UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19118
ABRAXAS PETROLEUM CORPORATION
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 74-2584033
------------------ --------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
500 N. Loop 1604 E, Suite 100, San Antonio, Texas 78232
-------------------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (210)490-4788
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] or No [ ]
The number of shares of the issuer's common stock outstanding as of
November 1, 1996, was:
Class Shares Outstanding
---------------------------- -------------------
Common Stock, $.01 Par Value 5,804,812
1 of 16
1
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
FORM 10 - Q
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1-Financial Statements(Unaudited)
Consolidated Balance Sheets - September 30, 1996
and December 31,1995........................................3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1996 and 1995.....5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995..............6
Notes to Consolidated Financial Statements....................8
ITEM 2-Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................10
PART II
OTHER INFORMATION
ITEM 1 - Legal proceedings............................................13
ITEM 2 - Changes in Securities........................................13
ITEM 3 - Defaults Upon Senior Securities..............................13
ITEM 4 - Submission of Matters to a Vote of Security Holders..........13
ITEM 5 - Other Information............................................15
Signatures......................................................16
2
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
--------------- --------------
(Unaudited)
ASSETS
Current assets:
Cash ....................................... $ 9,992,902 $ 4,249,767
Accounts receivable, less allowance
for doubtful accounts of $35,900
at September 30, 1996 and$35,900
at December 31, 1995:
Joint owners ........................... 593,481 1,334,873
Oil and gas production sales ........... 2,748,505 2,945,681
Affiliates ............................. 59,463 53,224
Other .................................. 563,081 60,367
------------- -------------
3,964,530 4,394,145
Equipment inventory ........................ 142,023 80,070
Other currents assets ...................... 138,986 124,820
-------------
Total current assets ......................... 14,238,441 8,848,802
Property and equipment:
Oil and gas properties (full cost method)
including $8,000,000 excluded from the
amortization base at September 30, 1996,
less accumulated depreciation,depletion
and amortization of $37,601,185 at
September 30, 1996 and $29,651,521
at December 31, 1995 ....................... 111,103,581 74,475,683
Other property and equipment:
Land ...................................... 139,466 139,466
Equipment ................................. 969,835 692,508
Leasehold improvements .................... 129,398 37,430
Less accumulated depreciation ............. (366,586) (266,686)
------------- -------------
111,975,694 75,078,401
Investments in and advances to partnership ... 2,396,992 --
Offering issuance costs ...................... 192,109 --
Deferred financing fees, net of accumulated
amortization of $850,650 at
September 30, 1996 and $289,231
at December 31, 1995 ...................... 778,698 353,514
Restricted cash .............................. 91,160 134,419
Other assets ................................. 766,994 326,222
Marketable securities ........................ -- 326,000
------------- -------------
Total assets ................................. $ 130,440,088 $ 85,067,358
============= =============
See accompanying notes to consolidated financial statements
3
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30 December 31
1996 1995
--------------- --------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 4,694,034 $ 3,928,824
Oil and gas production payable ............. 1,414,212 1,787,152
Accrued interest ........................... -- 362,750
Other accrued expenses ..................... 356,263 46,207
Dividends payable on preferred stock ....... 91,482 91,482
------------- -------------
Total current liabilities .................... 6,555,991 6,216,415
Long-term debt:
Financing agreements ....................... 85,000,000 41,556,651
Other long term obligations .................. 123,538 44,737
Deferred income taxes ........................ 186,749 186,749
Minority interest in foreign subsidiary ...... 2,153,223 --
Shareholders' equity:
Preferred stock 8% authorized, 1,000,000
shares;issued and outstanding 45,741
shares at September 30, 1996 and
December 31, 1995 ........................ 457 457
Common stock, par value $.01 per share -
authorized 50,000,000 shares; issued
and outstanding 5,804,812 shares at
September 30, 1996 and 5,799,762 shares
at December 31, 1995, respectively ....... 58,050 57,999
Additional paid-in capital ................. 50,920,154 50,914,078
Unrealized holding loss on securities ...... -- (244,000)
Retained earnings (deficit) ................ (14,184,400) (13,663,903)
Treasury stock, at cost, 70,711 shares
at September 30, 1996 and 2,571 at
December 31, 1995, respectively ......... (374,079) (1,825)
Foreign currency translation ............... 405 --
------------- -------------
Total shareholders' equity ................... 36,420,587 37,062,806
------------- -------------
Total liabilities and shareholders' equity ... $ 130,440,088 $ 85,067,358
============= =============
See accompanying notes to consolidated financial statements
4
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
-------------------------- ----------------------------
Revenue:
Oil & gas production sales ....................... $ 3,771,667 $ 3,247,223 $ 11,785,848 $ 9,794,667
Rig revenues ..................................... 28,700 28,000 106,000 92,250
Other ............................................ 14,036 14,210 17,210 42,257
------------ ------------ ------------ ------------
3,814,403 3,289,433 11,909,058 9,929,174
Operating costs and expenses:
Lease operating and production taxes ............. 1,114,619 1,084,574 3,295,659 3,182,567
Depreciation, depletion, & amortization .......... 1,274,106 1,254,382 4,145,047 3,540,882
General and administrative ....................... 440,650 275,500 1,250,458 768,575
Rig operations ................................... 42,658 27,302 112,581 94,978
Hedging Loss ..................................... 198,810 -- 510,767 --
------------ ------------ ------------ ------------
3,070,843 2,641,758 9,314,512 7,587,002
------------ ------------ ------------ ------------
743,560 647,675 2,594,546 2,342,172
Other (income) expense:
Interest income .................................. (40,305) (1,035) (155,674) (8,392)
Interest expense ................................. 698,023 984,609 2,141,816 2,915,260
Amort. of deferred financing fees ................ 64,419 40,000 192,419 120,000
Loss on securities sale .......................... 235,197 -- 235,197 --
------------ ------------ ------------ ------------
957,334 1,023,574 2,413,758 3,026,868
------------ ------------ ------------ ------------
Income (loss) before minority interest
and extraordinary item .......................... (213,774) (375,899) 180,788 (684,696)
Minority interest in income
of consolidated foreign subsidiary .............. 22,015 -- 57,839 --
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ............. (235,789) (375,899) 122,949 (684,696)
Extraordinary item-debt extinguishment cost .......... 369,000 -- 369,000 --
------------ ------------ ------------ ------------
Net income (loss) .................................... (604,789) (375,899) (246,051) (684,696)
Less dividend requirement on
cumulative preferred stock ....................... (91,482) (91,482) (274,446) (274,464)
------------ ------------ ------------ ------------
Net income (loss) applicable to
common stock ..................................... $ (696,271) $ (467,381) $ (520,497) $ (959,160)
============ ============ ============ ============
Net income (loss) per share:
Income (loss) per common share:
Income (loss) before extraordinary item $ (.06) $ (.10) $ (.03) $ (.21)
Extraordinary item (.06) -- (.06) --
------------ ----------- ----------- ------------
Net income (loss) per common and dilutive
common equivalent share .......................... $ (.12) $ (.10) $ (.09) (.21)
============ =========== =========== ============
Weighted average shares outstanding ............... 5,804,812 4,457,262 5,804,145 4,456,462
============ =========== =========== ============
See accompanying notes to consolidated financial statements
5
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30
1996 1995
--------------------------
OPERATING ACTIVITIES
Net income (loss) ..................................... $ (246,051) $ (684,696)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest in income of foreign subsidiary . 57,839
Depreciation, depletion, and amortization ......... 4,145,047 3,540,882
Amortization of deferred financing fees ........... 561,419 120,000
Issuance of Common Stock .......................... -- 55,512
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ........ 103,615 (1,892,866)
(Increase) decrease in other current assets ....... (14,166) (127,947)
(Increase) decrease in equipment inventory ........ (61,953) (16,872)
(Decrease) increase in accounts payable and
accrued expenses ............................... 712,516 107,469
(Decrease) increase in oil & gas production payable (372,940) 325,992
------------ ------------
Net cash provided by operating activities ............. 4,885,326 1,427,474
INVESTING ACTIVITIES
Development of oil and gas properties ................. (10,016,286) (8,934,853)
Proceeds from sale of oil and gas producing properties 16,794,137 2,724,001
Purchase of oil and gas producing properties .......... (46,430,993) (153,139)
Purchase of property and equipment .................... (369,295) (89,252)
Development of gas processing plants .................. (123,532) (45,843)
Purchase of investment and advances to oil and
gas partnership ..................................... (2,396,992)
Minority interest related to assets acquired of
foreign subsidiary .................................. 2,095,384
Purchase of interest in real estate partnership ....... (27,810)
Assets of acquired companies, net of cash ............. (645,001)
------------ ------------
Net cash provided (used) in investing activities ...... (41,120,388) (6,499,086)
6
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Nine Months Ended
September 30
1996 1995
--------------------------
FINANCING ACTIVITIES
Issuance of Common Stock .............................. 30,313
Offering issuance costs ............................... (192,109)
Purchase of treasury stock ............................ (372,254)
Proceeds from long term borrowings .................... 90,400,000 2,750,000
Proceeds from short term borrowings ................... -- 3,000,000
Dividends paid on preferred stock ..................... (274,464) (274,464)
Payments on long-term borrowings ...................... (46,956,650) (10,552)
Increase in other long-term liabilities ............... 78,800
Loan origination fees ................................. (778,698) (171,996)
------------ ------------
Net cash provided by financing activities ............. 41,934,938 5,292,988
------------ ------------
Increase (decrease) in cash ........................... 5,699,876 221,376
Cash at beginning of period ........................... 4,384,186 135,297
------------ ------------
Cash at end of period, including
restricted cash ..................................... $ 10,084,062 $ 356,673
============ ============
Supplemental disclosures of cash flow information:
Interest paid ......................................... $ 2,141,816 $ 2,953,296
============ ============
Supplemental schedule of non-cash investing
and financing activity:
Accrual of preferred dividends ........................ $ 91,482 $ 91,482
============ ============
Issuance of Common Stock for compensation ............. $ 6,127 $ 55,512
============ ============
Exchange of treasury stock for non-compete
agreement ........................................... $ -- $ 70,625
============ ============
See accompanying notes to consolidated financial statements
7
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1. BASIS OF PRESENTATION
The accounting policies followed by Abraxas Petroleum Corporation and its
subsidiaries (the "Company") are set forth in the notes to the Company's audited
financial statements in the Annual Report on Form 10-K filed for the year ended
December 31, 1995 which is incorporated herein by reference. Such policies have
been continued without change. Also, refer to the notes to those financial
statements for additional details of the Company's financial condition, results
of operations, and cash flows. All the material items included in those notes
have not changed except as a result of normal transactions in the interim, or as
disclosed within this report. The consolidated interim financial statements have
not been audited by independent accountants, but in the opinion of management,
reflect all adjustments necessary for a fair presentation of the financial
position and results of operations. Operating results for the three-month and
nine month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. Any and all
adjustments are of a normal and recurring nature.
The consolidated financial statements include the accounts of the Company and
its 78% owned foreign subsidiary Grey Wolf Exploration, Ltd., ("Grey Wolf").
Grey Wolf has consolidated its 67% owned interest in Cascade Oil and Gas, Ltd.
("Cascade"). Minority interest represents the minority shareholders'
proportionate share of the equity and income of both Grey Wolf and Cascade.
Grey Wolf and Cascade assets and liabilities are translated to U.S. dollars
at period-end exchange rates. Income and expense items are translated at average
rates of exchange prevailing during the period. Translation adjustments are
accumulated as a separate component of shareholders' equity.
NOTE 2. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is computed by dividing net income (loss)
(adjusted for dividends on preferred stock) by the weighted average number of
shares of common stock outstanding during the period. The weighted average
number of shares includes the number of shares that would be issuable under the
Contingent Value Rights Agreement if the current market value of the Company's
common stock at period-end is less than a specified target price. Common stock
equivalents including any shares reusable under the Contingent Value Rights
Agreement are not considered in the computation of earnings per common share for
periods with a loss, as their effect is anti-dilutive.
NOTE 3. ACQUISITION
In September 1996, the Company acquired producing properties in the Wamsutter
Area of southwestern Wyoming for $45.9 million, net of a preliminary adjustment
for accrual of net revenue and interest from April 1, 1996 to September 30,
1996. The acquisition was accounted for as a purchase and the purchase price was
allocated to proved and unproved crude oil and natural gas properties based on
the estimated fair values of the properties acquired. The purchase price was
funded by a combination of $3.8 million cash on hand and advances under the
Company's new credit facility with Bankers Trust Company, (see note 4). No
revenue or expenses from this acquisition were included in the consolidated
financial statements as the transaction was not closed until September 30, 1996.
8
NOTE 4. LONG TERM DEBT
On September 30, 1996, the Company entered into a new credit facility with
Bankers Trust Company (BTCo) and ING Capital (together the Lenders), providing a
bridge facility in the total amount of $90 million, consisting of a $30 million
revolving credit facility, with $25 million initially available, a $35 million
term loan and a $25 million term loan (the Bridge Facility). The Bridge Facility
is secured by a first priority lien on substantially all of the Company's U.S.
assets and matures on October 31, 1997. If borrowings under the Bridge Facility
have not been repaid by each of November 15, 1996 and January 1, 1997, the
Company will be obligated to pay the Lenders additional fees and/or warrants to
purchase common stock of the Company. The agreement limits the Company's debt to
the Bridge Facility, restricts the payment of dividends other than to the
existing preferred stock, and requires compliance with minimum tangible net
worth, current and interest coverage ratios and certain financial reporting
requirements.
The revolving credit facility and the $35 million term loan carry interest at
LIBOR plus 2 1/4% and the $25 million term loan carries interest at the BTCo's
prime rate plus 3%, increasing at 1/2% for each 90-day period thereafter to a
maximum of prime plus 4 1/2 %. Under an interest rate swap agreement, the
Company pays a fixed rate of 6.15% on $25 million of borrowings while the lender
under the Bridge Facility will pay a floating rate equal to the USD-LIBOR-BBA
rate for one month maturities to the Company. Settlements are due monthly. The
agreement terminates in August 1997 and may be extended for an additional year
by the lenders.
On September 30, 1996, the Company borrowed $85 million under the Bridge
Facility which was used to repay all amounts due First Union and to finance the
purchase of the Wyoming Properties
NOTE 5. SUBSEQUENT EVENTS
In October 1996, the Company entered into agreements to purchase the
outstanding capital stock of CGGS Canadian Gas Gathering Systems Inc. ("CGGS")
after the consummation by CGGS of one of its gas processing facilities for
approximately $86.4 million plus the amount of CGGS working capital and interest
due to the seller. CGGS owns producing oil and gas properties in western Canada
and adjacent gas gathering and processing facilities as well as 47,000
undeveloped net acres of leasehold. See below for financing details.
In September 1996, the Company agreed to acquire a 75% partnership interest
in Portilla-1996, L.P. (The "Partnership") for $27.5 million, including the
repayment of certain indebtedness. The Company currently owns the remaining 25%
interest in the Partnership. The Partnership owns a 100% working interest in the
Portilla Field, located in the Texas Gulf Coast region and a 12 % working
interest in the Happy Field, located in the Permian Basin of west Texas. See
below for financing details.
On November 5, 1996, the Company completed pricing of a $215 million Senior
Notes Debt Offering that is scheduled to close on November 14, 1996. The Company
will use these proceeds to close the two acquisitions detailed above as well as
payoff all amounts due under the Company's credit facility (see Note 4).
Approximately $10.0 million in proceeds will remain for general corporate use
after these transactions are completed. Simultaneously, with the closing of the
Offering, the Company will enter into an amended credit facility with the
Lenders in the amount of $40.0 million with an initial borrowing availability of
$20.0 million. Any advances under this facility will bear interest at rates
varying from LIBOR Plus 125 basis points to LIBOR Plus 200 basis points
depending on the percentage of the amount of availability drawn. The facility
calls for no principal reductions for 2 years (pending semi annual borrowing
base reviews) followed by amortization over eleven equal quarterly reductions
and one final payment not to exceed 10% of the outstanding balance at the
beginning of the 3 year amortization period. All U.S. assets of the Company will
collateralize the facility and standard and customary covenants will apply.
9
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the Company's financial condition, results
of operations, liquidity and capital resources. This discussion should be read
in conjunction with the consolidated financial statements of the Company, and
the notes thereto included in the Company's annual report on Form 10-K filed for
the year ended December 31, 1995 which is incorporated herein by reference.
RESULTS OF OPERATIONS
The factors which most significantly affect the Company's results of
operations are (1) the sales prices of crude oil and natural gas, (2) the level
of total sales volumes of crude oil and natural gas, (3) the level of and
interest rates on borrowings and (4) the level and success of exploration and
development activity.
Selected operating data. The following table sets forth certain operating
data of the Company for the periods presented.
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------------------- ------------------
Operating Revenue (in thousands):
Crude Oil Sales ...................... $ 1,583 $ 1,607 $ 5,306 $ 4,887
Natural Gas Sales .................... 1,710 1,247 5,130 3,743
Natural Gas Liquid Sales ............. 479 394 1,350 1,165
Rig Operations ....................... 28 28 106 92
Other ................................ 14 14 17 42
------- ------- ------- -------
Total Operating Revenue ............. $ 3,814 $ 3,290 $11,909 $ 9,929
======= ======= ======= =======
Operating Income (in thousands): ...... $ 744 $ 648 $ 2,595 $ 2,342
Crude Oil Production (MBBLS) .......... 74 97 266 283
Natural Gas Production (MMCFS) ........ 867 950 2,625 2,645
Natural Gas Liquids Production (MBBLS) 36 37 106 106
Average Natural Gas Sales Price ($/MCF) $ 1.97 $ 1.32 $ 1.95 $ 1.41
Average Crude Oil Sales Price ($/Bbl) . $ 21.24 $ 16.62 $ 19.94 $ 17.24
Average Liquids Sale Price ($/Bbl) .... $ 13.40 $ 10.61 $ 12.73 $ 10.94
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO
THREE MONTHS ENDED SEPTEMBER 30, 1995
OPERATING REVENUE. During the three months ended September 30, 1996, operating
revenue from crude oil, natural gas and natural gas liquid sales increased to $
3.8 million compared to $3.2 million in the three months ended September 30,
1995. The increase was attributable to the increase in average sales prices and
from the Company's properties other than Happy and Portilla in 1996 as compared
to 1995, which somewhat offset the loss in production volumes from the sale of
Happy and Portilla. Happy and Portilla contributed $951,000 in operating revenue
during the third quarter of 1995. Crude oil and natural gas liquids sales
volumes decreased by 19% and natural gas sales volumes decreased by 8% in the
three months ended September 30, 1996 as compared to the same three months of
1995 as a result of the sale of Happy and Portilla which was somewhat offset by
continued development drilling in west Texas and the production from the
Company's Canadian properties. Happy and Portilla contributed 184,650 Mcf of
natural gas (19% of Company total), 31,164 Bbls of crude oil (31% of Company
total) and13,115 Bbls of natural gas liquids (35% of Company total) during the
three months ended September 30, 1995. Average sales prices were $21.24 per Bbl
of crude oil, $1.97 per Mcf of natural gas and $13.40 per Bbl of natural gas
liquids in the three months ended September 30, 1996 compared with $16.62 per
Bbl of crude oil, $1.32 per Mcf of natural gas and $10.61 per Bbl of natural gas
liquids in the same period of 1995.
10
LEASE OPERATING EXPENSES. Lease operating expenses and production taxes
("LOE") for the three months ended September 30, 1996 remained at $1.1 million,
the same as in 1995, as a result of the production from Happy and Portilla,
which have relatively low LOE, being replaced by production from the Company's
other properties which have a higher LOE cost. During the three months ended
September 30, 1995, LOE was $151,000 for Happy and Portilla and $963,000 for the
Company's remaining properties. LOE on a $/BOE basis were $4.38 per BOE for the
three months ended September 30, 1996 compared to $3.71 per BOE for the three
months ended September 30, 1995. During the three months ended September 30,
1995, LOE on a per BOE basis for Happy and Portilla was $2.68 per BOE compared
to $4.07 per BOE for the remainder of the Company's producing properties.
G&A EXPENSES. G&A expenses increased from $276,000 for the three months ended
September 30, 1995 to $441,000 for the same period of 1996 as a result of the
Company's hiring additional staff to manage its assets, including establishing a
Canadian administrative office. G&A expenses on a $ per BOE basis increased from
$.94 per BOE for the three months ended September 30, 1995 to $1.73 per BOE for
the three months ended September 30, 1996. This increase was due to the
Company's smaller production base following the sale of Happy and Portilla and
the loss of overhead reimbursement on the Portilla properties of $72,000 in the
three months ended September 30, 1995 that previously had reduced G&A expenses.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization ("DD&A") expenses remained at $1.3 million for the three months
ended September 30, 1996. DD&A expenses on a $/BOE basis was $5.00 per BOE for
the three months ended September 30, 1996 compared to $4.29 per BOE for the
three months ended September 30, 1995.
INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest expense and preferred
dividends ("Interest and Dividends") decreased from $1.1 million for the three
months ended September 30, 1995 to $790,000 for the three months ended September
30, 1996, largely attributable to the sale of Happy and Portilla and the
repayment by the Company of $12 million previously borrowed under the First
Union Credit Facility. Interest and Dividends on a per BOE basis were $3.10 per
BOE for the three months ended September 30, 1996 compared to $3.68 per BOE for
the three months ended September 30, 1995.
NATURAL GAS HEDGE. In December 1995, the Company entered into a commodity swap
agreement with First Union Bank. Under the commodity swap agreement, the Company
receives or makes payments to First Union based on the differential between a
fixed and variable price for natural gas. At December 31, 1995, the Company had
agreed to exchange payments monthly on 5,000 MMBTU of natural gas per day
beginning in March 1996 and extending through November 1996. Under the swap
agreement, as in effect during the first quarter of 1996, the Company received
fixed prices averaging $1.747 per MMBTU and paid a variable price based on the
arithmetic average of the last three trading days' settlement price of the first
nearby contract for natural gas as quoted by the New York Merchantile Exchange.
For the quarter ended September 30, 1996, the Company sustained a $199,000 loss
related to the difference between the price received by the Company and the
price paid by the Company. This agreement was amended, effective June 1, 1996,
to reduce the fixed price by $ .255 per MMBTU and the variable price to the
Inside FERC, El Paso price, eliminating any basis differential for the remainder
of the agreement.
OTHER EXPENSES. In September 1996, the Company repaid its existing bank debt
to First Uniooon National Bank and expensed the remaining unamortized deferred
financing costs of $433,000 previously carried as an asset. Also, in September
the Company entered into an agreement to sell marketable securities it had held
since 1993. This transaction, completed in October, resulted in the Company
recognizing a loss of $235,000. This anticipated loss had previously been
reflected in the equity section of the Company's balance sheet.
11
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
OPERATING REVENUE. During the nine months ended September 30, 1996, operating
revenue from crude oil, natural gas and natural gas liquids sales increased from
$9.8 million in 1995 to $11.8 million. This increase was primarily attributable
to an increase in crude oil, natural gas liquids and natural gas sales prices
and increased production volumes from the Company's properties other than Happy
and Portilla in 1996 as compared to 1995 which somewhat offset the loss in
production volumes from the sale of Happy and Portilla. Happy and Portilla
contributed $951,000 in operating revenue during the third quarter of 1995 and
$0 million during the third quarter of 1996. Crude oil and natural gas liquids
sales volumes decreased by 4% and natural gas sales volumes decreased by 1% in
the first nine months of 1996 as compared to the first nine months of 1995.
Happy and Portilla contributed 87,126 MBbls of crude oil and natural gas liquids
(31% of Company total) and 375 MMcf of natural gas (14% of Company total) during
the first nine months of 1995 as compared to 54 MBbls of crude oil and natural
gas liquids (21% of Company total) and 117 MMcf of natural gas (4% of Company
total) for the first nine months of 1996. Average sales prices were $19.94 per
Bbl of crude oil, $12.73 per Bbl of natural gas liquids and $1.95 per Mcf of
natural gas for the nine months ended September 30, 1996 compared with $17.24
per Bbl of crude oil, $10.94 per Bbl of natural gas liquids and $1.41 per Mcf of
natural gas for the nine months ended September 30, 1995. A general weakening of
crude oil and natural gas prices at the wellhead during the first nine months of
1995 resulted in a higher average crude oil and natural gas sales price received
by the Company during the nine months ended September 30, 1996 compared to the
same period in 1995.
LEASE OPERATING EXPENSES. LOE for the nine months ended September 30, 1996
increased to $ 3.3 million compared to $3.2 million in 1995. This increase was
caused by the increased percentage of the Company's production base attributable
to west Texas oil development than that represented by Texas gulf coast
properties which generally have lower LOE than west Texas. Of the LOE incurred
during the first nine months of 1995, $445,000 was attributable to Happy and
Portilla as compared to $233,000 during the first nine months of 1996. LOE on a
per BOE basis was $4.07 per BOE for the nine months ended September 30, 1996
compared to $3.83 per BOE for the nine months ended September 30, 1995.
DEPRECIATION, DEPLETION AND AMORTIZATION. DD&A expenses increased from $3.5
million for the nine months ended September 30, 1995 to $4.2 million for the
nine months ended September 30, 1996, primarily due to the increase in sales
volumes of crude oil and natural gas. DD&A expenses on a per BOE basis were
$5.27 per BOE for the nine months ended September 30, 1996 compared to $4.27 per
BOE for the nine months ended September 30, 1995.
G&A EXPENSES. G&A expenses increased from $769,000 for the first nine months
of 1995 to $1.2 million for the same period of 1996 as a result of the Company's
hiring additional staff to manage the Company's assets, including establishing a
Canadian administrative office. G&A expenses on a per BOE basis increased from $
.93 per BOE for the nine months ended September 30, 1995 to $1.54 per BOE for
the nine months ended September 30, 1996. This increase was due to the smaller
production base of the Company following the sale of Happy and Portilla and the
loss of overhead reimbursement on the Portilla properties that previously had
reduced G&A expenses. .
INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest and dividends decreased
from $3.2 million for the nine months ended September 30, 1995 to $2.4 million
for the nine months ended September 30,1996, largely due to reduced debt levels
after application to debt of the sales proceeds from Happy and Portilla.
Interest and Dividends on per BOE basis were $2.98 per BOE for the nine months
ended September 30, 1996 compared to $3.84 per BOE for the nine months ended
September 30, 1995.
NATURAL GAS HEDGE. The Company had a loss of $510,767 for the first nine
months of 1996 as a result of the commodity swap agreement with First Union.
12
GENERAL
The Company has incurred operating losses and net losses for a number of
years. The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for crude oil and natural gas and
the volumes of crude oil, natural gas and natural gas liquids produced by the
Company. The prices of crude oil, natural gas liquids and natural gas received
by the Company increased during the nine months ended September 30, 1996, but
there can be no assurance that operating income and net earnings will be
achieved in future periods. In addition, the Company's proved reserves will
decline as crude oil, natural gas and natural gas liquids are produced unless
the Company is successful in acquiring properties containing proved reserves or
conducts successful exploration and development activities. In the event natural
gas prices return to depressed levels or if crude oil prices begin to decrease,
or if the Company's production levels decrease, the Company's revenues, cash
flow from operations and profitability will be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures excluding property divestitures during the first nine
months of 1996 amounted to $58.0 million compared to $9.2 million during the
same period of 1995. The table below sets forth the components of these capital
expenditures on a historical basis for the nine months ended September 30, 1995
and 1996.
Nine Months Ended
September 30
1996 1995
-----------------
Expenditure category (in thousands):
Property acquisitions (1) ................. $47,655 $ 199
Development ............................... 10,016 8,935
Facilities and other ...................... 369 89
------- -------
Total ........................................ $58,040 $ 9,223
======= =======
(1) Includes approximately $1.1 million of oil and gas properties
acquired from Cascade.
At September 30, 1996, the Company had current assets of $14.2 million and
current liabilities of $6.6 million resulting in working capital of $7.6
million. This compares to working capital of $2.6 million at December 31, 1995
and a deficiency of $2.5 million at September 30, 1995. The material components
of the Company's current liabilities at September 30, 1996 include trade
accounts payable of $4.7 million and revenues due third parties of $1.4 million.
The Company's current budget for capital expenditures for the last three
months of 1996 is $6.5 million. Such expenditures will be made primarily for the
development of existing properties. Additional capital expenditures may be made
for acquisitions of producing properties as such opportunities arise. The
Company has no material long-term capital commitments and is consequently able
to adjust the level of its expenditures as circumstances dictate. Additionally,
the level of capital expenditures will vary during future periods depending on
market conditions and other related economic factors.
13
The Company's new credit facility contains three financial covenants: (1) the
ratio of current assets to current liabilities (exclusive of any part of the
loan which is current) shall not be less than 1:1 with any unborrowed dollars
available under the Company's credit facility being computed as a current asset;
(2) maintaining minimum tangible net worth of $30.0 million; and (3) the ratio
of earnings before interest, taxes, depreciation, depletion and amortization
(EBITDA) to interest expense shall be at least 1.75 to 1.00. The credit facility
also contains covenants relating to maintaining corporate existence, maintaining
title to all of the collateral free and clear of all liens except for the
lenders liens and those permitted by the the lenders, maintaining all mineral
interests in good repair, and in compliance with all laws, maintaining
insurance, paying all taxes, not paying dividends except as required on the
Series 1995-B Preferred Stock and not selling any of the collateral securing the
loans. The Company was in compliance with these covenants at September 30, 1996.
Total availability under the credit facility was $85 million at September 30,
with $85.0 million currently borrowed.
Operating activities during the nine months ended September 30, 1996 provided
$ 4.8 million cash to the Company compared to $1.4 million in the same period in
1995. Net income (loss) plus non-cash expense items during 1996 and net changes
in operating assets and liabilities accounted for most of these funds. Investing
activities required $41.1 million during the first nine months of 1996 primarily
from the acquisition of crude oil and natural gas properties in the Wamsutter
Area in southwestern Wyoming. See Note 3. This compares to $6.5 million required
during the same period of 1995 primarily utilized for the development of crude
oil and natural gas properties. Financing activities provided $41.9 million for
the first nine months of 1996 primarily from the Company's new credit facility
compared to providing $5.3 million for the same period of 1995.
In August 1995, the Company entered into a rate swap agreement with First
Union relating to $25.0 million of principal amount outstanding under the First
Union Credit Facility. This agreement was assumed by the lenders of the new
credit facility. Under the agreement, the Company pays a fixed rate of 6.15%
while the lenders under the new credit facility will pay a floating rate equal
to the USD-LIBOR-BBA rate for one month maturities, quoted on the eighteenth day
of each mont, to the Company. Settlements are due monthly. The agreement
terminates in August 1997 and may be extended for an additional year by the
lenders.
As a result of the acquisition of certain partnership interests and crude oil
and natural gas properties in 1990 and 1991, an ownership change under Section
382 of the Internal Revenue Code of 1986, as amended (Section 382), occurred in
December 1991. Accordingly, it is expected that the use of net operating loss
carryforwards generated prior to December 31, 1991 of $6.9 million will be
limited to approximately $235,000 per year. During 1992, the Company acquired
100% of the common stock of an unrelated corporation. The use of net operating
loss carryforwards of $3.6 million acquired in the acquisition are limited to
approximately $115,000 per year. As a result of the issuance of additional
shares of Common Stock for acquisitions and sales of Common Stock, an additional
ownership change under Section 382 occurred in October 1993. Accordingly, it is
expected that the use of all net operating loss carryforwards generated through
October 1993 of $13.4 million will be limited to approximately $1.0 million per
year subject to the limitations described above and $7.2 million in the
aggregate. Future changes in ownership may further limit the use of the
Company's carryforwards. In addition to Section 382 limitations, uncertainties
exist as to the future utilization of the operating loss carryforwards under the
criteria set forth under FASB Statement No. 109. Therefore, the Company has
established a valuation allowance of $5.7 million and $5.5 million for deferred
tax assets at December 31, 1995 and 1994, respectively.
Based upon the current level of operations, the Company believes that cash
flow from operations and the Company's new credit facility, will be adequate to
meet its anticipated requirements for working capital, capital expenditures and
scheduled interest payments through the end of 1996. A depressed price for
natural gas or crude oil will have a material adverse effect on the Company's
cash flow from operations and anticipated levels of working capital, and could
force the Company to revise its planned capital expenditures.
14
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
15
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABRAXAS PETROLEUM CORPORATION
(Registrant)
Date: By:/s/Robert L.G. Watson
----------------------
ROBERT L.G. WATSON,
President and Chief
Executive Officer
Date: By:/s/Chris Williford
----------------------
CHRIS WILLIFORD,
Executive Vice President and
Principal Accounting Officer
16