Sanchez Production Partners Acquires Eagle Ford Shale Assets from Sanchez Energy Corp.; Raises Preferred Equity & Refinances ...
March 31 2015 - 6:00PM
Business Wire
Sanchez Production Partners LP (NYSE MKT: SPP) today announced
that it has executed and closed an agreement with Sanchez Energy
Corp. (NYSE: SN) (“Sanchez Energy”) to acquire wellbore interests
in certain producing oil and natural gas wells in the Eagle Ford
Shale for aggregate consideration of $85.0 million, subject to
normal and customary closing adjustments (the “Eagle Ford
Acquisition”). The transaction has an effective date of January 1,
2015 and was financed by SPP with a combination of preferred equity
raised in a private placement, common units, borrowings under an
amended and restated credit facility, and available cash.
Key characteristics of the Eagle Ford Acquisition include:
- Producing
assets: 59 wellbores in the Palmetto Field in Gonzales
County, Texas.
- Escalating
working interest: Average working interest of 18.2% in 2015
increases to 26.1% on January 1, 2016; 33.5% on January 1, 2017;
40.6% on January 1, 2018; and 47.5% on January 1, 2019 for the
remaining life of the wellbores.
- Production: As a result of the escalating working
interest transaction structure, average production of approximately
1,000 BOD/D net to SPP’s interest is expected from the wellbores
over the period 2015 through 2019, with production following
declines characteristic of MLP assets thereafter.
- Reserves &
Asset Mix: Based on estimates using the forward strip as of
January 9, 2015, reserves total approximately 5.2 MMBOE, all of
which are proved developed producing, with production expected to
be approximately 84% oil and liquids and 16% natural gas.
- Hedges:
Hedges covering approximately 95% of 2015 natural gas and crude
production, 90% of 2016 natural gas and crude production, 85% of
2017 and 2018 natural gas and crude production, and 80% of 2019
natural gas and crude production were executed by Sanchez Energy in
conjunction with the transaction and were novated to SPP at
closing. The hedges are summarized in the table that follows:
Balance
Product 2015* 2016
2017 2018
2019
Natural Gas
Swaps
$/MMbtu 2.81 3.21 3.52 3.58 3.62 MMbtu 261,100 313,524 296,048
295,683 277,888
Crude
Swaps
$/Bbl 56.85 62.60 64.80 65.40 65.65 Bbl 190,040 226,269 213,003
212,555 199,768
* For the period March 1, 2015 through
December 31, 2015.
Based on the above-referenced reserve report, the transaction is
expected to increase the size of SPP’s total proved reserves by
approximately 32%. On a pro forma basis, SPP anticipates the
transaction will increase its proved oil and liquids reserves from
10% of total proved reserves to 28% of total proved reserves and
increase SPP’s proved reserves-to-production ratio from 9.8 years
to 10.6 years.
“Having completed the conversion from a limited liability
company to a limited partnership earlier this month, we are very
pleased to announce our first transaction that leverages the
operational platform and service relationships of our sponsor,
Sanchez Oil & Gas Corporation (“SOG”),” said Charles C. Ward,
Chief Financial Officer of the general partner of SPP. “The Eagle
Ford Acquisition initiates our business development relationship
with Sanchez Energy, a company that has a substantial inventory of
producing assets with characteristics favorable to the MLP model.
The assets involved are central to SOG’s service relationships in
the Eagle Ford Shale, which is attractive to SPP as we look to
further align our asset base with our sponsor’s platform. The
transaction structure should allow SPP to achieve flat production
over the first five years of the asset's production life cycle,
which minimizes maintenance capital requirements and creates a
framework for SPP's growth. Importantly, we believe today's
announcement sets the stage for other similar and potentially
larger transactions in 2015 and beyond, which we believe will be
key to recapitalizing SPP and resuming distributions to
unitholders.”
Acquisition Financing
After closing adjustments of $1.4 million, consideration paid by
SPP to close the Eagle Ford Acquisition consisted of $81.6 million
cash and 1,052,632 common units issued to Sanchez Energy, which
represents approximately 3.3% of SPP’s total common units
outstanding after closing the transaction. The common units were
issued at SPP’s closing price on March 31, 2015, resulting in
approximately $2.0 million in consideration paid to Sanchez Energy
at closing.
Related to its funding of the cash portion of the Eagle Ford
Acquisition, SPP issued 10,625,000 of newly created Class A
Preferred Units in a private placement. The Class A Preferred Units
were issued for a cash purchase price of $1.60 per unit, resulting
in gross proceeds to SPP of $17.0 million.
SPP also entered into an amended and restated, $500 million
reserve-based credit facility with a syndicate of five lenders. The
credit facility has an initial borrowing base of $110.0 million, an
increase of $40.0 million over SPP’s previous credit facility. The
borrowing base is subject to semi-annual redetermination, with the
next redetermination scheduled to occur in the fourth quarter 2015.
As of March 31, 2015, SPP had $106.0 million in debt outstanding
under the credit facility, which matures in March 2020.
Other Information
The Eagle Ford Acquisition and financing was reviewed and
approved by the Conflicts Committee of the board of directors of
the general partner of SPP. Stifel provided a fairness opinion to
the Conflicts Committee.
Additional information on the Eagle Ford Acquisition and
financing can be found in SPP’s filings with the Securities
Exchange Commission (www.sec.gov), which are also available on
SPP’s website (www.sanchezpp.com).
About the Company
Sanchez Production Partners LP (NYSE MKT: SPP) is a
publicly-traded limited partnership focused on the acquisition,
development and production of oil and natural gas properties and
other integrated assets. The partnership’s proved reserves are
currently located in the Cherokee Basin in Oklahoma and Kansas, the
Woodford Shale in the Arkoma Basin in Oklahoma, the Central Kansas
Uplift in Kansas, and along the Gulf Coast in Texas and
Louisiana.
Forward-Looking Statements
We make statements in this news release 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 largely based on our expectations,
which reflect estimates and assumptions made by the management of
our general partner. 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 news release are not
guarantees of future performance, and we cannot assure you 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 SEC filings
and elsewhere in those filings. All forward-looking statements
speak only as of the date of this news release. 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 LPInvestor
Contact:Charles C. Ward, (877)
847-0009orGeneral Inquiries: (877) 847-0008
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