Sanchez Production Partners LP (NYSE MKT:SPP) (“SPP” or the
“Partnership”) today reported first quarter 2017 results.
Highlights from the report include:
- A first quarter 2017 cash distribution on the Partnership’s
common units of $0.4375 per unit ($1.7500 per unit annualized),
which represents the sixth consecutive 1.5 percent increase since
the Partnership’s third quarter 2015 cash distribution on common
units for a 6.2 percent annualized rate of increase;
- The Partnership has entered into an agreement to divest its
remaining operated Oklahoma production assets for $5.5 million,
subject to normal and customary adjustments, which is expected to
close in the second quarter 2017;
- With the transformation of the Partnership’s business focus now
complete, SPP intends to change its name to “Sanchez Midstream
Partners LP” in June 2017;
- The Raptor Gas Processing Facility is in the early phases of
start-up and is expected to be fully operational by the end of the
second quarter with plant expansion to 260 million cubic feet
equivalent per day (“MMcfe/d”) of natural gas expected to be
complete by mid-Summer 2017;
- Raptor SECO Pipeline Phase 1 construction is progressing with
the project expected to come on-line within budget in the second
quarter 2017;
- The Carnero Gathering Pipeline is connected to the Raptor Gas
Processing Facility while continuing to deliver natural gas from
Catarina to a natural gas processing facility in Bee County, Texas
while the expansion project that interconnects that pipeline with
Sanchez Energy Corporation’s (NYSE:SN) (“Sanchez Energy”) Comanche
asset is advancing toward completion;
- Throughput volumes of natural gas for the Western Catarina
Midstream system for the first quarter 2017 were lower than
expected prior to the addition of 14 new horizontal wells at
Catarina late in the first quarter by Sanchez Energy; and
- The Partnership reported a net loss of $7.7 million and
Adjusted EBITDA (a non-GAAP financial measure) of $10.5 million for
the first quarter 2017.
MANAGEMENT COMMENTARY
“Our activity and results during the first
quarter 2017 reflect the transitional nature of our business during
the first half of this year,” said Gerry Willinger, Chief Executive
Officer of the general partner of SPP. “During the quarter,
we continued the successful transformation of the Partnership to a
midstream-focused master limited partnership. The Carnero
Gathering Pipeline, a 50 percent joint venture with Targa Resources
Corp. ('Targa'), is connected to the Raptor Gas Processing Facility
while continuing to deliver natural gas from Catarina to a natural
gas processing facility in Bee County, Texas while the expansion
project that interconnects that pipeline with Sanchez Energy’s
Comanche asset is advancing toward completion. The Raptor Gas
Processing Facility, a 50 percent joint venture also with Targa, is
currently in the initial phases of start-up with natural gas
processing capacity of 200 MMcfe/d. We expect the facility to
be fully operational by the end of the second quarter 2017, with
plant expansion to 260 MMcfe/d of natural gas expected to be
complete by the end of the third quarter 2017. Additionally,
Raptor SECO Pipeline Phase 1 construction is progressing with the
project expected to come on-line within budget in the second
quarter 2017. This dry gas pipeline, which is currently 100
percent owned by the Partnership, will provide takeaway from the
Raptor Gas Processing Facility to premium natural gas markets in
South Texas. Together, when completed, these midstream assets
are expected to provide a stable stream of fee-based cash flow and,
along with the Western Catarina Midstream system, form the basis of
our midstream growth strategy in South Texas.
“In keeping with our strategy of focusing on our
midstream activities, we recently signed an agreement to divest our
remaining operated Oklahoma production assets for $5.5 million,
subject to normal and customary closing
adjustments. In addition to reducing our exposure
to a price-sensitive, production-based revenue stream, we
anticipate this transaction will lower overhead costs associated
with operating the properties. As we have previously
announced plans to sell the operated Oklahoma production assets,
these assets have been excluded from the reserves used to determine
the borrowing base under our credit facility. Accordingly, we
anticipate that the sale will have no impact on our borrowing
capacity. Additionally, these assets were excluded from our
prior guidance for this year. Based upon our visibility of
our midstream projects in South Texas, we reiterate our full year
guidance for 2017.
“With the transformation of the Partnership’s
business focus now complete, SPP intends to change its name to
'Sanchez Midstream Partners LP' in early June 2017. We
believe this name is more in keeping with our strategy and focus on
midstream activities, as these midstream investments are expected
to provide at least 80% percent of our fourth quarter Adjusted
EBITDA.
“Given the transitional nature of our business
during the first half of this year and having yet to realize the
full financial benefits of the midstream capital projects in
various phases of completion, we expected this to be a challenging
quarter. Throughput volumes of natural gas on the Western
Catarina Midstream system for the first quarter 2017 were lower
than expected prior to the addition of 14 new horizontal wells at
Catarina late in the first quarter by Sanchez Energy.
However, with most of our South Texas projects expected to come
on-line in the second quarter 2017, we continue to forecast
improved results in the second half of this year.
“We believe our prospects for sustainable
midstream growth have improved considerably with Sanchez Energy’s
acquisition of the Comanche asset in South Texas. We continue
to evaluate opportunities to secure additional midstream capacity
for the new production coming from the Comanche asset, and look
forward to growing along with Sanchez Energy as they continue to
execute their strategy in the Western Eagle Ford.”
OPERATING AND FINANCIAL
RESULTS
The Partnership’s revenue totaled $25.8 million
during the first quarter 2017. Included in total revenue for
the first quarter 2017 is revenue from the Western Catarina
Midstream system of $11.2 million and $8.5 million generated from
production activities. The balance of the Partnership’s first
quarter 2017 total revenue came from hedge settlements ($1.6
million) and a gain on mark-to-market activities ($4.5 million),
which is a non-cash item.
Total operating expenses during the first
quarter 2017 totaled $32.1 million, which includes $3.3 million in
operating expenses related to the Western Catarina Midstream system
and $5.5 million in production operating expenses and production
taxes. General and administrative expenses during the first
quarter 2017 of $5.6 million
includes $2.6 million in unit-based compensation and
asset management fees, both of which are non-cash items.
On a GAAP basis, the Partnership recorded a net
loss of $7.7 million for the first quarter 2017. Adjusted
EBITDA (a non-GAAP financial measure) for the first quarter 2017
was approximately $10.5 million. The Partnership’s
calculation of Adjusted EBITDA is discussed in further detail
below.
LIQUIDITY UPDATE
As of March 31, 2017, the Partnership had $160.5
million in debt outstanding under its credit facility, which had a
borrowing base of $215.1 million and an elected commitment amount
of $200 million. The Partnership’s borrowing base was set at
$215.6 million on April 17, 2017 in conjunction with the normal
semi-annual redetermination completed by lenders. The elected
commitment amount remains unchanged at $200 million. The
Partnership anticipates that its sale of operated Oklahoma
production assets for $5.5 million, which is expected to close in
the second quarter 2017, will have no impact on its borrowing
capacity, as the reserves from these assets were previously
excluded from the assets considered by lenders in determining the
borrowing base under the credit facility.
The Partnership had approximately $2.5 million
in cash and cash equivalents at March 31, 2017.
HEDGE UPDATE
For the period April 1,
2017 through Dec. 31, 2017, the Partnership has hedged
approximately 0.8 Bcf of its natural gas production at an effective
NYMEX fixed price of approximately $5.45 per million
British thermal units and approximately 263 thousand barrels of its
crude oil production at an effective NYMEX fixed price of
approximately $61.40 per barrel.
COMMON UNITS
The Partnership had 14,282,221 common units
issued and outstanding as of May 10, 2017.
DISTRIBUTIONS
On May 10, 2017, the Partnership declared a
first quarter 2017 cash distribution on its common units of $0.4375
per unit ($1.7500 per unit annualized), which represents the sixth
consecutive 1.5 percent increase since the Partnership’s third
quarter 2015 cash distribution on common units for a 6.2 percent
annualized rate of increase. The Partnership has also
declared a first quarter 2017 distribution to the holders of its
Class B preferred units equal to 184,697 common units (in lieu of
additional Class B preferred units) and a cash distribution of
$0.2258 per Class B preferred unit.
Based on Adjusted EBITDA of $10.5 million, cash
interest expense of $1.5 million and maintenance capital of $0.6
million, the Partnership generated $8.4 million in cash available
for distribution.
CONFERENCE CALL INFORMATION
The Partnership will host a conference call at
10:00 a.m. Central Time (11:00 a.m. Eastern Time) on Monday, May
15, 2017 to discuss first quarter 2017 results.
To participate in the conference call, analysts,
investors, media and the public in the U.S. may dial (844) 824-3837
shortly before 10:00 a.m. Central Time (11:00 a.m. Eastern
Time). The international phone number is (412)
317-5161. Callers should request the “SPP First Quarter 2017
Conference Call” once reaching the operator.
A live audio webcast of the conference call and
the earnings release will be available on the Partnership’s website
(www.sanchezpp.com) under the Investor Relations page. A
replay will be available approximately one hour after the
call through May 22, 2017, at 10:59 p.m. Central
Time (11:59 p.m. Eastern Time). The replay may be accessed by
dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International),
and referencing the replay passcode: 10106878.
ABOUT THE PARTNERSHIP
Sanchez Production Partners LP (NYSE MKT:SPP) is
a publicly-traded limited partnership focused on the acquisition,
development, ownership and operation of midstream and production
assets in North America. The Partnership owns an oil and
natural gas gathering and processing system located in the Eagle
Ford Shale in Dimmit, Webb and La Salle Counties, Texas. The
Partnership also owns producing reserves in the Eagle Ford Shale in
South Texas, the Gulf Coast region of Texas and Louisiana, and
across several basins in Oklahoma and Kansas.
ADDITIONAL INFORMATION
Additional information about SPP can be found in
the Partnership’s documents on file with the U.S. Securities and
Exchange Commission (www.sec.gov) and in the “Investor
Presentation” available on the Partnership’s website
(www.sanchezpp.com).
The Partnership anticipates that it will file
its Form 10-Q with the U.S. Securities Exchange Commission on or
about May 15, 2017.
NON-GAAP MEASURES
We present Adjusted EBITDA in addition to our
reported net income (loss) in accordance with GAAP in this news
release.
Adjusted EBITDA is a non-GAAP financial measure
that is defined as net income (loss) adjusted by: (i) interest
(income) expense, net, which includes interest expense, interest
expense net (gain) loss on interest rate derivative contracts, and
interest (income); (ii) income tax expense (benefit);
(iii) depreciation, depletion and amortization;
(iv) asset impairments; (v) accretion expense;
(vi) (gain) loss on sale of assets; (vii) unit-based
compensation programs; (viii) unit-based asset management
fees; (ix) distributions in excess of equity earnings;
(x) (gain) loss on mark-to-market activities; (xi) commodity
derivatives settlements applied to future positions;
(xii) (gain) loss on embedded derivatives; and (xiii) other
non-recurring items. For a reconciliation of Adjusted EBITDA
to Net Income (Loss), the most directly comparable GAAP measure,
see the tables at the end of this release.
Adjusted EBITDA is a significant performance
metric used by our management to indicate (prior to the
establishment of any cash reserves by the board of directors of our
general partner) the distributions that we would expect to pay to
our unitholders. Specifically, this financial measure indicates to
investors whether or not we are generating cash flow at a level
that can sustain or support a quarterly distribution or any
increase in our quarterly distribution rates. Adjusted EBITDA is
also used as a quantitative standard by our management and by
external users of our financial statements such as investors,
research analysts, our lenders and others to assess: (i) the
financial performance of our assets without regard to financing
methods, capital structure or historical cost basis; (ii) the
ability of our assets to generate cash sufficient to pay interest
costs and support our indebtedness; and (iii) our operating
performance and return on capital as compared to those of other
companies in our industry, without regard to financing or capital
structure. We believe that the presentation of Adjusted
EBITDA provides useful information to investors in assessing our
financial condition and results of operations. The GAAP measure
most directly comparable to Adjusted EBITDA is net income. Our
non-GAAP financial measure of Adjusted EBITDA should not be
considered as an alternative to GAAP net income. Adjusted EBITDA
has important limitations as an analytical tool because it excludes
some but not all items that affect net income. Adjusted EBITDA
should not be considered in isolation or as a substitute for
analysis of our results as reported under GAAP. Because Adjusted
EBITDA may be defined differently by other companies in our
industry, our definition of Adjusted EBITDA may not be comparable
to similarly titled measures of other companies, thereby
diminishing its utility.
FORWARD-LOOKING STATEMENTS
This press release contains, and the officers
and representatives of the Partnership and its general partner may
from time to time make, statements that are considered
forward–looking statements within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements are subject to a number of risks and
uncertainties, many of which are beyond our control, which may
include statements about our: business strategy; acquisition
strategy; financing strategy; ability to make, maintain and grow
distributions; the ability of our customers to meet their drilling
and development plans on a timely basis or at all and perform under
gathering and processing agreements; future operating results;
future capital expenditures; and plans, objectives, expectations,
forecasts, outlook and intentions. All of these types of
statements, other than statements of historical fact included in
this press release, are forward-looking statements. In
some cases, forward-looking statements can be identified by
terminology such as “may,” “could,” “should,” “expect,” “plan,”
“project,” “intend,” “anticipate,” “believe,” “estimate,”
“predict,” “potential,” “pursue,” “target,” “continue,” the
negative of such terms or other comparable terminology.
The forward-looking statements contained in this
press release are largely based on our expectations, which reflect
estimates and assumptions made by our management. These
estimates and assumptions reflect our best judgment based on
currently known market conditions and other factors. Although
we believe such estimates and assumptions to be reasonable, they
are inherently uncertain and involve a number of risks and
uncertainties that are beyond our control. In addition,
management’s assumptions about future events may prove to be
inaccurate. Management cautions all readers that the
forward-looking statements contained in this press release are not
guarantees of future performance, and we cannot assure any reader
that such statements will be realized or the forward-looking events
and circumstances will occur. Actual results may differ
materially from those anticipated or implied in the forward-looking
statements due to factors listed in the “Risk Factors” section in
our filings with the U.S. Securities and Exchange Commission and
elsewhere in those filings. The forward-looking statements
speak only as of the date made, and other than as required by law,
we do not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or
otherwise. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on
our behalf.
|
|
|
|
|
Sanchez Production Partners LP |
Condensed Consolidated Statements of
Operations |
|
|
|
|
|
|
|
Three Months Ended Mar. 31, |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
($ in thousands) |
|
|
|
|
|
Oil, liquids, and gas
sales |
|
$ |
10,116 |
|
|
$ |
12,398 |
|
Gathering and
transportation sales |
|
|
11,211 |
|
|
|
13,875 |
|
Gain (loss) on
mark-to-market activities |
|
|
4,480 |
|
|
|
(3,104 |
) |
Total
revenues |
|
|
25,807 |
|
|
|
23,169 |
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
Lease
operating expenses |
|
|
4,983 |
|
|
|
4,973 |
|
Gathering
and transportation operating expenses |
|
|
3,296 |
|
|
|
3,054 |
|
Cost of
sales |
|
|
37 |
|
|
|
130 |
|
Production taxes |
|
|
473 |
|
|
|
221 |
|
General
and administrative |
|
|
5,609 |
|
|
|
5,719 |
|
Unit
compensation expense |
|
|
540 |
|
|
|
438 |
|
Depreciation, depletion and amortization |
|
|
12,181 |
|
|
|
7,188 |
|
Asset
impairments |
|
|
4,688 |
|
|
|
1,309 |
|
Accretion
expense |
|
|
258 |
|
|
|
315 |
|
Total
operating expenses |
|
|
32,065 |
|
|
|
23,347 |
|
|
|
|
|
|
Other expenses
(income): |
|
|
|
|
Interest
expense |
|
|
1,883 |
|
|
|
899 |
|
Gain on
embedded derivatives |
|
|
— |
|
|
|
(6,294 |
) |
Earnings
from equity investments |
|
|
(482 |
) |
|
|
(12 |
) |
Other
income |
|
|
— |
|
|
|
(48 |
) |
Total
expenses, net |
|
|
33,466 |
|
|
|
17,892 |
|
Income (loss) before
income taxes |
|
|
(7,659 |
) |
|
|
5,277 |
|
Income
tax expense |
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
|
(7,659 |
) |
|
|
5,277 |
|
Less: |
|
|
|
|
Preferred
unit distributions paid in common units |
|
|
(2,625 |
) |
|
|
— |
|
Preferred
unit distributions |
|
|
(7,000 |
) |
|
|
(8,750 |
) |
Preferred
unit amortization |
|
|
(404 |
) |
|
|
(7,266 |
) |
Net loss attributable
to common unitholders |
|
$ |
(17,688 |
) |
|
$ |
(10,739 |
) |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
10,538 |
|
|
$ |
13,521 |
|
|
|
|
|
|
Net loss per unit |
|
|
|
|
Common
units - Basic and Diluted |
|
$ |
(1.32 |
) |
|
$ |
(3.91 |
) |
Weighted Average Units
Outstanding |
|
|
|
|
Common
units - Basic and Diluted |
|
|
13,400,138 |
|
|
|
2,743,419 |
|
|
|
|
|
|
Sanchez Production Partners LP |
Condensed Consolidated Balance Sheets |
|
|
|
|
|
|
|
Mar. 31, |
|
Dec. 31, |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
($ in thousands) |
|
|
|
|
|
Current assets |
|
$ |
13,821 |
|
|
$ |
14,765 |
|
Oil and natural gas
properties, net of accumulated |
|
|
|
|
depreciation, depletion, amortization and impairments |
|
|
221,189 |
|
|
|
222,820 |
|
Other assets |
|
|
300,967 |
|
|
|
302,120 |
|
Total
assets |
|
$ |
535,977 |
|
|
$ |
539,705 |
|
|
|
|
|
|
Current
liabilities |
|
$ |
15,201 |
|
|
$ |
9,443 |
|
Long-term debt, net of
premium, discount and debt |
|
|
|
|
issuance
costs |
|
|
158,924 |
|
|
|
151,322 |
|
Other long-term
liabilities |
|
|
18,081 |
|
|
|
19,205 |
|
Total
liabilities |
|
|
192,206 |
|
|
|
179,970 |
|
|
|
|
|
|
Mezzanine equity |
|
|
343,395 |
|
|
|
342,991 |
|
Partners' deficit |
|
|
376 |
|
|
|
16,744 |
|
Total partners'
deficit |
|
|
376 |
|
|
|
16,744 |
|
Total
liabilities and partners' capital |
|
$ |
535,977 |
|
|
$ |
539,705 |
|
|
|
|
|
|
Sanchez Production Partners LP |
Reconciliation of Net Income (Loss)
to |
Adjusted EBITDA |
|
|
|
|
|
|
|
Three Months Ended Mar. 31, |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
($ in thousands) |
|
|
|
|
|
Reconciliation
of Net Income (Loss) to |
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
Net income (loss) |
|
$ |
(7,659 |
) |
|
$ |
5,277 |
|
Add: |
|
|
|
|
Interest
expense, net |
|
|
1,883 |
|
|
|
899 |
|
Depreciation, depletion and amortization |
|
|
12,181 |
|
|
|
7,188 |
|
Asset
impairments |
|
|
4,688 |
|
|
|
1,309 |
|
Accretion
expense |
|
|
258 |
|
|
|
315 |
|
Unit-based compensation programs |
|
|
540 |
|
|
|
438 |
|
Unit-based asset management fees |
|
|
2,030 |
|
|
|
1,285 |
|
Distributions in excess of equity earnings |
|
|
968 |
|
|
|
— |
|
(Gain)
loss on mark-to-market activities |
|
|
(4,480 |
) |
|
|
3,104 |
|
Gain on
embedded derivatives |
|
|
— |
|
|
|
(6,294 |
) |
Other
non-recurring items |
|
|
129 |
|
|
|
— |
|
Adjusted EBITDA
(1) |
|
$ |
10,538 |
|
|
$ |
13,521 |
|
1) |
To
supplement our financial results and guidance presented in
accordance with U.S. generally accepted accounting principles
(“GAAP”), we use Adjusted EBITDA, a non-GAAP financial measure, in
this quarterly report. We believe that non-GAAP financial measures
are helpful in understanding our past financial performance and
potential future results, particularly in light of the effect of
various transactions effected by us. We define Adjusted EBITDA as
net income (loss) adjusted by: (i) interest (income) expense, net,
which includes interest expense, interest expense net (gain) loss
on interest rate derivative contracts, and interest (income); (ii)
income tax expense (benefit); (iii) depreciation, depletion and
amortization; (iv) asset impairments; (v) accretion expense; (vi)
(gain) loss on sale of assets; (vii) unit-based compensation
programs; (viii) unit-based asset management fees; (ix)
distributions in excess of equity earnings; (x) (gain) loss on
mark-to-market activities; (xi) commodity derivatives settlements
applied to future positions; (xii) (gain) loss on embedded
derivatives; and (xiii) other non-recurring items. |
Sanchez
Production Partners LP |
|
|
|
|
Operating
Statistics |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Mar. 31, |
|
|
|
2017 |
|
|
|
2016 |
|
Net Production
in MBOE: |
|
|
|
|
Total production
(MBOE) |
|
|
310 |
|
|
|
303 |
|
Average daily
production (BOE/D) |
|
|
3,444 |
|
|
|
3,334 |
|
|
|
|
|
|
Average Sales
Price per BOE: |
|
|
|
|
BOE Net realized price,
including hedges (1) |
|
$ |
32.82 |
|
|
$ |
39.61 |
|
BOE Net realized price,
excluding hedges (2) |
|
$ |
27.74 |
|
|
$ |
16.22 |
|
|
|
|
|
|
(1) Excludes impact of
mark-to-market gains (losses) |
|
|
|
|
(2) Excludes all
hedges, the impact of mark-to-market gains (losses). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERSHIP CONTACT
Charles C. Ward
Chief Financial Officer
Sanchez Production Partners GP LLC
(877) 847-0009
General Inquiries: (877) 847-0008
www.sanchezpp.com