Current SN Stock Info

Sanchez Energy Corporation (ticker: SN), based in Houston, Texas, announced a landmark acquisition in its Eagle Ford focus area on May 21, 2014. Sanchez will acquire 106,000 contiguous net acres in the Dimmit, LaSalle and Webb Counties of Texas from Royal Dutch Shell (ticker: RDS.B) for $639 million. The region, which is comprised of acreage Sanchez has named “Catarina,” produced 24 MBOEPD (60% liquids) in Q1’14 and proved reserves are listed at 60 MMBOE.

The Catarina acreage roughly doubles the company’s overall position in the Eagle Ford. Pr...

Analyst Commentary

Johnson Rice & Company Note (05.21.14)

In addition to the oil and gas assets, Sanchez is getting significant production/midstream infrastructure as part of the deal. While the assets increase Sanchez’s gas exposure (2015 estimate of 52% oil/25% gas/23% NGL, vs 72% oil/13% gas/15% NGL pre-deal), the Company was uniquely positioned to target this asset since its legacy assets were already so weighted to black oil, while a number of other operators are pursuing acquisitions to get more oily. The deal appears attractively priced at less than $11.00/boe of proved reserves and $35,000-$40,000 per daily flowing boe (depending on the production period used) and is highly accretive to EPS, CFPS, production per share and reserves per share, leading to an increased 2015 EBITDA estimate of ~$796 million (up from our prior SN stand-alone estimate of $559 million). Sanchez is trading at an attractive forward 2015 EV/EBITDA multiple of just 4.6x (current EV/EBITDA of 3.6x, assuming debt is used to finance the transaction), in-line with the Eagle Ford peer group despite having a higher 2015 growth rate than its peers (78% vs 17% with acquisition; 34% vs 17% on SN stand-alone basis). We re-iterate our Focus List rating on the stock.  

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