Sanchez Production Partners LP (NYSE MKT:SPP) (“SPP” or the
“Partnership”) today reported first quarter 2015 results.
Highlights from the report include:
- SPP successfully converted from a
limited liability company to a limited partnership in the first
quarter 2015 with the overwhelming support of its unitholders and
executed its first transaction involving producing assets in the
Eagle Ford Shale (the “Eagle Ford Acquisition”). The Eagle Ford
Acquisition, which closed March 31, 2015, is expected to add an
average of 1,000 BOE/D to SPP’s production over the period 2015
through 2019 and initiates the Partnership’s business development
relationship with Sanchez Energy Corporation (NYSE:SN)
(“Sanchez Energy”), a company that has a substantial inventory of
assets with characteristics favorable to the MLP model.
- Net daily production of 3,596 BOE/D
during the first quarter, of which approximately 19% was from oil
and liquids and 81% was from natural gas.
- Revenue of $11.9 million, which
includes $5.9 million of sales revenue, 46% of which was from oil
and liquids sales and 54% of which was from natural gas sales, and
$5.6 million from hedge settlements.
- Operating costs, after adjustments for
non-recurring items, of $23.20 per BOE, which is a decrease of 8%
compared to first quarter 2014 and a decrease of 9% compared to the
prior quarter.
- Adjusted EBITDA, after removing
non-recurring items, of $4.9 million, which is a decrease of 31%
compared to first quarter 2014 production and an increase of 3%
compared to the prior quarter.
Management Commentary
“We anticipate that the work we completed in the first quarter
2015 will bear fruit later this year and for many years to come,”
said Gerald F. Willinger, Interim Chief Executive Officer of SPP’s
general partner. “During the quarter, SPP completed its conversion
from a limited liability company to a limited partnership with the
overwhelming support of its unitholders, capping off a process
undertaken in the summer of 2014 that has been the cornerstone of
our strategic plan for SPP since August 2013. On the heels of
completing the conversion, SPP executed its first transaction with
Sanchez Energy by acquiring escalating working interests in 59
wellbores in the Eagle Ford Shale that are expected to add
approximately 1,000 BOE/D to the Partnership’s average daily
production over the period 2015 through 2019. As we noted at the
time of the transaction, we believe the Eagle Ford Acquisition sets
the stage for other similar and potentially larger transactions in
2015 and beyond, which might also involve the acquisition of
integrated midstream assets. We believe a large-scale transaction
will be key to recapitalizing SPP and resuming distributions to
unitholders. In conjunction with the acquisition, we successfully
refinanced SPP’s credit facility, thereby expanding the
Partnership’s borrowing base, bank syndicate, and hedge
capabilities, and tapped the capital markets to raise equity for
SPP for the first time since 2008. These initiatives are directly
related to and result from our ongoing efforts to further align the
Partnership with Sanchez Oil & Gas Corporation (“SOG”). We
believe SPP’s relationship with SOG provides the Partnership with a
robust operational platform and deal flow, as evidenced by the
transaction with Sanchez Energy, a company that has a substantial
inventory of assets with characteristics favorable to the MLP
model. While SPP’s quarterly results were impacted by some
non-recurring costs related to our conversion to a limited
partnership and the Eagle Ford Acquisition, we believe the
structural benefits of the work completed during the first quarter
will better position the Partnership for the next phase of its
development. We remain committed to returning value to unitholders,
and look forward to the opportunities that lie ahead.”
Operating and Financial Results
The Partnership produced 324 MBOE during the first quarter 2015
for average net production of 3,596 BOE/D for the quarter, which is
a decrease of 13% compared to first quarter 2014 production and a
decrease of 11% compared to the prior quarter. Net oil and liquids
production for the first quarter 2015, which accounted for
approximately 19% of the Partnership’s total production during the
quarter, was 687 barrels per day, which is a decrease of 24%
compared to first quarter 2014 production and a decrease of 11%
compared to the prior quarter.
Revenue of $11.9 million for the first quarter 2015 includes
revenue from sales of $5.9 million, of which approximately 46% was
from oil and liquids sales and 54% was from natural gas sales. The
balance of the Partnership’s first quarter 2015 revenue came from
hedge settlements ($5.6 million), services provided to third
parties ($1.2 million), and losses on mark-to-market activities
($0.7 million), which is a non-cash item.
Operating costs, which include lease operating expenses,
production taxes and general and administrative expenses, net of
certain non-cash items, as reported by the Partnership, averaged
$39.63 per BOE in the first quarter 2015. Included in the
Partnership’s reported operating costs are general and
administrative charges relating to SPP’s conversion from a limited
liability company to limited partnership, employee severance,
litigation, and the previously announced Eagle Ford Acquisition,
which are non-recurring items. Taken together, these non-recurring
items totaled approximately $5.3 million, or $16.43 per BOE.
Adjusted for this amount, operating costs were $23.20 per BOE in
the first quarter 2015, which is a decrease of 8% compared to first
quarter 2014 and a decrease of 9% compared to the prior
quarter.
The Partnership reported a first quarter 2015 Adjusted EBITDA
loss of approximately $0.4 million. After excluding the
non-recurring items noted above, Adjusted EBITDA during the first
quarter 2015 was $4.9 million, which is a decrease of 31% compared
to first quarter 2015 and an increase of 3% compared to the prior
quarter. On a GAAP basis, the Partnership recorded a net loss of
$90.0 million for the quarter, which includes an impairment charge
of $82.9 million related to the Partnership’s legacy assets located
in Kansas and Oklahoma.
The Partnership completed no new wells or recompletions in the
first quarter 2015.
Credit Facility and Hedging Update
As of May 15, 2015, the Partnership has $106.0 million in debt
outstanding under its credit facility, which has a borrowing base
of $110.0 million. The Partnership reported cash and cash
equivalents totaling $2.2 million as of March 31, 2015.
For the period April 1, 2015 through December 31, 2015, the
Partnership has hedged approximately 3.5 Bcf of its natural gas
production at an effective NYMEX fixed price of $4.16 per Mcf and
356 MBbl of its crude oil production at an effective NYMEX fixed
price of $75.02 per barrel.
Management Update
At the regularly scheduled board meeting in May, the board of
directors of the general partner of SPP elected Antonio R. Sanchez,
III as Chairman of the Board. Additionally the board elected
Patricio Sanchez as Chief Operating Officer and Kirsten Hink as
Chief Accounting Officer of the general partner. The sole member of
the general partner elected to expand the board to seven members
and appointed both Patricio Sanchez and Eduardo Sanchez to join the
board effective June 30, 2015.
Patricio Sanchez has served as co-president of SOG since June
2014 and prior to that from April 2010 to June 2014 as Executive
Vice President. Mr. Sanchez has also been the managing member of
Santerra Holdings, LLC, an oil and gas exploration and production
company, since February 2012.
Eduardo Sanchez has served as President and Chief Executive
Officer of Sanchez Resources, LLC (“SR”), a privately held oil and
gas exploration and production company since 2010. SR holds and
operates properties throughout Louisiana and Mississippi, including
a substantial position in the core of the Tuscaloosa Marine
Shale.
Mrs. Hink has served as Senior Vice President and Chief
Accountant Officer of Sanchez Energy Corporation (“SN”), an
independent exploration and production company, since January 2015,
and she previously served as SN’s Vice President and Principal
Accounting Officer from March 2012. Prior to joining SN, Mrs. Hink
served as the Controller of Vanguard Natural Resources, LLC from
January 2011 to February 2012. From January 2010 to December 2010,
she served as Assistant Controller of Mariner Energy, Inc. She
served as the Chief Accounting Officer for Edge Petroleum
Corporation (“Edge”) from July 2008 through December 2009 and the
Vice President and Controller for Edge from October 2003 through
July 2008. Prior to that time, she served as Controller of Edge
from December 31, 2000 to October 2003 and Assistant Controller of
Edge from June 2000 to December 2000.
Conference Call Information
The Partnership will host a conference call at 11:00 a.m. (CDT)
on Monday, May 18, 2015 to discuss first quarter 2015 results.
To participate in the conference call, analysts, investors,
media and the public in the U.S. may dial (888) 664-9965 shortly
before 11:00 a.m. (CDT). The international phone number is (517)
308-9215. The conference password is PARTNERS.
A replay will be available beginning approximately one hour
after the end of the call by dialing (866) 353-3016 or (203)
369-0082 (international). 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. The call will also be recorded and archived on the
site.
About the Partnership
Sanchez Production Partners LP is a publicly-traded limited
partnership focused on the acquisition, development and production
of oil and natural gas properties and other integrated assets.
Additional Information
Additional information on 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.
The Partnership anticipates it will file its first quarter 2015
Form 10-Q with the U.S. Securities and Exchange Commission on May
15, 2015.
Non-GAAP Measures
We present Adjusted EBITDA in addition to our reported net
income (loss) in accordance with GAAP. Adjusted EBITDA is a
non-GAAP financial measure that is defined as net income (loss)
adjusted by interest (income) expense, net; depreciation, depletion
and amortization; asset impairments; accretion expense; (gain) loss
on sale of assets; (gain) loss from equity investment; unit-based
compensation programs; and (gain) loss from mark-to-market
activities.
Adjusted EBITDA is used as a quantitative standard by our
management and by external users of our financial statements such
as investors, research analysts and others to assess the financial
performance of our assets without regard to financing methods,
capital structure or historical cost basis; the ability of our
assets to generate cash sufficient to pay interest costs and
support our indebtedness; and our operating performance and return
on capital as compared to those of other companies in our industry,
without regard to financing or capital structure. Adjusted EBITDA
is not intended to represent cash flows for the period, nor is it
presented as a substitute for net income, operating income, cash
flows from operating activities or any other measure of financial
performance or liquidity presented in accordance with GAAP.
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, as amended, and the Securities Exchange Act of 1934, as
amended. These forward-looking statements 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 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 LP
Operating Statistics Three Months Ended
March 31, 2015 2014 Net Production in
MBOE: Total production (MBOE) 324 372 Average daily production
(BOE/D) 3,596 4,131
Average Sales Price per BOE: BOE
Net realized price, including hedges $35.51
(a)
$42.96
(a)
BOE Net realized price, excluding hedges $18.31
(b)
$40.48
(b)
(a) Excludes impact of mark-to-market
gains (losses)
(b) Excludes all hedges, the impact of
mark-to-market
gains (losses).
Net Wells Drilled and Completed - 4
Net
Recompletions - 3
Developmental Dry Holes - -
Net
Wells and Net Recompletions in Progress - 1
Sanchez Production Partners LP Condensed Consolidated
Statements of Operations Three Months Ended
March 31, 2015 2014 ($ in thousands)
Oil, liquids, and gas sales $ 12,656 $ 16,738 Loss from
mark-to-market activities (732 ) (4,997 ) Total
revenues 11,924 11,741 Operating expenses: Lease operating
expenses 4,900 5,120 Cost of sales 205 360 Production taxes 370 772
General and administrative 9,547 3,571
Gain on sale of assets
(59 ) (7 ) Depreciation, depletion and amortization 3,120 4,050
Asset impairments 82,865 149 Accretion expense 253
150 Total operating expenses 101,201 14,165
Other expenses: Interest expense, net 646 525 Other (income)
expense 63 (10 ) Total expenses, net 101,910
14,680 Net loss $ (89,986 ) $ (2,939 )
Adjusted EBITDA $ (437 ) $ 7,026 Net loss per unit
prior to conversion Class A units - Basic and diluted $ (0.04 ) $
(0.04 ) Class B units - Basic and diluted $ (0.03 ) $ (0.10 )
Weighted Average Units Outstanding prior to conversion Class A
units - Basic and diluted 484,505 1,615,017 Class B units - Basic
and diluted 28,791,626 28,214,104 Net loss per unit after
conversion Common units - Basic and diluted $ (2.98 ) $ - Weighted
Average Units Outstanding after conversion
Common units - Basic and diluted 29,928,009 -
Sanchez Production Partners LP Condensed Consolidated
Balance Sheets March 31, Dec. 31,
2015 2014 ($ in thousands) Current
assets $ 25,276 $ 27,657 Oil and natural gas properties, net of
accumulated depreciation, depletion and amortization 131,452
135,310 Other assets 12,846 10,637
Total assets $ 169,574 $ 173,604 Current
liabilities, including short-term debt $ 8,965 $ 7,250 Long-term
debt 106,000 42,500 Other long-term liabilities 18,150
17,031 Total liabilities 133,115 66,781
Members' equity
- 106,823 Partners' capital 36,459 -
Total members’ equity/partners' capital 36,459
106,823 Total liabilities and members’ equity/partners'
capital $ 169,574 $ 173,604
Sanchez
Production Partners LP Reconciliation of Net Loss to
Adjusted EBITDA Three Months Ended March
31, 2015 2014 ($ in thousands)
Reconciliation of Net Loss to Adjusted EBITDA: Net
loss $ (89,986 ) $ (2,939 ) Add: Interest expense, net 646 525
Depreciation, depletion and amortization 3,120 4,050 Asset
impairments 82,865 149 Accretion expense 253 150
Gain on sale of assets
(59 ) (7 ) Unit-based compensation programs 1,992 101
Loss on mark-to-market activities
732 4,997
Adjusted EBITDA(1)
$ (437 ) $ 7,026 (1) Our Adjusted EBITDA should not
be considered as an alternative to net income, operating income,
cash flows from operating activities or any other measure of
financial performance or liquidity presented in accordance with
GAAP. Our Adjusted EBITDA excludes some, but not all, items that
affect net income and operating income and these measures may vary
among other companies. Therefore, our Adjusted EBITDA may not be
comparable to similarly titled measures of other companies.
We define Adjusted EBITDA as net income (loss) plus: -- interest
(income) expense, net; -- depreciation, depletion and amortization;
-- asset impairments; -- accretion expense; -- (gain) loss on sale
of assets; -- (gain) loss from equity investment; -- unit-based
compensation programs; and -- (gain) loss from mark-to-market
activities.
Investor Contact:Sanchez Production Partners
LPCharles C. Ward, 877-847-0009
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