Sanchez Energy enhances liquidity with $345 million midstream asset sale

 

Sanchez Energy says lifting costs were $7.78/BOE for first half of 2015, lower than guidance range of $9 – $10/BOE

Sanchez Energy Corp. is selling pipelines, gathering and compression assets in the Eagle Ford for $345 million, one more sign of hard times in the Texas oil patch.

Houston-based Sanchez Energy Corp. announced earlier this week that an affiliate, Sanchez Production Partners LP, will be buying the assets located on the Western part of its Catarina asset in South Texas for cash. The sale is expected to close in Oct. 

is selling off pipelines, gathering and compression assets in South Texas to an affiliate for $345 million, becoming the latest shale driller to hawk midstream assets for much-needed cash.

Key features of the sale include:

• Asset Location: Dimmit and Webb Counties, Texas.
• Dedicated Acreage: Approximately 35,000 net acres.
• Pipeline Assets: Approximately 150 miles of gathering lines ranging in diameter from 4 inches to 12 inches.
• Facilities: Surface equipment, machinery, fixtures, manifolds, processing units, compression facilities, and other tangible personal and real property and improvements, including eight stabilizers (5,000 BBL/D), approximately 25,000 BBL of storage capacity, natural gas liquids pressurized storage, approximately 18,000 horsepower of compression, and approximately 300 MMCF/D of dehydration capacity.
• Transport Capacity: Approximately 40,000 BBL/D of condensate and 200 MMCF/D of natural gas.

Tony Sanchez III, CEO of Sanchez Energy, says the midstream assets acquired as part of the Catarina transaction in 2014 cover approximately 35,000 net acres, or about 16 per cent of the company’s total Eagle Ford footprint.

“The sale of these assets to SPP is further evidence of the quality of our Catarina asset, which is central to our plans for development and growth,” Sanchez said in a press release.

The company believes that by enhancing its liquidity and financial flexibility it is well positioned to accelerate drilling plans as commodity prices recover or to capitalize on acquisition opportunities in Catarina or other areas of the Eagle Ford.

“As we continue to develop  asset base, we anticipate that we will see additional opportunities to accelerate returns through midstream and other asset monetization strategies like the one announced today,” said Sanchez.

“We believe these strategies will be the key to maintaining a strong balance sheet, which supports our ability to generate the returns investors have come to expect from Sanchez Energy.”

Sanchez Energy previously reported that it maintained liquidity of $572 million as of June 30, which included $300 million in available capacity on the company’s undrawn bank credit facility.

As a result of the sale of midstream assets, pro forma liquidity will increase to approximately $918 million, inclusive of cash on hand and the $300 million elected commitment under its undrawn revolving credit facility, the company said in the release.

The company will enter into a gathering agreement with Sanchez Production Partners that provides for fixed rates over an initial term of 15 years. For the first five years of the gathering agreement, there will be a minimum delivery commitment of 10,200 barrels per day of liquids and 142 million cubic feet (“MMcf”) per day of gas.

Sanchez Energy anticipates that the gathering agreement will result in an increase in lease operating expense (“LOE”) of approximately $1.95 per barrel of oil equivalent (“BOE”). Prior to the sale, LOE was approximately $7.78/BOE for the first half of 2015, which was lower than previous company-wide guidance range of $9 – $10/BOE.

Sanchez Energy has confirmed that its third quarter 2015 average production will likely meet or exceed the high end of the previous guidance range of 46,000 to 50,000 BOE per day.

The company says it remains confident that it will be able to build a 20 to 30 well bank toward its 50-well per year drilling commitment at Catarina at its current rig count while continuing to drive strong asset-level performance and year-over-year production growth given it’s previously stated capital run rate of approximately $250 million per year.