Exhibit 10.4

 

July 30, 2013

 

Sanchez Energy Corporation

SEP Holdings III, LLC

SN Marquis, LLC

SN Cotulla Assets, LLC

1111 Bagby Street, Suite 1800

Houston, Texas 77002

Attention: Alfredo Gutierrez

 

Re:                             Waiver and Amendment for Amended and Restated
Credit Agreement dated as of May 31, 2013 (as amended, supplemented or otherwise
modified to date, the “Credit Agreement”), among Sanchez Energy Corporation, SEP
Holdings III, LLC, SN Marquis, LLC and SN Cotulla Assets, LLC (collectively, the
“Borrowers”), each of the Lenders from time to time party thereto (the
“Lenders”), and Royal Bank of Canada, as administrative agent for the Lenders
(in such capacity, together with its successors in such capacity, the
“Administrative Agent”)

 

Ladies and Gentlemen:

 

This letter (this “Letter”) relates to the Credit Agreement.  Each capitalized
term not defined herein shall have the meaning assigned to such term in the
Credit Agreement.  All references to sections in this Letter shall be to
sections of the Credit Agreement unless otherwise indicated.

 

Waiver

 

The Borrowers have informed the Administrative Agent that the Borrowers recently
entered into certain oil Swap Agreements which, when aggregated with existing
oil Swap Agreements, bring total oil Swap Agreements for the six month period
ending on June 30, 2014 to 5,750 barrels per day (the “Specified Swaps”).  This
results in oil Swap Agreement volumes of 50.8% of total Proved Reserves based
off of the 6/30/13 Reserve Report.  This exceeds the maximum allowed limit of
50% of total Proved Reserves specified in Section 9.17 of the Credit Agreement
(the “Specified Event”).

 

The Borrowers have requested, and the Required Lenders hereby consent to, a
waiver with regard to the Specified Event as it relates to the Specified Swaps.

 

Amendments

 

A.            The Credit Agreement currently defines “Unrestricted Cash” to
include Investments described in Section 9.05(c) (accounts receivable arising in
the ordinary course of business) and excludes Investments described in
Section 9.05(g) (deposits in money market funds).  The definition of
“Unrestricted Cash” in the Credit Agreement is hereby amended to read as
follows:

 

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“Unrestricted Cash” means Investments of the Borrowers and their Unrestricted
Subsidiaries described in Section 9.05(d), Section 9.05(e), Section 9.05(f) and
Section 9.05(g) which are subject to no Liens other than Liens in favor of the
Lenders and Secured Swap Providers.”

 

B.            The Credit Agreement, in relevant part, currently limits commodity
hedging through Swap Agreements to no more than the greater of (i) 90% of the
value of proved developed producing reserves and (ii) 50% of total proved
reserves during the first two years of the Agreement and to no more than the
greater of (y) 85% of the value of proved developed producing reserves and
(z) 50% of total proved reserves during the third and fourth years of the
Agreement.  However, it is desired to have the 90% and 50% limits apply on a
rolling 2-year basis from the testing date and the 85% and 50% limits apply on a
rolling 2-year basis to the third and fourth years from the testing date.  It is
also desired to make more explicit that certain types of Swap Agreements,
specifically floor and put options, are permissible if entered into with an
Approved Counterparty but are not subject to the percentage limits otherwise
applicable to Swap Agreements.  Therefore, Section 9.17 of the Agreement is
hereby amended to read in its entirety as follows:

 

“Section 9.17. Swap Agreements.  The Borrowers will not, and will not permit any
Restricted Subsidiary to, enter into any Swap Agreements with any Person other
than (a) Swap Agreements constituting floor or put options in respect of
commodities with an Approved Counterparty, (b) Swap Agreements (other than floor
or put options) in respect of commodities with an Approved Counterparty that are
limited to notional quantities at any time no more than (i) during the first two
years following such time the greater of (x) ninety percent (90%) of the value
of proved developed producing reserves included in the then most recently
delivered Reserve Report and (y) fifty percent (50%) of Borrowers’ total Proved
Reserves (such amounts computed on a semi-annual basis and calculated on a
product-by-product basis), (ii) during the third and fourth years following such
time the greater of (x) eighty-five percent (85%) of the value of proved
developed producing reserves included in the then most recently delivered
Reserve Report and (y) fifty percent (50%) of Borrowers’ total Proved Reserves
(such amounts computed on a semi-annual basis and calculated on a
product-by-product basis), and (iii) after the fourth year following such time,
zero (no commodity Swap Agreements other than floor or put options); provided
that the aggregate amount of all such commodity Swap Agreements (other than
floor or put options) shall not exceed the most recent month’s actual
production, calculated separately on a product-by-product basis, in any given
month, (c) Swap Agreements in respect of interest rates with an Approved
Counterparty, as follows: (i) Swap Agreements effectively converting interest
rates from fixed to floating, the notional amounts of which (when aggregated
with all other Swap Agreements of the Borrowers and their Restricted
Subsidiaries then in effect effectively converting interest rates from fixed to
floating) do not exceed 75% of the then outstanding principal amount of the
Borrowers’ Debt for borrowed money which bears interest at a fixed rate and
(ii) Swap Agreements effectively converting interest rates from floating to
fixed, the notional amounts of which

 

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(when aggregated with all other Swap Agreements of the Borrowers and their
respective Restricted Subsidiaries then in effect effectively converting
interest rates from floating to fixed) do not exceed 75% of the then outstanding
principal amount of the Borrowers’ Debt for borrowed money which bears interest
at a floating rate and (d) those certain Swap Agreements existing on the date
hereof and described on Schedule 9.17 between SEP and Shell Energy North America
(US), L.P. and between SEP and Macquarie Bank Limited. The Borrowers will not,
and will not permit any other Loan Party to, Liquidate any Swap Agreement in
respect of commodities unless (x) if such Swap Liquidation would result in an
automatic redetermination of the Borrowing Base pursuant to Section 2.07(b)(iv),
the Borrowers deliver reasonable prior written notice thereof to the
Administrative Agent, and (y) if a Borrowing Base Deficiency would result from
such Swap Liquidation as a result of an automatic redetermination of the
Borrowing Base pursuant to Section 2.07(b)(iv), the Borrowers prepay Borrowings,
prior to or contemporaneously with the consummation of such Swap Liquidation to
the extent that such prepayment would have been required under
Section 3.04(c)(i) after giving effect to such automatic redetermination of the
Borrowing Base.”

 

Agreements and Acknowledgements

 

This Letter is a Loan Document.  Except as affected by this Letter, the Loan
Documents are unchanged and continue in full force and effect.  However, in the
event of any inconsistency between the terms of the Credit Agreement, as amended
by this Letter, and any other Loan Document, the terms of the Credit Agreement
will control and the other document will be deemed to be amended to conform to
the terms of the Credit Agreement.  All references to the Credit Agreement will
refer to the Credit Agreement as amended by this Letter and any other amendments
properly executed among the parties.  Borrowers agree that all Loan Documents to
which they are a party (whether as an original signatory or by assumption of the
Obligations) remain in full force and effect and continue to evidence their
respective legal, valid and binding obligations enforceable in accordance with
their terms (as the same are affected by this Letter or are amended in
connection with this Letter).  AS A MATERIAL INDUCEMENT TO THE ADMINISTRATIVE
AGENT AND LENDERS PARTY HERETO TO ENTER INTO THIS LETTER, BORROWERS RELEASE THE
ADMINISTRATIVE AGENT, THE ISSUING BANK, THE LENDERS AND THEIR RESPECTIVE
PREDECESSORS, SUCCESSORS, ASSIGNS, DIRECTORS, OFFICERS, EMPLOYEES, TRUSTEES,
AGENTS AND ATTORNEYS FROM ANY LIABILITY FOR ACTIONS OR FAILURES TO ACT IN
CONNECTION WITH THE LOAN DOCUMENTS PRIOR TO THE DATE OF THIS LETTER.  NO COURSE
OF DEALING BETWEEN BORROWERS OR ANY OTHER PERSON, ON THE ONE HAND, AND THE
ADMINISTRATIVE AGENT, ISSUING BANK AND THE LENDERS, ON THE OTHER, WILL BE DEEMED
TO HAVE ALTERED OR AMENDED THE CREDIT AGREEMENT OR AFFECTED EITHER BORROWERS’,
THE ADMINISTRATIVE AGENT’S, THE ISSUING BANK’S OR THE LENDERS’ RIGHT TO ENFORCE
THE CREDIT AGREEMENT AS WRITTEN.  This Letter will be binding upon and inure to
the benefit of each of the undersigned and their respective successors and
permitted assigns.

 

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Neither the execution by the Administrative Agent or the Lenders of this Letter,
nor any other act or omission by the Administrative Agent or the Lenders or
their officers in connection herewith, shall be deemed a waiver by the
Administrative Agent or the Lenders of any other defaults which may exist or
which may occur in the future under the Credit Agreement and/or the other Loan
Documents, or any future defaults of the same provision waived hereunder
(collectively “Other Violations”).  Similarly, nothing contained in this Letter
shall directly or indirectly in any way whatsoever either: (i) impair, prejudice
or otherwise adversely affect the Administrative Agent’s or the Lenders’ right
at any time to exercise any right, privilege or remedy in connection with the
Loan Documents with respect to any Other Violations, (ii) except for the
Amendment herein provided, amend or alter any provision of the Credit Agreement,
the other Loan Documents, or any other contract or instrument, or
(iii) constitute any course of dealing or other basis for altering any
obligation of the Borrowers and/or the Guarantors or any right, privilege or
remedy of the Administrative Agent or the Lenders under the Credit Agreement,
the other Loan Documents, or any other contract or instrument.  Nothing in this
Letter shall be construed to be a consent by the Administrative Agent or the
Lenders to any Other Violations.

 

This Letter shall be governed by, and construed in accordance with, the laws of
the State of New York without regard to any choice of law provisions that would
require the application of the law of another jurisdiction.

 

This Letter may be separately executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and the same agreement.  This Letter
shall become effective when it shall have been executed by Administrative Agent
and when Administrative Agent shall have received counterparts hereof that, when
taken together, bear the signatures of each of the Loan Parties and Required
Lenders.  This Letter may be transmitted and/or signed by facsimile, telecopy or
electronic mail.  The effectiveness of any such documents and signatures shall,
subject to applicable law, have the same force and effect as manually signed
originals and shall be binding on all Loan Parties, all Lenders and the
Administrative Agent.  The Administrative Agent may also require that any such
documents and signatures be confirmed by a manually signed original thereof;
provided, however, that the failure to request or deliver the same shall not
limit the effectiveness of any facsimile document or signature

 

THIS LETTER, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS EXECUTED IN
CONNECTION HEREWITH AND THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO SUBSEQUENT ORAL
AGREEMENTS AMONG THE PARTIES.

 

Guarantor’s Acknowledgment

 

Each Guarantor by its execution in the space provided below under “ACKNOWLEDGED
for purposes of ‘Guarantor’s Acknowledgment’” hereby ratifies, confirms,
acknowledges and agrees that its obligations under the Guaranty are in full
force and effect and that such Guarantor continues to unconditionally and
irrevocably guarantee the full

 

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and punctual payment, when due, whether at stated maturity or earlier by
acceleration or otherwise, of the Obligations, and its execution and delivery of
this Letter does not indicate or establish an approval or consent requirement by
any Guarantor under the Guaranty in connection with the execution and delivery
of amendments to the Credit Agreement, the Notes or any of the other Loan
Documents (other than the Guaranty or any other Loan Document to which a
Guarantor is a party).

 

[Signature Pages Follow]

 

5

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If the foregoing correctly states your understanding with respect to the matters
stated in this Letter, please acknowledge by signing in the space provided
below.

 

IN WITNESS WHEREOF, the parties hereto have caused this Letter to be duly
executed effective as of the date first written above.

 

 

 

Very truly yours,

 

 

 

 

 

 

ROYAL BANK OF CANADA,

 

 

as Administrative Agent

 

 

 

 

 

 

 

 

 

 

By:

/s/ Ann Hurley

 

 

Name:

Ann Hurley

 

 

Title

Manager, Agency

 

 

 

 

 

 

 

 

 

 

ROYAL BANK OF CANADA,

 

 

as a Lender

 

 

 

 

 

 

 

 

 

By:

/s/ Mark Lumpkin, Jr.

 

 

Name:

Mark Lumpkin, Jr.

 

 

Title

Authorized Signatory

 

 

 

 

 

 

 

 

cc:

Akin Gump Strauss Hauer & Feld LLP

 

 

 

 

1111 Louisiana Street, 44th Floor

 

 

 

 

Houston, Texas 77002

 

 

 

 

Attn: David Elder

 

 

 

 

Signature Page 1 to Sanchez Energy, et al

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CAPITAL ONE, NATIONAL ASSOCIATION,

 

 

as a Lender

 

 

 

 

 

 

 

 

By:

/s/ Michael Higgins

 

 

Name:

Michael Higgins

 

 

Title:

Vice President

 

 

 

 

 

 

 

 

 

 

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender

 

 

 

 

 

By:

/s/ Michael Spaight

/s/ Kevin Buddhdew

 

 

Name:

Michael Spaight

Kevin Buddhdew

 

 

Title:

Authorized Signatory

Authorized Signatory

 

 

 

 

 

 

 

 

 

 

COMPASS BANK,

 

 

as a Lender

 

 

 

 

 

 

 

 

By:

/s/ Dorothy Marchand

 

 

Name:

Dorothy Marchand

 

 

Title:

Executive Vice President

 

 

 

 

 

 

SUNTRUST BANK,

 

 

as a Lender

 

 

 

 

 

By:

/s/ Shannon Inhan

 

 

Name:

Shannon Inhan

 

 

Title:

Vice President

 

 

 

 

 

 

 

 

 

 

ING CAPITAL LLC,

 

 

as a Lender

 

 

 

 

 

 

 

 

By:

/s/ Charles Hall

 

 

Name:

Charles Hall

 

 

Title:

Managing Director

 

Signature Page 2 to Sanchez Energy, et al

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BRANCH BANKING AND TRUST COMPANY, as a Lender

 

 

 

 

 

By:

/s/ Ryan K. Michael

 

 

Name:

Ryan K. Michael

 

 

Title:

Senior Vice President

 

 

 

 

 

 

 

 

 

 

IBERIABANK, as a Lender

 

 

 

 

 

 

 

 

By:

/s/ W. Bryan Chapman

 

 

Name:

W. Bryan Chapman

 

 

Title:

Executive Vice President

 

 

 

 

 

 

 

 

 

 

UNION BANK, N.A., as a Lender

 

 

 

 

 

By:

/s/ Haylee Dallas

 

 

Name:

Haylee Dallas

 

 

Title:

Vice President

 

 

 

 

 

 

 

 

 

 

SOCIÉTÉ GENÉRALÉ, as a Lender

 

 

 

 

 

 

 

 

By:

/s/ Graeme Bullen

 

 

Name:

Graeme Bullen

 

 

Title:

Managing Director

 

Signature Page 3 to Sanchez Energy, et al

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Accepted and Agreed to as of the date first written above by:

 

 

BORROWERS:

SANCHEZ ENERGY CORPORATION,

 

a Delaware corporation

 

 

 

 

 

By:

/s/ Michael G. Long

 

Michael G. Long

 

Senior Vice President — Chief Financial Officer

 

 

 

 

 

SEP HOLDINGS III, LLC,

 

a Delaware limited liability company

 

 

 

By:

/s/ Michael G. Long

 

Michael G. Long

 

Senior Vice President — Chief Financial Officer

 

 

 

 

 

SN MARQUIS LLC,

 

a Delaware limited liability company

 

 

 

By:

/s/ Michael G. Long

 

Michael G. Long

 

Senior Vice President — Chief Financial Officer

 

 

 

 

 

SN COTULLA ASSETS, LLC,

 

a Texas limited liability company

 

 

 

By:

/s/ Michael G. Long

 

Michael G. Long

 

Senior Vice President — Chief Financial Officer

 

 

 

Signature Page 4 to Sanchez Energy, et al

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Acknowledged for Purposes of Guarantor’s Acknowledgment

 

 

 

GUARANTOR:

SN OPERATING, LLC, a Texas limited liability company

 

 

 

 

 

By:

/s/ Michael G. Long

 

Michael G. Long

 

Senior Vice President — Chief Financial Officer

 

Signature Page 5 to Sanchez Energy, et al

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