Sanchez Energy Offers Shares & Notes To Fund Catarina Deal - Analyst Blog

Independent exploration and production (E&P) company, Sanchez Energy Corp. SN announced two offerings – debt and equity – primarily to finance the pending acquisition of the Eagle Ford properties, named Catarina, from integrated oil major Royal Dutch Shell plc (RDS.A).

Sanchez Energy announced an offering of 5,000,000 shares, with a 30-day option to underwriters for an additional purchase of 750,000 shares. The company has also offered $700 million of senior notes due to mature in 2023.

Sanchez Energy intends to use the proceeds from these offerings to fund the $639 million Catarina acquisition, to repay borrowings under its credit facility and for other corporate purposes.

The stock offering represents a less than 10% increase in its shares. Hence, it should not have any significant dilutive effect on the stock. However, a $700 million debt offering could weigh on the company's financials.

Last month, Sanchez Energy entered into a deal with Shell to acquire properties in the Eagle Ford trend of South Texas. In the process, the company doubled its proved reserves. Also, the fact that these properties are immediately accretive to cash flow is an advantage.

Headquartered in Houston, TX, Sanchez Energy focuses on acquisition, exploration and development of oil and natural gas resources, primarily in the Eagle Ford Shale in South Texas.

The company has, however, performed poorly in the past few quarters. It has failed to meet the Zacks Consensus Estimate in the trailing four quarters, with an average negative surprise of 64.01%. Sanchez Energy currently holds a Zacks Rank #5 (Strong Sell), which reflects its recent weak performances.

Meanwhile, one can consider better-ranked players from the oil and gas E&P industry like Encana Corp. ECA and Ultra Petroleum Corp. UPL, both of which sport a Zacks Rank #1 (Strong Buy).