Oil and gas exploration and production company, Sanchez Energy CorporationSN recently announced that it has agreed to divest its Javelina asset, located in the Eagle Ford Shale, for around $105 million. The cash transaction is expected to close in the third quarter of 2017.
The transaction with an undisclosed buyer includes around 70,000 net undeveloped acres, with 450 net potential locations in the LaSalle and Webb Counties, TX. Sanchez built this large contiguous acreage over the last 18 months. Per the company, the Javelina assets include about 120-acre well-spacing, with 80% drillable acreage and 100% average working interest. The company's estimations indicate that the total of drilling, completion and facilities costs of each well in the area is $6.0-$7.5 million. The average estimated ultimate recovery from each well in Javelina is 1,500 - 2,500 thousand barrels of oil equivalents (Mboe).
Per Sanchez's estimation, at the end of 2016, the acreage had net present value of $601 million. The risk profile of the asset increased owing to the lack of development, which indicatthe current value of the Javelina assets will be far less than $601 million.
One of Eagle Ford's biggest operators, Sanchez had no plans for developing the Javelina area in 2017. Instead, the company is looking to concentrate on increasing production from other development opportunities, which require funding. Also, at the end of second-quarter 2017, the company had only $128 million cash on hand that justifies the liquification of the relatively risky Javelina acreage. In this context, we would like to remind investors that the company divested some of its Eagle Ford Shale assets for $50 million in Jun 2017 to oil and gas company, Lonestar Resources US Inc. LONE .
The development opportunities on which Sanchez will concentrate for production include the Eagle Ford shale basin acquisition in Mar 2017 from rival shale player Anadarko Petroleum Corporation APC . With a debt of $1.8 billion and more development opportunities than capital to work with, Sanchez requires more liquid strength. We think this might trigger another divestment in the near future.
About the Company
Sanchez is an oil and gas exploration and development company, which is focused on the exploration, acquisition and development of unconventional oil and natural gas resources. The company primarily operates in the Eagle Ford Shale in South Texas. It is headquartered in Houston, TX.
Sanchez has lost 44.7% of its value year to date compared with the 32.7% fall of its industry .
Zacks Rank and Stock to Consider
Sanchez has a Zacks Rank #3 (Hold). A better-ranked stock from the same space is Range Resources Corporation RRC . It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Range Resources's sales for 2017 are expected to increase 124.2% year over year. The company has a four-quarter average positive earnings surprise of 51.8%.
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