Sanchez Energy (SN) Provides Q2 Operating Results; Production Outpaced Expectations

Sanchez Energy Corporation (NYSE: SN) announced operating results for the second quarter 2016. Highlights include:

• Second quarter 2016 production was approximately 5.1 million barrels of oil equivalent ("MMBoe") for average production of approximately 55,900 barrels of oil equivalent per day ("Boe/d"), which exceeded the high end of Sanchez Energy's guidance for the quarter;

• Further delineation of the South Central region of Catarina results in the Company's best well to date as four new wells on the E33 Pad, a northern step out in South Central Catarina, show average 30-day initial production rates that range from 1,600 to 1,900 Boe/d;

• Development wells in South-Central Catarina, including the new delineation wells in the northern portion of South-Central Catarina, show preliminary type curves that are 20% to 30% better than expected;

• The Company's interest in Carnero Gathering, LLC ("Carnero Gathering"), a joint venture that is 50% owned by Targa Resources Corp. (NYSE: TRGP) ("Targa"), was sold in early July 2016 to Sanchez Production Partners LP (NYSE MKT: SPP) ("SPP") for approximately $44 million of consideration; and

• Average cost per well was $3.3 million during the second quarter 2016, with the results of some wells coming in below $3.0 million during the quarter.

MANAGEMENT COMMENTS
"We continue to build on our strong operating performance in 2016," said Tony Sanchez, III, Chief Executive Officer of Sanchez Energy. "During the second quarter, we once again achieved excellent production results which, at approximately 55,900 Boe/d, exceeded the high end of our guidance for the quarter by over 7%. Average cost per well during the second quarter came it at approximately $3.3 million, and our continuing focus on process improvements and efficiency gains resulted in several wells coming in below $3.0 million. With these results, we believe we have achieved a 'best in class' cost structure for this focus area. At the same time, well performance continues to improve as we test improved completion designs. With the combination of lower costs and strong production, we continue to see attractive returns on the Company's capital program."

"At Catarina, we continue to focus on the South-Central region of the ranch. During the second quarter 2016, we brought the E33 Pad on-line, marking the first major step out to the north since initiating our focus on South-Central Catarina. The E33 Pad consisted of four wells that have been on-line for approximately 60 days. The wells, which include our best Catarina well to date, had average 30-day initial production rates that range from 1,600 to 1,900 Boe/d and show a similar commodity mix to the prior South-Central wells, producing 600 Bbl/d of oil and 5,000 Mcf/d of natural gas, on average, over this period. Early results from these wells confirm our geologic interpretation that the fairway extends to the north and west. Recent development wells in the area are outperforming the original 1,100 MBoe type curve by 20% to 30%. These results continue to support the current plan to develop South-Central Catarina, a region that is proving to be one of the most productive areas on the lease."

"As of June 30, 2016, Sanchez Energy has banked 20 wells toward its next 50 well annual drilling commitment at Catarina, which runs from July 1, 2016 to June 30, 2017. Progress to date on this commitment affords us considerable financial flexibility as we evaluate options for the balance of this year and develop the Company's 2017 capital program."

"With respect to our midstream strategy, we closed the Carnero Gathering Transaction, as previously announced, in early July 2016 for cash consideration of approximately $37 million and the assumption by SPP of an estimated $7.4 million in future capital obligations. The sale to SPP includes Sanchez Energy's 50% interest in Carnero Gathering, a joint venture that is 50% owned by Targa, which will own a total of approximately 45 miles (10 miles of which remain under construction) of high pressure natural gas gathering pipelines in South Texas (the "Carnero Gathering System"). The Carnero Gathering System will ultimately connect to a cryogenic natural gas processing plant that is under construction in La Salle County, Texas, owned by a separate joint venture between Sanchez Energy and Targa, which is expected to be operational in early 2017. Once complete, the processing plant is expected to provide a path to improved yields, lower processing fees, and significant marketing benefits to Sanchez Energy. The Company had invested approximately $26 million in Carnero Gathering since entering the joint venture with Targa and, with the sale, realized an annualized rate of return of over 90% on this investment. The transaction also allowed the Company to reduce its capital commitments to Carnero Gathering by approximately $7.4 million and provides an opportunity for future payments from SPP under certain conditions."

OPERATIONS UPDATE
During the second quarter 2016, the Company spud 17 gross (17 net) wells and completed 17 gross (17 net) wells.

Drilling and completion costs at Catarina during the second quarter 2016 averaged approximately $3.3 million per well and continue to trend downward, with some wells coming in below $3.0 million during the quarter. At Cotulla, well costs during the second quarter 2016 averaged approximately $3.3 million per well, with recent results also coming in below $3.0 million per well.

At Catarina, drilling durations (spud to total depth) are now consistently coming in at approximately 8 days per well. Similarly, drilling durations at Cotulla continue to decline, with recent wells coming in below 6 days per well.

During the second quarter 2016, the Company brought 13 wells on-line at Catarina. All wells drilled and completed to-date by Sanchez Energy in the South-Central region of Catarina have average 30-day initial production rates of approximately 1,350 Boe/d. At Cotulla, the Company brought four wells on-line during the quarter. Wells drilled at Cotulla continue to meet expectations.

As of June 30, 2016 the Company was running one rig at Catarina and had 657 gross (539 net) producing wells with 16 gross (14.5 net) wells in various stages of completion, as detailed in the following table:

                                                      

                                          Gross       

                                     Wells Waiting/   

                       Gross           Undergoing     

Project Area      Producing Wells      Completion     

----------------- --------------- --------------------

Catarina                311                 6         

Marquis                 103                --         

Cotulla / Wycross       153                 7         

Palmetto                 76                 3         

TMS / Other              14                --         

                  --------------- --------------------

Total                   657                16         

                                                      

PRODUCTION UPDATE
The Company's estimated total production for the second quarter 2016 was approximately 55,900 Boe/d, which represents an increase of approximately 4% over second quarter 2015 production. The Company's second quarter 2016 production exceeded the high end of the Company's production guidance for the quarter, which ranged from 50,000 to 52,000 Boe/d, by over 7%. The Company's production mix during the second quarter 2016 consisted of approximately 32% oil, 30% natural gas liquids ("NGLs"), and 38% natural gas. Total production volumes are summarized in the following table:

                                                                            

                        Three    Three             Three     Three          

                       Months   Months             Months   Months          

                        Ended    Ended             Ended     Ended          

                      June 30, June 30,          March 31, June 30,         

                        2016     2015   % Change    2016     2016   % Change

                      -------- -------- -------- --------- -------- --------

Net Production:                                                             

  Oil (MBbl)            1,635    1,917    -15%     1,639     1,635     0%   

  NGLs (MBbl)           1,519    1,467     4%      1,689     1,519    -10%  

  Natural Gas (MMcf)   11,602    9,136     27%     10,895   11,602     6%   

                      -------- -------- -------- --------- -------- --------

  Total Oil                                                                 

   Equivalent (MBOE)    5,087    4,907     4%      5,144     5,087     -1%  

                                                                            

Average Daily                                                               

 Production Volumes                                                         

  Oil (Bbl/day)        17,962   21,066    -15%     18,015   17,962     0%   

  NGLs (Bbl/day)       16,687   16,122     4%      18,558   16,687    -10%  

  Natural Gas                                                               

   (Mcf/day)           127,490  100,391    27%    119,722   127,490    6%   

                      -------- -------- -------- --------- -------- --------

  Total Oil                                                                 

   Equivalent                                                               

   (Boe/day)           55,898   53,920     4%      56,527   55,898     -1%  

                                                                            

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