Sanchez Production Partners acquires Eagle Ford assets from Sanchez

Sanchez Production Partners LP (NYSE MKT: SPP) has closed an agreement with Sanchez Energy Corp. (NYSE: SN) to acquire wellbore interests in certain producing oil and natural gas wells in the Eagle Ford shale play for aggregate consideration of $85 million.

The transaction has an effective date of Jan. 1, 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.

The Eagle Ford acquisition includes producing assets comprising 59 wellbores in the Palmetto Field in Gonzales County, Texas.

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.

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, resulting in approximately $2 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 million. SunTrust Robinson Humphrey acted as sole placement agent in connection with the private placement.

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 million, an increase of $40 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 of 2015. As of March 31, SPP had $106 million in debt outstanding under the credit facility, which matures in March 2020.

The Eagle Ford acquisition and financing were 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.


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