Sanchez Energy Corporation (ticker: SN) is a Houston, Texas, based, growth oriented, independent exploration and production company focused on the exploration, acquisition, and development of oil resources in the onshore U.S. Gulf Coast with a current focus on the liquids-rich Eagle Ford Shale, Austin Chalk, Buda Limestone, Pearsall Shale and Tuscaloosa Marine Shale.
Sanchez will embark on 2014 with a capital plan of approximately $650 million to $700 million, according to a news release on January 14, 2014. The company’s Eagle Ford and Tuscaloosa Marine Shale (TMS) assets will command 95% of the capital as approximately 70 net wells are scheduled to be drilled throughout the year. In turn, production is expected to reach 21 MBOEPD to 23 MBOEPD, an increase of 100% compared to its 2013 totals. The plan is expected to be funded from internally generated cash flow, cash on hand and what SN describes as “modest” borrowings from the credit facility. The anticipated capital spending is in line with previous company estimates.
Approximately 50% of expected 2014 oil production is hedged at an average swap and/or floor price of $94 per barrel and approximately 50% of expected 2014 natural gas production is hedged at an average swap and/or floor price of $4.15 per MMBtu.
Sanchez Energy Corporation is scheduled to present at EnerCom’s The Oil & Services Conference™ in San Francisco on February 18, 2014.
Eagle Ford Shale Headlines Operations
Approximately 90% of expenditures will be directed towards development of the Eagle Ford. Sanchez holds roughly 125,000 net acres in the area and has an estimated 54 MMBOE in proven and probable reserves. Current production is more than 20 MBOEPD, with a stream of roughly 75% oil, 11% NGL’s and 14% natural gas.
Total production has risen substantially in just the last couple months. SN reported its Eagle Ford production exit rate for Q3’13 was 16.5 MBOEPD, an increase of 115% compared to Q2’13’s average daily production. Its active drilling program in Q3’13 resulted in the completion of 32 wells (15 operated) and the drilling of 23 new wells (15 operated), leading to the company breaking the 20 MBOEPD milestone.
The company’s decision to enhance its Eagle Ford assets is driven by the company’s focus of increasing spending on its operated properties. As operator, SN management said the company can control the pace and timing of its activities. Total production from non-operated assets will account for less than 25% of 2014 production, down from 2013’s total of more than 35% of production.
The Eagle Ford’s popularity has increased in recent years, and Global Data says companies will spend roughly $30 billion on exploiting the play in 2014. More than 250 rigs are running in the region, and major operators are expecting to drill for at least five years at the current pace. The Texas Railroad Commission reports that more than 11,000 drilling permits have been issued since January 2011, resulting in a 408% increase in oil production.
Drilling Permits Issued in Texas
Tuscaloosa Marine Shale
Sanchez’ TMS assets, consisting of 40,000 net acres, will receive 10% of 2014 budgeted capital. SN plans on spudding up to 4 gross (2 net) operated wells and in 2014, with the first expected to be spud in 1H’14. The company will participate in 10 to 15 gross non-operated wells in which it will hold a minority interest. No material production is forecasted from its step-out projects.
Sanchez management said the results from neighboring operators will help provide knowledge and insight. Goodrich Petroleum (ticker: GDP) is planning on spending $300 million (80% of its 2014 budget) on the TMS and estimates five rigs will be running in the region by year-end 2014. The company estimates 92% to 96% of reserves are either oil or high Btu gas. EnCana Corporation (ticker: ECA) plans on spending $150 million in the area and will spud between nine and 12 rigs once appraisals are complete.
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