Eagle Ford acquisition for Sanchez Energy

Source:Sanchez Energy Corporation

Sanchez Energy Corporation has executed an agreement to purchase assets in the Eagle Ford trend of south Texas.

Sanchez Energy Corporation (NYSE: SN), a fast growing independent oil and gas company targeting the liquids-rich Eagle Ford Shale, Pearsall Shale, Austin Chalk, and Buda Limestone, today announced it has executed a definitive agreement to purchase assets in the Eagle Ford trend of south Texas consisting of approximately 13.4 MMBOE of proved reserves, 4,500 BOE/D of current production and approximately 43,000 net acres in Dimmit, Frio, LaSalle, and Zavala Counties, Texas from Hess Corporation for approximately $265 million in cash, subject to customary adjustments.

Transaction Highlights

- Sanchez Energy to acquire operated assets with high working interests in approximately 43,000 net acres in the Eagle Ford Shale in Dimmit, Frio, LaSalle, and Zavala Counties, Texas with an effective date of March 1, 2013 for approximately $265 million. - Transaction grows production significantly at a cost of approximately $59,000 per flowing BOE/D and adds proved reserves at a cost of approximately $19.70 per BOE.
    - Acquisition will materially increase the Company's reserves, production, and net acres:
- increases current production by approximately 4,500 BOE/D, or approximately 115% over the Company's 3,800 BOE/D average rate for first two months of 2013;
    - increases Company's 2012 year-end total proved reserves by approximately 13.4 MMBOE, or 63%, and increases proved developed reserves by approximately 6.6 MMBOE, or 178% to 10.3 MMBOE;
    - increases Company's producing well count by 50, or almost 150%, to 84 gross producing wells;
    - increases Eagle Ford net acres by approximately 43,000 net acres to 138,000 net acres.

Management Comments

Tony Sanchez, III, President and Chief Executive Officer, said, "The Eagle Ford assets we are acquiring are highly strategic and accretive on a variety of metrics, and provide critical mass and scale for the Company by significantly increasing our reserves and more than doubling our current production rate. Pro forma for the acquisition, our percentage of proved developed reserves, total producing wells and low risk development drilling locations will each increase substantially, increasing our near term growth opportunities, growing our resource potential while also increasing our financial flexibility and funding capacity."

Sanchez continued, "Our current plans call for continuous drilling of development locations on this asset with one rig while we further assess the additional upside potential across the entire asset base. The acquired assets are expected to generate sufficient cash flow to fund our currently contemplated development drilling program for these assets. We expect to be able to leverage our operating and technical familiarity with this area with no disruptions to our current operations in a cost effective manner. We will initially focus on the development of the Eagle Ford section; however, this area is currently experiencing considerable Buda Limestone and Pearsall Shale activity from other operators which may provide us with additional potential growth opportunities. This transaction highlights the strengths of the Sanchez Energy story, namely, that our many decades of local expertise and relationships place us in a position to execute a positive, bolt-on transaction such as this in a world-class basin at a very compelling valuation."

Transaction Details and Financial Considerations

The proposed acquisition includes estimated proved reserves of 13.4 MMBOE (70% oil) with estimated proved developed reserves of 6.6 MMBOE (64% oil). The proved reserves were estimated by the Company's internal reserve engineers, and confirmed by the Company's third party independent engineering firm, Ryder Scott Company, L.P. as of March 1, 2013. The acquired properties currently have 50 gross operated producing wells and an estimated current net production of approximately 4,500 BOE/D (72% oil). The acquisition is expected to close in the second quarter of 2013, with an effective date of March 1, 2013 and is subject to regulatory filings and other customary closing conditions. Moelis & Company acted as financial advisor to the Company in this transaction.

In connection with the acquisition, the Company has secured commitments for $325 million in debt financing and expects to access the capital markets in the near term, subject to market conditions and other factors. Closing of the acquisition and availability of the debt financing are expected to occur concurrently in the second quarter of this year and will be subject to the satisfaction of various customary closing conditions.

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