Sanchez Energy Corp. may be fairly new to the public, having completed its initial public offering in December 2011, but the Sanchez family has been drilling wells in South Texas for more than 40 years, along with operating its ranching and banking interests.

Chief executive officer and president Tony Sanchez III, who grew up in Laredo, is managing rapid growth for the Houston-based company, trading as SN.

The Harvard MBA notes that at the time of the IPO, Sanchez Energy had only 10 wells in production, but now it has more than 110. Its 2011 budget was about $20 million; in 2012, capex rose to $180 million. This year, it's around $500 million, with five rigs running.

In early August, 26 Eagle Ford wells were drilling or in various stages of completion.

The new company was spun out from the family's private firm, Sanchez Oil & Gas, which his grandfather, Tony Sanchez Sr., and father, AR Sanchez Jr., founded in 1972. In 2006 the family decided for the first time to take in outside capital through a new vehicle, Sanchez Energy Partners I LP. Gas prices were headed to $14.

By 2008, Sanchez was also drilling for some oil, when natural gas prices began to crash...and lo and behold, it found itself right in the middle of the Eagle Ford shale, mostly in the profitable oil window.

In December 2011, the Eagle Ford assets were spun out from the private partnership to Sanchez Energy Corp. for the IPO. More recently, the company amped up its Eagle Ford position with a $265-million cash acquisition from Hess Corp. in the Cotulla area, bringing it to 138,000 net acres. And at press time, it announced a deal in the Tuscaloosa Marine shale.

To fund the growth ahead, Sanchez Energy recently closed on its up-sized $400-million offering of 7.75% senior notes due 2021, with proceeds used to pay off some debt and the rest funding its 2013-2014 capital spending plan.

Investor Why should a successful, private, family company go public?

Sanchez One benefit of the IPO is that it enabled us to hire some additional high-quality people in Houston, which is very competitive. We had good people here already, of course, but we were able to attract even more using restricted stock. Getting everybody on the same page, and with the shareholders in mind, has had a positive effect.

We thought at first we'd take the whole thing public, but we noticed the market likes a pure-play company, like Oasis or Kodiak in the Bakken, for example. There were no pure plays in the Eagle Ford at the time, and now, we are one, so we saw a niche that we could fill. Our message on the road show was simple: if you like the Eagle Ford and think we can do a good job there, we're the pure-play operating company for you.

Investor You're not worried all your eggs are in one basket?

Sanchez I do worry a little. We have looked at the Woodbine, and now we've got the Tuscaloosa Marine shale. In the medium or long term, we'll be going beyond the Eagle Ford, but what it's coming down to is, we'll be an oil-focused resource company. We've looked at some things in the Permian Basin, too, but I think we might be late to the game there. In the Eagle Ford we have 1,200 locations and we're drilling 50 or 60 wells a year, so we have plenty to do in the future.

I do think A&D will be part of the Eagle Ford life cycle, just as it has been in other shale plays. First, some of the private companies will start to sell. I think it's starting to happen even now. We see some smaller opportunities ahead from private-equity-backed companies that will start selling.

Investor You're still in the hunt for more?

Sanchez We're looking at them, yes. As a matter of course, we try to look at everything in the deal flow that we think is interesting. We've done a handful of small, undeveloped acreage deals. In one from ZaZa Energy, for example, we picked up a $28-million bolt-on next to our Marquis asset in the Eagle Ford.

We're long on undeveloped acreage though, so we're looking for assets that are more evenly weighted to PDP [proved developed producing] and PUDs [proved undeveloped] in order to scale up production and cash flow. That's what attracted us to the Hess package—it more than doubled our production and increased our total proved reserves by 63%.

Investor What about the leasing action in the Eagle Ford?

Sanchez We're always doing a few small, bolt-on leases where we can make particular use of a rig. But certainly, most of the large, contiguous leases are already taken up in the places where you'd want to be. In the western part of the play, it's in the $500- to $1,000-range. In LaSalle and Dimmitt counties, it can be $2,500 an acre. In the Karnes Trough area, I don't think you can get any acreage. We do lease trading, but the full-on rush is over.

Investor How are your Eagle Ford type curves tracking?

Sanchez The type curves are changing, but overall, a majority of our wells are beating the type curve, and that's a function of our larger frac stages, tightening up the clusters, and spacing between wells. At our Palmetto area, we're on 40-acre spacing—we've certainly gotten beyond 120s. The larger and more diverse our well count is, the better, and that creates a steady base. That's what the Hess deal did.

We're trying to balance a cookie-cutter approach where you can drive more drilling and completion efficiencies, with some experimentation. For example, we'll tweak the variables on two wells side by side. We recently did two wells with 36 stages each, but we varied the pounds of proppant per stage. Then we'll do a rate of return analysis on that.

I've looked back at some wells we drilled in 2010 and they are stable and tracking the curve.

Investor What about pad drilling?

Sanchez We have a couple pads with five wells each and one with six, but most of our pads have two wells. It makes a lot of sense for us, but it is a strong call on capital, because we drill all the wells, then have to shut them in while we frac the offsets. It is efficient and quick and we can amortize our costs such as rig mobilization and facilities across several wells—but it wreaks havoc on your working capital before you have meaningful cash flow come back in the door.

Investor You mentioned having some proprietary software, and you might market it?

Sanchez We've been building our own system here to coordinate or integrate these acquisitions and tie it all back to our financials; as we build our company as a public entity, we thought we'd like to take a fresh approach to building our business. Ultimately we decided to build the software system from scratch and customize it to our specific workflows. I can look at the plan and see what any individual rig is going to be doing—I can look at Rig 4 and see that it will be drilling on May 14 and look at all the steps we need to take to make that happen. It's really allowed us to tackle a big project like the Eagle Ford head on.

Investor What results have you gotten?

Sanchez It helps us integrate our acquisitions. On the Hess assets alone, we've gone from 4,500 barrels a day to 6,000 a day. But our legacy in South Texas is 40-years-plus, and that gave us an advantage in the Hess transaction. It was our ability to close it and integrate it, and we know the landowners.

I'm from Laredo; my Dad's from Laredo. To be able to operate in a basin we know so well from a land standpoint is a big benefit.

Our growth's been a function of how we approached everything in an organized fashion—with the software, goals are transparent and our people know exactly what to do. The next iteration of the software will have reservoir data and cost-tracking functions as well.

We're watching our spending very carefully right now, and we're managing the growth we're experiencing.

Investor What is the relationship, post-IPO, between Sanchez Oil & Gas, Sanchez Energy Partners and Sanchez Energy Corp. (SN)?

Sanchez Sanchez Oil & Gas is the private holding company, the family company. Sanchez Energy Partners is where we have all the assets in Kansas, Mississippi, the Gulf Coast region and some undeveloped acreage in the Illinois Basin, and it's funded by 37 limited partners we have worked with for many years. All the unconventional assets went to publicly held SN, including some Heath shale acreage, but the fixed costs and employees are housed in SOG, our private management company.

The thinking behind this is, since it's a spinout, SN has low G&A of about $12- to $14 million a year, whereas our E&P peers have around $20 million or more, on average, so on a per-barrel basis, we are a low-cost producer. It's working out nicely.

Investor You have some Tuscaloosa assets; Sanchez Energy just bought more.

Sanchez Yes, that's right. We have a big undeveloped position and we're watching the other operators closely, waiting to see how this play is figured out. We've been following it for quite some time, but we haven't drilled a well yet. Costs really need to come down there. How we approach it has yet to be decided, but it is certainly an opportunity for us.

Investor What are your immediate goals?