Sanchez Energy Corp. is selling Eagle Ford Shale midstream assets to Sanchez Production Partners LP (SPP). The Houston-based company said proceeds will help prepare it for potential acquisitions as well as fund its drilling program.
The pipeline, gathering and compression assets are in the western portion of its Catarina asset in the South Texas Eagle Ford. The sale price is $345 million, subject to adjustments; closing is expected in October.
Proceeds are to be used to enhance liquidity at Sanchez, fund potential asset acquisitions and acreage leasing, and accelerate drilling and completion work, the company said.
"The midstream assets which we acquired as part of the Catarina transaction in 2014 cover a dedicated area of approximately 35,000 net acres, or about 16% of our total Eagle Ford footprint," said CEO Tony Sanchez. "By further enhancing our liquidity and financial flexibility, we are now well positioned to accelerate drilling plans as commodity prices recover or to capitalize on acquisition opportunities as conditions may warrant. As we continue to develop Catarina and the other areas of our Eagle Ford asset base, we anticipate that we will see additional opportunities to accelerate returns through midstream and other asset monetization strategies..."
The company previously reported liquidity of $572 million as of June 30, which included $300 million in available capacity on an undrawn credit facility. With the asset sale, pro forma liquidity increases to $918 million, inclusive of cash on hand and the credit facility.
Sanchez is selling 150 miles of midstream gathering lines and infrastructure concentrated in four gathering and processing facilities. It will have a gathering agreement with SPP that provides for fixed rates over an initial term of 15 years. For the first five years of the gathering agreement, there will be a minimum delivery commitment of 10,200 b/d of liquids and 142 MMcf/d of gas. The agreement is expected to raise lease operating expense (LOE) about $1.95/boe. LOE was $7.78/boe for the first half of 2015, which was lower than guidance of $9.00-10.00/boe, the company said. LOE now is expected to be $9.75-10.75/boe for the fourth quarter of 2015 and in 2016.
Third quarter average production will likely meet or exceed the high end of guidance of 46,000-50,000 boe/d, Sanchez said (see Shale Daily, Aug. 11). "The company remains confident that it will be able to build a 20 to 30 well bank toward its 50-well per year drilling commitment at Catarina at its current rig count while continuing to drive strong asset-level performance and year-over-year production growth given it's previously stated capital run rate of approximately $250 million per year," it said.