OREANDA-NEWS. Sanchez Energy Corporation (NYSE:SN) (“Sanchez Energy” or the “Company”), today announced operating and financial results for the second quarter 2016.  Highlights include:

  • Sanchez Energy plans to increase its 2016 upstream capital spending by up to $50 million, to a range of between $250 million to $300 million, which positions the Company to be able to deliver total production growth of between 5% and 8% in 2017;
     
  • Total production of 5.1 million barrels of oil equivalent (“MMBoe”) during the second quarter 2016, up approximately 4% over the second quarter 2015;
  • Average production of approximately 55,900 barrels of oil equivalent per day (“Boe/d”), which exceeded the high end of the Company’s guidance of 48,000 to 52,000 Boe/d for the second quarter 2016 by over 7%;
  • Sanchez Energy’s development focus remains on Catarina, where the Company has met its 50 well annual drilling commitment for the period July 2015 through June 2016 and has banked 20 wells toward the 50 well annual drilling commitment for the period July 2016 through June 2017;
     
  • South-Central Catarina wells continue to exceed expectations, with the 30-day initial production rates of most recent wells, including the best well drilled to date at Catarina, averaging 1,600 to 1,900 Boe/d;
     
  • Average drilling and completion costs during the second quarter 2016 at Catarina and Cotulla were $3.3 million per well, with the Company’s best wells coming in below $3.0 million per well in both areas;
  • Revenues of approximately $111 million (exclusive of hedge settlements) were up approximately 39% when compared to the first quarter 2016 due to improvements in realized commodity prices during the second quarter 2016;
  • Commodity price realization during the second quarter 2016 includes natural gas liquids (“NGL”) realization of $14.47 per barrel, up from $8.91 per barrel in the first quarter 2016, after total production was impacted by 2,000 to 3,000 barrels per day (“Bbls/d”) as a result of significant ethane rejection; 
     
  • Inclusive of hedge settlements, revenues totaled approximately $146 million during the second quarter 2016;
     
  • Adjusted EBITDA (a non-GAAP financial measure) of approximately $79.6 million, up approximately 23% when compared to the first quarter 2016;
  • Total liquidity of approximately $624 million as of June 30, 2016, which consisted of $324 million in cash and cash equivalents and an undrawn bank credit facility with an elected commitment amount of $300 million; and
  • The planned increase in capital spending is expected to be largely offset by the Company’s July 2016 sale of its interest in Carnero Gathering, LLC (“Carnero Gathering”), a joint venture that is 50% owned by Targa Resources Corp. (“Targa”), to Sanchez Production Partners LP (NYSE MKT:SPP) (“SPP”) for approximately $44 million in total consideration (the “Carnero Gathering Transaction”).

MANAGEMENT COMMENTS
“We are encouraged by our strong operating and financial results in the first half of 2016,” said Tony Sanchez, III, Chief Executive Officer of Sanchez Energy. “As previously reported, we achieved excellent production results in the second quarter 2016, exceeding the high end of our guidance by over 7%.  Process improvements and efficiency gains continue to drive our operating performance, with several wells coming in below $3.0 million.  This combination of strong production and lower costs has allowed us to achieve positive returns on our capital program, which provides us with a key competitive advantage in responding to current industry conditions.”

“Our development focus remains on Catarina and further delineation of the South-Central region of the lease as results in this region, including the exceptional results from the E33 Pad that we reported in July 2016, continue to meet or exceed our expectations.  The E33 Pad consisted of four wells that had average 30-day initial production rates that ranged from 1,600 to 1,900 Boe/d, representing some of the most productive results drilled at Catarina to date.  We continue to test northern extensions in South-Central Catarina and remain impressed with this area of the lease.  As of June 30, 2016, we successfully completed our 50 well annual drilling commitment at Catarina for the period July 2015 through June 2016 and banked 20 wells toward the 50 well annual drilling commitment for the period July 2016 through June 2017.”

“The Company’s operating performance is evident in our financial results for the second quarter 2016, and our Adjusted EBITDA -- at approximately $79.6 million during the quarter – was up approximately 23% when compared to the first quarter 2016.  Financial performance resulted in total liquidity, including availability under our undrawn credit facility, of approximately $624 million at the end of the quarter.  On July 5, 2016, we closed the Carnero Gathering Transaction with SPP for total consideration of $44 million, which further enhanced our strong liquidity position.” 

“Given our current liquidity and stronger than expected operating and financial performance in the first half of the year, we plan to increase our 2016 upstream capital spending by up to $50 million, to a range of between $250 million to $300 million, with the majority of the incremental spending planned for the fourth quarter 2016.  The planned increase in our upstream capital spending is largely offset by the total consideration received in the Carnero Gathering Transaction, which consisted of an initial payment from SPP of approximately $37 million and about $7.4 million in capital commitment savings related to Carnero Gathering.  At our updated level of upstream capital spending, we anticipate that the Company will be able to maintain relatively flat production in 2016 while maintaining a significant cash balance and financial flexibility as we head into next year.  While not expected to have a significant impact on 2016 production, this positions the Company to be able to deliver total production growth of between 5% and 8% in 2017, depending upon the amount of Catarina production being processed in ethane rejection.  Our decision to process Catarina gas in ethane rejection is based off the economic impact on our entire hydrocarbon net back.  We expect this year’s capital spending increase to have an even more meaningful impact on 2018 production.”      

OPERATIONS UPDATE
The Company’s Eagle Ford development plan remains primarily focused on Catarina, where the Company is currently running three rigs and expects to drop to two rigs during the fourth quarter 2016.  Second quarter 2016 development activity was primarily focused in South-Central Catarina, where the Company has realized some of the best production results on the lease.  South-Central Catarina well results continue to trend above expectations, with recent results from the E33 Pad currently tracking estimated ultimate recoveries (“EURs”) about 20% to 30% above the Company’s original guidance of approximately 1,100 thousand barrels of oil equivalent (“MBoe”).  

Drilling and completion costs in the second quarter 2016 averaged approximately $3.3 million per well at Catarina and $3.3 million per well at Cotulla, with the Company’s best wells coming in below $3.0 million per well in both areas.  As of June 30, 2016, the Company had 657 gross (539 net) producing wells with 16 gross (14.5 net) wells in various stages of completion, as detailed in the following table:

         
Project Area   Gross
Producing Wells		   Gross
Wells Waiting/
Undergoing
Completion
Catarina   311   6
Marquis   103   --
Cotulla / Wycross   153   7
Palmetto   76   3
TMS / Other   14   --
Total   657   16
         

PRODUCTION VOLUMES, AVERAGE SALES PRICES, AND OPERATING COSTS PER BOE
The Company’s production mix during the second quarter 2016 consisted of approximately 32% oil, 30% NGL, and 38% natural gas.  By asset area, Catarina, Marquis, Cotulla, and Palmetto/Other comprised approximately 82%, 5%, 10%, and 3%, respectively, of the Company’s total second quarter 2016 production volumes.

Revenues of approximately $111 million (exclusive of hedge settlements) were up approximately 39% when compared to the first quarter 2016 due to improvements in realized commodity prices during the second quarter 2016.  Commodity price realization during the second quarter 2016 included NGL realization of $14.47 per barrel, up from $8.91 per barrel in the first quarter 2016, after total production was impacted by 2,000 to 3,000 Bbls/d as a result of significant ethane rejection.  Revenue, inclusive of realized hedge gains, for the three months ended June 30, 2016 totaled approximately $146 million, an increase of approximately 10% when compared to the prior quarter.  The effect of the decrease in commodity prices was partially offset by higher production due to better well performance and efficiency gains across the portfolio.

Production, average sales prices, and operating costs and expenses per barrel of oil equivalent (“Boe”) for the second quarter 2016 are summarized in the tables that follow: 

                           
    Three Months Ended    Six Months Ended   
    June 30,   June 30,  
    2016     2015   2016     2015  
  Net Production:                        
  Oil (MBbl)   1,635     1,917     3,274     3,701  
  Natural gas liquids (MBbl)   1,519     1,467     3,208     2,588  
  Natural gas (MMcf)   11,602     9,135     22,497     16,127  
  Total oil equivalent (MBoe)   5,087     4,907     10,231     8,977  
                           
  Average Sales Price Excluding Derivatives(1):                        
  Oil ($ per Bbl) $   40.25   $   51.90   $   33.13   $   47.30  
  Natural gas liquids ($ per Bbl) $   14.47   $   12.06   $   11.54   $   12.19  
  Natural gas ($ per Mcf) $   2.00   $   2.62   $   2.01   $   2.80  
  Oil equivalent ($ per Boe) $   21.82   $   28.76   $   18.65   $   28.04  
                           
  Average Sales Price Including Derivatives(2):                        
  Oil ($ per Bbl) $   54.88   $   63.75   $   53.79   $ 60.66  
  Natural gas liquids ($ per Bbl) $   14.47   $   12.06   $   11.54   $ 12.19  
  Natural gas ($ per Mcf) $   2.93   $   3.21   $   2.91   $ 3.3  
  Oil equivalent ($ per Boe) $   28.64   $   34.50   $   27.24   $ 34.45  
                           
  Average unit costs per Boe:                        
  Oil and natural gas production expenses $   8.83    $    7.27   $   8.76    $    7.78  
  Production and ad valorem taxes $   1.22    $    1.69   $   0.99    $    1.89  
  General and administrative (3) $   2.77    $    2.87   $   2.96    $    3.10  
  Depreciation, depletion, amortization and accretion $   8.52    $    21.34   $   8.83    $    23.10  
  Impairment of oil and natural gas properties $   17.18    $    95.56   $   10.70    $    101.41  
                           
  (1) Excludes the impact of derivative instrument settlements.                    
  (2) Includes the impact of derivative instrument settlements.                      
  (3) Excludes stock based compensation.                        
                           

UPDATED 2016 GUIDANCE 
Recent well results, coupled with an uptick in commodity pricing, have driven returns to levels that the Company believes justify increased activity.  As a result, the Company has increased its initial 2016 upstream capital spending guidance of $200 million to $250 million, originally published in January 2016, by $50 million to $250 million to $300 million.  The majority of the incremental spending is planned for the fourth quarter 2016.  At this level of capital spending, the Company anticipates it will be able to maintain relatively flat production in 2016 while maintaining a significant cash balance and financial flexibility heading into 2017. 

Second quarter 2016 results and updated third quarter and full year 2016 guidance are summarized in the table that follows:

 
    Actuals   Guidance(1)
    2Q 2016   3Q 2016 FY 2016
  Production Volumes:        
  Oil (Bbls/d)   17,967     16,500 - 17,160 16,000 - 17,333
  NGLs (Bbls/d)   16,692     14,000 - 14,560 16,000 - 17,333
  Natural Gas (Mcf/d)   127,495     117,000 - 121,680 96,000 - 104,000
  Barrel of Oil Equivalent (Boe/d)   55,908     50,000 - 52,000 48,000 - 52,000
           
  Operating Costs & Expenses :        
  Cash Production Expense ($/Boe)(2) $ 9.56     $8.75 - $9.75 $8.75 - $9.75
  Non-Cash Production Expense ($/Boe) $ 0.73     $0.80 - $0.90 $0.80 - $0.90
  Production & Ad Valorem Taxes (% of O&G Revenue)   6 %   5% - 6% 5% - 6%
  Cash G&A ($/Boe)(3) $ 2.77     $2.75 - $3.25 $2.75 - $3.25
  DD&A Expense ($/Boe) $ 8.52        
  Interest Expense ($MM) $ 31.8     $ 30   $ 120  
  Preferred Dividend ($MM)(4) $ 4.0     $ 4   $ 16  
           
  (1) Assumes each quarter is operated in ethane rejection 
  (2) Cash Production Expense guidance only relates to production expenses reported on the cash flow statement and does not include the effect from the deferred gain related to the Western Catarina Midstream Divestiture. 
  (3) Excludes stock based compensation. 
  (4) Paid in common equity for the quarter ended June 30, 2016. 

Additional detail concerning the Company’s updated 2016 capital program can be found in an updated investor presentation that has been uploaded to the Investors section of the Company’s website (provided below).

CAPITAL EXPENDITURES
Capital expenditures incurred during the second quarter 2016 related to upstream activities, including accruals, totaled approximately $44.7 million.  With respect to midstream activities, the Company incurred approximately $12.8 million of capital expenditures in the second quarter 2016 related to the Targa joint ventures.  The Company expects capital expenditures totaling approximately $45 million during the remainder of 2016 and early 2017 related to the Targa joint venture to construct a new cryogenic natural gas processing plant in South Texas. 

FINANCIAL RESULTS
On a GAAP basis, the Company reported a net loss attributable to common stockholders of $186.9 million for the second quarter 2016, which includes a non-cash after tax impairment charge of $87.4 million and a non-cash mark-to-market loss on the value of the Company’s hedge portfolio of $93.5 million.

The Company reported Adjusted EBITDA of approximately $79.6 million and Adjusted Net Income (Loss) of $0.6 million for the second quarter 2016, which compares to Adjusted Net Income (Loss) of $(24.4) million reported in the second quarter 2015.  Adjusted EBITDA and Adjusted Net Income (Loss) are non-GAAP financial measures defined in the tables included with today’s news release.

HEDGING UPDATE
In July 2016, the Company hedged an additional 6,190,000 million British Thermal Units (“MMBtu”) of its 2017 natural gas production, in variable quantities that range from 2,500 MMBtu per day to 27,500 MMBtu per day, at a fixed price of $3.10 per MMBtu. This brings the Company’s current total hedged position to 18,000 Bbls/d of oil and 99,153 MMBtu per day (“MMBtu/d”) of natural gas in 2016, 6,000 to 7,000 Bbls/d of oil and 93,521 MMBtu/d of natural gas in 2017, 40,000 to 50,000 MMBtu/d of natural gas in 2018 and 20,000 MMBtu/d of natural gas in 2019.

LIQUIDITY AND CREDIT FACILITY
The Company had liquidity of approximately $624 million as of June 30, 2016, which consisted of $324 million in cash and cash equivalents and an undrawn bank credit facility with an elected commitment amount of $300 million and a borrowing base of $350 million.  The Company’s elected commitment amount on the bank credit facility is expected to remain at $300 million until the next semi-annual redetermination of the borrowing base by the lenders, which is anticipated in the fourth quarter 2016.

SHARE COUNT
As of June 30, 2016, the Company had 65.5 million total 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, 2016 would have been 78.0 million.  For the three months ended June 30, 2016, the weighted average number of unrestricted common shares used to calculate net loss attributable to common stockholders per common share, basic and diluted, which are determined in accordance with GAAP, was 58.4 million.

UPDATED INVESTOR PRESENTATION
An updated investor presentation has been uploaded to the Investors section of the Company’s website (provided below).

ABOUT SANCHEZ ENERGY CORPORATION
Sanchez Energy Corporation is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources in the onshore U.S. Gulf Coast, with a current focus on the horizontal development of significant resource potential from the Eagle Ford Shale in South Texas, where we have assembled over 200,000 net acres, and the Tuscaloosa Marine Shale. 

FORWARD LOOKING STATEMENTS
This press release contains, and our officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Sanchez Energy expects, believes or anticipates will or may occur in the future are forward-looking statements, including statements relating to estimates of our future production, revenues, well cost reductions, operational and commercial benefits of the Targa joint venture, capital expenditures regarding the Targa joint venture, our strategy and plans, our view of the market, our well drilling plans, and our capital plans for the remainder of 2016 and beyond.  These statements are based on certain assumptions made by the Company based on management's experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words "will," "potential," "believe," "estimate," "intend," "expect," "may," "should," "anticipate," "could," "plan," "predict," "project," "profile," "model," "strategy," "future," or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

     
  SANCHEZ ENERGY CORPORATION  
  CONSOLIDATED STATEMENT OF OPERATIONS DATA  
  (unaudited)  
                           
    Three Months Ended    SIx Months Ended   
    June 30,   June 30,  
    2016     2015   2016     2015  
  REVENUES:                        
  Oil sales $   65,786     $   99,498     $   108,468     $   175,022    
  Natural gas liquid sales     21,979         17,694         37,024         31,547    
  Natural gas sales     23,203         23,936         45,292         45,152    
  Total revenues     110,968         141,128         190,784         251,721    
  OPERATING COSTS AND EXPENSES:                        
  Oil and natural gas production expenses     44,919         35,658         89,612         69,821    
  Production and ad valorem taxes     6,188         8,303         10,131         16,973    
  Depreciation, depletion, amortization and accretion     43,342         104,717         90,308         207,374    
  Impairment of oil and natural gas properties     87,380         468,922         109,464         910,372    
  General and administrative (inclusive of stock-based compensation expense of $9,877 and $7,875, respectively, for the three months ended June 30, 2016 and 2015, and $13,222 and $15,568, respectively, for the six months ended June 30, 2016 and 2015)     23,983         21,962         43,463         43,439    
  Total operating costs and expenses     205,812         639,562         342,978         1,247,979    
  Operating loss     (94,844 )       (498,434 )       (152,194 )       (996,258 )  
  Other income (expense):                        
  Interest income and other (expense)     369         773         281         (1,051 )  
  Interest expense     (31,822 )       (31,500 )       (63,428 )       (63,058 )  
  Earnings from equity investments     2,179         —         2,691         —    
  Net gains (losses) on commodity derivatives     (58,750 )       (33,749 )       (35,993 )       7,554    
  Total other income (expense)     (88,024 )       (64,476 )       (96,449 )       (56,555 )  
  Loss before income taxes     (182,868 )       (562,910 )       (248,643 )       (1,052,813 )  
  Income tax expense     —         —         —         7,442    
  Net loss     (182,868 )       (562,910 )       (248,643 )       (1,060,255 )  
  Less:                        
  Preferred stock dividends     (3,987 )       (3,991 )       (7,974 )       (7,982 )  
  Net income allocable to participating securities     —         —         —         —    
  Net loss attributable to common stockholders $   (186,855 )   $   (566,901 )   $   (256,617 )   $   (1,068,237 )  
                           
  Net loss per common share - basic and diluted $   (3.20 )   $   (9.91 )   $   (4.38 )   $   (18.74 )  
  Weighted average number of shares used to calculate net loss attributable to common stockholders - basic and diluted     58,413         57,184         58,575         56,996    
                           
     
  SANCHEZ ENERGY CORPORATION  
  CONSOLIDATED BALANCE SHEET  
  (unaudited)  
               
    June 30,   December 31,   
    2016     2015  
  ASSETS            
  Current assets:            
  Cash and cash equivalents $   324,399     $   435,048    
  Oil and natural gas receivables     39,191         30,668    
  Joint interest billings receivables     703         1,259    
  Accounts receivable - related entities     3,206         3,697    
  Fair value of derivative instruments     54,266         172,494    
  Other current assets     16,930         23,452    
  Total current assets     438,695         666,618    
  Oil and natural gas properties, at cost, using the full cost method:            
  Unproved oil and natural gas properties     247,505         253,529    
  Proved oil and natural gas properties     3,071,240         2,914,867    
  Total oil and natural gas properties     3,318,745         3,168,396    
  Less: Accumulated depreciation, depletion, amortization and impairment     (2,610,137 )       (2,412,293 )  
  Total oil and natural gas properties, net     708,608         756,103    
               
  Other assets:            
  Fair value of derivative instruments     201         5,789    
  Investments     70,629         49,985    
  Other assets     22,404         22,809    
  Total assets $   1,240,537     $   1,501,304    
  LIABILITIES AND STOCKHOLDERS' EQUITY            
  Current liabilities:            
  Accounts payable $   2,937     $   4,184    
  Accounts payable - related entities     —         —    
  Other payables     1,830         2,004    
  Accrued liabilities:     —         —     
  Capital expenditures     28,604         51,983    
  Other     78,442         69,974    
  Deferred premium liability     14,353         24,548    
  Fair value of derivative instruments     7,377         —    
  Other current liabilities     16,977         14,813    
  Total current liabilities     150,520         167,506    
  Long term debt            
  Long term debt, net of premium, discount and debt issuance costs     1,708,500         1,705,927    
  Asset retirement obligations     27,792         25,907    
  Fair value of derivative instruments     4,885         —    
  Other liabilities     52,032         58,133    
  Total liabilities     1,943,729         1,957,473    
  Commitments and contingencies            
  Stockholders' equity:            
  Preferred stock ($0.01 par value, 15,000,000 shares authorized; 1,838,985 shares issued and outstanding as of June 30, 2016 and December 31, 2015 of 4.875% Convertible Perpetual Preferred Stock, Series A; 3,527,830 shares issued and outstanding as of June 30, 2016 and December 31, 2015 of 6.500% Convertible Perpetual Preferred Stock, Series B)     53         53    
  Common stock ($0.01 par value, 150,000,000 shares authorized; 65,452,662 shares issued and outstanding as of June 30, 2016 and 61,928,089 shares issued and outstanding as of December 31, 2015)     658         619    
  Additional paid-in capital     1,089,068         1,079,513    
  Accumulated deficit     (1,792,971 )       (1,536,354 )  
  Total stockholders' deficit     (703,192 )       (456,169 )  
  Total liabilities and stockholders' deficit $   1,240,537     $   1,501,304