Sanchez Energy's deal to buy Royal Dutch Shell's Eagle Ford assets for $640 million doesn't seem like a bad deal on its face. When you consider the size of Sanchez at the time of the deal, though, there are several caution flags for investors, especially after watching how Chesapeake Energy and Sandridge Energy struggled for years after making too many purchases without having sufficient cash flow to cover them. If Sanchez funds this deal exclusively with debt, the company will be left with a debt-to-capital ratio of 59%. Not exactly the most comforting number considering that Sanchez already wasn't even close to covering its development plans without the help of debt.
Tune into the video below to find out what Sanchez will look like following the Eagle Ford acquisition, how its balance sheet will affect its performance if it does use debt, and what this could mean for investors.
America's $600 billion energy problem means invest in these three stocks today
A dark specter is looming that is ready to stop America's Energy boom right in its tracks, and no one is talking about it. This one critical element could cost us over $600 billion, but every day we wait that number grows and grows. The U.S. government thinks investment in this sector is so important, even the Internal Revenue Service will give you a free pass if you invest in this select group of stocks. Our analysts at The Motley Fool have combed over this special class of stocks and we have identified three that could make you rich! Find out the names of these IRS-gift-wrapped stocks in our special report "3 Stocks The IRS Is Begging You to Buy." Simply click here and we'll give you free access to this valuable investing resource.
The article Is Sanchez Energy Biting Off More Than it Can Chew? originally appeared on Fool.com.Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google+, or on Twitter @TylerCroweFool. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.