
Daniel Yunger / Anntal Silver / Emma Cloyd
[email protected]

Cautionary Statement Regarding Forward-Looking Statements

This press release does not constitute an offer to sell or solicitation of an offer to buy any of the securities described herein in any state to any person. The information herein contains "forward-looking statements". Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "potential," "targets," "forecasts," "seeks," "could," "should" or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our objectives, plans or goals are forward-looking. Forward-looking statements are subject to various risks and uncertainties and assumptions. There can be no assurance that any idea or assumption herein is, or will be proven, correct or that any of the objectives, plans or goals stated herein will ultimately be undertaken or achieved. If one or more of such risks or uncertainties materialize, or if Kimmeridge underlying assumptions prove to be incorrect, the actual results may vary materially from outcomes indicated by these statements. Accordingly, forward-looking statements should not be regarded as a representation by Kimmeridge that the future plans, estimates or expectations contemplated will ever be achieved.

Important Information

KEF Investments, LP ("KEF Investments"), KEF Fund V Investments, LP ("KEF Fund V"), Kimmeridge Energy Management Company, LLC ("KEMC"), Benjamin Dell, Alexander Inkster, Neda Jafar, Denis Laloy, Noam Lockshin, Henry Makansi, Neil McMahon, Douglas E. Brooks, Carrie M. Fox and Katherine L. Minyard (all of the foregoing, collectively, the "Participants") intend to file a definitive proxy statement and accompanying proxy card (the "Proxy Statement") with the Securities and Exchange Commission (the "SEC") to be used to solicit proxies in connection with the 2024 annual meeting of shareholders (the "Annual Meeting") of SilverBow Resources, Inc. (the "Company"). Shareholders of the Company are advised to read the definitive proxy statement and other documents related to the solicitation of proxies with respect to the Company by the Participants as they become available because they will contain important information. They will be made available at no charge on the SEC's website, https://www.sec.gov/.

KEMC may be deemed to "beneficially own" (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) 3,281,356 shares of common stock, par value $0.01 per share, of the Company (the "Common Stock") (including 100 shares held in record name by each of KEF Investments and KEF Fund V). None of the other Participants beneficially own any securities of the Company.

Additionally, on March 13, 2024, KEMC delivered to the Company's Board a non-binding proposal to merge Kimmeridge Texas Gas, LLC with the Company's existing assets and inject $500M of fresh equity capital in exchange for shares of the combined public company at a price of $34 per share of Common Stock.

SOURCE Kimmeridge