Sanchez - Hess Reach Eagle Ford Deal For $265 Million

Sanchez Energy Maverick Area Map
Sanchez Energy Maverick Area Map

Sanchez and Hess have reached a $265 million agreement for 43,000 net acres in Dimmit, Frio, La Salle, and Zavala counties in the gas condensate and oil window of the Eagle Ford. Sanchez also mentioned potential in the Austin Chalk, Buda Limestone, and Pearsall Shale.

Tony Sanchez, CEO, commented, "We will initially focus on the development of the Eagle Ford section; however, this area is currently experiencing considerable Buda Limestone and Pearsall Shale activity from other operators which may provide us with additional potential growth opportunities."

Current production is 4,500 boe/d with a little more than 70% considered oil from 50 gross operated wells. The deal more than doubles Sanchez Energy's production from 3,800 boe/d to 8,300 boe/d.

Hess had 13.4 million boe of proved reserves related to the properties.

Tony Sanchez, CEO, said, "The Eagle Ford assets we are acquiring are highly strategic and accretive on a variety of metrics, and provide critical mass and scale for the company by significantly increasing our reserves and more than doubling our current production rate.

If we assume Sanchez paid $60,000 per flowing boe of production, that means the company paid only $6,000 per acre. That's far less than deals we've seen trade for more than $10,000 an acre and a few that have traded for more than $20,000 per acre. Hess has not been one of the most active operators in the Eagle Ford, so I assume this acreage is discounted for a multitude of reasons -

  • Some acreage is not likely held by producing wells (HBP)
  • Facilities & midstream are not likely built out
  • There may be questions regarding well productivity in areas


Are Eagle Ford Lease Terms Driving Peak Activity?

Activity across the Eagle Ford has held at a fever pitch for more than a year now. Many operators have improved drilling times and scaled back the number of rigs be utilized, but they're still drilling the same number of wells. Other operators are stepping in to pickup additional rigs and we've seen very little change in the rig count overall. Approximately 270 rigs have been running in the region for almost 12 months.

“You have to drill a well to hold acreage,” said Tudor, who spoke at a media tour hosted by BHP Billiton Petroleum this month. “There's a lot of that in America.”


Many Eagle Ford leases were negotiated between 2008 and 2010. A typical lease has a primary term of 3-5 years. If a well isn't producing before the 3-5 years is up, the landowner has the right to lease the mineral rights again. Operators are drilling wells across the play to make sure leases are held by production before expiration. A well drilled before expiration of the primary term will save operators the cost of additional lease bonuses and potentially higher royalties. It could mean millions of dollars per well.

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