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How Is the Comanche Acquisition Working Out for Sanchez Energy?

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13
Part 8
How Is the Comanche Acquisition Working Out for Sanchez Energy? PART 8 OF 13

How Have Sanchez’s Earnings and Revenues Fared Recently?

Sanchez Energy’s earnings

Sanchez Energy’s (SN) earnings per share (or EPS) in 2Q17 were -$0.30, while its 2Q17 revenues were $175.7 million. In comparison, SN’s peers Oasis Petroleum (OAS) and Concho Resources (CXO) announced 2Q17 EPS of -$0.05 and $0.52, respectively. OAS and CXO reported revenues of $254 million and $567.0 million, respectively.

How Have Sanchez’s Earnings and Revenues Fared Recently?

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As we can see in the chart above, Sanchez Energy’s (SN) revenues have mostly been increasing since 3Q16 and are expected to rise in the remaining two quarters of the year. The company’s 3Q17 and 4Q17 revenue estimates are $178.4 million and $211.0 million, respectively.

Sanchez Energy’s earnings per share have dropped since 3Q16, turning negative in 1Q17. Analysts don’t expect SN’s earnings to be positive until 4Q17. Its 3Q17 and 4Q17 earnings per share estimates are -$0.13 and $0.13, respectively.

Earnings decline

The explanation behind SN’s lower earnings despite higher revenue in 1Q17 and 2Q17 could be an increase in its general and administrative (or G&A) expenses. These expenses rose as a result of its Comanche acquisition in 1Q17, as well as higher DD&A (depreciation, depletion, and amortization) costs in 2Q17.

According to SN’s earnings filings, one-time acquisition and divestiture costs included in its general administrative expenses in 1Q17 were ~$24.1 million, which resulted in total G&A expenses of $67.5 million in 1Q17. This compares to G&A expenses of ~$40 million and ~$27 million in 3Q16 and 4Q16, respectively. In 2Q17, SN’s G&A expenses totaled ~$30 million.

In 2Q17, SN’s DD&A expenses were $50.8 million compared to $33.2 million in 1Q17, $37.7 million in 4Q16, and ~$32.0 million in 3Q16.

In our view, higher G&A expenses in 1Q17 and higher DD&A expenses in 2Q17 could explain the trend of rising revenues and lower or negative EPS during these periods.

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