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Sanchez’s Key Strategies after the Comanche Acquisition

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Sep. 29 2017, Updated 6:42 p.m. ET

Sanchez’s strategic decision

One of Sanchez Energy’s (SN) key strategic initiatives in 2017 was the Comanche acquisition from Anadarko Petroleum (APC). At the beginning of this year, Sanchez announced that the company and Blackstone Energy Partners (BX) had entered a 50/50 partnership to acquire Anadarko Petroleum’s working interest in Western Eagle Ford.

The acquired properties included 318,000 gross operated acres that had production of 67,000 boepd (barrels of oil equivalent per day) at that time. SN noted that the acquired acreage was contiguous to its Catarina acreage position in the Eagle Ford.

As we can see in the image above, the Comanche and Catarina regions account for the majority of SN’s forecast 2017 capital. SN’s capital budget for 2017 is $475.0 million. In comparison, the company spent $350.0 million in 2016.

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Key objective for 2017

One of SN’s key focus areas in 2017 is completing its DUC (drilled but uncompleted) inventory. With the Comanche acquisition, SN acquired an inventory of 132 gross drilled but uncompleted wells (or DUC) wells, which it believes has an individual rate of return that can exceed 100%.

In 2Q17, the company brought 57 of the 132 Comanche DUCs online. It is expected to bring all 132 DUCs online within 12 months of starting the operations.

Liquidity in check

Keeping its liquidity in check is another key focus for SN this year. Weakness in energy prices caused SN to make several non-core divestitures during 2Q17, which raised ~$67 million in cash. The company recently closed the sale of its Javelina asset in the Eagle Ford Shale for ~$105 million in cash

The company pulled back its 2018 capital spending by ~$75 million–$100 million. SN’s management noted during its 2Q17 earnings conference, “In this environment, it is prudent to maintain a high level of financial liquidity and the decision to reduce 2018 drilling activity was made to better align capital spending with operating cash flow.”

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