Sanchez Production Partners Executes Agreements to Acquire Midstream and Other Assets in South Texas
07 October 2016 - 7:30AM
Sanchez Production Partners LP (NYSE MKT:SPP) (“SPP” or the
“Partnership”) today announced that the Partnership has executed
definitive agreements with Sanchez Energy Corporation (NYSE:SN)
(“Sanchez Energy”) pursuant to which the Partnership anticipates:
- SPP will acquire Sanchez Energy’s 50% interest in Carnero
Processing, LLC (“Carnero Processing”) for an initial payment of
approximately $47.7 million in cash and the assumption by SPP of
remaining capital commitments to Carnero Processing, which are
estimated at approximately $32.3 million (the “Carnero Processing
Transaction”);
- SPP will acquire certain production assets, located in South
Texas, from Sanchez Energy for total consideration of $27 million,
prior to normal and customary closing adjustments (the “Production
Asset Transaction”); and
- SPP will obtain an option to acquire a lease for a tract of
land leased from the Calhoun Port Authority in Point Comfort, Texas
(the “Port Comfort Lease”).
CARNERO PROCESSING
TRANSACTIONCarnero Processing is currently constructing a
cryogenic natural gas processing plant in La Salle County, Texas
which is expected to be operational in early 2017 (the “Raptor
Plant”). The Raptor Plant will be connected to Sanchez
Energy’s Catarina asset in the Eagle Ford Shale in South Texas via
the Carnero Gathering System, which is 50% owned by SPP through
Carnero Gathering, LLC (“Carnero Gathering”). Carnero
Processing and Carnero Gathering, joint ventures that are 50% owned
and operated by Targa Resources Corp. (NYSE:TRGP) (“Targa”), have
firm capacity, fixed fee agreements with Sanchez Energy for 125,000
Mcf/d of plant processing and associated pipeline capacity for five
years. Pursuant to the agreements, Sanchez Energy has
dedicated its Catarina acreage and all production
developed at the asset to the joint ventures during a 15 year
term. Sanchez Energy also has the option to deliver
additional volumes and commit additional acreage to the Raptor
Plant as production increases. Sanchez Energy plans to spend
approximately two-thirds of its 2016 drilling and completion budget
at Catarina, and considers the asset a key part of its development
focus and growth strategy.
PRODUCTION ASSET TRANSACTIONThe
Production Asset Transaction includes working interests in 23
producing Eagle Ford wellbores located in Dimmit and Zavala
counties in South Texas together with escalating working interests
in an additional 11 producing wellbores located in the Palmetto
Field in Gonzales County, Texas (the location of SPP’s first Eagle
Ford acquisition, which closed in March 2015). The Production
Asset Transaction is expected to add approximately 700 Boe/d of
production, on average, in 2017. The estimated proved
reserves from the producing wellbores is approximately 2,136 MBoe,
of which 73% is oil, 13% natural gas liquids, and 14% natural
gas. Subject to the terms and conditions of its credit
agreement, the Partnership intends to execute hedges for up to five
years on the incremental production in conjunction with transaction
closing.
PORT COMFORT LEASEThe Port Comfort Lease would
provide the Partnership with a strategic location for the intended
construction of a marine crude storage terminal with a joint
venture partner, which is expected to be completed in early
2017. Once complete, the terminal is expected to include
350,000 shell barrels of storage capacity.
Management Commentary“We continue to
demonstrate how the strategic relationship between SPP and Sanchez
Energy can be leveraged to enable each company to better optimize
its respective strategies, capital resources, and financial
targets,” said Gerry Willinger, Chief Executive Officer of the
general partner of SPP. “The transactions announced today
further extend our business development relationship with Sanchez
Energy, a company that has a substantial inventory of midstream and
production assets with characteristics favorable to the MLP model.
We anticipate the transactions will increase SPP’s midstream
and production revenue and Adjusted EBITDA as we complete 2016 and
head into 2017.”“As previously discussed, the Catarina asset is
central to Sanchez Energy’s asset base and plans for future
development in South Texas. Since acquiring the asset in
2014, Sanchez Energy has reported strong results from its drilling
program at Catarina, where the company has identified over 1,350
net potential drilling locations. We anticipate the stacked
pay potential and expected rates of return from this asset will
continue to drive Sanchez Energy’s future growth plans, resulting
in a continuing need to access infrastructure assets as it develops
the lease. The Raptor Plant, which will be connected to the
Catarina asset by the Carnero Gathering System, is a strategic
asset that we believe will allow us to capture more of the value
chain from Sanchez Energy’s South Texas production and realize
further upside from third party volumes. We are excited to be
further aligned with Sanchez Energy and its plans for the Catarina
asset, and look forward to capitalizing on opportunities to grow
alongside this leading Eagle Ford operator over time.”
TRANSACTION CLOSINGThe Carnero Processing
Transaction and Production Asset Transaction, which are expected to
close in the fourth quarter 2016, are subject to the satisfaction
of customary closing conditions, including SPP’s arrangement of
financing to pay the purchase price under each transaction
agreement.
Other InformationThe Carnero Processing
Transaction and the Production Asset Transaction were reviewed and
approved by the Conflicts Committee of the board of directors of
the general partner of SPP. Stifel, Nicolaus & Company
acted as sole financial advisor to the Conflicts Committee, which
was represented in the transactions by Potter Anderson &
Corroon LLP. Andrews Kurth Kenyon LLP represented the
Partnership in connection with negotiation of the
transactions.Additional information on the transactions can be
found in SPP’s filings with the Securities Exchange Commission
(www.sec.gov), which are also available on SPP’s website
(www.sanchezpp.com).
About the PartnershipSanchez Production
Partners LP (NYSE MKT:SPP) is a publicly-traded limited partnership
focused on the acquisition, development, ownership and operation of
midstream and other energy production assets. The Partnership
owns an oil and natural gas gathering and processing system located
in the Eagle Ford Shale in Dimmit, Webb and La Salle Counties,
Texas. The Partnership also currently owns producing reserves
in the Eagle Ford Shale in South Texas, the Gulf Coast region of
Texas and Louisiana, and across several basins in Oklahoma and
Kansas. The Partnership previously announced and continues to
explore the possible divestiture of its remaining assets and
operations in Oklahoma and Kansas.
Forward-Looking Statements This press release
contains, and the officers and representatives of the Partnership
and its general partner may from time to time make, statements that
are considered forward–looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of
1934. These forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond our
control, which may include statements about our business strategy;
acquisition and disposition strategy; future operating results; and
plans, objectives, expectations, forecasts, outlook and intentions.
All of these types of statements, other than statements of
historical fact included in this press release, are forward-looking
statements. In some cases, forward-looking statements
can be identified by terminology such as “may,” “will,” “could,”
“should,” “expect,” “plan,” “project,” “intend,” “anticipate,”
“believe,” “estimate,” “predict,” “potential,” “pursue,” “target,”
“continue,” the negative of such terms or other comparable
terminology.The forward-looking statements contained in this press
release are largely based on our expectations, which reflect
estimates and assumptions made by our management. These
estimates and assumptions reflect our best judgment based on
currently known market conditions and other factors. Although
we believe such estimates and assumptions to be reasonable, they
are inherently uncertain and involve a number of risks and
uncertainties that are beyond our control. In addition,
management’s assumptions about future events may prove to be
inaccurate. Management cautions all readers that the
forward-looking statements contained in this press release are not
guarantees of future performance, and we cannot assure any reader
that such statements will be realized or the forward-looking events
and circumstances will occur. Actual results may differ
materially from those anticipated or implied in the forward-looking
statements due to factors listed in the “Risk Factors” section in
our Securities and Exchange Commission (“SEC”) filings and
elsewhere in those filings. The forward-looking statements
speak only as of the date made, and other than as required by law,
we do not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or
otherwise. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on
our behalf.
COMPANY CONTACT:
Charles C. Ward
Chief Financial Officer
(877) 847-0009
General Inquiries: (713) 783-8000
www.sanchezpp.com