Sean Woolverton: Yes. Yes, you bet. This is an area that saw activity stating probably in that 2010, 2014 time frame. Part of the position was owned by Pioneer back then. The trade that we did was controlled by a large operator that hasn’t done much in the area for quite a bit of time. And then the other position was a smaller operator. Just to clarify on it, we put the position together through two acquisitions, again, paid nothing for the inventory. And then the last piece was a trade. Historically, from a drilling perspective, lateral is shorter as you really saw during that time frame. And most of the time, wells were probably drilled in zone anywhere from about 50% to 75%. When we do our look backs on the drilling, we’re probably in zone 98% plus.
So that’s a big part of it is keeping the bit in the wellbore in what’s the most high-quality rock. From a completion standpoint, we almost can look at the refracs numbers that we provide on Slide 10 to get a sense of how these wells were originally fracked. Many of them had cluster spacing of 50 to 100 feet and pretty big significant stage spacing and had proppant intensities probably in the 1,200 pounds per foot or less. So that’s what gets into the area. One thing that we’re doing is we’ve actually started our third and fourth refrac for the year, and those two happen to fall on this block of acreage. So it kind of speaks to how we kind of keyed in here.
Charles Meade: Got it. And then my second — I’m sorry, were you done there, Sean?
Sean Woolverton: I am, yes.
Charles Meade: Okay, good. Yes. My second question is about this proxy fight you have with Kimmeridge. From the outside looking in, one of the obvious things that has worked and kind of continues to work in the E&P space right now is increased scale and that increased scale, there’s lower financing costs, there’s more investors that you can look at you. There’s a number of things that are benefits to increase scale. And that’s one of the most kind of obvious potential benefits of a combination with Kimmeridge Texas Gas. But what are the — what is — what’s on the other side of the seesaw that makes this not an attractive prospect for SilverBow and its shareholders in your eyes?
Sean Woolverton: Yes. No, I appreciate the question. Maybe I’ll start with, hey, listen after probably two-plus years of discussions with Kimmeridge and through analysis with our financial and legal advisers, looking at this would have been the third time we’ve engaged with them. We’re confident that the deal they proposed was not a good deal for our shareholders. It was clear they significantly underestimated the value of SilverBow and simultaneously substantially over evaluated their value on KTG. What I’d say is we’ve repeatedly demonstrated our willingness to discuss potential combinations with any and all parties. And I think we have a compelling path to accelerate our value recognition for the benefit of all of our shareholders.
I mentioned this in my comments, we have an enviable asset base in the basin. In this basin, we’re — we agree with you, we’re big believers in scale. And this basin is rapidly consolidating. We regularly entertain discussions with interested parties. And I’m not going to discuss any specific discussions, but I can tell you that our Board understands its fiduciary duties to do what’s best — what’s in the best interest of all of our shareholders. And our Board and management’s interest, they’re aligned with shareholders. So I’ll kind of say that — maybe I’ll continue on a little bit. We are firm believers in the merits of consolidation and the market is rewarding companies like you said, that have the key ingredients to deliver sustainable value through all cycles.
And we’ve kind of outlined what we have and what we present in terms of that opportunity. The scale we have, the asset quality, the free cash flow generation, our last two quarters, we’ve demonstrated that significant free cash flow that this asset base has. And we have a balance sheet that I think would work well in any combination. So we feel like today we check nearly all the boxes to earn a premium valuation. Listen, we really transformed our asset base and demonstrated our ability to capture value-adding deals to create the scale I mentioned. And at the same time, we’re executing capital discipline to ensure we generate free cash flow. We’re committed to having less than a 75% reinvestment rate in order to maintain that strong balance sheet.
So I guess, I’ll just say, in short, I think we have the right strategy, and we’ll continue to evaluate, and I’ll say this loud and clear any and all paths to deliver value for our shareholders.
Charles Meade: Got it. That’s helpful elaboration. Thank you, Sean.
Sean Woolverton: Thank you.
Operator: Your next question comes from the line of Leo Mariani from ROTH MKM. Your line is open.
Leo Mariani: Yeah, hi. I was hoping you could maybe just elaborate a little bit on sort of the plan to close the value gap. Obviously, you just kind of spoke about scale being important and critical in the sector and that you’re open to the right types of consolidation. But apart from sort of consolidating with another entity, what do you kind of see as kind of the pivotal things the company can do to try to close the value gap in its shares here?
Sean Woolverton: Yes. No, I appreciate that question, Leo. Scale is definitely a criteria that investors are looking for. We feel like the transactions that we’ve done over the last two years have put us into a new level of scale. And obviously, it has attracted interest in the company for that reason. But it’s important to also have a demonstrated inventory of high-quality drilling locations, and for us, even adding to that high rate of return refracs now. So purchasers are looking for deep inventory and public investors are as well. They want to see scale that you have run rate over a long period of time. I think we’re showing that, I think, our low margins, our low cost platform is another ingredient that investors are looking for.
So where do we go now? I think it’s — we’re very disciplined in how we’ve grown to this scale. We primarily leveraged debt to do that. And we’re now aggressively showing the cash flow capabilities of the company in paying down that debt rapidly. And when I say we use debt, we’ve really never been over 1.5 times leverage over the last couple of years, and we’ve taken the company from 2.5 times levered at the start of all these acquisitions. So I think what the market wants to see is demonstration on the scale. Quarter was a record EBITDA quarter. So at $200 million for the quarter, we now have a run rate of $800 million annual. We’re paying down debt quickly. We’re on track to get to one times that — just with no re-rating in the market. Just our conversion of debt to equity should start to attract investors.
