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

HOUSTON, May 15, 2014 /PRNewswire/ -- Sabine Oil & Gas LLC ("Sabine" or the "Company") today reported its first quarter 2014 financial and operation results.

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Key First Quarter Results:

• Increased average daily production by 32% to 185 MMcfe/d in the first quarter of 2014, from 140 MMcfe/d in the same period of 2013, (excluding the effects of the North Texas property divesture in late 2013, the average daily production in the first quarter of 2014 increased by 58% from 117/MMcfe/d compared to the same period in 2013 on a pro forma basis). Oil production increased by 67% to 4,656 Bbl/d over the same period in 2013.
• Oil and natural gas liquids (collectively, "liquids") production volumes comprised 50% of revenues and 34% of total production.
• Liquids revenues and production for the quarter increased by 59% and 57%, respectively over the same period in 2013.
• Adjusted EBITDA for the first quarter of 2014 was $77.5 million, representing a 33% increase over the same period in 2013.
• In East Texas, completed two Cotton Valley horizontal wells which had an average IP30 of over 5.3 MMcfe/d, with 20% liquids.
• Also in East Texas, completed four wells in the Haynesville Shale covered under a joint development agreement (the "JDA") which averaged an IP30 of over 9.5 MMcf/d .The remaining four of the fifteen wells covered under the JDA are currently flowing back with encouraging results.
• In the Eagle Ford Shale, completed five wells (two pads) in the Sugarkane block in southern DeWitt County, with an average rate per well of over 1,760 BOEPD for a 30-day period ("IP30"), with 19% oil and 58% liquids.
• Also in the Eagle Ford Shale, completed six wells in the Shiner Area in northern DeWitt County and southern Lavaca County, which averaged an IP30 of over 1,000 BOEPD, with 36% oil and 70% liquids.
• Added approximately 8,100 net acres in our Shiner Area in the Eagle Ford through grassroots leasing, resulting in a first quarter Eagle Ford position of approximately 40,400 net acres.
• In North Texas, completed four Granite Wash wells which reached an average 24-hour production rate of over 1,300 BOEPD, with 64% oil and 75% liquids.
• The Company closed the acquisition of certain oil and natural gas properties in North Texas for $20.4 million, net of purchase price adjustments.

Commenting on the quarter's results Sabine's Chief Executive Officer David Sambrooks noted: "The quarter was right in line with our expectations as we continued to deliver highly economic wells. We completed 21 wells in the first quarter, which we expect to be our highest quarterly completion count this year, as compared to 9 completions in the fourth quarter of 2013. Our first quarter wells achieved an overall average IP24 hours rate of 1,510 BOEPD (50% liquids), and for the wells that had a 30 day production period, our IP 30 was 1,240 BOEPD (45% liquids). Although our low completion count in the fourth quarter of  2013 resulted in about a 6% decline in production in the first quarter of 2014 compared to the fourth quarter of 2013, our high first quarter completion count is forecast to drive significant production growth in the second and third quarters of  2014. As we have previously stated, production growth will be lumpy given our rig count and the types of wells we are drilling. However, the first quarter provided a solid foundation for production and cashflow growth for the year. We are reaffirming our full year guidance based on our first quarter well results."  

Sabine and Forest Oil Corporation Combination Transaction

For information regarding the previously announced combination of Sabine and Forest Oil Corporation ("Forest"), please refer to the joint press release issued by Sabine and Forest dated May 6, 2014 and other documents filed with the SEC.

Results of the First Quarter 2014

Production volumes during the three months ended March 31, 2014 were 16.6 Bcfe, an increase of 4.03 Bcfe or approximately 32% from first 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 $67.5 million in the first quarter of 2013 to $112.3 million in the first quarter of 2014, an increase of 66%. This increase of $44.8 million was a result of an increase in production of 32%, coupled with an increase in average prices per Mcfe of 26%.

During the first quarter of 2014, the Company's realized average price for natural gas including hedges was $4.65 per Mcf, or $0.43 per Mcf lower than the Company's unhedged realized average price of $5.08 per Mcf. The Company's realized average price of oil including hedges was $89.78 per Bbl, or $3.58 per Bbl lower than the Company's unhedged realized average price of $93.36 per Bbl. In the first quarter of 2014, our hedged volumes were approximately 86% and 82% of both our natural gas and oil volumes, respectively. The Company realized a loss on settlements of such derivative instruments for the first quarter of 2014 of $7.3 million. In the first quarter of 2013, our hedged volumes were approximately 94% and 61% of our natural gas and oil volumes, respectively, which resulted in a realized gain on settlements of such derivative instruments of $14.8 million.

Lease operating expenses increased from $9.6 million in the first quarter of 2013 to $11.3 million in the first quarter of 2014, an increase of 17%. 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 $0.77 per Mcfe in the first quarter of 2013 to $0.68 per Mcfe in the first quarter of 2014. The decrease of $0.09 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 decreased from $4.5 million in the first quarter of 2013 to $4.4 million in the first quarter of 2014. Marketing, gathering, transportation and other expenses decreased on a per unit basis from $0.36 per Mcfe in the first quarter of 2013 to $0.26 per Mcfe in the first quarter of 2014. The per unit basis decrease is primarily 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, as well as a reduction in fees on a per unit of production basis attributable to volumes from our 2013 and 2014 completions in East Texas.

Production and ad valorem taxes increased from $3.5 million in the first quarter of 2013 to $5.6 million in the first quarter of 2014, an increase of 60%. Production and ad valorem taxes increased on a per unit basis from $0.28 per Mcfe in the first quarter of 2013 to $0.34 per Mcfe in the first quarter 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 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 5% for the both the first quarter of 2014 and 2013.

General and administrative expenses increased from $6.2 million in the first quarter of 2013 to $6.4 million in the first quarter of 2014, an increase of $0.2 million, or 4%, primarily as a result of higher overhead associated with our growing business and additional professional service fees paid in 2013 compared to the previous period. These increases were partially offset by decreased due diligence work from the first quarter of 2013 due to the December 2012 acquisitions. General and administrative expenses decreased from $0.49 per Mcfe in the first quarter of 2013 to $0.38 per Mcfe in the first quarter of 2014 reflecting efficiencies gained due to increased production without a proportionate increase in general and administrative expenses.

DD&A increased from $26.2 million in the first quarter of 2013 to $39.9 million in the first quarter of 2014, an increase of $13.7 million. Depletion, depreciation, and amortization increased from $2.08 per Mcfe in the first quarter of 2013 to $2.40 per Mcfe in the first quarter of 2014, or an increase of 15%. 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.

Interest expense increased from $23.3 million in the first quarter of 2013 to $25.8 million in the first quarter of 2014, an increase of $2.5 million, or 11%, primarily as a result of lower capitalized interest. We capitalized $1.9 million and $3.9 million of interest expense for the three months ended March 31, 2014 and 2013, respectively.

The Company recognized a loss on derivative contracts of $14.8 million and $34.4 million for the first quarter 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 March 31, 2014, our borrowing base under our First Lien Credit Facility was $620 million, and we had an outstanding balance of approximately $354.1 million, net of cash on hand. As of April 2, 2014, our borrowing base has been re-determined and increased from $620 million to $700 million. After giving the effect to our re-determined borrowing base, we were able to incur approximately $345 million of secured indebtedness under our First Credit Facility. As of May 15, 2014, the Company has drawn an additional $74 million and had an outstanding balance of $429 million.

Hedging

For the remainder of 2014 (April-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 $4.27/ MMbtu, and 4,000 Bbl/day of oil production at a weighted average price of $92.18/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.

SOURCE Sabine Oil & Gas LLC

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