San Antonio Express-News (Sunday)
With debt down and oil prices up, Abraxas to restart drilling — maybe
Abraxas Petroleum has had a rough couple of years, as the pandemic and a financial crunch forced it to stop drilling. Now, with oil prices up and a discovery that Abraxas’ oil and gas reserves are bigger than thought, there may be an opening for the company to revive itself and restart drilling — or to sell its assets and liquidate.
The San Antonio-based driller has been a shaky operator in recent years; it hasn’t posted a profit or had a quarterly earnings call with analysts since 2018. Last year, it was kicked off the Nasdaq stock exchange after its share price failed to top $1 for several days.
But Abraxas’ stock has boomed this month alongside crude oil prices, which shot up after Russia’s invasion of Ukraine rocked global oil markets.
The price of West Texas crude peaked at $123 per barrel March 8 after breaking $100 at the beginning of the month. On Thursday, the domestic oil benchmark closed just shy of $103.
Abraxas’ stock price jumped from just more than $1 in late February to over $4 per share by March 7. Its move coincided with gains for stocks of companies across the industry. The high price of crude globally has potentially opened a window for U.S. producers to profitably pump more oil.
Abraxas, which was already facing financial woes entering 2020, saw its stock price plummet during the COVID-19 pandemic and as agreements with creditors to limit spending have
prevented it from pouring cash into drilling.
‘A new chapter’
In January, it sold assets in North Dakota’s Williston Basin for $87.2 million to Houston-based Lime Rock Resources. It used the proceeds to pay off one bank loan. It converted other debt held by creditor Angelo Gordon Energy Financing to preferred shares. Angelo Gordon took control of the company’s five-member board of directors and now holds 85 percent voting power.
The move to turn Angelo Gordon into a shareholder — rather than creditor — wiped out Abraxas’ debt and allowed the company to access capital and form a drilling plan, CEO Robert Watson said last month.
“This is a new chapter for the
Company as we begin 2022 as a pure play Delaware Basin operator with no debt,” Watson said, referring to a segment of the Permian Basin where Abraxas has assets.
The discovery of potentially larger reserves of oil and gas have also buoyed the company, driving up its worth.
In an early February report, it said its reserves of oil and gas at the end of 2021 were up 8.5 million barrels from a year earlier — an increase attributed to implementation of a 2-mile lateral well strategy in its Permian acreage. That discovery — combined with higher oil prices — pushed the value of its oil and gas reserves up 370 percent from the end of 2020.
At the end of 2021, Abraxas’ oil and gas reserves across 200
drilling locations were valued at nearly $230 million based on a price of $66.55 per barrel. That was up from $49 million at the end of 2020, with oil at $39.54 per barrel.
But while continuing higher prices and the ability to invest in new drilling could present an opportunity for Abraxas, it may instead be heading toward liquidation.
Newfound reserves
Among the reasons is the fact most of its newfound oil and gas reserves are considered “probable” and “possible.” That means that while there’s a chance of a driller extracting oil or gas from those locations, it’s not guaranteed.
Just 27 of Abraxas’ 200 drilling locations are classified as “proven,” with reserves worth $89 million at the end of last year.
A rule from the Securities and Exchange Commission says firms can only classify oil and gas reserves as proved if they can show they plan to develop the location within five years. Otherwise, companies have to refer to a reserve as “probable” or “possible” if they want to disclose it.
Abraxas said it doesn’t have the cash to develop hundreds of drilling sites in the next halfdecade. But it suggested a bigger oil company might be able to operate the company’s sites.
“Alternatively, a company with the funding availability to develop all the locations could book the majority of these engineered locations as proven,” Watson said in a statement last month.
In an early January SEC filing, Abraxas said proceeds from an acquisition or sale of company assets up to $137 million would go to Angelo Gordon. A quarter of proceeds exceeding that would go to the company’s other shareholders.
Abraxas isn’t saying it’s looking for a buyer. Watson said the firm plans to engage lenders so it can “jump start” its own drilling in the Permian.
“We are excited with the balance sheet moves we’ve made,” he said last month. “We will seek to drill at a measured pace, and within cash flow in order to drive multiple years of growth and returns for our shareholders.”
Shares of Abraxas closed Friday at $2.16, up about 2 percent on the day and 102 percent higher than a month ago.