Amid sagging financial performance, Houston-based oil company Sanchez Energy has tapped a financial advisory firm that offers restructuring, recapitalization and Chapter 11 bankruptcy preparation services.
Sanchez Energy said Tuesday afternoon that it has contracted Moelis & Co. as a financial adviser to “explore strategic alternatives to strengthen its balance sheet and maximize the value of the company.”
The company’s stock has traded below $1 per share since Nov. 16. Under New York Stock Exchange rules, the company could face getting delisted if its stock continues to trade below that threshold for more than 30 days.
In a statement, Sanchez Energy CEO Tony Sanchez III said the company has focused on taking steps to stabilize production and reduce costs.
“The responsive actions taken by our team are beginning to result in increased operating margins and cash flow as we head into 2019,” Sanchez said. “However, these operational challenges, combined with volatility in the commodity markets and the company’s leverage, led the company to review opportunities to improve its financial flexibility for continued success in the future.”
Interest payments and financial obligations to pay dividends to preferred stockholders appear to be stinging Sanchez. The Houston company reported a $17.3 million loss on $277.7 million of revenue during the third quarter. During that period, the company paid $44.1 million in interest payments and another $12.5 million to preferred stockholders.
Sanchez holds more than 285,000 net acres of leases in the Eagle Ford Shale of South Texas and another 37,000 acres in the Tuscaloosa Marine Shale of Louisiana and Mississippi.
The company has filed for 182 drilling permits in Texas this year. But with those wells in the western end of the Eagle Ford, the company’s leases tend to produce much more natural gas than crude oil.
Sanchez’s Eagle Ford wells produced around 179,000 barrels of crude oil and 5.6 billion cubic feet of natural gas in 2017, Railroad Commission of Texas records show.
Although natural gas is trading at four-year highs above $4 per MMBTU, crude prices reached a four-year high of $75 per barrel in October but fell sharply down to the $50 per barrel range amid fears of a global supply glut in November.
Despite the volatility in the commodity markets, Sanchez’s pipeline and storage terminal spinoff Sanchez Midstream Partners appears to be faring better than its parent company.
With pipelines, storage terminals and a natural gas processing plant in the western Eagle Ford, Sanchez Midstream Partners reported making a $413,000 profit on $18.1 million of revenue during the third quarter.
Over the past two years, more than a dozen similar pipeline and storage terminal companies that were set up as master limited partnerships have been folded back into the their parent companies.
Sanchez Energy owns 15 percent of Sanchez Midstream Partners, but it remains to be seen if the pipeline and storage terminal operator will be folded into its parent company.
Supply Glut: Oil plunges again, nears $50 a barrel