Sanchez Energy (NYSE:SEN) recently filed for an initial public offering and plans to focus its development efforts almost exclusively on the Eagle Ford Shale in Texas. The company also has other onshore oil and gas properties prospective for the Bakken and Haynesville Shale.

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Sanchez Group
The initial public offering of Sanchez Energy is being orchestrated by the Sanchez Group, a private oil and gas company. The formation and organizational structure contained within is fairly complex and warrants a more detailed explanation.

A separate entity called Sanchez Energy Partners I, LP owns various oil and gas assets through its ownership of SEP Holdings III, LLC. These assets are being sold to Sanchez Energy in exchange for cash and shares in the company.

Sanchez Energy will also enter into a services agreement with Sanchez Oil and Gas Corporation under which this company will provide management and operational services to Sanchez Energy. Sanchez Oil and Gas Corporation is an experienced operator that has been active since the early 1970s.

After the initial public offering is complete, Sanchez Group will have a large ownership position and influence over Sanchez Energy through its control of the various entities described earlier.

Oil and Gas Assets
Sanchez Energy has 38,754 net acres under lease in South Texas, with 9,329 net acres in Gonzalez County and another 29,425 net acres in Zavala and Frio Counties. The company estimates that it has 320 net unrisked drilling locations on its acreage.

Sanchez Energy was originally partnered with a private oil and gas company on its acreage in Gonzales County, but this company recently signed an agreement to sell its share to Marathon Oil (NYSE:MRO). After the deal closes, Marathon Oil will be the company's working partner in this area.

Sanchez Energy is amassing acreage in a second oil play and has 82,000 net acres under lease in Northern Montana, which the company believes is prospective for the Bakken and Three Forks formations. These leases have five year terms with renewal options and the company has no current exploration or development plans here.

Sanchez Energy also has a small lease position of 1,500 net acres in Louisiana that is exposed to the Haynesville Shale. This leasehold is operated by Chesapeake Energy (NYSE:CHK) and Encana Corporation (NYSE:ECA), and Sanchez Energy expects no capital obligations here.

Eagle Ford Shale
Sanchez Energy has participated in five wells into the Eagle Ford Shale through July 2011, with four of these wells in the Gonzales County area. The company plans to direct its remaining capital budget for the balance of 2011 and 2012 into Eagle Ford Shale development. This spending will total $70 million for drilling and completion and permit the drilling of 11 net wells. Another $25 million will be reserved for the acquisition of further leasehold in the area.

Although Sanchez Energy has been involved with a productive Eagle Ford Shale well in Zavala County, this well was located near a project that was abandoned by Petrohawk Energy (NYSE:HK) in August 2011.

The Bottom Line
Sanchez Energy may represent a pure play on the Eagle Ford Shale in Texas, but investors should step carefully as much of its acreage is still prospective, making it difficult to determine the value of the assets. The ownership structure of Sanchez Energy is also different than many other public exploration and production companies. (For additional reading, check out Peak Oil: Problems And Possibilities.)

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