Sanchez Energy's (NYSE: SN ) deal to buy Royal Dutch Shell's (NYSE: RDS-A ) (NYSE: RDS-B ) Eagle Ford assets for $640 million doesn't seem like a bad deal on its face. When you consider the size of Sanchez at the time of the deal, though, there are several caution flags for investors, especially after watching how Chesapeake Energy (NYSE: CHK ) and Sandridge Energy (NYSE: SD ) struggled for years after making too many purchases without having sufficient cash flow to cover them. If Sanchez funds this deal exclusively with debt, the company will be left with a debt-to-capital ratio of 59%. Not exactly the most comforting number considering that Sanchez already wasn't even close to covering its development plans without the help of debt.
Tune into the video below to find out what Sanchez will look like following the Eagle Ford acquisition, how its balance sheet will affect its performance if it does use debt, and what this could mean for investors.
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