Sanchez Energy (ticker: SN) provided the market with an operational update for first quarter 2016 on April 20, 2016. Highlights include:
- Process improvements and efficiency gains continue to drive savings in Sanchez Energy’s average well costs, with some wells coming in at approximately $3.0 million during the first quarter 2016;
- Production of 5.1 million barrels of oil equivalent reported by Sanchez Energy for average production of approximately 56,500 barrels of oil equivalent per day (“BOE/D”) during the first quarter 2016;
- Better than expected production during the first quarter 2016 realized after strong early results in South-Central Catarina, as well as continued strength in Sanchez Energy’s base production;
- The Carnero Pipeline, constructed by Sanchez Energy’s joint venture with a subsidiary of Targa Resources Corp., went in-service in March 2016 and now transports the majority of Catarina gas volumes to a cryogenic gas plant owned by the joint venture.
Tony Sanchez III, CEO, was pleased with the Q1 results, saying: “During the first quarter, we once again achieved excellent production results and, at approximately 56,500 BOE/D. Process improvements and efficiency gains continue to result in reductions in our average well costs, with some wells coming in at approximately $3.0 million during the first quarter 2016.”
Three-year F&D costs for the period ended 2015 were $21.58/BOE, or 33% better than the 78 E&P companies in EnerCom’s database. On a debt-adjusted basis, SN has grown production more than 800% over the past three years, the number two ranked E&P. Year-over-year production for Q1 was 25% higher in 2016 than in 2015. During the previous three years, SN’s debt-adjusted production grew by 34%.
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Catarina
Results from the companies Catarina assets were largely responsible for the production beat. The company shifted focus in the Catarina area has shifted to the south-central region where production has been more bountiful according to comments from management, and 11 new wells were brought online in the region during the first quarter. Gross producing wells in the Catarina region currently stand at 298, which accounts for 46.6% of Sanchez’s 640 gross producing well count.
Drilling and completion costs for Catarina wells averaged $3.3 million during the first quarter, down 62% from $8.75 million at the time of the acquisition from Shell (5/22/2014), with some of the wells coming in as low as $3.0 million. Wells in the Cotulla region mimicked the Catarina wells with an average well cost of $3.4 million, with newer wells coming in closer to $3.0 million.
Production Numbers
Sanchez saw production climb to 56,500 BOE/d in the first quarter of 2016, aided largely by the results in the Catarina region. The company issued Q1 guidance was 48 to 52 MBOE/d of production; Q1’16 actual production was 8.5% better than the high end projection. Production was comprised of 32% oil, 35% natural gas, and 33% natural gas liquids. This split shows a small shift toward natural gas and natural gas liquid production, for the first quarter of 2015, Sanchez produced 44% oil, 27% natural gas liquids, and 29% natural gas.
