Abraxas Petroleum Looks Like a Good Investment Despite Weakness in the Oil Industry

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Dec 09, 2014

Abraxas Petroleum (AXAS, Financial) recently released decent results for the third quarter. The company posted good growth in profit and earnings but marginally missed analysts’ estimates on revenue. With solid growth in the third quarter, Abraxas is expecting a better fourth quarter. Abraxas is also improving its business with various strategic moves to power up its performance in the future. Let us have a look at Abraxas Petroleum and its prospects.

Results and beyond

Abraxas posted quarterly revenue of $44.2 million. But the numbers missed analysts’ estimates. The consensus was expecting $45.1 million on revenue. In addition, it posted net income of $25.4 million. It also reported profit of $0.15 per share, meeting the analysts’ estimates for the same.

The fluctuating commodity prices are making things a bit tough for the company. Abraxas wants to get over this weakness and align itself with the market conditions. Since commodity prices are still soft, the company is initiating cost-cutting efforts to reduce spending and improve the margins. The company has not much to worry about because it doesn’t have any long-term drilling contract, or expiring leases. Abraxas looks well prepared to make changes depending upon the commodity prices.

Focusing on its projects

Abraxas is pleased with the performances of its projects, which are still economic at $75 per barrel. Its projects are well positioned to produce about 10% to 25% return on investment. Moreover, Abraxas has also identified about 100 vertical new drills and re-completions. But, the company is now waiting for the oil prices to improve. The company isn’t in a hurry to start new projects in a soft oil-pricing environment.

Abraxas is pleased with the potential its wells are showing. One of its wells is showing robust performance in terms of production. This well has produced in excess of 100,000 barrels. Another exciting fact for Abraxas is that its other wells are also producing above its expectations. This will support the company even in an economically weak commodity market. Further, Abraxas is seeing good opportunities from the North and South fault blocks, and to add value to it, it is also undertaking certain development programs.

Among the two blocks, Abraxas is interested in the South block, as the Cat Eye, which is the latest well in the South block, looks in good shape. The company has recently drilled the Stenehjem well, and after this Abraxas is planning to wait until winter for another rig. The company will have a nice inventory of wells to complete next spring, which will ramp up the production bringing more profitability to Abraxas.

Conclusion

Moving to the fundamentals, with a trailing P/E of 6.40 Abraxas looks dirt cheap and the forward P/E of 7.38 shows slow earnings growth as well. However, the company can be a good long term holding as its earnings are expected to increase at a CAGR of 19.00%. Thus, looking at these facts and statistics, it can be seen that Abraxas has strong long term prospects.