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Abraxas Petroleum Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 14, 2009 02:04PM

Abraxas Petroleum Corp. (AXAS) filed Quarterly Report for the period ended 2009-05-10. Abraxas Petroleum Corporation is an independent energy company engagedprimarily in the acquisition exploration exploitation and production of crude oil and natural gas. They seek to complement their acquisition and development activities by selectively participating in exploration projects with experienced industry partners. Abraxas Petroleum Corp. has a market cap of $57.1 million; its shares were traded at around $1.15 with a P/E ratio of 1.7 and P/S ratio of 0.6.

Highlight of Business Operations:

The results of our operations are highly dependent upon the prices received for our oil and gas production. The prices we receive for our production are dependent upon spot market prices, price differentials and the effectiveness of our derivative contracts, which we sometimes refer to as hedging arrangements. Substantially all of our sales of oil and gas are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received for our oil and gas production are dependent upon numerous factors beyond our control. Significant declines in prices for oil and gas could have a material adverse effect on our financial condition, results of operations, cash flows and quantities of reserves recoverable on an economic basis. Recently, the prices of oil and gas have been volatile. During the first quarter of 2009, prices of oil and gas declined significantly from the near record levels experienced during the firstquarter of 2008. During the first quarter of 2009, the New York Mercantile (NYMEX) price for West Texas Intermediate (WTI) averaged $43.19 per barrel as compared to $97.81 per barrel during the first quarter of 2008. NYMEX Henry Hub spot prices for gas averaged $4.55 per million British thermal units (MMBtu) for the first quarter of 2009 compared to $8.64 for the same period of 2008. Prices closed the quarter at $49.66 per Bbl of oil and $3.61 per MMBtu of gas and continue to be significantly lower when compared to the same period of 2008. The realized prices that we receive for our production differ from NYMEX futures and spot market prices, principally due to:

We had capital expenditures of $4.3 million during the first quarter of 2009 of which $2.3 million was by the Partnership and $2.0 million was by Abraxas Petroleum and our capital budget for 2009 is approximately $32.0 million, of which $20.0 million is applicable to Abraxas and $12.0 million applicable to the Partnership. Under the terms of the Partnership Credit Facility, the Partnership s capital expenditures may not exceed $12.5 million prior to the termination of the Partnership s Subordinated Credit Agreement. The final amount of our capital expenditures for 2009 will depend on our success rate, production levels, the availability of capital and commodity prices.

Borrowings and Interest. The Partnership had indebtedness of approximately $125.6 million under the Partnership Credit Facility and $40 million under its Subordinated Credit Agreement as of March 31, 2009. At May 7, 2009, the Partnership had $4.4 million available under the Partnership Credit Facility. Under the amended terms of the Partnership Credit Facility, on May 14, 2009, Abraxas Petroleum is required to re-pay the distribution of approximately $1.9 million paid to it relating to the fourth quarter of 2008 to the Partnership and the Partnership must, in turn, make a principal payment of approximately $1.9 million under the Partnership Credit Facility. Once this payment has been made, the borrowing base under the Partnership Credit Facility will be reduced to approximately $128.1 million and the Partnership Credit Facility will have a balance of approximately $123.7 million and availability of $4.4 million. Abraxas Petroleum intends to make this payment on or before May 14, 2009. In consideration of making this payment, Abraxas Petroleum will be issued a number of additional units of the Partnership determined by dividing approximately $1.9 million by 110% of the average trading yields of comparable E&P MLPs based on the closing market price on May 14, 2009 multiplied by the most recent quarterly distribution paid or declared by the Partnership times four. At March 31, 2009, Abraxas had indebtedness of $3.0 million and availability of $3.5 million under its Credit Facility. If interest expense increases as a result of higher interest rates or increased borrowings, more cash flow from operations would be used to meet debt service requirements. As a result, we would need to increase our cash flow from operations in order to fund the development of our numerous drilling opportunities which, in turn, will be dependent upon the level of our production volumes and commodity prices. In order to mitigate its interest rate exposure, the Partnership entered

Lease Operating Expenses. Lease operating expenses (“LOE”) for the three months ended March 31, 2009 increased to $5.9 million compared to $5.2 million in 2008. The increase in LOE was partially related to the properties acquired in the St. Mary property acquisition. These properties added $ 2.5 million to LOE during the first quarter of 2009 as compared to $1.5 million to LOE during the first quarter of 2008. LOE on a per BOE basis for the three months ended March 31, 2009 was $14.20 per BOE compared to $14.19 for the same period of 2008.

Depreciation, Depletion and Amortization Expenses. Depreciation, depletion and amortization (“DD&A”) expense decreased to $4.5 million for the three months ended March 31, 2009 from $5.1 million for same period of 2008. The decrease in DD&A was primarily the result of a reduction in the depletion base as a result of the proved property impairment recorded for the year ended December 31, 2008. Our DD&A on a per BOE basis for the three months ended March 31, 2009 was $10.85 per BOE compared to $13.89 per BOE in 2008. The decrease in the per BOE DD&A was due to the lower depletion base for the period.

flow from operating activities. However, such write-downs do impact the amount of our stockholders' equity. The cost ceiling represents the present value (discounted at 10%) of net cash flows from sales of future production, using commodity prices on the last day of the quarter, or alternatively, if prices subsequent to that date have increased, a price near the periodic filing date of the our financial statements. As of March 31, 2009, our net capitalized costs of oil and gas properties exceeded the present value of our estimated proved reserves by $37.1 million ($4.7 million on Abraxas Petroleum properties and $32.4 million on the Partnership properties). These amounts were calculated considering March 31, 2009 quarter end prices. We did not adjust the capitalized costs of our properties because subsequent to March 31, 2009, crude oil and natural gas prices increased such that capitalized costs did not exceed the present value of the estimated proved oil and gas reserves on a consolidated basis as determined using increased NYMEX prices on May 7, 2009 of $58.32 per Bbl for oil and $4.00 per Mcf for gas.

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