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Abraxas Petroleum Corp. Reports Operating Results (10-K/A)
Posted by: gurufocus (IP Logged)
Date: October 13, 2011 04:52PM
Abraxas Petroleum Corp. (AXAS) filed Amended Annual Report for the period ended 2010-12-31. Abraxas Petroleum Corp. has a market cap of $316.8 million; its shares were traded at around $3.44 with and P/S ratio of 5.4.
Highlight of Business Operations:The revolving portion of the credit facility has a maximum commitment of $300.0 million and availability is subject to a borrowing base. The borrowing base is currently $140.0 million and is determined semi-annually by the lenders based upon our reserve reports, one of which must be prepared by our independent petroleum engineers and one of which may be prepared internally. The amount of the borrowing base is calculated by the lenders based upon their valuation of our proved reserves utilizing these reserve reports and their own internal decisions. In addition, the lenders, in their sole discretion, are able to make one additional borrowing base redetermination during any six-month period between scheduled redeterminations and we are able to request one redetermination during any six-month period between scheduled redeterminations. The lenders are also able to make a redetermination in connection with any sales of producing properties with a market value of 5% or more of our then-current borrowing base and in connection with any hedge termination which could reduce the collateral value by 5% or more. Our borrowing base of $140.0 million was determined based upon our reserve report dated June 30, 2010. Our borrowing base can never exceed the $300.0 million maximum commitment amount. Outstanding amounts under the revolving portion of the credit facility bear interest at (a) the greater of (1) the reference rate announced from time to time by Société Générale, (2) the Federal Funds Rate plus 0.5%, and (3) a rate determined by Société Générale as the daily one-month LIBOR plus, in each case, (b) 1.5%—2.75%, depending on the utilization of the borrowing base, or, if we elect, at the greater of (1) 2.0% and (2) LIBOR plus, in each case, 2.5%—3.75%, depending on the utilization of the borrowing base. At December 31, 2010, the interest rate on the revolving portion of the credit facility was 5.75%.
At December 31, 2010, we had 10,959 MBoe of proved undeveloped reserves. During 2010, 214 MBoe of proved undeveloped reserves were converted to proved producing reserves. During 2010, 2,083 MBoe were added to proved undeveloped reserves, principally in the Rocky Mountain region. During 2010, 1,317 MBoe were removed from proved undeveloped reserves, in part as a result of drilling one dry hole in the onshore Gulf Coast region. The proved undeveloped reserves associated with that well (368 Boe as of December 31, 2009) were removed from our December 31, 2010 reserve report. In addition, another well and an offset location to a previously drilled well in a nearby prospect, in the onshore Gulf Coast region, were deemed marginal and uneconomic and the associated reserves (a total of 436 Boe as of December 31, 2009) were removed from our December 31, 2010 reserve report. The remaining proved undeveloped reserves that were removed from our December 31, 2010 reserve report were predominately attributable to unit wells that were successfully drilled with the associated reserves being re-allocated to the proved developed category of the respective unit. We do not have any material proved undeveloped reserves which have remained undeveloped for five or more years since the reserves were included in our reserve report. 33 During 2010, we spent $36.5 million on capital expenditure projects, of which $12.2 million was used to convert proved undeveloped reserves to proved developed reserves. The remaining capital expenditures ($24.3 million) during 2010 were used to develop probable, possible and incremental reserves, acquire acreage and perform workovers and recompletions across our core operating areas.
During 2010, differentials averaged ($8.14) per barrel of oil and ($0.41) per Mcf of gas compared to ($7.67) per barrel of oil and ($0.70) per Mcf of gas in 2009 and ($7.07) per barrel of oil and ($1.30) per Mcf of gas in 2008. We experienced greater oil differentials during 2010 compared to prior years because of the increased percentage of our production from the Rocky Mountain region which experiences higher differentials than our Permian Basin and Gulf Coast properties. Approximately 27% of our production during 2010 was from our Rocky Mountain properties. As the percentage of our production from the Rocky Mountain region increases, we expect that our price differentials will also increase. 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.
Recently, the prices of oil and gas have been volatile. During the first half of 2008, prices for oil and gas were sustained at record or near-record levels, however, during the second half of 2008, and first half of 2009, there was a significant drop in prices. Prices began to improve during the second half of 2009. During 2010, the price of oil increased significantly from the levels experienced in 2009. The New York Mercantile (NYMEX) price for West Texas Intermediate crude oil (WTI) averaged $79.51 per barrel in 2010 as compared to $61.82 per barrel in 2009. During 2010, the average price of gas increased slightly from an average NYMEX Henry Hub spot price of $3.94 per MMbtu in 2009 to $4.38 per MMbtu in 2010. Prices closed on December 31, 2010 at $91.38 per Bbl of oil and $4.41 per MMbtu of gas. If commodity prices decline, our revenue and cash flow from operations will also likely decline. In addition, lower commodity prices could also reduce the amount of oil and gas that we can produce economically. If gas prices remain depressed or oil prices decline significantly, our revenues, profitability and cash flow from operations may decrease which could cause us to alter our business plans, including reducing our drilling activities.
Operating Revenue. During the year ended December 31, 2010, operating revenue from oil and gas sales increased by $6.3 million from $51.8 million in 2009 to $58.1 million in 2010. The increase in revenue was due to higher oil and gas prices in 2010 as compared to 2009 which were partially offset by decreased production volumes in 2010 as compared to 2009. The increase in commodity prices contributed $12.8 million to revenue while decreased sales volumes had a negative impact of $6.5 million.
Stocks Discussed: AXAS,