Sabine Oil & Gas LLC Announces Second Quarter 2014 Financial and Operational Results

HOUSTON, Aug. 11, 2014 /PRNewswire/ -- Sabine Oil & Gas LLC ("Sabine" or the "Company") today reported its second quarter 2014 financial and operational results.

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Key Second Quarter Results:

  • Increased average daily production by 26% to 206 MMcfe/d in the second quarter of 2014, from 164 MMcfe/d in the same period of 2013. Excluding the effects of the North Texas property divestiture in late 2013, the average daily production in the second quarter of 2014 increased by 45% compared to the same period in 2013 on a pro forma basis.  Oil production increased by 56% to 5,200 Bbl/d over the same period in 2013. Average daily production increased by 11% compared to the first quarter of 2014.
  • Oil and natural gas liquids (collectively, "liquids") production volumes comprised 51% of revenues and 32% of total production.
  • Liquids revenues and production for the quarter increased by 58% and 45%, respectively over the same period in 2013.
  • Adjusted EBITDA for the second quarter of 2014 was $83.6 million, representing a 29% increase over the same period in 2013 and an 8% increase over first quarter 2014.
  • In East Texas, completed two Cotton Valley horizontal wells in Harrison County, Texas which had an average rate per well for a 30-day period ("IP30") of over 5.2 MMcfe/d, with 37% liquids.
  • Also in East Texas, completed the remaining four of the fifteen wells in the Haynesville Shale covered under a joint development agreement which averaged an IP30 of over 6.7 MMcf/d.
  • In the Eagle Ford Shale, completed ten wells in the Shiner Area in northern DeWitt County and southern Lavaca County, which averaged an IP30 of over 960 BOEPD, with 40% oil and 72% liquids.
  • In North Texas, completed three Granite Wash wells which averaged an IP 30 of over 1,300 BOEPD, with 60% oil and 81% liquids.
  • The Company closed the acquisition of certain oil and natural gas properties in North Texas for $19.1 million, net of purchase price adjustments.

Commenting on the quarter's results, Sabine's Chief Executive Officer David Sambrooks stated, "The quarter overall was within our range of expectations, and close, or favorable, to budget across all metrics. In East Texas, our Cotton Valley wells tested areas of Harrison County where we have significant inventories, but limited data. These results were encouraging, but not up to expectations. However, subsequent to the end of the second quarter, we tested an additional Harrison County Cotton Valley well with a modified completion design and early results are significantly improved. We will report further on these results when we collect more production data. Following the completion of this Harrison County Cotton Valley test well, we moved our East Texas drilling activities back to Rusk County for the rest of 2014 and the beginning of 2015. Also in East Texas, our final Haynesville completions of previously drilled wells under our carry joint development agreement were slightly disappointing. However, we are planning to drill and test a small number of new Haynesville wells with a new well architecture and completion design."

"Eagle Ford and Granite Wash well results were overall within our range of expectations, and continue to provide economic liquids driven growth to our bottom line," Sambrooks added with respect to the Company's South and North Texas operations.  "For the remainder of the year, we plan to reduce capital expenditures by approximately $30 - $40 million, mostly due to reducing land and seismic expenditures as well as reducing activity in the Eagle Ford and shifting some of that activity to the Cotton Valley. In our Sugarkane field in the Eagle Ford, all of our acreage is held by production or operations and we currently have a back log of wells drilled but not completed.  We expect to complete these wells this year once the required infrastructure is completed. As a result, we moved our rig from the field until sometime in 2015."

"Because of our capital reduction and the aforementioned delays in completions, we expect production to come in at the lower end of guidance. However, even with production at the lower end of guidance, we are achieving expense per unit of production results at the lower end of our guidance range as well."  

Sabine and Forest Oil Corporation Revised Business Combination Transaction

Commenting on the transaction with Forest Oil Corporation ("Forest"), Sambrooks stated, "Following the end of the second quarter, we revised the previously announced business combination transaction with Forest.  Once completed, the combined company will form one of the industry's largest East Texas players with significant inventory in the Eagle Ford and Granite Wash as well. We expect a fourth quarter closing of the transaction pending necessary approvals."

For information regarding the previously announced revised business combination of Sabine and Forest, please refer to the joint press release issued by Forest dated July 10, 2014, Amendment No. 1 to the preliminary proxy statement filed on Schedule 14A by Forest on August 7, 2014 and other documents filed with the SEC.

Results of the Second Quarter 2014

Production volumes during the three months ended June 30, 2014 were 18.7 Bcfe, an increase of 3.8 Bcfe or approximately 26% from second quarter 2013 production. The increase in production is primarily due to an increase in production in South Texas through an active and successful development program in this region. These increases were partially offset by the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area.

Revenues from production of oil, natural gas liquids and natural gas increased from $81.4 million in the second quarter of 2013 to $121.0 million in the second quarter of 2014, an increase of 49%. This increase of $39.6 million was a result of an increase in production of 26%, coupled with an increase in average prices per Mcfe of 18%.

During the second quarter of 2014, the Company's realized average price for natural gas including hedges was $4.33 per Mcf, or $0.31 per Mcf lower than the Company's unhedged realized average price of $4.64 per Mcf. The Company's realized average price of oil including hedges was $88.70 per Bbl, or $7.14 per Bbl lower than the Company's unhedged realized average price of $95.84 per Bbl. In the second quarter of 2014, our hedged volumes were approximately 77% and 79% of both our natural gas and oil volumes, respectively. The Company realized a loss on settlements of such derivative instruments for the second quarter of 2014 of $7.6 million. In the second quarter of 2013, our hedged volumes were approximately 85% and 60% of our natural gas and oil volumes, respectively, which resulted in a realized gain on settlements of such derivative instruments of $7.9 million.

Lease operating expenses increased from $10.0 million in the second quarter of 2013 to $11.6 million in the second quarter of 2014, an increase of 16%. The increase in lease operating expense of $1.6 million is primarily due to an increase in production in South Texas partially offset by the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area. Lease operating expenses decreased from $0.67 per Mcfe in the second quarter of 2013 to $0.62 per Mcfe in the second quarter of 2014. The decrease of $0.05 per Mcfe is primarily due to higher production volumes associated with increased completion activity in the last twelve months.

Marketing, gathering, transportation and other expenses increased from $3.7 million in the second quarter of 2013 to $6.2 million in the second quarter of 2014. Marketing, gathering, transportation and other expenses increased on a per unit basis from $0.25 per Mcfe in the second quarter of 2013 to $0.33 per Mcfe in the second quarter of 2014. The per unit basis increase is primarily due to our increasing gas volume associated with our South Texas and East Texas development activities, which were subject to higher fees due to a lack of pipeline infrastructure in the areas.

Production and ad valorem taxes increased from $4.1 million in the second quarter of 2013 to $4.8 million in the second quarter of 2014, an increase of 19%. The increase is primarily related to increased production in our South Texas region which is incurring higher production taxes on oil and natural gas liquids production, which was offset by a slight decrease in our North Texas production due to the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area. Production and ad valorem taxes decreased on a per unit basis from $0.27 per Mcfe in the second quarter of 2013 to $0.26 per Mcfe in the second quarter of 2014. The Company also expects to experience continued variability in its production taxes as a result of timing of approval for high cost gas tax exemptions. Production taxes as a percentage of oil and natural gas revenues were 4% and 5% for the second quarter of 2014 and 2013, respectively.

General and administrative expenses increased from $6.8 million in the second quarter of 2013 to $7.6 million in the second quarter of 2014, an increase of $0.8 million, or 13%, primarily as a result of higher overhead associated with our growing business. General and administrative expenses decreased from $0.45 per Mcfe in the second quarter of 2013 to $0.41 per Mcfe in the second quarter of 2014 reflecting efficiencies gained due to increased production without a proportionate increase in general and administrative expenses.

DD&A increased from $31.7 million in the second quarter of 2013 to $50.3 million in the second quarter of 2014, an increase of $18.6 million. Depletion, depreciation, and amortization increased from $2.13 per Mcfe in the second quarter of 2013 to $2.69 per Mcfe in the second quarter of 2014, or an increase of 26%. Increase in the DD&A rate is primarily driven by reductions to proved reserves due to the sale of certain oil and natural gas properties in North Texas during the fourth quarter of 2013.

Other operating expenses in the second quarter of 2014 relate primarily to the write-off of previously deferred public offering costs of $2.0 million related to offerings which were aborted prior to the Company's decision to commence the merger  with Forest Oil Corporation and $3.3 million of transaction costs related to the merger.

Interest expense increased from $25.0 million in the second quarter of 2013 to $26.8 million in the second quarter of 2014, an increase of $1.8 million, or 7%, primarily as a result of lower capitalized interest. We capitalized $1.6 million and $3.0 million of interest expense for the three months ended June 30, 2014 and 2013, respectively.

The Company recognized a loss on derivative contracts of $16.9 million and a gain on derivative contracts of $28.3 million for the second quarter of 2014 and 2013, respectively. The amount of future gain or loss recognized on derivative instruments is dependent upon future commodity prices.

Results of the six months ended June 30, 2014

Production volumes during the six months ended June 30, 2014 were 35.3 Bcfe, an increase of 7.9 Bcfe or approximately 29% from the first six months of 2013 production. The increase in production is primarily due to an increase in production in South Texas through an active and successful development program in this region. These increases were partially offset by the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area.

Revenues from production of oil, natural gas liquids and natural gas increased from $148.9 million in the first six months of 2013 to $233.3 million in the first six months of 2014, an increase of 57%. This increase of $84.4 million was a result of an increase in production of 29%, coupled with an increase in average prices per Mcfe of 22%.

During the first six months of 2014, the Company's realized average price for natural gas including hedges was $4.48 per Mcf, or $0.36 per Mcf lower than the Company's unhedged realized average price of $4.84 per Mcf. The Company's realized average price of oil including hedges was $89.20 per Bbl, or $5.47 per Bbl lower than the Company's unhedged realized average price of $94.67 per Bbl. In the first six months of 2014, our hedged volumes were approximately 82% and 80% of both our natural gas and oil volumes, respectively. The Company realized a loss on settlements of such derivative instruments for the first six months of 2014 of $15.0 million. In the first six months of 2013, our hedged volumes were approximately 89% and 61% of our natural gas and oil volumes, respectively, which resulted in a realized gain on settlements of such derivative instruments of $22.7 million.

Lease operating expenses increased from $19.6 million in the first six months of 2013 to $22.8 million in the first six months of 2014, an increase of 16%. The increase in lease operating expense of $3.1 million is primarily due to an increase in production in South Texas partially offset by the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area. Lease operating expenses decreased from $0.72 per Mcfe in the first six months of 2013 to $0.64 per Mcfe in the first six months of 2014. The decrease of $0.08 per Mcfe is primarily due to higher production volumes associated with increased completion activity in the last twelve months.

Marketing, gathering, transportation and other expenses increased from $8.2 million in the first six months of 2013 to $10.5 million in the first six months of 2014. Marketing, gathering, transportation and other expenses remained consistent on a per unit basis at $0.30 per Mcfe in the first six months of 2013 and 2014. Offsetting factors on a per unit basis include increases primarily due to our increasing gas volume associated with our South Texas and East Texas development activities which were subject to higher fees due to a lack of pipeline infrastructure in the areas, and decreases due to our increasing oil volumes associated with our development activities in North Texas and South Texas regions which are not subject to gathering and transportation charges.

Production and ad valorem taxes increased from $7.6 million in the first six months of 2013 to $10.4 million in the first six months of 2014, an increase of 38%. Production and ad valorem taxes increased on a per unit basis from $0.28 per Mcfe in the first six months of 2013 to $0.30 per Mcfe in the first six months of 2014. The increase is primarily related to increased production in our South Texas region which is incurring higher production taxes on oil and natural gas liquids production, which was offset by a slight decrease in our North Texas production due to the December 2013 sale of our interests in certain oil and natural gas properties in the Texas Panhandle and surrounding Oklahoma area. The Company expects to experience continued variability in its production taxes as a result of timing of approval for high cost gas tax exemptions. Production taxes as a percentage of oil and natural gas revenues were 4% and 5% for the first six months of 2014 and 2013, respectively.

General and administrative expenses increased from $12.9 million in the first six months of 2013 to $14.0 million in the first six months of 2014, an increase of $1.1 million, or 8%, primarily as a result of higher overhead associated with our growing business. General and administrative expenses decreased from $0.47 per Mcfe in the first six months of 2013 to $0.40 per Mcfe in the first six months of 2014 reflecting efficiencies gained due to increased production without a proportionate increase in general and administrative expenses.

DD&A increased from $57.9 million in the first six months of 2013 to $90.2 million in the first six months of 2014, an increase of $32.3 million. Depletion, depreciation, and amortization increased from $2.11 per Mcfe in the first six months of 2013 to $2.55 per Mcfe in the first six months of 2014, or an increase of 21%. Increase in the DD&A rate is primarily driven by reductions to proved reserves due to the sale of certain oil and natural gas properties in North Texas during the fourth quarter of 2013.

Other operating expenses in the first six months of 2014 relate primarily to the write-off of previously deferred public offering costs of $3.3 million related to offerings which were aborted prior to the Company's decision to commence the merger with Forest Oil Corporation and $2.0 million of transaction costs related to the merger, partially offset by the gain on sale of other assets of $1.5 million.

Interest expense increased from $48.3 million in the first six months of 2013 to $52.7 million in the first six months of 2014, an increase of $4.4 million, or 9%, primarily as a result of lower capitalized interest. We capitalized $3.5 million and $6.9 million of interest expense for the six months ended June 30, 2014 and 2013, respectively.

The Company recognized a loss on derivative contracts of $39.0 million and a gain on derivative contracts of $8.7 million for the first six months of 2014 and 2013, respectively. The amount of future gain or loss recognized on derivative instruments is dependent upon future commodity prices.

Debt/Liquidity

As of June 30, 2014, our borrowing base under our First Lien Credit Facility was $700 million, and we had an outstanding balance of approximately $463.6 million, net of cash on hand. As of August 11, 2014, the Company has drawn an additional $49 million and had an outstanding balance of $524 million.

Hedging

For the remainder of 2014 (July-December), the Company has NYMEX hedges in place for the calendar year of 2014 on approximately 135,000 MMbtu/d of its projected natural gas production, at a weighted average price of $4.24/ MMbtu, and 4,400 Bbl/day of oil production at a weighted average price of $92.81/Bbl.  For the calendar year of 2015, the Company has hedge contracts in place for 115,000 MMbtu/d of its projected natural gas production at a weighted average price of $4.18/MMbtu, and 4,375 Bbl/day of oil production at a weighted average price of $90.38/Bbl.

Sabine Oil & Gas LLC is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States. Our current operations are principally located in the Cotton Valley and Haynesville Shale in East Texas, the Eagle Ford Shale in South Texas, and the Granite Wash in the Texas Panhandle.

This press release includes "forward-looking statements." All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include, but are not limited to forward-looking statements about plans, strategies, objectives and anticipated financial and operating results of the Company, including the Company's drilling program, production, hedging activities, capital expenditure levels and other guidance. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow, access to capital and the timing of development expenditures.  For a detailed list of the Company's risk factors, please consult the Company's Annual Report, subsequent quarterly reports and other press releases posted at www.sabineoil.com.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Sabine Oil & Gas LLC

Operational and Financial Statistics (unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,



2014


2013


2014


2013

Oil, NGL and natural gas sales by product (in thousands):








Oil


$45,349


$27,634


$84,472


$51,153

NGL


16,665


11,674


33,742


23,608

Natural gas


58,956


42,048


115,062


74,118

Total


$ 120,970


$ 81,356


$ 233,276


$ 148,879










Production data:









Oil (MBbl)


473.19


303.50


892.25


554.17

NGL (MBbl)


526.40


383.88


1,034.73


724.80

Natural gas (Bcf)


12.72


10.76


23.77


19.79

Combined (Bcfe)(1)


18.72


14.88


35.33


27.46










Average prices before effects of economic hedges (2):








Oil (per Bbl)


$95.84


$91.05


$94.67


$92.31

NGL (per Bbl)


$31.66


$30.41


$32.61


$32.57

Natural gas (per Mcf)


$4.64


$3.91


$4.84


$3.74

Combined (per Mcfe)(1)


$6.46


$5.47


$6.60


$5.42










Average realized prices after effects of economic hedges (2):








Oil (per Bbl)


$88.70


$89.08


$89.20


$90.22

NGL (per Bbl)


$31.66


$30.41


$32.61


$32.57

Natural gas (per Mcf)


$4.33


$4.70


$4.48


$4.95

Combined (per Mcfe)(1)


$5.75


$6.00


$6.18


$6.25










Average costs (per Mcfe)(1):









Lease operating 


$0.62


$0.67


$0.64


$0.72

Workover 


$0.03


$0.00


$0.02


$0.01

Marketing, gathering, transportation and other


$0.33


$0.25


$0.30


$0.30

Production and ad valorem taxes


$0.26


$0.27


$0.30


$0.28

General and administrative


$0.41


$0.45


$0.40


$0.47

Depletion, depreciation and amortization


$2.69


$2.13


$2.55


$2.11



(1)

Oil production was converted at six Mcf per Bbl to calculate combined production and per Mcfe amounts.

(2)

Average prices shown in the table reflect prices both before and after the effects of our realized commodity hedging transactions. Our calculation of such effects includes realized gains or losses on cash settlements for commodity derivatives.

 

Sabine Oil & Gas LLC









CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

















Three Months Ended June 30,


Six Months Ended June 30,








2014


2013


2014


2013




(in thousands)


(in thousands)











Revenues










Oil, natural gas liquids and natural gas sales


$ 120,970


$ 81,356


$ 233,276


$ 148,879


Other 


448


201


859


374

Total revenues


121,418


81,557


234,135


149,253











Operating expenses










Lease operating 


11,563


10,011


22,748


19,646


Workover 


520


31


705


261


Marketing, gathering, transportation and other

6,161


3,744


10,547


8,221


Production and ad valorem taxes


4,849


4,077


10,441


7,568


General and administrative 


7,633


6,765


14,024


12,930


Depletion, depreciation and amortization


50,283


31,712


90,208


57,884


Accretion


223


218


439


428


Impairments


1,659


4


1,659


4


Other operating expenses


4,681


32


3,251


24

Total operating expenses


87,572


56,594


154,022


106,966

Other income (expenses)










Interest expense


(26,831)


(24,978)


(52,658)


(48,296)


Loss on derivative instruments


(16,915)


28,306


(39,041)


8,721


Other income 


20


-


21


4

Total other expenses


(43,726)


3,328


(91,678)


(39,571)











Net income (loss)


$   (9,880)


$ 28,291


$ (11,565)


$    2,716

 

Sabine Oil & Gas LLC

ADJUSTED EBITDA (unaudited)












Three Months Ended


Six Months Ended



June 30,


June 30,



2014


2013


2014


2013



(in thousands)


(in thousands)










Net income (loss)


$ (9,880)


$ 28,291


$ (11,565)


$    2,716










Reconciliation to derive Adjusted EBITDA (1):









   Interest, net of capitalized interest


26,831


24,978


52,658


48,296

   Depletion, depreciation and amortization


50,283


31,712


90,208


57,884

   Impairments


1,659


4


1,659


4

   Other


5,222


-


3,723


1

   Amortization of deferred rent


(27)


(62)


(54)


(195)

   Accretion 


223


218


439


428

   Loss (gain) on derivative instruments


11,096


(20,122)


32,037


14,569

   Option premium amortization


(1,799)


(292)


(7,955)


(581)

Adjusted EBITDA (1)


$ 83,608


$ 64,727


$ 161,150


$ 123,122



(1)

Adjusted EBITDA is a non-GAAP financial measure. Sabine believes the presentation of Adjusted EBITDA provides useful information to investors to evaluate the operations of the business excluding certain items and for the reasons set forth below. Adjusted EBITDA should not be considered an alternative to net income, operating income, cash flow operating activities or any other measure of financial performance presented in accordance with US GAAP. Sabine's Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner.



Sabine uses Adjusted EBITDA for the following purposes:

  • to assess the financial performance of the Company's assets, without regard to financing methods, capital structure or historical cost basis;
  • to assess the Company's operating performance and return on capital as compared to those of other companies in the oil and gas industry, without regard to financing or capital structure;
  • to assess the viability of acquisition and capital expenditure projects and the overall rates of return on alternative investment opportunities;
  • to assess the ability of the Company's assets to generate cash sufficient to pay interest costs, pay distributions and support indebtedness;
  • for various  purposes, including strategic planning and forecasting;
  • the indenture governing the 2017 Notes contains covenants that, among other things, limit Sabine's ability and the ability of the Sabine's restricted subsidiaries to incur additional indebtedness unless the ratio of adjusted consolidated EBITDA to adjusted consolidated interest expense over the trailing four fiscal quarters will be at least 2.0 to 1.0 (subject to exceptions for borrowings within certain limits under the Credit Facility); and
  • the Credit Facility requires Sabine to comply with certain financial covenants which involve maintaining certain ratios, including an interest coverage ratio at the end of each quarter which defined as a ratio of adjusted EBITDA for the period of four fiscal quarters then ending to interest expense for such period of not less than 2.5 to 1.0.

 

Sabine Oil & Gas LLC

Selected Balance Sheet Data (unaudited)




June 30,


December 31,




2014


2013




(in thousands)

Assets:






    Total current assets


$   100,151


$          93,921

    Total property plant and equipment, net


1,650,340


1,380,042

    Other non-current assets


194,963


204,756

Total assets


$ 1,945,454


$      1,678,719







Liabilities and member's capital:





    Total current liabilities


$   261,449


$        209,327

    Credit facility


475,000


250,000

    Term loan


646,094


645,272

    Senior notes


348,354


348,040

    Other non-current liabilities


25,112


25,070

Total Liabilities 


1,756,009


1,477,709







    Member's capital


189,445


201,010







Total Liabilities and member's capital


$ 1,945,454


$      1,678,719













Selected Cash Flow Data (unaudited)








Six months Ended June 30,




2014


2013




(in thousands)

Net cash provided by operating activities


$     99,615


$          93,386

Net cash used in investing activities


(324,887)


(141,925)

Net cash provided by financing activities


224,854


42,364

Net (decrease) increase in cash and cash equivalents


(418)


(6,175)







Cash and cash equivalents, beginning of period


11,821


6,193

Cash and cash equivalents, end of period


$     11,403


$                18

 

SOURCE Sabine Oil & Gas LLC



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