EnerCom presenter SN brings in 3,800 BOEPD Comanche well
It seems like the majority of shale producers have been reporting significant increases in production for Q2 over Q1, and Sanchez Energy (ticker: SN) is no exception.
Sanchez announced second quarter results today, showing net income of $24.2 million, or $0.31 per share. Sanchez produced about 73,341 BOEPD this quarter, which represents growth of 43% over first quarter production.
Much of this growth is due to Sanchez’s acquisition of155,000 net acres from Anadarko, which closed on March 1. Sanchez refers to this portion of its acreage as the Comanche area. Q2 is, therefore, the first full quarter with these properties, which produced a net 33,500 BOEPD in Q4 2016.
Source: Sanchez Investor Presentation
Sanchez spud 48 gross wells this quarter, and turned 63 wells on to production. The majority of the wells brought on production were located in the company’s new Comanche acreage. There were a significant amount of DUCs acquired in the transaction, and Sanchez is currently in the process of completing them. The company reports that it is on pace to complete all 132 gross DUCs within 12 months of closing the transaction.
The most recent wells Sanchez has completed in its Comanche acreage have been highly successful, with strong results. The Stumberg Ranch 55H well had a 24-hour IP rate of 3,800 BOEPD, with oil-weighting of 72%. According to CEO Tony Sanchez III, “Given the well’s production results, the Stumberg Ranch 55H appears on pace to achieve payout in only 12 months at current strip pricing.” The four wells at Stumberg Ranch achieved an average 30-day IP rate of 1,950 BOEPD.
Drilling well beyond acreage commitments
In the Catarina portion of Sanchez’s acreage, the company reports that it has surpassed its 50 well annual drilling commitment, with 68 wells drilled between July 1, 2016 and June 31, 2017. The 18 surplus wells, combined with surplus wells carried over from previous year’s drilling commitment, Sanchez already has 30 wells to contribute to the new year’s drilling commitment.
Sanchez tested several wells in the Catarina portion using significantly higher proppant loadings. Wells averaged 3,000 pounds of proppant per lateral foot, which is 70% higher than the average 2016 well. Unfortunately, “the larger completion design trial led to facility constraints and lower than expected production performance due to apparent over-stimulation of the reservoir.” Sanchez will therefore use its standard well completion design for the 32 Catarina wells that are still to be drilled in 2017.
Sanchez presenting at EnerCom
Sanchez Energy is a presenting company at EnerCom’s The Oil & Gas Conference® next week, which runs Aug. 13-17, 2017, at the Denver Downtown Westin Hotel. To register for the EnerCom conference, please visit the conference website.
Q&A from SN Q2 conference call
Q: On Comanche the remaining DUCs that you have I know you highlighted the four 10,000 foot laterals. If you look at the remaining DUCs that you have, which I guess is a combination of both acquired and things that you have drilled since taking over operations, what is the average lateral length of those and as you think about your base development program what is your targeted well design?
SN: The average DUC is about 6,250. So the average remaining locations are going to be a little bit shorter than how we applying and developing drilling through the remainder on grassroots wells for remainder of 2017 and into 2018. That being said, the original set of type curves that we put out earlier this year in conjunction with this acquisition were all based upon the assumption that we will be working within similar lateral lengths and footprints to what Anadarko was doing previously.
So, the DUCs are very consistent to our original set of assumptions and forecasts. There is potential for additional upside as we move our grass roots drilling closer to that ideal 10,000 mark. The average lateral length that we have next year I think is going to be in excess of 7,000 feet. So, we’re definitely making progress in lengthening our overall program.
Q: On non-core sales, do you still have other things sort of in the portfolio that you’ve identified or maybe you could just talk around that?
SN: Yeah. We’ve got a few that we’ve identified. I don’t have any specifics for you at this time, but we’re always working to raise liquidity and then redeploy it where we think we could get better returns. So areas where we feel that, Marquis for instance, we’ve sold. The rationale behind that was it wasn’t asset quality it was just that we were not going to get back to it for the foreseeable future in few years at a minimum. So we figured that somebody else might want that asset and it’s a good fit for Lonestar and we’re willing to take stock for a portion of that consideration, I think they’re going to do a great job.
That thinking kind of continues to prevail, if there are assets, if you remember Alexander Ranch, we largely felt like we drilled it up, so we packaged it and sold it. As we continue to develop our positions some of the smaller ones as we continue to drill them up, we’re packaging and selling, leaves the meat on the bone for the buyer and hopefully get a good price and then take that cash and redeploy it into the areas like Catarina and Comanche, where we’ve got largely a contiguous 400,000 acre position.
So, it’s continuing to follow on the concept of recycling cash and putting that cash where we could generate substantial rates of return.
