Eagle Ford E&P SilverBow Resources Inc. is being urged by one of its largest investors to boost value for shareholders, including exploring a possible sale.
In a letter to the company made public on June 14, SilverBow shareholder Riposte Capital LLC addressed a litany of concerns, including SilverBow adopting a so-called “poison pill” measure last year to ward off a potential takeover attempt by an activist investor.
Riposte Capital, based in New York, owns approximately 7.5% of SilverBow’s outstanding shares, or about 1.17 million shares, according to Securities and Exchange Commission (SEC) filings. Since April 20, Riposte has added 183,600 net shares of SilverBow.
On June 13, the day before its letter was made public, Riposte made its largest purchase during the 55-day period, buying 60,000 shares, according to Riposte SEC filings.
The letter, signed by Riposte founder and portfolio manager Khaled Beydoun, accuses SilverBow of operating “an antiquated E&P business model” that emphasizes oil and gas production “for production’s sake” over profitability and alignment with shareholder interests.
The firm said the strategies employed by SilverBow’s management and board of directors has siloed the company and backed it into a corner.
“The company has limited opportunity to build a sustainable E&P platform without further acquisitions, and even there you are highly disadvantaged given the company's lack of scale and financial profile,” Riposte wrote in the letter.
SilverBow did not respond to Hart Energy’s request for comment.
Riposte urged SilverBow’s leadership to take several actions, such as retaining an independent financial adviser to review strategic alternatives for the E&P company, including actively soliciting potential acquirers.
The firm also advised SilverBow to drop its poison pill provision, which prevents any investor from owning more than 15% of SilverBow’s common stock.
SilverBow should also prioritize profitability over production volume and drilling in order to return cash to shareholders through a dividend, Riposte said.
“This would most efficiently be achieved, in the near term, by laying down one of SilverBow's rigs, which would generate hundreds of millions of dollars in free cash flow,” Riposte wrote.
SilverBow’s stock was trading at $25.87 per share near midday on June 14—down over 2% from the previous day’s closing price and down 48% from a 52-week high of $49.91 per share. Beydoun argues in the letter that SilverBow’s price, based on peer multiples, should be “in the range of $34-$36 a share.”
The Eagle Ford Shale operator adopted the poison pill provision in September 2022 as activist investor Kimmeridge Energy signaled a potential takeover stance toward SilverBow.
Kimmeridge had disclosed spending more than $100 million to acquire 14.7% of SilverBow’s outstanding stock.
SilverBow has amassed about 180,000 net acres across the Eagle Ford and Austin Chalk plays in South Texas, according to Securities & Exchange Commission filings.
The company’s total net production during the first quarter averaged 304 MMcfe/d (66% natural gas, 22% oil and 12% NGL).
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