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, 1997
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
August 1, 1997, was:
Class Shares Outstanding
Common Stock, $.01 Par Value 6,271,706
1 of 17
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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, 1997
and December 31,1996 ..............................3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1997 and 1996......5
Consolidated Statements of Cash Flow-
Six Months Ended June 30, 1997 and 1996................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..........................................15
ITEM 2 - Changes in Securities .............. .................15
ITEM 3 - Defaults Upon Senior Securities............................15
ITEM 4 - Submission of Matters to a Vote of Security Holders........15
ITEM 5 - Other Information..........................................15
ITEM 6 - Exhibits and Reports on Form 8-K...........................15
Signatures.................................................16
2
<PAGE>
Abraxas Petroleum Corporation and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30 December 31
1997 1996
(Unaudited)
----------------------
(In Thousands)
Assets
Current assets:
Cash ............................................... $ 7,809 $ 8,290
Accounts receivable, less allowance for doubtful
accounts:
Joint owners .................................. 3,040 1,601
Oil and gas production sales .................. 8,802 11,400
Affiliates .................................... -- 94
Other ......................................... 1,041 1,289
-------- --------
12,883 14,384
Equipment inventory ................................ 719 451
Other current assets ............................... 291 187
-------- --------
Total current assets .................................. 21,702 23,312
Property and equipment: ............................... 323,547 310,043
Less accumulated depreciation, depletion and
amortization ....................................... 51,987 38,653
-------- --------
Net property and equipment based on the full
cost method of accounting for oil and gas
properties of which $37,268 was excluded from
amortization ................................... 271,560 271,390
Deferred financing fees, net of accumulated
amortization of $280 and $873 at December 31,
1996, and June 30, 1997, respectively ............ 8,768 9,335
Restricted cash ....................................... 90 90
Other assets .......................................... 1,277 715
-------- --------
Total Assets ....................................... $303,397 $304,842
======== ========
See accompanying notes to consolidated financial statements
3
<PAGE>
Abraxas Petroleum Corporation and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets (continued)
June 30 December 31
1997 1996
(Unaudited)
----------------------
(In Thousands)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ................................... $ 10,312 $ 9,960
Oil and gas production payable ..................... 1,733 2,378
Accrued interest ................................... 3,992 3,206
Income tax payable ................................. 145 145
Other accrued expenses ............................. 1,090 1,132
Payable to affiliates .............................. -- 58
--------- ---------
Total current liabilities .................... 17,272 16,879
Long-term debt:
Senior notes ....................................... 215,000 215,000
Other .............................................. 104 32
--------- ---------
215,104 215,032
Other long term obligations ........................... 177 87
Deferred income taxes ................................. 32,295 32,928
Minority interest in foreign subsidiary ............... 2,228 2,157
Future site restoration ............................... 2,151 2,103
Shareholders' equity:
Preferred stock 8% authorized, 1,000,000 shares; ... -- --
issued and outstanding 45,741 shares
at June 30, 1997 and December 31, 1996
Common stock, par value $.01 per share - authorized
50,000,000 shares; issued
5,816,047 shares at June 30, 1997 and
5,806,812 shares at December 31, 1996, respectively 58 58
Additional paid-in capital ......................... 51,076 50,926
Accumulated (deficit) .............................. (13,257) (12,517)
Treasury stock, at cost, 60,463 and 74,711
at June 30, 1997 and December 31, 1996,
respectively .................................... (319) (405)
Foreign currency translation ....................... (3,388) (2,406)
--------- ---------
Total shareholders' equity ............................ 34,170 35,656
--------- ---------
Total liabilities and shareholders' equity ............ $ 303,397 $ 304,842
========= =========
See accompanying notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------------------------------------------
(In thousands except share and per share data)
<S> <C> <C> <C> <C>
Revenue:
Oil & gas production sales .............. $ 14,634 $ 3,263 $ 32,544 $ 7,702
Processing revenue ...................... 841 -- 1,837 --
Rig revenues ............................ 53 40 106 77
Other ................................... 244 2 501 3
-------- -------- -------- --------
15,772 3,305 34,988 7,782
Operating costs and expenses:
Lease operating and production taxes ... 3,433 1,017 6,782 2,181
Gas processing costs ................... 302 -- 714 --
Depreciation, depletion and amortization 6,721 1,420 13,395 2,871
General and administrative ............. 1,146 470 2,084 810
Rig operations ......................... 80 33 132 70
-------- -------- -------- --------
11,682 2,940 23,107 5,932
-------- -------- -------- --------
Operating Income ........................... 4,090 365 11,881 1,850
Other (income) expense:
Interest income ........................ (297) (58) (393) (115)
Interest expense ....................... 6,288 593 12,372 1,444
Amortization of deferred financing fees 296 64 593 128
Other .................................. 94 -- 126 --
-------- -------- -------- --------
6,381 599 12,698 1,457
-------- -------- -------- --------
Income (loss) from operations before taxes . (2,291) (234) (817) 393
Income tax expense ......................... 95 -- 115 --
Deferred tax benefit ....................... (503) -- (503) --
Minority interest in income
of consolidated foreign subsidiary ..... 127 6 127 35
-------- -------- -------- --------
Net income (loss) .......................... (2,010) (240) (556) 358
Less dividend requirement on
cumulative preferred stock ........... 92 91 183 182
-------- -------- -------- --------
Net income (loss) applicable to common stock $ (2,102) $ (331) $ (739) $ 176
======== ======== ======== ========
Net income per share:
Net income per common and dilutive
common equivalent share .............. $ (.37) $ (.06) $ (.13) $ .03
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1997 1996
---------------------
(In Thousands)
<S> <C> <C>
Operating Activities
Net income (loss) ........................................... $ (556) $ 358
Adjustments to reconcile net income (loss)
to net cash provided by operatingactivities:
Minority interest in income of foreign subsidiary .... 127 36
Depreciation, depletion, and amortization ............ 13,395 2,871
Amortization of deferred financing fees .............. 593 128
Issuance of common stock for compensation ............ 225 --
Decrease in deferred tax ............................. (503) --
Changes in operating assets and liabilities:
Accounts receivable ........................... 1,501 1,327
Equipment inventory ........................... (268) (14)
Other assets .................................. (20) (120)
Accounts payable and accrued expenses ......... 1,038 175
Oil and gas production payable ................ (645) (658)
-------- --------
Net cash provided by operating activities ............ 14,887 4,103
Investing Activities
Capital expenditures, including purchases and development
of properties .......................................... (24,986) (9,482)
Increase in minority interest in equity of foreign subsidiary -- 2,092
Proceeds from sale of oil and gas producing properties ...... 9,655 16,598
Assets of acquired companies, net of cash ................... -- (645)
Purchase of investment in partnership ....................... -- (4,937)
Increase in other assets .................................... -- (59)
-------- --------
Net cash provided (used) in investing activities ............ (15,331) 3,567
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Six Months Ended
June 30
1997 1996
---------------------
(In Thousands)
<S> <C> <C>
Financing Activities
Issuance of common stock .................................... $ -- $ 25
Purchase of treasury stock .................................. -- (273)
Dividends paid on preferred stock ........................... (183) (183)
Expenses paid related to private placement offering ......... -- (36)
Proceeds from long term borrowings .......................... 72 2,900
Payments on long-term borrowings ............................ -- (12,000)
Increase in other long term liabilities ..................... 100 18
Deferred financing fees ..................................... (26) --
Loan origination fees ....................................... -- (173)
-------- --------
Net cash used for financing activities ..................... (37) (9,722)
-------- --------
Decrease in cash ............................................ (481) (2,052)
Cash at beginning of period ................................. 8,380 4,384
-------- --------
Cash at end of period, including restricted cash ............ $ 7,899 $ 2,332
======== ========
Supplemental disclosures of cash flow information:
Interest paid ............................................... $ 11,586 $ 1,669
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
Abraxas Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1997
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 for the year ended
December 31, 1996 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, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. Any and all
adjustments are of a normal and recurring nature.
The consolidated financial statements include the accounts of the
Company and its wholly-owned foreign subsidiary Canadian Abraxas Petroleum Ltd.
("Canadian Abraxas"), 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.
Canadian Abraxas' , Grey Wolf's and Cascade's 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 Per Share
Net income per common share is computed by dividing net income (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.
Income 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 if dilutive. Common stock equivalents are
not considered in the computation of net income per common share for periods
with a loss, as their effect is anti-dilutive.
During 1997, the Contingent Value Rights terminated, accordingly, earnings
per share for the prior period have been retroactively restated. Subsequent to
June 30, 1997, the Company converted its preferred stock into 508,183 shares of
common stock. If the conversion had occurred as of the beginning of the periods
presented, earnings per share would have been $(.32) and $(.04) for the three
months ended June 30, 1997, and 1996, and $(.09) and $.06 for the six months
ended June 30, 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings per Share", which is required to be adopted on December 31,
1997. Under the statement, primary earnings per share will be replaced with
basic earnings per share and fully diluted earnings per share will be replaced
with diluted earnings per share. The new requirements for calculating basic
earnings per share exclude the dilutive effect of stock options, warrants and
Contingent Value Rights. The implementation of the new requirements would not
have had any impact on basic or fully diluted earnings per share for the periods
ended June 30, 1997.
8
<PAGE>
Note 3. Summary Financial Information of Canadian Abraxas Petroleum Ltd.
The following is summary financial information of Canadian Abraxas, a
wholly-owned subsidiary of the Company at June 30, 1997, and for the three and
six months ended June 30, 1997. Canadian Abraxas is jointly and severally liable
with the Company for the entire balance of the Company's and Canadian Abraxas'
11.5% Senior Notes (the "Notes") ($215,000,000), of which $84,612,000 was
utilized by Canadian Abraxas in connection with the acquisition of Canadian Gas
Gathering Systems, Inc. The Company has not presented separate financial
statements and other disclosures concerning Canadian Abraxas because management
has determined that such information is not material to the holders of the Notes
and the Company's Common Stock.
- --------------------------------------------------------------------------------
Assets Liabilities and Shareholders Equity
(In Thousands)
Total current assets $ 8,436 Total current liabilities $ 4,076
Oil and gas properties 102,692 11.5% Senior Notes due 2004 84,612
Other assets 10,534 Other liabilities 34,380
--------- Shareholder's equity (1,406)
$ 121,662 ---------
========= $ 121,662
=========
Three Months Six Months
June 30, 1997 June 30, 1997
------------- -------------
Revenues $ 3,876 $ 9,827
Operating costs & expenses (3,726) (7,655)
Interest expense (2,324) (4,892)
Other income (expense) (259) (194)
Income tax - benefit 410 393
--------- ---------
Net loss $ (2,023) $ (2,521)
========= =========
Note 4. Subsequent event
Effective July 1, 1997, the holder of the Company's Series B 8% cumulative
convertible preferred stock converted such shares into shares of the Company's
common stock. The preferred shares were converted into 508,183 shares of common
stock.
Note 5. Reclassifications
Certain balances for 1996 have been reclassified for comparative purposes.
9
<PAGE>
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, 1996 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
1997 1996 1997 1996
------------------- ------------------
Operating Revenue (in thousands):
Crude Oil Sales ................... $ 4,602 $ 1,499 $ 9,101 $ 3,723
Natural Gas Sales ................. 7,516 1,391 17,848 3,108
Natural Gas Liquids Sales ......... 2,516 373 5,595 871
Processing revenue ................ 841 -- 1,837 --
Rig Operations ..................... 53 40 106 77
Other .............................. 244 2 501 3
------- ------- ------- -------
Total Operating Revenue ............ $15,772 $ 3,305 $34,988 $ 7,782
======= ======= ======= =======
Operating Income (in thousands): ..... $ 4,090 $ 365 $11,881 $ 1,850
Crude Oil Production (MBBLS) ......... 252 73 470 192
Natural Gas Production (MMCFS) ....... 5,088 804 10,026 1,758
Natural Gas Liquids Production (MBBLS) 268 31 506 70
Average Crude Oil Sales Price ($/Bbl) $ 18.26 $ 20.50 $ 19.36 $ 19.44
Average Natural Gas Sales Price ($/MCF $ 1.48 $ 1.73 $ 1.78 $ 1.77
Average Liquids Sale Price ($/Bbl) ... $ 9.40 $ 11.92 $ 11.06 $ 12.38
Comparison of Three Months Ended June 30, 1997 to Three Months Ended June 30,
1996
Operating Revenue. During the three months ended June 30, 1997 operating
revenue from crude oil, natural gas and natural gas liquid sales increased to
$14.6 million compared to $3.5 million in the three months ended June 30, 1996.
The $11.1 million increase in revenue was primarily attributable to increased
volumes which was partially offset by a decline in the average sales price per
BOE. Volume increases from 238,376 BOE to 1,368 MBOE (thousand barrels of oil
equivalent "MBOE") contributed $16.7 million, which was offset by $(5.6) million
from lower commodity prices. Volume increases were due primarily to increased
production from acquisitions of producing properties acquired during the fourth
quarter of 1996, as well as increased production attributable to the Company's
ongoing development program on existing and acquired properties. Oil and natural
gas liquids volumes increased by 398% to 519.6 Mbbls from 104.4 Mbbls for the
same period of 1996.
10
<PAGE>
Acquisitions and subsequent development of acquired properties contributed 311.8
Mbbls while ongoing development of existing properties contributed 103.4 Mbbls
of the increase. Natural gas volumes increased from 803.4 MMcf to 5,088 MMcf for
the three months ended June 30, 1997. Acquisitions and subsequent development of
acquired properties contributed 3,739.4 MMcf while existing properties
contributed 545.2 MMcf. Average sales prices were $18.26 per Bbl of crude oil,
$1.48 per Mcf of natural gas and $9.40 per Bbl of natural gas liquids in the
three months ended June 30, 1997 compared with $20.50 per Bbl of crude oil,
$1.73 per Mcf of natural gas and $11.92 per Bbl of natural gas liquids in the
same period of 1996.
Lease Operating expenses. Lease operating expenses and production taxes
("LOE") and natural gas processing expenses were $3.7 milling for three months
ended June 30, 1997 compared to $1.0 million for the same period of 1996. The
increase of $2.7 million was due to an increase in the number of wells the
Company owned as of June 30, 1997 compared to the same period of the prior year.
LOE on a per barrel basis decreased to $2.51 per BOE for the three months ended
June 30, 1997 from $4.26 for the same period of 1996.
G&A Expenses. General and administrative ("G&A") expenses increased from
$470,000 for the three months ended June 30, 1996 to $1.1 million for the same
period of 1997. The increase is primarily attributable to the hiring of
additional staff, including an increase in the personnel at the Company's
Canadian administrative office to manage and develop properties acquired in the
fourth quarter of 1996. G&A expense on a per BOE basis decreased to $.84 per BOE
from $1.97 for same period of 1996.
Depreciation, Depletion and Amortization. Due to the increase in sales
volumes of crude oil and natural gas, depreciation, depletion and amortization
("DD&A") expenses increased $5.3 million to $6.7 million for the three months
ended June 30, 1997 from $1.4 million for the same period pf 1996. DD&A expenses
on a per BOE basis was $4.91 per BOE for the three months ended June 30, 1997
compared to $5.96 per BOE for the three months ended June 30, 1996.
Interest Expense and Preferred Dividends. Interest expense and preferred
dividends ("Interest and Dividends") increased to $6.4 million for the three
months ended June 30, 1997 from $684,000 for the three months ended June 30,
1996. The increase is due to increased levels of borrowings by the Company to
finance the acquisitions consummated in 1996. Long-term debt increased from
$32.5 million as of June 30, 1996 to $215.1 million at June 30, 1997.
Comparison of Six Months Ended June 30, 1997 to Six Months Ended June 30, 1996
Operating Revenue. During the six months ended June 30, 1997 operating
revenue from crude oil, natural gas and natural gas liquid sales increased to
$32.5 million compared to $8.0 million in the six months ended June 30, 1996.
The $24.5 million increase in revenue was primarily attributable to increased
volumes which was partially offset by a decline in the average sales price per
BOE. Volume increases from 554,878 BOE to 2,647 MBOE contributed $30.2 million
which was offset by $(5.7) million from lower commodity prices. Volume increases
were due primarily to increased production from acquisitions of producing
properties acquired in the fourth quarter of 1996, as well as increased
production attributable to the Company's ongoing development program on existing
and acquired properties. Oil and natural gas liquids volumes increased by 273%
to 975.8 Mbbls from 261.8 Mbbls for the same period of 1996. Acquisitions and
subsequent development of acquired properties contributed 559.4 Mbbls while
ongoing development of existing properties contributed 154.6 Mbbls of the
increase. Natural gas volumes increased from 1,758 MMcf to 10,026 MMcf for the
six months ended June 30, 1997. Acquisitions and subsequent development of
acquired properties contributed 7,440.9 MMcf while existing properties
contributed 827.1 MMcf. Average sales prices were $19.36 per Bbl of crude oil,
$1.78 per Mcf of natural gas and $11.06 per Bbl of natural gas liquids for the
six months ended June 30, 1997 compared with $19.44 per Bbl of crude oil, $1.77
per Mcf of natural gas and $12.38 per Bbl of natural gas liquids in the same
period of 1996.
Lease Operating expenses. LOE and natural gas processing expenses were $7.5
million for six months ended June 30, 1997 compared to $2.1 million for the same
period of 1996. The increase of $5.4 million was due to an increase in the
number of wells the Company owned as of June 30, 1997 compared to the same
11
<PAGE>
period of the prior year. LOE on a per barrel basis decreased to $2.56 per BOE
for the six months ended June 30, 1997 from $3.93 for the same period of 1996.
G&A Expenses. G&A expenses increased from $810,000 for the six months ended
June 30, 1996 to $2.1 million for the same period of 1997. The increase is
primarily attributable to the hiring of additional staff, including an increase
in the personnel at the Company's Canadian administrative office to manage and
develop properties acquired in the fourth quarter of 1996. G&A expense on a per
BOE basis decreased to $.79 per BOE from $1.46 for same period of 1996.
Depreciation, Depletion and Amortization. Due to the increase in sales
volumes of crude oil and natural gas, DD&A expenses increased $10.5 million to
$13.4 million for the six months ended June 30, 1997 from $2.9 million for the
same period pf 1996. DD&A expense on a per BOE basis was $5.06 per BOE for the
six months ended June 30, 1997 compared to $5.17 per BOE for the six months
ended June 30, 1996.
Interest Expense and Preferred Dividends. Interest expense and preferred
dividends increased to $12.6 million for the six months ended June 30, 1997 from
$1.6 million for the six months ended June 30, 1996. The increase was due to
increased levels of borrowings by the Company to finance acquisitions
consummated in 1996. Long-term debt increased from $32.5 million as of June 30,
1996 to $215.1 million at June 30, 1997.
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 and crude oil received by the Company
decreased during the first half of 1997. 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 crude oil and natural gas
prices continue 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 1997 amounted to $24.9 million compared to $6.7 million during the
same period of 1996. The table below sets forth the components of these capital
expenditures on a historical basis for the six months ended June 30, 1996 and
1997.
Six Months Ended
June 30
1997 1996
--------- ----------
Expenditure category (in thousands):
Property acquisitions ................... $ -- $ 1,591 (1)
Development ........................ 24,617 4,865
Facilities and other .................... 369 299
------- -------
Total ................................... $24,986 $ 6,755
======= =======
(1)Includes approximately $1.1 million of oil and gas properties acquired from
Cascade. Does not include a $3.8 million deposit to acquire the Wyoming
properties.
At June 30, 1997, the Company had current assets of $21.7 million and
current liabilities of $17.2 million resulting in working capital $ 4.5 million.
This compares to working capital of $6.4 million at December 31, 1996 and a
deficiency of $ 100,000 at June 30, 1996. The material components of the
Company's current liabilities at June 30, 1997 include trade accounts payable of
$10.3 million, revenues due third parties of $1.7 million and accrued interest
of $3.9 million.
12
<PAGE>
The Company's current budget for capital expenditures for the last six
months of 1997 is $13.2 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 currently has no agreements, arrangements of undertaking regarding any
material 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's Credit Facility contains a number of covenants that, among
other things, restricts the ability of the Company to (i) incur certain
indebtedness or guarantee obligations, (ii) prepay other indebtedness including
the Notes, (iii) make investments, loans or advances, (iv) create certain liens,
(v) make certain payments, dividends and distributions, (vi) merge with or sell
assets to another person or liquidate, (vii) sell or discount receivables,
(viii) engage in certain intercompany transactions and transactions with
affiliates, (ix) change its business, (x) experience a change of control and
(xi) make amendments to its charter, by-laws and other debt instruments. In
addition, under the Credit Facility, the Company is required to comply with
specified financial ratios and tests, including minimum debt service coverage
ratios, maximum funded debt to EBITDA tests, minimum net worth tests and minimum
working capital tests.
On November 14, 1996, the Company and Canadian Abraxas completed the sale of
$215.0 million aggregate principal amount of Senior Notes due November 1, 2004
(the "Notes"). The notes are joint and several obligations of Abraxas and
Canadian Abraxas and were issued under the terms of an Indenture dated November
14, 1996. The Indenture provides, among other things, that the Company may not,
and may not cause or permit certain of its subsidiaries, including Canadian
Abraxas, to, directly or indirectly, create or otherwise cause to permit to
exist or become effective any encumbrance or restriction on the ability of such
subsidiary to pay dividends or make distributions on or in respect of its
capital stock, make loans or advances or pay debts owed to Abraxas, guarantee
any indebtedness of Abraxas or transfer any of its assets to Abraxas except for
such encumbrances or restrictions existing under or by reason of: (i) applicable
law; (ii) the Indenture; (iii) the Credit Facility; (iv) customary
non-assignment provisions of any contract or any lease governing leasehold
interests of such subsidiaries; (v) any instrument governing indebtedness
assumed by the Company in an acquisition, which encumbrance or restriction is
not applicable to such subsidiaries or the properties or assets of such
subsidiaries other than the entity or the properties or assets of the entity so
acquired; (vi) customary restrictions with respect to subsidiaries of the
Company pursuant to an agreement that has been entered into for the sale or
disposition of capital stock or assets of such subsidiaries to be consummated in
accordance with the terms of the Indenture solely in respect of the assets or
capital stock to be sold or disposed of; (vii) any instrument governing certain
liens permitted by the Indenture, to the extent and only to the extent such
instrument restricts the transfer or other disposition of assets subject to such
lien; or (viii) an agreement governing indebtedness incurred to refinance the
indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (ii), (iii) or (v) above; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such refinancing
indebtedness are no less favorable to the holders of the Notes in any material
respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgement than the provisions relating to such
encumbrance or restriction contained in the applicable agreement referred to in
such clause (ii), (iii) or (v).
In August 1995, the Company entered into a rate swap agreement with a
previous lender relating to $25.0 million of principal amount of outstanding
indebtedness. This agreement was assumed by the Banks in connection with a
Bridge Facility that was subsequently paid off. Under the agreement, the Company
pays a fixed rate of 6.15% while the Banks will pay a floating rate equal to the
USD-LIBOR-BBA rate for one month maturities, quoted on the eighteenth day of
each month, to the Company. Settlements are due monthly. The agreement
terminates in August 1998. At June 30, 1997, the fair value of this swap, as
determined by BT CO was approximately $58,000.
Operating activities during the six months ended June 30, 1997 provided
$14.9 million cash to the Company compared to $4.1 million in the same period in
1996. Net income plus non-cash expense items during 1997 and net changes in
operating assets and liabilities accounted for most of these funds. Investing
activities used $15.3 million during the first six months of 1997 primarily for
development of oil and gas properties. This
13
<PAGE>
compares to $3.6 million provided during the same period of 1996. Financing
activities required $37,000 for the first six months of 1997 compared to
requiring $9.7 million for the same period of 1996.
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 carry forwards generated prior to December 31, 1991 of $4.9
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 carry forwards of $1.1 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 carry
forwards generated through October 1993 of $8.2 million will be limited to
approximately $1.0 million per year subject to the lower limitations described
above. Of the $8.2 million net operating loss carry forwards existing at October
1993, it is anticipated that the maximum net operating loss that may be utilized
before it expires is $5.7 million. Future changes in ownership may further limit
the use of the Company's carry forwards. In addition to Section 382 limitations,
uncertainties exist as to the future utilization of the operating loss carry
forwards under the criteria set forth under FASB Statement No. 109. Therefore,
the Company has established a valuation allowance of $5.6 million and for
deferred tax assets at December 31, 1996 and 1995, respectively.
Based upon the current level of operations, the Company believes that cash
flow from operations and the Company's credit facility will be adequate to meet
its anticipated requirements for working capital, capital expenditures and
scheduled interest payments through 1997. 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
At the Annual Meeting of Shareholders held on May 23, 1997 the following
proposals were adopted by the margins indicated:
1. Election of three directors for terms of three years, each to hold office
until the expiration of his term in 2000 or until a successor shall have been
elected and qualified.
Number of Shares
For Against
Richard M. Kleberg, III 4,171,513 453,156
Paul A. Powell, Jr. 4,620,415 4,254
Richard M. Riggs 4,620,415 4,254
Directors whose term continued after the meeting:
James C. Phelps
Robert L.G. Watson
Chris E. Williford
Franklin A. Burke
Harold D. Carter
Robert D. Gershen
2. Approval of the appointment of Ernst & Young LLP as the Company's auditors.
Number of Shares
For Against Abstained
4,476,486 147,107 1,076
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Re: Computation of earnings per share
27. Financial data schedule
(b) Reports on Form 8-K
8-K filed on June 25, 1997 to announce the termination of the Company's
previously granted Contingent Value Rights, with no issuance of
additional shares.
15
<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 13,1997 By:/s/Robert L.G. Watson
----------------------
ROBERT L.G. WATSON,
President and Chief
Executive Officer
Date: August 13, 1997 By:/s/Chris Williford
----------------------
CHRIS WILLIFORD,
Executive Vice President and
Principal Accounting Officer
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit (11) - Statement Re:
Computation of Earnings Per Share
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding .......... 5,754,584 5,763,222 5,746,899 5,778,981
Net effect of dilutive stock options-
based on the Treasury/Stock
method using average market price ... -- -- -- 17,414
----------- ------------ ------------ -----------
Totals .................................. 5,754,584 5,763,222 5,746,899 5,796,398
Net income (loss) ....................... $(2,101,763) $ (331,680) $ (739,430) $ 175,777
Per share amount ........................ $ (.37) $ (.06) $ (.13) $ .03
</TABLE>
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 7809
<SECURITIES> 0
<RECEIVABLES> 12919
<ALLOWANCES> (36)
<INVENTORY> 719
<CURRENT-ASSETS> 21702
<PP&E> 323547
<DEPRECIATION> (51987)
<TOTAL-ASSETS> 303397
<CURRENT-LIABILITIES> 17272
<BONDS> 215000
0
0
<COMMON> 58
<OTHER-SE> 34112
<TOTAL-LIABILITY-AND-EQUITY> 303397
<SALES> 34988
<TOTAL-REVENUES> 34988
<CGS> 0
<TOTAL-COSTS> 23107
<OTHER-EXPENSES> 326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12372
<INCOME-PRETAX> (817)
<INCOME-TAX> (388)
<INCOME-CONTINUING> (556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
