Sanchez Energy Announces Second Quarter 2016 Operating and Financial Results

HOUSTON, Aug. 08, 2016 (GLOBE NEWSWIRE) -- Sanchez Energy Corporation SN ("Sanchez Energy" or the "Company"), today announced operating and financial results for the second quarter 2016.  Highlights include:

• Sanchez Energy plans to increase its 2016 upstream capital spending by up to $50 million, to a range of between $250 million to $300 million, which positions the Company to be able to deliver total production growth of between 5% and 8% in 2017;
   
• Total production of 5.1 million barrels of oil equivalent ("MMBoe") during the second quarter 2016, up approximately 4% over the second quarter 2015;
  
  
• Average production of approximately 55,900 barrels of oil equivalent per day ("Boe/d"), which exceeded the high end of the Company's guidance of 48,000 to 52,000 Boe/d for the second quarter 2016 by over 7%;
  
  
• Sanchez Energy's development focus remains on Catarina, where the Company has met its 50 well annual drilling commitment for the period July 2015 through June 2016 and has banked 20 wells toward the 50 well annual drilling commitment for the period July 2016 through June 2017;
   
• South-Central Catarina wells continue to exceed expectations, with the 30-day initial production rates of most recent wells, including the best well drilled to date at Catarina, averaging 1,600 to 1,900 Boe/d;
   
• Average drilling and completion costs during the second quarter 2016 at Catarina and Cotulla were $3.3 million per well, with the Company's best wells coming in below $3.0 million per well in both areas;
  
  
• Revenues of approximately $111 million (exclusive of hedge settlements) were up approximately 39% when compared to the first quarter 2016 due to improvements in realized commodity prices during the second quarter 2016;
  
  
• Commodity price realization during the second quarter 2016 includes natural gas liquids ("NGL") realization of $14.47 per barrel, up from $8.91 per barrel in the first quarter 2016, after total production was impacted by 2,000 to 3,000 barrels per day ("Bbls/d") as a result of significant ethane rejection; 
   
• Inclusive of hedge settlements, revenues totaled approximately $146 million during the second quarter 2016;
   
• Adjusted EBITDA (a non-GAAP financial measure) of approximately $79.6 million, up approximately 23% when compared to the first quarter 2016;
  
  
• Total liquidity of approximately $624 million as of June 30, 2016, which consisted of $324 million in cash and cash equivalents and an undrawn bank credit facility with an elected commitment amount of $300 million; and
  
  
• The planned increase in capital spending is expected to be largely offset by the Company's July 2016 sale of its interest in Carnero Gathering, LLC ("Carnero Gathering"), a joint venture that is 50% owned by Targa Resources Corp. ("Targa"), to Sanchez Production Partners LP (NYSE MKT: SPP) ("SPP") for approximately $44 million in total consideration (the "Carnero Gathering Transaction").

MANAGEMENT COMMENTS
"We are encouraged by our strong operating and financial results in the first half of 2016," said Tony Sanchez, III, Chief Executive Officer of Sanchez Energy. "As previously reported, we achieved excellent production results in the second quarter 2016, exceeding the high end of our guidance by over 7%.  Process improvements and efficiency gains continue to drive our operating performance, with several wells coming in below $3.0 million.  This combination of strong production and lower costs has allowed us to achieve positive returns on our capital program, which provides us with a key competitive advantage in responding to current industry conditions."

"Our development focus remains on Catarina and further delineation of the South-Central region of the lease as results in this region, including the exceptional results from the E33 Pad that we reported in July 2016, continue to meet or exceed our expectations.  The E33 Pad consisted of four wells that had average 30-day initial production rates that ranged from 1,600 to 1,900 Boe/d, representing some of the most productive results drilled at Catarina to date.  We continue to test northern extensions in South-Central Catarina and remain impressed with this area of the lease.  As of June 30, 2016, we successfully completed our 50 well annual drilling commitment at Catarina for the period July 2015 through June 2016 and banked 20 wells toward the 50 well annual drilling commitment for the period July 2016 through June 2017."

"The Company's operating performance is evident in our financial results for the second quarter 2016, and our Adjusted EBITDA -- at approximately $79.6 million during the quarter – was up approximately 23% when compared to the first quarter 2016.  Financial performance resulted in total liquidity, including availability under our undrawn credit facility, of approximately $624 million at the end of the quarter.  On July 5, 2016, we closed the Carnero Gathering Transaction with SPP for total consideration of $44 million, which further enhanced our strong liquidity position." 

"Given our current liquidity and stronger than expected operating and financial performance in the first half of the year, we plan to increase our 2016 upstream capital spending by up to $50 million, to a range of between $250 million to $300 million, with the majority of the incremental spending planned for the fourth quarter 2016.  The planned increase in our upstream capital spending is largely offset by the total consideration received in the Carnero Gathering Transaction, which consisted of an initial payment from SPP of approximately $37 million and about $7.4 million in capital commitment savings related to Carnero Gathering.  At our updated level of upstream capital spending, we anticipate that the Company will be able to maintain relatively flat production in 2016 while maintaining a significant cash balance and financial flexibility as we head into next year.  While not expected to have a significant impact on 2016 production, this positions the Company to be able to deliver total production growth of between 5% and 8% in 2017, depending upon the amount of Catarina production being processed in ethane rejection.  Our decision to process Catarina gas in ethane rejection is based off the economic impact on our entire hydrocarbon net back.  We expect this year's capital spending increase to have an even more meaningful impact on 2018 production."      

OPERATIONS UPDATE
The Company's Eagle Ford development plan remains primarily focused on Catarina, where the Company is currently running three rigs and expects to drop to two rigs during the fourth quarter 2016.  Second quarter 2016 development activity was primarily focused in South-Central Catarina, where the Company has realized some of the best production results on the lease.  South-Central Catarina well results continue to trend above expectations, with recent results from the E33 Pad currently tracking estimated ultimate recoveries ("EURs") about 20% to 30% above the Company's original guidance of approximately 1,100 thousand barrels of oil equivalent ("MBoe").  

Drilling and completion costs in the second quarter 2016 averaged approximately $3.3 million per well at Catarina and $3.3 million per well at Cotulla, with the Company's best wells coming in below $3.0 million per well in both areas.  As of June 30, 2016, the Company had 657 gross (539 net) producing wells with 16 gross (14.5 net) wells in various stages of completion, as detailed in the following table:

PRODUCTION VOLUMES, AVERAGE SALES PRICES, AND OPERATING COSTS PER BOE
The Company's production mix during the second quarter 2016 consisted of approximately 32% oil, 30% NGL, and 38% natural gas.  By asset area, Catarina, Marquis, Cotulla, and Palmetto/Other comprised approximately 82%, 5%, 10%, and 3%, respectively, of the Company's total second quarter 2016 production volumes.

Revenues of approximately $111 million (exclusive of hedge settlements) were up approximately 39% when compared to the first quarter 2016 due to improvements in realized commodity prices during the second quarter 2016.  Commodity price realization during the second quarter 2016 included NGL realization of $14.47 per barrel, up from $8.91 per barrel in the first quarter 2016, after total production was impacted by 2,000 to 3,000 Bbls/d as a result of significant ethane rejection.  Revenue, inclusive of realized hedge gains, for the three months ended June 30, 2016 totaled approximately $146 million, an increase of approximately 10% when compared to the prior quarter.  The effect of the decrease in commodity prices was partially offset by higher production due to better well performance and efficiency gains across the portfolio.

Production, average sales prices, and operating costs and expenses per barrel of oil equivalent ("Boe") for the second quarter 2016 are summarized in the tables that follow: 

UPDATED 2016 GUIDANCE 
Recent well results, coupled with an uptick in commodity pricing, have driven returns to levels that the Company believes justify increased activity.  As a result, the Company has increased its initial 2016 upstream capital spending guidance of $200 million to $250 million, originally published in January 2016, by $50 million to $250 million to $300 million.  The majority of the incremental spending is planned for the fourth quarter 2016.  At this level of capital spending, the Company anticipates it will be able to maintain relatively flat production in 2016 while maintaining a significant cash balance and financial flexibility heading into 2017. 

Second quarter 2016 results and updated third quarter and full year 2016 guidance are summarized in the table that follows:

Additional detail concerning the Company's updated 2016 capital program can be found in an updated investor presentation that has been uploaded to the Investors section of the Company's website (provided below).

CAPITAL EXPENDITURES
Capital expenditures incurred during the second quarter 2016 related to upstream activities, including accruals, totaled approximately $44.7 million.  With respect to midstream activities, the Company incurred approximately $12.8 million of capital expenditures in the second quarter 2016 related to the Targa joint ventures.  The Company expects capital expenditures totaling approximately $45 million during the remainder of 2016 and early 2017 related to the Targa joint venture to construct a new cryogenic natural gas processing plant in South Texas. 

FINANCIAL RESULTS
On a GAAP basis, the Company reported a net loss attributable to common stockholders of $186.9 million for the second quarter 2016, which includes a non-cash after tax impairment charge of $87.4 million and a non-cash mark-to-market loss on the value of the Company's hedge portfolio of $93.5 million.

The Company reported Adjusted EBITDA of approximately $79.6 million and Adjusted Net Income (Loss) of $0.6 million for the second quarter 2016, which compares to Adjusted Net Income (Loss) of $(24.4) million reported in the second quarter 2015.  Adjusted EBITDA and Adjusted Net Income (Loss) are non-GAAP financial measures defined in the tables included with today's news release.

HEDGING UPDATE
In July 2016, the Company hedged an additional 6,190,000 million British Thermal Units ("MMBtu") of its 2017 natural gas production, in variable quantities that range from 2,500 MMBtu per day to 27,500 MMBtu per day, at a fixed price of $3.10 per MMBtu. This brings the Company's current total hedged position to 18,000 Bbls/d of oil and 99,153 MMBtu per day ("MMBtu/d") of natural gas in 2016, 6,000 to 7,000 Bbls/d of oil and 93,521 MMBtu/d of natural gas in 2017, 40,000 to 50,000 MMBtu/d of natural gas in 2018 and 20,000 MMBtu/d of natural gas in 2019.

LIQUIDITY AND CREDIT FACILITY
The Company had liquidity of approximately $624 million as of June 30, 2016, which consisted of $324 million in cash and cash equivalents and an undrawn bank credit facility with an elected commitment amount of $300 million and a borrowing base of $350 million.  The Company's elected commitment amount on the bank credit facility is expected to remain at $300 million until the next semi-annual redetermination of the borrowing base by the lenders, which is anticipated in the fourth quarter 2016.

SHARE COUNT
As of June 30, 2016, the Company had 65.5 million total common shares outstanding.  Assuming all Series A Convertible Perpetual Preferred Stock and Series B Convertible Perpetual Preferred Stock were converted, total outstanding common shares as of June 30, 2016 would have been 78.0 million.  For the three months ended June 30, 2016, the weighted average number of unrestricted common shares used to calculate net loss attributable to common stockholders per common share, basic and diluted, which are determined in accordance with GAAP, was 58.4 million.

CONFERENCE CALL
Sanchez Energy will host a conference call for investors on Monday, Aug. 8, 2016, at 1:00 p.m. Central Time (2:00 p.m. Eastern Time).  Interested investors can listen to the call by visiting our website (provided below) or via webcast, both live and rebroadcast, over the Internet at: http://edge.media-server.com/m/p/abmg8gwy/lan/en.

UPDATED INVESTOR PRESENTATION
An updated investor presentation has been uploaded to the Investors section of the Company's website (provided below).

ABOUT SANCHEZ ENERGY CORPORATION
Sanchez Energy Corporation is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources in the onshore U.S. Gulf Coast, with a current focus on the horizontal development of significant resource potential from the Eagle Ford Shale in South Texas, where we have assembled over 200,000 net acres, and the Tuscaloosa Marine Shale. For more information about Sanchez Energy Corporation, please visit our website:  www.sanchezenergycorp.com.

FORWARD LOOKING STATEMENTS
This press release contains, and our officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Sanchez Energy expects, believes or anticipates will or may occur in the future are forward-looking statements, including statements relating to estimates of our future production, revenues, well cost reductions, operational and commercial benefits of the Targa joint venture, capital expenditures regarding the Targa joint venture, our strategy and plans, our view of the market, our well drilling plans, and our capital plans for the remainder of 2016 and beyond.  These statements are based on certain assumptions made by the Company based on management's experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management. When used in this press release, the words "will," "potential," "believe," "estimate," "intend," "expect," "may," "should," "anticipate," "could," "plan," "predict," "project," "profile," "model," "strategy," "future," or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Sanchez Energy, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements, including, but not limited to failure of acquired assets to produce as anticipated, failure or delays on the part of our joint venture partners, failure to continue to produce oil and gas at historical rates, costs of operations, delays, and any other difficulties related to producing oil or gas, the price of oil or gas, marketing and sales of produced oil and gas, estimates made in evaluating reserves, competition, general economic conditions and the ability to manage our growth, our expectations regarding our future liquidity, our expectations regarding the results of our efforts to improve the efficiency of our operations to reduce our costs and other factors described in Sanchez Energy's most recent Annual Report on Form 10-K and any updates to those risk factors set forth in Sanchez Energy's Quarterly Reports on Form 10-Q.  Further information on such assumptions, risks and uncertainties is available in Sanchez Energy's filings with the U.S. Securities and Exchange Commission (the "SEC").  Sanchez Energy's filings with the SEC are available on our website at www.sanchezenergycorp.com and on the SEC's website at www.sec.gov.  In light of these risks, uncertainties and assumptions, the events anticipated by Sanchez Energy's forward-looking statements may not occur, and, if any of such events do occur, Sanchez Energy may not have correctly anticipated the timing of their occurrence or the extent of their impact on its actual results.  Accordingly, you should not place any undue reliance on any of Sanchez Energy's forward-looking statements.  Any forward-looking statement speaks only as of the date on which such statement is made and Sanchez Energy undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

SANCHEZ ENERGY CORPORATION
Non-GAAP Reconciliation – Adjusted EBITDA

Our Adjusted EBITDA should not be considered an alternative to net income (loss), operating income (loss), cash flows provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner.

SANCHEZ ENERGY CORPORATION
Non-GAAP Reconciliation – Adjusted Net Income

We present adjusted net income (loss) attributable to common stockholders ("Adjusted Net Income (Loss)") in addition to our reported net income (loss) in accordance with U.S. GAAP. This information is provided because management believes exclusion of the impact of the items included in our definition of Adjusted Net Income (Loss) below will help investors compare results between periods, identify operating trends that could otherwise be masked by these items and highlight the impact that commodity price volatility has on our results.