Creditors and investors alike just aren't buying Sanchez Energy's (SN) story -- quite literally.
On Tuesday, the Texas-based oil and gas company announced its fourth-quarter operating results and updates to its 2016 capital budget. The release was in advance of the company's analyst and investor day, which is being held on Wednesday.
Not surprisingly, CEO Tony Sanchez III sounded optimistic in the company's Tuesday announcement.
"2015 was a strong year for Sanchez Energy," said Sanchez. "Record-high production and improved well economics, including efficiency gains leading to as much as 60% lower well costs, in addition to two pivotal midstream transactions have positioned us with the financial flexibility and tailwinds for our expected continued success in 2016's commodity price environment and beyond."
The market, however, has taken a less kind view of Sanchez Energy. Shares of the company's stock fell 9.63% to $2.44 on Tuesday. Perhaps even more telling, the price of its 6.125% senior note due in 2023 fell 26% to $33 in advance of the release.
In its analyst day presentation, the company touted its liquidity position by saying that it has no outstanding debt maturities until 2021. While true, creditors apparently feel less optimistic about the issues they hold.
Since the start of 2016, the price of the company's 7.75% senior note coming due in 2021 fell 29% to $37.50. The price 2023 note fell 38% to $33 over the same period.
To be sure, while the CEO was correct about the company's record-high production levels, it is also worth noting that those figures came at a high cost.
In 2013, the company made two acquisitions in the Eagle Ford region totaling $510 million, of which $280 million was paid to Hess (HES). The acquisitions were financed with a mix of equity and debt. In 2014, Sanchez Energy made another acquisition in the region and paid Royal Dutch Shell (RDS.A) $639 million. This transaction was financed with a portion of the proceeds from the issuance of the 2023 notes. Unfortunately for Sanchez Energy, the dramatic fall of oil and gas prices occurred soon thereafter.
A company can buy strong assets, but in a weak oil and gas market, that may not be enough. Especially when the acquisitions are financed by debt, which is trading at levels that make it worthy of earning a "Walking Dead" distinction.
Investors in the stock could be attracted to company's low stock price, but in the current climate, they are likely financing the company's debt instead of the company's growth.