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|Sanchez Energy Reports Fourth-Quarter and Full-Year 2018 Financial and Operating Results; Provides 2019 Outlook|
HOUSTON, March 01, 2019 (GLOBE NEWSWIRE) -- Sanchez Energy Corporation (OTC Pink: SNEC) today reported financial and operating results for fourth-quarter and full-year 2018 and provided its outlook for 2019. A summary of the report follows:
"We worked diligently throughout 2018 to manage production declines and improve our understanding of the large and complex Comanche asset," said Tony Sanchez, III, president and chief executive officer of Sanchez Energy. "As we incorporated the results of our initial testing, early last year we reverted to a more conservative choke strategy, implemented a completion optimization strategy, and increased artificial lift conversion and workover activity across the entire asset base. These initiatives began to show signs of positive impact late in the year, with fourth-quarter 2018 production coming in six percent higher than the prior quarter.
"Sanchez Energy has assembled a quality asset base, which affords us a high degree of flexibility when developing the company's drilling, capital and strategic plans. Throughout much of last year, we were focused on long-term organic growth in the context of rising commodity prices. However, given the sharp downturn in oil and natural gas prices that began late last year, we are taking the prudent step of significantly reducing our drilling activity to focus on capital preservation and maximize our liquidity position, while we work to improve the balance sheet. To that end, we have set the company's preliminary 2019 capital budget at a range of $100 million to $150 million. Despite the substantial reduction from 2018 levels, this lower budget for 2019 still meets all of the company's drilling and development commitments at Catarina and Comanche for the 12-month periods that extend into this year, and is designed to improve our capital efficiency by focusing on lower risk projects and optimization opportunities."
During fourth-quarter 2018, the company spud 33 gross (25 net) wells, completed 40 gross (23 net) wells and brought 44 wells online, for a total of 217 wells brought online during full-year 2018. Of the 44 wells brought online during the quarter, 26 wells were at Comanche and 18 wells were at Catarina. Drilling activity was concentrated in Areas 3 and 5 of Comanche and the South Central and Northwest areas of Catarina. With a heightened focus on lowering costs through a reduction in drilling time, the company drilled several wells during the quarter at a record spud-to-rig release time of less than six days.
At Comanche, completions activity was split between Area 3 and Area 5, with a majority of wells targeting the Lower Eagle Ford A or B formations. The company is currently conducting trials involving wider well spacing while continuing with larger frac designs of 2,000 pounds of proppant and 50 barrels of fluid per foot of lateral length.
At Catarina, the company conducted trials during the quarter involving "pre-loading" as a strategy for mitigating frac interference on six parent wells. Early results from the trials show promise, with parent wells returning to pre-frac oil and natural gas flow rates upon cleanup of water from the reservoir. The company is evaluating further enhancements to its pre-loading strategy as part of a continuing focus on minimizing the impact of new well completions on existing production.
Consistent with the focus on improving capital efficiency, the company increased its workover activity during fourth-quarter 2018 with encouraging results. The additional workover activity is expected to continue throughout 2019 with a primary focus on gas lift redesign.
As of Dec. 31, 2018, the company had 2,398 gross (981 net) producing wells with 39 gross wells in various stages of completion, as detailed in the following table:
DRILLING AND DEVELOPMENT COMMITMENTS
As of June 30, 2018, the company achieved a 26-well drilling bank at Catarina that can be applied toward its current annual drilling commitment for the period that extends from July 1, 2018 to June 30, 2019. The company drilled an additional 36 wells between July 1, 2018 and Dec. 31, 2018 at Catarina, resulting in a total of 62 wells toward the current annual drilling commitment of 50 wells. Accordingly, the company has met its annual drilling commitment for the period July 1, 2018 to June 30, 2019 and has achieved a bank of 12 wells toward the next annual drilling commitment period, which begins on July 1, 2019.
As of Aug. 31, 2018, the company achieved a 30-well bank at Comanche that can be applied toward its current annual development commitment for the period that extends from Sept. 1, 2018 to Aug. 31, 2019. The company completed and equipped an additional 27 wells at Comanche between Sept. 1, 2018 and Dec. 31, 2018, resulting in a total of 57 wells toward the current annual development commitment of 60 wells. The company's 2019 capital budget includes the additional activity needed to meet the annual development commitment at Comanche for the period Sept. 1, 2018 to Aug. 31, 2019.
Proved reserves increased to 380 MMBoe at year-end 2018, which is approximately five percent higher than the prior year's record reserves of 363 MMBoe and represents a reserve replacement ratio of 148 percent.
PRODUCTION MIX, REVENUES AND COMMODITY PRICE REALIZATIONS
The company's production mix during fourth-quarter 2018 consisted of approximately 33 percent oil, 35 percent natural gas liquids (NGLs) and 32 percent natural gas. By asset area, Catarina, Comanche and Maverick/Palmetto/TMS/Other comprised approximately 56 percent, 39 percent and five percent, respectively, of the company's total fourth-quarter 2018 production volumes.
Fourth-quarter 2018 revenues of approximately $268.7 million were three percent lower when compared to $277.7 million for third-quarter 2018 and nine percent higher when compared to $246.0 million for fourth-quarter 2017. Adjusted Revenues, which include a $25.4 million loss on hedge settlements, were $243.3 million during fourth-quarter 2018, which is one percent lower when compared to $245.9 million for third-quarter 2018 and less than one percent lower when compared to $244.3 million for fourth-quarter 2017. Adjusted Revenues is a non-GAAP financial measure that is defined and reconciled in the tables included with this press release.
Commodity price realizations, which include the impact of hedge settlements, were $55.76 per Bbl of oil, $21.87 per Bbl of NGLs, and $2.95 per thousand cubic feet (Mcf) of natural gas for fourth-quarter 2018.
Capital expenditures incurred during full-year 2018 totaled approximately $593 million, of which approximately 99 percent was allocated to drilling, completion and infrastructure and one percent was allocated to leasing and business development activities.
The company reported net income of $119.4 million for fourth-quarter 2018, which includes $140.0 million in non-cash mark-to-market gains related to commodity derivatives and a $10.1 million non-cash impairment charge. This compares to reported net income of $5.6 million for third-quarter 2018 and a reported net loss of $61.4 million for fourth-quarter 2017. The company's Adjusted Loss for fourth-quarter 2018 was $29.2 million, which compares to an Adjusted Loss of $12.7 million for third-quarter 2018 and Adjusted Earnings of $23.3 million for fourth-quarter 2017. The company's fourth-quarter 2018 Adjusted EBITDAX of approximately $111.3 million was approximately 10 percent lower when compared to $123.9 million for third-quarter 2018 and 19 percent lower when compared to $137.4 million for fourth-quarter 2017.
The company reported net income of $85.2 million for full-year 2018, which includes $75.4 million in non-cash mark-to-market gains related to commodity derivatives and a $14.4 million non-cash impairment charge. This compares to the company's reported net income of $43.2 million for full-year 2017. The company's Adjusted Loss for full-year 2018 was $67.1 million, which compares to an Adjusted Loss of $27.5 million for full-year 2017. For full-year 2018, the company reported Adjusted EBITDAX of $460.8 million, which is approximately 24 percent higher when compared to $372.0 million for full-year 2017.
Adjusted EBITDAX and Adjusted Earnings (Loss) are non-GAAP financial measures that are defined and reconciled in the tables included with this press release.
GENERAL AND ADMINISTRATIVE EXPENSES
The company reported general and administrative (G&A) expenses of $24.8 million in fourth-quarter 2018. G&A expenses were positively impacted during the quarter by changes in the value of non-cash equity compensation and phantom units that vest periodically in accordance with the terms of the company's equity-based incentive awards. Adjusted for these items, Base G&A Expense during fourth-quarter 2018 was approximately $30.1 million.
Base G&A Expense is a non-GAAP financial measure that is defined and reconciled in the tables included with this press release.
As a result of the higher commodity prices during 2018, the company paid approximately $25.4 million during fourth-quarter 2018 and $103.2 million for full-year 2018 in connection with the settlement of commodity derivatives.
On a consolidated basis, the company has hedged approximately 3,149,000 Bbls of its 2019 oil production, 17,644,000 million British thermal units (MMBtu) of its 2019 natural gas production, 1,055,560 Bbls of its 2020 oil production, and 6,893,150 MMBtu of its 2020 natural gas production. Additional information on Sanchez Energy's hedge positions can be found in the company's documents on file with the U.S. Securities and Exchange Commission (SEC) at www.sec.gov.
LIQUIDITY AND CREDIT FACILITIES
As of Dec. 31, 2018, the company's liquidity was approximately $370.1 million, which consisted of $197.6 million in cash and cash equivalents and $172.5 million of combined borrowing capacity under two credit facilities: the $25 million parent-level credit facility, which was undrawn at year-end, and the SN EF UnSub, LP ("UnSub") revolving credit facility, which had a borrowing base and commitment amount of $315 million and $147.5 million of available borrowing capacity. In January 2019, the company issued a letter of credit in the amount of approximately $17.1 million under the parent-level credit facility. In February 2019, the company repaid $2.5 million of principal under the UnSub revolving credit facility.
As of Dec. 31, 2018, the company had approximately 87.3 million common shares outstanding. Assuming all Series A Convertible Perpetual Preferred Stock and Series B Convertible Perpetual Preferred Stock were converted, total outstanding common shares would have been approximately 99.8 million as of Dec. 31, 2018. For the three months ended Dec. 31, 2018, the weighted average number of unrestricted common shares used to calculate the net income attributable to common stockholders, basic and diluted, which are determined in accordance with GAAP, was 82.3 million and 94.8 million, respectively.
The company has set its preliminary 2019 capital budget at a range of $100 million to $150 million, which at the midpoint represents a reduction of approximately 79 percent when compared to 2018 capital expenditures of approximately $593 million.
As a result of delisting proceedings initiated by the New York Stock Exchange on Feb. 20, 2019, the company's common stock began trading on the OTC Pink Marketplace operated by OTC Markets Group Inc. ("OTC Pink") under ticker symbol "SNEC" upon the opening of trading on Feb. 21, 2019.
The company remains committed to strengthening its balance sheet and is evaluating strategies to maximize its liquidity and reduce financial leverage. As the company considers its strategic alternatives, the board of directors has elected to suspend the dividend on Sanchez Energy's Series A Convertible Perpetual Preferred Stock and Series B Convertible Perpetual Preferred Stock, beginning with the three-month period ending March 31, 2019.
ABOUT SANCHEZ ENERGY CORPORATION
Sanchez Energy Corporation (OTC Pink: SNEC) is an independent exploration and production company focused on the acquisition and development of oil and natural gas resources in the onshore United States, with a current focus on the Eagle Ford Shale in South Texas. 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 future financial and operating results and returns, our strategy and plans, including future drilling plans and economic drilling zones, our ability to increase reserves and production and generate income or cash flows, service our debt and other obligations and repay or otherwise refinance such obligations when due or at maturity, our ability to keep well costs down, the benefits related to the Comanche transaction and the company's anticipated ability to fund capital expenditures or reduce its leverage. 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," "budget," "forecast," "guidance," "profile," "model," "strategy," "future," or their negatives, other similar expressions or the statements that include those words or other words that convey the uncertainty of future events or outcomes, 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 the timing and extent of changes in prices of, and demand for, crude oil and condensate, natural gas liquids, natural gas and related commodities; our ability to successfully execute our business and financial strategies; our ability to comply with the financial and other covenants in our debt instruments, to repay our debt, and to address our liquidity needs; the extent to which we are able to engage in successful strategic alternatives to improve our balance sheet and satisfy our obligations under our debt instruments; the extent to which our drilling plans are successful in maintaining and economically developing our acreage, producing and replacing reserves and achieving anticipated production levels; our ability to replace the reserves we produce through drilling and property acquisitions; our ability to successfully integrate our various acquired assets into our operations and realize the benefits of the those acquisitions, to fully identify existing and potential issues or liabilities and to accurately estimate reserves, production and costs with respect to such assets; our ability to access the credit and capital markets to obtain financing on terms we deem acceptable, if at all, and to otherwise satisfy our capital expenditure, debt service and other funding requirements through internally generated cash flows, asset sales and other activities; the extent to which an active market, if any, develops in the trading of our common stock in the over-the-counter markets; the effect of the anticipated delisting of our common stock from the New York Stock Exchange; our ability to utilize the services, personnel and other assets of Sanchez Oil & Gas Corporation pursuant to an existing services agreement; Sanchez Oil & Gas Corporation's ability to retain personnel and other resources to perform its obligations under the existing services agreement; the realized benefits of our partnerships and joint ventures, including our transactions with Sanchez Midstream Partners LP and our partnership with affiliates of The Blackstone Group, L.P.; the accuracy of reserve estimates; our ability to successfully execute our hedging strategy and the resulting realized prices therefrom; our ability to maintain the financial risks where we share with more than one party the cost of drilling, equipping, completing and operating wells, including with respect to the Comanche Acquisition; 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 or Current Reports on Form 8-K. Further information on such assumptions, risks and uncertainties is available in Sanchez Energy's filings with 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.
Cameron W. George
Cham J. King
General Inquiries: (713) 783-8000
SANCHEZ ENERGY CORPORATION
SANCHEZ ENERGY CORPORATION
SANCHEZ ENERGY CORPORATION
SANCHEZ ENERGY CORPORATION
"Adjusted EBITDAX" is a non‑GAAP financial measure that is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance as compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. It is also used to assess our ability to incur and service debt and fund capital expenditures. Our Adjusted EBITDAX 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 EBITDAX may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDAX in the same manner.
The following table presents a reconciliation of our net income (loss) to Adjusted EBITDAX:
SANCHEZ ENERGY CORPORATION
We present "Adjusted Earnings (Loss)" and "Adjusted Earnings (Loss) attributable to common stockholders," non-GAAP financial measures, 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 Earnings (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. Adjusted Earnings (Loss) is not intended to represent cash flows for the period, nor is it presented as a substitute for 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 Earnings (Loss) may not be comparable to similarly title measures of another company because all companies may not calculate Adjusted Earnings (Loss) in the same manner.
The following table presents a reconciliation of our net income (loss) to Adjusted Earnings (Loss):
SANCHEZ ENERGY CORPORATION
We present Adjusted Revenues, a non-GAAP financial measure, in addition to our reported revenues in accordance with U.S. GAAP. We define "Adjusted Revenues" as total revenues plus net settlements received (paid) on commodity derivatives. The company believes Adjusted Revenues provides investors with helpful information with respect to the performance of the company's operations and management uses Adjusted Revenues to evaluate its ongoing operations and for internal planning and forecasting purposes. Our Adjusted Revenues may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted Revenues in the same manner.
The following table presents a reconciliation of our total revenues to Adjusted Revenues:
SANCHEZ ENERGY CORPORATION
We present Base G&A Expense, a non-GAAP financial measure, in addition to reported general and administrative expenses in accordance with GAAP. We define "Base G&A Expense" as general and administrative expenses less non-cash and non-recurring items (as detailed below). The company has included Base G&A Expense in this press release because this measure is commonly used by management, analysts and investors as an indicator of cost management and operating efficiency on a comparable basis from period to period. Our Base G&A may not be comparable to similarly titled measures of another company because all companies may not calculate Base G&A in the same manner.
The following table presents a reconciliation of our general and administrative expenses to Base G&A Expense: