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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

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Preliminary Proxy Statement


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Definitive Proxy Statement


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Soliciting Material under §240.14a-12


Sanchez Energy Corporation

(Name of Registrant as Specified In Its Charter)


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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.



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LOGO

SANCHEZ ENERGY CORPORATION

1000 Main Street
Suite 3000
Houston, Texas 77002

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders of Sanchez Energy Corporation:

Notice is hereby given that the Annual Meeting of Stockholders of Sanchez Energy Corporation (the "“Company," "” “we,"” or "“our"”) will be held at 1000 Main Street, Houston, Texas 77002 in the Tunnel-level Conference Room on Tuesday,Wednesday, May 24, 2016,2017, at 9:00 a.m., Central Time (the "“Annual Meeting"”).  The Annual Meeting is being held for the following purposes:

     

    1.              To elect twothree Class III directors for a term of three years.

            2.     To amend the Company's Second Amended and Restated 2011 Long Term Incentive Plan (the "Plan") to increase the number of shares available for incentive awards under the Plan by 5 million additional shares of common stock.

            3.2.              To approve, on an advisory basis, the compensation of our named executive officers.

     4.

    3.              To ratify the selection of KPMG LLP (“KPMG”) as the Company'sCompany’s independent registered public accountants for 2016.2017.

     5.

    4.              To transact such other business as may properly come before the Annual Meeting.

 

These proposals are described in the accompanying proxy materials.  You will be able to vote at the Annual Meeting only if you were a stockholder of record at the close of business on April 1, 2016.

YOUR VOTE IS IMPORTANT
March 28, 2017.

 If you wish to vote your shares via the Internet or telephone, please promptly follow the instructions on your proxy card so that your shares may be voted in accordance with your wishes and so we may have a quorum at the Annual Meeting. Alternatively, if you did not receive a paper copy of the proxy materials (which includes the proxy card), you may request a paper proxy card, which you may complete, sign and return by mail.

By Order of the Board of Directors,






GRAPHIC

GRAPHIC

Gregory B. Kopel

SecretarySecretary

Houston, Texas
April 21,13, 2017

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Stockholders to Be Held on May 24, 2017:

the Notice of Annual Meeting of Stockholders, our Proxy Statement and our

Annual Report for 2016

are available at www.proxyvote.com.  You Will Need the Control Number Available from your Proxy Card or the Notice to Access Proxy Materials.


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TABLE OF CONTENTS

Page


Page

HIGHLIGHTS OF OUR PERFORMANCE IN 20152016

1

STOCKHOLDERS OF RECORDQUESTIONS AND BENEFICIAL OWNERSANSWERS ABOUT THE PROXY MATERIALS AND ANNUAL MEETING


3

QUORUM AND VOTING


4

ITEMPROPOSAL ONE. ELECTION OF DIRECTORS


5

8

Recommendation of our Board

8

DIRECTORS AND EXECUTIVE OFFICERS


6

9

COMPENSATION DISCUSSION AND ANALYSIS


10

13

Introduction

10

13

Background on Our Organizational Structure

11

13

Executive Summary

11

14

Compensation Highlights for 2016

16

Say on Pay and Stockholder Engagement

14

16

Clawback Policy

14

17

Stock Ownership and Retention Guidelines

14

17

Our Compensation Philosophy

15

17

Role of Compensation Consultants

15

17

Use of Market Data and Peer Comparisons

16

18

Role of Executive Officers in Setting Executive Compensation

16

19

Elements of Executive Compensation

17

19

Employment Agreements

21

25

Tax and Accounting Considerations

21

25

Relation of Compensation Policies and Practices to Risk Management

22

26

Compensation Committee Report

22

26

Summary Compensation Table

23

27

20152016 Grants of Plan-Based Awards

25

29

Narrative Disclosure to the Summary Compensation Table and Grants of Plan Based Awards Table

25

30

20152016 Outstanding Equity Awards at Fiscal Year-End

26

32

20152016 Stock Vested at Fiscal Year-End

27

33

Pension Benefits

27

33

Nonqualified Deferred Compensation

27

33

Potential Payments Upon Termination or Change in Control

27

33

20152016 Director Compensation

29

35

CORPORATE GOVERNANCE


31

37

Board Composition

31

37

Board Leadership Structure

32

37

Director Independence

32

37

Executive Sessions of the Board

32

38

Board'sBoard’s Role in Risk Oversight

32

38

Meetings of the Board and Committees of the Board

32

38

Communications with the Board

33

38

Committees of the Board

33

39

Audit Committee

33

39

Compensation Committee

34

40

Compensation Committee Interlocks and Insider Participation

35

40

Nominating and Corporate Governance Committee

35

41

Code of Business Conduct and Ethics

41

Corporate Governance Guidelines

42

36AUDIT COMMITTEE REPORT

42

i


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Page

Corporate Governance Guidelines

36

AUDIT COMMITTEE REPORT


36

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


38

43

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE


40

46

TRANSACTIONS WITH RELATED PERSONS


40

46

ITEM TWO. AMENDMENT OF THE COMPANY'S SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE COMPENSATION PLAN


45

Summary of the Proposal

45

Rationale for the Plan Amendment and Why Our Board Recommends that You Vote for Its Approval

46

Summary of the Plan

48

Federal Income Tax Consequences

50

Equity Compensation Plan Information

51

New Plan Benefits

51

Recommendation of our Board

52

ITEM THREE.PROPOSAL TWO. ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS


52

53

Recommendation of our Board

52

53

ITEM FOUR.PROPOSAL THREE. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS


53

Audit and Other Fees

53

54

Recommendation of our Board

54

STOCKHOLDER PROPOSALS


54

SOLICITATION OF PROXIES


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55

STOCKHOLDER LIST


55

PROXY MATERIALS, ANNUAL REPORT AND OTHER INFORMATION


55

56

INTERNET AND TELEPHONE VOTINGFORWARD-LOOKING STATEMENTS


55

FORWARD LOOKING STATEMENTS56


56

Appendix A


A-1

ii


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SANCHEZ ENERGY CORPORATION

1000 Main Street
Suite 3000
Houston, Texas 77002

PROXY STATEMENT

20162017 ANNUAL MEETING OF STOCKHOLDERS

The Board of Directors (the "“Board"”) of Sanchez Energy Corporation (the "“Company," "” “Sanchez Energy," "” “we," "” “us"” or "“our"”) requests your Proxy ("(“Proxy"”) for the Annual Meeting of Stockholders (the "“Annual Meeting"”) that will be held on Tuesday,Wednesday, May 24, 2016,2017, at 9:00 a.m., Central Time, at 1000 Main Street, Houston, Texas 77002 in the Tunnel-level Conference Room.Room, or at such other time and place to which the Annual Meeting may be adjourned or postponed.  References in this Proxy Statement to the “Annual Meeting” also refer to any adjournments, postponements or changes in location of the Annual Meeting, to the extent applicable.  By granting the Proxy, you authorize the persons named on the Proxy to represent you and vote your shares at the Annual Meeting.  Those persons will also be authorized to vote your shares, to adjourn the Annual Meeting from time to time and to vote your shares at any adjournments or postponements of the Annual Meeting.

 If you attend the

The Notice of Annual Meeting you mayof Stockholders, the Notice of Internet Availability of Proxy Materials (the “Notice”), this Proxy Statement, the proxy card or voting instructions and our 2016 Annual Report to Stockholders, which includes the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (collectively, the “Proxy Materials”), are being distributed and made available on or about April 14, 2017 to our stockholders entitled to notice of and to vote in person. If you would like to attend the Annual Meeting and vote in person, you may contact us at (713) 783-8000 for directions to the Annual Meeting.  If you are not present atWe provide our stockholders access to our Proxy Materials on the Annual Meeting, your shares mayInternet.  Accordingly, the Notice will be voted only by a personmailed to whom youmost of our stockholders on or about April 14, 2017.  Stockholders will have given a proper Proxy. You may revokethe ability to access the Proxy Materials on the website referred to in writing at any time before it is exercised at the Annual Meeting by delivering to the Secretary of the CompanyNotice or request a written notice of the revocation, by submitting your vote electronically through the Internet or by telephone after the grantprinted set of the Proxy orMaterials to be sent to them by signing and delivering tofollowing the Secretary ofinstructions in the Company a Proxy with a later date. Your attendance at the Annual Meeting will not revoke the Proxy unless you give written notice of revocation to the Secretary of the Company before the Proxy is exercised or unless you vote your shares in person at the Annual Meeting.Notice.


HIGHLIGHTS OF OUR PERFORMANCE IN 2015
2016

 

At the Annual Meeting, stockholders will be given an opportunity to learn more about our 20152016 performance.

 

Our operating environment in 20152016 was characterized by significant commodity price volatility, distressresulting in the lowest prices for crude oil seen in the United States for more than a decade.  In the face of challenging industry fundamentals and uncertainty, we focused on what we could control by driving down wells costs, conserving capital, markets, and considerable uncertainty with respectboosting our financial liquidity.  As part of this focus, we made the strategic decision to concentrate our efforts on the Western Eagle Ford, an area that we believe offers impressive returns and growth potential even at lower commodity prices.

During 2016, our efficiency gains and operational improvements in the Western Eagle Ford led to results that exceeded our expectations and continue to enhance the sustainability of our cost structure.  In the area of drilling, while a significant portion of our well costs are predicated on day rates for services performed, efficiency gains are directly correlated to the futuresustainability of our industry. In responsecost structure and our ability to this challenging environment,add economic wells to our management team developeddrilling inventory over time.  Operational improvements in 2016, which relate to the unbundling of directional drilling services, implementation of a proprietary off-line cementing program, and executed a focusedreductions in our rig movement cost and disciplined strategic planduration, have contributed to further sustainability in the current price environment.  As compared to our cost structure in 2015, that resulted in:drilling costs have been reduced by approximately 30%.  In the area of completions, efficiency gains and design improvements have also yielded positive results.  Completion costs were reduced approximately 15% during 2016.  Importantly, we have successfully locked in a significant portion of our cost structure through a combination of Company-owned equipment and the execution of long-term contracts.

    •


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In addition to the highlights referenced above, our achievements in 2016 include:

·                  Upstream capital expenditures (including accruals) of approximately $350 million, a reduction of over 35% compared to 2015;

·Record annual production of 19.219.5 MMBoe for an average annual production rate of approximately 52,56053,350 Boe/d, an increase of 72%1.5% over 2014 production;2015 production despite lower capital spending;

·

•
Results                  Total cost per well that averaged approximately $3.0 million, with some of our best wells coming in at Catarina, our most active area of development in 2015, that include a 40% improvement in estimated ultimate recoveries ("EUR") and a reduction in average well cost from $8.8 million when we acquired the asset in 2014 to $3.5approximately $2.8 million in 2016;

·                  Year-end reserves up over 55% compared to 2015 (from 127.6  MMBOE to 198.5 MMBOE, excluding acquisitions and divestitures), with a savingsreserve replacement ratio of approximately 60% per well on average in less than two years;430%;

·

•
Upstream capital expenditures (including accruals) of $545 million, a reduction of approximately 37% compared 2014;

•
The completion of our July 20152016 to June 20162017 Catarina drilling commitment of 50 wells on January 1,by December 31, 2016, approximately six months earlier than required;required, which provides us with considerable financial flexibility as we look to execute our 2017 capital plan;

·

•
Replacement                  Production by North Central Catarina step-out appraisal pad of in excess10% to 15% above Western Stack type curve forecast with yields over 250 Bbl of 3.0xliquids per MMcf of natural gas de-risking the reserves we produced in 2015 as a resulteastern portion of additions and technical revisions, excluding downward adjustments stemming from commodity price volatility;

the Western Stack area;

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    •
    Opportunistic redeployment of capital in legacy areas of our asset base, where we are able to exploit an industry-wide focus on capital preservation to accumulate acreage that fits well within our operating focus;

    •
    A                  An outstanding safety record across our asset base with a total combined recordable injury rate of approximately 0.63, which we believe compares very favorably to industry standards,standards;

    ·                  A strategic relationship with a total recordable injury rate ("TRIR") of less than 0.45;

    •
    The sale of two assets to Sanchez Production Partners LP ("(NYSE MKT:  SPP) (“SPP"”), which resulted in total cash consideration that includes ownership of approximately $430 million to Sanchez Energy;

    •
    A strategic relationship with SPP,17% of SPP’s common units together with an extensive inventory of assets suitable for the master limited partnership model whichthat we believe may be opportunistically divested and which provides a potentially valuable source of capital andto enhance liquidity in the years ahead;

    ·                  The strategic divestiture of non-core assets, including our Eastern Cotulla production assets and the Company’s interest in the Raptor Gas Processing Facility in South Texas, which added more than $250 million to our already strong liquidity position in 2016;



    ·

    •
    Total liquidity of $735approximately $800 million at December 31, 2015,2016, which stems fromincluded an undrawn credit facility with $300 million of borrowing capacity and approximately $435$500 million in cash; and

    ·

    •
    Hedge positions with mark-to-market value                  Reinforcement of our strong liquidity position by closing the previously announced public equity offering on February 6, 2017, which resulted in net proceeds of approximately $155 million at year-end 2015;$136 million.

    The results of our concentration on the Western Eagle Ford in 2016 have been dramatic.  For example:

    ·                  At Catarina, an asset we acquired in 2014, we have successfully delineated the extent of the Upper and

    •
    The execution Middle Eagle Ford across the ranch, with current estimated ultimate recoveries in some areas of a gas gathering and processing joint venture with Targa Resources to construct a cryogenic processing plant and high pressure gathering pipeline near Catarina, which is expected to provide a path to improved yields, lower processing fees, and significant marketing benefits in the years to come.
asset of more than double the results realized by the previous operator.

 Our 2015 results were shaped by our operating environment and driven by a management team that is focused on financial discipline and operating efficiencies. In response to our operating environment, we took decisive actions to reduce capital spending, manage operating costs, and promote operating efficiencies throughout 2015, which allowed us to significantly exceed our production targets despite lower capital spending, as illustrated in the chart that follows:

Category
 January 2015
Guidance(1)		 Full Year
2015 Results		 Variance vs.
Guidance
Midpoint		 

Capital Spending—Upstream ($ million)

 $560 - $600 $545  –6%

Targeted Wells Costs at Catarina ($ million)

 $5.0 $3.5  –30%

Production Volumes (BOE/D)

 

40,000 - 44,000

  
52,560		  
25
%

Operating Costs and Expenses ($/BOE)

 

 

  
 		  
 		 

Oil and natural gas production expenses(2)

 $9.00 - $10.00 $8.16  –14%

Production and ad valorem taxes

 $2.00 - $3.00 $1.40  –44%

General and administrative expenses(3)

 $3.00 - $3.50 $3.09  –5%
​​​ ​​ ​​​ ​ ​

Total operating costs and expenses

 $14.00 - $16.50 $12.65  –17%
(1)
Released January 7, 2015, at which time we projected total capital spending to range between $600 million and $650 million. This compares to an initial 2015 capital budget of approximately $1.15 billion, which was set prior to the decline in oil prices that began in 2014.

(2)
Full Year 2015 Results include amortization of gain on sale of Catarina Midstream of ($0.58) per Boe for the three months ended December 31, 2015 and ($0.16) per Boe for the year ended December 31, 2015.

(3)
Full Year 2015 Results exclude stock-based compensation of ($0.20) and ($3.23) per BOE for the three months ended December 31, 2015 and 2014, respectively, and $0.77 and $1.15 per BOE for the year ended December 31, 2015 and 2014, respectively. Also excludes acquisition and divestiture costs included in G&A of $0.71 and $0 per BOE for the three months ended December 31, 2015

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    and 2014, respectively, and $0.20 and $0.16 per BOE for the year ended December 31, 2015 and 2014, respectively.

        We believe that we are well positioned to prosper in the years ahead.                  As a result of successful appraisal in Western Catarina, an area to which we ascribed little value in excess of developed locations at the executiontime of the acquisition, the Company now expects to have approximately 700 multi-bench locations with average returns of nearly 50%.

·                  Additionally, successful appraisal of South-Central Catarina, an area ascribed no value at the time of the acquisition, has added more than 200 economic drilling locations with expected returns in excess of 80%.

·                  With respect to our strategic plans, heading into 2016 we have:

    •
    A management team that is results driven and committedMaverick asset, located to the optimizationnorth/northwest of Catarina in the oil window of the Western Eagle Ford in Dimmitt, Zavala, and Frio Counties in South Texas, our drilling inventory increased by more than three times over the course of 2016.

    Growth in the Maverick region of our asset base is largely the result of an extensive leasing program executed by the Company in 2016, which resulted in the acquisition of approximately 65,000 net acres in this area of the Western Eagle Ford.  Additionally, we acquired 45,000 net acres that comprises our “Javelina” asset, southeast of Catarina in the dry gas window of the Western Eagle Ford in La Salle and Webb Counties in South Texas.  As a result of industry conditions in 2016, our leasing efforts were executed at attractive terms using available cash.  Taken together, these leasing activities allowed us to strategically expand our footprint in an area that falls within a 50 mile radius in the Western Eagle Ford.  We believe this concentration of acreage and drilling opportunities leads to synergies of scale that stem from our extensive knowledge of the Western Eagle Ford and cost structure thoughsaving opportunities related to the use of shared resources and the efficiency of field-level operations.

    As a focus onresult of efforts to improve our asset base through successful drilling and appraisals at Catarina, drilling, appraisals, and leasing at Maverick and leasing to form the manufacturing process, resultingJavelina asset during 2016, the Company now expects to have an inventory of over 2,800 net drilling locations in onethese areas of the lowest cost structures amongWestern Eagle Ford operators based onalone.  This represents an increase of approximately 800 engineered locations when compared to year end 2015, results;despite the strategic sale of our Eastern Cotulla production assets in December of 2016.



    •
    Approximately 200,000Additionally, we worked diligently to develop a transformative acquisition over the course of 2016.  To that end, in January 2017, Sanchez Energy along with Blackstone Energy Partners announced a 50/50 partnership to acquire Anadarko Petroleum Corporation’s working interest in approximately 318,000 gross operated acres in the Western Eagle Ford (the “Comanche” asset) for a purchase price, after closing adjustments, of approximately $2.1 billion, subject to additional post-closing adjustments.  This accretive and transformative acquisition substantially increases our drilling inventory, with more than 1,000 net acres throughoutdrilling opportunities identified to date, and adds 132 drilled but uncompleted wells.  Having closed the Comanche acquisition in March 2017, our operated Eagle Ford Shale position is approximately 585,000 gross acres (335,000 net to Sanchez Energy).  With the closing of this transaction, we believe we have locked up the core of the trend within the volatile oil window of the Western Eagle Ford.

    With total net proved reserves of approximately 340 MMBoe, which includesrepresents an increase of approximately 106,000 contiguous net acres at Catarina;

    •
    Over 3,000 drilling locations in78% from our asset base, which includes a sizeable inventory of wells thatyear-end 2016 reserves, we believe we are economic in today's price environment due to our success innow among the area of capital cost reduction and EUR expansion;

    •
    A sustainable cost structure driven by a substantial footprintlargest operators in the Eagle Ford Shale, execution competencies, direct sourcing capabilitiesShale.  With more than 4,000 net, high rate of return drilling locations across our asset base and supply chain focus;an industry leading cost structure, Sanchez Energy is well positioned to operate profitably for many years to come.

    QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND ANNUAL MEETING



    •
    Financial flexibility that stems from liquidity of approximately $735 million as we enter 2016, early completionWhat is the purpose of the July 2015Annual Meeting?

    At the Annual Meeting, our stockholders will be asked to June 2016 annual drilling commitmentvote to elect three Class II directors for a term of three years; to approve, on an advisory basis, the compensation of our named executive officers; and to ratify the selection of KPMG as the Company’s independent registered public accountants for 2017.  We will also consider and vote upon any other business that is properly presented at Catarina,the Annual Meeting.

    Why did I receive these Proxy Materials?

    You received these Proxy Materials from us in connection with the solicitation by our Board of proxies to be voted at the Annual Meeting because you owned our common stock at the close of business on March 28, 2017.  We refer to this date as the “Record Date.”  This Proxy Statement contains important information for you to consider when deciding how to vote your shares at the Annual Meeting.  Please read this Proxy Statement carefully.

    Why did I receive a one-page Notice in the mail regarding the Internet availability of the Proxy Materials instead of a full set of Proxy Materials?

    In accordance with SEC rules, we are providing access to our Proxy Materials over the Internet.  As a result, we have sent to most of our stockholders a Notice instead of a paper copy of the Proxy Materials.  The Notice contains instructions on how to access the Proxy Materials over the Internet and how to request a paper copy.  In addition, stockholders may request to receive future proxy materials in printed form by mail or electronically by e-mail.  If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the abilityproxy voting site.  A stockholder’s election to bank upreceive proxy materials by mail or e-mail will remain in effect until the stockholder terminates it.  Choosing to 30 wellsreceive future proxy materials by e-mail will allow us to provide you with the information you need in a more timely manner, save us the cost of printing and mailing documents to you, and conserve natural resources.

    Can I vote my stock by filing out and returning the Notice?

    No.  The Notice will, however, provide instructions on how to vote by Internet, by telephone, by requesting and returning a paper proxy card, or by submitting a ballot in person at the Annual Meeting.

    How can I access the Proxy Materials over the Internet?

    Your Notice or proxy card will contain instructions on how to view our Proxy Materials for the following annual drilling commitmentAnnual Meeting on the Internet.  Our Proxy Materials are also available at Catarina,www.proxyvote.com.  You will need the control number available from your proxy card or the Notice to access our Proxy Materials.  The Proxy Materials will also be available under the investor relations section of our corporate website at http://www.sanchezenergycorp.com.

    What does it mean if I receive more than one set of Proxy Materials?

    If you receive more than one set of Proxy Materials or Notice, your shares are registered in more than one name or are registered in different accounts.  In order to vote all the shares you own, you must follow the instructions on each Notice or proxy card you received.

    What is “householding” and how does it affect me?

    We have adopted a procedure known as “householding.”  Under this procedure, we may send a single Notice or single set of Proxy Materials and other stockholder communications to any household at which two or more stockholders reside unless we believe positionshave received contrary instructions from those stockholders.  This reduces duplicate mailings and saves printing and postage costs as well as natural resources.  We agree to deliver promptly, upon written or oral request, a separate copy of our Proxy Materials or Notice, as requested, to any stockholder at the Companyshared address to operate successfullywhich a single copy of these documents was delivered.  If you wish to receive a separate copy of our Proxy Materials or Notice, please contact Sanchez Energy Corporation,  by writing to 1000 Main Street, Suite 3000, Houston, Texas 77002, Attention:  Secretary, or by calling (713) 783-8000, and we will promptly deliver to you the requested material.  You may also contact us in the same manner if you received multiple copies of the Notice or Proxy Materials and would prefer to receive a "lower for longer" scenario;

    •
    Nosingle copy in the future.

    Many banks, brokers, and other holders of record have instituted householding.  If you or your family have one or more beneficial ownership accounts, you may have received householding information from your bank, debtbroker, or other holder of record in the past.  Please contact the holder of record directly if you have questions, require additional copies of the Notice or Proxy Materials or wish to revoke your decision to household and thereby receive multiple copies.  You should also contact the holder of record if you wish to institute householding.  These options are available to you at any time.

    Who can vote at the Annual Meeting?

    Only stockholders of record at the close of business on the Record Date will be entitled to vote at the Annual Meeting.  As of the close of business on the Record Date, 81,901,412 shares of our common stock were issued and outstanding and noentitled to be voted at the Annual Meeting.  The Company’s common stock, par value

    $0.01 per share, is the only class of securities that entitles holders to vote generally at meetings of the Company’s stockholders.  Each share of common stock outstanding debt maturing until 2021 and 2023;

    •
    A business development focus that emphasizes asset quality, financial discipline and risk management over price premiums foron the sake of asset accumulation and production growth;

    •
    Substantial growth opportunities at Catarina, which we believeRecord Date is fairly valued today at over 3.6x our initial investment despite the recent downturn in commodity prices;

    •
    A robust hedge program that includes, for 2016, hedges on crude production at an average price of approximately $64/Bbl and hedges on natural gas production at an average price of approximately $3.12/MMbtu, which are expectedentitled to cover approximately 100% of our production and 82% of our revenues in 2016;

    •
    A 2016 capital budget expected to range between $200 million and $250 million, a reduction of approximately 60% when compared to 2015 capital spending levels, which we anticipate we will fund with available cash and cash flow from operations;

    •
    Forecast production of between 48,000 and 52,000 BOE/D, which represents no material change when compared to 2015 production, despite significantly lower capital spending in 2016; and

    •
    Considerable upside potential should commodity prices recover such that our drilling program can be expanded in a cost-efficient manner.


STOCKHOLDERS OF RECORD AND BENEFICIAL OWNERS
one vote.

 

Most of the Company'sCompany’s stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name.  As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholders of Record.  If your shares are registered directly in your name with the Company'sCompany’s transfer agent, then you are considered the stockholder of record with respect to those shares, and this proxy statement (the "the Proxy Statement") isMaterials are being sentprovided directly to you by our agent.  As a stockholder of


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record, you have the right to vote by proxy or to vote in person at the Annual Meeting.  The proxy materials include aWhether or not you plan to attend the Annual Meeting, we urge you to fill out and return the enclosed proxy card or a voting instruction card forvote by proxy over the Annual Meeting.telephone or on the Internet as instructed below to ensure your vote is counted.

Beneficial Owners.  If your shares are held in a brokerage account or by a bank or other nominee, then you are considered the beneficial owner of shares held in "street“street name,"” and thisthe Proxy StatementMaterials will be forwarded to you by your broker or nominee.  The broker or nominee is considered the stockholder of record with respect to those shares.  As the beneficial owner, you have the right to direct your broker or nominee how to vote.  The proxy materials includeYou are also invited to attend the Annual Meeting, however, since you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you request and obtain a proxy card from your broker or other agent.

If I am a stockholder of record, how do I vote?

If you are a stockholder of record, you may vote by any of the following four methods:

·                  Internet.  Vote on the Internet at http://www.proxyvote.com.  Simply follow the instructions on the Notice, or if you received a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded.  Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 7:00 p.m. (Eastern Daylight Time) on Tuesday May 23, 2017, the day before the Annual Meeting.

·                  Telephone.  Vote by telephone by following the instructions on the Notice or, if you received a proxy card, by following the instructions on the proxy card.  Easy-to-follow voice prompts allow you to vote your stock and confirm that your vote has been properly recorded.  Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 7:00 p.m. (Eastern Daylight Time) on Tuesday May 23, 2017, the day before the Annual Meeting.

·                  Mail.  If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope provided.  If you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted.  If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board.  If mailed, your completed and signed proxy card must be received by May 23, 2017, the day before the Annual Meeting.

·                  Meeting.  You may attend and vote at the Annual Meeting.

If I am a beneficial owner of shares held in “street name” how do I vote?

If you are a beneficial owner of shares registered in the name of your brokerage firm, bank, dealer or other similar organization, you should have received a voting instruction card forand voting instructions with these Proxy Materials from that organization rather than from us.  Simply complete and mail the Annual Meeting.


QUORUM AND VOTING

        Voting Stock.    The Company's common stock, par value $0.01 per share,voting instruction card to ensure that your vote is the only class of securities that entitles holders tocounted.  To vote generally at meetings of the Company's stockholders. Each share of common stock outstanding on the record date is entitled to one vote.

        Record Date.    The record date for stockholders entitled to notice of and to votein person at the Annual Meeting, wasyou must obtain a proxy from your brokerage firm, bank, dealer or other similar organization.  Follow the closeinstructions from your brokerage firm, bank, dealer or other similar organization included with these Proxy Materials, or contact your broker, bank or other agent to request a proxy card.

What am I being asked to vote on?

You are being asked to vote on three proposals:

·                  Proposal 1:  to elect three Class II directors for a term of businessthree years;

·                  Proposal 2:  to approve, on April 1, 2016. Asan advisory basis, the compensation of our named executive officers; and

·                  Proposal 3:  to ratify the selection of KPMG as the Company’s independent registered public accountants for 2017.

In addition, you are entitled to vote on any other matters that may properly come before the Annual Meeting.

What are the recommendations of the record date, 64,546,513 sharesBoard?

The recommendations of common stock were outstandingthe Board are set forth together with the description of each item in this Proxy Statement.  In summary, the Board recommends a vote as follows:

·FOR each of the three Class II director nominees;

·FOR approval, on an advisory basis, of the compensation of our named executive officers; and entitled to

·FOR ratification of the selection of KPMG as the Company’s independent registered public accountants for 2017.

Could other matters be voteddecided at the Annual Meeting.Meeting?

At the time this Proxy Statement was mailed, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement.  With respect to any other matter that properly comes before the Annual Meeting, the proxyholders will vote the Proxies as recommended by our Board or, if no recommendation is given, in their own discretion.

        Quorum and Adjournments.What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting.  The presence, in person or by Proxy,proxy, regardless of whether the proxy has authority to vote on all matters, of the holders of a majority of the outstanding shares entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting.  On the Record Date, there were 81,901,412 shares outstanding and entitled to vote at the Annual Meeting.  Accordingly, 40,950,707 shares of our stock must be represented in person or by proxy at the Annual Meeting to have a quorum.

 

Your shares will be counted towards the quorum only if you submit a valid Proxy vote or vote at the Annual Meeting.  Abstentions and broker non-votes will count in determining whether a quorum is present at the Annual Meeting.

If a quorum is not present, the chairman of the Annual Meeting may adjourn the Annual Meeting from time to time to reconvene at the same or some other place.  Notice need not be given of any such adjourned meeting if the date, time and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken.  At any adjourned meeting of stockholders at which a quorum is present, any business may be transacted that might have been transacted at the meeting of stockholders as originally notified.  If the adjournment is for more than 30 days, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.  If after the adjournment, a new record date for stockholders entitled to vote is fixed for the adjourned meeting, then the Board shall fix a new record date for notice of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.

What are abstentions?

Abstentions occur when stockholders are present in person or by proxy at the Annual Meeting but fail to vote or voluntarily abstain from voting on any of the matters upon which the stockholders are voting.

What are “broker non-votes”?

Brokers who hold shares in “street name” for customers are required to vote shares in accordance with instructions received from the beneficial owners.  Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the brokerage firm, bank, dealer or nominee holding the shares as to how to vote on matters deemed “non-routine.”  Generally, if shares are held in “street name,” the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares.  If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters.  In the event that a broker, bank, custodian, nominee or other record holder of shares of our common stock indicates on a Proxy that it does not have discretionary authority to vote certain shares on a particular proposal, then those shares will be treated as broker non-votes with respect to that proposal.  Accordingly, if you own shares through a nominee, such as a broker or bank, please be sure to instruct your nominee how to vote to ensure that your vote is counted on each of the proposals.

Which ballot measures are considered “routine” or “non-routine”?

        Vote Required.The election of Class II directors and the advisory vote to approve the compensation of our named executive officers are “non-routine” matters that could result in broker non-votes.  The vote to ratify the selection of KPMG as the Company’s independent registered public accountants for 2017 is a “routine” matter.

What vote is needed to approve each proposal and what are the effects of abstentions, withheld and broker non-votes?

The Class III directors will be elected by the affirmative vote of the holders of a plurality of the shares present in person or by proxy at the Annual Meeting and entitled to be voted at the Annual Meeting.  The vote to amendStockholders may not cumulate their votes for the Company's Second Amended and Restated 2011 Long Term Incentive Plan (the "Plan") to increase the numberelection of shares available for incentive awards under the Plan by 5 million additional shares of common stock (the "Plan Amendment"), theour directors.  The advisory vote to approve our named executive officers’ compensation and ratification of the selection of the Company'sCompany’s auditors will require the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to be voted at the Annual Meeting.  An automated system that Continental Stock Transfer & Trust Company ("Broadridge Financial Solutions, Inc. (“ContinentalBroadridge"”) administers will tabulate the votes.votes

        Brokers who hold shares in street name for customers are required to vote shares in accordance with instructions received from the beneficial owners. Brokers are permitted to vote on discretionary items if they have not received instructions from the beneficial owners, but they are not permitted to vote (a "broker non-vote") on non-discretionary items if they have not received instructions from the beneficial owners. Brokers do not have discretionary voting authority with respect to any matters to be voted on at the Annual Meeting except the ratification of the selection of the Company's auditors.


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 Abstentions and broker non-votes will count in determining whether a quorum is present at the Annual Meeting.

For purposes of the election of the Class III directors, withheld votes will be included in the number of shares voting and will have the effect of a vote against the election of a director; however, broker non-votes will not have any effect on the outcome of the director elections.  For purposes of voting on the Plan Amendment and the advisory vote to approve our named executive officers’ compensation, abstentions will be included in the number of shares voting and will have the effect of a vote against the proposal; however, broker non-votes will not have any effect on the outcome of voting for these proposals.this proposal.  For purposes of voting on the ratification of the selection of the Company'sCompany’s auditors, abstentions will be included in the number of shares voting and will have the effect of a vote against the proposal.

        Default Voting.How are votes counted?

    A Proxy that is properly completedFor purposes of the election of the Class II directors, you may vote “for” or “withhold” authority to vote for each of the nominees for the Board.  For purposes of voting on the advisory vote to approve our named executive officers’ compensation and submittedthe ratification of the selection of the Company’s auditors, you may vote “for,” “against,” or “abstain.”  If you elect to “abstain,” the abstention has the same effect as a vote “against.”

How will my shares be voted at the Annual Meeting in accordance with the instructions on the Proxy. if I properly complete and submit a Proxy, but do not indicate any contrary voting instructions?

If you properly complete and submit a Proxy, but do not indicate any contrary voting instructions, then your shares will be voted as follows:

·

    •
    FOR the election of the Class III directors named in this Proxy Statement as the Board'sBoard’s nominees for election as directors.directors;

    ·

    •
    FOR the Plan Amendment.

    •
    FOR the advisory vote to approve the compensation of our named executive compensation.officers; and

    ·

    •
    FOR the ratification of the selection of KPMG LLP ("KPMG") as the Company's auditorsCompany’s independent registered public accountants for 2016.
2017.

 

If any other businessmatter properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted as recommended by our Board or, if no recommendation is made, in accordance with the discretion of the holders of the Proxy.proxyholders.  The Board knows of no matters, other than those previously stated, to be presented for consideration at the Annual Meeting.


Can I change my vote after submitting my Proxy?

If you are a stockholder of record, you may revoke the Proxy in writing at any time before it is exercised at the Annual Meeting by delivering to the Secretary of the Company a written notice of the revocation by submitting your vote electronically through the Internet or by telephone after the grant of the Proxy, or by signing and delivering to the Secretary of the Company a Proxy with a later date.  Your attendance at the Annual Meeting will not revoke the Proxy unless you give written notice of revocation to the Secretary of the Company before the Proxy is exercised or unless you vote your shares in person at the Annual Meeting.

If you are a beneficial owner, you should follow the instructions provided by your brokerage firm, bank, dealer or other similar organization.

Directions to the Annual Meeting

You may contact us at (713) 783-8000 for directions to the Annual Meeting.

ITEMPROPOSAL ONE. ELECTION OF DIRECTORS

 

The Board has nominated Gilbert A. GarciaT. Brian Carney, M. Gregory Colvin and Sean M. MaherAlan G. Jackson for election as Class III directors of the Company to serve for a three yearthree-year term to expire in 20192020 and until either they are re-elected or their respective successors are elected and qualified.  Messrs. GarciaCarney, Colvin and MaherJackson are currently serving as directors of the Company, and their biographical information is contained in the "Directors“Directors and Executive Officers"Officers” section below.

 

The Board has no reason to believe that Messrs. GarciaCarney, Colvin and MaherJackson will be unable or unwilling to serve if elected.  If either Messrs. GarciaCarney, Colvin or MaherJackson becomes unable or unwilling to accept nomination or election, the persons acting under the Proxy will vote for the election of a substitute nominee that the Board recommends.

Recommendation of our Board

The Board unanimously recommends that stockholders voteFOR the election of Messrs. GarciaCarney, Colvin and Maher.Jackson.


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DIRECTORS AND EXECUTIVE OFFICERS

As of the filing of the Proxy Statement with the Securities and Exchange Commission (the "“SEC"”), the Board and the executive officers of the Company are:

Name

Age

Position

A. R. Sanchez, Jr.

74

73

Executive Chairman of the Board

Antonio R. Sanchez, III

43

42

Chief Executive Officer and Director

Gilbert A. Garcia(1)

53

52

Director

GregM. Gregory Colvin(1)

57

56

Director

Alan G. Jackson(1)

73

72

Director

Sean M. Maher(1)

43

42

Director

T. Brian Carney(1)

51

50

Director

Robert V. Nelson, III(1)

41

Director

Eduardo A. Sanchez

37

36

President

Garrick A. Hill(2)Howard J. Thill

58

49

Interim

Executive Vice President and Chief Financial Officer

Patricio D. Sanchez

36

Executive Vice President

Christopher D. Heinson

34

34

Senior Vice President and Chief Operating Officer

Kirsten A. Hink

50

49

Senior Vice President and Chief Accounting Officer

Gregory B. Kopel

45

44

Senior Vice President and General Counsel

(1)

Member of the Nominating and Corporate Governance, the Audit and the Compensation Committees.

(2)
Mr. Hill acts as the Company's Interim Chief Financial Officer until the successor of Mr. Van Riet, the Company's prior Chief Financial Officer, is appointed.

 

The Board currently consists of seveneight members.  The directors are divided into three classes serving staggered three-year terms.  Each year, the directors of one class stand for re-election as their terms of office expire.  Messrs. Garcia and Maher are designated as a Class I directors, and their terms of office expire on the date of the Company's 2016 annual meeting of stockholders. Messrs. Carney, Colvin and Jackson are designated as Class II directors, and their terms of office expire on the date of the Company'sCompany’s 2017 annual meeting of stockholders.  Messrs. Sanchez, Jr. and Sanchez, III are designated as Class III directors, and their terms of office expire on the date of the Company'sCompany’s 2018 annual meeting of stockholders.  Messrs. Garcia, Maher and Nelson are designated as a Class I directors, and their terms of office expire on the date of the Company’s 2019 annual meeting of stockholders.

 

Set forth below is biographical information about each of the Company'sCompany’s directors, nominees for director and executive officers as of the filing of the Proxy Statement.

 

A. R. Sanchez, Jr. has served as our Executive Chairman of the Board since November 2012.  Mr. Sanchez, Jr. is the co-founder, Chief Executive Officer and Chairman of the Board of Directors of Sanchez Oil & Gas Corporation ("(“SOG"”), a private oil and natural gas company founded in 1972 that engages in the exploration and development of oil and natural gas primarily in Texas and the onshore Gulf Coast areas on behalf of its affiliates.  SOG is an affiliate of the Company.  Mr. Sanchez, Jr. received his Bachelor of Arts and Doctor of Jurisprudence degrees from St. Mary'sMary’s University in San Antonio, Texas.  Mr. Sanchez, Jr. currently serves as president and director for the A. R. "Tony"“Tony” and Maria J. Sanchez Family Foundation.  He is also a director and stockholder of International Bancshares Corporation, a member of the Board of Visitors and Membership/Board Development Task Force at the University of Texas MD Anderson Cancer Center, a member of the Board of Advisors at Rice University’s Baker Institute and a member of the Board of Trustees at Baylor College of Medicine.  Because Mr. Sanchez, Jr. has over 4142 years of experience in the oil and natural gas industry as well as a comprehensive understanding of oil and gas operations, we believe that Mr. Sanchez, Jr. is qualified to serve as a director of the Company.  Mr. Sanchez, Jr. is the father of Mr. Antonio R. Sanchez, III, our Chief Executive Officer and member of the Board, and Mr. Eduardo A. Sanchez, our President, and Mr. Patricio D. Sanchez, our Executive Vice President.


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Antonio R. Sanchez, III has served as our Chief Executive Officer since our formation in August 2011 and has been directly involved in the oil and gas industry for over 16 years.  Mr. Sanchez, III served as our Chairman of the Board from August 2011 to November 2012 and continues to be a member of our Board.  Mr. Sanchez, III also served as our President from August 2011 until October 2015.  Mr. Sanchez, III is also the co-president of SOG, which he joined in October 2001, the President of SEP Management I, LLC ("(“SEP Management"”), the general partner of Sanchez Energy Partners I, LP ("(“SEP I"”).  Each of SOG, SEP Management and SEP I (together with their affiliates (other than the Company), the "“Sanchez Group"”) are affiliates of the Company.  In his capacities as an

officer of these members of the Sanchez Group, Mr. Sanchez, III manages all aspects of their daily operations, including exploration, production, engineering and land management.  In addition, Mr. Sanchez, III is a member of the board of directors of the general partner ("(“SPP GP"”) of SPP, a publicly-tradedpublicly traded limited partnership focused on the acquisition, development, ownership and operation of midstream and other energy production assets in South Texas, the Gulf Coast region of Texas and Louisiana, and across several basins in Oklahoma and Kansas.  From 1997 to 1999, Mr. Sanchez, III was an investment banker specializing in mergers and acquisitions with J.P. Morgan Securities Inc.  From 1999 to 2001, Mr. Sanchez, III worked in a variety of positions, including sales and marketing, product development and investor relations, at Zix Corporation, a publicly traded encryption technology company listed on the Nasdaq Global Market.  Mr. Sanchez, III was a member of the board of directors of Zix Corporation from May 2003 until June 2014.  He earned a Bachelor of Business Administration degree from Georgetown University with a concentration in accounting and finance and a minor in economics and a Master of Business Administration degree from the Harvard Business School.  Mr. Sanchez, III has significant experience managing oil and gas operations and being a member of the board of directors of a publicly traded company as well as extensive knowledge of the energy industry.  For these reasons, we believe that Mr. Sanchez, III is qualified to serve as a director of the Company.  Mr. Sanchez, III is the son of Mr. Sanchez, Jr., our Executive Chairman of the Board, and the brother of Mr. Eduardo A. Sanchez, our President, and Mr. Patricio D. Sanchez, our Executive Vice President.

 

Gilbert A. Garcia CFA has served as our director since December 2011 and is a Co-Chairperson of our Audit Committee and a member of our Compensation Committee and our Nominating and Corporate Governance Committee.  Mr. Garcia is the Managing Partner of Garcia Hamilton & Associates, L.P., an institutional asset management firm, which he joined in 2002 and where he supervises all facets of the firm'sfirm’s investment decisions.  Prior to joining Garcia Hamilton & Associates, L.P., Mr. Garcia worked at two other institutional asset management firms, Smith Graham & Company, where Mr. Garcia was most recently the Chief Investment Officer, and Cisneros Asset Management, where he was most recently President.  Mr. Garcia started his professional career with Salomon Brothers specializing in mortgage-backed securities.  Mr. Garcia received his Bachelor of Arts degree in Economics from Yale University.  We believe that Mr. Garcia is well qualifiedwell-qualified to serve as a member of our Board.  In addition to his professional experience, Mr. Garcia also has extensive experience serving in leadership positions of community organizations, including as the Chairman of the Metropolitan Transit Authority of Harris County, Texas.  We believe that Mr. Garcia'sGarcia’s executive experience, including through his service on community organizations, provides valuable financial and management experience that is critical to his ability to identify, understand and address the challenges and opportunities that we face as a public company.

 

GregM. Gregory Colvin has served as our director since March 2012 and is a member of our Compensation Committee, our Nominating and Corporate Governance Committee and our Audit Committee.  Mr. Colvin iswas the Managing Partner, Chief Operating Officer and Head of Investor Relations of Sankofa Capital, an investment management firm, which he co-founded infrom December 2011.2011 to December 2016.  From 2007 until he co-foundedjoined Sankofa Capital, Mr. Colvin worked as a Managing Partnersecurities broker at Bluffview Capital, LP, where he originated and raised capital for private equity and hedge fund clients.  From 1997 to 2006, Mr. Colvin was a Managing Director of the Private Funds Group at Donaldson, Lufkin & Jenrette Securities CorpCorp. and Credit Suisse LLC.  Mr. Colvin started his professional career with


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Stephens Inc. specializing in placing primary and secondary fixed income products to institutional investors.  Mr. Colvin received his Bachelor of Science in Business Administration degree from the University of Arkansas.  Mr. Colvin currently serves on the advisory board of the Sam M. Walton College of Business at the University of Arkansas.  We believe that Mr. Colvin is well qualifiedwell-qualified to serve as a member of our Board.  In addition to his extensive experience in leadership positions at large financial institutions, Mr. Colvin has a substantive understanding of the upstream oil and gas industry and a financial background that gives him the ability to understand and analyze our business and our opportunities.

 

Alan G. Jackson has served as our director since November 2012 and is the Chairperson of our Nominating and Corporate Governance Committee and a member of our Audit Committee and our Compensation Committee.  Mr. Jackson is the Senior Commercial Producer at IBC Insurance Agency, Ltd. ("(“IBC"”).  Mr. Jackson is the former co-owner of Inscorp, Inc., a leading commercial insurance agent/brokerage in South Texas, which was acquired by IBC in 2009.  Mr. Jackson received his Bachelor of Business Administration degree from Texas A&M University at Kingsville, Texas, and is a graduate of the University of Texas, McCombs School of Business'Business’ Management Development Program.  We believe that Mr. Jackson is well qualifiedwell-qualified to serve as a member of our Board because of his experience working with many land and mineral owners and their representative brokers, bankers and attorneys

and with many oil and gas operators, non-operators, investors, service companies and logistics carriers in the energy industry throughout South Texas, including the Eagle Ford Shale.

 

Sean M. Maher has served as our director since November 2014 and is a Co-Chairperson of our Audit Committee and a member of our Compensation Committee and our Nominating and Corporate Governance Committee.  Mr. Maher is the Senior Portfolio Manager of RCH Energy, an investment management firm, which he joined in June of 2008.  From 2006 until joining RCH Energy, Mr. Maher was an Executive Director at Morgan Stanley and the Head of Master Limited Partnership and Integrated Natural Gas Research.  From 2001 to 2006, Mr. Maher was a member of the Integrated Oils and Independent Refining Equity Research team for Morgan Stanley.  From 1999 to 2001, Mr. Maher was an analyst in the Energy Investment Banking team at Morgan Stanley.  Mr. Maher began his career at Morgan Stanley in 1997 within the Financial Reporting and Controllers Group that covered the Investment Banking business;business, including Mergers & Acquisitions, Equity Capital Markets, Debt Capital Markets and Private Equity.  Mr. Maher received both his Bachelor of Business Administration in Finance and his Master of Business Administration in Finance and Accounting degrees from Saint Bonaventure University.  We believe that Mr. Maher is well qualifiedwell-qualified to serve as a member of our Board due to his extensive financial and energy experience.

 

T. Brian Carney has served as our director since May 2015 and is the ChairpersonCo-Chairperson of our Compensation Committee and a member of our Nominating and Corporate Governance Committee and our Audit Committee.  Mr. Carney is an attorney from Midland, Texas, where he has practiced law at the Law Office of Brian Carney since 1992.  His practice focuses on litigation in both state and federal courts.  Mr. Carney graduated from the University of Oklahoma with a Bachelor of Business Administration in Finance, and he received his Doctor of Jurisprudence from Oklahoma City University in 1991.  We believe that Mr. Carney is well qualifiedwell-qualified to serve as a member of our Board due to his legal background and experience.

 

Robert V. Nelson, III has served as our director since August 2016 and is the Co-Chairperson of our Compensation Committee and a member of our Nominating and Corporate Governance Committee and our Audit Committee.  Mr. Nelson is the Chief Operating Officer of Sprint Energy Services and has held this position since September 2016.  Prior to this, Mr. Nelson worked at C&J Energy Services, Ltd. (“C&J”) from March 2015 to January 2016, where he was Vice President of Corporate Operational Development.  In this capacity he was responsible for joint ventures and strategic partnerships with operators while assisting in the merger of certain operating units of Nabors Industries Ltd. (“Nabors”) with C&J.  Prior to joining C&J, Mr. Nelson served in positions of increasing importance with Nabors and its subsidiaries from 2006 to March 2015.  He began his career at Nabors in Corporate Development followed by successful assignments in Treasury, Nabors Drilling USA, and Nabors Well Services.  He was subsequently named Vice President and General Manager of the South Texas Region for Nabors Completion and Production Services, where he was responsible for directing this unit’s rapidly growing activity in the Eagle Ford Shale.  Mr. Nelson worked for UBS before Nabors.  He holds a Bachelor of Arts degree from the University of Texas at Austin and a Master of Business Administration degree from Rice University’s Jones Graduate School of Business.  We believe that Mr. Nelson is well-qualified to serve as a member of our Board due to his extensive experience that spans all areas of oil and natural gas exploration, drilling and production, including with respect to operations in the Eagle Ford Shale, our core area of focus.  We also believe Mr. Nelson’s unique service sector insight and perspective will greatly benefit the Board and management as we work to continuously improve operations and develop our plans for the future.

Eduardo A. Sanchez has served as our President since October 2015.  Mr. EduardoE. A. Sanchez ishas been President and Chief Executive Officer of Sanchez Resources, LLC ("(“Sanchez Resources"”) since 2010, an affiliate of the Company, a member of the board of directors of SPP GP since May of 2015, co-president of SOG, and chief executive officer of Sanchez Oil & Gas Mexico Holdings, LLC, an affiliate of the Company, since August 2015 and president and chief executive officer of 2015.Sanchez Capital Advisors since April 2008.  Prior to his work at Sanchez Resources, Mr. E. Sanchez worked at Commonwealth Associates, Inc. focusing on private equity and debt placements in small and midsize market capitalization businesses, including those in the energy sector.  Mr. E. Sanchez received his Bachelor of Science in Business Administration degree from Babson College and his Master of


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Business Administration degree from Columbia Business School.  Mr. Eduardo A.E. Sanchez is the brother of Mr. Sanchez, III, the Company'sCompany’s Chief Executive Officer and member of the Board, and the son of A. R. Sanchez, Jr., the Executive Chairman of the Board.Board, and the brother of Patricio D. Sanchez, an Executive Vice President of the Company.

Garrick A. HillHoward J. Thill has served as our InterimExecutive Vice President and Chief Financial Officer since March 30,October 2016. Prior to Mr. Hill's appointment as Interim Chief Financial Officer, he served as our Interim Co-Chief Financial Officer from March 7, 2016 until he became our Interim Chief Financial Officer. Mr. Hill has over 27 years of industry experience that encompasses energy finance, risk management, treasury, and investor relations activities.  Prior to joining the Company, Mr. HillThill served as Senior Vice President of Communications and Investor Relations at Devon Energy, where he was responsible for SPPall investor relations activity and Treasurer, Assistant Secretary, anddevelopment of corporate messaging from May 2014 until October 2016.  Prior to Mr. Thill’s position at Devon Energy, he served as Vice President Risk Management of SPP GP, which positionCorporate, Government and Investor Relations at Marathon Oil Corp., where he was electedemployed from January 2002 until April 2014.  Mr. Thill began his career with Phillips Petroleum Company in 1982 as a drilling fluids engineer and subsequently held positions of increasing responsibility in natural gas operations, federal and international tax, international finance and business development before moving to investor relations.  Mr. Thill holds Bachelor degrees in March 2015. Mr. Hill previouslyAccounting and Marketing as well as a Master of Business Administration degree from Oklahoma State University.  In addition, he is a Certified Public Accountant.

Patricio D. Sanchez has served as Assistant Treasurer andour Executive Vice President Risk Managementsince November 2016.  Mr. Sanchez also serves as President & Chief Operating Officer and a director of Sanchez Production Partners GP, LLC, the general partner of SPP, a publicly traded master limited partnership, which positons he has held since March 2017 and June 2015, respectively.  Mr. Sanchez served as Chief Operating Officer of Sanchez Production Partners GP, LLC from October 2009 until its conversionMay 2015 through March 2017 when he was appointed President & Chief Operating Officer.  Mr. Sanchez has served as co-president of SOG since June 2014 and served as Executive Vice President prior to that from April 2010 to June 2014.  Mr. Sanchez has also been the managing member of Santerra Holdings, LLC, an oil and gas production company, since February 2012.  Mr. Patricio D. Sanchez is the brother of Mr. Sanchez, III, the Company’s Chief Executive Officer and member of the Board, the son of A. R. Sanchez, Jr., the Executive Chairman of the Board, and the brother of Eduardo A Sanchez, the Company’s President.  Mr. Sanchez holds a limited partnershipB.A. from Bentley College and a Masters in March 2015.Energy and Mineral Resources from the University of Texas at Austin.

 

Christopher D. Heinson has served as our Senior Vice President and Chief Operating Officer since March 2014.  Mr. Heinson had served as the Company'sCompany’s interim Chief Operating Officer from January 2014 to March 2014.  He joined the Company in March 2013 as the Senior Manager of Reservoir Engineering.  Prior to joining the Company, Mr. Heinson had served as a Senior Development Planning Engineer for Occidental Petroleum Corporation'sCorporation’s Williston Basin division from May 2011 to March 2013, where he coordinated the development of hundreds of horizontal wells drilled in the Bakken Shale as well as overseeing forecasting and planning for Occidental Petroleum Corporation’s Williston Business Unit, and a Staff Reservoir Engineer for their Permian basin division from May 2007 to May 2011.2011, where he was responsible for direct technical oversight of multiple fields in the Permian Basin.  Mr. Heinson received his Bachelor of Science in Petroleum Engineering degree from the University of Texas at Austin.

 

Kirsten A. Hink has served as our Senior Vice President and Chief Accounting Officer since January 1, 2015, and she had previously served as our Vice President and Principal Accounting Officer since March 2012.  Prior to joining us, Ms. Hink served as the Controller of Vanguard Natural Resources, LLC from January 2011 to February 2012, where she oversaw the company'scompany’s financial reporting and accounting.  From January 2010 to December 2010, she served as Assistant Controller of Mariner Energy, Inc. ("(“Mariner"”), where she managed the revenue and production reporting as well as assisted with financial and bankruptcy reporting for the Edge Petroleum Corporation ("(“Edge"”) properties that were acquired by Mariner.  She served as the Chief Accounting Officer for Edge from July 2008 through December 2009 and the Vice President and Controller for Edge from October 2003 through July 2008, where she oversaw the preparation of Edge'sEdge’s financial statements.  Prior to that time she served as Controller of Edge from December 31, 2000 to October 2003 and Assistant Controller of Edge from June 2000 to December 2000.  Edge filed for Chapter 11 bankruptcy protection in October 2009.  Before joining Edge, she served as Controller of Benz Energy Inc., an oil and gas exploration company, from June 1998 to June 2000.  Ms. Hink received a Bachelor of Science in Accounting degree from Trinity University.  Ms. Hink is a Certified Public Accountant in the State of Texas.

 

Gregory B. Kopel has served as our Senior Vice President and General Counsel since December 2015.  Prior to joining the Company, Mr. Kopel servedfocused on energy transactions, with an emphasis on mergers and acquistions and joint ventures as Vice President and Associate General Counsel at Breitburn Energy Partners LP from April 2013 to December 2015. He has also served2015 and in corporate legal positions at Linn Energy LLC from June 2010 to April 2013 and Occidental Petroleum Corporation from December 2005 to June 2010.  Mr. Kopel earned a B.A. in Government at the University of Texas at Austin, and a J.D. at the University of Houston, and began his career working at two international law firms.


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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

Introduction

The purpose of this Compensation Discussion and Analysis is to describe the Compensation Committee'sCommittee’s compensation philosophy and approach for all individuals serving as the Company'sCompany’s principal executive officer or principal financial officer during 20152016 as well as the three other most highly compensated executive officers for 20152016 (the "“named executive officers"”).  The named executive officers for 20152016 are as follows:

    •

    ·A.R. Sanchez, Jr.—Executive Chairman of the BoardBoard;

    ·

    •
    Antonio R. Sanchez, III—Chief Executive OfficerOfficer;

    ·

    •
    Eduardo A. Sanchez—PresidentPresident;

    ·

    •
    G. Gleeson Van Riet—Senior                  Howard J. Thill—Executive Vice President and Chief Financial OfficerOfficer;

    ·

    •
    Christopher D. Heinson—Senior Vice President and Chief Operating Officer

    •
    Michael G. Long—Former Executive Vice President, Chief Financial Officer and Secretary
Officer;

 On March 9, 2015, in connection with Mr. Long's announcement of his plans to retire as our former Executive Vice President, Chief Financial Officer and Secretary, Mr. Van Riet was appointed as Interim Co-Chief Financial Officer. Mr. Van Riet became the

·                  Garrick A. Hill—Former Interim Chief Financial Officer on April 30, 2015 when Mr. Long retired. On May 18, 2015, Mr.Officer; and

·                  G. Gleeson Van Riet was appointed as ourRiet—Former Senior Vice President and Chief Financial Officer.

 

On March 2, 2016, Mr. Van Riet notified the Company that he would resign as the Company'sCompany’s Senior Vice President and Chief Financial Officer, effective March 30, 2016.  On March 7, 2016, the Board appointed Garrick A. Hill as the Company'sCompany’s Interim Co-Chief Financial Officer.  Mr. Hill served as the Company'sCompany’s Interim Co-Chief Financial Officer until Mr. Van Riet'sRiet’s resignation on March 30, 2016 and acted as the Company’s Interim Chief Financial Officer until October 10, 2016.  Effective October 10, 2016, Mr. Hill resigned from his position as the Company’s Interim Chief Financial Officer.  Immediately following the effectiveness of Mr. Hill’s resignation as the Company’s Interim Chief Financial Officer, the Board appointed Howard J. Thill to serve as Executive Vice President and Chief Financial Officer of the Company.  Mr. Thill has acted as the Company's InterimCompany’s Executive Vice President and Chief Financial Officer since that date.

        Throughout 2015,  Effective upon Mr. Eduardo Sanchez provided finance, drilling, production and operations management services toHill’s resignation as the Company in connection withCompany’s Interim Chief Financial Officer, Mr. Hill assumed a position overseeing the Tuscaloosa Marine Shale (the "TMS") joint venture with SR Acquisition I, LLC ("SR"). Prior to October 1, 2015, Mr. Sanchez, III served as our Chief Executive Officer and President. On October 1, 2015, Mr. Sanchez, III resigned from his position as our President and Mr. E. Sanchez was appointed as our President. Mr. Sanchez, III continues to serve as our Chief Executive Officer.Company’s treasury function.

 

Mr. E. Sanchez, the Company'sCompany’s President, works alongside Mr. Sanchez, III, the Company'sCompany’s Chief Executive Officer, in the day-to-day supervision of the Company'sCompany’s business, which provides other members of the management team ready access to their combined talent, insight and experience in the oil and gas industry.  Mr. E. Sanchez provides oversight and strategic guidance on the Company'sCompany’s finance, capital markets, operations, marketing and midstream, and business development activities, and leads executive level recruitment and retention efforts. In addition, Mr. E. Sanchez represents the Company on the Board of Directors of the Company's joint venture with Targa Resources.

 

Management and the Board have the added benefit of access to Mr. Sanchez, Jr., the Company'sCompany’s Executive Chairman, who has a deep understanding of the cycles and challenges of the oil and gas industry from his over 4142 years of experience in the industry.industry.  The close working relationship among the Executive Chairman, the Chief Executive Officer and the President gives the Board and the Company'sCompany’s stockholders a strong leadership team that can address issues quickly and seamlessly.


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Background on Our Organizational Structure

 

All of our executive officers are employed by SOG and provide services both to us and to other members of the Sanchez Group in their capacity as employees of SOG.  Our Compensation Committee determines and approves base salary and annual bonus amounts for the services our named executive officers provide to us as well as equity awards under our Plan.the Third Amended and Restated 2011 Long Term Incentive Plan (the “Plan”).  SOG pays all base salary and annual bonus amounts to our named executive officers and, pursuant to the services agreement between us and SOG, we reimburse SOG for the portion of compensation expenses (including base salary, benefits, and annual bonuses) set by our Compensation Committee and attributable to services provided to our business.  While

our Compensation Committee initially establishes compensation levels for the services our named executive officers provide to us, SOG has final responsibility and authority with respect to our executive officers'officers’ compensation for which the costs are allocated to us pursuant to the services agreement, and our Audit Committee is solely able to review, verify and dispute the reasonableness of such allocated costs pursuant to procedures set forth in the services agreement.  We estimate that during 2015,2016, our named executive officers dedicated approximately 100% of their professional time to providing services to us.  For Mr. E. SanchezVan Riet, Mr. Hill and Mr. Long,Thill, these estimates are only for the portion of 20152016 that they were named executive officers of the Company.  Mr. Hill dedicated approximately 100% of his professional time from April 2016 to October 2016 and 77% of his professional time from November 2016 to December 2016 to providing services to us.

Executive Summary

 

Our operating environment in 20152016 was characterized by significant commodity price volatility, distressresulting in the lowest prices for crude oil seen in the United States for more than a decade.  In the face of challenging industry fundamentals and uncertainty, we focused on what we could control by driving down wells costs, conserving capital, markets, and considerable uncertainty with respectboosting our financial liquidity.  As part of this focus, we made the strategic decision to concentrate our efforts on the Western Eagle Ford, an area that we believe offers impressive returns and growth potential even at lower commodity prices.

During 2016, our efficiency gains and operational improvements in the Western Eagle Ford led to results that exceeded our expectations and continue to enhance the sustainability of our cost structure.  In the area of drilling, while a significant portion of our well costs are predicated on day rates for services performed, efficiency gains are directly correlated to the futuresustainability of our industry. In responsecost structure and our ability to this challenging environment,add economic wells to our management team developeddrilling inventory over time.  Operational improvements in 2016, which relate to the unbundling of directional drilling services, implementation of a proprietary off-line cementing program, and executed a focusedreductions in our rig movement cost and disciplined strategic planduration, have contributed to further sustainability in the current price environment.  As compared to our cost structure in 2015, that resulted in:drilling costs have been reduced by approximately 30%.  In the area of completions, efficiency gains and design improvements have also yielded positive results.  Completion costs were reduced approximately 15% during 2016.  Importantly, we have successfully locked in a significant portion of our cost structure through a combination of Company-owned equipment and the execution of long-term contracts.

    •

    In addition to the highlights referenced above, our achievements in 2016 include:

    ·                  Upstream capital expenditures (including accruals) of approximately $350 million, a reduction of over 35% compared to 2015;

    ·Record annual production of 19.219.5 MMBoe for an average annual production rate of approximately 52,56053,350 Boe/d, an increase of 72%1.5% over 2014 production;2015 production despite lower capital spending;

    ·

    •
    Results                  Total cost per well that averaged approximately $3.0 million, with some of our best wells coming in at Catarina, our most active area of development in 2015, that include a 40% improvement in EUR and a reduction in average well cost from $8.8 million when we acquired the asset in 2014 to $3.5approximately $2.8 million in 2016;

    ·                  Year-end reserves up over 55% compared to 2015 (from 127.6  MMBOE to 198.5 MMBOE, excluding acquisitions and divestitures), with a savingsreserve replacement ratio of approximately 60% per well on average in less than two years;430%;

    ·

    •
    Upstream capital expenditures (including accruals) of $545 million, a reduction of approximately 37% compared 2014;

    •
    The completion of our July 20152016 to June 20162017 Catarina drilling commitment of 50 wells on January 1,by December 31, 2016, approximately six months earlier than required;required, which provides us with considerable financial flexibility as we look to execute our 2017 capital plan;

    ·

    •
    Replacement                  Production by North Central Catarina step-out appraisal pad of in excess10% to 15% above Western Stack type curve forecast with yields over 250 Bbl of 3.0xliquids per MMcf of natural gas de-risking the reserves we produced in 2015 as a resulteastern portion of additions and technical revisions, excluding downward adjustments stemming from commodity price volatility;the Western Stack area;

    ·

    •
    Opportunistic redeployment of capital in legacy areas of our asset base, where we are able to exploit an industry-wide focus on capital preservation to accumulate acreage that fits well within our operating focus;

    •
    A                  An outstanding safety record across our asset base with a total combined recordable injury rate of approximately 0.63, which we believe compares very favorably to industry standards, with a TRIR of less than 0.45;standards;

    ·

    •
    The sale of two assets to SPP, which resulted in total cash consideration of approximately $430 million to Sanchez Energy;

    •
    A strategic relationship with SPP that includes ownership of approximately 17% of SPP’s common units together with an extensive inventory of assets suitable for the master limited partnership model whichthat we believe may be opportunistically divested and which provides a potentially valuable source of capital andto enhance liquidity in the years ahead;

Table·                  The strategic divestiture of Contentsnon-core assets, including our Eastern Cotulla production assets and the Company’s interest in the Raptor Gas Processing Facility in South Texas, which added more than $250 million to our already strong liquidity position in 2016;

·

    •
    Total liquidity of $735approximately $800 million at December 31, 2015,2016, which stems fromincluded an undrawn credit facility with $300 million of borrowing capacity and approximately $435$500 million in cash; and

    ·

    •
    Hedge positions with mark-to-market value                  Reinforcement of our strong liquidity position by closing the previously announced public equity offering on February 6, 2017, which resulted in net proceeds of approximately $155 million at year-end 2015;$136 million.

    The results of our concentration on the Western Eagle Ford in 2016 have been dramatic.  For example:

    ·                  At Catarina, an asset we acquired in 2014, we have successfully delineated the extent of the Upper and

    •
    The execution Middle Eagle Ford across the ranch, with current estimated ultimate recoveries in some areas of a gas gathering and processing joint venture with Targa Resources to construct a cryogenic processing plant and high pressure gathering pipeline near Catarina, which is expected to provide a path to improved yields, lower processing fees, and significant marketing benefits in the years to come.
asset of more than double the results realized by the previous operator.

 Our 2015 results were shaped by our operating environment and driven by a management team that is focused on financial discipline and operating efficiencies. In response to our operating environment, we took decisive actions to reduce capital spending, manage operating costs, and promote operating efficiencies throughout 2015, which allowed us to significantly exceed our production targets despite lower capital spending, as illustrated in the chart that follows:

Category
 January 2015
Guidance(1)		 Full Year
2015
Results		 Variance vs.
Guidance
Midpoint		 

Capital Spending—Upstream ($ million)

 $560 - $600 $545  –6%

Targeted Wells Costs at Catarina ($ million)

 $5.0 $3.5  –30%

Production Volumes (BOE/D)

 

40,000 - 44,000

  
52,560		  
25
%

Operating Costs and Expenses ($/BOE)

 

 

  
 		  
 		 

Oil and natural gas production expenses(2)

 $9.00 - $10.00 $8.16  –14%

Production and ad valorem taxes

 $2.00 - $3.00 $1.40  –44%

General and administrative expenses(3)

 $3.00 - $3.50 $3.09  –5%
​​​ ​​ ​​​ ​ ​

Total operating costs and expenses

 $14.00 - $16.50 $12.65  –17%
(1)
Released January 7, 2015, at which time we projected total capital spending to range between $600 million and $650 million. This compares to an initial 2015 capital budget of approximately $1.15 billion, which was set prior to the decline in oil prices that began in 2014.

(2)
Full Year 2015 Results include amortization of gain on sale of Catarina Midstream of ($0.58) per Boe for the three months ended December 31, 2015 and ($0.16) per Boe for the year ended December 31, 2015.

(3)
Full Year 2015 Results exclude stock-based compensation of ($0.20) and ($3.23) per BOE for the three months ended December 31, 2015 and 2014, respectively, and $0.77 and $1.15 per BOE for the year ended December 31, 2015 and 2014, respectively. Also excludes acquisition and divestiture costs included in G&A of $0.71 and $0 per BOE for the three months ended December 31, 2015 and 2014, respectively, and $0.20 and $0.16 per BOE for the year ended December 31, 2015 and 2014, respectively.

        We believe that we are well positioned to prosper in the years ahead.·                  As a result of successful appraisal in Western Catarina, an area to which we ascribed little value in excess of developed locations at the executiontime of the acquisition, the Company now expects to have approximately 700 multi-bench locations with average returns of nearly 50%.

·                  Additionally, successful appraisal of South-Central Catarina, an area ascribed no value at the time of the acquisition, has added more than 200 economic drilling locations with expected returns in excess of 80%.

·                  With respect to our strategic plans, heading into 2016 we have:

    •
    A management team that is results driven and committedMaverick asset, located to the optimizationnorth/northwest of Catarina in the oil window of the Western Eagle Ford in Dimmitt, Zavala, and Frio Counties in South Texas, our drilling inventory increased by more than three times over the course of 2016.

    Growth in the Maverick region of our asset base is largely the result of an extensive leasing program executed by the Company in 2016, which resulted in the acquisition of approximately 65,000 net acres in this area of the Western Eagle Ford.  Additionally, we acquired 45,000 net acres that comprises our “Javelina” asset, southeast of Catarina in the dry gas window of the Western Eagle Ford in La Salle and Webb Counties in South Texas.  As a result of industry conditions in 2016, our leasing efforts were executed at attractive terms using available cash.  Taken together, these leasing activities allowed us to strategically expand our footprint in an area that falls within a 50 mile radius in the Western Eagle Ford.  We believe this concentration of acreage and drilling opportunities leads to synergies of scale that stem from our extensive knowledge of the Western Eagle Ford and cost structure thoughsaving opportunities related to the use of shared resources and the efficiency of field-level operations.

    As a focus onresult of efforts to improve our asset base through successful drilling and appraisals at Catarina, drilling, appraisals, and leasing at Maverick and leasing to form the manufacturing process, resultingJavelina asset during 2016, the Company now expects to have an inventory of over 2,800 net drilling locations in onethese areas of the lowest cost structures amongWestern Eagle Ford operators based onalone.  This represents an increase of approximately 800 engineered locations when compared to year end 2015, results;

    •
    Approximately 200,000despite the strategic sale of our Eastern Cotulla production assets in December of 2016.

    Additionally, we worked diligently to develop a transformative acquisition over the course of 2016.  To that end, in January 2017, Sanchez Energy along with Blackstone Energy Partners announced a 50/50 partnership to acquire the Comanche asset for a purchase price, after closing adjustments, of approximately $2.1 billion, subject to additional post-closing adjustments.  This accretive and transformative acquisition substantially increases our drilling inventory, with more than 1,000 net acres throughoutdrilling opportunities identified to date, and adds 132 drilled but uncompleted wells.  Having closed the Comanche acquisition in March 2017, our operated Eagle Ford Shale

    position is approximately 585,000 gross acres (335,000 net to Sanchez Energy).  With the closing of this transaction, we believe we have locked up the core of the trend within the volatile oil window of the Western Eagle Ford.

    With total net proved reserves of approximately 340 MMBoe, which includesrepresents an increase of approximately 106,000 contiguous net acres at Catarina;


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    •
    Over 3,000 drilling locations in78% from our asset base, which includes a sizeable inventory of wells thatyear-end 2016 reserves, we believe we are economic in today's price environment due to our success innow among the area of capital cost reduction and EUR expansion;

    •
    A sustainable cost structure driven by a substantial footprintlargest operators in the Eagle Ford Shale, execution competencies, direct sourcing capabilitiesShale.  With more than 4,000 net, high rate of return drilling locations across our asset base and supply chain focus;

    •
    Financial flexibility that stems from liquidity of approximately $735 million as we enter 2016, early completion of the July 2015 to June 2016 annual drilling commitment at Catarina, and the ability to bank up to 30 wells for the following annual drilling commitment at Catarina, which we believe positions the Companyan industry leading cost structure, Sanchez Energy is well positioned to operate successfully in a "lowerprofitably for longer" scenario;

    •
    No bank debt outstanding and no outstanding debt maturing until 2021 and 2023;

    •
    A business development focus that emphasizes asset quality, financial discipline and risk management over price premiums for the sake of asset accumulation and production growth;

    •
    Substantial growth opportunities at Catarina, which we believe is fairly valued today at over 3.6x our initial investment despite the recent downturn in commodity prices;

    •
    A robust hedge program that includes, for 2016, hedges on crude production at an average price of approximately $64/Bbl and hedges on natural gas production at an average price of approximately $3.12/MMbtu, which are expectedmany years to cover approximately 100% of our production and 82% of our revenues in 2016;come.



    •
    A 2016 capital budget expected to range between $200 million and $250 million, a reduction of approximately 60% when compared to 2015 capital spending levels, which we anticipate we will fund with available cash and cash flow from operations;

    •
    Forecast production of between 48,000 and 52,000 BOE/D, which represents no material change when compared to 2015 production, despite significantly lower capital spending in 2016; and

    •
    Considerable upside potential should commodity prices recover such that our drilling program can be expanded in a cost-efficient manner.

Compensation Highlights for 20152016

 

When establishing compensation for services provided during 2015,2016, the Compensation Committee and SOG weighed both the volatile commodities markets as well as our strong performance highlighted above.  The following is a summary of key compensation actions taken by SOG and/or the Company for the named executive officers with respect to our 20152016 performance:

    •

    ·Base Salary—Base salary rates have remained unchanged since 2014 for our Executive Chairman and Chief Executive Officer.Officer and since 2015 for our President.

    ·

    •
    Cash Bonus—Cash bonus amountsamount for our Executive Chairman and Chief Executive Officer did not increase in 2015 despite2016 and increased for our Chief Executive Officer and President in 2016 due to record annual production, impressive decreases inimpressively low well costs and achievement ofthe other significant liquidity goals.performance accomplishments described above.

    ·

    •
    Long-Term Equity Incentives—Our Compensation Committee approved grants of restricted and/or phantom stock and performance accelerate restricted and/or phantom stock to our named executive officers with multi-year vesting schedules, the value of some of which is dependent on our share price and which we believe has a strong retentive element.

    ·

    •
    Adoption of Stock Ownership Retention Guidelines and Clawback Policy—Our Board and the Compensation Committee decided to strengthen the Company's executive compensation governance practices by adoptinghave adopted stock ownership guidelines and an incentive compensation clawback policy to further align executive officers with our stockholders.

Table of Contentsstockholders and to strengthen the Company’s executive compensation governance practices.

 

In addition to these compensation elements, the compensation program also includes other features that we believe are consistent with strong governance practices, including:

    •

    ·Neither we nor SOG have any contractual obligations to provide gross-ups to any of our named executive officers;

    ·

    •
    Neither we nor SOG provide excessive perquisites to our named executive officers;

    ·

    •
    Neither we nor SOG have any contractual obligation to provide cash severance or cash payments in connection with a change of control to any of our named executive officers;

    •
    Neither we nor SOG have employment agreements with our named executive officers, providing us and SOG with flexibility to respond to changing company needs and market environments; and

    ·

    •
    Both we and SOG perform an annual risk assessment of our compensation program; and

    •
    Our Compensation Committee has engaged an independent compensation consultant to advise it on executive compensation.

Say on Pay and Stockholder Engagement

 

At our annual meeting of stockholders held on May 21, 2015,24, 2016, our stockholders had the opportunity to cast an advisory vote on executive compensation, as well as an advisory vote on the frequency with which they would prefer to cast an advisory vote on executive compensation.  At that meeting, nearlyapproximately 55% of the votes cast by our stockholders (excluding broker non-votes) voted in support of our executive pay program.  Additionally, the most desirable frequency of the say-on-pay vote selected by stockholders was a vote every year. The Compensation Committee consideredwill continue to consider the outcome of our say-on-pay votes annually when conducting its regular practice of evaluating the program and say-on-frequency votes and determined that it will holdmaking future compensation decisions for the say-on-pay vote annually.named executive officers.  In addition, the Board and the Compensation Committee decided to strengthenstrengthened the Company'sCompany’s executive compensation governance practices by adopting stock ownership guidelines and an incentive compensation clawback policy to further align executive officers with our stockholders.

Clawback Policy

 

Our Board has adopted a clawback policy under which our Board has the right to cause the reimbursement by a current or former executive officer of the Company of certain incentive compensation if the compensation was predicated upon the achievement of certain financial results that were subsequently the subject of a required restatement of the Company'sCompany’s financial statements.  Incentive compensation subject to the policy includes all cash, equity or equity-based awards made pursuant to the Plan or any other formal or informal plan, adopted currently or in the future.  Our Board may exercise this right regardless of the occurrence or absence of any fraud or responsibility on the part of any current or former executive officer.

Stock Ownership and Retention Guidelines

 

Our Board has adopted stock ownership and retention guidelines for certain executive officers and directors.  The guidelines require certain executive officers and directors to acquire and retain a minimum level of stock ownership within five years of the effective date of the guidelineguidelines or their appointment as an executive officerofficers or director,directors, whichever is later.  Our Executive Chairman and Chief Executive Officer must acquire and retain shares of our common stock equal to at least five times their annual base salary; our President, Chief Financial Officer, and Chief Operating Officer must acquire and retain shares of our common stock equal to at least three times their annual base salary; and our directors who are not also executive officers must acquire and retain shares of our common stock equal to at least five times their annual retainer.  Until the applicable minimum level of stock ownership is


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achieved, the executive officerofficers or directordirectors must retain all net shares obtained through the Plan (after payment of taxes and exercise price, if applicable).

Our Compensation Philosophy

 

The Compensation Committee and SOG design the cash and benefit portions of our executive compensation program to attract and retain individuals with the background and skills necessary to successfully execute our business model in a demanding environment, to properly motivate management with an easy to comprehend compensation package that seeks to provide both near-term and long-term goals in a way that aligns their interestinterests with thatthose of our stockholders, and to reward success in reaching such goals.  We are committed to paying-for-performance and our executive compensation philosophy seeks to (i) motivate our employees to perform at the highest level consistent with our core values;values, (ii) reward high performing employees;employees, and (iii) retain and attract top talent.

 

The goal of our equity award program is to encourage retention and to ensure that a substantial portion of each named executive officer'sofficer’s compensation is directly tied to our share price performance.  Taken together, we use a program emphasizing variable annual cash compensation and long-term equity-based compensation to reward for Company and individual performance achievements.  We believe this pay-for-performance approach generally aligns the interests of executive officers who provide services to us with thatthose of our stockholders, and at the same time enables us to maintain a lower level of base salary overhead in the event our operating and financial performance failfails to meet expectations.

Role of Compensation Consultants

The Compensation Committee engaged Meridian Compensation Partners, LLC ("(“Meridian"”) as its independent compensation consultant.  Meridian reports directly to the Compensation Committee, which has authority under its charter to retain compensation consultants, although its representatives may also meet with management from time to time.  The Compensation Committee did not direct Meridian to perform its services in any particular manner or under any particular method.

 

During 2015,2016, Meridian assisted the Compensation Committee with the following:

    •

    Development of·                  Developed a peer group for reviewing executive and outside director market compensation practices;

    ·

    •
    Conducted a competitive market analysis of executive compensation for our named executive officers;

    ·

    •
    Conducted a competitive market analysis of compensation for our outside directors;

    ·

    •
    Provided an update on executive compensation trends and developments; and

    ·

    •
    Provided consulting on other matters pertaining to executive compensation as requested by the Compensation Committee during the year.

 

The Compensation Committee evaluates its compensation consultant annually to determine its independence.  The Compensation Committee has determined that no conflicts of interest exist with respect to Meridian'sMeridian’s consulting services for 2015.2016.  The factors considered by the Compensation Committee in conducting this analysis are as follows:

     

    (i)                                     The provision of other services to us by Meridian, if any;

     

    (ii)                                  The amount of fees received from us by Meridian as a percentage of Meridian'sMeridian’s total revenue;

     

    (iii)                               The policies and procedures of Meridian that are designed to prevent conflicts of interest;


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            (iv)                              Any business or personal relationship of Meridian or its consultants with a member of the Compensation Committee;

     

    (v)                                 Any stock of the Company owned by Meridian'sMeridian’s consultants; and

     

    (vi)                              Any business or personal relationship of Meridian or its consultants with any of our executive officers.

Use of Market Data and Peer Comparisons

 

As part of the compensation setting process for the 20152016 year, the Compensation Committee:  (i) examined the compensation practices of our peer companies,companies; (ii) reviewed compensation information from the oil and gas industry,industry; (iii) reviewed and participated in relevant compensation surveys and (iv) relied on data provided by Meridian.

 

In 2015,2016, our Compensation Committee worked with Meridian to develop a peer group of companies with which we compete for executive talent so that we could use compensation types and levels paid across the peer group as a reference point for assessing the allocated portion of executive compensation set by the Compensation Committee as well as the type, volume and terms of our equity compensation grants.  The criteria used for inclusion in our peer group included U.S. based public companies focused on oil and gas exploration and production with similarly-sizedsimilarly sized assets, market value and enterprise value, with the Company approximatingfalling within a reasonable range of the 50th percentile in enterprise valuemedian of the group.  The peer group used by the Compensation Committee in analyzing 20152016 named executive officerofficers’ compensation was as follows:

Approach Resources Inc.

Jones Energy Inc.

Rex Energy Corp.

Carrizo Oil & Gas Inc.

Laredo Petroleum Inc.

RSP Permian Inc.

Clayton Williams Energy Inc.

Matador Resources Co.Corp.

Stone Energy Corp.

Comstock Resources Inc.

Parsley Energy Inc.

Vanguard Natural Resources

Exco Resources Inc.

PDC Energy Inc.

W&T Offshore Inc.

Meridian provided the Compensation Committee with data regarding both total compensation and each element of compensation paid to similarly situated executives at the peer group companies.  In addition, Meridian provided data from an E&P compensation survey.  Our Compensation Committee reviewed thatthe market data and considered it when evaluating compensation paid to our named executive officers and our equity grant types and amounts.  Our Compensation Committee believes that providing compensation opportunities within a competitive range of our peer group will ensure we can attract and retain talented executive officers with the expertise and dedication required for our company to excel.

Role of Executive Officers in Setting Executive Compensation

 

Our Executive Chairman of the Board and our Chief Executive Officer annually review the performance of our other named executive officers and make recommendations to the Compensation Committee regarding compensation.


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Elements of Executive Compensation

Element

Objective

Key Features

Base Salary

•·

Provide base compensation that is competitive for each position to reward and motivate individual performance

•·

Targeted to be in a competitive range compared to similarly situated executives at our peer companies

•·

Increased or decreased depending on responsibility, experience, and skill of each executive and their respective position

Annual Cash Bonus

•·

Incentivize Reward executives to achievefor the achievement of short-term company objectives

•·

At-risk Variable compensation payable only in connection with achievement of strategic and financial goals

•·

Rewards individual contributions to company success

Long-Term Incentive Compensation

•·

Align executive interests with those of our stockholders

•

·Tie value of compensation to long-term share price performance

•· Reinforce executive retention

Retention

· Provide share ownership opportunities

•·

The value of each restricted and phantom stock grant increases or decreases as the value of our shares increase or decrease, incentivizing our executives to build long-term sustainable growth

•

·Multi-year vesting periods, which encourage long-term retention

    Pay Mix

 

The following table sets forth the approximate percentages of our named executive officer'sofficers’ total compensation for services provided to us by our named executive officers for the fiscal year-endedyear ended December 31, 20152016 in the form of (i) base salary, (ii) cash bonus awards and (iii) equity awards during


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fiscal year 20152016 as set forth in the "Summary“Summary Compensation Table"Table” below.  The "Pay“Pay Mix Table"Table” below does not include amounts classified as "All“All Other Compensation"Compensation” in the Summary Compensation Table.

Name and Principal Position (1)

 

Salary
earned as a
percentage of

total
 compensation

 

Cash bonus as a
percentage of 
total compensation

 

Equity awards as a
percentage of total
compensation

 

A. R. Sanchez, Jr., Executive Chairman of the Board

 

  9%

 

26%

 

64%

 

Antonio R. Sanchez, III, Chief Executive Officer

 

10%

 

31%

 

57%

 

Eduardo A. Sanchez, President

 

11%

 

33%

 

56%

 

Howard J. Thill, (2) Executive Vice President and Chief Financial Officer

 

  3%

 

  8%

 

89%

 

Christopher D. Heinson, Senior Vice President and Chief Operating Officer

 

  8%

 

13%

 

78%

 

Garrick A. Hill, (3) Former Interim Chief Financial Officer

 

22%

 

21%

 

55%

 

G. Gleeson Van Riet, (4) Former Senior Vice President and Chief Financial Officer

 

33%

 

  0%

 

66%

 

Name and Principal Position
 Salary
earned as a
percentage
of total
compensation		 Cash bonus
as a
percentage
of total
compensation		 Equity
awards as a
percentage
of total
compensation		 

A. R. Sanchez, Jr.,

  8% 25% 67%

Executive Chairman of the Board

          

Antonio R. Sanchez, III,

  
11
%		 
28
%		 
61
%

Chief Executive Officer

          

Eduardo A. Sanchez,

  
2
%		 
14
%		 
84
%

President

          

G. Gleeson Van Riet,

  
15
%		 
13
%		 
72
%

Senior Vice President and Chief Financial Officer

          

Christopher D. Heinson,

  
8
%		 
9
%		 
83
%

Senior Vice President and Chief Operating Officer

          

Michael G. Long,

  
14
%		 
13
%		 
73
%

Former Executive Vice President, Chief Financial Officer and Secretary

          

(1)         The approximate percentages of total compensation do not include amounts classified as “All Other Compensation” in the Summary Compensation Table.

(2)         Mr. Thill was appointed as our Executive Vice President and Chief Financial Officer on October 10, 2016 and the compensation allocated above is based upon the compensation he was actually paid for services provided to us during his partial year as our Executive Vice President and Chief Financial Officer in 2016.

(3)         Mr. Hill acted as our Interim Co-Chief Financial Officer from March 2, 2016 until March 30, 2016, and acted as our Interim Chief Financial Officer until his resignation from such position on October 10, 2016.  Effective upon Mr. Hill’s resignation as our Interim Chief Financial Officer, Mr. Hill assumed a position overseeing the Company’s treasury function.  The compensation allocated above is based upon the compensation Mr. Hill was actually paid for services to us in his various roles in 2016.  Mr. Hill dedicated approximately 100% of his professional time from April 2016 to October 2016 and 77% of his professional time from November 2016 to December 2016 to providing services provided to us.

(4)         Mr. Van Riet ceased providing services to us on March 30, 2016 and the compensation allocated above is based upon the compensation he was paid for services provided to us through such date.  Mr. Van Riet forfeited his unvested stock awards upon his resignation in March 2016.

There are three primary elements of compensation that are used in our executive compensation program—base salary, annual cash bonus and long-term equity incentive awards. Annual cash bonuses and equity incentive awards (as opposed to base salary) represent the at-risk elements of compensation intended to drive performance.  They are also flexible in application and can be tailored to meet our objectives for the applicable year.  We do not currently have any policies regarding the allocation of compensation between either long- or short-term compensation, or cash and non-cash compensation.  The determination of each named executive officer'sofficer’s cash bonus reflects their relative contribution to achieving or exceeding annual company goals, while the long-term incentive award determination is based on their expected contribution in respect of longer term performance objectives.

Base Salary.  Our Compensation Committee establishes base salary levels for each of our named executive officers.  The Compensation Committee reviews the named executive officers'officers’ base salaries on an annual basis and makes adjustments as necessary to maintain a competitive executive compensation structure.  Our Compensation Committee also reviews and adjusts, as appropriate, base salaries in connection with a promotion or other change in responsibility of our named executive officers.

 

The Compensation Committee and SOG determined to keep the base salaries for each of our named executive officers including Mr. Van Riet (who was promoted to Chief Financial Officer in 2015), at the same levels in 20152016 as the previous year, given the tumultuous commodities environment.

        As uncertainties  However, in the commodity market continue intoOctober 2016 the Compensation Committee and SOG again electeddetermined to leaveincrease the base salary levels forof our Chief Financial Officer upon the named executive officers unchanged from 2015, exceptappointment of Mr. Heinson, who received a base salary increase from $250,000Thill to $400,000.such position.  The Compensation Committee and SOG determined that this increase was appropriate in order to rewardattract and retain a senior executive of Mr. Thill’s caliber.

The Compensation Committee and SOG elected to leave 2017 base salary levels for the named executive officers unchanged from 2016, except Mr. Heinson, who received a slight base salary increase from $400,000 to $412,000.  The Compensation Committee and SOG determined that this increase in base salary was appropriate to compensate Mr. Heinson for


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acquiring additional responsibility acquired over the last several years and for attaining cost-reductions for the Company and to ensure pay equity among our named executive officers.

 

Name

 

2015
Base Salary

 

2016
Base Salary

 

2017
Base Salary

 

A.R. Sanchez, Jr. 

 

$

650,000

 

$

650,000

 

$

650,000

 

Antonio R. Sanchez, III

 

$

650,000

 

$

650,000

 

$

650,000

 

Eduardo A. Sanchez

 

$

72,958

(1)

$

650,000

 

$

650,000

 

Howard J. Thill

 

$

—

 

$

103,125

(2)

$

450,000

 

Christopher D. Heinson

 

$

250,000

 

$

400,000

 

$

412,000

 

Garrick A. Hill

 

$

—

 

$

160,074

(3)

$

—

 

G. Gleeson Van Riet

 

$

360,000

 

$

136,023

(4)

$

—

 

Name
 2014
Base Salary		 2015
Base Salary		 2016
Base Salary		 

A.R. Sanchez, Jr. 

 $650,000 $650,000 $650,000 

Antonio R. Sanchez, III

 $650,000 $650,000 $650,000 

Eduardo A. Sanchez

  — $72,958(1)$650,000 

G. Gleeson Van Riet

  — $360,000 $360,000 

Christopher D. Heinson

 $250,000 $250,000 $400,000 

Michael G. Long

 $400,000 $172,053(1) — 

(1)

Mr. Eduardo A. Sanchez was appointed as our President on October 1, 2015, and his fiscal year 2016 base salary rate was set at $650,000 per year.  The salary reported above for 2015 reflects the base salary he was actually paid for services provided to us during his partial year as our President in 2015.

(2)         Mr. Long ceased providingThill was appointed as our Executive Vice President and Chief Financial Officer on October 10, 2016, and his fiscal year 2016 base salary rate was set at $450,000 per year.  The salary reported above for 2016 reflects the base salary he was actually paid for services provided to us during his partial year as our Executive Vice President and Chief Financial Officer in 2016.

(3)         Mr. Hill acted as our Interim Co-Chief Financial Officer from March 2, 2016 until March 30, 2016, and acted as our Interim Chief Financial Officer until his resignation from such position on April 30, 2015 andOctober 10, 2016.  Effective upon Mr. Hill’s resignation as our Interim Chief Financial Officer, Mr. Hill assumed a position overseeing the Company’s treasury function.  The salary reported above for 2016 reflects the base salary he was paid for services provided to us from March 2, 2016 through December 31, 2016 in his various positions at the Company.

(4)         Mr. Van Riet ceased providing services to us on March 30, 2016.  The salary reported above for 2016 reflects the base salary of $90,000 he was paid for services provided to us through that date.

date and $46,023 for accrued vacation.

Annual Cash Bonus Awards.  Annual bonus awards are fully discretionary and determined based on financial and individual performance.  The Compensation Committee and SOG review bonus awards for our named executive officers annually to determine award payments for the current fiscal year.  Incentive compensation in respect of services provided to us is not tied in any material way to the performance of entities other than us and our subsidiaries.  Specifically, performance metrics are not tied to the performance of SOG or any other members of the Sanchez Group.  With regard to the cash bonus awards made during 2015,2016, the Compensation Committee and SOG took a number of factors into account in making its award decisions, including ourdecisions:

·                  Our record production rates, significantly improved efficiency year over year and therates;

·                  The strategic importance of transactions completed or initiated throughout the year.year, including the Comanche acquisition, which significantly increased our proved reserves in the Eagle Ford;

·                  Our reduction of average well costs by over 60% as compared to 2015; and

·                  Our strengthened financial position due to dispositions of midstream assets and non-core Eagle Ford acreage.

On January 16, 2017, our Compensation Committee awarded Messrs. Sanchez, Jr., Sanchez, III, and E. Sanchez a cash bonus of $2,000,000 each for their work and efforts during 2016, including with respect to efforts made towards the latter half of 2016 in completing the Comanche acquisition and relating financings.  Mr. Thill also received cash bonus of $100,000 based on 2016 performance.  In addition, Mr. Thill received a $300,000 sign-on bonus, half of which, or $150,000, was paid in October 2016 and the remainder of which was paid in January 2017.

Long-Term Incentive Compensation.We adopted the Plan in order to have the flexibility to grant equity and equity-based awards to employees, officers, consultants and directors who perform services for us.  Each of our named executive officers is eligible to receive awards under the Plan, which is administered by the Compensation Committee.

 

Our Plan allows for the grant of restricted shares, phantom shares, share options, share appreciation rights and other share-based awards.  The purpose of awards under our Plan is to provide additional incentive compensation to individuals providing services to us and to align the economic interests of such individuals with the interests of our stockholders.  Our Plan limits the number of shares that may be delivered under the Plan to 12,238,21217,239,790 shares of our common stock plus, upon the issuance of additional shares of common stock after April 15, 2015,2016, an additional number of shares equal to 15% of such issuance or such lesser number determined by the Compensation Committee.

 During 2015, the named executive officers received their Plan awards during the first quarter of the year, and Mr. Van Riet received his Plan awards in connection with his appointment as our Chief Financial Officer in May of 2015. In addition, Mr. Heinson also received an additional Plan award in May of 2015. The Compensation Committee and SOG determined that this additional Plan award was appropriate to reward Mr. Heinson for additional responsibility acquired over the last several years, for attaining cost-reductions for the Company and to ensure pay equity among our named executive officers.


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        During the year-ended December 31, 2015, our named executive officers were granted awards of restricted shares as indicated in the following table:

Award Recipient
Vesting ScheduleNumber of
Restricted Shares
Granted
During 2015

A.R. Sanchez, Jr. 

3 year650,000

Antonio R. Sanchez, III

3 year450,000

Eduardo Sanchez

3 year350,000

G. Gleeson Van Riet

3 year165,000

Christopher D. Heinson

3 year250,000

Michael G. Long

3 year110,000

Our Compensation Committee determines any awards granted under our Plan.  With regard to the awards granted during 2015,2016, the Compensation Committee took a number of factors into account, including:

    •

    ·Our financial and operational performance for fiscal 20142015 (including significant increases in proved reserves, average daily production and Adjusted EBITDA);

    ·

    •
    The significant number of completed transactions in fiscal 20142015 (including two acquisitions, one public equity offeringdispositions, adoption of a net operating loss rights plan and two debt offerings)completion of an exchange offer for our $1.15 billion in aggregate principal amount of 6.125% senior notes due 2023);

    ·

    •
    The significant demand in Houston and worldwide for experienced oil and gas executives;

    ·

    •
    Information gathered by the Compensation Committee regarding compensation paid to executives at other public oil and gas production companies; and

    ·

    •
    The performance of the individual executives.

For the Executive Chairman, Chief Executive Officer, and President, the Compensation Committee established 2016 target grant values based on the following:

        During·                  Company performance for 2016;

·                  Individual performance for 2016;

·                  Internal equity;

·                  Competitive market levels; and

·                  Total share and accounting expense.

The table below shows the vesting period,values approved by the Compensation Committee in January 2016.

2016 Individual Targeted Grant Value Award Amount

Executive Officer
Group Members

Targeted Grant
Value Award
Amount ($)

A. R. Sanchez, Jr.

5,000,000

Antonio R. Sanchez, III

3,750,000

Eduardo A. Sanchez

3,500,000

Further, in 2016, our Compensation Committee approved new forms of the restricted shares are subject to restrictions on transferability and forfeiture but otherwise recipients have all the rights of a stockholder in us, including the right to receive dividends thereon if and when distributions are made by us to our stockholders. With respect to any named executive officer, the restricted shares vest in substantially equal installments and the forfeiture restrictions will lapse on the first, second and third anniversaries of the date of grant, so long as the award recipient remains in our continuous service. Mr. Long retired from the Company effective April 30, 2015. In connection with Mr. Long's resignation, the Company and Mr. Long entered into the Voluntary Retirement Agreement and General Release, dated March 10, 2015 (the "Retirement Agreement"). In accordance with the terms of the Retirement Agreement, the Company amended all of Mr. Long's outstanding awards ofstock agreement, performance accelerated restricted stock so that they fully vested upon his dateagreement, phantom stock agreement and performance accelerated phantom stock agreement (collectively, the “New Equity Award Agreements”) and determined a targeted mix of retirement.value between the four long-term incentive vehicles as described in the table below.  The Compensation Committee approved this mix to introduce a performance element to the long-term incentive program, encourage retention and stock ownership, and manage the Company’s share utilization and dilution.

 In early

Vehicle

Weighting (%
of Target
Grant Value)

Description

Restricted Stock

33%

Time-vested restricted stock vesting ratably over three years.

Phantom Stock

33%

Time-vested phantom stock vesting ratably over three years. Each phantom share is equal to the value of a share of our common stock and the award is settled in cash upon vesting.

Performance Accelerated Restricted Stock

17%

Restricted stock vesting 100% after five years from the grant date; however, 50% of the restricted shares may vest earlier if the Company’s stock price equals or exceeds 150% of the grant date stock price and an additional 50% of the restricted shares may vest earlier if the Company’s stock price equals or exceeds 200% of the grant date stock price. In order to vest earlier, the stock price must maintain these levels for a minimum of fifteen consecutive trading days. If the Company’s stock price equals to or exceeds 150% of the grant date stock price prior to the first anniversary of the grant date, then the 50% of shares vesting will occur on the first anniversary of the grant date.

Performance Accelerated Phantom Stock

17%

Phantom stock with the same vesting terms as performance accelerated restricted stock. Each phantom share is equal to the value of a share of our common stock and the award is settled in cash upon vesting.

During 2016, the Compensation Committee granted awards to our named executive officers using one or more of the New Equity Award Agreements, with the exception of the restricted shares granted to Messrs. Heinson and Van Riet in January 2016, which were made pursuant to an older form of award agreement.  Messrs.  Sanchez, Jr., Sanchez, III, and E. Sanchez, using new forms of agreements pursuant toHeinson and Van Riet received their Plan awards during the Plan. The new forms of agreements consistfirst quarter of the following:year in 2016.  Mr. Howard J. Thill received his Plan awards in connection with his appointment as our Chief Financial Officer in October 2016.  Mr. Hill received his Plan awards in April 2016.  In addition, Mr. Heinson received an additional Plan award in April 2016.  The Compensation Committee and SOG determined that this additional Plan award was appropriate to reward Mr. Heinson for acquiring additional responsibility over the last several years and for attaining cost-reductions for the Company and to ensure pay equity among our named executive officers.  Mr. Van Riet forfeited his granted awards due to his resignation, effective on March 30, 2016.

    •
    Two new forms

    During the year ended December 31, 2016, our named executive officers were granted shares of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock award agreements, oneas indicated in the following table:

    Award Recipient

    Vesting Schedule

    Number of
    Shares
    Granted
    During 2016

    A.R. Sanchez, Jr. (1)

    Restricted Stock

    3 year

    537,460

    Phantom Stock

    3 year

    537,460

    Performance Accelerated Restricted Stock

    5 year

    276,872

    Performance Accelerated Phantom Stock

    5 year

    276,872

    Antonio R. Sanchez, III (2)

    Restricted Stock

    3 year

    403,095

    Phantom Stock

    3 year

    403,095

    Performance Accelerated Restricted Stock

    5 year

    207,654

    Performance Accelerated Phantom Stock

    5 year

    207,654

    Eduardo Sanchez (3) 

    Restricted Stock

    3 year

    376,222

    Phantom Stock

    3 year

    376,222

    Performance Accelerated Restricted Stock

    5 year

    193,811

    Performance Accelerated Phantom Stock

    5 year

    193,811

    Howard J. Thill (4) 

    Restricted Stock

    3 year

    175,000

    Phantom Stock

    3 year

    175,000

    Christopher D. Heinson (5) 

    Restricted Stock

    3 year

    200,000

    Phantom Stock

    3 year

    200,000

    Performance Accelerated Restricted Stock

    5 year

    100,000

    Performance Accelerated Phantom Stock

    5 year

    100,000

    Garrick A. Hill (6)

    Phantom Stock

    3 year

    60,000

    G. Gleeson Van Riet (7) 

    Restricted Stock

    3 year

    65,000

    (1)      Includes 537,460 shares of which provides forrestricted and 537,460 shares of phantom stock granted on February 18, 2016 vesting in equal annual increments over a three yearthree-year period from the dateand 276,872 shares of grantperformance accelerated restricted and the other276,872 shares of which provides forperformance accelerated phantom stock granted on February 18, 2016 with five-year cliff vesting five years aftersubject to an early acceleration trigger based upon the grant date or earlier ifprice of our the common stock, closing price equals or exceeds certain benchmarks as set forth in the formstock.

    (2)         Includes 403,095 shares of agreement;restricted and

    •
    Two new forms 403,095 shares of phantom stock agreements payable only in cash, one of which provides forgranted on February 18, 2016 vesting in equal annual increments over a three yearthree-year period from the dateand 207,654 shares of grantperformance accelerated restricted and the other207,654 shares of which provides forperformance accelerated phantom stock granted on February 18, 2016 with five-year cliff vesting five years aftersubject to an early acceleration trigger based upon the date of grant or earlier if the closing price of our common stock equals or exceeds certain benchmarks as set forth in the form of agreement.

stock.

Table(3)         Includes 376,222 shares of Contentsrestricted and 376,222 shares of phantom stock granted on February 18, 2016 vesting in equal annual increments over a three-year period and 193,811 shares of performance accelerated restricted and 193,811 shares of performance accelerated phantom stock granted on February 18, 2016 with five-year cliff vesting subject to an early acceleration trigger based upon the price of our common stock.

 These new awards are intended

(4)         Includes 175,000 shares of restricted and 175,000 shares of phantom stock granted on October 10, 2016 vesting in equal annual increments over a three-year period.

(5)         Includes 100,000 shares of restricted stock granted on January 5, 2016, 100,000 shares of restricted and 200,000 shares of phantom stock granted on April 15, 2016 vesting in equal annual increments over a three-year period, 100,000 shares of performance accelerated restricted and 100,000 shares of performance accelerated phantom stock granted on April 15, 2016 with five-year cliff vesting subject to provide longeran early acceleration trigger based upon the price of our common stock.

(6)         Includes 60,000 shares of phantom stock granted on April 15, 2016 vesting schedules, tie the vestingin equal annual increments over a three-year period.

(7)         Includes 65,000 shares of awardsrestricted stock granted on January 5, 2016, all of which were forfeited by Mr. Van Riet due to achievement of increases in our share price (i.e., the delivery of value to our stockholders), and reduce dilution to our stockholders. Consistent with the requirements of Item 402 of Regulation S-K, more specific information regarding the awards granted in 2016 will be included in the Proxy Statement to be filed for our 2017 Annual Meeting.his resignation, effective on March 30, 2016.

    Severance and Change in Control Benefits.

 

Other than the Retirement Agreement with Mr. Long discussed below, the severance and Change in Control benefits provided under the Plan and the restricted stock agreementsNew Equity Award Agreements discussed in "Potential“Potential Payments Upon Termination or Change in Control,"” we do not provide any severance or change of control benefits to our executive officers.  We view the limited benefits that we do provide as necessary to attract and retain executive talent in a highly competitive market and provide continuity of management in the event of an actual or contemplated change of control.

 On March 10, 2015, we entered into the Retirement Agreement with Mr. Long in order to formalize the compensation that Mr. Long will be entitled to receive in connection with his retirement. Pursuant to the Retirement Agreement entered into with Mr. Long, the Company (i) paid Mr. Long a prorated bonus of $168,356 in a lump-sum cash payment, (ii) amended Mr. Long's outstanding awards of restricted stock to become fully vested upon his date of retirement, and (iii) is paying the premium associated with continued health coverage under our health plan for a period of 18 months, less the amount of any contribution required for similarly situated active employees. In exchange, Mr. Long provided a customary general release of claims against the Company and its affiliates, including claims relating to severance, and agreed to customary confidentiality provisions along with a 12-month non-competition and non-solicitation of employees. Mr. Long also agreed to serve as a consultant as reasonably requested for a period of one year following his retirement. Due to his position as a valued member of our management team, the Compensation Committee felt that the value of continued access to Mr. Long's expertise as a consultant and the release, non-competition and non-solicitation obligations included in the Retirement Agreement were equal to or in excess of the amounts paid to Mr. Long and, as such, were in our best interests.

Other Benefits.

SOG does not maintain a defined benefit pension plan for its executive officers because it believes such plans primarily reward longevity rather than performance.  SOG provides a basic benefits package generally to all employees, which includes a 401(k) plan and health, disability and life insurance.  SOG employees who provide services to us under the service agreement remain entitled to these benefits from SOG.

Employment Agreements

 

Neither SOG nor the Company has entered into any employment agreements with any of our named executive officers.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "“Code"”) limits a company'scompany’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain named executive officers, unless the compensation is performance-based, as defined under federal tax laws.  For example, compensation income attributable to discretionary cash bonus awards and the vesting of time-based restricted and phantom stock is not performance-based as defined in Section 162(m) of the Code, and, therefore, the related compensation expense is not deductible under that section to the extent that, together with other compensation attributed to a covered executive officer (generally the Chief Executive Officer and our three most highly compensated officers other than the Chief Financial Officer) in the applicable year that is not performance-based, such income exceeds $1,000,000.


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Although we are not currently awarding performance-based compensation (within the meaning of Section 162(m) of the Code), the Compensation Committee takes the deductibility of compensation into consideration, along with many other factors, when making compensation decisions and we have paid, and may continue to pay, non-deductible compensation in order to preserve our ability to structure the executive compensation program to meet the objectives discussed herein, including to motivate and reward individual and team performance and to ensure our named executive officers'officers’ interests are closely aligned with those of our stockholders.

Relation of Compensation Policies and Practices to Risk Management

 SOG's

SOG’s and our compensation policies and practices are designed to provide rewards for short-term and long-term performance, both on an individual basis and at the entity level.  In general, optimal financial and operational performance, particularly in a competitive business, requires some degree of risk-taking.  Accordingly, the use of compensation as an incentive for performance can foster the potential for management and others to take unnecessary or excessive risks to reach performance thresholds that qualify them for additional compensation.

 

From a risk management perspective, our policy is to conduct our commercial activities within pre-defined risk parameters that are closely monitored and are structured in a manner intended to control and minimize the potential for unwarranted risk-taking.  We also routinely monitor and measure the execution and performance of our projects and acquisitions relative to expectations.

 SOG's

SOG’s and our compensation arrangements and our Plan contain a number of design elements that serve to minimize the incentive for taking unwarranted risk to achieve short-term, unsustainable results.  Those elements include delaying the rewards and subjecting such rewards to forfeiture for terminations related to violations of its risk management policies and practices or of our Code of Business Conduct and Ethics.

 

In combination with our risk-management practices, we do not believe that risks arising from our or SOG'sSOG’s compensation policies and practices for individuals providing services to us are reasonably likely to have a material adverse effect on us.

Compensation Committee Report

 

The Compensation Committee of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis set forth above with management.  Based on this review and discussion, the Compensation Committee of our Board of Directors has approved the Compensation Discussion and Analysis for inclusion in this Proxy Statement.

Compensation Committee of

the Board of Directors of

Sanchez Energy Corporation




T. Brian Carney, Chairperson
GregCo-Chairperson

Robert V. Nelson, III, Co-Chairperson

M. Gregory Colvin, Member

Gilbert A. Garcia, Member

Alan G. Jackson, Member

Sean Maher, Member


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Summary Compensation Table

 

The following table shows information concerning the annual compensation for services provided to us by our named executive officers during the fiscal years ended December 31, 2016, 2015, 2014, and 2013.2014.  All amounts included in the table below were determined by our Compensation Committee and SOG and paid by SOG, except awards of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock granted under our Plan, which were granted by our Compensation Committee alone.  The amounts reported in the table below represent only amounts paid for services provided to us and do not include amounts paid by SOG to our named executive officers for services provided to other entities, including SOG.

Name and Principal Position

 

Year

 

Salary(1)

 

Bonus(2)

 

Stock
Awards(3)(4)

 

All Other
Compensation(5)(6)

 

Total

 

A. R. Sanchez, Jr.

 

2016

 

$

650,000

 

$

2,000,000

 

$

4,902,279

 

$

77,172

 

$

7,629,451

 

Executive Chairman of the Board

 

2015

 

$

650,000

 

$

2,000,000

 

$

5,421,000

 

$

130,569

 

$

8,201,569

 

 

 

2014

 

$

650,000

 

$

2,000,000

 

$

8,494,500

 

$

21,360

 

$

11,165,860

 

Antonio R. Sanchez, III

 

2016

 

$

650,000

 

$

2,000,000

 

$

3,676,709

 

$

75,480

 

$

6,402,189

 

Chief Executive Officer

 

2015

 

$

650,000

 

$

1,750,000

 

$

3,753,000

 

$

159,664

 

$

6,309,544

 

 

 

2014

 

$

650,000

 

$

1,750,000

 

$

6,067,500

 

$

5,760

 

$

8,473,260

 

Eduardo A. Sanchez

 

2016

 

$

650,000

 

$

2,000,000

 

$

3,431,599

 

$

53,628

 

$

6,135,227

 

President

 

2015

 

$

72,958

 

500,000

 

$

2,919,000

 

$

2,422

 

$

3,494,380

 

Howard J. Thill

 

2016

 

$

103,125

 

$

250,000

 

$

2,929,500

 

$

1,016

 

$

3,283,641

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

Christopher D. Heinson

 

2016

 

$

400,000

 

$

600,000

 

$

3,695,000

 

$

18,636

 

$

4,713,636

 

Senior Vice President and Chief Operating Officer

 

2015

 

$

250,000

 

$

300,000

 

$

2,731,500

 

$

18,492

 

$

3,299,992

 

 

2014

 

$

250,000

 

$

250,000

 

$

1,815,000

 

$

19,800

 

$

2,334,800

 

Garrick A. Hill

 

2016

 

$

160,074

 

$

150,000

 

$

392,400

 

$

14,641

 

$

717,115

 

Former Interim Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

G. Gleeson Van Riet (7)

 

2016

 

$

136,023

 

$

0

 

$

276,250

 

$

5,240

 

$

417,513

 

Former Senior Vice President and Chief Financial Officer

 

2015

 

$

360,000

 

$

300,000

 

$

1,674,100

 

$

18,858

 

$

2,352,958

 

Name and Principal Position
 Year Salary(1) Bonus(2) Stock
Awards(3)(4)		 All Other
Compensation(5)(6)		 Total 

A. R. Sanchez, Jr. 

  2015 $650,000 $2,000,000 $5,421,000 $130,569 $8,201,569 

Executive Chairman of

  2014 $650,000 $2,000,000 $8,494,500 $21,360 $11,165,860 

the Board

  2013 $337,500 $1,100,000 $6,048,000 $10,058 $7,495,558 

Antonio R. Sanchez, III

  
2015		 
$
650,000		 
$
1,750,000		 
$
3,753,000		 
$
159,664		 
$
6,309,544		 

Chief Executive Officer

  2014 $650,000 $1,750,000 $6,067,500 $5,760 $8,473,260 

  2013 $450,000 $1,100,000 $4,032,000 $3,974 $5,585,974 

Eduardo A. Sanchez

  
2015		 
$
72,958		 
$
500,000		 
$
2,919,000		 
$
2,422		 
$
3,494,380		 

President

                   

G. Gleeson Van Riet

  
2015		 
$
360,000		 
$
300,000		 
$
1,674,100		 
$
18,858		 
$
2,352,958		 

Senior Vice President and Chief Financial Officer

                   

Christopher D. Heinson

  
2015		 
$
250,000		 
$
300,000		 
$
2,731,500		 
$
18,492		 
$
3,299,992		 

Senior Vice President

  2014 $250,000 $250,000 $1,815,000 $19,800 $2,334,800 

and Chief Operating

                   

Officer

                   

Michael G. Long

  
2015		 
$
172,053		 
$
168,356		 
$
917,400		 
$
26,774		 
$
1,284,583		 

Former Executive Vice

  2014 $400,000 $500,000 $2,427,000 $19,800 $3,346,800 

President, Chief

  2013 $262,500 $500,000 $1,814,400 $8,888 $2,585,788 

Financial Officer and

                   

Secretary

                   

(1)

Mr. Eduardo A. Sanchez was appointed as our President on October 1, 2015.  The salary reported for 2015 above reflects the base salary he was paid for services provided to us during his partial year as our President in 2015.  Mr. LongThill was appointed as our Executive Vice President and Chief Financial Officer on October 10, 2016.  The salary reported above for 2016 reflects the base salary he was actually paid for services provided to us during his partial year as our Executive Vice President and Chief Financial Officer in 2016.  Mr. Hill acted as our Interim Co-Chief Financial Officer from March 2, 2016 until March 30, 2016, and acted as our Interim Chief Financial Officer until his resignation on October 10, 2016.  Effective upon Mr. Hill’s resignation as our Interim Chief Financial Officer, Mr. Hill assumed a position overseeing the Company’s treasury function.  The salary reported above for 2016 reflects the base salary Mr. Hill was paid for services provided to us from March 2, 2016 through December 31, 2016 in his various positions at the Company.  Mr. Van Riet ceased providing services to us on AprilMarch 30, 20152016 and the salary reported above for 2016 reflects the base salary he was paid for services provided through that date.

(2)

         Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez and Heinson received cash bonuses of $2,000,000, $2,000,000, $2,000,000 and $200,000, respectively, in January 2017 based on 2016 performance, which are reported as

2016 compensation in the table above in accordance with SEC rules. Mr. Heinson also received a $400,000 cash bonus in December 2016 based on 2016 performance, which is also reflected in the table above.  Messrs. Sanchez, Jr., Sanchez, III and EduardoE. Sanchez received cash bonuses of $2,000,000, $1,750,000 and $500,000, respectively, in January 2016 based on 2015 performance, which are reported as 2015 compensation in the table above in accordance with SEC rules.

Mr. Thill received cash bonus of $100,000 based on 2016 performance and one-half of a $300,000, or $150,000, sign-on bonus, the remainder of which was paid in January 2017.  Mr. Van Riet did not receive a cash bonus in 2016 due to his resignation in March 2016.

(3)

The amounts reported in this column reflect the aggregate grant date fair value of restricted, phantom, performance accelerated restricted and performance accelerated  phantom stock awards granted, if any, under our Plan for fiscal years 2016, 2015, 2014, and 2013,2014, computed in accordance with FASB ASC Topic 718, excluding estimated forfeitures.  See Note 7, "Stock-Based“Stock-Based Compensation,"” to the Consolidated Financial Statements included under "Item“Item 8. Financial Statements and Supplementary Data"Data” in the Company'sCompany’s Annual Report on Form 10-K filed on February 29, 201627, 2017 (the "“20152016 10-K"”) for additional detail regarding assumptions used to calculate these figures.

Table of Contents(4)

(4)
Based on 2015 performance, our Compensation Committee granted restricted awards to Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez and Heinson of 537,460, 403,095, 376,222 and 200,000 shares, respectively, and phantom stock awards to Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez, Van Riet,Heinson and HeinsonHill of 814,332, 610,749, 570,033, 65,000537,460, 403,095, 376,222, 200,000 and 100,00060,000 shares, respectively, in early 2016.  The restricted stock shares granted to Mr. Van Riet were forfeited due to Mr. Van Riet'shis resignation, effective on March 30, 2016.  In addition, based on 2015 performance, our Compensation Committee granted performance accelerated restricted stock awards to Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez and Heinson of 276,872, 207,654, 193,811 and 100,000 shares, respectively, and performance accelerated phantom stock awards to Messrs. Sanchez, Jr., Sanchez, III, and E. Sanchez and Heinson of 814,332, 610,749276,872, 207,654, 193,811 and 570,032100,000 shares, respectively, in early 2016.  Consistent withIn addition, the requirements of Item 402 of Regulation S-K, more specific information regarding theCompensation Committee granted 175,000 restricted stock awards grantedand 175,000 phantom stock awards to Mr. Thill upon his appointment as Chief Financial Officer in October 2016.  The grants made in 2016 will be includedfor performance in the Proxy Statement to be filed for our 2017 Annual Meeting.

2015 are reflected in 2016 compensation in accordance with SEC rules.

(5)

In fiscal 2015, "All2016, “All Other Compensation"Compensation” for Mr. Sanchez, III and E. Sanchez consisted of the parking costs allocated to us by SOG, and imputed income attributable tothe aggregate incremental cost of the personal use of aircraft owned or provided by the Company or a member of the Sanchez Group and group term life insurance costs, and for Mr. Sanchez, Jr. consisted of the 401(k) matching contribution costs, imputed income attributable tothe aggregate incremental cost of the personal use of aircraft owned or provided by the Company or a member of the Sanchez Group, and the parking costs allocated to us by SOG. For Messrs. Heinson and Van Riet, "All Other Compensation" consisted of the 401(k) matching contribution costs and the parking costs allocated to us by SOG. For Mr. Long, "All Other Compensation" consisted of the 401(k) matching contribution costs, Consolidated Omnibus Budget Reconciliation Act (COBRA) premium payments, the parking costs allocated to us by SOG and imputed income attributable to the personal use of aircraft owned or provided by the Company or a membergroup term life insurance.  For Messrs. Heinson, Hill and Van Riet, “All Other Compensation” consisted of the Sanchez Group.401(k) matching contribution costs, the parking costs allocated to us by SOG and group term life insurance.  For Eduardo A. Sanchez, "AllMr. Thill, “All Other Compensation"Compensation” consisted of the parking costs allocated to us by SOG.SOG and group term life insurance.  For additional information regarding the aggregate incremental cost of imputed income attributable to the personal use of aircraft owned or provided by the Company or a member of the Sanchez Group, see footnote 6 below.

(6)

Pursuant to the Company'sCompany’s aircraft policy, named executive officers and directors are permitted to use aircraft owned or provided by the Company or a member of the Sanchez Group for uses deemed by SEC rules to constitute personal usage of such aircraft.  We calculate the aggregate incremental cost of such personal usage as set forth below.
    •

    ·For aircraft owned by the Company or a member of the Sanchez Group, we calculate the aggregate incremental cost of personal usage by multiplying the number of hours of such personal usage by the average variable operating cost per hour of the aircraft, which we derive based on the costs of fuel, maintenance, landing, parking and catering costs, certain taxes and certain other miscellaneous fees and costs.  Because our corporate aircraft are used primarily for business travel, we do not include in this figure fixed costs for such aircraft that generally do not change with use.

    ·

    •
    For aircraft provided (but not owned) by the Company or a member of the Sanchez Group, we calculate the aggregate incremental cost of personal usage by calculating the percentage of the total hours the aircraft was used by Company personnel that were for personal purposes, and multiplying this ratio against the total cost of such aircraft to the Company or such member of the Sanchez Group.

    ·

    •
    For trips that involve mixed personal and business usage, we determine the aggregate incremental cost attributable to personal use by subtracting the aggregate incremental cost of a "business-only"“business-only” trip from the total aggregate incremental cost of the whole trip (both personal and business).

In 2015,2016, we incurred aggregate incremental costs of $156,544$72,360, $44,040 and $97,737$50,580 for personal use of aircraft owned or provided by the Company or a member of the Sanchez Group by Mr. Antonio R. Sanchez, III, Mr. A. R. Sanchez, Jr. and Mr. A.R.E. Sanchez, Jr., respectively.


Table of Contents

(7)         Upon his resignation in March 2016, Mr. Van Riet forfeited all of his stock awards in full.

20152016 Grants of Plan-Based Awards

 

The following table sets forth certain information with respect to awards of restricted stock granted under our Plan to our named executive officers in 2015.2016.

Name

 

Grant Date

 

All Other Stock
Awards: Number
of
Shares of Stock or
Units #(1)

 

Grant Date
Fair Value
of
Stock and
Option
Awards(2)

 

A.R. Sanchez, Jr. 

 

02/18/2016

 

537,460

(3)

$

1,617,755

 

 

 

02/18/2016

 

276,872

(4)

$

833,385

 

 

 

02/18/2016

 

537,460

(5)

$

1,617,755

 

 

 

02/18/2016

 

276,872

(6)

$

833,385

 

Antonio R. Sanchez, III

 

02/18/2016

 

403,095

(3)

$

1,213,316

 

 

 

02/18/2016

 

207,654

(4)

$

625,039

 

 

 

02/18/2016

 

403,095

(5)

$

1,213,316

 

 

 

02/18/2016

 

207,654

(6)

$

625,039

 

Eduardo A. Sanchez

 

02/18/2016

 

376,222

(3)

$

1,132,428

 

 

 

02/18/2016

 

193,811

(4)

$

583,371

 

 

 

02/18/2016

 

376,222

(5)

$

1,132,428

 

 

 

02/18/2016

 

193,811

(6)

$

583,371

 

Howard J. Thill

 

10/10/2016

 

175,000

(3)

$

1,464,750

 

 

 

10/10/2016

 

175,000

(5)

$

1,464,750

 

Christopher D. Heinson

 

01/05/2016

 

100,000

(3)

$

425,000

 

 

 

04/15/2016

 

100,000

(3)

$

654,000

 

 

 

04/15/2016

 

100,000

(4)

$

654,000

 

 

 

04/15/2016

 

200,000

(5)

$

1,308,000

 

 

 

04/15/2016

 

100,000

(6)

$

654,000

 

Garrick A. Hill

 

04/15/2016

 

60,000

(5)

$

392,400

 

G. Gleeson Van Riet

 

01/05/2016

 

65,000

(7)

$

276,250

 

Name
 Grant Date All Other Stock
Awards: Number of
Shares of Stock or
Units #(1)		 Grant Date
Fair Value of
Stock and
Option
Awards(2)		 

A.R. Sanchez, Jr. 

  01/05/2015  650,000 $5,421,000 

Antonio R. Sanchez, III

  01/05/2015  450,000 $3,753,000 

Eduardo A. Sanchez

  01/05/2015  350,000 $2,919,000 

G. Gleeson Van Riet

  01/05/2015  65,000 $542,100 

  05/18/2015  100,000 $1,132,000 

Christopher D. Heinson

  01/05/2015  100,000 $834,000 

  05/07/2015  150,000 $1,897,500 

Michael G. Long

  01/05/2015  110,000 $917,400 

(1)

Represents the number of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock awards granted to our named executive officers under the Plan and New Equity Award Agreements during 2015.

2016.  In addition, Mr. Heinson and Mr. Van Riet received restricted stock awards in January 2016 under older form of award agreements.

(2)

Reflects the aggregate grant date fair value of the restricted, phantom, performance accelerated restricted and performance accelerated phantom stock awards granted under the Plan, calculated in accordance with FASB ASC Topic 718 by multiplying the number of restricted shares granted to each named executive officer by the closing price of our common stock on the date of grant.  For additional information about assumptions made in the valuation of these awards, see Note 7, "Stock-Based“Stock-Based Compensation,"” of the Notes to Consolidated Financial Statements included under "Item“Item 8. Financial Statements and Supplementary Data"Data” in the 20152016 10-K.

(3)         Represents the number of restricted stock awards vesting in equal annual increments over a three-year period.

(4)         Represents the number of performance accelerated restricted stock awards payable in cash with five-year cliff vesting subject to an early acceleration trigger based upon the price of our common stock.

(5)         Represents the number of phantom stock awards vesting in equal annual increments over a three-year period.

(6)         Represents the number of performance accelerated phantom stock awards payable in cash with five-year cliff vesting subject to an early acceleration trigger based upon the price of our common stock.

(7)         Mr. Van Riet forfeited his unvested restricted stock awards upon his resignation in March 2016.

Narrative Disclosure to the Summary Compensation Table and Grants of Plan Based Awards Table

 

2016 Grants

In January 2015,2016, we granted Messrs. Sanchez, III, Sanchez, Jr., E. Sanchez,Heinson and Van Riet Long100,000 and Heinson 450,000, 650,000, 350,000, 65,000 110,000 and 100,000 shares of restricted stock, respectively under our Plan respectively. In connection withpursuant to an older form of award agreement.  Mr. Van Riet's appointment as Senior Vice President and Chief Financial Officer in May of 2015, he was granted 100,000Heinson’s shares of restricted stock under our Plan. In addition, Mr. Heinson was granted an additional 150,000 shares of restricted stock under our Plan. Messrs. Sanchez, III's, Sanchez, Jr.'s, E. Sanchez's, Van Riet's and Heinson's grants will vest with respect to 33.33% of the number of restricted shares granted on each of the first three anniversaries of the date of grant (in each case, subject to certain forfeiture conditions and the accelerated vesting conditions described below).  In connection with Mr. Long's retirement and pursuant to the Retirement Agreement, Mr. Long's outstanding awardsVan Riet forfeited his shares of restricted stock fullyeffective upon his resignation on March 30, 2016.

In 2016, our Compensation Committee also approved the New Equity Award Agreements.  Recipients of shares of restricted and performance accelerated restricted stock have all the rights of a stockholder in us, including the right to receive dividends thereon if and when distributions are made by us to our stockholders.  Recipients of shares of phantom and performance accelerated phantom stock do not have voting rights.

Pursuant to the applicable New Equity Award Agreements, during the vesting period, shares of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock are subject to restrictions on transferability and forfeiture.  Upon the occurrence of any of the following events, awards made under the New Equity Award Agreements will generally vest on a pro rata basis on each remaining vesting date:  a Qualifying Termination (as defined below), Constructive Termination (as defined below), or the officer’s death or Disability (as defined below).  Upon any termination for any or no reason, including but not limited to voluntary resignation or termination by the Company with or without cause, before all of the awarded shares become vested, all unvested awarded shares will be forfeited.  With respect to any named executive officer, shares of restricted and phantom stock vest in substantially equal installments and the forfeiture restrictions will lapse on April 30, 2015,the first, second and third anniversaries of the date of his retirement.

        The regular vesting schedules forgrant, so long as the award recipient remains in our continuous service.  With respect to any named executive officer, shares of performance accelerated restricted and performance accelerated phantom stock awards may be accelerated in connection with certain events, orvest upon the restricted stock may be forfeited in certain situations.fifth anniversary of the grant date, subject to an early acceleration trigger based upon the price of our common stock.  Please see the section titled "Potential“Potential Payments Upon Termination or Change in Control"Control” for a more detailed description of the events that could result in a modification to the regular vesting schedules for our Plan awards.


During 2016, other than the January grants to Messrs. Heinson and Van Riet, the named executive officers received their Plan awards of restricted and phantom stock, if any, under the New Equity Award Agreements.  In February 2016, we granted Messrs. Sanchez, III, Sanchez, Jr. and E. Sanchez 403,095, 537,460 and 376,222 shares of restricted and 403,095, 537,460 and 376,222 of phantom stock, respectively.  In April 2016, we granted Mr. Hill 60,000 shares of phantom stock and Mr. Heinson an additional 100,000 shares of restricted and 200,000 shares of phantom stock.  In connection with Mr. Thill’s appointment as Executive Vice President and Chief Financial Officer in October 2016, we granted him 175,000 shares of restricted and 175,000 shares of phantom stock.  The restricted and phantom shares granted under the New Equity Award Agreements will vest with respect to 33.33% of the number of restricted and phantom shares granted on each of the first three anniversaries of the date of grant (in each case, subject to certain forfeiture conditions and the accelerated vesting conditions described below).

TableDuring 2016, the named executive officers also received their Plan awards of Contentsperformance accelerated restricted and performance accelerated phantom stock, if any, under the New Equity Award Agreements.  In February 2016, we granted Messrs. Sanchez, III, Sanchez, Jr. and E. Sanchez 207,654, 276,872 and 193,811 shares of performance accelerated restricted and 207,654, 276,872 and 193,811 shares of performance accelerated phantom stock, respectively.  In April 2016, we granted Mr. Heinson 100,000 shares of performance accelerated restricted and 100,000 shares of performance accelerated phantom stock.  The performance accelerated restricted and performance accelerated phantom stock are payable in cash, which cliff vests in five years or earlier if the common stock closing price equals or exceeds certain benchmarks as set forth in the New Equity Award Agreements. Please see the section titled “Elements of Executive Compensative” for a more detailed description of the New Equity Award Agreements.

Because the adjusted closing price of our common stock for each day in a fifteen-day trading period equaled or exceeded an amount equal to 200% of the adjusted closing price of our stock on February 18, 2016, the performance accelerated restricted and performance accelerated phantom stock awards granted to Messrs. Sanchez, Jr., Sanchez, III and E. Sanchez vested on February 18, 2017.  Because the adjusted closing price of our common stock for each day in a fifteen-day trading period equal or exceed an amount equal to 150% of the adjusted closing price of our common stock on April 15, 2016, 50% of the performance accelerated phantom stock awards granted to Mr. Heinson will vest on the first anniversary of the grant date, April 15, 2017.  If the adjusted closing price of our common stock for each day in a fifteen-day trading period equals or exceeds an amount equal to 200% of the adjusted closing price of our common stock on April 15, 2016, , the remainder of the performance accelerated phantom stock awards granted to Mr. Heinson will vest on April 15, 2017, or such later date on which this achievement should occur.

2017 Grants

On March 1, 2017, Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez and Heinson, to further align the interests of the Company’s executives and its stockholders, entered into the performance phantom stock agreement for use in equity awards under the Plan for 245,234, 245,234, 245,234 and 81,745 target shares of our common stock, respectively.  This new form of agreement is a performance phantom stock agreement payable in shares of our common stock.  The phantom shares granted under the performance phantom stock agreement will vest (if any) in equal annual increments over a five-year period ranging from 0% to 200% of the target phantom shares granted based on our share price appreciation relative to the share price appreciation of the S&P Oil & Gas Exploration & Production Select Industry Index for each year in the five-year performance period beginning on January 1, 2017 and ending on December 31, 2021, subject to the officer’s continuous service with us through each vesting date.  Upon the occurrence of any of the following events, awards made under the performance phantom stock agreement will vest on a pro rata basis on each remaining vesting date:  a Qualifying Termination (as defined in the performance phantom stock agreement), Constructive Termination (as defined in the performance phantom stock agreement), or the officer’s death or Disability (as defined in the Plan).  Upon the occurrence of a Change of Control (as defined in the Plan), the officer would vest in the greater of the number of unvested phantom shares based on actual results or the target number of unvested phantom shares. In addition, in March 2017 our Compensation Committee also awarded Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez, Thill and Heinson 245,234, 245,234, 245,234, 100,000 and 81,745 shares, respectively, of both restricted stock and phantom stock, which vest in equal installments over five years for each of Messrs. Sanchez, Jr., Sanchez, III, E. Sanchez and Heinson and in equal installments over three years for Mr. Thill.  Consistent with the requirements of Item 402 of Regulation S-K, more specific information regarding the awards granted in 2017 will be included in the Proxy Statement to be filed for the 2018 Annual Meeting.

20152016 Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2015.2016.

 

 

 

 

Number of
Shares or

 

Market Value
of

 

 

 

 

 

Units of Stock
That

 

Shares of
Stock That

 

 

 

 

 

Have Not

 

Have

 

Name

 

Grant Date

 

Vested(1)

 

Not Vested(2)

 

A. R. Sanchez, Jr. 

 

02/18/2016

 

537,460

(3)

$

4,853,264

 

 

 

02/18/2016

 

537,460

(5)

$

4,853,264

 

 

 

02/18/2016

 

276,872

(4)

$

2,500,154

 

 

 

02/18/2016

 

276,872

(6)

$

2,500,154

 

 

 

01/05/2015

 

433,334

(3)

$

3,913,006

 

 

 

 

 

 

 

 

 

 

Antonio R. Sanchez, III

 

02/18/2016

 

403,095

(3)

$

3,639,948

 

 

 

02/18/2016

 

403,095

(5)

$

3,639,948

 

 

 

02/18/2016

 

207,654

(4)

$

1,875,116

 

 

 

02/18/2016

 

207,654

(6)

$

1,875,116

 

 

 

01/05/2015

 

300,000

(3)

$

2,709,000

 

 

 

 

 

 

 

 

 

 

Eduardo A. Sanchez

 

02/18/2016

 

376,222

(3)

$

3,397,285

 

 

 

02/18/2016

 

376,222

(5)

$

3,397,285

 

 

 

02/18/2016

 

193,811

(4)

$

1,750,113

 

 

 

02/18/2016

 

193,811

(6)

$

1,750,113

 

 

 

01/05/2015

 

233,334

(3)

$

2,107,006

 

 

 

 

 

 

 

 

 

 

Howard J. Thill

 

10/10/2016

 

175,000

(3)

$

1,580,250

 

 

 

10/10/2016

 

175,000

(5)

$

1,580,250

 

 

 

 

 

 

 

 

 

 

Christopher D. Heinson

 

04/15/2016

 

100,000

(6)

$

903,000

 

 

 

04/15/2016

 

100,000

(4)

$

903,000

 

 

 

04/15/2016

 

200,000

(5)

$

1,806,000

 

 

 

04/15/2016

 

100,000

(3)

$

903,000

 

 

 

01/05/2016

 

100,000

(3)

$

903,000

 

 

 

05/07/2015

 

100,000

(3)

$

903,000

 

 

 

01/05/2015

 

66,667

(3)

$

602,003

 

 

 

03/04/2014

 

20,000

(3)

$

180,600

 

 

 

01/06/2014

 

8,334

(3)

$

75,256

 

 

 

 

 

 

 

 

 

 

Garrick A. Hill

 

05/01/2016

 

60,000

(5)

$

541,800

 

 

 

 

 

 

 

 

 

 

G. Gleeson Van Riet

 

05/18/2015

 

100,000

(7)

$

903,000

 

 

 

01/05/2015

 

43,333

(7)

$

391,297

 

 

 

08/01/2013

 

20,000

(7)

$

180,600

 

Name
 Grant Date Number of Shares or
Units of Stock That
Have Not Vested(1)		 Market Value of
Shares of
Stock That Have
Not Vested(2)		 

A. R. Sanchez, Jr. 

  01/05/2015  650,000(3)$2,801,500 

  01/06/2014  175,000(4)$754,250 

Antonio R. Sanchez, III

  
01/05/2015		  
450,000
(3)
$
1,939,500		 

  01/06/2014  125,000(4)$538,750 

Eduardo A. Sanchez

  
01/05/2015		  
350,000
(3)
$
1,508,500		 

G. Gleeson Van Riet

  
05/18/2015		  
100,000
(3)
$
431,000		 

  01/05/2015  65,000(3)$280,150 

  08/01/2013  20,000(3)$86,200 

Christopher D. Heinson

  
05/07/2015		  
150,000
(3)
$
646,500		 

  01/05/2015  100,000(3)$431,000 

  03/04/2014  40,000(3)$172,400 

  01/06/2014  16,667(3)$71,835 

  04/01/2013  5,000(3)$21,550 

Michael G. Long(5)

  
N/A		  
N/A		 
$
N/A		 

(1)

The forfeiture conditions and the accelerated vesting conditions applicable to these awards are described above under the sectionsections entitled "Narrative“Potential Payments Upon Termination or Change in Control” and “Narrative Disclosure to the Summary Compensation Table and Grants of Plan Based Awards Table."

”

(2)

The market value of the unvested shares of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock was calculated by multiplying the number of restricted shares outstanding as of December 31, 201530, 2016 by $4.31,$9.03, the closing price of our common stock on that date.

(3)

These restricted shares will vest as to 33.33% of the total number of restricted shares granted on each of the first three anniversaries of the date of grant.

(4)

The         These performance accelerated restricted shares cliff vest on the fifth anniversary of their grant subject to an early acceleration trigger based upon the price of our common stock.

(5)         These phantom shares will vest as to 50%33.33% of the total number of restrictedphantom shares granted on each of the first twothree anniversaries of the date of grant.

(5)
Allgrant and are payable in cash.

(6)         These performance accelerated phantom shares granted and payable in cash cliff vest in five years subject to an early acceleration trigger based upon the price of our common stock.

(7)Mr. Long'sVan Riet forfeited his shares of unvested restricted shares were acceleratedstock upon his resignation in connection with his retirement on April 30, 2015. As such, he held no unvested awards at fiscal year-end.


March 2016.

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20152016 Stock Vested at Fiscal Year-End

 

The following table provides information on the value realized by each of the named executive officers as a result of the restricted stock awards that vested from January 1, 20152016 through December 31, 2015.2016.

 

 

Stock Awards

 

Name

 

Number of Shares
Acquired on Vesting(1)

 

Value Realized
On Vesting(2)

 

A. R. Sanchez, Jr.

 

391,666

 

 

$

1,605,081

 

Antonio R. Sanchez, III

 

275,000

 

 

$

1,126,250

 

Eduardo A. Sanchez

 

116,666

 

 

$

495,831

 

Howard J. Thill

 

0

 

 

$

0

 

Christopher D. Heinson

 

116,666

 

 

$

734,997

 

Garrick A. Hill

 

4,833

 

 

$

28,773

 

G. Gleeson Van Riet

 

21,667

 

 

$

92,081

 

 
 Stock Awards 
Name
 Number of Shares
Acquired on Vesting(1)		 Value Realized
On Vesting(2)		 

A. R. Sanchez, Jr. 

  325,000 $2,663,750 

Antonio R. Sanchez, III

  225,000 $1,845,750 

Eduardo A. Sanchez

  — $— 

G. Gleeson Van Riet

  20,000 $140,200 

Christopher D. Heinson

  33,333 $414,814 

Michael G. Long(3)

  290,000 $3,732,302 

(1)

The amounts in this column represent the number of restricted shares held by each of the named executive officers that vested during 2015.

2016.

(2)

The amounts in this column represent the product of the number of shares of restricted stock that vested during 20152016 and the closing sale price of our common stock on the date of vesting.

(3)
All of Mr. Long's unvested restricted shares were accelerated in connection with his retirement on April 30, 2015.

Pension Benefits

 

Currently, we do not, and do not intend to, provide pension benefits to our named executive officers.  SOG may revisit this policy in the future.

Nonqualified Deferred Compensation

 

Currently, we do not, and do not intend to, sponsor or adopt a nonqualified deferred compensation plan.  SOG may revisit this policy in the future.

Potential Payments Upon Termination or Change in Control

 

Other than the Retirement Agreement with Mr. Long discussed below and the accelerated vesting of restricted, phantom, performance accelerated restricted and performance accelerated phantom stock upon the occurrence of certain events pursuant to the Plan and the restricted stock agreements,applicable New Equity Award Agreements, we do not provide any severance or change of control benefits to our executive officers.  We view the limited benefits that we do provide as necessary to attract and retain executive talent in a highly competitive market and to ensure continuity of management in the event of an actual or contemplated change of control.

Michael G. Long's Actual Termination Payments

        On March 10, 2015, we entered into the Retirement Agreement with Mr. Long in order to formalize the compensation that Mr. Long would be entitled to receive in connection with his retirement, which occurred on April 30, 2015. Pursuant to the Retirement Agreement entered into with Mr. Long, the Company (i) paid Mr. Long a prorated bonus of $168,356 in a lump-sum cash payment, (ii) amended Mr. Long's outstanding awards ofThe restricted stock to become fully vested upon his date of retirement, and (iii) began paying the premium associated with continued health coverage under our health plan for a period of 18 months, less the amount of any contribution required for similarly situated active employees. In exchange, Mr. Long provided a customary general release of claims


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against the Company and its affiliates, including claims relating to severance, and agreed to customary confidentiality provisions along with a 12-month non-competition and non-solicitation of employees agreement. Mr. Long also agreed to serve as a consultant as reasonably requested for a period of one year following his retirement. Due to his position as a valued member of our management team, the Compensation Committee felt that the value of continued access to Mr. Long's expertise as a consultant and the release, non-competition and non-solicitation obligations included in the Retirement Agreement were equal to or in excess of the amounts paid to Mr. Long and, as such, were in our best interests.

Name
 Accelerated
Vesting of
Restricted Stock(1)		 Pro-rated
Annual Bonus		 Health
Insurance
Premiums(2)		 Total 

Michael G. Long

 $3,732,302 $168,356 $13,930 $3,914,588 
(1)
All of Mr. Long's unvested restricted shares wereperformance accelerated in connection with his retirement on April 30, 2015. The amount reported above was calculated by multiplying the number of restricted shares accelerated by the closing market price on April 30, 2015, the date of Mr. Long's retirement.

(2)
Represents the cost to us of providing Mr. Long with continued health coverage under SOG's health plan for a period of 18 months, less the amount of any contribution required for similarly situated active employees.

Potential Payments upon Termination or Change in Control for Other Named Executive Officers

        The restricted stock granted under the Plan to each of Messrs. Sanchez, III, Sanchez, Jr. and EduardoE. Sanchez, shall automatically vest upon the occurrence of the following events (each term of which is defined below):  a Change of Control, a Qualifying Termination, Constructive Termination or the executive'sexecutive’s death or Disability.  A "Qualifying Termination"“Qualifying Termination” is generally defined as a termination by us or one of our affiliates, other than due to (i) the executive'sexecutive’s commission of, conviction for, or plea

of guilty or nolo contendere to a felony, or other material act or omission involving dishonesty or fraud, or (ii) gross negligence or willful malfeasance.  A "Constructive Termination"“Constructive Termination” is generally defined with respect to the assignment of a duty or duties to the individual by the Board that are not commensurate with the position currently held by Messrs. Sanchez, III, Sanchez, Jr. and EduardoE. Sanchez, as applicable, without such individual'sindividual’s consent.  A "Disability"“Disability” is defined in the Plan generally as an illness or injury that lasts at least six months and is expected to be permanent and renders the executive unable to carry out his duties.

 

In the absence of a Change of Control Messrs. Van Riet andor a Qualifying Termination, Mr. Heinson areis generally not entitled to accelerated vesting of theirhis restricted stock and performance accelerated restricted with respect to any type of termination by us or by the individual.  However, notwithstanding the three-yearthree- or five-year pro-rata vesting period applicable to the restricted and performance accelerated restricted stock awards granted to Messrs. Van Riet andMr. Heinson, in the event of theirhis death or Disability prior to a vesting date, the Compensation Committee may, but is not obligated to, accelerate the vesting of any or all of the shares of restricted stock.  With respect to his 2016 awards, Mr. Thill is not entitled to accelerated vesting of his restricted stock with respect to any type of termination by us or the individual, Change of Control or the executive’s death or Disability.

Other than with respect to Mr. Thill’s 2016 awards, upon any termination for any or no reason, including but not limited to voluntary resignation or termination by the Company with or without cause, before all of the awarded shares become vested, all unvested awarded shares will be forfeited.  With respect to Mr. Thill’s awards, upon any termination for executive’s voluntary resignation or termination by the Company for Cause (as defined in Mr. Thill’s restricted and phantom stock agreements), before all of the awarded shares become vested, all unvested awarded shares will be forfeited. Mr. Van Riet forfeited his granted restricted stock awards due to his resignation in March 2016.

Pursuant to the applicable restricted stock agreement,New Equity Award Agreements, awards granted under our Plan will generally vest and/or become exercisable, as applicable, upon a "change“change of control."” Under our Plan, a "change“change of control"control” will be deemed to have occurred upon one or more of the following events:  (i) any "person"“person” or "group"“group” within the meaning of those terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "“Exchange Act"”), other than a Sanchez Group Member (as defined in the Plan), shall become the beneficial owner, by way of merger, consolidation, recapitalization, reorganization or otherwise, of 50% or more of the combined voting power of the equity interests in the Company; (ii) the stockholders of the Company approve and implement, in one


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or a series of transactions, a plan of complete liquidation of the Company; or (iii) the sale or other disposition by the Company of all or substantially all of its assets in one or more transactions to any person other than a Sanchez Group Member.

 

The phantom and performance accelerated phantom stock granted under the Plan during 2016 to each of Messrs. Sanchez, III, Sanchez, Jr. and E. Sanchez will automatically vest upon the occurrence of the following events (each term of which is defined above):  a Change of Control, a Qualifying Termination, Constructive Termination or the executive’s death or Disability.  With respect to the vested phantom shares that become vested as of a given vesting date, the Company will pay an amount of cash equal to (x) the fair market value of one common share as of the vesting date multiplied by (y) the aggregate number of the phantom shares that become vested on the applicable vesting date on the 30th day following the applicable vesting date.

In the absence of a Change of Control or Qualifying Termination, Messrs. Hill and Heinson are generally not entitled to accelerated vesting of their phantom stock or performance accelerated phantom stock granted, if any, during 2016 with respect to any type of termination by us or by the individual.  However, notwithstanding the five- or three-year pro-rata vesting period applicable to the phantom stock awards granted to Messrs. Hill and Heinson, in the event of their death or disability prior to a vesting date, the Compensation Committee may, but is not obligated to, accelerate the vesting of any or all of the shares of phantom stock. Mr. Thill is not entitled to accelerated vesting of his phantom stock with respect to any type of termination by us or by the individual, a Change of Control or the executive’s death or Disability.

The following table quantifies our best estimates as to the amounts that each of our named executive officers would potentially be entitled to receive upon a change of control event, or one of the above-described termination events, as applicable.  The values of the potential payments are calculated assuming that such termination event occurred on December 31, 20152016 and using our closing stock price on such date of $4.31.$9.03.  The

value of the benefit that each of our named executive officers would actually receive cannot be determined until a change of control or a termination event has occurred.  Therefore, such amounts should be considered "forward-looking“forward-looking statements."” We have assumed for purposes of the table below that the Company has not used its discretion to accelerate any awards that do not accelerate pursuant to their terms.

Name

 

Change of
Control

 

Qualifying
Termination,
Constructive
Termination,
Death or
Disability

 

A.R. Sanchez, Jr.

 

$

18,619,842

 

$

18,619,842

 

Antonio R. Sanchez,III

 

$

13,739,128

 

$

13,739,128

 

Eduardo A. Sanchez

 

$

12,401,802

 

$

12,401,802

 

Howard J. Thill

 

$

3,160,500

 

$

3,160,500

 

Christopher D. Heinson

 

$

7,178,859

 

$

7,178,859

 

Garrick A. Hill(1)

 

$

541,800

 

$

541,800

 

G. Gleeson Van Riet(2)

 

$

—

 

$

—

 

Name
 Change of
Control		 Qualifying
Termination,
Constructive
Termination,
Death or
Disability		 

A.R. Sanchez, Jr. 

 $3,555,750 $3,555,750 

Antonio R. Sanchez, III

 $2,478,250 $2,478,250 

Eduardo A. Sanchez

 $1,508,500 $1,508,500 

G. Gleeson Van Riet(1)

 $797,350 $797,350 

Christopher D. Heinson

 $1,343,285 $1,343,285 

Michael G. Long(2)

 $N/A $N/A 

(1)

         Mr. Hill acted as our Interim Co-Chief Financial Officer from March 2, 2016 until March 30, 2016, and acted as our Interim Chief Financial Officer until his resignation from such position on October 10, 2016.  Effective upon Mr. Hill’s resignation as our Interim Chief Financial Officer, Mr. Hill assumed a position overseeing the Company’s treasury function.

(2)Mr. Van Riet resigned as the Company'sCompany’s Senior Vice President and Chief Financial Officer, effective March 30, 2016.  In connection with his actual termination, Mr. Van Riet received no benefit, payment or acceleration of his restricted unvested shares of Company common stock.

(2)
All of Mr. Long's unvested restricted shares were accelerated in connection with his retirement on April 30, 2015. Please see the chart provided under "Michael G. Long's Actual Termination Payments" for Mr. Long's actual termination payments in connection with his retirement.

20152016 Director Compensation

 

We have not and do not expect to pay our directors who are also our officers any additional amounts for their service to us in their capacities as directors.  Accordingly, Messrs. A.R. Sanchez, Jr. and Antonio R. Sanchez, III do not receive additional compensation for their service as a director.  Their compensation is reported in the Summary Compensation Table.  Our current compensation package for our non-employee directors consists of both cash and equity compensation.

 

After a review of non-employee director compensation paid by our peer group, the Board approved compensation for our non-employee directors for fiscal 20152016 as follows:

    •

    ·an annual cash retainer fee of $75,000;

    ·

    •
    cash payments of $1,000 for each Board and/or committee meeting attended via teleconference and cash payments of $1,500 for each Board and/or committee meeting attended in person;

    ·

    •
    a committee chair fee for each chair of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of $20,000, $15,000 and $10,000, respectively;

    ·

    •
    a grant of restricted stock awards under the Plan; and

    ·

    •
    reimbursement for travel and miscellaneous expenses incurred to attend meetings of our Board or its committees.

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Each director received the prorated amounts of the annual cash retainer fee and committee chair fee, as applicable, for the period of fiscal 20152016 during which such director served as a member of the Board and, as

applicable, as a committee chair.  Each director also received cash payment of $1,000 or $1,500, respectively, for the Board meetings and committee meetings that such director attended.

 Due to the significant number of completed transactions in fiscal 2014 (including two acquisitions, one public equity offering and two debt offerings), the Board members during fiscal 2014, Messrs. Colvin, Garcia, Jackson and Maher, received a supplemental retainer cash payment for their exceptional service to the Board for that year.

In connection with their service to the Company as directors, 19,84125,510 shares of restricted stock under the Plan were granted to Messrs. Carney, Colvin, Garcia, Jackson and Maher on May 29, 2015.June 1, 2016.  Each of these grants will vest on the one year anniversary of its date of grant.  Because Brian CarneyRobert V. Nelson, III was appointed to the Board on May 5, 2015,August 2, 2016, he received a prorated award of 15,87328,576 restricted shares in connection with his appointment; this grant will vest on June 1, 20162017 along with the other directors'directors’ awards.

 

Notwithstanding such vesting period for the directors'directors’ restricted stock, upon the occurrence of a Change of Control, the shares of restricted stock will vest automatically.  Moreover, in the event of a director'sdirector’s death, disability, termination or removal, all unvested shares will be forfeited; however, in the event of the respective director'sdirector’s death, the Compensation Committee may, but is not obligated to, accelerate the vesting of any or all of his shares of restricted stock.  Further, notwithstanding the above, pursuant to the terms of the applicable restricted stock agreement, the Compensation Committee may, at its sole discretion, choose to accelerate the vesting of an award of restricted shares at any time.

 

The following table provides information concerning the compensation of our non-employee directors for the fiscal year-endedyear ended December 31, 2015.2016.

Name

 

Fees Earned
or Paid in
Cash(1)

 

Stock
Awards(2)

 

All Other
Compensation(3)

 

Total

 

T. Brian Carney

 

$

120,500

 

$

204,080

 

$

131,501

 

$

345,643

 

M. Gregory Colvin

 

$

104,500

(4)

$

204,080

 

$

22,200

 

$

308,580

 

Gilbert A. Garcia

 

$

123,000

(5)

$

204,080

 

$

—

 

$

327,080

 

Alan G. Jackson

 

$

116,000

(6)

$

204,080

 

$

—

 

$

320,080

 

Sean M. Maher

 

$

128,000

(7)

$

204,080

 

$

8,760

 

$

332,080

 

Robert V. Nelson, III

 

$

51,027

(8)

$

168,313

 

$

—

 

$

219,340

 

Name
 Fees Earned
or Paid in
Cash(1)		 Stock Awards(2) All Other
Compensation(3)		 Total 

Brian Carney

 $89,750 $225,397 $60,777 $375,924 

Greg Colvin

 $245,500(4)$199,997 $9,600 $455,097 

Gilbert A. Garcia

 $281,000(5)$199,997 $— $480,997 

Alan G. Jackson

 $173,000(6)$199,997 $— $372,997 

Sean Maher

 $157,500(7)$199,997 $— $357,497 
(1)
Includes annual cash retainer fee, Board and committee meeting fees and committee chair fees, as applicable, for each non-employee director earned during fiscal 2015.

2016.

(2)

The amounts reported in the "Stock Awards"“Stock Awards” column reflect the aggregate grant date fair value of restricted stock awards granted under our Plan for fiscal 2015,2016, computed in accordance with FASB ASC Topic 718.  See Note 7, "Stock-Based“Stock-Based Compensation,"” to the Consolidated Financial Statements included under "Item“Item 8. Financial Statements and Supplementary Data"Data” on the 20152016 10-K for additional detail regarding assumptions.  As of December 31, 2015,2016, Messrs. Carney, Colvin, Garcia, Jackson and Maher had 19,84125,510 shares of restricted stock outstanding and Mr. CarneyNelson had 15,87328,576 shares of restricted stock outstanding.

(3)

In fiscal 2015, "All2016, “All Other Compensation"Compensation” for Messrs. BrianMr. Carney, Mr. Colvin and Greg ColvinMr. Maher consisted of imputed income attributable tothe aggregate incremental costs of the personal use of aircraft owned or provided by the Company or a member of the Sanchez Group in the amountamounts of $60,777$131,501, $22,200 and $9,600, respectively.$8,760.  For additional information regarding the aggregate incremental cost of imputed income attributable to the personal use of aircraft owned or provided by the Company or a member of the Sanchez Group, see footnote 6 to the "Summary“Summary Compensation Table"Table” above.

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(4)
Includes a supplemental retainer of $125,000 for exceptional service to the Board during fiscal 2014.         Mr. Colvin attended a total of 2528 formal Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meetings and took action by unanimous written consent 1931 times on behalf of the Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in fiscal 2014.

2016.

(5)

Includes a supplemental retainer of $150,000 for exceptional service to the Board during fiscal 2014.         Mr. Garcia attended a total of 26 formal Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meetings and took action by unanimous written consent 1931 times on behalf of the Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in fiscal 2014.

2016.

(6)

Includes a supplemental retainer of $50,000 for exceptional service to the Board during fiscal 2014.         Mr. Jackson attended a total of 26 formal Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meetings and took action by unanimous written consent 1931 times on behalf of the Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in fiscal 2014.

2016.

(7)

Includes a supplemental retainer of $25,000 for exceptional service to the Board during fiscal 2014.         Mr. Maher attended a total of nine formal Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meetings and took action by unanimous written consent once31 times on behalf of the Board in fiscal 2014.
2016.


(8)         Mr. Nelson attended a total of 13 formal Board, Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meetings and took action by unanimous written consent 14 times on behalf of the Board in fiscal 2016.

CORPORATE GOVERNANCE

Board Composition

 

Our current certificate of incorporation and by-laws provide that the number of our directors shall be fixed from time to time pursuant to a resolution adopted by our Board.  We currently have seveneight directors:  Messrs. Sanchez, Jr., Sanchez, III, Garcia, Carney, Colvin, Jackson, Maher and Maher.Nelson.

 

We have a classified board of directors that currently consists of seveneight members.  The directors are divided into three classes serving staggered three-year terms.  Each year, the directors of one class stand for re-election as their terms of office expire.  Messrs. Garcia and Maher are designated as Class I directors, and their terms of office expire on the date of the Company's 2016 annual meeting of stockholders. Messrs. Colvin, Carney and Jackson are designated as Class II directors, and their terms of office expire on the date of the Company'sCompany’s 2017 annual meeting of stockholders.  Messrs. Sanchez, Jr. and Sanchez, III are designated as Class III directors, and their terms of office expire on the date of the Company'sCompany’s 2018 annual meeting of stockholders.  Messrs. Garcia, Maher and Nelson are designated as Class I directors, and their terms of office expire on the date of the Company’s 2019 annual meeting of stockholders.

 

We believe that a classified board provides for stability, continuity and experience among our Board.  In our industry, in particular, long-term focus is critical.  The time horizon required for successful exploration, development and production of oil and natural gas resources makes it vital that we have a Board that understands the implications of this process and has the ability to develop and implement long-term strategies while benefiting from an in-depth knowledge of the Company'sCompany’s business and operations.  A classified board structure helps to ensure that there will be the continuity and stability of leadership required to navigate a challenging economic environment while resisting the pressure to focus on short-term results at the expense of the Company'sCompany’s long-term value and success.  A classified Board also assists the Company in attracting and retaining highly qualified directors who are willing to make a longer-term commitment to the Company.  Directors who agree to serve three-year terms demonstrate a willingness to commit the time and resources necessary to understand the Company, its operations and its competitive environment.  The future success of the Company depends in significant part on the ability to attract and retain capable and experienced directors.  In this regard, we believe that longer terms for our directors will enhance director independence from both management and stockholder special interest groups.


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Board Leadership Structure

 

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management.  The Board understands that the optimal Board leadership structure may vary as circumstances warrant.  Consistent with this understanding, non-management directors consider the Board'sBoard’s leadership structure on an annual basis.

 

Our Board believes that our leadership structure, which separates the Chairman and Chief Executive Officer roles, is the appropriate structure for us at this time in light of the needs of our business.  As Executive Chairman, Mr. Sanchez, Jr. remains involved in key matters, such as major transactions, broader business relationships (including relationships with landowners that are critical to the Company'sCompany’s growth), as well as continuing to advise our executive officers on issues of business strategy and operations.

Director Independence

 

Our Board has determined that Messrs. Garcia, Carney, Colvin, Jackson, Maher, and MaherNelson are "independent directors"“independent directors” as defined by the rules of the NYSE and, for purposes of our Audit Committee, Rule 10A-3 of the Exchange Act.

Executive Sessions of the Board

 

Our independent directors meet regularly in executive session without management to review the performance of management and our Company and any related matters.  The Co-Chairperson of our Audit Committee, Mr. Garcia, serves as the Chairman presiding over such meetings.  During fiscal 2015,2016, our Board held fivefour executive sessions.

Board'sBoard’s Role in Risk Oversight

 

Management, which is responsible for day-to-day risk management, conducts a risk assessment of our business annually.  The risk assessment process is global in nature and identifies and assesses our risks, as well as steps to mitigate and manage the risks, which may be financial, operational or strategic in nature.

 

The results of each risk assessment are reviewed withby the Audit Committee.  The centerpiece of the assessment is a discussion of our key risks, which includes a review of the potential magnitude and likelihood of each risk, the personnel responsible for managing each risk and management'smanagement’s initiatives to manage and mitigate each risk.  Because overseeing risk is an ongoing process and inherent in our strategic decisions, the Board also discusses risk throughout the year at other meetings in relation to specific proposed actions.

 

The Board currently considers specific risk topics, including risks associated with our strategic plan, our exploratory drilling program, our capital structure and other operational activities.  Further, the Board is routinely informed by management of developments that could affect our risk profile or other aspects of our business.

Meetings of the Board and Committees of the Board

 

The Board held fiveseven meetings in fiscal 2015, all2016, five of which were regularly scheduled meetings and took action by unanimous written consent 14 times. The Board's independent directors met in executive session five times during 2015.

        The Audit Committee held 32 meetings in fiscal 2015, four of which were regularly scheduled meetings and 28two of which were special meetings, and took action by unanimous written consent five16 times.  The CompensationBoard’s independent directors met in executive session four times during 2016.

The Audit Committee held two23 meetings in fiscal 2015,2016, four of which were all regularly


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scheduledwhich were special meetings, and took action by unanimous written consent eightthree times.  The Compensation Committee held seven meetings in fiscal 2016, one of  which was a  regularly scheduled meeting and six of which were special meetings, and took action by unanimous written consent six times.  The Nominating and Corporate Governance Committee held zero meetings in fiscal 2015, and took action by unanimous written consent two times.twice in fiscal 2016.  The members and functions of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are described below.

 

During 2015,2016, each of our then directors attended more than 75% of the meetings of the Board and attended more than 75% of the meetings of the committees of the Board on which that director served.  While we do not have a formal policy with respect to director attendance at the annual meetings of our stockholders, we generally expect that our directors will attend the annual meetings.  SixFour of the seven members ofwho served on our Board as of the 2016 Annual Stockholders Meeting attended our last annual meeting of stockholders.the 2016 Annual Stockholders Meeting.

Communications with the Board

 

Stockholders and other interested parties may communicate directly with our independent directorsan individual director by sending a written communication in an envelope addressed to:  Sanchez Energy Corporation, Board of Directors, (Independent Members), c/o Secretary, 1000 Main Street, Suite 3000, Houston, Texas 77002.

 

Stockholders and other interested parties may communicate directly with the full Board by sending a written communication in an envelope addressed to:  Sanchez Energy Corporation, Board of Directors, c/o Secretary, 1000 Main Street, Suite 3000, Houston, Texas 77002.

Committees of the Board

 

Our Audit, Compensation and Nominating and Corporate Governance Committees have the respective compositions and responsibilities described below.  We may have such other committees as the Board shall determine from time to time.

Audit Committee

 

Our Audit Committee currently consists of a total of fivesix directors, Messrs. Garcia (Co-Chairperson), Maher (Co-Chairperson), Carney, Colvin, Jackson and Jackson,Nelson, each of whom the Board has determined to be an "independent director"“independent director” as defined by the NYSE rules and Rule 10A-3 of the Exchange Act.  The Board has determined that each member of the Audit Committee is "financially literate"“financially literate” as required by the NYSE rules.  Additionally, the Board has determined that Mr. Garcia is an "Audit“Audit Committee Financial Expert"Expert” as defined by the Exchange Act.  Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Garcia'sGarcia’s experience and understanding with respect to certain accounting and auditing matters.  The designation does not impose upon Mr. Garcia any duties, obligations or liability that are greater than arethose generally imposed on him as a member of the Audit Committee and the Board, and his designation as an audit committee financial expertAudit Committee Financial Expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

 

Our Audit Committee is authorized to:

    •

    ·approve and retain the independent auditors to conduct the annual audit of our books and records;

    ·

    •
    review the proposed scope and results of the annual audit;

    ·

    •
    review and pre-approve the independent auditors'auditors’ audit and non-audit services rendered;

    ·

    •
    approve the audit fees to be paid;

    ·

    •
    review accounting and financial controls with the independent auditors and our financial and accounting staff;

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    •
    review and approve transactions between us and our directors, officers and affiliates;

    ·

    •
    recognize and prevent prohibited non-audit services;

    ·

    •
    establish procedures for complaints received by us, including regarding accounting matters;

    ·

    •
    review our policies and practices with respect to risk assessment and risk management;

    ·

    •
    approve any off-balance sheet financial activities;

    ·

    •
    oversee internal audit functions; and

    ·

    •
    prepare the report of the Audit Committee that the SEC rules require to be included in this Proxy Statement.

 

In addition, our Audit Committee (in lieu of the full Board) may review the reasonableness of the costs that SOG allocates to us pursuant to the services agreement.

 

The Audit Committee'sCommittee’s responsibilities are set forth in its thirdfourth amended and restated charter, which was approved by the Board on November 19, 2015December 6, 2016, and is reviewed annually.  The charter is available on our website at

www.sanchezenergycorp.com.  The information on our website is not incorporated by reference into this Proxy Statement.

Compensation Committee

 

Our Compensation Committee currently consists of a total of fivesix directors, Messrs. Carney (Chairperson)(Co-Chairperson), Nelson (Co-Chairperson), Colvin, Garcia, Jackson and Maher, each of whom the Board has determined to be an "independent director"“independent director” as defined by the NYSE rules.

 

Our Compensation Committee is authorized to:

    •

    ·review and approve the Company'sCompany’s goals and objectives relative to the compensation of the Company'sCompany’s Chief Executive Officer (collectively, the "“Performance Goals"”), annually evaluate the Chief Executive Officer'sOfficer’s performance in light of the Performance Goals and, based on this evaluation, determine the Chief Executive Officer'sOfficer’s compensation; provided, however, that, for any compensation for which the costs are allocated to the Company pursuant to the services agreement with SOG, the Compensation Committee assists the Board or the Audit Committee in reviewing the reasonableness of the allocated costs;

    ·

    •
    review and approve the compensation of the other executive officers; provided, however, that, for any compensation for which the costs are allocated to the Company pursuant to the services agreement with SOG, the Compensation Committee assists the Board or the Audit Committee in reviewing the reasonableness of the allocated costs;

    ·

    •
    administer the Company'sCompany’s equity-based compensation plan, including the grant of stock options and other equity awards under such plan;

    ·

    •
    retain or obtain the advice of one or more compensation consultants, outside counsel and other advisersadvisors as it deems necessary to assist with the execution of its duties and responsibilities;

    ·

    •
    review and make recommendations to the Board with respect to director compensation; and

    ·

    •
    in consultation with senior management, recommend to the Board for approval the Company'sCompany’s general compensation philosophy and objectives.

 

For a description of the services agreement with SOG, please read "Transactions“Transactions with Related Persons."”

 

The Board delegated its authority to the Compensation Committee as may be required or advisable to fulfill the purposes of the Compensation Committee.  The Compensation Committee may


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form and delegate some or all of its authority to subcommittees when it deems appropriate.  Meetings may, at the discretion of the Compensation Committee, include members of the Company'sCompany’s management, other members of the Board, consultants or advisors, and such other persons as the Compensation Committee may determine.

 

The Compensation Committee'sCommittee’s responsibilities are set forth in its secondthird amended and restated charter, which was approved by the Board on November 19, 2015December 6, 2016, and is reviewed annually.  The charter is available on our website at www.sanchezenergycorp.com.  The information on our website is not incorporated by reference into this Proxy Statement.

Compensation Committee Interlocks and Insider Participation

 Our Compensation Committee was established by the Board on June 18, 2012 and currently consists of Messrs. Carney (Chairperson), Colvin, Garcia, Jackson and Maher.

As described above, the compensation decisions regarding our executive officers, other than awards under our Plan, are made by SOG, subject to the ability of our Audit Committee to review, verify and dispute the reasonableness of such compensation pursuant to procedures set forth in the services agreement.

None of our executive officers serves, or has served, during the last completed fiscal year, on the compensation committee or board of directors of any other company that has one or more executive officers serving on our Compensation Committee or the Board.

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee currently consists of a total of fivesix directors, Messrs. Jackson (Chairperson), Carney, Colvin, Garcia, Maher and Maher,Nelson, each of whom the Board has determined to be an "independent director"“independent director” as defined by the NYSE rules.

 

Our Nominating and Corporate Governance Committee assists our Board in evaluating potential new members of the Board, recommends committee members and structure, and advises the Board about corporate governance practices.  The Nominating and Corporate Governance Committee recommends to the entire Board candidates for nomination to the Board.  The Nominating and Corporate Governance Committee may also solicit ideas for possible candidates from a number of sources, including our executives, individuals personally known to members of the Board and executive search firms.

 

In evaluating candidates for director, the Nominating and Corporate Governance Committee seeks directors who will best represent the long-term interests of our stockholders.  The Nominating and Corporate Governance Committee'sCommittee’s view is that all directors should possess the highest personal and professional ethics, integrity and values.  In evaluating the suitability of the candidates, the Nominating and Corporate Governance Committee takes into consideration such factors as it deems appropriate.  These factors may include, among other things, issues of character, judgment, independence, age, expertise, diversity of experience, absence of conflicts of interest, length of service and other commitments.  The Nominating and Corporate Governance Committee evaluates these factors, among others, and considers each individual candidate in the context of the current perceived needs of our Board as a whole and of any committees of the Board.  Although we do not have a formal diversity policy, the Nominating and Corporate Governance Committee does consider diversity in evaluating candidates for Board membership.  The Nominating and Corporate Governance Committee'sCommittee’s objective in choosing candidates is to assemble membership for our Board as a whole as well as any committees of the Board that represents diverse viewpoints that will guide the Company effectively in pursuit of its strategic goals.


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Although the Nominating and Corporate Governance Committee does not have a formal policy with regard to the consideration of any director candidates recommended by stockholders, the Nominating and Corporate Governance Committee will consider recommendations from stockholders of potential candidates for service on the Board.  See "Stockholder Proposals"“Stockholder Proposals” below for a description of the process by which stockholders may nominate directors for consideration by the Nominating and Corporate Governance Committee.

 

The Nominating and Corporate Governance Committee'sCommittee’s responsibilities are set forth in its amended and restated charter, which was approved by the Board on June 18, 2012December 6, 2016, and is reviewed annually.  The charter is available on our website at www.sanchezenergycorp.com.  The information on our website is not incorporated by reference into this Proxy Statement.

Code of Business Conduct and Ethics

 

The Board has adopted a Code of Business Conduct and Ethics applicable to our employees (including those employees of SOG that provide services to us), directors and officers, in accordance with the applicable rules of the SEC and the corporate governance rules of the NYSE.  Any waiver of this code may be made only by our Board.  In accordance with the rules of the SEC and the corporate governance rules of the NYSE, we will provide any person, without charge and upon request, with a copy of our Code of Business Conduct and Ethics.  Requests should be directed to us at 1000 Main Street, Suite 3000, Houston, Texas 77002, Attention:  Secretary.  The Code of Business Conduct and Ethics is also available on our website at www.sanchezenergycorp.com.  The information on our website is not incorporated by reference into this Proxy Statement.  We will disclose any amendments to or waivers of the Code of Business Conduct and Ethics on our website at www.sanchezenergycorp.com.

Corporate Governance Guidelines

 

The Board has adopted corporate governance guidelines in accordance with the corporate governance rules of the NYSE.  In accordance with the corporate governance rules of the NYSE, we will provide any person, without charge and upon request, with a copy of our corporate governance guidelines.  Requests should be directed to us at 1000 Main Street, Suite 3000, Houston, Texas 77002, Attention:  Secretary.  The corporate governance guidelines are also available on our website at www.sanchezenergycorp.com.  The information on our website is not incorporated by reference into this Proxy Statement.  We will disclose any amendments to the corporate governance guidelines on our website www.sanchezenergycorp.com.


AUDIT COMMITTEE REPORT

 

The information contained in this Audit Committee Report and references in this Proxy Statement to the independence of the Audit Committee members shall not be deemed to be "soliciting material"“soliciting material” or to be "filed"“filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in such filing.

 

During the last fiscal year, and in preparation for the filing with the SEC of the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2015,2016, the Audit Committee:

    •

    ·reviewed and discussed the Company'sCompany’s audited consolidated financial statements as of and for the year ended December 31, 20152016 with management;

    ·

    •
    discussed with KPMG, LLP ("KPMG"), the Company'sCompany’s independent registered public accounting firm, the matters required to be discussed by the Public Company Accounting Oversight Board'sBoard’s Auditing Standard No. 16;

1301, as amended, as adopted by the Public Company Accounting Oversight Board;

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    •
    received the written disclosures and the letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm'sfirm’s communications with the Audit Committee concerning independence, and discussed with KPMG its independence from the Company; and

    ·

    •
    based on the reviews and discussions referred to above, recommended to the Board that the audited consolidated financial statements referred to above be included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2015.
2016.

 

Notwithstanding the foregoing actions and the responsibilities set forth in the Audit Committee'sCommittee’s charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company'sCompany’s consolidated financial statements are complete and accurate and in accordance with generally accepted accounting principles.  Management is responsible for the Company'sCompany’s financial reporting process and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States.  The independent registered public accountants are responsible for expressing an opinion on those financial statements.  Audit Committee members are not employees of the Company or accountants or auditors by profession.  Therefore, the Audit Committee has relied, without independent verification, on management'smanagement’s representation that the consolidated financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States and on the representations of the independent registered public accountants included in their report on the Company'sCompany’s consolidated financial statements.

 

The Audit Committee meets regularly with management and the independent auditors, including private discussions with the independent registered public accountants, and receives the communications described above.  Our considerations and discussions with management and the independent registered public accountants do not assure that the Company'sCompany’s consolidated financial statements are presented in accordance with generally accepted accounting principles or that the audit of the Company'sCompany’s consolidated financial statements has been carried out in accordance with generally accepted auditing standards.

Audit Committee of
the Board of Directors of
Sanchez Energy Corporation

Gilbert A. Garcia, Co-Chairperson
Sean M. Maher, Co-Chairperson
T. Brian Carney, Member
GregM. Gregory Colvin, Member
Alan G. Jackson, Member

Robert V. Nelson, III, Member


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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of common stock as of April 1, 201610, 2017 by (i) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of common stock, (ii) each named executive officer of the Company, (iii) each director of the Company and (iv) all directors and executive officers as a group.  Unless otherwise noted, the mailing address of each person or entity named below is 1000 Main Street, Suite 3000, Houston, Texas 77002.  “Beneficial Ownership” is a term broadly defined by the SEC in Rule 13d-3 under the Exchange Act.  Beneficial ownership includes those shares of common stock held by someone who has investment and/or voting authority over such shares or has the right to acquire such shares within 60 days.  The ownership includes common stock that is held directly and also common stock held indirectly through a relationship, a position as a trustee, or under a contract or understanding.

Beneficial holders

 

Number of 
shares 
beneficially 
held

 

Percentage of 
beneficial 
ownership(1)

 

5% Stockholders:

 

 

 

 

 

Blackstone(2)

 

9,895,000

 

12.08

%

The Vanguard Group(3)

 

9,158,289

 

11.18

%

State Street Corporation(4)

 

3,357,476

 

4.10

%

Directors and Named Executive Officers:

 

 

 

 

 

A. R. Sanchez, Jr.(5)

 

6,194,035

 

7.56

%

Antonio R. Sanchez, III(6)

 

2,646,091

 

3.23

%

Christopher D. Heinson(7)

 

656,825

 

*

 

G. Glesson Van Riet(8) 

 

—

 

*

 

Garrick A. Hill(9)

 

11,835

 

*

 

Howard J. Thill(10)

 

275,000

 

*

 

Eduardo A. Sanchez(11)

 

1,311,017

 

1.60

%

Gilbert A. Garcia(12)

 

77,315

 

*

 

M. Gregory Colvin(13)

 

69,651

 

*

 

Alan G. Jackson(14)

 

79,115

 

*

 

Sean M. Maher(12)

 

49,671

 

*

 

T. Brian Carney(12)

 

35,534

 

*

 

Robert V. Nelson, III(15)

 

28,576

 

*

 

All directors and executive officers as a group (14 persons)

 

12,036,906

 

14.70

%

Beneficial holders
 Number of
shares
beneficially
held		 Percentage of
beneficial
ownership(1)		 

5% Stockholders:

       

The Vanguard Group(2)

  3,737,530  5.79%

Directors and Named Executive Officers:

       

A. R. Sanchez, Jr.(3)

  6,228,993  9.65%

Antonio R. Sanchez, III(4)

  2,601,288  4.03%

Christopher D. Heinson(5)

  420,818  * 

Michael G. Long(6)

  300,410  * 

G. Gleeson Van Riet

  51,478  * 

Eduardo A. Sanchez(7)

  1,241,155  1.92%

Gilbert A. Garcia(8)

  59,741  * 

Greg Colvin(9)

  44,141  * 

Alan G. Jackson(10)

  61,541  * 

Sean M. Maher(11)

  28,129  * 

T. Brian Carney(12)

  16,373  * 

All directors and executive officers as a group (14 persons)

  9,888,420  15.32%

*

Denotes less than 1% beneficially owned.

(1)

Based upon an aggregate of 64,546,51381,901,412 shares outstanding as of April 1, 2016.10, 2017.  Total shares outstanding includesinclude shares of restricted stock subject to forfeiture conditions.

(2)

               According to a Schedule 13G, filed with the SEC on March 13, 2017, Gavilan Resources Holdings — A, LLC, Gavilan Resources Holdings — B, LLC and Gavilan Resources Holdings — C, LLC (collectively, the “Blackstone Funds”), and GSO Capital Opportunities Fund III LP, GSO Energy Select Opportunities

Fund LP, GSO Energy Partners-A LP, GSO Energy Partners-B LP, GSO Energy Partners-C LP, GSO Energy Partners-C II LP, GSO Energy Partners-D LP, GSO Credit Alpha Trading (Cayman) LP, GSO Harrington Credit Alpha Fund (Cayman) L.P. and GSO Capital Solutions Fund II LP (collectively, the “GSO Funds”) are the direct holders of the securities.

Gavilan Resources Holdings — A, LLC directly holds warrants, with an exercise price of $10.00 per share (the “Warrants”), exercisable for 4,713,927 shares of common stock, Gavilan Resources Holdings — B, LLC directly holds Warrants exercisable for 823,714 shares of common stock, and Gavilan Resources Holdings — C directly holds Warrants exercisable for 962,359 shares of common stock.  GSO Capital Opportunities Fund III LP directly holds 355,660 shares of common stock and Warrants exercisable for an additional 474,213 shares of common stock; GSO Energy Select Opportunities Fund LP directly holds 371,461 shares of common stock and Warrants exercisable for an additional 495,282 shares of common stock; GSO Energy Partners-A LP directly holds 72,139 shares of Common Stock and Warrants exercisable for an additional 96,185 shares of Common Stock; GSO Energy Partners-B LP directly holds 27,529 shares of common stock and Warrants exercisable for an additional 36,705 shares of common stock; GSO Energy Partners-C LP directly holds 28,751 shares of common stock and Warrants exercisable for an additional 38,334 shares of common stock; GSO Energy Partners-C II LP directly holds 27,296 shares of common stock and warrants exercisable for an additional 36,394 shares of common stock; GSO Energy Partners-D LP directly holds 55,057 shares of common stock and Warrants exercisable for an additional 73,410 shares of common stock; GSO Credit Alpha Trading (Cayman) LP directly holds 32,330 shares of common stock and Warrants exercisable for an additional 43,107 shares of common stock; GSO Harrington Credit Alpha Fund (Cayman) L.P.  directly holds 4,860 shares of common stock and Warrants exercisable for an additional 6,480 shares of common stock; and GSO Capital Solutions Fund II LP directly holds 479,917 shares of common Stock and Warrants exercisable for an additional 639,890 shares of common stock.

The managing members of Gavilan Resources Holdings — A, LLC are Blackstone Management Associates VII L.L.C. and Blackstone Energy Management Associates II L.L.C.  The managing member of Gavilan Resources Holdings — B, LLC is Blackstone Energy Management Associates II L.L.C.  The managing member of Gavilan Resources Holdings — C, LLC is Blackstone Management Associates VII L.L.C. BMA VII L.L.C. is the sole member of Blackstone Management Associates VII L.L.C. Blackstone EMA II L.L.C. is the sole member of Blackstone Energy Management Associates II L.L.C. Blackstone Holdings III L.P. is the managing member of each of BMA VII L.L.C. and Blackstone EMA II L.L.C. Blackstone Holdings III GP L.P. is the general partner of Blackstone Holdings III L.P. Blackstone Holdings III GP Management L.L.C is the general partner of Blackstone Holdings III GP L.P.

GSO Capital Opportunities Associates III LLC is the general partner of GSO Capital Opportunities Fund III LP. GSO Energy Select Opportunities Associates LLC is the general partner of GSO Energy Select Opportunities Fund LP. GSO Energy Partners-A Associates LLC is the general partner of GSO Energy Partners-A LP. GSO Energy Partners-B Associates LLC is the general partner of GSO Energy Partners-B LP. GSO Energy Partners-C Associates LLC is the general partner of GSO Energy Partners-C LP. GSO Energy Partners-C Associates II LLC is the general partner of GSO Energy Partners-C II LP. GSO Energy Partners-D Associates LLC is the general partner of GSO Energy Partners-D LP. GSO Credit Alpha Associates LLC is the general partner of GSO Credit Alpha Trading (Cayman) LP. GSO Harrington Credit Alpha Associates L.L.C. is the general partner of GSO Harrington Credit Alpha Fund (Cayman) L.P. GSO Capital Solutions Associates II LP is the general partner of GSO Capital Solutions Fund II LP. The general partners of GSO Capital Solutions Associates II LP are GSO Capital Solutions Associates II (Delaware) LLC and GSO Capital Solutions Associates II (Cayman) Ltd. GSO Holdings I L.L.C. is the managing member of each of GSO Capital Opportunities Associates III LLC, GSO Energy Select Opportunities Associates LLC, GSO Energy Partners-A Associates LLC, GSO Energy Partners-B Associates LLC, GSO Energy Partners-C Associates LLC, GSO Energy Partners-C Associates II LLC, GSO Energy Partners-D Associates LLC, GSO Credit Alpha Associates LLC, GSO Harrington Credit Alpha Associates L.L.C. and GSO Capital Solutions Associates II (Delaware) LLC, and a shareholder of GSO Capital Solutions Associates II (Cayman) Ltd. Blackstone Holdings II L.P. is the managing member of GSO Holdings I L.L.C. with respect to securities beneficially owned by the GSO Funds. Blackstone Holdings I/II GP Inc. is the general partner of Blackstone Holdings II L.P.

The Blackstone Group L.P. (“Blackstone”) is the controlling shareholder of Blackstone Holdings I/II GP Inc. and the sole member of Blackstone Holdings III GP Management L.L.C. Blackstone Group Management L.L.C. is the general partner of The Blackstone Group L.P. Blackstone Group Management L.L.C. is wholly

owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman.  In addition, each of Bennett J. Goodman and J. Albert Smith III may be deemed to have shared voting power and/or investment power with respect to the securities held by the GSO Funds.  Blackstone’s address is 345 Park Avenue, 31st Floor, New York, NY 10154.

(3)According to a Schedule 13G/A, filed with the SEC on February 10, 2016,2017, by The Vanguard Group ("(“Vanguard"”), it has sole voting power over 70,198 of these94,798 shares, shared voting power over 04,916 shares, sole dispositive power over 3,671,7329,061,559 shares and shared dispositive power over 65,79896,730 shares.  Vanguard'sVanguard’s address is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.

(4)

(3)
               According to a Schedule 13G filed with the SEC on February 8, 2017, State Street Corporation (“State Street”), it has sole voting power over 0 shares, shared voting power over 3,357,476 shares, sole dispositive power over 0 shares and shared dispositive power over 3,357,476 shares.  State Street’s address is State Street Financial Center, One Lincoln Street, Boston, MA 02111.

(5)Each of Sanexco, Ltd. ("(“Sanexco"”) and San Juan Oil & Gas No. 2, Ltd. ("(“San Juan"”) directly owns 707,333 of these shares.  San Juan and Sanexco are each controlled by their general partner, Sanchez Management Corporation, which is managed by A. R. Sanchez, Jr. A. R. Sanchez, Jr. may be deemed to share voting and dispositive power over the shares of common stock held by each of San Juan and Sanexco. A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by each of San Juan and Sanexco except to the extent of his pecuniary interests therein.

879,472 of these shares are owned directly by SOG.  SOG is managed by Antonio R. Sanchez, III and A. R. Sanchez, Jr.  A. R. Sanchez, Jr. may be deemed to share voting and dispositive power over the shares of common stock held by SOG.  A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by SOG except to the extent of his pecuniary interests therein.


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    474,800 of these shares are owned directly by AEP Ltd. Partnership ("(“AEP"”).  AEP is controlled by its general partner, A. R. Sanchez, Jr.  A. R. Sanchez, Jr. may be deemed to share voting and dispositive power over the shares of common stock held by AEP.  A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by AEP except to the extent of his pecuniary interests therein.

    Sanchez 2016 GRAT No. 1 and Sanchez 2016 GRAT No. 2 (collectively, the "“2016 Trusts"”), directly owns 200,000 and 199,489 shares, respectively.  A. R. Sanchez, Jr. is the sole trustee of the 2016 Trusts.  A. R. Sanchez, Jr. may be deemed to share voting and dispositive power over the shares of common stock held by the 2016 Trusts.  A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by each of the 2016 Trusts except to the extent of his pecuniary interests therein.

    Each of the following trusts (the "“Trusts"”) directly owns 371,836 of these shares, except 1988 Trust No. 13, which owns 175,036 of these shares:  (i) 1988 Trust No. 11:  co-trustee/beneficiary Antonio R. Sanchez, III; (ii) 1988 Trust No. 12:  co-trustee/beneficiary Ana Lee Sanchez Jacobs; (iii) 1988 Trust No. 13:  co-trustee/beneficiary Eduardo Sanchez; and (iv) 1988 Trust No. 14:  co-trustee/beneficiary Patricio Sanchez.  A. R. Sanchez, Jr. is a co-trustee, along with the respective co-trustees and beneficiaries listed next to the name of the Trust above, of each of the Trusts.  A. R. Sanchez, Jr. may be deemed to share voting and dispositive power over the shares of common stock held by each of the Trusts.  A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by each of the Trusts except to the extent of his pecuniary interests therein.

    26,213 of these shares are owned directly by the Alicia M. Sanchez Charitable Lead Annuity Trust ("(“CLAT"”).  A. R. Sanchez, Jr. is the sole trustee of CLAT.  A. R. Sanchez, Jr. disclaims beneficial ownership of the shares of common stock held by CLAT except to the extent of his pecuniary interests therein.

    In addition to the shares over which he has shared voting and dispositive power, A. R. Sanchez, Jr. has sole voting and dispositive power over 496,143888,644 shares of common stock and 1,247,666820,207 shares of restricted common stock.

(4)

(6)879,472 of these shares are owned directly by SOG.  SOG is managed by Antonio R. Sanchez, III and A. R. Sanchez, Jr. Antonio R. Sanchez, III may be deemed to share voting and dispositive power over the shares of common stock held by SOG.  Antonio R. Sanchez, III disclaims beneficial ownership of the shares of common stock held by SOG except to the extent of his pecuniary interests therein.

371,836 of these shares are owned directly by 1988 Trust No. 11. Antonio R. Sanchez, III is a co-trustee, along with A. R. Sanchez, Jr., and beneficiary of 1988 Trust No. 11. Antonio R. Sanchez, III may be deemed to share voting and dispositive power over the shares of common stock held by 1988 Trust No. 11. Antonio R. Sanchez, III disclaims beneficial ownership of the shares of common stock held by 1988 Trust No. 11 except to the extent of his pecuniary interests therein.

In addition to the shares over which he has shared voting and dispositive power, Antonio R. Sanchez, III has sole voting and dispositive power over 439,231730,819 shares of common stock and 910,749663,964 shares of restricted common stock.

(5)

(7)Includes 345,001481,746 shares of restricted common stock.

(6)
Share figure is according to an exit Form 4, filed with the SEC on May 14, 2015.

(8)               In connection with his resignation in March, 2016, Mr. Long's announced retirement, the Company andVan Riet forfeited all of his unvested restricted shares.  To our knowledge, Mr. Long entered into the Retirement Agreement, pursuant to which, among other things, Mr. Long's


Van Riet does not beneficially own any shares of our common stock.

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    restricted stock awards were amended to accelerate their vesting such that they are fully vested as of the date hereof.

(7)
Includes 803,36718,803 shares of restricted common stock.

(10)
        Includes 275,000 shares of restricted common stock.

(11)        Includes 612,716 shares of restricted common stock.  175,036 of these shares are owned directly by 1988 Trust No. 13.  Eduardo Sanchez is a co-trustee, along with A. R. Sanchez, Jr., and beneficiary of 1988 Trust No. 13.  Eduardo Sanchez may be deemed to share voting and dispositive power over the shares of common stock held by 1988 Trust No. 13.  Eduardo Sanchez disclaims beneficial ownership of the shares of common stock held by 1988 Trust No. 13 except to the extent of his pecuniary interests therein.

(8)

(12)Includes 19,84125,510 shares of restricted common stock.

(9)

(13)Includes 19,84125,510 shares of restricted common stock and 18,6007,500 shares are held in a margin account with Bank of America.

(10)
equal amounts by three children.

(14)Includes 19,84125,510 shares of restricted common stock.

(11)
21,600 shares are held by Mr. Jackson’s wife. Mr. Jackson disclaims beneficial ownership of the shares of common stock held by his wife.

(15)Includes 19,84128,576 shares of restricted common stock.

(12)
Includes 15,873 shares of restricted common stock.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

The executive officers and directors of the Company and persons who own more than 10% of the Company'sCompany’s common stock are required to file reports with the SEC, disclosing the amount and nature of their beneficial ownership in common stock, as well as changes in that ownership.  Based solely on its review of reports and written representations that the Company has received, the Company believes that all required reports were timely filed during 2015,2016, with the following exception:  Mr.Messrs. Garcia, Maher, Colvin, Jackson, and Carney purchased 500 shares of our commonwere each issued restricted stock grants on November 25, 2015;June 1, 2016, however, the Form 4 covering these acquired shares was4s coverings such grants were inadvertently filed late on December 1, 2015.June 6, 2016.


TRANSACTIONS WITH RELATED PERSONS

 

A "Related“Related Party Transaction"Transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person (as defined below) had, has or will have a direct or indirect material interest. Pursuant to the Company'sCompany’s related party transactions policy, a "related person"“related person” means:

    •

    ·any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors or is currently one of our nominees for director;

    ·

    •
    any person who is known by us to be the beneficial owner of more than 5% of our common stock;

    ·

    •
    any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, director nominee, executive officer or a beneficial owner of more than 5% of our common stock, and any person (other than a tenant or employee) sharing the household of such director, director nominee, executive officer or beneficial owner of more than 5% of our common stock;

    ·

    •
    any entity in which any of the foregoing persons serves as an executive officer or principal or in a similar position, or, in the case of a partnership, serves as a general partner or holds any position other than that of a limited partner;

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    •
    any entity in which any of the foregoing persons owns, together with all other foregoing persons, 10% or more of the equity interest, or in the case of a partnership, 10% or more of an interest; or

    ·

    •
    any entity in which any of the foregoing persons is employed if (a) the person is directly involved in the negotiation of the Related Party Transaction or will share or have primary responsibility at such entity for the performance of the Related Party Transaction, or (b) the person'sperson’s compensation from the entity is directly tied to the Related Party Transaction.

 On November 19, 2015, our Board updated our written related party transactions policy, the

The purposes of this policy are to identify, review, assess and, if deemed appropriate, approve Related Party Transactions. Pursuant to our related party transactions policy, the Audit Committee reviews all material facts of all Related Party Transactions and either approves or disapproves entry into the Related Party Transaction, subject to certain limited exceptions. In determining whether the Related Party Transaction is fair to the Company, the Audit Committee takes into account, among other factors, the following:

    •

    ·whether there are demonstrable business reasons for the transaction;

    ·

    •
    whether the transaction is material to the Company;

    ·

    •
    the benefits that accrue to the Company as a result of the transaction;

    ·

    •
    whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-partythird party under the same or similar circumstances;

    ·

    •
    the impact of the transaction on a director'sdirector’s independence (in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer);

    ·

    •
    the extent of the related person'sperson’s interest in the transaction;

    ·

    •
    the role the related person played in arranging the transaction;

    ·

    •
    the availability of other sources for comparable products or services;

    ·

    •
    whether it is a single transaction or a series of ongoing, related transactions; and

    ·

    •
    whether entering into the transaction would be consistent with the Code of Business Conduct and Ethics.

 

Our related party transaction policy also requires that all Related Party Transactions required to be disclosed in our filings with the SEC be so disclosed in accordance with applicable laws, rules and regulations. There were no Related Party Transactions since the beginning of our last fiscal year that are required to be reported in "Transactions“Transactions with Related Persons"Persons” where the procedures described above did not require review, approval or ratification or where these procedures were not followed.

 

Mr. Sanchez, Jr., our Executive Chairman of the Board, is a director and greater than 10% stockholder of International Bancshares Corporation, the parent of IBC, which provides insurance brokerage services on a commission basis to the Company and its affiliates. For the fiscal year ended December 31, 2015,2016, the Company and its affiliates paid IBC commissions of approximately $206,000.$1.6 million.

 

The description below of agreements with various members of the Sanchez Group and our directors and executive officers is a summary and, with respect to each such agreement, is qualified by reference to the terms of the agreement, each of which was filed as an exhibit to our 20152016 10-K. We encourage you to read the full text of these agreements. These agreements have been negotiated among affiliated parties and, consequently, are not the result of arm'sarm’s length negotiations. The prices


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and other terms of these agreements may be less favorable to us than those we could have obtained in arm'sarm’s length negotiations with unaffiliated third parties for similar services or under similar agreements.

Concurrently with the closing of our initial public offering ("(“IPO"”), we entered into a services agreement with SOG pursuant to which, among other things, specified employees of SOG, including our executive officers, provide certain services to us with respect to our business under the direction, supervision and control of SOG. Salaries and associated benefits of SOG employees are allocated to the Company based on a fixed percentage that is reviewed quarterly and adjusted, if needed, based on a detailed analysis of actual time spent by the professional staff on Company projects and activities. The services agreement also covers fees charged to us for our use of aircraft owned by SOG or other members of the Sanchez Group. This fee is based on an hourly rate paid by the Company to SOG that we believe is comparable to aircraft usage fees in arm'sarm’s length transactions. General and administrative expenses such as office rent, utilities, supplies and other overhead costs, are allocated on the same percentages as the SOG employee salaries. We reimburse SOG for the provision of services to us, including those provided by our executive officers, at a price equal to SOG'sSOG’s cost of providing such services, including all direct costs and indirect administrative and overhead costs (including the allocable portion of salary, bonus, incentive compensation and other amounts paid to persons that provide the services on SOG'sSOG’s behalf) allocated in accordance with SOG'sSOG’s regular and consistent accounting practices, including for any such costs arising from amounts paid directly by other members of the Sanchez Group on SOG'sSOG’s behalf or borrowed by SOG from other members of the Sanchez Group, in each case in connection with the performance by SOG of services on our behalf. We also reimburse SOG for sales, use or other taxes, or other fees or assessments imposed by law in connection with the provision of services to us (other than income, franchise or margin taxes measured by SOG'sSOG’s net income or margin and other than any gross receipts or other privilege taxes imposed on SOG) and for any costs and expenses arising from or related to the engagement or retention of third partythird-party service providers. For the year ended December 31, 2015,2016, we reimbursed SOG approximately $38.0$50.6 million for these expenses.expenses incurred under the services agreement.

 

In connection with the services agreement, we entered into a licensing agreement with SOG pursuant to which it granted to us a license to the unrestricted proprietary seismic, geological and geophysical information related to our properties owned by SOG, and all such information related to our properties not otherwise licensed to us is to be interpreted and used by SOG for our benefit under the licensing agreement. In addition, also in connection with the services agreement, SOG entered into a contract operating agreement under which it agreed to develop, manage and operate our properties or engage a responsible unaffiliated industry operator and joint owner for such development, management and operation. No costs, fees or other expenses are payable by us under these agreements to the extent that they are included in the fee payable to SOG under the services agreement. The licensing agreement and contract operating agreement terminate concurrently with the termination or expiration of the services agreement.

 

Under the services agreement, we are entitled to indemnification for certain liabilities, and are required to indemnify SOG and its affiliates for certain liabilities. SOG is required to indemnify us for third partythird-party infringement or misappropriation claims relating to the services performed by SOG or the data or other information provided to us or used by SOG in connection with the services, the licensing agreement or our operations based on the services provided by SOG. We, on the other hand, are otherwise required to indemnify SOG and its affiliates from liabilities relating to the services or products provided to us by SOG or our agreements with SOG, to the extent not directly caused by the gross negligence or willful misconduct of SOG or its affiliates. The initial term of the services agreement iswas for five years.years and expired in December 2016. The term automatically extends for additional 12-month periods unless either party provides 180 days180-days written notice otherwise prior to the expiration of the applicable 12-month period. Either party may terminate the agreement at any time upon 180 days180-days written notice.


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        Patricio Sanchez and Ana Lee Sanchez Jacobs, each an immediate family member of our President, our Chief Executive Officer, and the Executive Chairman of our Board and Patricio D. Sanchez, an Executive Vice President of the Company, collectively with Messrs. Sanchez, Jr., Sanchez, III and Eduardo Sanchez,such individuals, either directly or indirectly, ownowns a majority of the equity interests of SOG. In addition, Antonio R. Sanchez, Jr. is a member of the board of directors of SOG, and Messrs. Sanchez, Jr., Sanchez, III, Eduardo Sanchez and Patricio D. Sanchezsuch other individuals as well as Ms. Ana Lee Sanchez Jacobs are officers of SOG.

 

In connection with our Contribution, Conveyance and Assumption Agreement with SEP I, pursuant to which SEP I contributed 100% of its limited liability company interests in SN Palmetto, LLC (formerly known as SEP Holdings III, LLC) to us in exchange for a cash payment of $50 million and the issuance by us of 22,090,909 shares of our common stock, and the closing of our IPO, we entered into a registration rights agreement with SEP I. Following the distributions in June 2012 and September 2012 of substantially all of our common stock that it held, SEP I assigned the rights under the registration rights agreement related to the shares that it distributed, to the extent

that the shares constituted "Registrable Securities"“Registrable Securities” (as defined in the registration rights agreement), including with respect to the shares distributed to SEP Management, SOG, San Juan and Sanexco. As an original party to the registration rights agreement, SEP I remains entitled to the benefits of this agreement to the extent that it continues to hold Registrable Securities.  Under the registration rights agreement, persons holding Registrable Securities have certain demand, piggyback and Form S-3 registration rights relating to the resale of Registrable Securities pursuant to which we are required to use our best efforts to effect the registration of such Registrable Securities on the applicable form or to include such Registrable Securities in such registration or offering on the same terms and conditions as such other securities being registered, as applicable. These registration rights are subject to conditions and limitations, including the total number of demand registrations that we are required to effect, the right of the managing underwriter or underwriters to limit the number of shares to be included in a registration and our right to delay or withdraw a registration statement under specified circumstances. We are to pay all expenses relating to any demand, piggyback or Form S-3 registration, except for any underwriterunderwriter’s or brokers'brokers’ discounts or commissions. We also agreed to indemnify the holders of Registrable Securities with respect to certain liabilities under the securities laws in connection with registrations pursuant to the registration rights agreement.

In connection with the appointment of our executive officers and directors, we entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements require us to, among other things, indemnify these individuals against certain liabilities that may arise in connection with their status or service as one of our directors or executive officers or in their capacity at other specified entities at which they serve at our request and to advance their expenses incurred as a result of any proceeding for which they may be entitled to indemnification. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under the Delaware General Corporation Law (the "“DGCL"”) and are in addition to any other rights these individuals may have under our organizational documents or applicable law.

    Tuscaloosa Marine Shale Transactions

        In August 2013, we acquired rights to approximately 40,000 net undeveloped acres in what we believe to be the corePatricio D. Sanchez, an Executive Vice Present of the TMS (the "TMS Transaction")Company, was appointed to such position on November 3, 2016. During fiscal year 2016, Mr. Sanchez received compensation of $43,092 related to work performed at SOG for cashthe Company payable by us under the services agreement described above and received 100,000 shares of restricted stock and 100,000 shares of phantom stock, vesting equally over a period of three years, and 100,000 shares of performance accelerated restricted stock and 100,000 shares of performance accelerated phantom stock, which cliff vest in five years or earlier if our common stock closing price equals or exceeds certain benchmarks as set forth in the New Equity Award Agreements.  In addition, effective March 1, 2017, Mr. Sanchez received 86,655 shares of restricted stock, 86,655 shares of phantom stock and 86,655 target shares of our common stock plus an initial 3 gross (1.5 net) well drilling carry (the "Initial Well Carry"). In connection withpursuant to a performance phantom stock agreement, in each case vesting equally over a period of five years.  Please see the TMS Transaction, we established an Areasection titled “Elements of Mutual Interest ("AMI") in the TMS with SR,Executive Compensative” for a subsidiarymore detailed description of our affiliate Sanchez Resources, which transaction included a carry on drilling costs for up to 6 gross (3 net) wells. Patricio Sanchezrestricted, phantom, performance accelerated restricted and Ana Lee Sanchez Jacobs, each an immediate family member of our President, Chief Executive Officer and the Executive Chairman of our Board, collectively with Messrs. Sanchez, Jr., Sanchez, III and Eduardo Sanchez, either directly or indirectly, own a majority of the equity interests of Sanchez Resources. Sanchez Resources is managed by our President,


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Eduardo Sanchez. In addition, Mr. Long, Ms. Hink, Mr. Heinson and Mr. Van Riet own 50, 15, 65 and 15 units ofperformance accelerated phantom equity in Sanchez Resources, respectively.stock awards.

 As part of the transaction, we acquired our working interests in the AMI owned at closing from three sellers (two third parties and SR) resulting in our owning an undivided 50% working interest across the AMI through the TMS.

        Total consideration for the transactions consisted of approximately $70 million in cash and the issuance of 342,760 common shares of the Company, valued at approximately $7.5 million. The total cash consideration provided to SR, an affiliate of the Company, was $14.4 million, before consideration of any well carries. The acquisitions were accounted for as the purchase of assets at cost at the acquisition date. We also committed, as a part of the total consideration, to carry SR for its 50% working interest in the Initial Well Carry with an option to drill an additional 6 gross (3 net) TMS wells ("Additional Wells") within the AMI. In August 2015, after completing the Initial Well Carry, the Company signed an agreement with SR whereby the Company paid SR approximately $8 million in lieu of drilling the remaining two Additional Wells (the "Buyout Agreement"). The Buyout Agreement stipulates that the Company has earned full rights to all acreage stated in the TMS Transaction and terminated any future well carry commitments.

    Transactions with SPP

 

Antonio R. Sanchez, III, the son of Antonio R. Sanchez, Jr. and brother of Eduardo A. Sanchez and Patricio D. Sanchez, is the Company'sCompany’s Chief Executive Officer and is a member of the board of directors of both the Company and of SPP GP. Patricio D. Sanchez, an Executive Vice President of the Company, is the chief operating officer of SPP and director of SPP GP. Mr. EduardoE. A. Sanchez, our President, is also a member of the board of directors of SPP GP. Messrs. Sanchez, Jr., Sanchez, III, Patricio D. Sanchez and EduardoE. Sanchez all directly or indirectly own certain equity interests in the Company and SPP. Messrs. Sanchez, Jr., Sanchez, III, Patricio Sanchez and EduardoE. Sanchez beneficially own approximately 5.9%0.60%, 3.6%1.64%, 2.4%2.02% and 2.4%1.63%, respectively, in SPP equity interests.common units.

 

Mr. Hill, the Company'sCompany’s former Interim Chief Financial Officer from March 7, 2016 to October 10, 2016, has served as Senior Vice President, Investor Relations forof SPP and Treasurer, Assistant Secretary, and Vice President, Risk Management of SPP GP, which position he was elected to in March 2015. In addition, Mr. Hill beneficially owns less than 1% in SPP equity interests. Ms. Hink, the Company'sCompany’s Senior Vice President and Chief Accounting Officer, also serves as SPP'sSPP’s Chief Accounting Officer. Ms. Hink beneficially owns less than 1% in SPP equity interests.common units.

    On November 16, 2016, SN UR Holdings, LLC (“a)    Wellbore Working InterestSN UR Holdings”), a wholly owned subsidiary of the Company, entered into a Common Unit Purchase Agreement (the “Purchase Agreement”) with  SPP providing for the purchase by SN UR Holdings in a private placement of 2,272,727 SPP common units at a price of $11.00 per common unit.  The transaction closed on November 22, 2016.  In connection with the Purchase Agreement, on

    November 22, 2016, SN UR Holdings entered into a registration rights agreement with SPP pursuant to which SPP granted to SN UR Holdings certain registration rights related to the acquired SPP common units.  Under the registration rights agreement, SPP granted SN UR Holdings demand registration rights with respect to the preparation and filing with the SEC of one or more registration statements for the purpose of registering the resale of the acquired SPP common units.  The registration rights agreement also includes piggyback rights for the Company.  SPP also agreed, among other things, to indemnify and hold harmless SN UR Holdings and its controlling persons and their respective officers, directors, members, partners, agents, brokers, investment advisors and employees from and against all losses of SN UR Holdings incident to SPP’s obligations under the registration rights agreement, including certain liabilities under federal securities laws.

    On November 22, 2016, the Company and SN Midstream, LLC, a wholly owned subsidiary of the Company (“SNM”), consummated the disposition of 50% of the outstanding membership interests in Carnero Processing, LLC (“Carnero”) pursuant to a Purchase and Sale Agreement, dated October 6, 2016, among the Company, SNM and SPP.  Carnero is constructing a cryogenic gas processing facility located in La Salle County, Texas.  SPP paid aggregate cash consideration of $55.5 million and agreed to assume approximately $24.5 million of remaining estimated capital contribution commitments in connection with the acquisition.

On March 31, 2015, we completed our disposition to aNovember 22, 2016, SN Cotulla Assets, LLC and SN Palmetto, LLC (together, the “Seller”), each wholly owned subsidiary of SPPthe Company, consummated the disposition of escalating amounts of partial working interests in 5923 producing Eagle Ford wellbores located in Dimmit and Zavala counties in South Texas together with escalating working interests in an additional 11 producing wellbores located in the Palmetto Field in Gonzales County, Texas, (the "Palmetto Disposition") for an adjusted sales price of approximately $83.4 million. The effective date ofpursuant to a Purchase and Sale Agreement, dated October 6, 2016, among the transaction was January 1, 2015. The aggregate average working interest percentage initially conveyed was 18.25% per wellboreSeller, on the one hand, and upon January 1 of each subsequent year after the closing, the purchaser's working interest will automatically increase in incremental amounts according to the purchase agreement until January 1, 2019, at which point the purchaser will ownSPP and SEP Holdings IV, LLC, a 47.5% working interest and we will own a 2.5% working interest in each of the wellbores. We received consideration consisting of approximately $83.0 million (approximately $81.4 million as adjusted) cash and 1,052,632 common unitswholly owned subsidiary of SPP, (the "SPP Common Units") valued at approximately $2.0on the other hand.  The Seller received aggregate cash consideration of $25.6 million as of the date of the closing. These SPP Common Units were later sold back to SPPafter $1.4 million in October 2015 as part of the Western Catarina Midstream Divestiture described below.


normal and customary closing adjustments.

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    b)    Midstream Transaction

On October 14, 2015,6, 2016, the Company and SN Catarina,Terminal, LLC (the “SNT”), a wholly-ownedwholly owned subsidiary of the Company, ("on the one hand, entered into a Purchase and Sale Agreement (the “SN CatarinaLease Option Purchase Agreement"”) with SPP, on the other hand, pursuant to which SNT sold and conveyed to SPP an option to acquire a ground lease (the “Lease Option”) to which SNT is a party for a tract of land leased from the Calhoun Port Authority in Point Comfort, Texas.  In addition, if the Company or any of its affiliates have entered into an option to engage in the construction of or participation in a Project (as defined below) and/or receive the benefit of an acreage dedication from an affiliate of the Company relating to a Project, then such option and/or acreage dedication will also be assigned to SPP, if SPP exercises the Lease Option.  SPP will pay SNT $1.00 if the Lease Option is exercised, along with $250,000 if SPP or any other person affiliated with SPP elects to construct, own or operate a marine crude storage terminal on or within five miles of the Port Comfort lease or participates as an investor in the same, within five miles thereof (a “Project”), completedor the saleCompany or its affiliates convey an acreage dedication to or an option regarding a Project.

On July 5, 2016, the Company and SNM entered into a Purchase and Sale Agreement with SPP pursuant to which SPP purchased all of  SN Catarina'sSNM’s issued and outstanding membership interests in Carnero Gathering, LLC (the “Gathering”) for an initial payment of approximately $37 million and the assumption of remaining capital commitments to Gathering, which are estimated at approximately $7.4 million.  In addition, SPP is required to pay SNM a monthly earnout based on gas received at Gathering’s receipt points from SN Catarina, Midstream, LLC, a wholly-ownedwholly owned subsidiary of SN Catarina ("Catarina Midstream"), which asthe Company, and gas delivered and processed at the Raptor Plant (as defined below) by other producers.  The membership interests disposed of constitute 50% of the closing included certain midstreamoutstanding membership interests in Gathering, with the other 50% of the membership interests of Gathering being owned by TPL SouthTex Processing Company LP.  Gathering is developing and constructing a gas gathering lines and associated assets and interests locatedpipeline from an interconnection in Dimmit County and Webb County, Texas, to interconnection(s) with a gas processing facility (the “Raptor Plant”) being developed and 105,263 SPP Common Unitsconstructed by Carnero Processing, LLC.

As of December 31, 2016, the Company had a net payable to SPP for an adjusted purchase price of $345.8approximately $9.0 million in cash (the "Western Catarina Midstream Divestiture"). In connection with the closingthat consists primarily of the Western Catarina Midstream Divestiture, SN Catarina and Catarina Midstream entered intoDecember 2016 accrual for fees associated with a Firm Gathering and Processing Agreement, (the "Gathering Agreement") ondated October 14, 2015, forwith an initial term of 15 years under which production from approximately 35,000 acres in Dimmit County and Webb County, Texas, will behas dedicated for gathering by Catarina Midstream. In addition, for the first five yearsa wholly owned subsidiary of the Gathering Agreement, SN Catarina will be required to meet a minimum quarterly volume delivery commitment of 10,200 barrels per day of crude oil and condensate and 142,000 Mcf per day of natural gas, subject to certain adjustments. SN Catarina will be required to pay gathering and processing fees of $0.96 per barrel for crude oil and condensate and $0.74 per Mcf for natural gas that are tendered through the gathering system, in each case, subject to an annual escalation for a positive increase in the consumer price index. In addition, SN Catarina has, under certain circumstances, a right of first refusal during the term of the agreement and afterwards with respect to dispositions by Catarina Midstream of its ownership interest in the gathering system.SPP.

Comanche Transactions

 As of December 31, 2015,

On March 1, 2017, the Company, had a net payable to SPP of approximately $4.4 million that consists primarily of the December 2015 accrual for fees associated with the Gathering Agreement.


ITEM TWO.    AMENDMENT OF THE COMPANY'S SECOND AMENDED AND RESTATED 2011 LONG TERM INCENTIVE COMPENSATION PLAN

Summary of the Proposal

        Our Board has unanimously approved, subject to approval by our stockholders, the Plan Amendment. As described below, the Plan Amendment increases the number of shares available for awards under the Plan and extends the term of the Plan until May 24, 2026. Our Board believes that the continued effectiveness of the Plan as a tool to attract and retain talent is critical to our long-term goal of building stockholder value and recommends approval of the Plan Amendment by our stockholders.

        As of the record date, the number of shares available for delivery with respect to awards under the Plan was 2,836,777 shares. Shares withheld to satisfy tax withholding obligations or to pay the exercise price of an award are not considered to be delivered under the Plan. If an award is forfeited, canceled, exercised, paid or otherwise terminates or expires without the delivery of shares, the shares subject to such award are then available for new awards under the Plan. The maximum number of shares deliverable under the Plan also automatically increases after any issuance of additional shares of common stock by 15% of such issuance, unless our Board or an authorized committee thereof determines to increase the maximum number of shares of common stock deliverable under the Plan by a lesser amount. This automatic increase provision of our Plan is effective only upon the issuance of additional shares by us (for example, through a common stock offering) and additional shares are not added to the Plan upon the occurrence of other events such as the ending of the current fiscal year, the beginning of a new fiscal year or the passage of time.

        For the reasons explained below, our Board believes that the number of shares that may be delivered pursuant to awards under the Plan should be increased by 5 million additional shares. After giving effect to the Plan Amendment, the number of shares available for awards under the Plan would have been 17,239,790 shares (this figure includes shares currently subject to outstanding awards as well as shares that may be granted pursuant to future awards) as of the record date. As of the record date,


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9,403,013 shares of restricted stock, including performance accelerated restricted shares, had been granted under the Plan. The closing market price of our common stock as of the record date was $5.07 per share, as reported on the NYSE.

Rationale for the Plan Amendment and Why Our Board Recommends that You Vote for Its Approval

    The Board Believes a Fixed Increase in the Number of Shares Authorized Under the Plan is in the Best Interests of Our Stockholders Due to the Impact Employee Retention has on Performance

        Our operating environment in 2015 was characterized by significant commodity price volatility, distress in the capital markets, and considerable uncertainty with respect to the future of our industry. While we believe we are well situated to navigate today's challenging environment and prosper in the years ahead, we know that our ability to do so will be contingent upon our success in attracting and retaining key employees with experience and skill sets that fit our culture and corporate strategy.

        Our 2015 results were driven by a team focused on financial discipline and operating efficiencies. At Catarina, our most active area of development in 2015, we achieved a 40% improvement in EUR and a reduction in average well cost from $8.8 million when we acquired the asset in 2014 to $3.5 million in 2015, a savings of approximately 60% per well, on average, in less than two years. As a result of these aggressive cost savings, we successfully increased production with less capital spending than originally planned for 2015. This allowed us to exit 2015 with liquidity of $735 million, including $435 million in cash. For 2016, our capital budget is expected to range between $200 million and $250 million, a reduction of approximately 60% when compared to 2015 capital spending levels, which we anticipate we will fund with available cash and cash flow from operations. Our forecast production of between 48,000 and 52,000 BOE/D in 2016 represents no material change when compared to 2015 production, despite significantly lower capital spending.

        Our ability to achieve strong operating and financial results is a function of the team we have assembled, which has experience in commodity down cycles like the one we face today, and the incentives we use to promote performance at all levels of our organization. In today's more challenging environment, fully trained and qualified individuals are increasingly in demand by our competitors, including peers and start-up companies, many of which are backed by private equity firms looking to capitalize on industry conditions, commodity price volatility, financial distress, and uncertainty. Competitive compensation packages, which include a combination of cash and equity compensation under the Plan, we believe are essential to our efforts to attract and retain key employees that are capable of driving our operating and financial results.

    Absent a Fixed Increase in the Number of Shares Authorized Under the Plan the Number of Shares Available to Attract and Retain Key Employees May Be Limited

        In light of the current price of our common stock relative to recent historical levels, we do not currently believe that the issuance of additional shares of our common stock in potentially dilutive capital markets transactions is attractive to us or in the best interests of our stockholders in the near term, although we expect to continue to consider issuing additional shares in connection with opportunistic acquisitions on a case-by-case basis. As a result (and except in the case of share issuances in connection with such opportunistic acquisitions), we do not believe that the automatic increase provisions of the Plan will be effective in providing us with the flexibility that we need to properly fashion competitive compensation packages for eligible participants under the Plan while allowing us to preserve cash and maintaining the desired level of financial flexibility.

        We also believe that the availability of alternative sources of capital to us, such as our recently completed transactions with SPP, may reduce our need to access external capital markets. In 2015, we successfully raised approximately $430 million in cash through the sale of two assets to SPP. Our strategic relationship with SPP, together with an extensive inventory of assets suitable for the master


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limited partnership model that may be opportunistically divested, provides a valuable source of potential capital and liquidity in the years ahead. Our ability to enhance liquidity without accessing external capital markets may limit future increases in the number of additional shares of common stock available for awards under the Plan pursuant to the automatic increase provisions of the Plan as such increases would be contingent upon the future issuance of shares of our common stock.

    Equity Incentive Awards Are Critical to Long-Term Stockholder Value Creation

        As discussed in the "Compensation Discussion & Analysis" section of this Proxy Statement, long-term equity-based incentive awards are central to our compensation philosophy and constitute a significant portion of our named executive officers' total compensation. Our Board and our Compensation Committee believe that our ability to grant equity incentive awards to new and existing executive officers, directors, our employees and those of our subsidiaries and Sanchez Group Members (as defined in the Plan) who provide services to us and eligible consultants has helped us to attract, retain and motivate professionals with superior ability, experience and leadership capability. We have historically issued restricted stock to these persons under the Plan, as our Board and Compensation Committee believe it aligns their interests with that of our stockholders, encourages retention and promotes actions that result in long-term stockholder value creation. We believe we must continue to offer a competitive equity compensation plan in order to attract, retain and motivate the industry-leading talent imperative to our continued growth and success. In addition, as we selectively add to our management team, we intend to continue to use equity incentive grants to attract and retain the best candidates and want to insure that we have sufficient shares available for awards under the Plan to achieve this goal.

    Equity Incentive Awards Helps Us to Maintain Maximum Financial Flexibility

        Liquidity is important to our business, as it provides the resources needed to manage through the current down cycle and to capitalize on new opportunities emerging from distress in the marketplace. In 2015, we executed a focused and disciplined strategic plan that allowed us to exit the year with total liquidity of $735 million, providing considerable resources to execute the Company's strategic plans in the years ahead. Our Board and Compensation Committee believe that compensation in the form of equity incentive awards under the Plan, in lieu of cash awards, will allow the Company to better manage its liquidity and maintain financial flexibility while still allowing us to provide competitive compensation packages needed to attract and retain key employees.

        For the reasons described above, our Board believes that the number of shares of common stock currently available for issuance under the Plan is insufficient and, after careful deliberation, our Board has adopted the Plan Amendment, subject to stockholder approval, pursuant to which the number of shares that could be delivered pursuant to awards under the Plan would be increased by 5 million additional shares. Longnecker & Associates, an independent compensation consulting firm, was consulted in connection with the adoption of the Plan Amendment and advised the Compensation Committee and the Board that the 5 million share increase under the Plan was in the best interest of the Company and its stockholders. Following the adoption of the Plan Amendment, the maximum number of shares deliverable under the Plan also automatically increases after each issuance of additional shares of common stock by 15% of such issuance, unless our Board determines to increase the maximum number of shares of common stock deliverable under the Plan by a lesser amount. However, our Board believes that potentially dilutive capital markets transactions are not in the best interest of the company or its stockholders and any potential acquisitions would need to be reviewed on case-by-case basis, thus potentially limiting the utility of the automatic increase provisions of the Plan.


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    Consequences of Failing to Approve the Plan Amendment

        Failure of the Company's stockholders to approve this proposal will not affect the rights of existing award holders under the Plan or under any previously granted awards under the Plan. However, the Company would be required to reevaluate its compensation structure since adequate shares may not be available for equity award grants in the near future.

Summary of the Plan

        The principal terms and provisions of the Plan, as proposed to be amended by the Plan Amendment, are summarized below. The summary, however, is not intended to be a complete description of all the terms of the Plan and is qualified in its entirety by reference to the complete text of the Plan, as proposed to be amended and restated, which is included inAppendix A to this Proxy Statement, in which we have shown the changes resulting from the proposed Plan Amendment, with deletions indicated by strikeouts and additions indicated by underlining. If the 5 million additional shares are approved for the Plan, we will register those shares on a Form S-8.

    Administration

        The Plan authorizes the Board, or a committee appointed by the Board (the "Plan Administrator"), to grant options, stock appreciation rights, restricted stock, phantom stock, other stock-based awards or stock awards, or any combination thereof. The Plan is administered by the Plan Administrator, who will select the recipients of any awards, determine the number of shares covered thereby, and, subject to the terms and limitations expressly set forth in the Plan, establish the terms, conditions and other provisions of the grants.

    Shares Available for Issuance

        As of the record date, the number of shares available for delivery pursuant to awards under the Plan was 2,836,777 shares. Shares withheld to satisfy tax withholding obligations or to pay the exercise price of an award are not considered to be delivered under the Plan. In addition, if an award is forfeited, canceled, exercised, paid or otherwise terminates or expires without the delivery of shares, the shares subject to such award are then available for new awards under the Plan. There is no limitation on the number of awards that may be paid in cash. The maximum number of shares deliverable under the Plan also automatically increases after any issuance of additional shares of common stock by 15% of such issuance, unless the Plan Administrator determines to increase the maximum number of shares of common stock deliverable under the Plan by a lesser amount. This automatic increase provision of our Plan is effective only upon the issuance of additional shares by us (for example, through a common stock offering) and additional shares are not added to the Plan upon the occurrence of other events such as the ending of the current fiscal year, the beginning of a new fiscal year or the passage of time. For the reasons explained above, our Board believes that the number of shares that may be delivered pursuant to awards under the Plan should be increased by 5 million additional shares of our common stock. After giving effect to the Plan Amendment, the number of shares available for delivery pursuant to awards under the Plan would have been 7,836,777 shares (this figure only includes shares that may be granted pursuant to future awards) as of the record date. As of record date, 9,403,013 shares of restricted stock had been granted under the Plan, including performance accelerated restricted shares.

        With respect to any "equity restructuring" event that could result in an additional compensation expense to the Company pursuant to the provisions of FASB ASC Topic 718, if adjustments to awards with respect to such event were discretionary, the Plan Administrator shall equitably adjust the number and kind of shares and the terms and conditions, including price per share and performance criteria (if any), subject to the outstanding awards to equitably reflect such restructuring event and shall adjust the number and type of common shares (or other securities or property) with respect to which awards may


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be granted after such event. With respect to any other similar event that would not result in a FASB ASC Topic 718 accounting charge if the adjustment to awards with respect to such event were subject to discretionary action, the Plan Administrator has discretion to adjust awards.

    Eligibility

        Awards may be made to any director or consultant of the Company or any employee of the Company,SN EF Maverick, LLC, a subsidiary of the Company or a Sanchez Group Member who provides services to the Company or(“SN Maverick”), SN EF UnSub, LP, a subsidiary of the Company. AsCompany (“SN UnSub”), and Gavilan Resources, LLC (“Gavilan” and, together with SN Maverick and SN UnSub, the “Buyers”), an entity controlled by affiliates of The Blackstone Group L.P. (“Blackstone”), completed the closing of the record date, there were approximately 210 employeestransactions contemplated by the purchase and sale agreement (the “Purchase Agreement”) among the Buyers and Anadarko E&P Onshore, LLC and Kerr-McGee Oil & Gas Onshore LP (together, the “Sellers”).  At the closing, the Buyers collectively purchased all of the Sanchez Group Members providing servicesright, title and interest of the Sellers in the Comanche asset for aggregate consideration of approximately $2.1 billion, subject to customary purchase price adjustments.  In connection with the closing of the transactions contemplated by the Purchase Agreement, pursuant to an Interim Investors Agreement, dated as of January 12, 2017, among the Company, SN Maverick, Blackstone Capital Partners VII L.P. and its subsidiaries, five non-employee advisors and five non-employee directors eligibleBlackstone Energy Partners II L.P. (together the “Blackstone Funds”) we issued to participate in the Plan.

    Typesentities controlled by affiliates of Awards

        Under the termsBlackstone warrants (expiring on March 1, 2022) to purchase an aggregate of the Plan, the Plan Administrator can grant any of the following awards, or a combination thereof.

        Stock Options.    A stock option is a right to buy a specified number of6.5 million shares of our common stock at a specifiedan exercise price duringof $10 per share, subject to customary anti-dilution adjustments, and  pursuant to a specified periodSecurities Purchase Agreement, dated as of time. The Plan AdministratorJanuary 12, 2017, among the Company, SN UnSub, SN EF UnSub GP, LLC, the general partner of SN UnSub (the “SN UnSub General Partner”), SN UR Holdings, SN EF UnSub Holdings, LLC, a subsidiary of SN UR Holdings, GSO ST Holdings Associates LLC (“GSO Associates LLC”), and GSO ST Holdings LP (“GSO Associates LP”) (which was amended and restated on February 28, 2017 to add Intrepid Private Equity V-A, LLC as an additional party thereto):  (i) GSO Associates LP purchased 485,000 preferred units of SN UnSub for $485,000,000; (ii) GSO Associates LLC purchased 1 Class B Unit in SN UnSub General Partner for nominal consideration; and (iii) certain funds (the “GSO Funds”) managed or advised by GSO Capital Parnters LP (“GSO”) received (a) 1,455,000 shares of the Company’s common stock and (b) warrants (expiring on March 1, 2032) to purchase 1,940,000 shares of the Company’s common stock at an exercise price of $10 per share, subject to customary anti-dilution adjustments.  In addition, on March 1, 2017, we entered into a number of transactions with entities affiliated or associated with GSO, the GSO Funds and/or Blackstone, descriptions of which follow (subject to such additional terms, conditions and exceptions, as applicable, as set forth in the relevant agreement).

We entered into a registration rights agreements with the Blackstone warrantholders and the GSO Funds granting the parties certain registration rights for the shares of the Company’s common stock acquired by the parties, including the shares issuable upon the exercise of the warrants to purchase the Company’s common stock, requiring the Company to use its reasonable best efforts to prepare and file a shelf registration statement with the SEC to permit the public resale of all registrable securities covered by the applicable agreement within 18 months and to cause such shelf registration statement to be declared effective no later than two years after the date of the agreement. We also entered into a standstill and voting agreement with the Blackstone Funds (and, as of February 6, 2017, the GSO Funds) that restricts the ability of such parties and, indirectly certain affiliates, to take certain actions relating to the acquisition of our securities or assets or participation in our management, contains a two year lock-up restricting dispositions of the Company’s common stock or the warrants to purchase the Company’s common stock, and contains an agreement to vote any voting securities of the Company in the same manner as recommended by the board of directors of the Company.  We also entered into a Shareholders Agreement with Gavilan Resources Holdco, LLC (“Gavilan Holdco”) pursuant to which, Gavilan Holdco has the right, but not the obligation, to appoint one observer representative to be present at all regularly scheduled meetings of the full board of directors of the Company.

We entered into an amended and restated partnership agreement of SN UnSub (the “Partnership Agreement”) and an amended and restated limited liability company agreement of SN UnSub General Partner (the “GP LLC Agreement”) with the members or partners, as the case may be, thereto, providing for the issuance of preferred units of SN UnSub entitled to receive quarterly cash distributions of 10.0% per annum unless a cash payment is then prohibited by certain of SN UnSub’s debt agreements (in which case such distribution will set option exercise pricesbe deemed to have been paid in kind), and having priority over the common units, to the extent of the greater of (i) an internal rate of return (“IRR”) of 14.0% for such unit and (ii) a 1.50x return on the purchase price for such unit, in each case inclusive of previous distributions made in cash (the “Base Return”), upon distribution or a liquidation, sale of all or substantially all assets, certain change of control and exit transactions; the holders of the preferred units may require the redemption of the preferred units for the Base Return at any time following the seventh anniversary of issuance or upon the occurrence of certain change of control transactions.  In addition, under certain circumstances, holders of the preferred units will be entitled to appoint a majority of the members of the board of

directors of SN UnSub General Partner and may cause a sale of the assets or equity of SN UnSub in order to redeem the preferred units.  Under the terms exceptof the GP LLC Agreement, SN UR Holdings has the right to appoint three members and GSO Associates LLC has the right to appoint two members to the five-member board of directors of SN UnSub General Partner, and the approval of GSO Associates LLC is required for a number of material actions by SN UnSub.

We entered into an eight-year (subject to earlier termination as provided for therein) joint development agreement (“JDA”) that provides for the administration, operation and transfer of the jointly owned Comanche asset, and further provides for the (i) establishment an operating committee to control the timing, scope and budgeting of operations on the Comanche asset (subject to certain exceptions) and (ii) designate SN Maverick as operator of the Comanche asset and certain other interests (subject to forfeiture in the event of certain default events); the JDA also provides for mechanics relating to division of assets and operatorship among the parties, contains restrictions on the indirect or direct transfer of the parties’ interests in the Comanche asset, including certain tag-along rights and rights of first offer provisions, and provides Gavilan with certain drag-along rights in the event of certain sale transactions, subject to certain exceptions the exercise price of an option must be at least 100%and potential alternative structures or asset divisions.

We entered into a management services agreement between Gavilan Holdco and SN Comanche Manager, LLC (“Manager”), a wholly owned subsidiary of the fair market valueCompany, pursuant to which Manager serves as manager of Gavilan Holdco’s business and provides comprehensive general, administrative, business and financial services at a price equal to Manager’s actual cost of providing such services (including an “administrative fee” equal to 2% of SOG’s total G&A costs), continuing until the occurrence of one or more events giving Manager or Gavilan Holdco the right to terminate the agreement.  At the closing of the common stock subject to that option on the date of grant. At the time of grant, the Plan Administrator in its sole discretion will determine when stock options are exercisable, how the exercise price will be paid and when the options expire. The Plan does not provide for incentive stock options (options that are qualified under Section 422 of the Code); all stock option awardstransactions contemplated under the Plan will be nonqualified stock options.

        Stock Appreciation Rights.    A stock appreciation right is an award ofPurchase Agreement, Gavilan Holdco paid $1.0 million to Manager under the right at some specified time inagreement.  We also entered into a back-to-back management arrangement between Manager and SOG, on substantially the future to receive a payment equal to the appreciation in the value of a certain number of shares of common stock. The Plan Administrator will set stock appreciation right strike prices and terms, except that, subject to certain exceptions, the strike price of a stock appreciation right must be at least 100% of the fair market value of the common stock subject to that stock appreciation right on the date of grant. At the time of grant, the Plan Administrator in its sole discretion will determine when stock appreciation rights are exercisable and when they expire. In general, a stock appreciation right is settled in common stock, cash, or a combination thereof. Upon exercise of a stock appreciation right, the holder is entitled to receive an amount equal to the number of shares of common stock subject to the stock appreciation right that are being exercised multiplied by the excess, if any, of the fair market value of one share of common stock on the exercise date over the strike price, less any applicable withholdings.

        Restricted Stock.    Restricted stock is common stock that is subject to forfeiture if certain conditions are not met. At the time of grant and as will be set forth in the award agreement, the Plan Administrator determines when and the conditions under which the restricted stock may become vested or forfeited, and the restricted stock will remain nontransferable and forfeitable until such time. The Plan Administrator may provide for accelerated vesting upon the death or disability of the holder, the achievement of specified performance goals or other events. To the extent provided by the Plan Administrator, a grant of restricted stock may provide that dividends paid with respect to the shares will be subject to the same forfeiture and other restrictions as the restricted stock.

        Phantom Stock.    Phantom stock is an award of notional shares that upon vesting entitles the holder to receive common stock or an amount of cash equal to the fair market value of such common stock, as determined by the Plan Administrator. Phantom stock may also be subject to forfeiture if certain conditions are not met. At the time of grant and as will be set forth in the award agreement, the Plan Administrator determines when and the conditions under which the phantom stock may


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become vested or forfeited, and the phantom stock will remain nontransferable and forfeitable until such time. The Plan Administrator may provide for accelerated vesting upon the death or disability of the holder, the achievement of specified performance goals or other events.

        Other Stock-Based Awards.    Other stock-based awards are awards denominated or payable in, valued in or otherwise based on or related to shares of common stock, in whole or in part, that the Plan Administrator may issue, either alone or in tandem with other awards, under such terms and conditions as the Plan Administrator may determine. Uponservices agreement with Gavilan Holdco referred to above, pursuant to which Manager delegated to SOG, and SOG agreed to perform for and on behalf of Manager, Manager’s duties and obligations under such services agreement; Manager is required to remit amounts received directly from Gavilan Holdco to Manager, including the $1.0 million paid at closing to Manager, and to pay SOG the 2% administrative fee referred to above.  In addition, we entered into a management services agreement between SOG and SN UnSub pursuant to which SOG serves as manager of  SN UnSub’s oil and gas properties and provides comprehensive general, administrative, business and financial services at a price equal to SOG’s actual cost of providing such services (including an “administrative fee” equal to 2% of SOG’s total G&A costs), with an initial term expiring on March 1, 2024 (subject to earlier termination as provided therein), renewing automatically for additional one-year terms thereafter unless either SN UnSub or SOG delivers written notice to the other of its desire not to renew the term at least 180 days prior to such anniversary date.

We entered into an amended and restated limited liability company agreement (the “LLC Agreement”) of Gavilan Holdco between Manager and Gavilan Resources Holdings, LLC (the “Common Units Member”) governing the relationship of the parties and providing for the issuance of the Class A Units in Gavilan Holdco to Manager.  The Class A Units are generally non-voting economic interests, except that the Class A Units have customary consent rights for holders of incentive equity interests, and subject to customary straight-line vesting other stock-based awards may be paid in cash, sharesover five annual installments of common stock (including restricted stock) or any combination thereof as set forth20% beginning on March 1, 2018, and subject to forfeiture and acceleration upon certain events specified in the applicable award agreement.

        Stock Awards.    A stock award is a grant of a share of common stock that is not subject to forfeiture.

    Amendment and Termination of the Plan

        The Board may amend, alter, suspend, discontinue or terminate the Plan, except that if any applicable statute, rule or regulation requires stockholder approval with respect to any amendment of the Plan, then to the extent so required, stockholder approval will be obtained. The Plan terminates on May 24, 2026 unless earlier terminated by the Board or unless all shares available under the Plan have been issued.

Federal Income Tax Consequences

        The following is a general summary of the material U.S. federal income tax consequences to the Company and to recipients of certain awards under the Plan. The summary is based on the Code and the U.S. Treasury regulations promulgated thereunder in effect as of the date of this Proxy Statement, all of which may change with retroactive effect. The summary is not intended to be a complete analysis or discussion of all potential tax consequences that may be important to recipients of awards under the Plan. Recipients should consult with their personal tax advisors regarding individual circumstances and the tax consequences associated with receiving awards under the Plan.

        Nonqualified Stock Options.    In general, a recipient will not have any income at the time a nonqualified stock option is granted, nor will the Company be entitled to a deduction at that time. When a nonqualified stock option is exercised, the recipient generally will recognize ordinary income (whether the option price is paid in cash or by surrender of shares of common stock) in an amount equal to the excess of the fair market value of the shares to which the option exercise pertains over the option price.

        Stock Appreciation Rights.    In general, a recipient will not have any income at the time a stock appreciation right is granted, nor will the Company be entitled to a deduction at that time. When a stock appreciation right is exercised, the recipient generally will recognize ordinary income in an amount equal to any cash and/or the fair market value of any shares of common stock received.

        Restricted Stock.    A recipient generally will not recognize any income at the time an award of restricted stock is granted. Instead, the recipient will recognize ordinary income at the time of vesting or payout in an amount equal to the fair market value (on the vesting or payout date) of the shares or cash received minus any amount paid. However, pursuant to Section 83(b) of the Code, the recipient can file an election with the Internal Revenue Service to immediately recognize income upon the grant of the restricted stock award in an amount equal to the fair market value on the grant date minus any amount paid. Any subsequent gain or loss recognized upon disposition of shares vested pursuant to a restricted stock award by a recipient who made an effective 83(b) election will be either long or short term capital gain or loss depending on the holding period.


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        Phantom Stock.    A recipient generally will not recognize any income at the time an award of phantom stock is granted. Instead, the recipient will recognize ordinary income at the time of payout or the subsequent lapse of any restrictions, depending on the nature of the restrictions, if any, imposed on the shares. The income will be in an amount equal to the fair market value (on the payout date or date the restrictions lapse, if applicable) of the shares or cash received. Tax consequences may vary depending on the terms of the phantom stock award.

        Other Stock-Based Awards and Stock Awards.    Assuming the other stock-based award or stock award is unrestricted, the recipient will be taxed on the other stock-based award or stock award in the year in which he or she received the award. The recipient will be taxed on the aggregate fair market value of the shares of common stock distributed.

        Income Tax Consequences to the Company.    The Company generally will be entitled to a tax deductionLLC Agreement; distributions, including in connection with an award underany exit event, will be applied in the Plan in an amount equalfollowing order of priority: (i) first, pro rata to the ordinary income realizedCommon Units Member until all capital contributions made by the Common Units Member are returned and the Common Units Member has achieved an IRR of 10% on its invested capital; (ii) second, 15% to the outstanding Class A Units and the remainder pro rata to the Common Units Member until the Common Units Member has achieved both (a) an IRR of 17% and (b) a participant2x net return on its invested capital; (iii) third, 20% to the outstanding Class A Units and at the timeremainder pro rata to the participant recognizesCommon Units Member until the Common Units Member has achieved both (a) an IRR of 25% and (b) a 3x net return on its invested capital; and (iv) fourth, thereafter, 30% to the outstanding Class A Units and the remainder pro rata to the Common Units Member.  The Company and its affiliates have similar participation rights in connection with its participation in additional acquisitions by Gavilan Holdco and its affiliates within an area of mutual interest.

We entered into a crude oil production marketing agreement, a residue gas marketing agreement and a natural gas liquids marketing agreement between Gavilan and SN Maverick wherein Gavilan sells all production from the Comanche asset to SN Maverick and SN Maverick purchases all such income, provided that the deduction is not disallowed by Section 162(m)production from Gavilan, transports and sells such production and remits to Gavilan its proportionate share of the Code or otherwise limited by the Code.sale proceeds.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2015 regarding the Plan, which is the Company's only equity compensation plan, and does not take into account anydescription of the additional shares that are being requested pursuantabove agreements with GSO, the GSO Funds and Blackstone is qualified by reference to this Item 2.

Plan Category
 Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants, and
Rights		 Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights		 Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities
Reflected in Column (A))		 
 
 (A)
 (B)
 (C)
 

Equity compensation plans approved by security holders

  —  N/A  5,242,056(1)

Equity compensation plans not approved by security holders

  N/A  N/A  N/A 

Total

  —  N/A  5,242,056(1)
(1)
The maximum number of shares that may be delivered pursuant to the Plan is limited to (i) 4,000,000 shares of common stock plus the number of shares of common stock available under the predecessor to the Planour Current Reports on the record dateForm 8-K filed on January 17, 2017 or March 6, 2017, describing certain of the 2015 Annual Meeting (the "2015 Record Date") as well as (ii) upontransactions hereunder and filing certain agreements related thereto.  We encourage you to read those Current Reports on Form 8-K and the issuance of additional shares of common stock from time to time after the 2015 Record Date, an automatic increase of 15% of such issuance of additional shares of common stock, unless our board of directors determines to increase the maximum number of shares of common stock by a lesser amount.

New Plan Benefits

        The awards, if any, that may be granted to eligible participants under the Plan are subject to the discretionfull texts of the Board or the Compensation Committee and, therefore, we cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our executive officers, directors, our employees and those of our subsidiaries and Sanchez Group Members and consultants under the Plan. Therefore, a New Plan Benefits Table is not provided.


Table of Contentsagreements filed therewith.

 The affirmative "FOR" vote of holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required to approve the proposed Plan Amendment to increase the number of shares available under the Plan by 5 million additional shares. Unless otherwise instructed on the proxy, properly executed proxies will be voted in favor of approving this proposal.

Recommendation of our Board

The Board unanimously recommends that stockholders voteFOR the proposed Plan Amendment to increase the number of shares available under the Plan by 5 million additional shares.


ITEM THREE.PROPOSAL TWO. ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS

As required by Section 14A of the Exchange Act, which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "“Dodd-Frank Act"”), we are seeking stockholder approval on an advisory, non-binding basis of the compensation of our named executive officers as disclosed in the section of this Proxy Statement titled "Compensation“Compensation Discussion and Analysis,"” in addition to the related executive compensation tables.  In this proposal, stockholders are being asked to vote on the following advisory resolution:

 "RESOLVED,

“RESOLVED, that the compensation paid to the Company'sCompany’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED."”

 

Stockholders are urged to read the "Compensation“Compensation Discussion and Analysis"Analysis” section of this Proxy Statement, which discusses in detail how our compensation policies and procedures implement our compensation philosophy, and to refer to the related executive compensation tables.  The compensation of our named executive officers is based on a philosophy that ties a substantial portion of an executive'sexecutive’s compensation to our attainment of financial and other performance measures that, our Board believes, promote the creation of long-term stockholder value and position our Company for long-term success.  As described more fully in the "Compensation“Compensation Discussion and Analysis,"” the mix of fixed- and performance-based compensation, as well as the terms of cash bonuses and long-term equity incentive awards are designed to enable our Company to attract and maintain top talent while, at the same time, creating a close relationship between our Company'sCompany’s performance and overall stockholder return and the named executive officers'officers’ compensation.  Our Compensation Committee and Board believe that the philosophy of the program, and hence the compensation awarded to named executive officers under the current program, fulfill these objectives.

 

Although the vote is advisory and non-binding, our Board and Compensation Committee value the opinions that our stockholders express in their votes and will consider the voting results in connection with their ongoing evaluation of our compensation program.

 

The affirmative "FOR"“FOR” vote of holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required to approve, on an advisory basis, the compensation of our named executive officers.  Unless otherwise instructed on the proxy, properly executed proxies will be voted in favor of approving the advisory, non-binding proposal concerning the compensation of our named executive officers.

Recommendation of our Board

The Board unanimously recommends that stockholders voteFOR the advisory resolution approving the compensation of our named executive officers.


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ITEM FOUR.PROPOSAL THREE. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

 

The Audit Committee of the Board has selected KPMG as the independent auditors of the Company for 2016.2017.  KPMG has audited the Company'sCompany’s consolidated financial statements since June 19, 2015.

 

The Board is submitting the selection of KPMG for ratification at the Annual Meeting.  The submission of this matter for approval by stockholders is not legally required, but the Board and the Audit Committee believe the submission provides an opportunity for stockholders through their vote to communicate with the Board and the Audit Committee about an important aspect of corporate governance.  If the stockholders do not ratify the selection of KPMG, the Audit Committee will reconsider the selection of that firm as the Company'sCompany’s auditors.

The Audit Committee has the sole authority and responsibility to retain, evaluate and replace the Company'sCompany’s auditors.  The stockholders'stockholders’ ratification of the appointment of KPMG does not limit the authority of the Audit Committee to change auditors at any time.

Audit and Other Fees

 

The table below sets forth the aggregate fees billed by BDO USA, LLP, the Company'sCompany’s independent registered public accounting firm until June 19, 2015, and KPMG, the Company'sCompany’s current independent registered public accounting firm, for the fiscal years presented:

 

Fiscal Year

 

Audit Fees(1)

 

Audit-Related
Fees(2)

 

Tax Fees(3)

 

All Other
Fees(4)

 

Fiscal year ended December 31, 2016

 

$

866,311

 

$

535,703

 

$

328,144

 

$

—

 

Fiscal year ended December 31, 2015

 

$

1,272,535

 

$

—

 

$

233,785

 

$

—

 

Fiscal Year
 Audit
Fees(1)		 Audit-Related
Fees(2)		 Tax Fees(3) All Other
Fees(4)		 

Fiscal year ended December 31, 2015

 $1,272,535 $— $233,785 $— 

Fiscal year ended December 31, 2014

 $1,099,494 $73,090 $38,540 $— 

(1)

Audit fees represent fees for professional services provided by our principal accountant in connection with the audit of our consolidated financial statements, the quarterly reviews of financial statements included in our Form 10-Q filings, the reviews of other statutory or regulatory filings and assistance with and review of documents filed with the SEC.

(2)

Audit-related fees are fees for assurance and related services that are reasonably related to the performance by our principal accountant of the audit or review of our financial statements that are not audit fees. For the year ended December 31, 2014, these fees were for financial statement audits of acquired businesses and consultation concerning the Plan, respectively.

(3)

Tax fees include fees for professional services performed by our principal accountant for tax compliance, including the preparation of tax returns, and tax advice and tax planning.

(4)

All other fees include the aggregate fees for products and services provided by our principal accountant that are not reported under "Audit“Audit Fees," "Audit-Related Fees"” “Audit-Related Fees” or "Tax“Tax Fees."” There were no other fees incurred during the years ended December 31, 20152016 and 2014.
2015.

 

The charter of the Audit Committee requires that the Audit Committee review and pre-approve the plan and scope of KPMG'sKPMG’s audit, tax and other services.  After December 19, 2011, the date of the Company'sCompany’s IPO, the Audit Committee pre-approved 100% of the services described above under the captions "Audit“Audit Fees," "Audit-Related” “Audit-Related Fees," "Tax Fees"” “Tax Fees” and "All“All Other Fees."”

 

The Company expects that representatives of KPMG will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they desire to do so.


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Recommendation of our Board

The Board unanimously recommends that stockholders voteFOR the ratification of the selection of KPMG as the auditors of the Company for 2016.2017.

STOCKHOLDER PROPOSALS


STOCKHOLDER PROPOSALS

Any stockholder of the Company who desires to submit a proposal for action at the 20172018 annual meeting of stockholders and wishes to have such proposal (a "“Rule 14a-8 Proposal"”) included in the Company'sCompany’s proxy materials must submit such Rule 14a-8 Proposal to the Company so that it is received by the Company at its principal executive offices, located at 1000 Main Street, Suite 3000, Houston, TX 77002, no later than December 25, 201615, 2017 or, in the event the Company's 2017Company’s 2018 annual meeting is advanced or delayed more than 30 days from the date of the Annual Meeting, within a reasonable time before the Company begins to print and mail the proxy materials for the 20172018 annual meeting.  All such Rule 14a-8 Proposals should be in compliance with our by-laws and the SEC rules and regulations.

Only those Rule 14a-8 Proposals that are timely received by the Company and proper for stockholder action (and otherwise proper) will be included in the Company'sCompany’s proxy materials.  Under our amended and restated

by-laws, the stockholder’s written notice must be received by the Secretary of the Company not later than the close of business on the 90th day or earlier than the opening of business on the 120th day before the first anniversary of the 2017 Annual Meeting.  Under this criterion, stockholders must provide us with a notice of a matter to be brought before the 2018 annual meeting between the opening of business on January 24, 2018 and the close of business on February 23, 2018.  If the 2018 annual meeting is held more than 30 days earlier or 60 days later than May 24, 2018, the stockholder’s written notice must be received not earlier than the opening of business on the 120th day before the date of the 2018 annual meeting and not later than the later of (x) the close of business on the 90th day before the date of the 2018 annual meeting or (y) the close of business on the 10th day following the day on which public announcement of the date of the 2018 annual meeting is first made.

Any stockholder of the Company who desires to submit a proposal for action at the 20172018 annual meeting of stockholders, but does not wish to have such proposal (a "“Non-Rule 14a-8 Proposal"”) included in the Company'sCompany’s proxy materials, must submit such Non-Rule 14a-8 Proposal to the Company at its principal executive offices so that it is received between the opening of business on January 25, 201724, 2018 and the close of business on February 24, 2017,23, 2018, unless the Company notifies the stockholders otherwise.  All such Non-Rule 14a-8 Proposals should be in compliance with our by-laws and the SEC rules and regulations.  If a Non-Rule 14a-8 Proposal is not received by the Company on or before the close of business on February 24, 2017,23, 2018, then the Company intends to exercise its discretionary voting authority with respect to such Non-Rule 14a-8 Proposal.

        "Discretionary  “Discretionary voting authority"authority” is the ability to vote proxies that stockholders have executed and submitted to the Company on matters not specifically reflected in the Company'sCompany’s proxy materials, and on which stockholders have not had an opportunity to vote by proxy.

 

Written stockholder proposals should be addressed to Sanchez Energy Corporation, 1000 Main Street, Suite 3000, Houston, Texas 77002, Attention:  Secretary.  The Company suggests that any such proposal be sent by certified mail, return receipt requested.

 

The Nominating and Corporate Governance Committee will also consider any nominee recommended by stockholders for election at the annual meeting of stockholders to be held in 20172018 if that nomination is submitted in writing and received by the Secretary of the Company between the opening of business on January 25, 201724, 2018 and the close of business on February 24, 201723, 2018 to Sanchez Energy Corporation, 1000 Main Street, Suite 3000, Houston, Texas 77002, Attention:  Secretary.  All such written nominations should be in compliance with our by-laws and the SEC rules and regulations.


SOLICITATION OF PROXIES

 

Solicitation of Proxies may be made via the Internet, by mail, personal interview or telephone by officers, directors and regular employees of the Company, who will not receive any additional compensation for these activities.  The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the common stock that those companies or persons hold of record, and the Company will reimburse the reasonable forwarding expenses.  Representatives of ContinentalBroadridge will tabulate votes.  TheThis proxy solicitation is being made by us and the Company will bear all costs of the solicitation of proxies.  We have retained Broadridge to aid in the distribution of these Proxy Materials, provide certain voting and tabulation services and serve as inspector of elections for the Annual Meeting.  In addition, the Company has engaged Okapi Partners LLC to assist with the solicitation of proxies in conjunction with the Annual Meeting for an estimated fee of $15,000$15,600 plus expenses.


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STOCKHOLDER LIST

 

In accordance with the DGCL, the Company will maintain at its corporate offices in Houston, Texas, a list of the stockholders entitled to vote at the Annual Meeting.  The list will be open to the examination of any stockholder, for purposes germane to the Annual Meeting, during ordinary business hours for 10 days before the Annual Meeting.


PROXY MATERIALS, ANNUAL REPORT AND OTHER INFORMATION

 

The 2015A copy of our 2016 Annual Report to Stockholders, which consists of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (including the financial statement schedules, if any, but excluding exhibits) is being made available to stockholders concurrently with this Proxy Statement.  Except for the financial statements included in the 2016 Annual Report that are specifically incorporated by reference herein, the 2016 Annual Report is not incorporated in this Proxy Statement and doesis not formto be deemed part of thethis proxy solicitationsoliciting material.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON MAY 24, 2016:2017:

 

A COPY OF THE PROXY STATEMENT, PROXY CARD, THE FORM OF PROXY, THE 2015 10-K AND THE 20152016 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE FREE OF CHARGE AT www.sanchezenergycorp.com/proxy.WWW.PROXYVOTE.COM. YOU WILL NEED THE CONTROL NUMBER AVAILABLE FROM YOUR PROXY CARD OR THE NOTICE TO ACCESS PROXY MATERIALS.

 

AWe have filed our Form 10-K for the fiscal year ended December 31, 2016 with the SEC.  It is available free of charge at the SEC’s website at www.sec.gov and our website at http://icdrilling.investorroom.com/sec_filings.  Upon written request by a stockholder, we will mail, without charge, a copy of our Form 10-K, including the Annual Report, as filed withfinancial statements and financial statement schedules, if any, but excluding exhibits to the SEC on February 29, 2016, will be sentForm 10-K.  Exhibits to any stockholder without chargethe Form 10-K are available upon written request. One copy of the Notice of Annual Meeting, this Proxy Statement and our Annual Report (the "Proxy Materials") will be sent to stockholders who share an address, unless they have notified the Company that they want to continue receiving multiple packages. A copy of the Proxy Materials will also be sent upon written or oral request to any stockholderpayment of a shared addressreasonable fee, which is limited to which a single copy ofour expenses in furnishing the Proxy Materials was delivered. If two or more stockholders with a shared address are currently receiving only one copy of the Proxy Materials, then the stockholders may request to receive multiple packages in the future, or if a stockholder is currently receiving multiple packages of the Proxy Materials, then the stockholder may request to receive a single copy in the future.requested exhibit.  Such requests may be made by writing to Secretary, Sanchez Energy Corporation, 1000 Main Street, Suite 3000, Houston, Texas 77002 or by calling (713) 783-8000.  The 2015 Form 10-K is also available at the SEC'sSEC’s website in its EDGAR database at www.sec.gov.

FORWARD-LOOKING STATEMENTS


ThisINTERNET AND TELEPHONE VOTING

        For shares of stock that are registered in your name, you may vote by Internet or telephone using procedures provided by Continental. Votes submitted by Internet or telephone must be received by 7:00 p.m., Eastern Time, on Monday, May 23, 2016. The giving of such a proxy will not affect your right to vote in person should you decide to attend the Annual Meeting.

        The Internet and telephone voting procedures are designed to authenticate stockholder identities, to allow stockholders to give their voting instructions and to confirm that stockholders' instructions have been recorded properly. Stockholders voting by Internet should remember that the stockholder must bear costs associated with electronic access, such as usage charges from Internet access providers and telephone companies.

        For shares of stock that are registered in a street name (the stockholder owns shares in the name of a bank, broker or other holder of record on the books of the Company's transfer agent), you will receive instructions with your Proxy Materials that you must follow in order to have your shares voted. Please review your Proxy or voting instruction card to determine whether you can vote by telephone or electronically.

SUBMIT A PROXY BY INTERNET—http://www.cstproxyvote.com

        For shares of stock that are registered in your name, you may vote by Internet or telephone using the following procedures. To vote by Internet, please access www.cstproxyvote.com, and have your proxy


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card available when you access the above website. Votes submitted by Internet or phone must be received by 7:00 p.m., Eastern Time, on Monday, May 23, 2016. The giving of such a proxy will not affect your right to vote in person should you decide to attend the Annual Meeting.

SUBMIT A PROXY BY PHONE—1 (866) 894-0537

        To vote by phone, please dial 1 (866) 894-0537 and have your proxy card available when you call. Use any touch-tone telephone to transmit your voting instructions up until 7:00 p.m., Eastern Time, on Monday, May 23, 2016.

VOTE BY MAIL

        Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided.


FORWARD LOOKING STATEMENTS

        This Proxy Statement contains forward-looking statements“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.  All statements, other than statements of historical facts, included in this Proxy Statement that address activities, events, conditions or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements, including statements relating to estimates of our future production, operational and commercial benefits of joint ventures,our partnerships, the expected benefits from the Comanche asset acquisition and our strategic relationship with SPP, and our anticipated capital budget for fiscal year 2016.SPP.  These statements are based on certain assumptions made by the Company based on management'smanagement’s experience, perception of historical trends and technical analyses, current conditions, anticipated future developments and other factors believed to be appropriate and reasonable by management.  When used in this Proxy Statement, the words "will," "potential," "believe," "estimate," "intend," "expect," "may," "should," "anticipate," "could," "would," "plan," "predict," "project," "profile," "model," "strategy," "future,"“will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “would,” “plan,” “predict,” “project,” “profile,” “model,” “strategy,” “future,” or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

 

Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements, including, but not limited to failure of acquired assets and our joint ventures to produceperform as anticipated, failure or delays on the part of our joint venture partners, failure to continue to produce oil and gas at historical rates, costs of operations, delays, and any other difficulties related to producing oil or gas or completing our ongoing joint venture projects, the price of oil or gas, marketing and sales of produced oil and gas, estimates made in evaluating reserves, competition, general economic conditions and the ability to manage and continue growth, and other factors described in our most recent Annual Report on Form 10-K and any updates to those risk factors set forth in our Quarterly Reports on Form 10-Q.  Further information on such assumptions, risks and uncertainties is available in the Company'sCompany’s filings with the SEC.  Our filings with the SEC are available on our website at www.sanchezenergycorp.com and on the SEC'sSEC’s website at www.sec.gov.  In light of these risks, uncertainties and assumptions, the events anticipated by the Company'sCompany’s forward-looking statements may not occur, and, if any of such events do occur, the Company may not have correctly anticipated the timing of their occurrence

or the extent of their impact on its actual results.  Accordingly, you should not place any undue reliance on any of our forward-looking statements.  Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

******


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IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.  WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO VOTE BY INTERNET, BY TELEPHONE OR IF YOU HAVE RECEIVED PAPER COPIES OF THE PROXY MATERIALS, BY COMPLETING, SIGNING AND RETURNING THE PROXY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE.

By Order of the Board of Directors,





GRAPHIC

GRAPHIC

Gregory B. Kopel
Secretary

Houston, Texas
April 21, 2016


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APPENDIX A

SANCHEZ ENERGY CORPORATION
SECONDTHIRD AMENDED AND RESTATED
2011 LONG TERM INCENTIVE PLAN

SECTION 1.    Purpose of the Plan.    

        The Sanchez Energy Corporation 2011 Long Term Incentive Plan was originally adopted by Sanchez Energy Corporation, a Delaware corporation (the "Company"), on November 25, 2011, was amended and restated on May 23, 2012 andMay 21, 2015 and is hereby further amended and restated (as so amended and restated, the "Plan"). The Plan is intended to promote the interests of the Company by providing to Employees, consultants and Directors incentive compensation awards based on Common Shares to encourage superior performance. The Plan is also contemplated to enhance the ability of the Company and its Affiliates and Subsidiaries to attract and retain the services of individuals who are essential for the growth and profitability of the Company and to encourage them to devote their best efforts to advancing the business of the Company.

SECTION 2.    Definitions.    

        As used in the Plan, the following terms shall have the meanings set forth below:

        "Affiliate" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

        "Award" means an Option, Stock Appreciation Right, share of Restricted Stock, share of Phantom Stock, Other Stock-Based Award, or a Stock Award granted under the Plan.

        "Award Agreement" means the written or electronic agreement by which an Award shall be evidenced.

        "Board" means the Board of Directors of the Company.

        "Change of Control" means, and shall be deemed to have occurred upon one or more of the following events:

              (i)  any "person" or "group" within the meaning of those terms as used in Sections 13(d) and 14(d)(2) of the Exchange Act, other than a Sanchez Group Member, shall become the beneficial owner, by way of merger, consolidation, recapitalization, reorganization or otherwise, of 50% or more of the combined voting power of the equity interests in the Company;

             (ii)  the stockholders of the Company approve and implement, in one or a series of transactions, a plan of complete liquidation of the Company; or

            (iii)  the sale or other disposition by the Company of all or substantially all of its assets in one or more transactions to any Person other than a Sanchez Group Member.

        Notwithstanding the foregoing, with respect to an Award that is subject to Section 409A of the Internal Revenue Code of 1986, as amended, "Change of Control" shall mean a "change of control event" as defined in the regulations and guidance issued under Section 409A.

        "Committee" means the Board, the Compensation Committee of the Board or such other committee as may be appointed by the Board to administer the Plan.

        "Common Shares" means the Company's common stock, par value $0.01.


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        "Director" means a member of the Board.

        "Disability" means, unless provided otherwise in the Award Agreement, an illness or injury that lasts at least six continuous months, is expected to be permanent and renders the Participant unable to carry out his or her duties to the Board, the Company or a Sanchez Group Member, as the case may be.

        "Employee" means an employee of the Company, a Subsidiary of the Company or a Sanchez Group Member.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "Fair Market Value" means the closing sales price of a Common Share on the principal national securities exchange or other market in which trading in Common Shares occurs on the applicable date (or, if there is no trading in the Common Shares on such date, on the next preceding date on which there was trading) as reported inThe Wall Street Journal (or other reporting service approved by the Committee). If Common Shares are not traded on a national securities exchange or other market at the time a determination of fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee.

        "Option" means an option to purchase Common Shares granted under the Plan.

        "Other Stock-Based Award" means an Award granted pursuant to Section 6(d).

        "Participant" means an Employee, consultant or Director granted an Award under the Plan.

        "Person" means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, governmental agency or political subdivision thereof or other entity.

        "Phantom Stock" means notional shares granted under the Plan that upon vesting entitle the Participant to receive Common Shares or an amount of cash equal to the Fair Market Value of such Common Shares, as determined by the Committee in its discretion.

        "Restricted Period" means the period established by the Committee with respect to an Award during which the Award remains subject to forfeiture and is either not exercisable by or payable to the Participant, as the case may be.

        "Restricted Stock" means Common Shares granted under the Plan that are subject to a Restricted Period.

        "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange Act or any successor rule or regulation thereto as in effect from time to time.

        "Sanchez Group Member" means Sanchez Oil & Gas Corporation, a Delaware corporation, Sanchez Energy Partners I, LP, a Delaware limited partnership, and their Affiliates (other than the Company).

        "SDR" means a dividend paid by the Company with respect to a share of Restricted Stock.

        "SEC" means the Securities and Exchange Commission, or any successor thereto.

        "Stock Appreciation Right" or "SAR" means a contingent right that entitles the holder to receive all or part of the excess of the Fair Market Value of a Common Share on the exercise date of the SAR over the exercise price of the SAR. Such excess shall be paid in Common Shares, cash or any combination thereof, in the discretion of the Committee.

        "Stock Award" means a grant of a Common Share that is not subject to a Restricted Period.

        "Subsidiary" means any entity (i) in which, at the relevant time, the Company owns or controls, directly or indirectly, not less than 50% of the total combined voting power represented by all classes


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of equity interests issued by such entity, (ii) as to which, at the relevant time, the Company has the right, directly or indirectly, to appoint or designate, either independently or jointly with another Person, 50% or more of the members of the board of directors or (iii) as to which at the relevant time, the Company, directly or indirectly, (A) owns or controls, directly or indirectly, not less than 50% of the total combined voting power represented by classes of equity interests issued by the general partner or managing member of such entity or (B) has the right, directly or indirectly, to appoint or designate, either independently or jointly with another Person, 50% or more of the members of the board of directors of the general partner or managing member thereof.

SECTION 3.    Administration.    

        The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. Subject to the following and applicable law, the Committee, in its sole discretion, may delegate any or all of its powers and duties under the Plan, including the power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any such delegation, all references in the Plan to the "Committee," other than in Section 7, shall be deemed to include the Chief Executive Officer; provided, however, that such delegation shall not limit the Chief Executive Officer's right to receive Awards under the Plan. Notwithstanding the foregoing, the Chief Executive Officer may not grant Awards to, or take any action with respect to any Award previously granted to, a Person who is an officer subject to Rule 16b-3 or a member of the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Common Shares to be covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled, exercised, canceled, or forfeited; (vi) interpret and administer the Plan and any instrument or agreement relating to an Award made under the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or an Award Agreement in such manner and to such extent as the Committee deems necessary or appropriate. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate of the Company, any Participant, and any beneficiary of any Award.

SECTION 4.    Common Shares.    

        (a)    Limits on Common Shares Deliverable.    Subject to adjustment as provided in Section 4(c), the maximum number of Common Shares that may be delivered with respect to Awards under the Plan (inclusive of Common Shares subject to Awards outstanding as of April 151,20152016) shall be (i) 12,238,21217,239,790 shares plus (ii) upon the issuance of additional Common Shares from time to time after April 151,20152016, an automatic increase equal to the lesser of (A) 15% of such issuance of additional Common Shares and (B) such lesser number of Common Shares as determined by the Committee; provided, however, that Common Shares withheld from an Award to either satisfy the Company's or any Affiliate of the Company's tax withholding obligations with respect to the Award or pay the exercise price of an Award shall not be considered to be Common Shares delivered under the Plan for this purpose. If any Award is forfeited, cancelled, exercised, paid, or otherwise terminates or


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expires without the actual delivery of Common Shares pursuant to such Award (the grant of Restricted Stock is not a delivery of Common Shares for this purpose), the Common Shares subject to such Award shall again be available for Awards under the Plan. There shall not be any limitation on the number of Awards that may be paid in cash.

        (b)    Sources of Common Shares Deliverable Under Awards.    Any Common Shares delivered pursuant to an Award shall consist, in whole or in part, of Common Shares newly issued by the Company, Common Shares acquired in the open market, from any Affiliate of the Company or from any other Person, or any combination of the foregoing, as determined by the Committee in its discretion.

        (c)    Anti-dilution Adjustments.    With respect to any "equity restructuring" event that could result in an additional compensation expense to the Company pursuant to the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718—Stock Compensation ("FASB ASC Topic 718"), if adjustments to Awards with respect to such event were discretionary, the Committee shall equitably adjust the number and type of Common Shares covered by each outstanding Award and the terms and conditions, including the exercise price and performance criteria (if any), of such Award to equitably reflect such restructuring event and shall adjust the number and type of Common Shares (or other securities or property) with respect to which Awards may be granted after such event. With respect to any other similar event that would not result in a FASB ASC Topic 718 accounting charge if the adjustment to Awards with respect to such event were subject to discretionary action, the Committee shall have complete discretion to adjust Awards in such manner as it deems appropriate with respect to such other event.

SECTION 5.    Eligibility.    

        Any Employee, consultant or Director shall be eligible to be designated a Participant by the Committee and receive an Award under the Plan.

SECTION 6.    Awards.    

        (a)    Options and SARs.    The Committee shall have the authority to determine the Employees, consultants and Directors to whom Options and/or SARs shall be granted, the number of Common Shares to be covered by each Option or SAR, the exercise price therefor, the Restricted Period and other conditions and limitations applicable to the exercise of the Option or SAR, including the following terms and conditions and such additional terms and conditions, as the Committee shall determine, that are not inconsistent with the provisions of the Plan.

              (i)  Exercise Price.    The exercise price per Common Share purchasable under an Option or subject to a SAR shall be determined by the Committee at the time the Option or SAR is granted but may not be less than the Fair Market Value of a Common Share as of the date of grant of the Option or SAR.

             (ii)  Time and Method of Exercise.    The Committee shall determine the exercise terms and the Restricted Period with respect to an Option or SAR grant, which may include, without limitation, (A) a provision for accelerated vesting upon the death or Disability of a Participant, the achievement of specified performance goals or such other events as the Committee may provide, and (B) the method or methods by which payment of the exercise price with respect to an Option may be made or deemed to have been made, which may include, without limitation, cash, check acceptable to the Committee, withholding Common Shares from the Award, a "cashless-broker" exercise through procedures approved by the Committee, or any combination of the above methods, having a Fair Market Value on the exercise date equal to the relevant exercise price.

            (iii)  Forfeitures.    Except as otherwise provided in the terms of the Option or SAR Award Agreement, upon termination of a Participant's employment with or consulting services to the


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    Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding unvested Options and SARs awarded to the Participant shall be automatically forfeited on such termination. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant's Options or SARs.

        (b)    Restricted Stock and Phantom Stock.    The Committee shall have the authority to determine the Employees, consultants and Directors to whom Restricted Stock and Phantom Stock shall be granted, the number of shares of Restricted Stock or Phantom Stock to be granted to each such Participant, the Restricted Period, the conditions under which the Restricted Stock or Phantom Stock may become vested or forfeited and such other terms and conditions as the Committee may establish with respect to such Awards which may include, without limitation, a provision for accelerated vesting upon the death or Disability of a Participant, the achievement of specified performance goals or such other events as the Committee may provide.

              (i)  SDRs.    To the extent provided by the Committee, in its discretion, a grant of Restricted Stock may provide that the dividends paid by the Company with respect to the Restricted Stock shall be subject to the same forfeiture and other restrictions as the Restricted Stock and, if restricted, such dividends shall be held, without interest, until the Restricted Stock vests or is forfeited with the SDR being paid or forfeited at the same time, as the case may be. In addition, the Committee may provide that such dividends be used to acquire additional Restricted Stock for the Participant. Such additional Restricted Stock may be subject to such vesting and other terms as the Committee may proscribe. Absent such a restriction on the SDRs in the Award Agreement, upon a dividend with respect to Restricted Stock, such dividend shall be paid promptly to the holder of the Restricted Stock without vesting restrictions.

             (ii)  Forfeitures.    Except as otherwise provided in the terms of the Restricted Stock or Phantom Stock Award Agreement, upon termination of a Participant's employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding, unvested Restricted Stock and Phantom Stock awarded to the Participant shall be automatically forfeited on such termination. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant's Restricted Stock and/or Phantom Stock.

            (iii)  Lapse of Restrictions.

              (A)    Phantom Stock.    Upon or as soon as reasonably practical following the vesting of each share of Phantom Stock, subject to satisfying the tax withholding obligations of Section 8(b), the Participant shall be entitled to receive from the Company one Common Share or cash equal to the Fair Market Value of a Common Share, as determined by the Committee in its discretion.

              (B)    Restricted Stock.    Upon or as soon as reasonably practical following the vesting of each share of Restricted Stock, subject to satisfying the tax withholding obligations of Section 8(b), the Participant shall be entitled to have the restrictions removed from his or her share certificate so that the Participant then holds an unrestricted Common Share.

        (c)    Stock Awards.    Stock Awards may be granted under the Plan to such Employees, consultants and/or Directors and in such amounts as the Committee, in its discretion, may select.

        (d)    Other Stock-Based Awards.    Other Stock-Based Awards may be granted under the Plan to such Employees, consultants and/or Directors and in such amounts as the Committee, in its discretion, may select. An Other Stock-Based Award shall be an award denominated or payable in, valued in or otherwise based on or related to Common Shares, in whole or in part. The Committee shall determine the terms and conditions of any such Other Stock-Based Award. Upon vesting, an Other Stock-Based


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Award may be paid in cash, Common Shares (including Restricted Stock) or any combination thereof as provided in the Award Agreement.

        (e)    General.    

              (i)  Awards May Be Granted Separately or Together.    Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award granted under the Plan or any award granted under any other plan of the Company or any of its Affiliates. Awards granted in addition to or in tandem with other Awards or awards granted under any other plan of the Company or any of its Affiliates may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

             (ii)  Limits on Transfer of Awards.

              (A)  Except as provided in Section 6(e)(ii)(C), each Option and SAR shall be exercisable only by the Participant during the Participant's lifetime, or by the Person to whom the Participant's rights shall pass by will or the laws of descent and distribution.

              (B)  Except as provided in Section 6(e)(ii)(C), no Award and no right under any such Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any of its Affiliates.

              (C)  To the extent specifically provided by the Committee with respect to an Option or SAR, an Option or SAR may be transferred by a Participant without consideration to immediate family members or related family trusts, limited partnerships or similar entities or on such terms and conditions as the Committee may from time to time establish.

            (iii)  Term of Awards.    The term of each Award shall be for such period as may be determined by the Committee.

            (iv)  Stock Certificates.    All certificates for Common Shares or other securities of the Company delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Common Shares or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be inscribed on any such certificates to make appropriate reference to such restrictions.

             (v)  Consideration for Grants.    Awards may be granted for such consideration, including services, as the Committee shall determine.

            (vi)  Delivery of Common Shares or other Securities and Payment by Participant of Consideration.    Notwithstanding anything in the Plan or any Award Agreement to the contrary, delivery of Common Shares pursuant to the exercise or vesting of an Award may be deferred for any period during which, in the good faith determination of the Committee, the Company is not reasonably able to obtain Common Shares to deliver pursuant to such Award without violating applicable law or the applicable rules or regulations of any governmental agency or authority or securities exchange. No Common Shares or other securities shall be delivered pursuant to any Award until payment in full of any amount required to be paid pursuant to the Plan or the applicable Award Agreement (including, without limitation, any exercise price or tax withholding) is received by the Company.


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SECTION 7.    Amendment and Termination.    

        Except to the extent prohibited by applicable law:

            (a)    Amendments to the Plan.    Except as required by the rules of the principal securities exchange on which the Common Shares are traded and subject to Section 7(b), the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner, including increasing the number of Common Shares available for Awards under the Plan, without the consent of any Participant, other holder or beneficiary of an Award, or any other Person.

            (b)    Amendments to Awards.    Subject to Section 7(a), the Committee may waive any conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided no change, other than pursuant to Section 7(c), in any Award shall materially reduce the rights or benefits of a Participant with respect to an Award without the consent of such Participant.

            (c)    Actions Upon the Occurrence of Certain Events.    Upon the occurrence of a Change of Control, any change in applicable law or regulation affecting the Plan or Awards thereunder, or any change in accounting principles affecting the financial statements of the Company, the Committee, in its sole discretion, without the consent of any Participant or holder of the Award, and on such terms and conditions as it deems appropriate, may take any one or more of the following actions in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or an outstanding Award:

                (i)  provide for either (A) the termination of any Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant's rights at such time (and, for the avoidance of doubt, if as of the date of the occurrence of such transaction or event the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant's rights, then such Award may be terminated by the Committee without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;

               (ii)  provide that such Award be assumed by the successor or survivor entity, or a parent or subsidiary thereof, or be exchanged for similar options, rights or awards covering the equity of the successor or survivor, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of equity interests and prices;

              (iii)  make adjustments in the number and type of Common Shares (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Awards or in the terms and conditions of (including the exercise price), and the vesting and performance criteria included in, outstanding Awards, or both;

              (iv)  provide that such Award shall be exercisable or payable, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and

               (v)  provide that the Award cannot be exercised or become payable after such event, i.e., shall terminate upon such event.

        Notwithstanding the foregoing, with respect to an above event that is an "equity restructuring" event that would be subject to a compensation expense pursuant FASB ASC Topic 718, the provisions in Section 4(c) shall control to the extent they are in conflict with the discretionary provisions of this Section 7.


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SECTION 8.    General Provisions.    

        (a)    No Rights to Award.    No Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of Awards need not be the same with respect to each recipient.

        (b)    Tax Withholding.    Unless other arrangements have been made that are acceptable to the Committee, the Company or any of its Affiliates is authorized to withhold from any Award, from any payment due or transfer made under any Award or from any compensation or other amount owing to a Participant the amount (in cash, Common Shares, Common Shares that would otherwise be issued pursuant to such Award or other property) of any applicable taxes payable in respect of the grant of an Award, its exercise, the lapse of restrictions thereon, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee to satisfy the withholding obligations for the payment of such taxes.

        (c)    No Right to Employment or Services.    The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any of its Affiliates, to continue consulting services or to remain on the Board, as applicable. Furthermore, the Company or any of its Affiliates may at any time dismiss a Participant from employment free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan, any Award Agreement or other agreement.

        (d)    Governing Law.    The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware without regard to its conflicts of laws principles.

        (e)    Severability.    If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable law or, if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

        (f)    Other Laws.    The Committee may refuse to issue or transfer any Common Shares or other consideration under an Award if, in its sole discretion, it determines that the issuance or transfer of such Common Shares or such other consideration might violate any applicable law or regulation, the rules of the principal securities exchange on which the Common Shares are then traded, or entitle the Company or any of its Affiliates to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to such Participant, holder or beneficiary.

        (g)    No Trust or Fund Created.    Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any participating Affiliate of the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any participating Affiliate of the Company pursuant to an Award, such right shall be no greater than the right of any general unsecured creditor of the Company or any participating Affiliate of the Company.

        (h)    No Fractional Common Shares.    No fractional Common Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Common Shares or whether such fractional Common Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.


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        (i)    Headings.    Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

        (j)    Facility Payment.    Any amounts payable hereunder to any Person under legal disability or who, in the judgment of the Committee, is unable to manage properly his or her financial affairs, may be paid to the legal representative of such Person, or may be applied for the benefit of such Person in any manner that the Committee may select, and the Company shall be relieved of any further liability for payment of such amounts.

        (k)    Gender and Number.    Words in the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural.

SECTION 9.    Term of the Plan.    

        The Plan shall be effective on the date hereof, which is the date on which it was approved by the stockholders of the Company, and shall continue until the earliest of (i) the date it is terminated by the Board, (ii) all Common Shares available under the Plan have been paid to Participants, or (iii) the 10th anniversary of the date the Plan is approved as provided above, May 24, 2026. However, any Award granted prior to such termination, and the authority of the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall extend beyond such termination date.

Secretary

Effective Date: May 2124,20152016

Houston, Texas

April 13, 2017

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YOURIll before the meeting date. Have your proxy card in hand when you access the we --Use any touch-tone telephone to transmit your voting instructions up unti VOTE BY MAIL --• --Investor Line 123,456,789,012.12345 ll!l TO VOTE. MARK BLOCKS BELW IN BLUE OR BLACK INK AS FOLLWS _ ----------------------------------K-EEP-THS-I PO-RTIO-N FO-R Y-OUR-REC-ORD-S DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS IMPORTANT. PLEASEVALID ONLY WHEN SIGNED AND DATED. iD1Ii For Withhold For All To wlt hhol d author l ty to vote for lnd l vidual n ominee(s) , mark "For nomlnee(s) on the line be l ow . All All Except the following: 0 0 0 1. l l ect10n ot Unectors co co co co co For 0 0 Against Absta in 0 0 0 0 Investor Address Investor Address L ne L ne Pl ease s i g n exactly as yournames appears herecn . When sha res are he ld by joint owners , bo th shoul d s1gn. Whe n si g ning as attorney , exec utor , N 00 ad mini st rator , t r us tee , guard1an or corpora te c ffl cer, pl ease give f ull titl e as s u ch 0 0 0 0 SHARES CUSIP# SEQUENCE# JOB# Signature [PLEASE SIGN WITHIN BOX] Signature (Joi nt 0\wiers) Investor Addr ess L n e Investor Address L ne Investor Address L n e J ohn Sa mple 1 234 ANYW H ERE S TREET A NY CITY, O N A1A 1A1 The Board of D irectors reco•mends you vote FORExcept" and wr i te the number(s) of m Nominees 01) M. G regory Co l v i n02) Ala n G . Jackson03) T. Bri an Ca rney The Board of Directors reco•mends you vote FOR proposals 2 and 3. 2. Adv i so ry vote to a pprove the compe n sati on cf our named execu tive off i cers 3. Proposa l to ratify the appoin tme nt of KPMG LLP as the Company ' s inde pende nt reg is tered publi c accounti ng fi rm f or the 2017 fl scal yea r - VOTE TODAY. Vote by Internet or TelephoneBY INTERNET - QUICK EASY IMMEDIATE - 24 Hours a Day, 7 Days a Week or by Mail As a stockholder of Sanchez Energy Corporation (the “Company” or “our”), you have the option of voting your shares electronically throughWWvV.proxyvote.com Use the Internet or on the telephone, eliminating the need to return the proxy card. Yourtransmit your voting instructions and for electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:delivery o ENERGY CORPOR ATIONinformation up until7:00 p.m., Eastern Time, on Monday,Tuesday, May 23, 2016. Sanchez Energy Corporation INTERNET/MOBILE – www.cstproxyvote.com Use2017 the Internetda site and follow the instructions to voteobtain your proxy.records and to create an electronic voting instruction form. VOTE BY PHONE ·1-800-690-6903 7:00p.m., Eastern Time, on Tuesday, May 23, 2017 the day before the meelin date. Have your proxy card availablein hand when you accesscall and then follow the above website. Follow the prompts to vote your shares. PHONE – 1 (866) 894-0537 Use a touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. MAIL –instructions. Mark, sign and date your proxy card and return it in the postage-paid envelope provided. FOLD HERE • DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED PROXY Please mark your votes like this FOR the nominee listed below WITHHOLD AUTHORITYwe have provided or return it to vote FOR AGAINST ABSTAIN 1. Election of (01) Gilbert A. Garcia as director 4. Proposal to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2016 fiscal year Election of (02) Sean M. Maher as director FOR AGAINST ABSTAIN 2. Proposal to amend the Company’s Second Amended and Restated 2011 Long Term Incentive Plan (the “Plan”) to increase the number of shares available for incentive awards under the Plan byVote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood,NY 11717. 5 million additional shares of common stock FOR AGAINST ABSTAIN 3. Advisory vote to approve the compensation of our named executive officers---- --NAME THE COMPANY ID: PROXY NUMBER: ACCOUNT NUMBER: Signature Signature Date NAME INC.-COMMON THE COMPANY NAME INC.-CLASS A THE COMPANY NAME INC.-CLASS B THE COMPANY NAME INC.-CLASS C THE COMPANY NAME INC.-CLASS D THE COMPANY NAME INC.-CLASS E THE COMPANY NAME INC.-CLASS F THE COMPANY NAME INC. - 401 K CONTROL# I ooooooooooooooool SHARES 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012'12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 PAGE 1 OF 2 (S) SANCHEZ SANCHEZ ENERGY CORP. 1000 NAIN ST. 51/ITE 3000 HOUSTON, TX 77002 Investor Address line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Address John Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1 A1 - - - ..., 2016. Note: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give title as such. X PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY OR BY PHONE.lllillllllllllilllllllolilllillllllllllililllllllil.. lllllil

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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on Tuesday,Wednesday, May 24, 2016.2017: The Proxy Statement and our 20152016 Annual Report to Stockholders are available at: http://investor.sanchezenergycorp.com/phoenix.zhtml?c=248475&p=proxy FOLD HERE DO NOT SEPARATE • INSERT IN ENVELOPE PROVIDED PROXYwww . proxwote.com N -' N 8 0 Sanchez Energy Corporation THIS PROXY IS SOLICITED ON BEHALF OFBY THE BOARD OF DIRECTORS Sanchez Energy Corporation The undersigned hereby appoint(s) Antonio R. Sanchez, IIIIll and Kirsten Hink,Howard J. Thill, and each of them, as proxies, each with the power to appoint his or her substitute, and authorizes them to represent and to vote, as designated on the reverse hereof, all of theIhe shares of common stock of Sanchez Energy Corporation held of record by the undersigned at the close of business on April 1, 2016March 28, 2017 at the Annual Meeting of Stockholders of Sanchez Energy Corporation to be held on Tuesday,Wednesday, May 24, 20162017 or at any adjournment thereof. This Proxy, when properly executed will be voted as specified. If no specification is made, this Proxy will be voted IN FAVOR OFFOR each director nominee in PROPOSAL 1 and FOR PROPOSALS 1, 2 and 3, and 4, and the proxies when properly executed are authorized, in accordance with their judgment,judgement, to vote upon such other matters as may properly come before the Annual Meeting of Stockholders of Sanchez Energy Corporation to be held on Tuesday,Wednesday, May 24, 20162017 or at any adjournment or postponement thereof. (Continued and to be marked, dated and signed, on the otherreverse side)

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Reserved for Broadridge Internal Control lnfonnatlon NAME THE COMPANY NAME INC.-COMMON THE COMPANY NAME INC. -CLASS A THE COMPANY NAME INC. -CLASS B THE COMPANY NAME INC. -CLASS C THE COMPANY NAME INC. -CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC.-CLASS F THE COMPANY NAME INC.-401 K 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456, 789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456, 789,012.12345 I 8 .------------Sequence # # of# Sequence # THIS SPACE RESERVED FOR SIGNATURES IF APPLICABLE 1 Broadr idge Internal Use On ly Job# E nvelope #