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 June 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
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(Exact name of Registrant as specified in its charter)
Nevada 74-2584033
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(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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (210)490-4788
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Not Applicable
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(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 August
1, 1996, was:
Class Shares Outstanding
----- ------------------
Common Stock, $.01 Par Value 5,804,812
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
FORM 10 - Q
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1 - Financial Statements(Unaudited)
Consolidated Balance Sheets - June 30, 1996
and December 31,1995.....................................3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1996 and 1995.......5
Consolidated Statements of Cash Flows -
Six Months Ended June 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
ITEM 6 - Exhibits and Reports on Form 8-K.............................16
Signatures.....................................................17
2
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
--------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash ....................................................... $ 2,241,352 $ 4,249,767
Accounts receivable, less allowance for doubtful
accounts of $35,900 at June 30, 1996 and
$35,900 at December 31, 1995:
Joint owners ........................................... 610,667 1,334,873
Oil and gas production sales ........................... 2,296,850 2,945,681
Affiliates ............................................. 89,166 53,224
Other .................................................. 70,781 60,367
------------ ------------
3,067,464 4,394,145
Equipment inventory ........................................ 94,183 80,070
Other currents assets ...................................... 245,530 124,820
------------ ------------
Total current assets ......................................... 5,648,529 8,848,802
Property and equipment:
Oil and gas properties (full cost method),
less accumulated depreciation, depletion
and amortization of $36,350,758
at June 30, 1996 and $29,651,521
at December 31, 1995 ..................................... 61,709,380 74,475,683
Other property and equipment:
Land ...................................................... 139,466 139,466
Equipment ................................................. 913,791 692,508
Leasehold improvements .................................... 115,533 37,430
Less accumulated depreciation ............................. (333,286) (266,686)
------------ ------------
62,544,884 75,078,401
Investments in and advances to partnership ................... 3,934,781 --
Deposit ...................................................... 3,800,000 --
Deferred financing fees, net of accumulated
amortization of $417,231 at June 30, 1996
and $289,231 at December 31, 1995 ....................... 398,868 353,514
Restricted cash .............................................. 90,520 134,419
Other assets ................................................. 779,008 326,222
Marketable securities ........................................ 326,000 326,000
------------ ------------
Total assets ................................................. $ 77,522,590 $ 85,067,358
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
--------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 4,117,133 $ 3,928,824
Oil and gas production payable ............................. 1,129,007 1,787,152
Accrued interest ........................................... 114,049 362,750
Other accrued expenses ..................................... 282,030 46,207
Dividends payable on preferred stock ....................... 91,482 91,482
------------ ------------
Total current liabilities .................................... 5,733,701 6,216,415
Long-term debt:
Financing agreements ....................................... 32,456,651 41,556,651
Other long term obligations .................................. 63,095 44,737
Deferred income taxes ........................................ 186,749 186,749
Minority interest in foreign subsidiary ...................... 2,128,044 --
Shareholders' equity:
Preferred stock 8% authorized, 1,000,000 shares;
issued and outstanding 45,741 shares
at June 30, 1996 and December 31, 1995 ................... 457 457
Common stock, par value $.01 per share - authorized
50,000,000 shares; issued and outstanding
5,803,812 shares at June 30, 1996 and
5,799,762 shares at December 31, 1995, respectively ...... 58,040 57,999
Additional paid-in capital ................................. 50,902,597 50,914,078
Unrealized loss on securities .............................. (244,000) (244,000)
Accumulated (deficit) ...................................... (13,488,126) (13,663,903)
Treasury stock, at cost, 53,211 shares at June 30, 1996
and 2,571 at December 31, 1995, respectively ......... (274,604) (1,825)
Foreign currency translation ............................... (14) --
------------ ------------
Total shareholders' equity ................................... 36,954,350 37,062,806
------------ ------------
Total liabilities and shareholders' equity ................... $ 77,522,590 $ 85,067,358
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Oil & gas production sales ................... $ 3,520,368 $ 3,342,873 $ 8,014,181 $ 6,546,926
Rig revenues ................................. 39,850 38,450 77,300 64,250
Other ........................................ 2,024 20,994 3,177 28,047
----------- ----------- ----------- -----------
3,562,242 3,402,317 8,094,658 6,639,223
Operating costs and expenses:
Lease operating and production taxes .......... 1,016,606 1,038,918 2,181,038 2,097,951
Depreciation, depletion, & amortization ...... 1,419,607 1,135,200 2,870,941 2,286,500
General and administrative ................... 470,556 263,199 809,808 492,405
Rig operations ................................ 33,462 33,372 69,923 67,676
Hedging loss .................................. 257,308 -- 311,959 --
----------- ----------- ----------- -----------
3,197,539 2,470,689 6,243,669 4,944,532
----------- ----------- ----------- -----------
364,703 931,628 1,850,989 1,694,691
Other (income) expense:
Interest income ............................... (58,160) (4,343) (115,369) (7,357)
Interest expense .............................. 592,878 979,385 1,443,793 1,930,651
Amort. of deferred financing fees ............. 64,000 40,000 128,000 80,000
----------- ----------- ----------- -----------
598,718 1,015,042 1,456,424 2,003,294
----------- ----------- ----------- -----------
Income (loss) before minority interest ........... (234,015) (83,414) 394,565 (308,603)
Minority interest in income
of consolidated foreign subsidiary ........... 6,183 -- 35,824 --
----------- ----------- ----------- -----------
Net income (loss) ................................ (240,198) (83,414) 358,741 (308,603)
Less dividend requirement on
cumulative preferred stock ................... (91,482) (91,500) (182,964) (182,982)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common stock ................................. $ (331,680) $ (174,914) $ 175,777 $ (491,585)
=========== =========== =========== ===========
Net income (loss) per share:
Net income (loss) per common and dilutive
common equivalent share ...................... $ (.06) $ (.04) $ .03 $ (.11)
Weighted average shares outstanding ........... 5,763,222 4,469,762 6,521,910 4,468,655
</TABLE>
See accompanying notes to consolidated financial statements
5
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................... $ 358,741 $ (308,603)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Minority interest in income of foreign subsidiary ......... 35,824 --
Depreciation, depletion, and amortization ................. 2,870,941 2,286,500
Amortization of deferred financing fees ................... 128,000 80,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............... 1,326,681 (161,283)
(Increase) decrease in other current assets ............. (120,710) (113,350)
(Increase) decrease in equipment inventory ............... (14,113) (19,009)
(Decrease) increase in accounts payable
and accrued expenses .................................. 175,431 1,001,270
(Decrease) increase in oil & gas production payable ...... (658,145) 10,148
---------- ----------
Net cash provided by operating activities .................... 4,102,650 2,775,673
INVESTING ACTIVITIES
Development of oil and gas properties ........................ (4,864,666) (4,730,489)
Proceeds from sale of oil and gas
producing properties ...................................... 16,598,000 224,001
Purchase of oil and gas producing properties ................ (430,441) (153,139)
Purchase of property and equipment ........................ (299,386) (33,186)
Development of gas processing plants ......................... (60,290) (34,617)
Payment of deposit for purchase
of oil and gas properties ................................. (3,800,000) --
Assets of acquired companies, net of cash ................... (645,001) --
Purchase of investment and advances to partnership .......... (4,936,781) --
Purchase of interest in real estate partnership ............. (27,810) --
Minority interest related to assets acquired
of foreign subsidiary ...................................... 2,092,220 --
Increase in other assets ................................. (58,630) --
---------- ----------
Net cash provided (used) in investing activities ........... 3,567,215 (4,727,430)
</TABLE>
6
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1996 1995
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES
Issuance of common stock ..................................... $ 25,313 $ 18,504
Expenses paid related to private placement offering .......... (36,753) --
Purchase of treasury stock ................................... (272,779) --
Proceeds from long term borrowing ............................ 2,900,000 2,500,000
Dividends paid on preferred stock ............................ (182,964) (182,982)
Payments on long-term borrowings ............................. (12,000,000) --
Increase in other long-term liabilities ...................... 18,358 --
Loan origination fees ........................................ (173,354) (105,835)
------------ ------------
Net cash used for financing activities ...................... (9,722,179) 2,229,687
------------ ------------
Increase (decrease) in cash .................................. (2,052,314) 277,930
Cash at beginning of period .................................. 4,384,186 135,297
------------ ------------
Cash at end of period, including restricted cash ............. $ 2,331,872 $ 413,227
============ ============
Supplemental disclosures of cash flow information:
Interest paid ................................................ $ 1,668,858 $ 1,445,649
============ ============
Supplemental schedule of non-cash investing
and financing activity:
Issuance of Common Stock for compensation .................... $ -- $ 37,600
============ ============
Exchange of treasury stock for non-compete
agreement .................................................. $ -- $ 70,625
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
7
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ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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
six-month period ended June 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, options and warrants that
are dilutive and the shares that would be issued in conjunction with the
Company's Contingent Value Rights. Income (loss) per common and common
equivalent share assuming full dilution was determined on the assumption that
the preferred stock was converted into common stock at the beginning of the
period. Common stock equivalents 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 AND DIVESTITURE
In January 1996, the Company made a $3,000,000 investment in Grey Wolf, a
privately held Canadian Corporation, which in turn, invested these proceeds in
newly issued shares of Cascade, an Alberta-based corporation whose shares are
traded on the Alberta Stock Exchange. The Company owns 78% of the outstanding
capital stock of Grey Wolf, and, through Grey Wolf, the Company owns
approximately 52% of the outstanding capital stock of Cascade. Certain officers
and directors of the Company own approximately 6% of the common stock of Grey
Wolf and serve as directors of Grey Wolf.
In March 1996, the Company sold all of its interest in its Portilla and Happy
Fields to an unrelated purchaser (Purchaser or "Limited Partner").
Simultaneously with this sale, the Limited Partner also acquired the 50%
overriding royalty interest in the Portilla Field owned by the Commingled
Pension Trust Fund (Petroleum II), the trustee of which is Morgan Guaranty Trust
Company of New York (the "Pension Fund"). In connection with the purchase of
both the Company's interest in the Portilla and Happy Fields and the Pension
Funds interest in the Portilla Field (together, the "Properties"), the Limited
Partner obtained a loan
8
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(the "Bank Loan") secured by the Properties and contributed the Properties to
Portilla-1996, L.P., a Texas limited partnership (the "Partnership"). A
subsidiary of the Company, Portilla-Happy Corporation ("Portilla-Happy"), is the
general partner of the Partnership. The aggregate purchase price received by the
Company was $17,600,000, of which $2,000,000 was used to purchase a minority
interest in the Partnership, which has been accounted for using the equity
method. At June 30, 1996, the Company's investment in and advances to the
Partnership represents the original investment of $2,000,000 and advances made
to the Partnership primarily for development drilling net of production revenue
collected by the Company on behalf of the Partnership.
In August 1996, the Company entered into a non-binding letter of intent with
the Limited Partner and certain noteholders ("the Noteholders") of the
Partnership, pursuant to which the Company agreed to purchase the Limited
Partner's interest in the Partnership and the Noteholders notes in the aggregate
principal amount of $5,920,000 (the "Notes"), resulting in the Company's owning,
on a consolidated basis, all of the equity interests in the Partnership. The
aggregate consideration for the purchase of the Limited Partners interest in the
Partnership and the Notes is $6,918,000. The Company will also assume the Bank
Loan which had an outstanding principal balance of approximately $20,600,000 as
of July 31, 1996.
The proposed transaction is subject to the receipt by the Company of
satisfactory financing. The Company is required to contribute funds to the
Partnership necessary to pay its operating expenses and to make the minimum
distribution to the Limited Partner necessary for it to make the required
payments on the Bank Loan through December 31, 1996. The Bank Loan requires
monthly interest payments of approximately $140,000, which have been made
through July 1996.
The transaction will result in the Company's reacquiring direct ownership in
the Portilla and Happy Fields which it previously owned, as well as the interest
in the Portilla Field previously owned by the Pension Fund. Upon consumation of
the acquisition, the Company will include in its balance sheet, the amount
previously removed from oil and gas properties in connection with the sale of
its interest in the Portilla and Happy Fields during the quarter ended March 31,
1996, as well as amount of the purchase price paid for the Pension Funds
interest in the Portilla Field, and all development drilling expenditures
incurred on the properties, less the amount of depreciation, depletion and
amortization related to the properties from the formation of the Partnership
through the closing of the transaction.
In May 1996, the Company entered into an agreement to acquire certain oil and
gas properties in Wyoming for $47.5 million, subject to price adjustments. The
Company has made a $3.8 million earnest money deposit with the seller. This
purchase is scheduled to close no later than September 30, 1996 and has an
effective date of April 1, 1996.
NOTE 4. LONG-TERM DEBT
In June 1994, the Company entered into a revolving credit facility with First
Union National Bank of North Carolina ("First Union"). The facility calls for
monthly interest payments at prime plus one quarter percent, or LIBOR plus two
and one half percent, a maturity date of June 1997, semi-annual review of the
borrowing base amount. First Union has a first lien mortgage on all of the
Company's oil and gas properties and a security interest in the Company's
receivables and general intangibles. In April 1996 the First Union facility was
amended, decreasing the total borrowing base to $31,000,000 with a maturity date
of June 1999, and adjusted the interest rate to LIBOR plus two percent. In
August 1996, the facility was further amended, increasing the borrowing base to
$35,000,000. As of August 1, 1996, the Company had outstanding advances of $33.5
million under this facility.
9
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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 Six Months Ended
June 30 June 30
------------------- ---------------
1996 1995 1996 1995
Operating Revenue (in thousands):
Crude Oil Sales ................... $1,499 $1,688 $3,724 $3,280
Natural Gas Sales ................. 1,648 1,260 3,420 2,496
Natural Gas Liquid Sales .......... 373 395 871 771
Rig Operations ...................... 40 38 77 64
Other ............................... 2 21 3 28
------ ------ ------ ------
Total Operating Revenue ............. $3,562 $3,402 $8,095 $6,639
====== ====== ====== ======
Operating Income (in thousands): ...... $ 364 $ 932 $1,851 $1,695
Natural Gas Production (MMCFS) ........ 804 860 1,758 1,695
Crude Oil Production (MBBLS) .......... 73 93 192 186
Natural Gas Liquids Production (MBBLS). 31 36 70 69
Average Natural Gas Sales Price ($/MCF) $ 2.05 $ 1.47 $ 1.95 $ 1.47
Average Crude Oil Sales Price ($/Bbl) . $20.50 $18.12 $19.44 $17.63
Average Liquids Sale Price ($/Bbl) .... $11.92 $11.08 $12.38 $11.17
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO
THREE MONTHS ENDED JUNE 30, 1995
OPERATING REVENUE. During the three months ended June 30, 1996, operating
revenue from crude oil, natural gas and natural gas liquid sales increased to
$3.5 million compared to $3.3 million in the three months ended June 30, 1995.
The increase was attributable to the increase in average 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 $1.1 million in operating revenue during the second quarter of 1995.
Crude oil and natural gas liquids sales volumes decreased by 19% and natural gas
sales volumes decreased by 6% in the three months ended June 30, 1996 as
compared to the second 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 113,600 Mcf of natural gas (13% of Company total), 41,745
Bbls of crude oil (45% of Company total) and 9,220 Bbls of natural gas liquids
(26% of Company total) during the three months ended June 30, 1995. Average
sales prices were $20.50 per Bbl of crude oil, $2.05 per Mcf of natural gas and
10
<PAGE>
$11.92 per Bbl of natural gas liquids in the three months ended June 30, 1996
compared with $18.12 per Bbl of crude oil, $1.47 per Mcf of natural gas and
$11.08 per Bbl of natural gas liquids in the same period of 1995.
LEASE OPERATING EXPENSES. Lease operating expenses and production taxes
("LOE")for the three months ended June 30, 1996 remained at $1.0 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 June 30,
1995, LOE was $220,000 for Happy and Portilla and $819,000 for the Company's
remaining properties. LOE on a $/BOE basis were $4.26/BOE for the three months
ended June 30, 1996 compared to $3.82/BOE for the three months ended June 30,
1995. During the three months ended June 30, 1995, LOE on a per BOE basis for
Happy and Portilla was $3.15 BOE compared to $4.05 BOE for the remainder of the
Company's producing properties.
G&A EXPENSES. G&A expenses increased from $263,000 for the three months ended
June 30, 1995 to $471,000 for the same period of 1996 as a result of the
Company's hiring additional staff to manage the its assets, including
establishing a Canadian administrative office. G&A expenses on a $/BOE basis
increased from $.97/BOE for the three months ended June 30, 1995 to $1.97/BOE
for the three months ended June 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 June 30, 1995 that previously had reduced G&A expenses.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization ("DD&A") expenses increased from $1.1 million for the three months
ended June 30, 1995 to $1.4 million for the three months ended June 30, 1996 The
increase in DD&A was due to the sale of Happy and Portilla which have longer
reserve lives than the Company's remaining properties. DD&A expenses on a $/BOE
basis was $5.96/BOE for the three months ended June 30, 1996 compared to
$4.17/BOE for the three months ended June 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 June 30, 1995 to $684,000 for the three months ended June 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 $/BOE basis were $2.87/BOE for the three
months ended June 30, 1996 compared to $3.92/BOE for the three months ended June
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 June 30, 1996, the Company sustained a $257,000 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.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995
OPERATING REVENUE. During the six months ended June 30, 1996, operating
revenue from crude oil, natural gas and natural gas liquids sales increased from
$6.5 million in 1995 to $8.0 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.
11
<PAGE>
Happy and Portilla contributed $2.1 million in operating revenue during the
first six months of 1995 and $1.2 million during the first six months of 1996.
Crude oil and natural gas liquids sales volumes increased by 3% and natural gas
sales volumes increased by 4% in the first six months of 1996 as compared to the
first six months of 1995 as a result of the increased production from the
Company's properties other than Happy and Portilla. Happy and Portilla
contributed 104 MBbls of crude oil and natural gas liquids (40% of Company
total) and 190 MMcf of natural gas (11% of Company total) during the first six
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 (7% of Company total) for the
first six months of 1996. Average sales prices were $19.44 per Bbl of crude oil,
$12.38 per Bbl of natural gas liquids and $1.95 per Mcf of natural gas for the
six months ended June 30, 1996 compared with $17.63 per Bbl of crude oil, $11.17
per Bbl of natural gas liquids and $1.47 per Mcf of natural gas for the six
months ended June 30, 1995. A general weakening of crude oil and natural gas
prices at the wellhead during the first six months of 1995 resulted in a higher
average crude oil and natural gas sales price received by the Company during the
six months ended June 30, 1996 compared to the same period in 1995.
LEASE OPERATING EXPENSES. LOE for the six months ended June 30, 1996 increased
to $2.2 million compared to $2.1 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
six months of 1995, $433,000 was attributable to Happy and Portilla as compared
to $233,000 during the first six months of 1996. LOE on a $/BOE basis was
$3.93/BOE for the six months ended June 30, 1996 compared to $3.90/BOE for the
six months ended June 30, 1995.
DEPRECIATION, DEPLETION AND AMORTIZATION. DD&A expenses increased from $2.3
million for the six months ended June 30, 1995 to $2.9 million for the six
months ended June 30, 1996, primarily due to the increase in sales volumes of
crude oil and natural gas. DD&A expenses on a $/BOE basis were $5.17/BOE for the
six months ended June 30, 1996 compared to $4.25/BOE for the six months ended
June 30, 1995.
G&A EXPENSES. G&A expenses increased from $492,000 for the first six months of
1995 to $810,000 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 $/BOE basis increased from
$.91/BOE for the six months ended June 30, 1995 to $1.46/BOE for the six months
ended June 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 $2.1 million for the six months ended June 30, 1995 to $1.6 million for the
six months ended June 30,1996, largely due to reduced debt levels after
application to debt of the sales proceeds from Happy and Portilla. Interest and
Dividends on $/BOE basis were $2.93/BOE for the six months ended June 30, 1996
compared to $3.91/BOE for the six months ended June 30, 1995.
NATURAL GAS HEDGE. The Company had a loss of $312,000 for the first six months
of 1996 as a result of the commodity swap agreement with First Union.
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 price of natural gas received by the Company increased during the
first quarter of 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
12
<PAGE>
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 six
months of 1996 amounted to $6.7 million compared to $5.0 million during the same
period of 1995. The table below sets forth the components of these capital
expenditures on a historical basis for the six months ended June 30, 1995 and
1996.
Six Months Ended
June 30
1996 1995
------- ------
Expenditure category (in thousands):
Property acquisitions (1) ............. $1,530 $ 153
Development ........................... 4,925 4,765
Facilities and other .................. 299 33
------ ------
Total .................................... $6,754 $4,951
====== ======
(1) Includes approximately $1.1 million of oil and gas properties
acquired from Cascade.
At June 30, 1996, the Company had current assets of $5.6 million and current
liabilities of $5.7 million resulting in working capital deficiency of $100,000.
This compares to working capital of $2.6 million at December 31, 1995 and a
deficiency of $1.7 million at June 30, 1995. The material components of the
Company's current liabilities at June 30, 1996 include trade accounts payable of
$4.1 million and revenues due third parties of $1.1 million.
The Company's current budget for capital expenditures for the last six months
of 1996 is $10.5 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 including
$43.8 million for the acquisition of the Wyoming properties and $27.5 million
for the acquisition of Portilla and Happy. Other than the commitments to
complete these acquisitions, 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.
The Company is currently exploring financing alternatives to complete the
acquisitions with its financial advisors. These alternatives include the sale of
debt securities, equity securities or some combination thereof and traditional
bank financing. There can be no assurance that the Company will be able to
obtain such financing. If the Company were unable to obtain such financing, the
Company would forfeit its $3.8 million earnest money deposit made to the seller
of the Wyoming properties.
The First Union Financing Agreement contains two 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;
and (2) the cash flow coverage ratio shall not be greater than 5:1 with cash
flow coverage ratio defined as the ratio of (i) indebtedness plus any other
funded long-term debt to (ii) annualized consolidated net income for each
quarter, plus non-cash charges, less non-cash revenues. The First Union
Financing Agreement also contains covenants relating to maintaining corporate
existence, maintaining title to all of the collateral free and clear of all
liens except for First Union's liens and those permitted by First Union,
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
13
<PAGE>
collateral securing the loans. The Company was in compliance with these
covenants at June 30, 1996 or has obtained appropriate waivers through January
1, 1997. Total availability under the First Union agreement was $35 million at
August 1, with $33.5 million currently borrowed.
Operating activities during the six months ended June 30, 1996 provided $4.1
million cash to the Company compared to $2.8 million in the same period in 1995.
Net income plus non-cash expense items during 1996 and net changes in operating
assets and liabilities accounted for most of these funds. Investing activities
provided $3.6 million during the first six months of 1996 primarily from the
divestiture of crude oil and natural gas properties. This compares to $4.7
million required during the same period of 1995 primarily utilized for the
development of crude oil and natural gas properties. Financing activities
required $9.7 million for the first six months of 1996 compared to providing
$2.2 million for the same period of 1995.
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 $3,607,000 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 $13,430, 000 will be limited to approximately $1,034,000 per
year subject to the lower limitations described above. Of the $13,430,000 net
operating loss carryforwards existing at October 1993, it is anticipated that
the maximum net operating loss that may be utilized before it expires is
$7,188,000. 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 $5,656,000 and $5,482,000 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 credit facility with First Union, will be
adequate to meet its anticipated requirements for working capital, capital
expenditures and scheduled interest payments other than the capital needed to
complete the acquisitions described above 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.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this report
regarding the Company's financial position, business strategy, budgets and plans
and objectives of management for future operations are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed under "Risk Factors" in the Company's
Annual Report on Form 10-K which is incorporated by reference herein and this
report. All subsequent written and oral forward-looking statements attributable
to the Company, or persons acting on its behalf, are expressly qualified in
their entirety by the Cautionary Statements.
14
<PAGE>
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:
11 Statement Re: Computation of earnings per share
Exhibit 27 Financial data schedule
(b) Reports on Form 8-K
None
15
<PAGE>
Exhibit (11) - Statement Re:
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding .......... 5,763,222 4,469,762 5,778,981 4,468,655
Net effect of dilutive stock options-
based on the Treasury/Stock
method using average market price ... -- -- 17,414
Assumed issuance under existing
Contingent Value Rights agreement ... -- -- 725,515
---------- ---------- ---------- ----------
Totals ................................. 5,763,222 4,469,762 6,521,910 4,468,655
Net income (loss) ...................... $ (331,680) $ (174,914) $ 175,777 $ (491,585)
Per share amount ....................... $ (.06) $ (.04) $ .03 $ (.11)
</TABLE>
16
<PAGE>
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: August 14,1996 By:/s/
------------------
ROBERT L.G. WATSON,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: August 14, 1996 By:/s/
------------------
CHRIS WILLIFORD,
EXECUTIVE VICE PRESIDENT AND
PRINCIPAL ACCOUNTING OFFICER
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,331,872
<SECURITIES> 326,000
<RECEIVABLES> 3,103,364
<ALLOWANCES> (35,900)
<INVENTORY> 94,183
<CURRENT-ASSETS> 5,648,529
<PP&E> 99,228,928
<DEPRECIATION> (36,684,044)
<TOTAL-ASSETS> 77,522,590
<CURRENT-LIABILITIES> 5,733,701
<BONDS> 32,456,651
0
457
<COMMON> 58,040
<OTHER-SE> 36,895,853
<TOTAL-LIABILITY-AND-EQUITY> 77,522,590
<SALES> 0
<TOTAL-REVENUES> 8,094,658
<CGS> 0
<TOTAL-COSTS> 6,243,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,456,424
<INCOME-PRETAX> 394,565
<INCOME-TAX> 0
<INCOME-CONTINUING> 394,565
<DISCONTINUED> 0
<EXTRAORDINARY> 218,788
<CHANGES> 0
<NET-INCOME> 175,777
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
