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Abraxas Petroleum Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 16, 2010 04:25PM

Abraxas Petroleum Corp. (AXAS) filed Quarterly Report for the period ended 2010-06-30. Abraxas Petroleum Corp. has a market cap of $192.9 million; its shares were traded at around $2.53 with a P/E ratio of 63.25 and P/S ratio of 3.66.

AXAS is in the portfolios of Daniel Loeb of Third Point, LLC, Arnold Schneider of Schneider Capital Management, Arnold Schneider of Schneider Capital Management.

Highlight of Business Operations:

During the first six months of 2010, the price of oil increased significantly from the levels experienced during the first six months of 2009. During the first six months of 2010, the New York Mercantile (NYMEX) price for West Texas Intermediate (WTI) averaged $78.46 per barrel as compared to $51.59 per barrel during the first six months of 2009. During the first six months of 2010, the average price of gas increased slightly from the levels experienced during the first six months of 2009. NYMEX Henry Hub spot prices for gas averaged $4.72 per MMBtu for the first six months of 2010 compared to $4.12 for the same period of 2009. Prices closed the period at $75.63 per Bbl of oil and $4.55 per MMBtu of gas. The realized prices that we receive for our production differ from NYMEX futures and spot market prices, principally due to:

During the first six months of 2010, differentials averaged $7.31 per Bbl of oil and $0.36 per Mcf of gas as compared to $7.71 per Bbl of oil and $0.99 per Mcf of gas during the first six months of 2009. In the first six months of 2010, we experienced lower gas differentials compared to the same period of 2009 due to an increased percentage of our gas production coming from higher BTU gas wells in addition to an overall decline in basis differentials for gas. Oil differentials increased due to overall increases in basis differentials for oil across all of our operating areas. Increases in the differential between the benchmark prices for oil and gas and the wellhead price we receive could significantly reduce our revenues and our cash flow from operations.

By removing a significant portion of price volatility on our future oil and gas production, we believe we will mitigate, but not eliminate, the potential effects of changing commodity prices on our cash flow from operations for those periods. However, when prevailing market prices are higher than our contract prices, we will not realize increased cash flow on the portion of the production that has been hedged. We have sustained and in the future will sustain realized and unrealized losses on our derivative contracts when market prices are higher than our contract prices. Conversely, when prevailing market prices are lower than our contract prices, we will sustain realized and unrealized gains on our commodity derivative contracts. In the first six months of 2010, we incurred a realized gain of $1.0 million and an unrealized gain of $19.0 million. In the first six months of 2009, we incurred a realized gain of $14.0 million and an unrealized loss of $14.8 million. We have not designated any of these derivative contracts as a hedge as prescribed by applicable accounting rules.

Non-Core Divestitures. We have initiated a divestiture program, principally aimed at non-operated, non-core assets, to generate cash for debt repayment and to accelerate our drilling program. During the fourth quarter of 2009 and the first six months of 2010, we sold certain non-core assets for total net proceeds of approximately $13.4 million ($2.4 million in 2009 and $11.0 million in 2010). In total, these properties produced approximately 202 Boepd, and had approximately 728 MBoe of proved reserves, which equates to $66,446 per producing Boepd and $18.48 per proved Boe in sales proceeds. The first $10 million of net proceeds was used to repay the term loan portion of our credit facility. We have identified an additional $20 to $25 million of similar non-core assets that we will attempt to divest on similar terms over the next several months. We anticipate that approximately 50% of any future net proceeds from such sales will be allocated to further debt reduction and 50% to accelerate our capital program.

Depreciation, Depletion and Amortization Expenses (“DD&A”). Depreciation, depletion and amortization expense decreased to $4.4 million for the three months ended June 30, 2010 from $4.5 million for same period of 2009. The decrease in DD&A was primarily the result of decreased production volumes for the second quarter of 2010 as compared to the same period of 2009 offset by an increase to the depletion base as determined by the December 31, 2009 reserve report. Our DD&A per BOE for the three months ended June 30, 2010 was $11.98 per BOE compared to $10.98 per BOE in 2009. The increase in DD&A per BOE was due to the higher depletion base for the period offset by lower production volumes.

Gain (loss) from derivative contracts. We account for derivative gains and losses based on realized and unrealized amounts. The realized derivative gains or losses are determined by actual derivative settlements during the period. Unrealized gains and losses are based on the periodic mark to market valuation of derivative contracts in place. Our derivative contract transactions do not qualify for hedge accounting as prescribed by ASC 815; therefore, fluctuations in the market value of the derivative contract are recognized in earnings during the current period. Our derivative contracts consist of commodity swaps and interest rate swaps. The estimated unearned value of our derivative contracts is a net asset of approximately $2.2 million as of June 30, 2010. For the quarter ended June 30, 2010, we had an unrealized gain on our commodity derivative contracts of $6.6 million and an unrealized loss of $611,000 on our interest rate swap. We realized a gain on the commodity swaps of $1.2 million for the quarter ended June 30, 2010 and a realized loss on the interest rate swap of $569,000. The loss on the interest rate swap was the result of floating interest rates being lower than our fixed contract rates. The unrealized gain of $6.6 million on the commodity swaps was primarily due to the contract prices of our gas derivative contracts being higher than the market prices at the end of the quarter.

Read the The complete Report



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