Exhibit 10.1
Execution Version
THIRD AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “
Amendment
”), dated as of November 12, 2015, is among SANCHEZ PRODUCTION PARTNERS LP, a Delaware limited partnership (the “
Borrower
”), the guarantors party hereto (the “
Guarantors
”), each of the Lenders party hereto, and ROYAL BANK OF CANADA, as administrative agent (in such capacity, the “
Administrative Agent
”), and as collateral agent (in such capacity, the “
Collateral Agent
”), and relates to that certain Third Amended and Restated Credit Agreement, dated as of March 31, 2015 (as amended, restated, modified or supplemented from time to time prior to the date hereof, the “
Existing Credit Agreement
”; and as amended hereby, the “
Credit Agreement
”), among the Borrower, the Lenders, the Administrative Agent, the Collateral Agent, and ROYAL BANK OF CANADA, as letter of credit issuer.
WITNESSETH:
WHEREAS, the Borrower desires to repurchase or redeem a portion of its outstanding common Equity Interests by making Restricted Payments in an amount up to $10,000,000 in the aggregate during the remaining term of the Credit Agreement, which Restricted Payments may be made from proceeds of Loans under the Credit Agreement provided certain conditions are satisfied both before and after giving effect thereto;
WHEREAS, the parties hereto desire to correct certain scrivener’s errors in the Existing Credit Agreement with respect to the inconsistent use of “Adjusted LIBO Rate”;
WHEREAS, Section 12.02 of the Existing Credit Agreement provides that the Borrower and the Lenders may amend the Existing Credit Agreement and the other Loan Documents for certain purposes; and
NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
Section 1.
Definitions
. Unless otherwise defined in this Amendment, each capitalized term used in this Amendment has the meaning assigned to such term in the Credit Agreement.
Section 2.
Amendments to the Credit Agreement
. The Credit Agreement is hereby amended as follows:
(a)
The definition of “Eurodollar” in Section 1.01 of the Credit Agreement is amended by inserting the word “Adjusted” immediately prior to the words “LIBO Rate” therein.
(b)
Clause (b) of Section 3.02 of the Credit Agreement is hereby amended by inserting the word “Adjusted” immediately prior to the words “LIBO Rate” therein.
(c)
The last sentence of clause (e) of Section 3.02 of the Credit Agreement is hereby amended by inserting the phrase “, Adjusted LIBO Rate” immediately prior to the words “or LIBO Rate” therein
(d)
Subclause (i) of Section 3.02(f) of the Credit Agreement is hereby amended by inserting the words “Adjusted LIBO Rate or the” immediately prior to the words “LIBO Rate” therein.
(e)
Subclause (ii) of Section 3.02(f) of the Credit Agreement is hereby amended by inserting the word “Adjusted” immediately prior to the words “LIBO Rate” therein.
(f)
Subclause (i) in the second sentence of Section 5.02 of the Credit Agreement is hereby amended by inserting the word “Adjusted” immediately prior to the words “LIBO Rate” therein.
(g)
Clause (b) of Section 7.23 of the Credit Agreement is amended and restated to provide:
“(b) for general business purposes, including Restricted Payments, provided that if the Borrower would have unused borrowing capacity that can be accessed under this Agreement in an amount less than 10% of the amount of the RBL Component in effect at such time before or after giving effect to the requested Loan or Letter of Credit, then no proceeds of any Loan or any Letter of Credit may be used to fund Restricted Payments under
Section 9.04
,”
(i)
Section 9.04 of the Credit Agreement is hereby amended by deleting the phrase “and subject to
Section 7.23
,” from clause (iii) thereof, by deleting the word “and” immediately preceding clause (vi) thereof, deleting the period at the end of clause (vi) and by inserting the following new clause (vii) immediately thereafter:
“and (vii) so long as no Borrowing Base Deficiency, Default or Event of Default has occurred and is continuing or would result therefrom and, after giving effect to any Borrowings under this Agreement, the Borrower would have unused borrowing capacity that can be accessed under this Agreement in an amount not less than 15% of the amount of the Borrowing Base in effect at such time, the Borrower may make Restricted Payments in an aggregate amount not exceeding $10,000,000 prior to the Maturity Date to repurchase or redeem its common Equity Interests.”
Section 3.
Ratification
. Except as expressly amended, modified or waived herein, each of the Borrower and the Guarantors hereby ratifies and confirms all of the Obligations under the Credit Agreement and the other Loan Documents to which it is a party, and all references to the Credit Agreement, the Mortgages and the Notes in any of the Loan Documents shall be deemed to be references to the Credit Agreement, the Mortgages and the Notes as amended, modified or waived hereby.
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Section 4.
Effectiveness
. This Amendment shall become effective on the date (the “
Amendment Effective Date
”) on which each of the following conditions is satisfied:
(a)
the Administrative Agent shall have received counterparts of this Amendment executed by the Administrative Agent, the Collateral Agent, the Borrower, the Guarantors and the Majority Lenders;
(b)
the Borrower and each Guarantor shall have confirmed and acknowledged to the Administrative Agent and the Lenders, and by its execution and delivery of this Amendment the Borrower and each Guarantor do hereby confirm and acknowledge to the Administrative Agent and the Lenders, that (i) the execution, delivery and performance of this Amendment has been duly authorized by all requisite limited partnership or limited liability company action, as applicable, on the part of the Borrower or such Guarantor, as applicable, (ii) the Credit Agreement and each other Loan Document to which it is a party constitute valid and legally binding agreements enforceable against the Borrower or such Guarantor, as applicable, in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity, (iii) the representations and warranties of the Borrower or such Guarantor, if any, set forth in the Credit Agreement and in each other Loan Document to which it is a party, shall be true and correct on and as of the Amendment Effective Date, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case such representations and warranties shall have been true and correct as of such specified earlier date, and (iv) no Default or Event of Default exists under the Credit Agreement or any of the other Loan Documents after giving effect to this Amendment;
(c)
the Borrower shall have paid all agreed fees to the extent due and payable in connection with this Amendment and paid or reimbursed the Administrative Agent for all its reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation and execution and delivery of this Amendment (including the reasonable fees, disbursements and other charges of Mayer Brown LLP), in each case, to the extent provided in Section 12.03 of the Credit Agreement.
Section 5.
Governing Law
. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Section 6.
Miscellaneous
.
(a)
On and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import, referring to the Credit Agreement, and each reference in each other Loan Document to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Existing Credit Agreement as amended or otherwise modified by this Amendment. This Amendment shall constitute a Loan Document for purposes of the Credit Agreement.
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(b)
The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any default of the Borrower or any Guarantor or any right, power or remedy of the Administrative Agent or the Lenders under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
(c)
Each of the Borrower and each Guarantor represents and warrants that as of the date hereof (i) it has the limited partnership or limited liability company power and authority to execute, deliver and perform the terms and provisions of this Amendment, has taken all necessary limited partnership or limited liability company action to authorize the execution, delivery and performance of this Amendment, delivery and performance of this Amendment does not and will not contravene the terms of the Borrower’s or such Guarantor’s, as applicable, organizational documents; (ii) it has duly executed and delivered this Amendment and this Amendment constitutes the legal, valid and binding obligation of the Borrower or such Guarantor enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization and other similar laws relating to or affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding in equity or law); (iii) no Default or Event of Default has occurred and is continuing; and (iv) no action, suit, investigation or other proceeding is pending or threatened before any arbitrator or Governmental Authority seeking to restrain, enjoin or prohibit or declare illegal, or seeking damages from the Borrower in connection with this Amendment or which could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
Section 7.
Severability
. Any provisions of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provisions so held to be invalid.
Section 8.
Successors and Assigns
. This Amendment is binding upon and shall inure to the benefit of the Administrative Agent, the Collateral Agent, the Lenders, the Issuer, the Borrower and each Guarantor and their respective successors and assigns.
Section 9.
Counterparts
. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or electronically by .pdf shall be effective as delivery of a manually executed counterpart of this Amendment.
Section 10.
Headings
. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment or any other Loan Document.
Section 11.
Integration
. This Amendment represents the final agreement of the Borrower, each Guarantor, the Collateral Agent, the Administrative Agent, the Issuer, and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Borrower, any Guarantor, the Administrative Agent, the Collateral Agent, the Issuer, nor any Lender relative to subject matter hereof not expressly set forth or referred to herein.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed by its officer(s) thereunto duly authorized as of the date first above written.
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SANCHEZ PRODUCTION PARTNERS LP
, as Borrower
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By:
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SANCHEZ PRODUCTION PARTNERS
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GP LLC
, its general partner
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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CEP MID-CONTINENT LLC,
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as a Guarantor
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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NORTHEAST SHELF ENERGY, L.L.C.,
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as a Guarantor
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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MID-CONTINENT OILFIELD SUPPLY, L.L.C.,
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as a Guarantor
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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SEP HOLDINGS IV, LLC,
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as a Guarantor
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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CATARINA MIDSTREAM, LLC,
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as a Guarantor
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By:
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/s/ Charles C. Ward
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Name:
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Charles C. Ward
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Title:
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Chief Financial Officer
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ROYAL BANK OF CANADA,
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as Administrative Agent and Collateral Agent
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By:
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/s/ Yvonne Brazier
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Name:
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Yvoune Brazier
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Title:
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Manager, Agency
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ROYAL BANK OF CANADA,
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as a Lender and the Issuer
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By:
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/s/ Evans Swann, Jr.
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Name:
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Evans Swann, Jr.
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Title:
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Authorized Signatory
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CIT BANK, N.A. (f/k/a OneWest Bank, N.A.),
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as a Lender
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By:
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/s/ Sean Murphy
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Name:
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Sean Murphy
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Title:
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Managing Director
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COMPASS BANK,
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as a Lender
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By:
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/s/ Les Werme
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Name:
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Les Werme
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Title:
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Director
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SUNTRUST BANK,
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as a Lender
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By:
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/s/ Chulley Bogle
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Name:
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Chulley Bogle
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Title:
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Vice President
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CAPITAL ONE, NATIONAL ASSOCIATION,
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as a Lender
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By:
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/s/ Matthew Molero
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Name:
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Matthew Molero
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Title:
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Senior Vice President
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CITIBANK, N.A.,
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as a Lender
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By:
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/s/ Cliff Vaz
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Name:
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Cliff Vaz
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Title:
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Vice President
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COMERICA BANK,
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as a Lender
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By:
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/s/ Jeffery Treadway
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Name:
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Jeffery Treadway
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Title:
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Senior Vice President
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CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,
as a Lender
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By:
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/s/ Nupur Kumar
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Name:
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Nupur Kumar
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Title:
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Authorized Signatory
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By:
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/s/ Jayant Rao
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Name:
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Jayant Rao
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Title:
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Authorized Signatory
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ING CAPITAL LLC,
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as a Lender
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By:
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Name:
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Title:
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S-
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Exhibit 99.1
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News Release
General Inquiries: (877) 847-0008
www.sanchezpp.com
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Sanchez Production Partners Announces Distributions on
Common Units and Class A Preferred Units
HOUSTON
—(Marketwired)—Nov. 10, 2015—Sanchez Production Partners LP (NYSE MKT: SPP) (“SPP” or the “Partnership”) has declared a third quarter 2015 cash distribution on its common units of $0.40 per unit ($1.60 per unit annualized) payable on Nov. 30, 2015 to holders of record on Nov. 20, 2015. The Partnership has also declared a third quarter 2015 paid-in-kind distribution of 2.5% on its Class A preferred units payable on Nov. 30, 2015 to holders of record on Nov. 20, 2015.
ABOUT THE PARTNERSHIP
Sanchez Production Partners LP (NYSE MKT: SPP) is a publicly-traded limited partnership focused on the acquisition, development, ownership and operation of midstream and other energy production assets. The Partnership owns an oil and natural gas gathering and processing system located in the Eagle Ford Shale in Dimmit and Webb Counties, Texas. The Partnership also currently owns producing reserves in the Eagle Ford Shale in South Texas, the Gulf Coast region of Texas and Louisiana, and across several basins in Oklahoma and Kansas. The Partnership announced in March 2015 that is exploring the possible divestiture of its assets and operations in Oklahoma and Kansas.
ADDITIONAL INFORMATION
Additional information about SPP can be found in the Partnership’s documents on file with the U.S. Securities and Exchange Commission (www.sec.gov) and in the “Investor Presentation” available on the Partnership’s website.
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This press release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of SPP’s distributions to non-U.S. investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, SPP’s distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.
FORWARD-LOOKING STATEMENTS
This press release contains, and the officers and representatives of the Partnership and its general partner may from time to time make, statements that are considered forward—looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our: business strategy; acquisition strategy; financial strategy; anticipated effects of transactions; timing or ability to make, maintain and grow distributions; the ability of our customers to meet their drilling and development plans on a timely basis or at all and perform under the gathering and processing agreement; drilling locations; oil, natural gas and natural gas liquids reserves; realized oil, natural gas and natural gas liquids prices; production volumes; lease operating expenses, general and administrative expenses and development costs; future operating results; and plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may
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prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our U.S. Securities and Exchange Commission (“SEC”) filings and elsewhere in those filings. The forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
PARTNERSHIP CONTACT
Charles C. Ward
Chief Financial Officer
Sanchez Production Partners GP LLC
(877) 847-0009
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Exhibit 99.2
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News Release
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General Inquiries: (877) 847-0008
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www.sanchezpp.com
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Sanchez Production Partners Reports
Third Quarter 2015 Results; Announces Unit
Repurchase Program and 2016 Forecast
HOUSTON
—(Marketwired)—Nov. 12, 2015—Sanchez Production Partners LP (NYSE MKT: SPP) (“SPP” or the “Partnership”) today reported third quarter 2015 results, announced plans to implement a unit repurchase program, and provided a base case forecast for 2016. Highlights from the report include:
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An initial distribution declared on the Partnership’s common units of $0.40 per unit ($1.60 per unit annualized)
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Implementation of a unit repurchase program of up to $10 million beginning in the fourth quarter 2015
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A base case 2016 forecast that shows the Partnership’s Adjusted EBITDA ranging from $54 million to $60 million, with common unit distribution coverage of 2.2x at the midpoint of this range
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Total revenue of $13.3 million in the third quarter 2015, which includes $7.9 million of sales revenue, approximately 62% of which was from oil and liquids sales and 38% of which was from natural gas sales, $5.0 million from hedge settlements and $0.4 million from services provided to third parties, before $12.3 million in gains from mark-to-market activities, which is a non-cash item
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Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items and non-recurring items, of $24.10 per BOE for the first nine months of 2015, down approximately 5% when compared to the same nine month period of 2014
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Adjusted EBITDA for the third quarter 2015 of $0.3 million before adjustments for non-recurring items and $3.7 million after adjustments for non-recurring items
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MANAGEMENT COMMENTARY
“Our primary focus during the third quarter 2015 was the execution and closing of the Western Catarina Midstream Transaction, our second transaction with Sanchez Energy Corporation (NYSE: SN) this year and our first acquisition involving gathering and processing assets,” said Gerald F. Willinger, Interim Chief Executive Officer of SPP’s general partner. “The Western Catarina Midstream Transaction represents the culmination of over two years of work to refocus and improve the Partnership’s strategic direction and financial outlook, and serves as the cornerstone to our midstream business. With the Western Catarina Midstream Transaction, we believe that we have successfully repositioned the Partnership to provide enhanced visibility for future growth.”
“Having closed the Western Catarina Midstream Transaction last month, we were pleased, earlier this week, to declare a distribution on our common units, initially set at an annualized rate of $1.60 per unit. We believe that a distribution at this level provides an attractive yield at the current market price of our common units and enhances our ability to pursue our growth strategy.”
“We also believe the Western Catarina Midstream Transaction provides a solid foundation for next year’s business activity. Our base case forecast currently shows our Adjusted EBITDA ranging from $54 million to $60 million in 2016. Based on this forecast, we currently anticipate Distributable Cash Flow of between $14.4 million and $20.4 million in 2016, which would provide coverage on projected distributions to our common unitholders of approximately 2.2x at the midpoint of our forecast.”
“Our base case 2016 forecast assumes divestiture of our Mid-Continent operated assets this year with no additional acquisition or divestiture activity. However, with recent disruptions in the energy markets and line of sight to over $1 billion in midstream and production assets managed under the Sanchez Oil & Gas Corporation operating platform, we see significant opportunities for growth. As a result, we currently target a 15% compound annual growth rate in our distribution per unit through 2019.”
“While we are excited about the Partnership’s progress and prospects, we recognize that current conditions in the energy markets have created an environment in which energy companies, generally, and master limited partnerships, in particular, have fallen out of favor in
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the investment community. As a result, we believe we currently trade at an implied yield that does not yet fully reflect the Partnership’s value proposition. We view this as a near-term opportunity, and so are pleased to announce a plan to implement a unit repurchase program of up to $10 million. The plan, which was approved by the board of directors of our general partner earlier this week, reflects our on-going commitment to return value to our unitholders.”
OPERATING AND FINANCIAL RESULTS
The Partnership produced 367 MBOE during the third quarter 2015 for average net production of 3,991 BOE/D during the quarter. Net oil and liquids production for the third quarter 2015, which accounted for approximately 33% of the Partnership’s total production during the quarter, was 1,308 BBL/D. For the first nine months of 2015, the Partnership produced 1,093 MBOE for average net production of 4,002 BOE/D, a decrease of 4% when compared to the same nine month period of 2014. Net oil and liquids production for the first nine months of 2015 was 1,190 BBL/D, an increase of 13% when compared to the same nine month period of 2014.
The Partnership’s total revenue for the third quarter 2015 includes revenue from sales of $7.9 million, of which approximately 62% was from oil and liquids sales and 38% was from natural gas sales, revenue from hedge settlements of $5.0 million, and revenue from services provided to third parties of $0.4 million. The Partnership’s total revenue also includes a $12.3 million gain on mark-to-market activities, which is a non-cash item. Revenue from sales and hedge settlements during the third quarter 2015, which totaled $12.9 million, decreased $1.4 million, or approximately 10%, when compared to the second quarter 2015.
Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items and out-of-period expenses totaling approximately $3.4 million, which are non-recurring items, averaged $25.96 per BOE in the third quarter 2015 as compared to $23.13 per BOE in the prior quarter and $25.76 per BOE in the third quarter 2014. For the first nine months of 2015, operating costs, adjusted for non-recurring items, averaged $24.10 per BOE, which is down approximately 5% when compared to
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$25.45 per BOE reported for the same nine month period of 2014, after adjustments for non-recurring items.
The Partnership reported third quarter 2015 Adjusted EBITDA of $0.3 million, before adjustments for non-recurring items, which compares to Adjusted EBITDA of $5.2 million in the second quarter 2015. After adjustments for non-recurring items, Adjusted EBITDA for the third quarter 2015 was $3.7 million. Adjusted EBITDA for the nine months of 2015 was $13.8 million after adjustments for non-recurring items and $5.1 million before adjustments for non-recurring items. On a GAAP basis, the Partnership reported net income of $7.8 million for the third quarter 2015. For the first nine months of 2015, the Partnership reported a net loss of $92.5 million, which includes an impairment charge in the first quarter 2015 of $82.9 million related to the Partnership’s legacy assets located in Kansas and Oklahoma.
The Partnership’s capital spending during the third quarter 2015 totaled approximately $0.3 million. For the first nine months of 2015, the Partnership’s capital spending totaled approximately $1.3 million.
CREDIT FACILITY AND HEDGING UPDATE
As of Nov. 12, 2015, the Partnership has $106 million in debt outstanding under its credit facility, which has a borrowing base of $200 million. The Partnership reported cash and cash equivalents totaling $8.9 million as of Sep. 30, 2015.
For the period Oct. 1, 2015 through Dec. 31, 2015, the Partnership has hedged approximately 1.1 Bcf of its natural gas production at an effective NYMEX fixed price of approximately $4.17 per Mcf and approximately 109 MBbl of its crude oil production at an effective NYMEX fixed price of approximately $75.64 per barrel.
COMMON UNITS
The Partnership’s issued and outstanding common units as of Nov. 12, 2015 totaled approximately 3.0 million.
On Oct. 15, 2015, the Partnership notified the holders of its Class A preferred units of its election to convert the Class A preferred units pursuant to the terms of the partnership agreement effective March 31, 2016. Assuming conversion of the Class A preferred units occurs at par (or $16.00 per unit, after adjustment for the one-for-ten reverse split), the
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Partnership currently projects an increase in its common unit count of approximately 1.2 million common units at the time of the optional conversion.
UNIT REPURCHASE PROGRAM
The Partnership announced that the board of directors of its general partner has approved a plan pursuant to which the Partnership may, from time to time, repurchase common units of SPP in open market or private transactions for an aggregate amount not to exceed $10 million. In conjunction with the plan, the Partnership and its lenders have executed an amendment to the Partnership’s credit facility that allows for the repurchase of units so long no event of default exists and the Partnership has unused availability of at least 15% under the credit agreement. The Partnership anticipates that the repurchase program will be implemented in the fourth quarter 2015, and intends to report any repurchases made under the plan in its quarterly filings with the U.S. Securities and Exchange Commission (“SEC”). The timing and actual number of units repurchased will depend on a variety of factors, including the unit price, regulatory requirements and other market and economic conditions. Units repurchased under the program, if any, will be retired, which will reduce the Partnership’s common units outstanding. The plan may be suspended or discontinued at any time.
DISTRIBUTIONS
On Nov. 10, 2015, the Partnership declared a third quarter 2015 cash distribution on its common units of $0.40 per unit ($1.60 per unit annualized) payable on Nov. 30, 2015 to holders of record on Nov. 20, 2015. The Partnership also declared a third quarter 2015 paid-in-kind distribution of 2.5% on its Class A preferred units payable on Nov. 30, 2015 to holders of record on Nov. 20, 2015.
2016 FORECAST
Based on hedges in place and forward prices as of Sep. 30, 2015, the Partnership’s “base case forecast” estimates that 2016 Adjusted EBITDA will range from $54 million to $60 million, providing Distributable Cash Flow (“DCF”) of $14.4 million to $20.4 million in 2016. Based on these forecast results, the Partnership currently projects common unit distribution coverage will range from 1.8x to 2.6x, or 2.2x at the midpoint of the Partnership’s 2016 DCF forecast.
5
The Partnership’s base case forecast assumes divestiture of its Oklahoma and Kansas operated properties is complete in 2015, with the proceeds from that sale used to reduce debt outstanding under the credit facility. The forecast also assumes that hedges related to the Partnership’s Oklahoma and Kansas production are retained and restructured. No incremental asset acquisitions or divestitures are included in the Partnership’s base case forecast. The base case forecast also assumes no units are repurchased in the open market under the Partnership’s $10 million unit repurchase program.
CONFERENCE CALL INFORMATION
The Partnership will
host a conference call at 10:00 a.m. (CST) on Friday, Nov. 13, 2015 to discuss third quarter 2015 results and the Partnership’s 2016 forecast.
To participate in the conference call, analysts, investors, media and the public in the U.S. may dial (888) 849-8924 shortly before 10:00 a.m. (CST). The international phone number is (773) 756-4804. The conference password is PARTNERS.
A replay will be available beginning approximately one hour after the end of the call by dialing (866) 388-5359 or (203) 369-0414 (international). A live audio webcast of the conference call and the earnings release will be available on the Partnership’s website (www.sanchezpp.com) under the Investor Relations page. The call will also be recorded and archived on the site.
ABOUT THE PARTNERSHIP
Sanchez Production Partners LP (NYSE MKT: SPP) is a publicly-traded limited partnership focused on the acquisition, development, ownership and operation of midstream and other energy production assets. The Partnership owns an oil and natural gas gathering and processing system located in the Eagle Ford Shale in Dimmit and Webb Counties, Texas. The Partnership also currently owns producing reserves in the Eagle Ford Shale in South Texas, the Gulf Coast region of Texas and Louisiana, and across several basins in Oklahoma and Kansas. The Partnership announced in March 2015 that is exploring the possible divestiture of its assets and operations in Oklahoma and Kansas.
6
ADDITIONAL INFORMATION
Additional information about SPP can be found in the Partnership’s documents on file with the SEC (
www.sec.gov) and in the “Investor Presentation” available on the Partnership’s website.
The Partnership anticipates that it will file its third quarter 2015 Form 10-Q with the SEC on or about Nov. 13, 2015.
NON-GAAP MEASURES
We present Adjusted EBITDA in addition to our reported net income (loss) in accordance with GAAP in this news release. We also provide our earnings forecast in terms of Adjusted EBITDA and Distributable Cash Flow.
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) adjusted by interest (income) expense, net; income tax expense (benefit); depreciation, depletion and amortization; asset impairments; accretion expense; (gain) loss on sale of assets; (gain) loss from equity investment; unit-based compensation programs; and (gain) loss on mark-to-market activities. Distributable Cash Flow is defined as Adjusted EBITDA less cash interest expense; distributions on preferred units; and maintenance capital.
Adjusted EBITDA and Distributable Cash Flow are used as quantitative standards by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness; and our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure. Adjusted EBITDA and Distributable Cash Flow are not intended to represent cash flows for the period, nor are they presented as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
We are unable to reconcile our forecast range of Adjusted EBITDA or Distributable Cash Flow to GAAP net income, operating income or net cash flow provided by operating activities because we do not predict the future impact of adjustments to net income (loss), such as
7
(gains) losses from mark-to-market activities and equity investments or asset impairments due to the difficulty of doing so, and we are unable to address the probable significance of the unavailable reconciliation, in significant part due to ranges in our forecast impacted by changes in oil and natural gas prices and reserves which affect certain reconciliation items.
FORWARD-LOOKING STATEMENTS
This press release contains, and the officers and representatives of the Partnership and its general partner may from time to time make, statements that are considered forward—looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our: business strategy; acquisition strategy; financial strategy; anticipated effects of transactions; timing or ability to make, maintain and grow distributions; the ability of our customers to meet their drilling and development plans on a timely basis or at all and perform under gathering and processing agreements; future operating results, including our forecast of Adjusted EBITDA and Distributable Cash Flow; future capital expenditures; and plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure
8
any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our SEC filings and elsewhere in those filings. The forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
PARTNERSHIP CONTACT
Charles C. Ward
Chief Financial Officer
Sanchez Production Partners GP LLC
(877) 847-0009
(Operating and Financial Highlights Follow)
9
Sanchez Production Partners LP
Operating Statistics
|
|
|
Three Months Ended Sep. 30,
|
|
Nine Months Ended Sep. 30,
|
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
Net Production in MBOE:
|
|
|
|
|
|
|
|
|
|
|
Total production (MBOE)
|
|
367
|
|
380
|
|
1,093
|
|
1,135
|
|
|
Average daily production (BOE/D)
|
|
3,991
|
|
4,129
|
|
4,006
|
|
4,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price per BOE:
|
|
|
|
|
|
|
|
|
|
|
BOE Net realized price, including hedges (1)
|
|
$
|
35.21
|
|
$
|
39.50
|
|
$
|
35.46
|
|
$
|
42.40
|
|
|
BOE Net realized price, excluding hedges (2)
|
|
$
|
21.55
|
|
$
|
34.03
|
|
$
|
22.11
|
|
$
|
38.71
|
|
(1) Excludes impact of mark-to-market gains (losses)
(2) Excludes all hedges, the impact of mark-to-market gains (losses).
10
Sanchez Production Partners LP
Condensed Consolidated Statements of Operations
|
|
|
Three Months Ended Sep. 30,
|
|
Nine Months Ended Sep. 30,
|
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
($ in thousands)
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, liquids, and gas sales
|
|
$
|
13,320
|
|
$
|
15,802
|
|
$
|
40,659
|
|
$
|
50,544
|
|
|
Gain (loss) on mark-to-market activities
|
|
12,305
|
|
5,594
|
|
1,671
|
|
(5,318
|
)
|
|
Total revenues
|
|
25,625
|
|
21,396
|
|
42,330
|
|
45,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
5,194
|
|
5,296
|
|
15,452
|
|
15,598
|
|
|
Cost of sales
|
|
139
|
|
404
|
|
469
|
|
1,198
|
|
|
Production taxes
|
|
443
|
|
796
|
|
1,396
|
|
2,563
|
|
|
General and administrative
|
|
7,376
|
|
3,780
|
|
20,669
|
|
12,942
|
|
|
(Gain) loss on sale of assets
|
|
2
|
|
—
|
|
(111
|
)
|
(23
|
)
|
|
Depreciation, depletion and amortization
|
|
2,851
|
|
4,836
|
|
9,050
|
|
13,206
|
|
|
Asset impairments
|
|
937
|
|
43
|
|
84,664
|
|
237
|
|
|
Accretion expense
|
|
265
|
|
151
|
|
782
|
|
451
|
|
|
Total operating expenses
|
|
17,207
|
|
15,306
|
|
132,371
|
|
46,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
672
|
|
511
|
|
2,440
|
|
1,569
|
|
|
Other expense (income)
|
|
(52
|
)
|
(76
|
)
|
48
|
|
(220
|
)
|
|
Total expenses, net
|
|
17,827
|
|
15,741
|
|
134,859
|
|
47,521
|
|
|
Income (loss) before income taxes
|
|
7,798
|
|
5,655
|
|
(92,529
|
)
|
(2,295
|
)
|
|
Income tax expense
|
|
3
|
|
—
|
|
3
|
|
—
|
|
|
Net income (loss)
|
|
7,795
|
|
5,655
|
|
(92,532
|
)
|
(2,295
|
)
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Preferred unit paid-in-kind distributions
|
|
(445
|
)
|
—
|
|
(969
|
)
|
—
|
|
|
Net income (loss) attributable to common unitholders
|
|
$
|
7,350
|
|
$
|
5,655
|
|
$
|
(93,501
|
)
|
$
|
(2,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
295
|
|
$
|
5,688
|
|
$
|
5,088
|
|
$
|
19,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per unit prior to conversion (1)
|
|
|
|
|
|
|
|
|
|
|
Class A units - Basic
|
|
$
|
—
|
|
$
|
2.33
|
|
$
|
(0.38
|
)
|
$
|
(0.54
|
)
|
|
Class B units - Basic
|
|
$
|
—
|
|
$
|
1.94
|
|
$
|
(0.31
|
)
|
$
|
(0.79
|
)
|
|
Class A units - Diluted
|
|
$
|
—
|
|
$
|
2.33
|
|
$
|
(0.38
|
)
|
$
|
(0.54
|
)
|
|
Class B units - Diluted
|
|
$
|
—
|
|
$
|
1.93
|
|
$
|
(0.31
|
)
|
$
|
(0.79
|
)
|
|
Weighted Average Units Outstanding prior to conversion (1)
|
|
|
|
|
|
|
|
|
|
|
Class A units - Basic
|
|
—
|
|
48,451
|
|
48,451
|
|
85,720
|
|
|
Class B units - Basic
|
|
—
|
|
2,855,257
|
|
2,879,163
|
|
2,835,859
|
|
|
Class A units - Diluted
|
|
—
|
|
48,451
|
|
48,451
|
|
85,720
|
|
|
Class B units - Diluted
|
|
—
|
|
2,866,088
|
|
2,879,163
|
|
2,835,859
|
|
|
Net income (loss) per unit after conversion (1)
|
|
|
|
|
|
|
|
|
|
|
Common units - Basic
|
|
$
|
2.33
|
|
$
|
—
|
|
$
|
(29.83
|
)
|
$
|
—
|
|
|
Common units - Diluted
|
|
$
|
0.55
|
|
$
|
—
|
|
$
|
(29.83
|
)
|
$
|
—
|
|
|
Weighted Average Units Outstanding after conversion (1)
|
|
|
|
|
|
|
|
|
|
|
Common units - Basic
|
|
3,124,004
|
|
—
|
|
3,103,608
|
|
—
|
|
|
Common units - Diluted
|
|
14,074,856
|
|
—
|
|
3,103,608
|
|
—
|
|
(1) Amounts adjusted for 1-for-10 reverse split completed August 3, 2015.
11
Sanchez Production Partners LP
Condensed Consolidated Balance Sheets
|
|
|
Sep. 30,
|
|
Dec. 31,
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
32,239
|
|
$
|
27,300
|
|
|
Oil and natural gas properties, net of accumulated depreciation, depletion, amortization and impairments
|
|
123,543
|
|
135,310
|
|
|
Other assets
|
|
13,997
|
|
10,637
|
|
|
Total assets
|
|
$
|
169,779
|
|
$
|
173,247
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
10,343
|
|
$
|
6,893
|
|
|
Long-term debt
|
|
106,000
|
|
42,500
|
|
|
Other long-term liabilities
|
|
18,593
|
|
17,031
|
|
|
Total liabilities
|
|
134,936
|
|
66,424
|
|
|
|
|
|
|
|
|
|
Members’ equity
|
|
—
|
|
106,823
|
|
|
Partners’ capital
|
|
34,843
|
|
—
|
|
|
Total members’ equity/partners’ capital
|
|
34,843
|
|
106,823
|
|
|
Total liabilities and members’ equity/partners’ capital
|
|
$
|
169,779
|
|
$
|
173,247
|
|
12
Sanchez Production Partners LP
Reconciliation of Net Income (Loss) to Adjusted EBITDA
|
|
|
Three Months Ended Sep. 30,
|
|
Nine Months Ended Sep. 30,
|
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
($ in thousands)
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,795
|
|
$
|
5,655
|
|
$
|
(92,532
|
)
|
$
|
(2,295
|
)
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
672
|
|
511
|
|
2,440
|
|
1,569
|
|
|
Income tax expense
|
|
3
|
|
—
|
|
3
|
|
—
|
|
|
Depreciation, depletion and amortization
|
|
2,851
|
|
4,836
|
|
9,050
|
|
13,206
|
|
|
Asset impairments
|
|
937
|
|
43
|
|
84,664
|
|
237
|
|
|
Accretion expense
|
|
265
|
|
151
|
|
782
|
|
451
|
|
|
(Gain) loss on sale of assets
|
|
2
|
|
—
|
|
(111
|
)
|
(23
|
)
|
|
Unit-based compensation programs
|
|
75
|
|
86
|
|
2,463
|
|
1,216
|
|
|
(Gain) loss on mark-to-market activities
|
|
(12,305
|
)
|
(5,594
|
)
|
(1,671
|
)
|
5,318
|
|
|
Adjusted EBITDA (1)
|
|
$
|
295
|
|
$
|
5,688
|
|
$
|
5,088
|
|
$
|
19,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,341
|
)
|
$
|
(5,011
|
)
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
1,122
|
|
533
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
3,079
|
|
4,320
|
|
|
|
|
|
|
Asset impairments
|
|
862
|
|
45
|
|
|
|
|
|
|
Accretion expense
|
|
264
|
|
150
|
|
|
|
|
|
|
Gain on sale of assets
|
|
(54
|
)
|
(16
|
)
|
|
|
|
|
|
Unit-based compensation programs
|
|
396
|
|
1,029
|
|
|
|
|
|
|
Loss on mark-to-market activities
|
|
9,902
|
|
5,915
|
|
|
|
|
|
|
Adjusted EBITDA (1)
|
|
$
|
5,230
|
|
$
|
6,965
|
|
|
|
|
|
(1)
Our Adjusted EBITDA should not be considered as an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We define Adjusted EBITDA as net income (loss) plus:
·
interest (income) expense, net which includes:
·
interest expense;
·
interest expense net (gain) loss on interest rate derivative contracts; and
·
interest (income);
·
income tax expense (benefit);
·
depreciation, depletion and amortization;
·
asset impairments;
·
accretion expense;
·
(gain) loss on sale of assets;
·
(gain) loss from equity investment;
·
unit-based compensation programs; and
·
(gain) loss on mark-to-market activities.
13
