Sanchez Energy : Eagle Ford Play

SN : NYSE : US$24.92
BUY 
Target: US$30.00

TAKING IT UP A NOTCH IN THE EAGLE FORD; REITERATE BUY,
LOWERING PRICE TARGET TO $30
Investment recommendation
With over 140K net acres in the oil window of the Eagle Ford (EF) Shale, no company is more levered to the play relative to its size. Substantial production and cash flow growth should be the drivers to a higher stock price, in our view, as the company is now in full-scale development mode in the EF. A newly established 40K net acre position in the Tuscaloosa Marine Shale (TMS) provides future upside potential.
Investment highlights
 The company’s production growth is accelerating. After producing 1.9 MBoe/d in all of 2012, Q2/13 production was 7.7 MBoe/d with only one month of Cotulla. Current production pro forma for the Wycross acquisition is ~15.5 MBoe/d. Exit rate guidance for 2013 suggests a doubling or more from Q2/13 levels.
 SN is entering the TMS with a 40K net acre position in the core of the play that the company believes has over 200 MMBoe of recoverable resource. That said, over 90% of drill and complete (D&C) capex in 2013 is earmarked for the Eagle Ford as SN lets others test the TMS in the short to intermediate term.
 Both the recent equity and high-yield financings were upsized due strong demand. Pro forma for the sale of 9.6M shares of common and $200M of 7.75% Senior Notes, SN has over $500M of liquidity heading into an accelerated production growth phase.

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