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Silverbow-CHK Asset Sale Could Shuffle Eagle Ford Rigs

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The Daley Note: August 30, 2023

SilverBow Resources (SBOW) has struck a deal with Chesapeake Energy (CHK) to acquire certain oil and gas assets in the Eagle Ford shale for $650MM, plus a $50MM deferred payment. The transaction could affect drilling plans on several midstream systems in South Texas.

The deal for the CHK properties was announced August 14. SBOW expects to add 31-33 Mboe/d of liquids-weighted production from 42,000 acres in Dimmit and Webb counties to its Eagle Ford portfolio, approximately doubling the producer’s production. The transaction is expected to close by the end of 4Q23.

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At the midstream level, Williams (WMB) and Kinder Morgan (KMI) service the acreage changing hands, according to allocations in East Daley Analytics’ Energy Data Studio. WMB gathers the natural gas for Chesapeake on its Eagle Ford G&P system and sends most volumes to KMI for processing.

Prior to the sale, CHK disclosed that the Eagle Ford assets were producing above its minimum volume commitment (MVC) with Williams. According to Energy Data Studio, CHK has regularly run a single rig on the properties in the western Eagle Ford, resulting in 0.5-1.0 rigs on the acreage for the past 10 years. We model current gas production of ~250 MMcf/d on the properties and expect some growth ahead (see figure).

Following the transaction, Silverbow guided to continue running a 3-4 rig program across its own Eagle Ford acreage. Down the line, several midstream operators could see impacts if SBOW moves capital to the newly acquired acreage.

In the past year, EDA has allocated SBOW rigs to Eagle Ford G&P systems operated by DCP Midstream (DCP), Targa Resources (TRGP), Enterprise Products (EPD) and Kinder Morgan (KMI). In Energy Data Studio, EDA currently allocates 2 SBOW rigs between EPD – Eagle Ford and KMI – Eagle Ford.

Williams only gathers in the Eagle Ford, and most of the gas gathered by the WMB - Eagle Ford system travels to KMI – Eagle Ford. According to EDA’s G&P System Analysis tool in Energy Data Studio, SBOW is currently the fourth-largest producer on KMI – Eagle Ford, producing 5% of the total gas modeled to the system (see figure). This figure is likely to increase as SBOW takes over the properties and begins feeding the WMB gathering lines. – Zach Krause Tickers: CHK, DCP, EPD, KMI, SBOW, TRGP, WMB.


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