Kimmeridge struck the latest volley against SilverBow Resources on April 1 as the back-and-forth rally of open letters to SilverBow shareholders continued between the two companies.

Kimmeridge’s latest missive aimed to set the record straight following SilverBow’s March 28 “set the record straight” letter. But the letter, signed by Ben Dell, Kimmeridge co-founder and managing partner, took on a perceptively more combative tone in the fight for the future of the Eagle Ford producer with the activist investment firm.

“At this point, it appears that the board and management team are singularly focused on fighting Kimmeridge—at all times and at all costs,” Dell wrote. “Their strategy is to entrench themselves—while summarily rejecting compelling proposals and denying shareholders the right to fiduciaries who will independently analyze opportunities to maximize long-term value.”

The letter also said that if SilverBow continues to stonewall and mislead shareholders, then “the best path forward will be for SilverBow shareholders to elect our three” board members who are independent and not associated with Kimmeridge.

The growing sense of enmity stems from Kimmeridge’s bid to combine its Kimmeridge Texas Gas (KTG) with SilverBow in exchange for 32.4 million SilverBow shares at $34 per share. The offer includes an associated $500 million equity investment, Kimmeridge said.

Kimmeridge envisions a combination between KTG and SilverBow creating a “preeminent, pure-play Eagle Ford shale operator with an estimated enterprise value of approximately $3.6 billion.”

SilverBow says it remains open to offers but doesn’t have the information it needs to independently evaluate KTG’s assets. But SilverBow’s March 28 letter also delivered a backhand to the KTG offer, alleging that Kimmeridge had made “false claims” and “substantially undervalued SilverBow.”

In its April 1 letter, Kimmeridge described SilverBow’s claims as “gross mischaracterizations,” which “speaks to their lack of credibility.”

Kimmeridge said SilverBow asked for a formal proposal in writing and said SilverBow CEO Sean Woolverton “claimed that the board was ‘open to proposals.’” SilverBow asked for a formal proposal with confirmation of financing on Feb. 26.

 “To our surprise on March 1, and prior to our submission of any formal proposal, SilverBow filed a letter to shareholders misrepresenting the historical discussions with Kimmeridge,” the firm said in its April 1 letter. “In our desire to have a constructive dialogue, and hope that the board was open to considering the best interests of shareholders, we chose to ignore the tone and inaccuracies contained in that filing and formally submitted the requested proposal on March 13.”

Kimmeridge said SilverBow made no response until March 28, when it issued its letter to shareholders and Woolverton rejected the proposal while asking for additional information about KTG. Kimmeridge has made available on its website details of its proposal, including KTG reserve reports, well data and other information.

Kimmeridge said that, in contrast to what SilverBow had communicated, the investment firm had:

  • Provided a comparative analysis of well performance based on public data, indicating that KTG's wells have consistently outperformed SilverBow on an EUR per barrel of oil equivalent basis utilizing both a 6:1 conversion, and a 20:1 conversion for natural gas. Kimmeridge also has provided proprietary data on recent wells to the end of February showing that this performance gap has continued and expanded;
  • Given line-by-line responses to SilverBow's diligence request;
  • Turned over current production information showing that–since the startup of the recent Apollo pad in Karnes County, Texas–KTG's net production is now 374 MMcfe/d (80% gas / 11% oil / 9% NGL);
  • Detailed KTG's estimated operating costs for 2024 at $0.44/Mcfe for LOE and taxes, $0.36/Mcfe for gathering, processing and transportation and $0.15/Mcfe for G&A; and
  • Produced inventory analysis showing that, since the formation of KTG in 2022, Kimmeridge has increased its leasehold organically and through acquisition–more than doubling production and acreage–with peer-leading expertise in drilling deep gas wells.

“It is our hope that the board reverses course and starts engaging in a constructive dialogue around our value-enhancing proposal,” Dell wrote.

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