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Changed Risks for SANCHEZ ENERGY CORP (SN)

Our acquisition, development and production operations require us to make substantial capital expenditures Although we expect to fund our capital expenditure budget for 2019  using cash flow from operations and cash on hand, if our cash flow from operations turns out to be less than we currently expect and we are required, but are unable, to fund our remaining capital budget from other sources, such as borrowings under the credit agreements and/or the issuance of debt or equity securities, our failure to obtain the funds that we need could have a material adverse effect on our business, financial condition and results of operations

We have extended the term of our net operating loss carryforwards (“NOLs”) Rights Plan, which may discourage the acquisition and sale of large blocks of our common stock and may result in significant dilution for certain stockholders

Under the terms of the Catarina lease and Comanche development agreement, we are subject to certain annual drilling and development requirements Failure to comply with these requirements may result in loss of our interests in the Catarina area that are not held by production or sizable default payments to Anadarko, respectively

Our business involves a high degree of risk You should read carefully and consider all of the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10‑K, including the financial statements and the related notes appearing at the end of this Annual Report on Form 10‑K If any of the following risks, or any risk described elsewhere in this Annual Report on Form 10‑K, were to occur, our business, financial condition or results of operations could be adversely affected The risks below are not the only ones facing the Company Additional risks not currently known to us or that we currently deem immaterial may also adversely affect us This Annual Report on Form 10‑K also contains forward‑looking statements, estimates and projections that involve risks and uncertainties Our actual results could differ materially from those anticipated in the forward‑looking statements as a result of specific factors, including the risks described below  Also, please read “Cautionary Note Regarding Forward-Looking Statements”

Approximately 53% of our total estimated proved reserves at December 31, 2018 were PUDs requiring substantial capital expenditures and may ultimately prove to be less than estimated

We are evaluating a variety of strategic alternatives to improve our balance sheet and to satisfy our obligations under our debt instruments; however, there is no guarantee that any such alternatives can be effectuated on acceptable terms or at all, and such alternatives could adversely affect our creditors and put our stockholders at significant risk of losing all of their respective investments in us

Item 2 

Our agreements with Blackstone and GSO Capital Partners LP (“GSO”) restrict us from transferring our right, title and interest to the Comanche Assets

Our lack of diversification increases the risk of an investment in us and we are vulnerable to risks associated with operating in one major contiguous area

We may be unable to compete effectively with other companies in our industry, which may adversely affect our ability to generate revenue

Our stock price has declined significantly, and investors in our common stock could incur substantial losses if our stock price remains depressed

We participate in oil and natural gas leases, including with respect to the Comanche Assets, with third parties who may not fulfill their commitments to our projects

We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations In addition, the third parties on whom we rely for gathering and transportation services are also subject to complex federal, state and other laws that could adversely affect the cost, manner or feasibility of conducting our business

We have extended the term of our net operating loss carryforwards (“NOLs”) Rights Plan, which may discourage the acquisition and sale of large blocks of our common stock and may result in significant dilution for certain stockholders”

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate

If we were to receive a report from our independent registered public accounting firm with our annual audited financial statements containing a going concern or like qualification or exception, this would constitute an event of default under the Credit Agreement, which may result in cross-defaults under our other debt obligations

our business, remain in compliance with debt covenants and make payments on our debt

A portion of our total outstanding shares is held by members of the Sanchez Group and may be sold into the market at any time In addition, Blackstone and GSO (or their affiliates) received a substantial number of our securities in connection with the Comanche Acquisition which they may also sell into the market at their discretion, subject to certain limitations  Such sale transactions could cause the market price of our common stock to drop significantly, even if our business is doing well

We are evaluating a variety of strategic alternatives to improve our balance sheet and to satisfy our obligations under our debt instruments; however, there is no guarantee that any such alternatives can be effectuated on acceptable terms or at all, such alternatives could adversely affect our creditors and put our stockholders at significant risk of losing all of their respective investments in us

Trading in our common stock on the NYSE was suspended on February 20, 2019, and the NYSE has notified us that our common stock is subject to delisting proceedings At this time, we expect that the NYSE could file a Form 25 to delist our common stock as early as March 7, 2019 Our common stock is quoted only in the over-the-counter market, which could negatively affect our stock price and liquidity

An increase in the differential between the NYMEX or other benchmark prices of oil, natural gas and NGLs and the wellhead price we receive for our production could adversely affect our business, financial condition and results of operations

Item 4 

Even if we are able to complete a strategic transaction to restructure or refinance our debt and/or preferred stock without seeking relief under the US Bankruptcy Code, we may still be unsuccessful in our operating plan, particularly if oil and natural gas prices do not recover If we are not successful in executing our current plan for operations, we may need to seek relief under the US Bankruptcy Code notwithstanding the success of the strategic transaction If we seek bankruptcy relief, we expect that holders of our common stock, preferred stock and, possibly, any unsecured notes that remain outstanding would likely receive little or no consideration

Tax laws and regulations may change over time, including the elimination of federal income tax deductions currently available with respect to oil and natural gas exploration and development

Item 3 

If we were to experience an ownership change, we could be limited in our ability to use NOLs arising prior to the ownership change to offset future taxable income In addition, our ability to use NOLs to reduce future tax payments may be limited if our taxable income does not reach sufficient levels

Despite our current level of indebtedness and recent borrowing base decrease, we may be able to incur substantially more debt This could exacerbate the risks associated with our indebtedness

Our operations could be disrupted if our or SOG’s information systems are hacked or fail, causing increased expenses and loss of revenue

We may need to seek relief under the US Bankruptcy Code to complete a strategic transaction that restructures or refinances our debt and/or preferred stock If we seek bankruptcy relief, we expect that our common stockholders and preferred stockholders would likely receive little or no consideration for their interests  In addition, unsecured creditors would likely realize recoveries significantly less than the principal amount of their claims and, possibly, no recovery at all

A  portion of our oil and natural gas production is subject to commodity derivative contracts and the price we receive for such production is dependent on conditions in the market at the time we enter into such contracts

Because we have no plans to pay dividends on our common stock and have suspended our preferred stock dividend payments, investors must look solely to stock appreciation for a return on their investment in us

The Company’s derivative risk management activities could result in financial losses or reduced income

We are subject to anti‑takeover provisions in our restated certificate of incorporation and amended and restated bylaws, our Rights Plan and Delaware law that could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders

GSO consent is required for agreement of SN UnSub or SN UnSub’s general partner to take certain actions, even if we believe the actions to be in the best interests of our stockholders