sn
Re: sn
The BOEs per day were higher than my forecast, but the mix of production was more natural gas than I expected. Not much, but enough to cause some of the Wall Street Gang concern.
I am lowering my production forecast for Q4 to 81,000 BOE per day and adjusting the production mix a bit. Lower production is because heavy rain in September has pushed back some completions. They should exit 2017 with production ~84,000 BOE per day.
In my opinion, the best news is the success of their staggered lateral spacing test program: "Three Lower Eagle Ford A and three Lower Eagle Ford B wells, which were brought on-line in the Briscoe Catarina West area of Comanche, in 250 foot staggered lateral spacing tests, are producing in-line with the Company’s Lower Eagle Ford type curve. The success of the Lower Eagle Ford 250 foot staggered lateral spacing test during the third quarter 2017 doubles the Company’s Lower Eagle Ford opportunity set, adding up to 800 gross Lower Eagle Ford well locations to the Comanche asset’s drilling inventory." If 3rd party reserve engineers agree with Sanchez, this should significantly increase their P2 reserves.
The market is not keen on SN because interest expense is currently a high percentage of their operating cash flow. Leverage does work both ways and as production and commodity prices increase the percentage will go down to an acceptable level. SN has more than enough liquidity to fund their aggressive completions program through 2018. They are now on-track to get production up to 100,000 BOE per day by 2H 2018. That would push revenues over $1 Billion in 2019.
I am lowering my production forecast for Q4 to 81,000 BOE per day and adjusting the production mix a bit. Lower production is because heavy rain in September has pushed back some completions. They should exit 2017 with production ~84,000 BOE per day.
In my opinion, the best news is the success of their staggered lateral spacing test program: "Three Lower Eagle Ford A and three Lower Eagle Ford B wells, which were brought on-line in the Briscoe Catarina West area of Comanche, in 250 foot staggered lateral spacing tests, are producing in-line with the Company’s Lower Eagle Ford type curve. The success of the Lower Eagle Ford 250 foot staggered lateral spacing test during the third quarter 2017 doubles the Company’s Lower Eagle Ford opportunity set, adding up to 800 gross Lower Eagle Ford well locations to the Comanche asset’s drilling inventory." If 3rd party reserve engineers agree with Sanchez, this should significantly increase their P2 reserves.
The market is not keen on SN because interest expense is currently a high percentage of their operating cash flow. Leverage does work both ways and as production and commodity prices increase the percentage will go down to an acceptable level. SN has more than enough liquidity to fund their aggressive completions program through 2018. They are now on-track to get production up to 100,000 BOE per day by 2H 2018. That would push revenues over $1 Billion in 2019.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: sn
In the last 3 months, 7 ranked analysts set 12-month price targets for SN. The average price target among the analysts is $5.58.
In October, six Wall Street Analysts sent out reports on Sanchez Energy (SN). Their price forecasts range from $4.50 to $8.00. They are all forced to use the commodity price forecasts of their firms, which are lower than what I expect to see in future periods.
SN has a very high percentage of their crude oil and natural gas hedged at good prices, so NGL prices are the big variable.
In October, six Wall Street Analysts sent out reports on Sanchez Energy (SN). Their price forecasts range from $4.50 to $8.00. They are all forced to use the commodity price forecasts of their firms, which are lower than what I expect to see in future periods.
SN has a very high percentage of their crude oil and natural gas hedged at good prices, so NGL prices are the big variable.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: sn
I have posted an updated forecast/valuation model for SN to the EPG website. Note that SN actually produces more NGLs than crude oil. Most of its crude oil is hedged at $52, but none of their NGLs are hedged. NGL prices are going up, but prices are difficult to forecast since each company's mix of NGLs is different. I believe the NGL prices that I used for Q3 and Q4 will prove to be too conservative.
A "basket" of NGLs normally sells for 40% to 50% of NGLs, but a cold winter and rising petrochemical demand may push NGL prices higher.
Now Google "Propane Prices".
A "basket" of NGLs normally sells for 40% to 50% of NGLs, but a cold winter and rising petrochemical demand may push NGL prices higher.
Now Google "Propane Prices".
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: sn
Hi Dan,
I was looking at your update for SN (Q3 2017) forcast and valuation model, and either I am missing something or there is no information (ie 0000s) in the Realized and Unrealized gains on Derivatives for both the Q3 actual and the Q4 estimates.
These gains on Derivatives (hedges) are a big part of SN earnings and so without them the spreadsheet shows a loss which I think is in error.
Am I wrong?
Thanks,
d4v
I was looking at your update for SN (Q3 2017) forcast and valuation model, and either I am missing something or there is no information (ie 0000s) in the Realized and Unrealized gains on Derivatives for both the Q3 actual and the Q4 estimates.
These gains on Derivatives (hedges) are a big part of SN earnings and so without them the spreadsheet shows a loss which I think is in error.
Am I wrong?
Thanks,
d4v
Re: sn
Sanchez Energy has not released Q3 results. Q3 is still a forecast at this point.
Forecast period revenues include the impact of each company's hedges on "realized prices". They are broken out below when actuals are reported. Forecast do not include "unrealized gains" on hedges, which can have a big impact on "Reported Earnings", but no impact on "Adjusted Earnings" or cash flow from operations. Note that the big non-cash unrealized gains on their hedges is what caused Sanchez to report positive earnings in Q1 and Q2. During a period of rising commodity prices, they will have big unrealized losses on their hedges.
Go to the bottom of the forecast model and you will see what I'm estimating that Sanchez will sell their oil, natural gas and NGLs in the future periods (including Q3).
All of the forecast models are "macro driven", which means you can change the assumptions at the bottom and the forecast revenues and expenses above will adjust automatically. Download the spreadsheet to Excel and try it. Take oil to $60 and NGLs to $25 and see how it impacts the valuation.
Forecast period revenues include the impact of each company's hedges on "realized prices". They are broken out below when actuals are reported. Forecast do not include "unrealized gains" on hedges, which can have a big impact on "Reported Earnings", but no impact on "Adjusted Earnings" or cash flow from operations. Note that the big non-cash unrealized gains on their hedges is what caused Sanchez to report positive earnings in Q1 and Q2. During a period of rising commodity prices, they will have big unrealized losses on their hedges.
Go to the bottom of the forecast model and you will see what I'm estimating that Sanchez will sell their oil, natural gas and NGLs in the future periods (including Q3).
All of the forecast models are "macro driven", which means you can change the assumptions at the bottom and the forecast revenues and expenses above will adjust automatically. Download the spreadsheet to Excel and try it. Take oil to $60 and NGLs to $25 and see how it impacts the valuation.
Last edited by dan_s on Tue Oct 24, 2017 12:34 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: sn
Wall Street does not like SN's high debt and high interest expense. They have more than enough cash on the balance sheet and cash flow from operations to fund their drilling and completion budget through 2018. So.... if debt stays about the same and production and proven reserves go way up, then the debt level will not look so bad to Wall Street.
There needs to be a "Paradigm Shift" on Wall Street. At some point investors' FEAR turns to GREED. I think that happens when WTI moves firmly over $55/bbl.
There needs to be a "Paradigm Shift" on Wall Street. At some point investors' FEAR turns to GREED. I think that happens when WTI moves firmly over $55/bbl.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group