Exploration & Production | Well Cost | Drilling / Well Results | Top Story | Quarterly / Earnings Reports | Proppant | Second Quarter (2Q) Update | Deals - Acquisition, Mergers, Divestitures | Production Rates

Sanchez Highlights Catarina Asset Takeover, Eagle Ford Progress

Email    |    Print    |    Bookmark

You Need to login first

   |    Thursday,August 07,2014

Sanchez Energy Corporation has reported its operating and financial results for the second quarter 2014.

Highlights:

• Record revenues of $151.7 million, an increase of 157% over the same period a year ago
• Adjusted EBITDA, a non-GAAP financial measure defined below, of $112.5 million, an increase of 160% over the same period a year ago
• Adjusted Net Income, a non-GAAP financial measure defined below, of $11.5 million, an increase of 98% compared to the same period a year ago
• Liquidity of $811 million as of June 30, 2014 consisting of $386 million in cash and cash equivalents and a $437.5 million unused borrowing base (with a $425 million elected commitment amount) under our revolving credit facility
• Substantial reduction in drilling and completion costs per well, as detailed in the comments below
• Production of 1,859 MBOE (20,437 BOE/D), an increase of 164% over the same period a year ago and above the midpoint of the production guidance range of 19,000 to 21,000 BOE/D

Tony Sanchez, III, President and Chief Executive Officer of Sanchez Energy, commented: "As of August 1, 2014, Sanchez Energy has officially taken over all operations at Catarina after a brief transition period with Shell. The transition of operations has gone smoothly and the ramp up of Sanchez Energy operations is ahead of schedule. We have fully staffed our operations at Catarina and now have drilling, completion, and artificial lift installation in progress. Additionally, now that we have achieved critical scale from the Catarina assets, we are utilizing a dedicated frac spread as well as direct sourcing of chemicals and proppant. We expect these factors will reduce completions costs by an additional 30%, allowing flexibility to increase fracture stage size or improve returns from a lower development cost.

"We plan to apply direct sourcing of chemicals and proppant in our other Eagle Ford areas as the opportunities present themselves. In order to realize these expected significant completion cost savings, some wells scheduled to be completed in the third quarter will now be completed in the fourth quarter. As a result of the production deferment, our third quarter production guidance range of 37,000 to 41,000 BOE/D has been revised to 36,000 to 40,000 BOE/D while our fourth quarter production guidance range of 45,000 to 49,000 BOE/D has increased to 48,000 to 50,000 BOE/D. Production guidance for 2015 is reaffirmed at a range of 53,000 BOE/D to 58,000 BOE/D.

"The second quarter of 2014 also marked the continued improvement in drilling efficiencies in the early development of Wycross and Five Mile Creek and the continuation of improvement in our Prost area. Total drilling and completion costs in Marquis are now as low as $7.3 million per well, a major improvement over our initial 2014 planned costs of $8.5 million per well. The lower cost structure gives us confidence in our ability to continue to improve returns on our current reserve base and add new inventory as we continue to step out and appraise the entirety of our acreage using these improved drilling and completion techniques."

Catarina Acquisition

Enlarge Image

Enlarge Image

Operations Update

As detailed in the table below, Sanchez Energy currently has 9 gross rigs (6 operated and 3 non-operated) running across its Eagle Ford and TMS areas with 422 gross producing wells and 40 gross wells in various stages of completion.

Production & Financial Results

Sanchez Energy's mix of hydrocarbon production during the second quarter of 2014 consisted of approximately 73% crude oil, 14% natural gas liquids, or 87% liquids, and 13% natural gas.  By area, Cotulla, Marquis, and Palmetto comprised approximately 42%, 31%, and 27% of total second quarter 2014 production volumes, respectively. The percentage of oil expected in the Company's third quarter production volumes should decrease as the impact of the production volumes from Catarina begin to flow through our results.  Third quarter volumes are expected to be approximately 50% oil and 27% NGLs, for a total of 77% liquids.

Revenue for the three months ended June 30, 2014 totaled $151.7 million, an increase of 157% over the same period a year ago, due to the addition of 133 gross new wells since the second quarter 2013, including 119 gross wells from ongoing operations and 14 gross wells from the acquisition of new properties.

Sanchez Energy announced that proved reserves from its assets excluding Catarina increased to approximately 60 MMBOE as of June 30, 2014. Inclusive of the Catarina acquisition, the Company's proved reserves total approximately 117 MMBOE as of June 30, 2014, an increase of over 170% relative to the balance as of June 30, 2013. Crude oil constituted 49% and NGLs constituted 24% (73% liquids) of the Company's proved reserves as of June 30, 2014, and 56% of the Company's proved reserves were classified as proved undeveloped as of June 30, 2014 as compared to 70% at June 30, 2013.  The Company's estimated reserves were prepared by its independent reservoir engineering firm, Ryder Scott & Company, L.P.

Capital expenditures, before estimated accruals, for the second quarter 2014 were approximately $225 million, and capital expenditures incurred during the second quarter, including accruals, were approximately $191 million.  

Hedging Update

During the second quarter of 2014 and subsequent to quarter end, Sanchez Energy entered into additional derivative contracts covering anticipated future production in 2014 and 2015. Sanchez Energy currently has approximately 3.5 million barrels of anticipated crude production and 4.1 Bcf of gas production for 2014 hedged, or approximately 4.1 million BOE, which represents approximately 40% of its anticipated total 2014 production at the mid-point of its guidance range. Approximately 5.7 million BOE are currently hedged for 2015, which represents approximately 25% to 30% of anticipated production at the mid-point of the guidance range. A schedule of all current hedges for 2014 and 2015 production is included herein.