Sanchez lines up funds to quicken Eagle Ford program

Sanchez Energy Corp., Houston, will accelerate its 2012-13 drilling program in the Eagle Ford shale play, in which it holds 95,000 net acres in the volatile oil, black oil, and gas-condensate windows, with $144.6 million in proceeds from a private placement of preferred stock.

Sanchez Energy also intends to close shortly both a $250 million first lien revolving credit facility, with an initial $27.5 million borrowing base, and a $250 million second lien term loan, with an initial $50 million commitment, to provide further liquidity. The revolving credit facility is expected to have a term of 3 years and the second lien term loan a term of 42 months, but the company does not plan to use these facilities in 2012.

With each of its three Eagle Ford project areas derisked, Sanchez Energy has 800-1,200 net identified potential drilling locations. Production has grown more than 90% since the end of June to 2,300 b/d of oil equivalent at the end of August. As the company transitions to more developmental-type drilling it sees a 2012 exit rate of 4,000-5,000 boe/d.

In the Palmetto area of Gonzalez County, the company plans to spud as many as 12 gross, 6 net wells in the second half of 2012, up from an initial budget of 9 gross, 4.5 net wells in the second half.

The Barnhart-14 has been drilled and cased with a 7,176-ft lateral, and the Barnhart-15 has been drilled and cased from the same pad with a 7,424-ft lateral. Sanchez Energy has a 50% interest in both wells, which await completion. The pad is adjacent to the Barnhart-5 and 6, the company’s two best-performing Palmetto wells to date.

The same rig has spudded the Barnhart A1 well and is scheduled to spud as many as four more wells by yearend. One well will be in the northern part of Palmetto and the others in the southern part.

A second rig at Palmetto has spudded Barnhart-18 and is scheduled to spud as many as four more wells on the company’s southern acreage by the end of 2012. In Palmetto, the company has 115 net identified potential drilling locations targeting 35 million boe of net resource potential based on 80-acre well spacing. The company plans to test 60-acre and potentially 40-acre well spacing at Palmetto.

For reference, Barnhart-5 had a 24-hr initial production rate of 1,467 boe/d on a 14/64-in. choke with a 17-stage fracture stimulation in a 5,991-ft lateral. Barnhart-6 had a 24-hr initial rate of 1,420 boe/d on a 14/64-in. choke with an 18-stage frac in a 5,998-ft lateral. The company now targets at least 7,000-ft laterals that would accommodate more frac stages.

In the Marquis area in Fayette and Lavaca counties, the company’s initial plan was to drill six gross and net horizontal wells in 2012. It now expects to be able to spud nine gross and net horizontal wells.

A rig is expected to remain and drill continuously in the Prost area of Marquis, where the company estimates it has as many as 32 more development locations, while 3D seismic is shot and interpreted in the first half of 2013. Central production and gas gathering lines are also planned to be laid to facilitate an expanded development program.

The Sante-A1H, the company’s third operated horizontal well in the Marquis area, has been drilled and cased with a 6,020-ft lateral and is in completion. Sanchez Energy has 100% working interest. The rig has moved back to the Prost area and has spudded Prost B1H. Five more wells are expected to be spudded by yearend.

Prost-1H had a 24-hr initial rate of 1,120 boe/d on a 22/64-in. choke with 14 frac stages in a 5,537-ft lateral. Prost-2H had a 24-hr initial rate of 1,369 boe/d on a 22/64-in. choke after 17 fracs in a 5,500-ft lateral. The company is drilling new wells with a targeted 6,500-7,500-ft lateral that are expected to accommodate substantially more frac stages.

With the Prost-1H and 2H substantially derisking the 51,000 net acres in its core Fayette and Lavaca County areas of Marquis, Sanchez Energy estimates it has 420 to 630 net identified potential drilling locations with a net resource potential of 140-210 million boe using 120 to 80-acre spacing.

As the Maverick area in Zavala and Frio counties is now largely derisked, the company expects to drill horizontal wells continuously throughout 2013 where it has 235-350 net identified potential drilling locations with 60-90 million boe of net resource potential using 120 to 80-acre spacing.

The Maverick area’s initial 2012 drilling plan for five gross and net wells has been completed, and the drilled wells have demonstrated continuously improving results due to progressive changes in completion practices and tighter spacing.

After reviewing well results from the 100% owned Mark & Sandra-2H, which had a 24-hr initial rate of 931 boe/d, 97% oil, and after reviewing the previous vertical well results, the company plans to drill three more horizontal offset wells to the Mark & Sandra-2H and one to two more vertical wells for a total of as many as 10 gross and net wells in 2012.

Sanchez Energy expects that the drilling plan for the rest of 2012 and 2013 will entail sequentially tighter horizontal well spacing.

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