Sabine Oil & Gas LLC Announces 2013 First Quarter Financial and Operational Results

HOUSTON, May 9, 2013 /PRNewswire/ -- Sabine Oil & Gas LLC today reported its unaudited first quarter 2013 financial and operating results.

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Key First Quarter Results:

• In the Anadarko Basin, the Company completed a Granite Wash well with an average gross production rate of over 1,140 BOEPD (71% oil) for the first 90 days of production 
• In the Eagle Ford Shale, the Company completed one well during the quarter and drilled new wells to TD in the South Shiner area of North DeWitt County. Subsequent to quarter-end these three wells were completed and have begun flow back operations this week. The results of these recent completions will be evaluated for several months before further reporting. The Company has also begun its development program in South DeWitt County on the Sugarkane block and is currently pad drilling four wells utilizing two rigs
• Subsequent to March 31, 2013, the Company closed on the purchase of 4,955 net acres in the South Shiner area in the Eagle Ford Shale for approximately $14.9 million
• The Company executed a joint development agreement providing for the completion of 15 drilled but uncompleted Haynesville Shale wells over the next two years. Our partner will pay approximately $69 million of the estimated $77 million of remaining costs to complete these wells to earn a 50% working interest. Seven of the completions are scheduled for the balance of 2013 at no cost to the Company
• In April, the Company's borrowing base under its First Lien Credit Facility was increased to $550 million

Commenting on the quarter's results, Sabine's Chief Executive Officer David Sambrooks noted "The Company very effectively ramped up activity in our new liquids rich operating areas in the Eagle Ford Shale and Anadarko Basin. We moved from a 1 rig program prior to year end to a 6 rig program during the first quarter safely and efficiently. Over the next few quarters we expect to deliver some exciting well results that will economically grow our production - especially our liquids production - and cash flow."   

Results of the First Quarter 2013

Production volumes during the three months ended March 31, 2013 were 12.6 Bcfe, a decrease of 1.09 Bcfe or approximately 8% from first quarter 2012 production.

Revenues from production of oil and natural gas increased from $49.8 million in the first quarter of 2012 to $68.3 million in the first quarter of 2013, an increase of 37%. This increase of $18.5 million was a result of an increase in average prices per Mcfe of 49% partially offset by a decrease in production by 8%.

During the first quarter of 2013, the Company's hedged realized average price for natural gas was $5.36 per  Mcf, or $1.73 per Mcf more than the Company's unhedged realized average price of $3.63 per Mcf. In the first quarter of 2013, approximately 94% of our natural gas volumes and 61% of our oil volumes were hedged, which resulted in a realized gain on such derivative instruments of $15 million. In the first quarter of 2012, approximately 60% of our natural gas volumes were hedged and 46% of our oil volumes were hedged, which resulted in a realized gain on such derivative instruments of $26.4 million.

Lease operating expenses decreased from $12.0 million in the first quarter of 2012 to $9.6 million in the first quarter of 2013, a decrease of 20%. The decrease in lease operating expense is due to a decrease in production volumes by 8%, the lower operating costs associated with the recently acquired Anadarko Basin assets and the absence of certain one-time compliance and environmental costs that were incurred in the first quarter of 2012 related to property acquisitions made in East Texas during 2011. Lease operating expenses decreased from $0.88 per Mcfe in the first quarter of 2012 to $0.77 per Mcfe in the first quarter of 2013.

Marketing, gathering, transportation and other expenses decreased from $5.5 million in the first quarter of 2012 to $5.2 million in the first quarter of 2013, a decrease of 5%. The decrease is again due to a decrease in production volumes year over year. Marketing, gathering, transportation and other expenses increased on a per unit basis from $0.40 per Mcfe in the first quarter of 2012 to $0.42 per Mcfe in the first quarter of 2013.

Production and ad valorem taxes increased from $1.8 million in the first quarter of 2012 to $3.5 million in the first quarter of 2013, an increase of 92%, primarily due to high cost gas tax exemptions reflected in the first quarter of 2012, which were not present in 2013. The Company expects future volatility with production taxes as a result of timing of approval for the aforementioned exemptions. Production taxes as a percentage of natural gas and oil revenues before the effects of hedging were 5% and 4% for the first quarter of 2013 and 2012, respectively.

General and administrative expenses increased from $5.7 million in the first quarter of 2012 to $6.2 million in the first quarter of 2013, an increase of $0.5 million, or 8%, primarily as a result of due diligence and other acquisition related costs in 2013. General and administrative expenses increased from $0.42 per Mcfe in the first quarter of 2012 to $0.49 per Mcfe in the first quarter of 2013 primarily as a result of a decrease in production volumes.

DD&A increased from $27.0 million in the first quarter of 2012 to $27.3 million in the first quarter of 2013, an increase of $0.3 million, as a result of recent acquisitions. Depletion, depreciation, and amortization increased from $1.98 per Mcfe in the first quarter of 2012 to $2.17 per Mcfe in the first quarter of 2013 due to a higher depletion and amortization base resulting from acquired assets in the fourth quarter of 2012.

In the first quarter of 2013, the Company recorded a non-cash impairment charge related to oil and natural gas properties of $12.7 million. In the first quarter of 2012, there were non-cash impairment charges related to oil and natural gas properties of $131.4 million, impairment charges for gas gathering and processing equipment of $8.9 million and impairment charges for other assets of $0.3 million. The price used to calculate the ceiling test at March 31, 2013 was $2.95 per MMbtu versus $3.73 per MMbtu at March 31, 2012.

Interest expense increased from $11.6 million for the first quarter of 2012 to $23.3 million for the first quarter of 2013, an increase of $11.7 million, primarily as a result of higher average borrowings for the period under our First Lien Credit Facility and entrance into the Second Lien Term Loan in December 2012. Additionally, as required under GAAP, we capitalized $3.9 million and $1.1 million of interest expense for the three months ended March 31, 2013 and 2012, respectively.

Certain of our derivative contracts are not eligible for hedge accounting, and as a result, all mark-to-market gains or losses on such contracts, as well as realized gains or losses on such contracts, are recognized in our results of operations. During the three months ended March 31, 2013 and 2012, the Company recognized $5.5 million loss and $0.6 million of loss on derivative instruments, respectively. The amount of future gain or loss recognized on derivative instruments is dependent upon future commodity prices, which will affect the value of the contracts, and the eligibility of the contract for hedge accounting treatment.

Debt/Liquidity

As of March 31, 2013, our borrowing base under our First Lien Credit Facility was $487.50 million, and we had a net debt of approximately $282 million. Our total outstanding indebtedness was approximately $306 million and we had a cash balance of approximately of $24 million. As of April 26, 2013, our borrowing base has been redetermined and increased from $487.50 million to $550 million. After giving the effect to our redetermined borrowing base, we were able to incur approximately $244 million of secured indebtedness under our First Credit Facility. As of May 8, 2013, the Company has outstanding balance of $299 million.

Hedging:

For the remainder of 2013 (April – December), the Company has NYMEX hedges in place on approximately 124,300 MMbtu/d of its projected natural gas production, at a weighted average price of $4.82/ MMBtu, and 2,000 Bbl/day of oil production at a weighted average price of $89.91/bbl.  For the calendar year of 2014, the Company has hedge contracts in place for 115,000 MMbtu/d of its projected natural gas production at a weighted average price of $4.31/MMbtu, and 2,000 Bbl/day of oil production at a weighted average price of $89.40/bbl.

Sabine will host a conference call at 2:30 p.m. CDT on May 9, 2013. To participate in the call, dial 1-888-606-5934 and international participants should dial 1-517-308-9375. The participant passcode is SABINE2013. A replay of the conference call will be available through the Company's website at http://www.sabineoil.com for the first quarter ended March 31, 2013.

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 Anadarko Basin in the Texas Panhandle, the Eagle Ford Shale in South Texas and in East Texas.

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.  See "Risk Factors" in the Company's Annual Report posted at www.sabineoil.com and other public filings and press releases.

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.

SOURCE Sabine Oil & Gas LLC