SilverBow Resources Inc.’s board plans to “carefully review and consider” a proposal from activist investor Kimmeridge Energy Management LLC to merge its natural gas production subsidiary in a tie-up that could become the largest South Texas exploration and production company.
In a letter to shareholders, Kimmeridge proposed to merge Kimmeridge Texas Gas LLC (KTG) into the Eagle Ford Shale producer. The combination would create “the largest public pure-play Eagle Ford Shale operator,” the letter stated.
Kimmeridge became a SilverBow shareholder in 2022 and holds a 12.9% stake.
Houston-based KTG, acquired in 2022, produces about 315 MMcfe/d (85% natural gas), and holds about 148,000 net acres across the Lower Eagle Ford and Austin Chalk formations of Texas. It markets natural gas to South Texas markets, including to LNG export facilities and for Gulf Coast petrochemical facilities.
SilverBow’s natural gas output in 2023 was about 218.9 MMcf/d. In 2022, it was the fourth-largest operator in the Eagle Ford by production, according to Railroad Commission of Texas data. SilverBow management has also touted its exposure to the Gulf Coast liquefied natural gas market.
In its latest Drilling Productivity Report released in February, the U.S. Energy Information Administration forecast a 15 MMcf/d month/month increase in production from the Eagle Ford.
Kimmeridge estimated the combined company’s pro forma 2025 production would be about 1.075 Bcfe/d across 370,000 net acres. LNG throughput capacity could be about 2 million tons/year, it stated.
“Combining our complementary portfolios creates a leading operator in the Eagle Ford shale, with a low-cost, high-margin production base integrated into LNG, with a strong balance sheet,” Kimmeridge executives said.
The New York-based investment firm proposed an incremental investment of $500 million in exchange for 14.7 million shares of the combined company if the deal were to close. Kimmeridge also offered to trade KTG for 32.4 million shares of the combined company.
Kimmeridge previously suggested a tie-up with SilverBow in 2022. Last year the investment firm also suggested taking SilverBow private. SilverBow management told shareholders earlier this month that the two companies were again in discussions for a potential combination.
Kimmeridge has nominated three directors to SilverBow’s board. In response, SilverBow called the nominations “the launch of a proxy fight in a nearly two-year effort on the part of Kimmeridge to force a merger…” A decision on the merger is expected by the end of April.
