The Houston-based $1.8 billion exploration and production company Sanchez Energy Corp (NYSE:SN) is in an all-out effort to boost its capacity, production levels and eventually profits. Although global oil giants like Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and BP PLC (ADR) (NYSE:BP) have had no or less success in the North America shale formation, Sanchez and its smaller peers are enjoying every bit of the business.
The company recently announced a deal to acquire properties in the oil-rich Eagle Ford Shale formation from Royal Dutch Shell. The acquisition will almost double the company’s acreage position in the formation and also almost double its proven reserve and production levels. Furthermore, the acquisition will improve the company’s ranking among leaseholders in Eagle Ford to No. 4 from No. 12 where it is currently rated.
The great thing about the Sanchez-Shell deal is that it comes at a favorable price for the former at a time when business is booming for North American oil companies.
Sanchez Energy Corp (NYSE:SN) will pay $639 million to Shell in exchange for 106,000 net acres in Eagle Ford Shale. The deal will nearly double Sanchez’s size in the formation to about 119 million barrels of proven reserves of oil equivalent. The company’s production level will also double to about 49,000 barrel per day later this year.
Amble room to apply lessons
According to Sanchez Energy Corp (NYSE:SN) CEO, Tony Sanchez, the deal will enable the company to put to use the numerous lessons that it has already learned in Eagle Ford. The lessons include cost reduction and production process efficiencies. In other words, the executive believes that the company is more than a double winner in the deal because it will boost its opportunities in many different ways for a longer term.
The properties acquired from Shell include proven oil equivalent reserves of 60 million and the properties produce about 24,000 barrels per day in the first three months of 2014.
Creating shareholder value
There is no gainsaying that the latest deal with Shell comes as a jackpot for Sanchez Energy Corp (NYSE:SN). It even makes good reading that the company intends to replicate its successful strategies in the newly acquired properties to keep costs low but increase production and attract higher revenue.
Increased production and higher revenue are a recipe for a big profit if costs are curbed and that is something that is already happening in Sanchez Energy Corp (NYSE:SN).
