Sabine Oil & Gas LLC Announces Fourth Quarter and Full Year 2012 Financial and Operational Results and Guidance for 2013

HOUSTON, April 2, 2013 /PRNewswire/ -- Sabine Oil & Gas LLC today reported its Fourth quarter and Full Year 2012 financial and operating results and issued guidance for 2013.

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Key 2012 Results and Events:

• Sabine's 2012 full-year production volumes reached record levels of ~133 Mcfe/day.
• Sabine closed two privately negotiated transactions to acquire producing and undeveloped oil and gas assets in the Anadarko Basin and the Eagle Ford Shale for an aggregate purchase price of approximately $736 million.
• In December 2012, the Company entered into a second lien term loan facility for $500 million to finance the acquisitions in the Anadarko Basin and Eagle Ford. In January, Sabine syndicated the loan and upsized the facility to $650 million.
• First Reserve consolidated its ownership of Sabine through the purchase of its partner's entire equity ownership position in Sabine Holdings LLC, the parent company of Sabine.
• The Company consolidated the CUSIP numbers on the two separate offerings of the Company's 2017 Senior Notes with the Company's bond indenture Trustee.

Commenting on 2012 results and the Company's direction in 2013, Sabine's Chief Executive Officer David Sambrooks noted "For the first eleven months of 2012 Sabine followed a strategy of minimizing gas directed CAPEX while developing initial positions in liquids rich plays. For 2012, we successfully managed CAPEX to a level well below our guidance, thus protecting our liquidity, while at the same time entering into two very exciting new Eagle Ford projects on a drill to earn basis. In December we took several major steps towards completing our transformation into a multi-basin and product balanced company, most notably via our significant acquisitions in the Eagle Ford and Anadarko basins.. We now move into 2013 with a well laid out plan to develop our very economic liquids weighted properties which will significantly increase our production and cash flow while rapidly de-levering the balance sheet. Our plan is to increase total production by over 30% in 2013 and our liquids rate by over 170%."

Results of the Fourth Quarter 2012

Production volumes during the fourth quarter of 2012 were 11 Bcfe, a decrease of 2.58 Bcfe or 19% from fourth quarter 2011 production. The decrease in production is due to the limited completion activity in the fourth quarter of 2012, the divesture of the Rockies assets and the normal decline with the vertical wells that was acquired in the second half of 2011.

Revenues from production of oil and natural gas decreased from $57.6 million in the fourth quarter of 2011 to $49.3 million in the fourth quarter of 2012, a decrease of 14%. The net decrease in oil and natural gas revenues of $8.3 million in the fourth quarter of 2012 compared to the fourth quarter of 2011 resulted mainly from a decrease in production of 19%, offset by in an increase in average gas prices per Mcfe of 6%.

During the fourth quarter of 2012, the Company's hedged realized average price for natural gas was $6.01 per Mcf. This is $2.49 per Mcf more than the Company's unhedged realized average price of $3.52 per Mcf. In the fourth quarter of 2012, approximately 77% of our natural gas volumes and 32% of our oil volumes were hedged, which resulted in a realized gain on such derivative instruments of $22.2 million. In the fourth quarter of 2011, approximately 64% of our natural gas volumes were hedged, which resulted in a realized gain on such derivative instruments of $24.1 million.

Lease operating expenses decreased from $9.1 million in the fourth quarter of 2011 to $8.7 million in the fourth quarter of 2012, a decrease of 5%. Lease operating expenses increased on a per unit basis from $0.67 per Mcfe in the fourth quarter of 2011 to $0.79 per Mcfe in the fourth quarter of 2012. The increase of $0.12 per Mcfe is primarily as a result of a decrease in production volumes.

Marketing, gathering, transportation and other expenses decreased from $5.3 million in the fourth quarter of 2011 to $5.2 million in the fourth quarter of 2012. Marketing, gathering, transportation and other expenses increased on a per unit basis from $0.39 per Mcfe in the fourth quarter of 2011 to $0.47 per Mcfe in the fourth quarter of 2012. The increase of $0.08 per Mcfe is primarily as a result of a decrease in production volumes.

Production and ad valorem taxes decreased from $1.9 million in the fourth quarter of 2011 to ($0.7) million in the fourth quarter of 2012, primarily as a result of the timing of the approval of high cost gas tax exemptions that are currently received on all of our horizontal gas wells. The Company expects future volatility with production taxes as a result of timing of approval for the aforementioned exemptions.

General and administrative expenses were $6.2 million in the fourth quarters of 2011 and 2012. General and administrative expenses increased from $0.45 per Mcfe in the fourth quarter of 2011 to $0.56 per Mcfe in the fourth quarter of 2012 primarily as a result of a decrease in production volumes.

DD&A decreased from $27.1 million in the fourth quarter of 2011 to $24.5 million in the fourth quarter of 2012, a decrease of $2.6 million. Depletion, depreciation, and amortization increased from $2.0 per Mcfe in the fourth quarter of 2011 to $2.23 per Mcfe in the fourth quarter of 2012 due to a higher depletion and amortization base resulting from the recent acquisitions consummated in the fourth quarter of 2012.

There were non-cash impairment charges primarily related to oil and natural gas properties in the fourth quarter of 2012 of $64.2 million as a result of full cost ceiling limitation and impairments related to other assets of $0.5 million. In the fourth quarter of 2011, we recorded an impairment charge as a result of full cost ceiling limitation of $25.4 million and impairments related to other assets of $3.8 million.

As part of the acquisition of certain oil and gas properties in South Texas for $79.3 million, (net of purchase price adjustments), the Company recorded a bargain purchase gain of $14.5 million that was recorded in the current period's earnings. The bargain purchase gain was based on the Company's assessment of "fair value", in accordance with GAAP, of $93.7 million for the properties acquired.

Interest expense, excluding capitalized interest of $1.0 million for the fourth quarter of 2012 and 2011, increased from $11.3 million for the fourth quarter of 2011 to $14.9 million for the fourth quarter of 2012, an increase of $3.6 million, primarily due to placing a second lien term loan in December 2012 for $500 million. The proceeds of which were used to fund the recent acquisitions in the Anadarko Basin and Eagle Ford Shale assets.

Certain of the Company's derivative contracts are not eligible for hedge accounting, and as a result, are required to be marked-to-market each period, with all gains or losses on such contracts, (realized or unrealized) being recognized in our results of operations. During the three months ended December 31, 2012 and 2011, the company recognized a $3.0 million gain and a $6.8 million loss on derivative instruments, respectively. The amount of future gain or loss recognized on derivative instruments is dependent upon future natural gas prices, which will affect the value of the contracts, and the eligibility of the contract for hedge accounting treatment.

Results of the Year ended December 31, 2012

Production volumes during the year ended December 31, 2012 were 48.6 Bcfe, an increase of 4.4 Bcfe or 10% compared to production of 44.20 Bcfe during the year ended December 31, 2011. The increase in production is attributed to positive results from the Company's drilling program and recent acquisitions, offset with the normal decline of the Cotton Valley assets acquired in the second half of 2011 and the divesture of the Rockies assets.

Revenues from production of oil and natural gas decreased from $205.0 in 2011 to $181.1 million in 2012, a decrease of 12%. The net decrease in oil and natural gas revenues of $23.9 million was a result of a decrease in average prices per Mcfe of 20% offset by an increase in production of 10%.

The Company's hedged realized average price for natural gas was $5.38 per Mcf in 2012 and $5.80 per Mcf in 2011. This is $2.61 per Mcf more than the Company's unhedged realized average price in 2012 and $1.86 per Mcf in 2011. In 2012, approximately 69% of our natural gas volumes and 40% of our oil volumes were hedged, which resulted in a realized gain on such derivative instruments of $107.4 million. In 2011, approximately 71% of our natural gas volumes and 39% of our oil volumes were hedged, which resulted in a realized gain on such derivative instruments of $72.5 million

Lease operating expenses increased from $27.1 million in 2011 to $41.0 million in 2012, an increase of 51%. The increase in lease operating expense is due to an increase in production associated with our two recent producing property acquisitions in East Texas. Lease operating expenses increased from $0.61 per Mcfe in 2011 to $0.84 per Mcfe in 2012 primarily due to an increase in production volumes associated with vertical wells acquired in the second half of 2011 with higher operating costs.

Marketing, gathering, transportation and other expenses increased from $19.7 million in 2011 to $21.2 million in 2012, an increase of 7%. The increase is due to an increase in production volumes by 10%. Marketing, gathering, transportation and other expense decreased on a per unit basis from $0.45 per Mcfe in 2011 to $0.44 per Mcfe in 2012.

Production and ad valorem taxes decreased from $7.8 million in 2011 to $4.4 million in 2012, a decrease of 43%, primarily as a result of the timing of the approval of high cost gas tax exemptions that are currently received on all of our horizontal gas wells. This decrease is offset by an increase in production and ad valorem taxes as a result of a 10% increase in production. 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 3.8% for 2011 and 2.4% for 2012.

General and administrative expenses decreased from $23.5 million in 2011 to $21.4 million in 2012, a decrease of $2.1 million, or 9%, primarily as a result of lower due diligence and other acquisition costs in 2012. General and administrative expenses decreased from $0.53 per Mcfe in 2011 to $0.44 per Mcfe in 2012 primarily as a result of an increase in production volumes by 10%.

DD&A increased from $82.2 million in 2011 to $96.0 million in 2012, an increase of $13.9 million, or 17%, as a result of the impact of increased production. Depletion, depreciation, and amortization remained increased from $1.86 per Mcfe in 2011 to $1.98 per Mcfe in 2012 due to a higher depletion and amortization base resulting from acquired assets and capital expenditures.

In 2012, there were non-cash impairment charges related to oil and natural gas properties of $718.1 million, impairment charges for gas gathering and processing equipment of $11.5 million and impairments related to the write-down of carrying value of certain sizes of casing inventory of $1.2 million. In 2011, there were non-cash impairment charges related to oil and natural gas properties of $25.7 million, impairment charges for gas gathering and processing equipment of $2.8 million and impairments related to the write-down of carrying value of certain sizes of casing inventory of $1.4 million. The price used to calculate the ceiling test at December 31, 2012 was $2.76 per MMbtu versus $4.12 per MMbtu at December 31, 2011.

As part of the acquisition of certain oil and gas properties in South Texas for $79.3 million, (net of purchase price adjustments), the Company recorded a bargain purchase gain of $14.5 million that was recorded in the current period's earnings. The bargain purchase gain was based on the Company's assessment of "fair value", in accordance with GAAP, of $93.7 million for the properties acquired.

The Company closed on the sale of its controlling ownership interests in Montana gathering entities Lodge Creek Pipelines, LLC and Willow Creek Gathering, LLC on August 31, 2012 resulting in a loss of $9.9 million.

Interest expense, excluding capitalized interest of $4.3 million and $5.9 million of interest expense for the years ended December 31, 2012 and 2011, respectively increased from $39.6 million in 2011 to $49.4 million in 2012, an increase of $9.8 million, or 25%, primarily as a result of higher average borrowings for the period under our first lien revolving credit facility and entrance into a secured second lien credit facility in December 2012.

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 or unrealized) gains or losses on such contracts, are recognized in our results of operations. During the years ended December 31, 2012 and 2011, the Company recognized $10.3 million and $25.8 million of loss on derivative instruments, respectively. The amount of future gain or loss recognized on derivative instruments is dependent upon future natural gas prices, which will affect the value of the contracts, and the eligibility of the contract for hedge accounting treatment.

Balance Sheet Item

During 2012, and as part of the acquisition of certain oil and gas properties in the Anadarko Basin for $657.8 million, net of purchase price adjustments, the transaction resulted in the recognition of $173.5 million of goodwill for the excess of the consideration transferred over the net assets received and represents the future economic benefits arising from assets acquired that could not be individually identified and separately recognized. The Company recorded a fair value of $339.2 million for proved property and $145.1 million for unproved acreage, with the remaining amount noted above recorded as goodwill. 

Debt/Liquidity

The Company exited the year with $405 million drawn on its revolver credit facility, providing $120 million of available liquidity as the Company entered 2013. The Company's borrowing base is currently at $487.50 million. Subsequent to December 2012, the second lien term loan was increased by $150 million. The Company used the proceeds to repay down the revolver credit facility. As of April 1, 2013, the Company has drawn an additional $53.0 million, has repaid $173.0 million and had an outstanding balance of $285 million.

Year-End Reserves:

Year-end 2012 proved reserves, as determined by the Company's third-party reserve engineers and calculated pursuant to SEC guidelines, declined by 28% from 1,361 Bcfe to 981 Bcfe.  The changes in proved reserves from 2011 proved reserves includes revisions of approximately of 106 Bcfe resulted from a negative pricing revisions, 55 Bcfe resulted from negative performance revisions and a reclassification of 420 Bcfe of some of our of proved natural gas reserves to unproved under the SEC five-year rule as a consequence of our decision to refocus our future development capital towards our more oil-weighted properties. The Company also sold 36.7 Bcfe during the year in an asset sale of a non-core property. In December 2012, the company acquired assets in the Eagle Ford Shale in South Texas and the Anadarko Basin in The Texas Panhandle of approximately 278 Bcfe of proved reserves.

Proved reserves consisted of 707.9 Bcf of natural gas, and 45.4 MMbbls of oil and NGLs. The pre-tax present value ("PV 10") of the Company's total proved reserves, using a 10% discount rate and year end SEC pricing, is $910 million. 

The following table reflects the changes in the proved reserves estimates since year-end 2011:

Capital Activity:

The 2013 capital expenditures are expected to be between $370 MM to $405MM. This includes $310MM to $345MM for drilling and completions, approximately $30MM for Land and approximately $30MM for capitalized interest other. The capital budget will be primarily directed towards the Company's Anadarko Basin and Eagle Ford Shale assets, targeting oil and liquid-rich gas opportunities. The Company intends to run three drilling rigs in both the Anadarko Basin and Eagle Ford Shale, with the possibility of additional rigs being added during the second half of the year. The 2013 capital program is flexible and may be adjusted throughout the year.

Hedging:

For 2013, the Company has NYMEX hedges in place on approximately 42.1 Bcf, or approximately 98% of the mid-point of its projected natural gas production, at a weighted average price of $4.84/ Mcf.  For 2014, the Company has hedge contracts in place for 42.0 Bcf of natural gas production at a weighted average price of $4.31/Mcf.  Additionally, 1,700 Bbl/day of 2013 projected oil production is hedged at $89.50/Bbl, representing 42% of the mid-point of the Company's projection.  For 2014, 1,700 Bbl/day has been hedged at $89.14/Bbl.

Sabine will host a conference call at 9:30 a.m. CDT on April 2, 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 fourth quarter and year ended December 31, 2012.

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