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Sanchez to Sell Non-Core Producing Assets to Sanchez Production Partners

Source: 3/31/2015, Location: North America

Sanchez Energy Corporation has executed and closed an agreement with Sanchez Production Partners LP to sell wellbore and certain associated interests in certain producing oil and gas wells to a subsidiary of the SPP for aggregate consideration of approximately $85.0 million to the Company, subject to normal and customary closing and post-closing adjustments. In connection with the transaction, SN novated certain gas and oil hedging transactions related to the production of wellbores to SPP. Highlights of the transaction include:

Sale of 59 proved developed producing wellbores in the non-operated Palmetto Field in the Eagle Ford with average forecast production for 2015 estimated to be 1,000 BOE/D and proved reserves of approximately 5.2 MMBOE
Production sold represents approximately 2% of the SN's total net production volume

Valuation of approximately $85,000 per estimated BOE/D and ~7.7x 2015 estimated EBITDA for the assets, representing a premium to SN's current public trading multiples.
Transaction enables SN to raise cash in a low commodity price environment by bringing forward future production currently generated by low-rate, older producing assets and positions SN to re-invest the proceeds in potentially higher-returning opportunities while maintaining a strong balance sheet and cash position.
Enables SN to access capital today, and potentially in the future, without the need to engage in debt or dilutive equity offerings through the availability of SPP as a third financing vehicle.
Sale only conveys interests in certain wellbores at existing producing intervals, retaining upside for SN from PUD, probable, and possible locations as well as any new locations that come as result of down-spacing, stacking of new horizontal wellbores, and development of any non-Eagle Ford formations such as the Austin Chalk or the Buda.
Sale structured as an escalating working interest such that SN delivers an automatically increasing percentage of its current 50% W.I. annually over a period of five years, including the current year, while being paid for all interests at closing and retaining the interim production for its account until each annual working interest escalation effective date.

Consideration received consists of $83.0 million cash, subject to normal and customary closing and post-closing adjustments, and 1,052,632 Common Units of SPP valued at approximately $2.0 million.

Tony Sanchez, III, President and Chief Executive Officer of Sanchez Energy, commented, "This transaction, which we feel is not only repeatable, but may potentially include midstream assets in the future, enables us to enhance liquidity at an advantageous cost of capital to fund our growth without having to increase leverage or dilute our shareholders by issuing equity. With a focus on capital efficiency, we are selling low-decline cash flowing assets and using the proceeds to re-invest in higher rate of return drilling opportunities and other projects. Furthermore, by selling only certain wellbores the Company's inventory of future locations remains unchanged. We retain the upside potential from PUD drilling, down-spacing, and stacking of future development wells in the Upper and Lower Eagle Ford, as well as the potential resource development from non-Eagle Ford formations. The equity component of the purchase price will allow the Company to participate in the appreciation of the value of SPP's equity as it continues to move closer to the completion of its transformation and resumption of distributions. We believe that the valuation received for this production is in excess of the levels where our equity is currently trading and is thus accretive to our balance sheet and at a level which is optimal in terms of cost of capital for the Company."

Speaking to the operational impact of the sale, Sanchez added, "as a result of the strong performance of our recent drilling results at Catarina, we are not reducing our production guidance for the remainder of 2015. We will initiate guidance for the second quarter of 2015 and update our full year guidance after our planned first quarter operational update late in April."

The terms of the transaction were approved, subject to the execution of definitive documentation, by the Board of Directors of Sanchez Energy, following the approval of the Board's Audit Committee, which is composed of independent directors. Jefferies LLC acted as sole financial advisor to the Audit Committee of the Board of Directors of Sanchez Energy Corporation and delivered a fairness opinion from a financial point of view in connection with the transaction. Richards, Layton & Finger represented the Audit Committee as legal advisors.

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