HOUSTON, Aug. 09, 2017 (GLOBE NEWSWIRE) — Sanchez Energy Corporation (NYSE:SN) (“Sanchez Energy” or the “Company”), today announced operating and financial results for the second quarter 2017. Highlights include:
- Second quarter 2017 production totaled approximately 6.7 million barrels of oil equivalent (“MMBoe”), or approximately 73,341 barrels of oil equivalent per day (“Boe/d”), an increase of approximately 43 percent over first quarter 2017 production;
- Four Lower Eagle Ford horizontal wells, with an average lateral length of approximately 10,000 feet, that were brought on-line at the Stumberg Ranch during the second quarter 2017 achieved an average 30-day production rate of approximately 1,950 Boe/d, which is approximately 20 percent above the type curve after normalizing for lateral length;
- Second quarter 2017 revenues were approximately $175.7 million, an increase of approximately 31 percent over the first quarter 2017;
- Adjusted Revenue (a non-GAAP financial measure), inclusive of hedge settlements, was approximately $182.9 million during the second quarter 2017;
- The Company reported net income of $46.3 million during the second quarter 2017 compared to $9.7 million during the first quarter of 2017 and Adjusted EBITDA (a non-GAAP financial measure) of approximately $85.1 million during the second quarter 2017, which was up approximately 68 percent when compared to the first quarter 2017;
- The Company raised approximately $67 million in cash during the second quarter through the sale of its Marquis asset, remaining Cotulla assets, and 10 percent interest in Silver Oak II Gas Processing Facility; and
- As of June 30, 2017, the Company had approximately $560 million in liquidity, with approximately $128 million in cash and cash equivalents and approximately $432 million of combined borrowing capacity under the Company’s two bank credit facilities.
“The second quarter 2017 marked our first full quarter with the newly acquired Comanche assets,” said Tony Sanchez, III, Chief Executive Officer of Sanchez Energy. “Since closing the Comanche transaction on March 1, 2017, we have been able to utilize our completion methods on the newly acquired acreage to drive excellent results, contributing to a production increase of 43 percent over the prior quarter. As previously reported, based on available data for Dimmit County we believe our most recent Stumberg Ranch horizontal wells at Comanche are achieving record production levels, with the Stumberg Ranch 55H well showing a 24-hour initial production rate of approximately 3,800 Boe/d and oil-weighing of approximately 72 percent. Given the well’s production results, the Stumberg Ranch 55H appears on pace to achieve payout in only 12 months at current strip pricing. On average, the four long horizontal wells at Stumberg Ranch achieved 30-day production rates of 1,950 Boe/d. These strong production results, combined with our focus on well costs, allow us to deliver solid rates of return on our drilling activities, even in today’s challenging commodity price environment.
“Driven by the positive impact of the Comanche transaction, our second quarter 2017 Adjusted EBITDA increased more than 68 percent over the prior quarter. We achieved this level of financial performance despite the impact of the large completion trials at Catarina, which did not provide the production response we expected. As we disclosed in our operational update last month, we have returned to our standard well completion design for the 32 Catarina wells that remain in our 2017 development plan, and now expect to reach our production growth expectations of 90,000 Boe/d to 100,000 Boe/d in the first half of 2018. We also anticipate that cash margins will improve throughout the second half of 2017 and into 2018, as increases in production will tend to reduce our costs on a per unit basis.
“Given the current operating environment, we remain focused on maintaining adequate liquidity to execute our drilling plans. With that in mind, we raised approximately $67 million during the quarter from the sale of our Marquis asset, remaining Cotulla assets, and 10 percent interest in Silver Oak II Gas Processing Facility, resulting in a cash balance of $128 million as of June 30, 2017 and total liquidity, including borrowing capacity under our two credit facilities, of approximately $560 million. Additionally, in July 2017 we announced our intention to reduce our 2018 capital spending by approximately $75 million to $100 million, compared to our original $500 million guidance, in order to better align capital spending with operating cash flow, while remaining focused on higher rate of return projects that optimize capital efficiency. This reduction in capital spending, together with our strong liquidity position and bank of 30 wells against our 2017-18 Catarina drilling commitment, provides us with a considerable amount of financial and operating flexibility as we look to execute our plans over the next 12 to 18 months, and drive shareholder value.”
During the second quarter 2017, the Company spud 48 gross (33.9 net) wells and completed and turned on-line 63 gross (27 net) wells. Sanchez Energy brought on-line 42 wells at Comanche, 11 wells at Catarina, 6 wells at Maverick and four non-operated wells. As of June 30, 2017, the Company had drilled 68 wells, surpassing the 50 well annual drilling commitment at Catarina that ran from July 1, 2016 to June 30, 2017. With 18 wells above the drilling commitment, and a bank of wells carried over from previous year’s drilling commitment, Sanchez Energy has banked the maximum allowable 30 wells as of June 30, 2017, which can be used towards the next annual drilling commitment that runs from July 1, 2017 through June 30, 2018.
The cost of wells completed at Catarina during the second quarter 2017 averaged approximately $3.9 million per well as the Company tested significantly enhanced completion designs. The Catarina wells were completed with proppant loading of approximately 3,000 pounds per foot of proppant, which is 70 percent more proppant and fluids when compared to well designs used by the Company in 2016. The larger completion design trial led to facility constraints and lower than expected production performance due to apparent over-stimulation of the reservoir. Therefore, the Company has returned to its standard well completion design for the 32 Catarina wells that remain in its 2017 development plan.
At Maverick, the Company has drilled 22 wells on the Hausser lease. Completion activity on these wells began late in the second quarter and is expected to continue through the third quarter 2017.
At Comanche, the Company brought on-line 42 horizontal wells in the second quarter, all part of the large inventory of drilled but uncompleted (“DUC”) wells acquired in the transaction that closed on March 1, 2017. Within 45 days of closing, 9 DUCs, relatively short in lateral length (approximately 4,400 feet) had been completed and brought on-line in Area 3. In the middle of the second quarter, four horizontal wells with an average lateral length of approximately 10,000 feet at Stumberg Ranch were brought on-line in Area 3. Sanchez Energy brought on-line an additional 29 horizontal wells with an average lateral length of approximately 6,200 feet at Briscoe Catarina North, also in Area 3 of Comanche. Since the close of the second quarter, an additional 15 DUCs were brought on-line in Area 5 at Briscoe Cochina East Ranch. The Company remains on pace to complete its 132 gross DUC (32 net) inventory within 12 months of closing the Comanche transaction.
As of June 30, 2017, the Company had 1,975 gross (767 net) producing wells with 154 gross wells in various stages of completion, as detailed in the following table:
|Project Area|| Gross
| Gross Wells
|TMS / Other||14||—|
PRODUCTION VOLUMES, AVERAGE SALES PRICES, AND OPERATING COSTS PER BOE
The Company’s production mix during the second quarter 2017 consisted of approximately 31 percent oil, 32 percent natural gas liquids (“NGL”), and 37 percent natural gas. By asset area, Catarina, Comanche, Marquis, Maverick, and Palmetto/TMS/Other comprised approximately 54 percent, 38 percent, two percent, four percent, and two percent, respectively, of the Company’s total second quarter 2017 production volumes.
Revenues of approximately $175.7 million during the second quarter 2017 were up 58 percent compared to the second quarter 2016 and up 31 percent compared to the first quarter 2017 revenue of approximately $133.8 million. Adjusted Revenue for the second quarter 2017, a non-GAAP financial measure that includes $7.2 million in hedging settlement gains was $182.9 million.
Commodity price realizations during the second quarter 2017, including the impact of hedge settlements, were $47.79 per barrel (“Bbl”) of oil, $17.31 per Bbl of NGL, and $3.16 per thousand cubic feet (“Mcf”) of natural gas.
Production, average sales prices, and operating costs and expenses per barrel of oil equivalent (“Boe”) for the second quarter 2017 are summarized in the following table:
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Natural gas liquids (MBbl)||2,130||1,519||3,501||3,207|
|Natural gas (MMcf)||14,814||11,601||25,270||22,497|
|Total oil equivalent (MBoe)||6,674||5,087||11,336||10,232|
|Average Sales Price Excluding Derivatives(1):|
|Oil ($ per Bbl)||$||43.90||$||40.25||$||45.36||$||33.13|
|Natural gas liquids ($ per Bbl)||17.31||14.47||18.27||11.54|
|Natural gas ($ per Mcf)||3.22||2.00||3.21||2.01|
|Oil equivalent ($ per Boe)||$||26.33||$||21.82||$||27.31||$||18.65|
|Average Sales Price Including Derivatives(2):|
|Oil ($ per Bbl)||$||47.79||$||54.88||$||47.56||$||53.79|
|Natural gas liquids ($ per Bbl)||17.31||14.47||18.27||11.54|
|Natural gas ($ per Mcf)||3.16||2.93||3.07||2.91|
|Oil equivalent ($ per Boe)||$||27.40||$||28.64||$||27.68||$||27.24|
|Average unit costs per Boe:|
|Oil and natural gas production expenses(3)||$||9.72||$||8.83||$||9.27||$||8.76|
|Production and ad valorem taxes||$||1.32||$||1.22||$||1.35||$||0.99|
|Depreciation, depletion, amortization and accretion||$||7.62||$||8.52||$||7.42||$||8.83|
|Impairment of oil and natural gas properties||$||—||$||17.18||$||—||$||10.70|
|(1) Excludes the impact of derivative instrument settlements.|
|(2) Includes the impact of derivative instrument settlements.|
|(3) Includes a $3.7 million and $7.4 million non-cash gain for the three and six months ended June 30, 2017,
respectively, and $3.7 million and $7.4 million non-cash gain for the three and six months ended June 30,
2016, respectively, from the amortization of the deferred gain on Western Catarina Midstream divestiture.
Cash outflows for capital expenditures during the second quarter 2017 totaled approximately $129.6 million. The Company spent approximately 89 percent of its capital expenditures on drilling, completion, infrastructure, and geology and geophysics activities, and 11 percent of its capital expenditures on leasing and business development activities.
On a GAAP basis, the Company reported net income attributable to common stockholders of $24.2 million for the second quarter 2017, which includes non-cash mark-to-market gains related to hedging activities of $52.4 million and $2.8 million in one-time costs related to the Comanche transaction and other non-recurring items. This compares to the Company’s reported net loss attributable to common stockholders of $186.9 million for the second quarter 2016.
The Company’s second quarter 2017 Adjusted EBITDA (a non-GAAP financial measure) of approximately $85.1 million was up approximately 68 percent when compared to first quarter 2017 Adjusted EBITDA of $50.6 million. Second quarter 2017 Adjusted EBITDA includes a $3 million expense related to phantom units. The Company’s Adjusted Loss (a non-GAAP financial measure) for the second quarter of $22.6 million excludes $52.4 million in non-cash mark-to-market gains related to hedging activities and $2.8 million in one-time costs related to the Comanche transaction and other non-recurring items. The Company’s second quarter 2017 results compare to Adjusted EBITDA of approximately $76.5 million and an Adjusted Loss of approximately $2.5 million reported in the second quarter 2016. Adjusted EBITDA and Adjusted Loss are non-GAAP financial measures defined in the tables included with today’s news release.
GENERAL AND ADMINISTRATIVE EXPENSE
On a GAAP basis, the Company reported general and administrative (“G&A”) expenses of $29.7 million in the second quarter 2017. Included in G&A expenses is $2.8 million in acquisition and divestiture costs, $4.3 million of non-cash equity compensation, and $3 million associated with phantom units that vest periodically in accordance with the terms of the Company’s equity-based incentive awards. Excluding these items, G&A expenses during the second quarter 2017 were approximately $19.5 million, which the Company believes is more reflective of its baseline G&A expense.
|Three Months Ended March 31,||Six Months Ended June 30,|
|Base general and administrative||$||19,506||$||13,685||$||39,865||$||29,819|
|Stock-based compensation – restricted stock (non-cash)||4,335||6,784||16,426||9,595|
|Stock-based compensation – phantom units||3,024||3,092||13,965||3,627|
|Acquisition and divestiture costs included in G&A||2,848||422||26,922||422|
|Total general and administrative||$||29,713||$||23,983||$||97,178||$||43,463|
As of Aug. 9, 2017, the Company’s hedge position consisted of 21,522 barrels of oil per day (“Bbls/d”) and 161,818 million British thermal units of natural gas per day (“MMBtu/d”) for the second half of 2017, 17,521 Bbls/d and 186,881 MMBtu/d in 2018, 8,627 Bbls/d and 48,340 MMBtu/d in 2019 and 4,187 Bbls/d and 25,945 MMBtu/d in the first quarter 2020. Additional information on the Company’s hedge positions by entity can be found in the Sanchez Energy Investor Presentation posted at www.sanchezenergycorp.com.
LIQUIDITY AND CREDIT FACILITY
As of June 30, 2017, the Company had liquidity of approximately $560 million, which consisted of approximately $128 million in cash and cash equivalents, an undrawn Sanchez Energy revolving credit facility with a borrowing base of $350 million and an elected commitment amount of $300 million, and $131.5 million of available capacity under a subsidiary-level revolving credit facility, non-recourse to Sanchez Energy, with a borrowing base of $330 million.
As of June 30, 2017, the Company had approximately 82.5 million common shares outstanding. Assuming all Series A Convertible Perpetual Preferred Stock and Series B Convertible Perpetual Preferred Stock were converted, total outstanding common shares as of June 30, 2017 would have been approximately 95 million. For the three months ended June 30, 2017, the weighted average number of unrestricted common shares used to calculate net loss attributable to common stockholders per basic and diluted common share, which are determined in accordance with GAAP, was 76.4 million and 89 million, respectively.
Sanchez Energy will host a conference call for investors on Wednesday, Aug. 9, 2017, at 1:00 p.m. Central Time (2:00 p.m. Eastern Time). Interested investors can listen to the call via webcast, both live and rebroadcast, over the Internet at:
ABOUT SANCHEZ ENERGY CORPORATION
Sanchez Energy Corporation (NYSE:SN) is an independent exploration and production company focused on the acquisition and development of U.S. onshore unconventional oil and natural gas resources, with a current focus on the Eagle Ford Shale in South Texas where it has assembled approximately 356,000 net acres. For more information about Sanchez Energy Corporation, please visit our website: www.sanchezenergycorp.com.