Shares of Sanchez Energy Corp. (NYSE: SN) tumbled on Tuesday and were down nearly 15% at 10:15 a.m. EDT after the company reported unexpectedly weak first-quarter results, which erased the previous day's oil-fueled gains.
Sanchez Energy warned investors last month that its production during the first quarter would come in below its guidance range, which is just what happened. The company produced an average of 80,572 barrels of oil equivalent per day (BOE/D) during the quarter. That was well below its 82,000 to 84,000 BOE/D forecast range, due in part to some operational tests that failed to meet its goal of optimizing production. Because of those and other issues, Sanchez Energy reported an adjusted loss of $0.05 per share, which was quite a surprise since analysts expected a $0.22 per share profit.
The company's production issues during the quarter were a big setback for its 2018 plans. Because of that, Sanchez Energy now sees output averaging 80,000 to 84,000 BOE/D for both the second quarter and full year. That's down from its initial forecast that production would average between 88,000 to 92,000 BOE/D this year. Even more disappointing is that Sanchez will produce at that lower rate despite spending more money after it increased its capital budget to a range of $475 million to $525 million -- a huge jump from its initial $420 million to $470 million spending plan.
While Sanchez Energy is sitting on a world-class resource in the Eagle Ford Shale in Texas, it hasn't had the same success in getting the most out of these assets as other drillers have. Add to that the fact that it has a much weaker balance sheet than most rivals, and it has a way to go before catching up with the top oil stocks.