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EX-32.1 - EX-32.1 - Sanchez Energy Corpsn-20180630ex3213f6330.htm
EX-32.2 - EX-32.2 - Sanchez Energy Corpsn-20180630ex322650b0f.htm
EX-31.2 - EX-31.2 - Sanchez Energy Corpsn-20180630ex312b7b13c.htm
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EX-4.3 - EX-4.3 - Sanchez Energy Corpsn-20180630ex435a34ce8.htm
EX-4.2 - EX-4.2 - Sanchez Energy Corpsn-20180630ex42d455d25.htm
EX-4.1 - EX-4.1 - Sanchez Energy Corpsn-20180630ex417396b48.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10‑Q

(Mark One)

ma

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to         

Commission file number: 1‑35372

Sanchez Energy Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

45‑3090102
(I.R.S.  Employer
Identification No.)

1000 Main Street, Suite 3000
Houston, Texas
(Address of principal executive offices)

77002
(Zip Code)

(713) 783‑8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes ☒  No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non‑accelerated filer ☐
(Do not check if a
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

Number of shares of Registrant’s common stock, par value $0.01 per share, outstanding as of August 3, 2018: 87,797,690

 

 

 


 

Sanchez Energy Corporation

Form 10‑Q

For the Quarterly Period Ended June 30, 2018

 

Table of Contents

 

 

 

 

 

PART I

 

Item 1. 

Financial Statements

9

 

Condensed Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017 

9

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)

10

 

Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2018 (Unaudited)

11

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (Unaudited)

12

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

13

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

58

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

75

Item 4. 

Controls and Procedures

77

 

PART II

 

Item 1. 

Legal Proceedings

77

Item 1A. 

Risk Factors

77

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3. 

Defaults Upon Senior Securities

78

Item 4. 

Mine Safety Disclosures

78

Item 5. 

Other Information

78

Item 6. 

Exhibits

79

SIGNATURES 

81

 

 

2


 

CAUTIONARY NOTE REGARDING FORWARD‑LOOKING STATEMENTS

 

This Quarterly Report on Form 10‑Q  contains “forward‑looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical facts, included in this Quarterly Report on Form 10‑Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward‑looking statements.  These statements are based on certain assumptions we made based on management’s experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management.  When used in this Quarterly Report on Form 10‑Q, words such as “will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “forecast,” “budget,” “guidance,” “project,” “profile,” “model,” “strategy,” “future” or their negatives or the statements that include these words or other words that convey the uncertainty of future events or outcomes, are intended to identify forward‑looking statements, although not all forward‑looking statements contain such identifying words.  In particular, statements, express or implied, concerning our future operating results and returns or our ability to replace or increase reserves, increase production, or generate income or cash flows, operational and commercial benefits of our partnerships, expected benefits from acquisitions, including the Comanche Acquisition (as defined in Note 4, “Acquisitions and Divestitures” of Part I, Item 1. Financial Statements) and our strategic relationship with Sanchez Midstream Partners LP (f/k/a Sanchez Production Partners LP) (“SNMP”) are forward‑looking statements.  Forward‑looking statements are not guarantees of performance.  Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control.  Although we believe that the expectations reflected in our forward‑looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct.  Important factors that could cause our actual results to differ materially from the expectations reflected in the forward‑looking statements include, among others:

 

·

the timing and extent of changes in prices for, and demand for, crude oil and condensate, natural gas liquids (“NGLs”), natural gas and related commodities;

 

·

our ability to successfully execute our business and financial strategies;

 

·

our ability to utilize the services, personnel and other assets of Sanchez Oil & Gas Corporation (“SOG”) pursuant to an existing services agreement (the “Services Agreement”);

 

·

our ability to replace the reserves we produce through drilling and property acquisitions;

 

·

the realized benefits of the acreage acquired in our various acquisitions, including the Comanche Acquisition, and other assets and liabilities assumed in connection therewith;

 

·

our ability to successfully integrate our various acquired assets into our operations, fully identify existing and potential problems with respect to such assets and accurately estimate reserves, production and costs with respect to such assets;

 

·

the realized benefits of our partnerships and joint ventures, including our partnership with affiliates of The Blackstone Group, L.P. (“Blackstone”);

 

·

the realized benefits of our transactions with SNMP;

 

·

the extent to which our drilling plans are successful in economically developing our acreage, producing reserves and achieving anticipated production levels;

 

·

the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may, therefore, be imprecise;

 

·

the extent to which we can optimize reserve recovery and economically develop our plays utilizing horizontal and vertical drilling, advanced completion technologies and hydraulic fracturing;

 

·

our ability to successfully execute our hedging strategy and the resulting realized prices therefrom;

3


 

 

·

the creditworthiness and performance of our counterparties, including financial institutions, operating partners and other parties;

 

·

competition in the oil and natural gas exploration and production industry in the marketing of crude oil, natural gas and NGLs and for the acquisition of leases and properties, employees and other personnel, equipment, materials and services and, related thereto, the availability and cost of employees and other personnel, equipment, materials and services;

 

·

our ability to compete with other companies in the oil and natural gas industry;

 

·

our ability to access the credit and capital markets to obtain financing on terms we deem acceptable, if at all, and to otherwise satisfy our capital expenditure and other funding requirements;

 

·

the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities;

 

·

the impact of, and changes in, government policies, laws and regulations, including tax laws and regulations, environmental laws and regulations relating to air emissions, waste disposal, hydraulic fracturing and access to and use of water, laws and regulations imposing conditions and restrictions on drilling and completion operations and laws and regulations with respect to derivatives and hedging activities;

 

·

developments in oil‑producing and natural gas‑producing countries, the actions of the Organization of Petroleum Exporting Countries (“OPEC”) and other factors affecting the supply and pricing of oil and natural gas;

 

·

the extent to which our crude oil and natural gas properties operated by others are operated successfully and economically;

 

·

the use of competing energy sources, the development of alternative energy sources and potential economic implications and other effects therefrom;

 

·

unexpected results of litigation filed against us;

 

·

the extent to which we incur uninsured losses and liabilities or losses and liabilities in excess of our insurance coverage; and

 

·

the other factors described under “Part I, Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Part II, Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10‑Q and in our other public filings with the Securities and Exchange Commission (the “SEC”).

 

In light of these risks, uncertainties and assumptions, the events anticipated by our forward‑looking statements may not occur, and, if any of such events do, we may not have correctly anticipated the timing of their occurrence or the extent of their impact on our actual results.  Accordingly, you should not place any undue reliance on any of our forward‑looking statements.  Any forward‑looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to correct or update any forward‑looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

 

 

 

4


 

GLOSSARY OF SELECTED OIL AND NATURAL GAS TERMS

 

The following includes a description of the meanings of some of the oil and natural gas industry terms used in this Quarterly Report on Form 10‑Q. The definitions “analogous reservoir,” “development costs,” “development project,” “development well,” “economically producible,” “estimated ultimate recoveries,” “exploratory well,” “field,” “possible reserves,” “probable reserves,” “production costs,” “proved area,” “reservoir,” “resources,” and “unproved properties” have been excerpted from the applicable definitions contained in Rule 4‑10(a) of Regulation S‑X.

 

American Petroleum Institute (“API”) gravity:  A system of classifying oil based on its specific gravity, whereby the greater the gravity, the lighter the oil.

 

analogous reservoir:  Analogous reservoirs, as used in resource assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, analogous reservoir refers to a reservoir that shares all of the following characteristics with the reservoir of interest: (i) the same geological formation (but not necessarily in pressure communication with the reservoir of interest); (ii) the same environment of deposition; (iii) similar geologic structure; and (iv) the same drive mechanism.

 

basin:  A large depression on the earth’s surface in which sediments accumulate.

 

Bbl:  One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.

 

Bcf:  One billion cubic feet of natural gas.

 

black oil:  A quality of oil with an API gravity of 15-45° with a gas‑to‑oil ratio of 200-900 cubic feet per barrel or less.

 

Boe:  One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe of oil.

 

Boe/d:  One Boe per day.

 

btu:  One British thermal unit, the quantity of heat required to raise the temperature of a one‑pound mass of water by one degree Fahrenheit.

 

completion:  The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

 

condensate: A liquid hydrocarbon with an API gravity of 50-100°.

 

developed acreage:  The number of acres that are allocated or assignable to producing wells or wells capable of production.

 

development costs:  Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and natural gas. More specifically, development costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to: (i) gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves; (ii) drill and equip development wells, development‑type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly; (iii) acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems; and (iv) provide improved recovery systems.

 

5


 

development project:  A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

 

development well:  A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

 

differential:  An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

 

dry hole:  A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production would exceed production expenses and taxes.

 

economically producible:  The term economically producible, as it relates to a resource, means a resource that generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation.

 

estimated ultimate recoveries:  The sum of reserves remaining as of a given date and cumulative production as of that date.

 

exploitation:  A development or other project that may target proven or unproven reserves (such as probable or possible reserves), but that generally has a lower risk than that associated with exploration projects.

 

exploratory well:  A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

 

field:  An area consisting of a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. The field name refers to both the surface and the underground productive formations.

 

gross acres or gross wells:  The total acres or wells, as the case may be, in which we have a working interest.

 

horizontal drilling:  A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

 

independent exploration and production company:  A company whose primary line of business is the exploration and production of crude oil and natural gas.

 

LLS:  Louisiana light sweet crude.

 

MBbl:  One thousand Bbl.

 

MBoe:  One thousand Boe.

 

Mcf:  One thousand cubic feet of natural gas.

 

MMBbl:  One million Bbl.

 

MMBoe:  One million Boe.

 

MMbtu:  One million British thermal units.

 

MMcf:  One million cubic feet of natural gas.

 

net acres or net wells:  Gross acres or wells, as the case may be, multiplied by our working interest ownership percentage.

 

6


 

net production:  Production that is owned by us less royalties and production due others.

 

net revenue interest:  A working interest owner’s gross working interest in production less the royalty, overriding royalty, production payment and net profits interests.

 

NGLs:  The combination of ethane, propane, butane, natural gasolines and other components that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.

 

NYMEX:  New York Mercantile Exchange.

 

operator:  The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.

 

possible reserves:  Additional reserves that are less certain to be recovered than probable reserves.

 

probable reserves:  Additional reserves that are less certain to be recovered than proved reserves but that, in sum with proved reserves, are as likely as not to be recovered.

 

production costs:  Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities.

 

productive well:  A well that produces commercial quantities of hydrocarbons, exclusive of its capacity to produce at a reasonable rate of return.

 

proved area:  The part of a property to which proved reserves have been specifically attributed.

 

proved developed reserves:  Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

 

proved developed non-producing reserves:  Reserves that are expected to be recovered from completion intervals which are open at the time of the estimate but which have not yet started producing, wells which were shut-in for market conditions or pipeline connections, or wells not capable of production for mechanical reasons; reserves that are expected to be recovered from zones in existing well which will require additional completion work or future re-completion prior to start production.

 

proved oil and natural gas reserves:  The estimated quantities of oil, natural gas and NGLs that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

 

proved undeveloped reserves:  Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

 

realized price:  The cash market price less all expected quality, transportation and demand adjustments.

 

recompletion:  The action of reentering an existing wellbore to redo or repair the original completion in order to increase the well’s productivity.

 

reserve:  That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.

 

reservoir:  A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

 

7


 

resources:  Resources are quantities of oil and natural gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable and another portion may be considered unrecoverable. Resources include both discovered and undiscovered accumulations.

 

spacing:  The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres (e.g., 75 acre well-spacing) and is often established by regulatory agencies.

 

standardized measure:  The present value of estimated future after tax net revenue to be generated from the production of proved reserves, determined in accordance with the rules and regulations of the SEC (using prices and costs in effect as of the date of estimation), less future development, production and income tax expenses, and discounted at 10% per annum to reflect the timing of future net revenue. Standardized measure does not give effect to derivative transactions.

 

trend:  A geographic area with hydrocarbon potential.

 

undeveloped acreage:  Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

 

unproved properties:  Properties with no proved reserves.

 

volatile oil:  A quality of oil with an API gravity of 42-55° with a gas‑to‑oil ratio of 900-3,500 cubic feet per barrel.

 

wellbore:  The hole drilled by the bit that is equipped for oil or natural gas production on a completed well. Also called well or borehole.

 

working interest:  An interest in an oil and natural gas lease that gives the owner of the interest the right to drill for and produce oil and natural gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.

 

workover:  Operations on a producing well to restore or increase production.

 

WTI:  West Texas Intermediate crude.

8


 

PART I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Sanchez Energy Corporation

 

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value and share amounts)

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

437,689

 

$

184,434

Oil and natural gas receivables

 

 

88,207

 

 

101,396

Joint interest billings receivables

 

 

15,793

 

 

22,569

Accounts receivable - related entities

 

 

6,192

 

 

4,491

Fair value of derivative instruments

 

 

3,241

 

 

16,430

Other current assets

 

 

10,877

 

 

21,478

Total current assets

 

 

561,999

 

 

350,798

Oil and natural gas properties, on the basis of successful efforts accounting:

 

 

 

 

 

 

Proved oil and natural gas properties

 

 

3,418,554

 

 

3,130,407

Unproved oil and natural gas properties

 

 

434,244

 

 

398,605

Total oil and natural gas properties

 

 

3,852,798

 

 

3,529,012

Less: Accumulated depreciation, depletion, amortization and impairment

 

 

(1,618,850)

 

 

(1,501,553)

Total oil and natural gas properties, net

 

 

2,233,948

 

 

2,027,459

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

Fair value of derivative instruments

 

 

8,836

 

 

1,428

Investments (Investment in SNMP measured at fair value of $26.8 million and $25.2 as of June 30, 2018 and December 31, 2017, respectively)

 

 

46,758

 

 

38,462

Other assets

 

 

52,873

 

 

52,488

Total assets

 

$

2,904,414

 

$

2,470,635

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

15,446

 

$

14,994

Other payables

 

 

100,451

 

 

81,970

Accrued liabilities:

 

 

 

 

 

 

Capital expenditures

 

 

93,506

 

 

85,340

Other

 

 

96,036

 

 

84,794

Fair value of derivative instruments

 

 

102,904

 

 

56,190

Short term debt

 

 

23,996

 

 

23,996

Other current liabilities

 

 

71,107

 

 

115,244

Total current liabilities

 

 

503,446

 

 

462,528

Long term debt, net of premium, discount and debt issuance costs

 

 

2,364,749

 

 

1,930,683

Asset retirement obligations

 

 

38,499

 

 

36,098

Fair value of derivative instruments

 

 

31,132

 

 

17,474

Other liabilities

 

 

34,332

 

 

65,480

Total liabilities

 

 

2,972,158

 

 

2,512,263

Commitments and contingencies (Note 17)

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

Preferred units ($1,000 liquidation preference, 500,000 units authorized, issued and outstanding as of June 30, 2018 and December 31, 2017)

 

 

452,131

 

 

427,512

Stockholders' deficit:

 

 

 

 

 

 

Preferred stock ($0.01 par value, 15,000,000 shares authorized; 1,838,985 shares issued and outstanding as of June 30, 2018 and December 31, 2017 of 4.875% Convertible Perpetual Preferred Stock, Series A; 3,527,830 shares issued and outstanding as of June 30, 2018 and December 31, 2017 of 6.500% Convertible Perpetual Preferred Stock, Series B)

 

 

53

 

 

53

Common stock ($0.01 par value, 300,000,000 shares authorized; 87,797,689 and 83,984,827 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively)

 

 

884

 

 

845

Additional paid-in capital

 

 

1,370,908

 

 

1,362,118

Accumulated deficit

 

 

(1,891,720)

 

 

(1,832,156)

Total stockholders' deficit

 

 

(519,875)

 

 

(469,140)

Total liabilities and stockholders' deficit

 

$

2,904,414

 

$

2,470,635

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

9


 

Sanchez Energy Corporation

 

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017*

    

2018

    

2017*

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Oil sales

 

$

156,544

 

$

91,096

 

$

311,935

 

$

164,372

Natural gas liquid sales

 

 

56,533

 

 

36,873

 

 

105,838

 

 

63,973

Natural gas sales

 

 

41,141

 

 

47,735

 

 

82,870

 

 

81,201

Sales and marketing revenues

 

 

5,096

 

 

 —

 

 

9,897

 

 

 —

Total revenues

 

 

259,314

 

 

175,704

 

 

510,540

 

 

309,546

OPERATING COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas production expenses

 

 

77,644

 

 

62,620

 

 

149,592

 

 

100,620

Exploration expenses

 

 

516

 

 

4,446

 

 

549

 

 

4,797

Sales and marketing expenses

 

 

5,086

 

 

 —

 

 

9,259

 

 

 —

Production and ad valorem taxes

 

 

14,208

 

 

8,799

 

 

27,677

 

 

15,323

Depreciation, depletion, amortization and accretion

 

 

62,323

 

 

40,842

 

 

121,571

 

 

67,245

Impairment of oil and natural gas properties

 

 

194

 

 

 —

 

 

1,142

 

 

1,845

General and administrative expenses

 

 

29,467

 

 

29,713

 

 

51,887

 

 

97,178

Total operating costs and expenses

 

 

189,438

 

 

146,420

 

 

361,677

 

 

287,008

Operating income

 

 

69,876

 

 

29,284

 

 

148,863

 

 

22,538

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,528

 

 

150

 

 

2,270

 

 

507

Other income (expense)

 

 

6,715

 

 

(6,618)

 

 

10,143

 

 

3,917

Gain on sale of oil and natural gas properties

 

 

1,528

 

 

6,022

 

 

1,528

 

 

10,366

Interest expense

 

 

(44,590)

 

 

(35,961)

 

 

(88,510)

 

 

(68,986)

Earnings from equity investments

 

 

 —

 

 

242

 

 

 —

 

 

677

Net gains (losses) on commodity derivatives

 

 

(70,044)

 

 

59,614

 

 

(114,098)

 

 

98,496

Total other income (expense)

 

 

(104,863)

 

 

23,449

 

 

(188,667)

 

 

44,977

Income (loss) before income taxes

 

 

(34,987)

 

 

52,733

 

 

(39,804)

 

 

67,515

Income tax benefit

 

 

 —

 

 

255

 

 

 —

 

 

1,208

Net income (loss)

 

 

(34,987)

 

 

52,988

 

 

(39,804)

 

 

68,723

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

(3,987)

 

 

(3,987)

 

 

(7,974)

 

 

(7,974)

Preferred unit dividends and distributions

 

 

(12,500)

 

 

(10,950)

 

 

(22,408)

 

 

(27,415)

Preferred unit amortization

 

 

(6,189)

 

 

(5,282)

 

 

(12,119)

 

 

(6,992)

Net income allocable to participating securities

 

 

 —

 

 

(2,378)

 

 

 —

 

 

(1,974)

Net income (loss) attributable to common stockholders

 

$

(57,663)

 

$

30,391

 

$

(82,305)

 

$

24,368

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic

 

$

(0.71)

 

$

0.40

 

$

(1.01)

 

$

0.33

Weighted average number of shares used to calculate net income (loss) attributable to common stockholders - basic

 

 

81,787

 

 

76,395

 

 

81,356

 

 

73,045

Net income (loss) per common share - diluted

 

$

(0.71)

 

$

0.39

 

$

(1.01)

 

$

0.33

Weighted average number of shares used to calculate net income (loss) attributable to common stockholders - diluted

 

 

81,787

 

 

89,015

 

 

81,356

 

 

73,145

 

*Financial information for 2017 has been recast to reflect retrospective application of the successful efforts method of

accounting. See Note 3.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

10


 

 

Sanchez Energy Corporation

 

Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2018 (Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Preferred Stock

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Deficit

 

BALANCE, December 31, 2017

 

1,839

 

$

18

 

3,528

 

$

35

 

83,985

 

$

845

 

$

1,362,118

 

$

(1,832,156)

 

$

(469,140)

 

Adoption of accounting standards

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

22,739

 

 

22,739

 

Issuance of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

100

 

 

 1

 

 

567

 

 

 —

 

 

568

 

Dividends on Series A and Series B Preferred stock

 

 —

 

 

 —

 

 —

 

 

 —

 

805

 

 

 8

 

 

3,977

 

 

(7,972)

 

 

(3,987)

 

Dividends on SN UnSub preferred units

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(25,000)

 

 

(25,000)

 

Distributions - SN UnSub preferred units

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,592

 

 

2,592

 

Accretion of discount on SN UnSub preferred units

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(12,119)

 

 

(12,119)

 

Restricted stock awards, net of forfeitures

 

 —

 

 

 —

 

 —

 

 

 —

 

2,908

 

 

30

 

 

(30)

 

 

 —

 

 

 —

 

Non-cash stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,276

 

 

 —

 

 

4,276

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(39,804)

 

 

(39,804)

 

BALANCE, June 30, 2018

 

1,839

 

$

18

 

3,528

 

$

35

 

87,798

 

$

884

 

$

1,370,908

 

$

(1,891,720)

 

$

(519,875)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

11


 

Sanchez Energy Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

 

 

 

 

Six Months Ended

 

June 30, 

 

2018

    

2017*

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

(39,804)

 

$

68,723

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

121,571

 

 

67,245

Impairment of oil and natural gas properties

 

1,142

 

 

1,845

Gain on sale of oil and natural gas properties

 

(1,528)

 

 

(10,366)

Stock-based compensation expense

 

8,395

 

 

30,391

Net (gains) losses on commodity derivative contracts

 

114,098

 

 

(98,496)

Net cash settlements received (paid) on commodity derivative contracts

 

(39,306)

 

 

4,069

(Gain) loss on other derivatives

 

4,526

 

 

(249)

Gain on investments

 

(8,296)

 

 

(806)

Amortization of deferred gain on Western Catarina Midstream Divestiture

 

(11,860)

 

 

(11,860)

Amortization of debt issuance costs

 

9,832

 

 

6,205

Accretion of debt discount, net

 

697

 

 

316

Deferred taxes

 

 —

 

 

(1,208)

Gain on inventory market adjustment

 

 —

 

 

(9)

Loss from equity investments

 

 —

 

 

847

Distributions from equity investments

 

 —

 

 

(677)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

15,314

 

 

(50,521)

Accounts receivable - related entities

 

(1,701)

 

 

710

Other payables

 

11,832

 

 

816

Accrued liabilities

 

16,531

 

 

6,992

Other current liabilities

 

(51,203)

 

 

42,656

Other assets and liabilities, net

 

5,054

 

 

3,138

Net cash provided by operating activities

 

155,294

 

 

59,761

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Payments for oil and natural gas properties

 

(307,665)

 

 

(212,883)

Payments for other property and equipment

 

(1,237)

 

 

(15,130)

Proceeds from sale of oil and natural gas properties

 

1,425

 

 

60,802

Acquisition of oil and natural gas properties

 

2,834

 

 

(1,039,127)

Proceeds from sale of inventory

 

158

 

 

 —

Payments for investments

 

 —

 

 

(74)

Payments for purchases of inventory

 

(2,473)

 

 

 —

Sale of investments

 

 —

 

 

12,500

Net cash used in investing activities

 

(306,958)

 

 

(1,193,912)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from borrowings

 

539,865

 

 

258,500

Repayment of borrowings

 

(103,174)

 

 

(60,000)

Issuance of common stock

 

 —

 

 

135,942

Issuance of preferred units

 

 —

 

 

500,000

Issuance costs related to preferred units

 

 —

 

 

(20,894)

Financing costs

 

(13,208)

 

 

(24,633)

Preferred dividends paid

 

(7,974)

 

 

 —

Cash paid to tax authority for employee stock-based compensation awards

 

(682)

 

 

(1,019)

Preferred unit distribution

 

(9,908)

 

 

(27,415)

Net cash provided by financing activities

 

404,919

 

 

760,481

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

253,255

 

 

(373,670)

Cash and cash equivalents, beginning of period

 

184,434

 

 

501,917

Cash and cash equivalents, end of period

$

437,689

 

$

128,247

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

Change in asset retirement obligations

$

860

 

$

5,521

Change in accrued capital expenditures

 

8,166

 

 

61,735

SUPPLEMENTAL DISCLOSURE:

 

 

 

 

 

Cash paid for interest

$

63,658

 

$

61,786

 

* Financial information for 2017 has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 3.

The accompanying notes are an integral part of these condensed consolidated financial statements.

12


 

 

Sanchez Energy Corporation

 

Notes to the Condensed Consolidated Financial Statements

 

(Unaudited)

 

Note 1.  Organization and Business

 

Sanchez Energy Corporation (together with our consolidated subsidiaries, “Sanchez Energy,” the “Company,” “SN,” “we,” “our,” “us” or similar terms), a Delaware corporation formed in August 2011, is an independent exploration and production company focused on the acquisition and development of U.S. onshore unconventional oil and natural gas resources, with a current focus on the horizontal development of significant resource potential from the Eagle Ford Shale in South Texas. We also hold an undeveloped acreage position in the Tuscaloosa Marine Shale (“TMS”) in Mississippi and Louisiana, which offers potential future development opportunities. As of June 30, 2018, we have assembled approximately 485,000 gross leasehold acres (283,000 net acres) in the Eagle Ford Shale. In addition, we continually evaluate opportunities to grow our acreage and our producing assets through acquisitions. Our successful acquisition of such assets will depend on the opportunities and the financing alternatives available to us at the time we consider such opportunities. We have included definitions of some of the oil and natural gas terms used in this Quarterly Report on Form 10-Q in the “Glossary of Selected Oil and Natural Gas Terms.” 

 

Note 2.  Basis of Presentation and Summary of Significant Accounting Policies

 

The accompanying condensed consolidated financial statements are unaudited and were prepared from the Company’s records.  The condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  The Company derived the condensed consolidated balance sheet as of December 31, 2017 from the audited financial statements filed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Annual Report”). Because this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by U.S. GAAP.  These condensed consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the 2017 Annual Report, which contains a summary of the Company’s significant accounting policies and other disclosures.  In the opinion of management, these financial statements include the adjustments and accruals, all of which are of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods.  These interim results are not necessarily indicative of results to be expected for the entire year.

 

As of June 30, 2018, the Company’s significant accounting policies are consistent with those discussed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” in the notes to the Company’s consolidated financial statements contained in the 2017 Annual Report. 

 

Principles of Consolidation

 

The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

The accompanying condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil and natural gas reserves and related cash flow estimates used in the depletion and impairment of proved oil and natural gas properties, the evaluation of unproved properties for impairment, the fair value of commodity derivative contracts, embedded derivatives and asset retirement obligations, accrued oil and natural gas revenues, capital expenditures and expenses and the allocation of general and administrative (“G&A”) expenses. Actual results could differ materially from those estimates.

 

13


 

Recent Accounting Pronouncements

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07 “Compensation - Stock Compensation (ASC 718) - Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. We are currently in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

 

In August 2017, the FASB issued ASU 2017-12 “Derivatives and Hedging (ASC 815): Targeted Improvements to Accounting for Hedging Activities,” which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness, and presenting all items that affect earnings in the same income statement line item as the hedged item.  The ASU also provides new alternatives for applying hedge accounting.  This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.  The Company is currently in the process of evaluating the impact of adoption of this guidance on its consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01 “Business Combinations (ASC 805): Clarifying the Definition of a Business,” which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This ASU is now effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017.  The Company adopted this ASU on January 1, 2018, using a prospective method; the clarified definition of a business will be applied by the Company to transactions executed subsequent to the effective date.

 

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (ASC 230): Restricted Cash,” which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows.  This ASU is now effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2016-18 did not have an impact on the Company’s unaudited condensed consolidated statement of cash flows.

 

In October 2016, the FASB issued ASU 2016-16 “Income Taxes (ASC 740): Intra-Entity Transfers of Assets Other Than Inventory,” which eliminates a current exception in U.S. GAAP to the recognition of the income tax effects of temporary differences that result from intra-entity transfers of non-inventory assets.  The intra-entity exception is being eliminated under the ASU.  The standard is required to be applied on a modified retrospective basis and is now effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017.  The adoption of ASU 2016-16 did not have an impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (ASC 230): Classification of Certain Cash Receipts and Cash Payments”.  This ASU is intended to clarify the presentation of cash receipts and payments in specific situations.  The amendments in this ASU are now effective for financial statements issued for annual periods beginning after December 15, 2017.  The Company adopted this ASU on January 1, 2018, using a retrospective method. The adoption of ASU 2016-15 did not have an impact on the Company’s unaudited condensed consolidated statement of cash flows.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (ASC 842),” effective for annual and interim periods for public companies beginning after December 15, 2018, with a modified retrospective approach to be used for implementation.  Additionally in July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842 (Leases),” which provides narrow amendments to clarify how to apply certain aspects of ASU 2016-02. The effective date in ASU 2018-10 is the same as that of ASU 2016-02. The standards update the previous lease guidance by requiring the recognition of a right-to-use asset and lease liability on the statement of financial position for all leases with lease terms of more than 12 months.  The lease liability represents the discounted obligation to make future minimum lease payments and corresponding right-of-use asset on the balance sheet for most leases.  Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease.  The Company has several operating leases as further discussed in Note 17, “Commitments and Contingencies,” which will be impacted by the new rules under this standard.  The Company will not early adopt this standard, and will apply the revised lease rules for our interim and annual reporting periods starting January 1, 2019.  The Company is currently

14


 

evaluating the impact of these rules on its financial statements and has started the assessment process by evaluating the population of leases under the revised definition.  The Company is also in the process of implementing a lease accounting software to properly account for lease data upon adoption. The adoption of this standard will result in an increase in the assets and liabilities on the Company’s condensed consolidated balance sheets.  The quantitative impacts of the new standard are dependent on the active leases at the time of adoption.  As a result, the evaluation of the effect of the new standards will extend over future periods.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606).” In March, April, May and December of 2016, the FASB issued rules clarifying several aspects of the new revenue recognition standard.  The new guidance is effective for fiscal years and interim periods beginning after December 15, 2017.  This guidance outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized.  The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods and services. The new standard also requires more detailed disclosures related to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. See Note 18, “Revenue Recognition” for discussion of the Company’s adoption of the new standard. 

 

Note 3.  Change in Accounting Principle

 

During the fourth quarter of 2017, the Company voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration expenditures such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are charged against earnings as incurred, versus being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential property impairments under FASB Accounting Standards Codification (ASC) 360 “Property, Plant and Equipment” by comparing the net carrying value of oil and natural gas properties with associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized cost is reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and natural gas properties exceeds a full cost “ceiling,” using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the dispositions of oil and natural gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the remaining assets under the full cost method unless the sale or disposition does not cause a significant change in the relationship between costs and the estimated quantities of proved reserves. Our consolidated financial statements have been recast to reflect these differences for all periods presented, including the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Deficit, Condensed Consolidated Statements of Cash Flows and related information in Notes 3, 4, 6, 12, 13, 14, 16 and 19.

 

15


 

The following table presents the effects of the change to the successful efforts method in the condensed consolidated balance sheet as of June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to Condensed Consolidated Balance Sheet

June 30, 2017

 

Under Full Cost

 

Changes

 

As Reported Under Successful Efforts

Oil and natural gas properties:

 

 

 

 

 

 

 

 

 

Proved oil and natural gas properties

 

$

4,186,528

 

$

(1,360,068)

 

$

2,826,460

Unproved oil and natural gas properties

 

 

477,863

 

 

(8,497)

 

 

469,366

Total oil and natural gas properties

 

 

4,664,391

 

 

(1,368,565)

 

 

3,295,826

Less: Accumulated depreciation, depletion, amortization and impairment

 

 

(2,818,705)

 

 

1,423,768

 

 

(1,394,937)

Total oil and natural gas properties, net

 

 

1,845,686

 

 

55,203

 

 

1,900,889

Other assets

 

 

41,604

 

 

(1,014)

 

 

40,590

Total assets

 

$

2,218,053

 

$

54,189

 

$

2,272,242

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Other current liabilities

 

$

79,362

 

$

8,907

 

$

88,269

Total current liabilities

 

 

272,861

 

 

8,907

 

 

281,768

Other liabilities

 

 

56,387

 

 

20,412

 

 

76,799

Total liabilities

 

 

2,256,191

 

 

29,319

 

 

2,285,510

Accumulated deficit

 

 

(1,795,631)

 

 

24,870

 

 

(1,770,761)

Total stockholders' deficit

 

 

(447,323)

 

 

24,870

 

 

(422,453)

Total liabilities and stockholders' deficit

 

$

2,218,053

 

$

54,189

 

$

2,272,242

 

The following table presents the effects of the change to the successful efforts method in the condensed consolidated statement of operations for the three and six months ended June 30, 2017 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to the Condensed Consolidated Statement of Operations

For the three months ended June 30, 2017

 

Under Full Cost

 

Changes

 

As Reported Under Successful Efforts

Oil and natural gas production expenses

 

$

64,848

 

$

(2,228)

 

$

62,620

Exploration expenses

 

 

 —

 

 

4,446

 

 

4,446

Depreciation, depletion, amortization and accretion

 

 

50,851

 

 

(10,009)

 

 

40,842

Impairment of oil and natural gas properties

 

 

 —

 

 

 —

 

 

 —

Gain on sale of oil and natural gas properties

 

 

7,133

 

 

(1,111)

 

 

6,022

Net income

 

 

46,309

 

 

6,679

 

 

52,988

Net income allocable to participating securities

 

 

(1,893)

 

 

(485)

 

 

(2,378)

Net income attributable to common stockholders

 

$

24,198

 

$

6,193

 

$

30,391

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic

 

$

0.32

 

$

0.08

 

$

0.40

Net income per common share - diluted

 

$

0.31

 

$

0.08

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to the Condensed Consolidated Statement of Operations

For the six months ended June 30, 2017

 

Under Full Cost

 

Changes

 

As Reported Under Successful Efforts

Oil and natural gas production expenses

 

$

105,073

 

$

(4,453)

 

$

100,620

Exploration expenses

 

 

 —

 

 

4,797

 

 

4,797

Depreciation, depletion, amortization and accretion

 

 

84,057

 

 

(16,812)

 

 

67,245

Impairment of oil and natural gas properties

 

 

 —

 

 

1,845

 

 

1,845

Gain on sale of oil and natural gas properties

 

 

12,276

 

 

(1,910)

 

 

10,366

Net income

 

 

56,010

 

 

12,713

 

 

68,723

Net income allocable to participating securities

 

 

(1,021)

 

 

(953)

 

 

(1,974)

Net income attributable to common stockholders

 

$

12,608

 

$

11,760

 

$

24,368

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic

 

$

0.17

 

$

0.16

 

$

0.33

Net income per common share - diluted

 

$

0.17

 

$

0.16

 

$

0.33

16


 

 

The following table presents the effects of the change to the successful efforts method in the condensed consolidated statement of cash flows for the six months ended June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to the Condensed Consolidated Statement of Cash Flows

For the six months ended June 30, 2017

    

    

Under Full Cost

    

Change

    

As Reported Under Successful Efforts

Net income

 

 

$

56,010

 

$

12,713

 

$

68,723

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion

 

 

 

84,057

 

 

(16,812)

 

 

67,245

Impairment of oil and natural gas properties

 

 

 

 —

 

 

1,845

 

 

1,845

Gain on sale of oil and natural gas properties

 

 

 

(12,276)

 

 

1,910

 

 

(10,366)

Amortization of deferred gain on Catarina Midstream Sale

 

 

 

(7,407)

 

 

(4,453)

 

 

(11,860)

Net cash provided by operating activities

 

 

 

64,558

 

 

(4,797)

 

 

59,761

Payments for oil and natural gas properties

 

 

 

(217,680)

 

 

4,797

 

 

(212,883)

Net cash used in investing activities

 

 

 

(1,198,709)

 

 

4,797

 

 

(1,193,912)

Net cash provided by financing activities

 

 

 

760,481

 

 

 —

 

 

760,481

Decrease in cash and cash equivalents

 

 

 

(373,670)

 

 

 —

 

 

(373,670)

Cash and cash equivalents, beginning of period

 

 

 

501,917

 

 

 —

 

 

501,917

Cash and cash equivalents, end of period

 

 

$

128,247

 

$

 —

 

$

128,247

 

 

Note 4.  Acquisitions and Divestitures

 

Our acquisitions are accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations”.  A business combination may result in the recognition of a gain or goodwill based on the measurement of the fair value of the assets acquired at the acquisition date as compared to the fair value of consideration transferred, adjusted for purchase price adjustments.  The initial accounting for acquisitions may not be complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition dates.  The results of operations of the properties acquired in our acquisitions have been included in the condensed consolidated financial statements since the closing dates of the acquisitions.

 

Typically, the sale or disposition of oil and natural gas properties results in a gain or loss being recorded as the difference between the proceeds received and the net capitalized costs of the oil and natural gas properties, unless the sale or disposition does not cause a significant change in the relationship between costs and the estimated quantities of proved reserves. In circumstances where treating a sale like a normal retirement does not result in a significant change in the relationship between costs and the estimated quantities of proved reserves, the proceeds are applied to reduce net capitalized costs. 

 

17