What: Shares of American independent oil and gas producer Sanchez Energy Corporation (NYSE: SN) gushed today, up more than 17% at the close, after the company reported financial results that exceeded what most analysts were expecting. 

So what: There were a few headlines out there highlighting the $567 million loss the company reported in the quarter, which is a enormous number, considering that total revenues in the period were $169.3 million. The losses were non-cash, and were largely the product of non-cash valuation writedowns of the company's oil and gas assets. 

When a company's assets lose significant value (look at an oil price chart over the past few months), the company must reduce the carrying value of those assets, and the continued drop in oil (and natural gas) prices forced Sanchez to mark another $469 million in value off the books this quarter. So far this year, the company has taken more than $910 million in asset valuation impairments. Since these are non-cash impairments, they don't actually take money out of the bank, but signify the reduction in value of the company's assets. 

Now what: So now that it's clear that the bulk of losses are non-cash, let's take a look at the rest of the earnings details. To start with, the company has more than doubled its oil production over the past year, while slashing its well development costs. Costs are down enough that management announced it was reducing capital spending by 8% for the remainder of the year, while saying it would still complete as many wells as previously announced. 

Furthermore, the company says that its balance sheet, which includes more than $200 million in cash and more than $300 million in available liquidity via revolving credit, is sufficient for the company while oil prices stay depressed. Management also says that its increased production and falling costs are leading to improved cash flows, further strengthening the company's position in this depressed market. 

In addition, Sanchez has roughly half of its projected oil and gas production for the remainder of the year hedged, further guaranteeing a predictable source of cash flows, and at above-market average prices for both oil and natural gas. Factor it all in, and the market clearly thinks Sanchez is positioned to ride out the current environment.