Oil pricing has been a headwind for companies such as Abraxas Petroleum (AXAS, Financial). Oil companies are struggling to maintain their margins. However, Abraxas Petroleum has succeeded so far in maintaining an edge over its peers. As the company has already finished drilling four wells on the Jore Federal West pad, it is expecting a positive impact of such a growth in production on its financials in the future. Let us have a closer look at the overall business of the company and its activities in the Bakken Shale.
The way ahead looks positive
Abraxas is gaining strength from the positive sign coming from Bakken shale. According to the recent studies carried out in Bakken, the oil production from shale formations in key regions such as North Dakota and Texas are growing impressively and has grown to 19,000 barrels per day until February. In addition, the shale formation of the Williston basin has delivered crude oil production of about 1.2 million barrels per day, which is 276,000 barrels per day higher than what it delivered in same period last year.
This is a commendable growth in production. This will have a positive impact on Abraxas as its costs reduction initiatives are paying off well and has succeeded in bringing down the costs in North Dakota.
The company also recently complete drilling three wells under Stenehjem pad and is pleased to see better than expected performance. For the future, Abraxas is working on initiatives to create more operating units regarding this to secure better margins. In addition, these acceptable economics along with strong results has boosted Abraxas’ confidence at current commodity prices. Seeing this, the company is now planning to continue its one-rig program in North Dakota for better results in future.
Going forward, the Abraxas is also expecting Eagle Ford to be contributory to its growth in production levels. The company has already drilled two wells in this but the company is expecting the overall costs to come down further. Therefore it has postponed fracs until it sees some concrete signs of costs declining. The analysts are forecasting that the rig count will decline which will drive efficiencies and drilling gains for Abraxas in future.
Conclusion
Now moving to the fundamentals, with a trailing P/E of just 5.46, the stock is cheap and the forward P/E of 17.89 shows that it earnings are expected to grow well in the near term. The stock has been impressive on the exchange and it can gain further market share on the back of attractive profit margin of 47.30%. The stock can also be a long term holding as its earnings for the next five years are growing at a CAGR of 19.00% as compared to industry average of 11.64%. Considering all these facts, I would like to suggest the investors to definitely pick Abraxas Petroleum.
