Abraxas Petroleum Corporation has reported financial and operating results for the three and twelve months ended December 31, 2008 and provided an operational update.
On a stand-alone basis for Abraxas Petroleum (which exclude the results of Abraxas Energy), the twelve months ended December 31, 2008 resulted in:
• Production of 237 MBoe (649 Boepd);
• Revenue of $16.9 million ($25.8 million including cash distributions);
• EBITDA(a) of $8.7 million ($17.6 million including cash distributions);
• Cash flow(a) of $8.6 million ($17.5 million including cash distributions);
• Net loss of $22.6 million, or $0.46 per share ($13.7 million including cash distributions, or $0.28 per share); and
• Adjusted net income(a) of $4.0 million, or $0.08 per share ($12.8 million including cash distributions, or $0.26 per share), excluding certain non-cash items.
On a stand-alone basis for the year ended December 31, 2008, adjusted net income, excluding certain non-cash items, excludes the loss attributable to the ceiling-test impairment of $19.1 million and the loss on sale of assets to the Partnership of $7.4 million.
Comparing Abraxas Petroleum’s 2008 results on a stand-alone basis to the last seven months of 2007 after the Partnership was formed, daily production for 2008 was 11% higher than 2007 and revenue, EBITDA and cash flow were 49%, 134% and 23% higher than 2007 on an annualized basis, respectively.
For financial reporting purposes, results are consolidated and include Abraxas Petroleum and Abraxas Energy. Abraxas Petroleum owns 47% of the Partnership and records minority interest for the portion that it does not own.
On a consolidated basis, the twelve months ended December 31, 2008 resulted in:
• Production of 1,607 MBoe (4,391 Boepd), a 43% increase over 2007;
• Revenue of $100.3 million, a 108% increase over 2007;
• EBITDA of $57.6 million, a 76% increase over 2007;
• Cash flow(a) of $47.8 million, a 92% increase over 2007;
• Net loss of $52.4 million, or $1.07 per share; and
• Adjusted net income(a) of $42.8 million, or $0.87 per share, excluding certain non-cash items.
On a consolidated basis, adjusted net income, excluding certain non-cash items, for the year ended December 31, 2008 was $42.8 million, or $0.87 per share, compared to adjusted net income, excluding certain non-cash items, of $3.6 million or $0.08 per share during 2007. For the year ended December 31, 2008, adjusted net income, excluding certain non-cash items, excludes unrealized gains on derivative contracts of $37.9 million, the loss attributable to the ceiling-test impairment of $116.4 million, the loss attributable to the minority interest that exceeded the minority interest equity capital in the Partnership of $9.3 million and the loss on sale of assets to the Partnership of $7.4 million. For the year ended December 31, 2007, adjusted net income, excluding certain non-cash items, excludes unrealized losses on derivative contracts of $6.3 million and the gain on sale of assets to the Partnership of $59.4 million.
Unrealized gains or losses on derivative contracts are based on mark-to-market valuations which are non-cash in nature and attributable to the hedging activity of the Partnership and do not impact Abraxas Petroleum on a stand-alone basis. These unrealized gains or losses on derivative contracts are non-cash items and may fluctuate drastically period to period. Commodity prices declined dramatically during the fourth quarter of 2008. As a result, the mark-to-market valuation of the Partnership’s commodity derivative contracts increased approximately $60 million during the fourth quarter and on December 31, 2008, the mark-to-market valuation was $39.2 million.
Abraxas records the costs to explore, exploit and develop its oil and gas properties using the full-cost method of accounting and all amounts are included in its “full-cost pool.” The ceiling-test impairment of $116.4 million is a direct result of low commodity prices at December 31, 2008 which are used to calculate the PV10, or present value, discounted 10%, of Abraxas’ proved reserves. In accordance with accounting principles generally accepted in the United States of America (GAAP), if the PV10 is lower than the full-cost pool, the difference must be recorded as an impairment which results in a non-cash charge to earnings and thus, a reduction in shareholder’s equity. As previously announced, in December 2008, the Securities and Exchange Commission (”SEC”) issued new regulations for oil and gas reserve reporting which go into effect for the calendar year 2009. One of the key elements of the new regulations relate to the commodity prices which are used to calculate reserves and PV10. The new regulations require using an average price based upon the prior 12-month period rather than the current regulations which utilize commodity prices on the last day of the year. If the new regulations had been in effect at year-end 2008, Abraxas would not have recorded a ceiling-test impairment. Prior to the new regulations taking effect at year-end 2009, if commodity prices continue to decline during 2009, Abraxas may be subject to further ceiling-test impairments in 2009.
Cash Distribution from Affiliate
Abraxas Energy Partners, L.P., the master limited partnership formed by Abraxas Petroleum in May 2007, declared a cash distribution of $0.375 per unit for the fourth quarter of 2008. The distribution was made on February 13, 2008 to unitholders of record at the close of business on February 6, 2008. Abraxas Petroleum owns approximately 47% of the outstanding units and received $2.0 million in cash distributions from its ownership interest in Abraxas Energy for the fourth quarter of 2008. For 2008, Abraxas Petroleum received a total of $8.9 million in cash distributions from its ownership interest in Abraxas Energy.
Operational Update
South Texas:
• In DeWitt County, the Nordheim #2H, a horizontal Edwards well which came on-line at 6 MMcfpd naturally from the first section of the lateral was choked back to 3 MMcfpd due to low commodity prices and to monitor pressures and production data. This well has not been stimulated and an additional six sections of lateral remain behind pipe. Abraxas Petroleum owns a 75% working interest in this well.
West Texas:
• In Coke County, the Millican Reef #2A was drilled to a total depth of 6,700’, completed in the Strawn formation, and placed on production at commercial rates. This well will be stimulated when commodity prices increase or service costs come down. Abraxas Petroleum owns a 92% working interest in this well.
Wyoming:
• In Brooks Draw, the Turner sandstone tested commercial rates of oil and gas before being shut-in for construction of surface production facilities. The Lakeside #1H was drilled to a total measured depth of approximately 12,500’, including a 3,800’ lateral in the Turner sandstone, and successfully completed with a seven stage fracture stimulation. It is anticipated that construction of the surface facilities will be completed within ten days, after which production testing will commence. Abraxas Petroleum owns a 100% working interest in this well.
Drilling and re-completion activity continues on a number of non-operated wells principally located in the Rocky Mountain and Mid-Continent regions of the U.S. On average, Abraxas Energy owns a relatively small working interest in these wells.
“2008 can be summarized as a year of extreme volatility, especially with respect to commodity prices and the collapse of the capital markets. Oil prices started the year at $100 per barrel before climbing to $145 in July, then falling precipitously to $44 per barrel by the end of December, a 70% decline in less than six months. For Abraxas, 2008 was a great year - we generated $100 million in revenue and drilled or participated in 50 new wells, with a 100% success rate. A number of these wells were placed on-line during the fourth quarter; therefore, the first quarter of 2009 should reflect the full impact from these wells. In addition, we expect the Lakeside #1H to be on production later this month. 2009 (or at least the first half) will be about planning as we continue to prioritize our project inventory based on our assumptions about future commodity prices and service costs. We remain committed to our long-term business strategy and are very pleased to have no debt (on a stand-alone basis, excluding the mortgage on our office building) and a large inventory of projects to choose from. As promised, we continue to provide a transparent presentation of our financial and operating results detailing the results of the consolidated entity as well as on a stand-alone basis for both Abraxas Petroleum and Abraxas Energy - please read 'Basis of Presentation' for a detailed explanation,” commented Bob Watson, Abraxas’ President and CEO.