Current SPP Stock Info

Sanchez Energy Eagle Ford acquisition drives expansion

Sanchez Production Partners (ticker: SPP) reported fourth quarter results on Friday, showing a net loss of $12.9 million, or ($1.63) per share. Full year results are earnings of $19.2 million, or $2.43 per share. Both results are far beyond fourth quarter and full year results in 2015, when the company reported losses of $44.5 million and $137.1 million, respectively.

Sanchez Energy (ticker: SN) and Blackstone Energy (ticker: BX) recently acquired 318,000 acres in the Western Eagle Ford for $2.3 billion. Half of the 67,000 BOEPD of production from these assets are net to Sanchez Energy. This acquisition means Sanchez Production Partners is in the process of significantly upgrading its Eagle Ford processing capabilities.

Sanchez Production Partners Plans 60 MMcfe/d Upgrade to Processing Capacity

Source: SPP Investor Presentation

Multiple facilities upgrades planned

Sanchez Production is currently in the process of upgrading the Raptor plant, its main gas facility in the Eagle Ford. The facility recently received approval to upsize from 200 MMcfe/d to 260 MMcfe/d. The Raptor Seco Pipeline is currently being constructed, allowing dry gas to be transported from the Raptor plant. Phase 1 of this expansion is expected to be completed in April, with the potential to extend the pipeline by 50 miles in the future.

The company is considering installing a fractionator at Raptor, which would allow the company to remove and sell ethane. Coupled with a pipeline, the fractionating system would let Sanchez Production sell ethane directly to the Corpus Christi market. The company estimates that building this facility would require a total SPP investment of $110 million.

Sanchez Production Partners is also in the process of constructing a crude storage terminal in Point Comfort, TX. This will allow the company to realize higher netbacks from Sanchez crude production from the Eagle Ford. The Costa Azul Terminal is expected to be completed in July 2017, requiring about $15 million in investments from SPP.

Q&A from SPP Q4 Conference Call

Q:  Thinking about CapEx for 2017, is there any update to sort of the levels you’re expecting there? And then, also, what’s really out there in the budget for growth CapEx beyond the Raptor Gas Processing plant in Phase 1 and the Costa Azul Terminal, is there any major projects being incorporated right now in the sort of the midstream restored side beyond those?

SPP CFO Chuck Ward: We expect that the Raptor oil line is under budget. We discussed a little bit during the Analyst Day and then we think that the incremental from the 200 to the 260 is even less than the actual savings versus the budget forecast. That rolls into thinking about incremental opportunities in Raptor as the Comanche situation develops, which Gerry is going to talk about.

SPP CEO Gerry Willinger: With the Comanche volumes coming online and the continued drilling opportunities there, there is a logical expansion of processing capacity that’s going to be needed. So when we look at the future, it is one of capturing more volumes and expanding processing capability, expanding the gathering system, particularly the Carnero line, and continuing to use that as the hub to extend throughout South Texas. So beyond the current facilities that we laid out and including Point Comfort, those opportunities — as we laid out in our Analyst Day, the future opportunities are well intact and we think are more visible now in 2017 period than we probably had in the original Analyst Day presentation.

Q: On the redetermination side, any thoughts maybe on a range of what you anticipate that credit facility to be maybe at year-end ’17 based on what you’re seeing with the midstream forward EBITDA role?

Chuck Ward: I think because it’s always subject to plants online and contribution. And we certainly have distributions from our joint ventures driving the impact or the midstream portion of the borrowing base. I think we just see kind of mechanical increases that are not really disproportionate from the impacts that we’d laid out in our Analyst Day forecasts for each of the incremental projects with the 4.5 times adjusted EBITDA multiplier on those.

So simply, if you say — if you calculate out of, say, your mid-range guidance, as projects can contribute $8 million during the year, then that’s going to reveal somewhere around the $36 million buying impact.

And I think that mechanical formula will continue to hold true. Obviously, on the production side, you’ll have a little bit of an offset as you roll through hedges — $5 hedges and $61 oil hedges are rolling off. But I think the impact of the projects coming online and then the distributions being received out of those will more than offset that by quite a bit.

Legal Notice