Eagle Ford Shale-focused Sanchez Energy Corp. (NYSE: SN) has agreed to acquire approximately 40,000 net undeveloped acres in the core of the Tuscaloosa Marine Shale (TMS) trend for cash and shares of its common stock plus an initial three well drilling carry.
Pursuant to the terms of the agreements, Sanchez Energy established an Area of Mutual Interest (AMI) with its affiliate SR Acquisition I LLC (SR) in the Tuscaloosa Marine Shale. As part of the transaction, Sanchez Energy will acquire all of the working interests in the AMI owned by an unaffiliated private equity firm plus a portion of SR's working interests, resulting in Sanchez Energy owning an undivided 50% working interest across the AMI through the TMS formation. The AMI holds rights to approximately 115,000 gross acres and 80,000 net acres.
Total consideration for the transactions will be approximately $78 million consisting of $70 million of cash and 342,760 shares of common stock (valued at approximately $8.2 million based on the closing price per share as of August 7). SR will receive approximately $13.5 million in cash for the sale of its interest and the balance of the common stock and cash will be paid to unaffiliated third parties, including the previously mentioned private equity firm which made its initial investment in 2010.
Sanchez Energy has further committed, as a part of the total consideration, to carry SR for its 50% working interest in an initial 3 gross (1.5 net) TMS wells to be drilled within the AMI and at Sanchez Energy's election it may carry SR in an additional 3 gross (1.5 net) TMS wells if it desires to participate in additional drilling within the AMI.
"For almost three years, we have been watching the evolution of the TMS and assessing the technical and economic development of the play. We now believe it is an appropriate time for Sanchez Energy to enter the play,” said Sanchez Energy president and CEO, Tony Sanchez, III, in a statement.
The company anticipates its operated TMS drilling program to begin in early 2014 in addition to participation in several non-operated wells.
Acquisition costs clip financials
Late Wednesday night, the Houston-based independent exploration and production company reported its Q213 results of 7.7 Mboepd of production, $0.06 in adjusted earnings per share, and $0.63 in CFPS.
The results, largely due to acquisition-related costs and higher expenses related to acquired properties (the company recently agreed to acquire approximately 10,800 net acres in Fayette, Gonzales, and Lavaca counties in Texas with 250 boe/d of estimated net production for approximately $29 million), underperformed Global Hunter Securities analysts’ forecasts of 8.0 Mboepd of production, $0.22 in EPS and $0.96 in CFPS.
Despite this, the analyst remain positive about the company’s Eagle Ford-driven, oily growth profile, noting that the company’s operations continue to grow rapidly.
“While Q2:13 averaged 7.7 Mboepd, production recently exceeded 12 Mboepd. With 26 wells in process and six rigs running, management offered Q3:13 guidance of 11-12 Mboepd and Q4:13 guidance of 13-15 Mboepd, in addition to reiterating full-year exit rate guidance of 15-17 Mboepd,” noted the analysts.