Sanchez Energy (SN - Get Report) COO Chris Heinson outlined some of the factors that negatively affected Sanchez's fracking-based operations during a March 6 investor conference call that demands closer examination.
Heinson said that Sanchez, an oil and natural gas producer based in Houston, had encountered unanticipated interruptions of their fracking operations, events particularly relevant to the economics of the fracking business.
Here's what happened to Sanchez during the fourth quarter of 2013:
- "Multiple periods of cold weather which has increased downtime and maintenance in the current quarter"
- "Gulf Coast weather, particularly fog, has impacted barge and inner coastal traffic, tanker traffic, causing shortage, storage facilities to backup."
- "Experienced periods where our crude could not be marketed due to the temporary receiving facility bottlenecks"
Specifically, Sanchez said that "Crude could not be marketed due to the temporary receiving facility bottlenecks"?Could this revelation be an indication that other companies could also encounter similar problems? This potential speed-bump in the road to quick monetization of energy produced by fracked wells could result in a painful effect on profit margins (and a corresponding sharp increase in non-revenue reported inventory levels). An example of a noticeable greater percentage increase in "Total Expenses", compared to a smaller percentage increase in "Total Revenues", was recently reported in the 2013 Annual Report (SEC Form 10K) of Carrizo Oil & Gas (CRZO - Get Report), a driller in the Eagle Ford shale oil play: CRZO Oil and Gas Total Revenues in the 4th qtr of 2013 were $131,936 million up 13% from the 4th quarter of 2012. CRZO Oil & Gas Total Expenses for the same period were $30,710 million in 2013 and $23,904 million in 2012; up 28% from the 4th quarter of 2012.
|CARRIZO OIL & GAS, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In thousands, except per share amounts)|
|Three Months Ended December 31,|| Year Ended
|Oil and gas revenues:|
|Total oil and gas revenues||129,728||107,450||520,182||368,180|
|Net cash from derivative settlements||2,208||9,817||12,491||38,924|
|Adjusted oil and gas revenues||131,936||117,267||532,673||407,104|
|Costs and expenses:|
|Ad valorem taxes||1,853||1,575||8,701||9,813|
|General and administrative||11,831||9,591||45,356||33,056|
|Total costs and expenses||30,710||23,904||120,696||87,882|