UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19118
ABRAXAS PETROLEUM CORPORATIONA
----------------------------------------------------------------------
(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, East, 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 restraint
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 May 10,
1999, was:
Class Shares Outstanding
------------------------------ ---------------------
Common Stock, $.01 Par Value 6,333,498
1 of 24
<PAGE>
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
FORM 10 - Q
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1999
and December 31,1998....................................3
Consolidated Statements of Operations -
Three Months Ended March 31, 1999 and 1998..............5
Consolidated Statement of Stockholders Equity (Deficit)
March 31, 1999 and December 31, 1998....................6
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998..............7
Notes to Consolidated Financial Statements.......................9
PART II
OTHER INFORMATION
ITEM 1 - Legal proceedings.................................................. 23
ITEM 2 - Changes in Securities...............................................23
ITEM 3 - Defaults Upon Senior Securities.....................................23
ITEM 4 - Submission of Matters to a Vote of Security Holders.................23
ITEM 5 - Other Information.................................................. 23
ITEM 6 - Exhibits and Reports on Form 8-K....................................23
Signatures ..................................................24
2
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Part 1- Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31, December 31,
1999 1998
(Unaudited)
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash ......................................................... $ 14,725 $ 61,390
Accounts receivable, less allowances for
Doubtful accounts
Joint owners ......................................... 5,748 3,337
Oil and gas production ............................... 5,535 6,098
Other ................................................ 880 1,070
-------- --------
12,163 10,505
Equipment inventory .......................................... 489 504
Other current assets ......................................... 1,013 844
-------- --------
Total current assets ........................................... 28,390 73,243
Property and equipment ......................................... 490,512 374,316
Less accumulated depreciation, depletion
and amortization: ........................................ 175,189 165,867
-------- --------
Net property and equipment based on the
full cost method of accounting for oil and
gas properties, of which $16,828 and $11,519
at March 31, 1999 and December 31, 1998,
respectively, were excluded from amortization ........... 315,323 208,449
Deferred financing fees, net of accumulated Amortization
of $3,256 and $2,911 at March 31, 1999 and December 31, 1998,
respectively ................................................ 9,993 8,059
Other assets ................................................... 1,755 1,747
-------- --------
Total assets ................................................. $355,461 $291,498
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Part 1- Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets (continued)
March 31, December 31,
1999 1998
(Unaudited)
--------------- -------------
<S> <C> <C>
Liabilities and Shareholder's Equity (Deficit)
Current liabilities
Accounts payable ................................. $ 13,457 $ 10,499
Oil and gas production payable ................... 6,619 5,846
Accrued interest ................................. 13,429 5,522
Income tax payable ............................... 205 160
Other accrued expenses ........................... 818 527
--------- ---------
Total current liabilities .............. 34,528 22,554
Long-term debt: .................................. 344,869 299,698
Deferred income taxes .............................. 29,160 19,820
Minority interest in foreign subsidiary ............ 9,830 9,672
Future site restoration ............................ 3,728 3,276
Shareholders' equity (deficit):
Common Stock, par value $.01 per share-
authorized 50,000,000 shares; issued,
6,504,513 and 6,501,441 shares at
March 31, 1999 and December 31, 1998,
respectively ................................... 65 65
Additional paid-in capital ....................... 51,708 51,695
Accumulated deficit .............................. (109,439) (103,145)
Treasury stock, at cost, 171,015 shares
at March 31, 1999 and December 31, 1998 ........ (1,167) (1,167)
Accumulated other comprehensive income (loss) ...... (7,821) (10,970)
--------- ---------
Total shareholders' equity (deficit) ............... (66,654) (63,522)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 355,461 $ 291,498
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
---------------------------
1999 1998
------------- -------------
(In thousands except per
share data)
<S> <C> <C> share data)
Revenue:
Oil & gas production sales .............. $ 13,838 $ 14,655
Processing revenue ...................... 865 735
Rig revenues ............................ 90 116
Other ................................... 1,177 1,233
-------- --------
15,970 16,739
Operating costs and expenses:
Lease operating and production taxes .... 4,758 4,639
Depreciation, depletion and amortization 9,146 8,252
General and administrative .............. 1,323 1,303
Rig operations .......................... 139 122
-------- --------
15,366 14,316
-------- --------
Operating Income ........................... 604 2,423
Other (income) expense
Interest income ......................... (186) (136)
Interest expense ........................ 8,683 7,516
Amortization of deferred financing fees . 345 327
-------- --------
8,842 7,707
-------- --------
Income (loss) from operations before taxes . (8,238) (5,284)
Income tax expense (benefit)
Current ................................ 102 60
Deferred ............................... (2,039) (695)
Minority interest in income (loss)
of consolidated foreign subsidiary ..... (7) (77)
-------- --------
Net income (loss) applicable to common stock $ (6,294) $ (4,572)
======== ========
Earnings (loss) per share:
Net income (loss) per common share ..... $ (.99) $ (.72)
======== ========
Net income (loss) per common
Share - assuming dilution ............ $ (.99) $ (.72)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands except share amounts)
Common Stock Treasury Stock Additional Other
------------ --------- ---------- ----------- Paid in Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Income (Loss) Total
------------ --------- ---------- ----------- ---------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 6,501,441 $ 65 171,015 $ (1,167) $ 51,695 $ (103,145) $ (10,970) $ (63,522)
Comprehensive income (loss):
Net Loss (6,294) (6,294)
Other comprehensive income:
Foreign currency
Translation adjustment 3,149 3,149
----------
Comprehensive income (loss) (3,145)
Issuance of common stock for
Compensation 3,072 13 13
------------ --------- ---------- ----------- --------- ------------- ---------------- ----------
Balance at March 31, 1999 6,504,513 $ 65 171,015 $ (1,167) $ 51,708 $ (109,439) $ (7,821) $ (66,654)
============ ========= ========== =========== ========= ============= ================ ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ----------
<S> <C> <C>
Operating Activities
Net loss ............................................. $ (6,294) $ (4,572)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Minority interest in income of foreign subsidiary .. (7) (77)
Depreciation, depletion, and amortization .......... 9,146 8,252
Amortization of deferred financing fees ............ 345 327
Amortization of premium on Senior Notes ............ (145) (145)
Deferred income tax benefit ........................ (2,039) (695)
Issuance of common stock for compensation .......... 13 72
Changes in operating assets and liabilities:
Accounts receivable ................................ 2,255 2,246
Equipment inventory ................................ 15 (44)
Other .............................................. (604) 26
Accounts payable and accrued expenses .............. 5,091 (1,020)
-------- --------
Net cash provided by operating activities ............ 7,776 4,370
-------- --------
Investing Activities
Capital expenditures, including purchases and
Development of properties ........................ (99,422) (18,431)
Proceeds from sale of oil and gas producing properties 1,497 128
-------- --------
Net cash used in investing activities ................ $(97,925) $(18,303)
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Financing Activities
Issuance of common stock ......................... $ -- $ 16
Purchase of treasury stock ....................... -- (399)
Proceeds from long term borrowings ............... 83,000 60,230
Premium from issuance of Senior Notes ............ -- 3,616
Payments on long-term borrowings ................. (37,225) (31,404)
Deferred financing fees .......................... (2,241) (1,387)
-------- --------
Net cash provided by financing activities ........ 43,534 30,672
-------- --------
Effect of exchange rate changes on cash .......... (50) (398)
-------- --------
Increase (decrease) in cash ...................... (46,665) 16,341
Cash at beginning of period ...................... 61,390 2,876
-------- --------
Cash at end of period ............................ $ 14,725 $ 19,217
======== ========
Supplemental disclosures of cash flow information:
Interest paid .................................... $ 968 $ 503
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE>
Abraxas Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1999
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, 1998 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 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. 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"), its 48% owned foreign subsidiary Grey Wolf Exploration,
Inc. ("Grey Wolf") and Canadian Abraxas' wholly owned subsidiary New Cache
Petroleums, LTD. ("New Cache"). Minority interest represents the minority
shareholders' proportionate share of the equity and income of Grey Wolf.
Canadian Abraxas, New Cache and Grey Wolf 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.
<TABLE>
<CAPTION>
Note 2. Long-Term Debt
Long-term debt consists of the following:
March 31, December 31,
1999 1998
---------------- ----------------
(In thousands)
<S> <C> <C>
11.5% Senior Notes due 2004, Series D ..................... $ 274,000 $ 274,000
Unamortized premium on Senior Notes........................ 2,748 3,471
Credit facility due to Bankers Trust Company, ING
Capital and Union Bank of California .................... -- 15,700
12.875% Senior Secured Notes due 2003 (see below).......... 63,500
Credit facility due to a Canadian bank, providing for
borrowings to approximately $11,630,000 at the bank's
prime rate plus .125%, 6.20% at March 31, 1999........... 4,610 6,515
Other ..................................................... 11 12
================ ================
$ 344,869 $ 299,698
================ ================
</TABLE>
In March 1999, the Company consummated the sale of $63.5 million of the
12.875% Senior Secured Notes due 2003 (the "Secured Notes"). Interest on the
9
<PAGE>
Secured Notes is payable semi-annually in cash in arrears on March 15 and
September 15, commencing September 15, 1999. The Secured Notes are redeemable,
in whole or in part, at the option of Abraxas on or after March 15, 2001, at the
redemption prices set forth below, plus accrued and unpaid interest to the date
of redemption, if redeemed during the 12-month period commencing on March 15 of
the years set forth below:
Year Percentage
2001................................ 103.000%
2002 and thereafter................. 100.000%
At any time, or from time to time, prior to March 15, 2001, Abraxas may, at its
option, use all or a portion of the net cash proceeds of one or more equity
offerings to redeem up to 35% of the aggregate original principal amount of the
Notes at a redemption price equal to 112.875% of the aggregate principal amount
of the Notes to be redeemed, plus accrued and unpaid interest and liquidating
damages, if any.
The Notes are senior indebtedness of Abraxas secured by a first lien on
substantially all of the crude oil and natural gas properties of Abraxas and the
shares of Grey Wolf owned by Abraxas. The Secured Notes are unconditionally
guaranteed (the "Guarantees") on a senior basis, jointly and severally, by
Canadian Abraxas, New Cache and Sandia Oil & Gas Corporation ("Sandia"), a
wholly-owned subsidiary of Abraxas (collectively, the "Guarantors"). The
Guarantees are secured by substantially all of the crude oil and natural gas
properties of the Guarantors and the shares of Grey Wolf owned by Canadian
Abraxas.
Upon a Change of Control, each holder of the Secured Notes will have the right
to require Abraxas to repurchase such holder's Secured Notes at a redemption
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase. In addition, the Issuers will be obligated
to offer to repurchase the Secured Notes at 100% of the principal amount thereof
plus accrued and unpaid interest to the date of redemption in the event of
certain asset sales
The Secured Notes Indenture contains certain covenants that limit the ability of
Abraxas and certain of its subsidiaries, including the Guarantors (the
"Restricted Subsidiaries") to, among other things, incur additional
indebtedness, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur liens, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company.
The Secured Notes Indenture provides, among other things, that the
Company may not, and may not cause or permit the Restricted Subsidiaries, 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 or any other Restricted
Subsidiary, guarantee any indebtedness of Abraxas or any other Restricted
Subsidiary or transfer any of its assets to Abraxas or any other Restricted
Subsidiary except for such encumbrances or restrictions existing under or by
reason of: (i) applicable law; (ii) the Indentures; (iii) customary
non-assignment provisions of any contract or any lease governing leasehold
interest of such subsidiaries; (iv) any instrument governing indebtedness
assumed by the Company in an acquisition, which encumbrance or restriction is
not applicable to such Restricted Subsidiary or the properties or assets of such
subsidiary other than the entity or the properties or assets of the entity so
acquired; (v) agreements existing on the Issue Date (as defined in the Secured
Notes Indenture) to the extent and in the manner such agreements were in effect
on the Issue Date; (vi) customary restrictions with respect to subsidiary of the
Company pursuant to an agreement that has been entered into for the sale or
disposition of capital stock or assets of such Restricted Subsidiary to be
consummated in accordance with the terms of the Secured Notes Indenture or any
Security Documents (as defined in the Secured Notes 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 Secured Notes 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), (iv) 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 Secured Notes in any material respect as determined by the
Board of Directors of the Company in their reasonable and good faith judgment
that the provisions relating to such encumbrance or restriction contained in the
applicable agreement referred to in such clause (ii), (iv) or (v).
10
<PAGE>
Note 3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
Three Months Ended March 31,
-----------------------------
1999 1998
------------- -------------
Numerator:
<S> <C> <C>
Numerator for basic earnings per share - income
(loss) available to common stockholders (in thousands) $ (6,294) $ (4,572)
Effect of dilutive securities: ........................ -- --
----------- -----------
Numerator for diluted earnings per share-income
available to common stockholders after assumed
Conversions (in thousands) .......................... (6,294) (4,572)
Denominator:
Denominator for basic earnings per share -
weighted-average shares ............................. 6,333,498 6,360,087
Effect of dilutive securities:
Stock options and warrants .......................... -- --
----------- -----------
Dilutive potential common shares Denominator
for diluted earnings per share adjusted
weighted-average shares and assumed
Conversions ......................................... 6,333,498 6,360,087
Basic earnings (loss) per share:
Income (loss) ....................................... $ (.99) $ (.72)
=========== ===========
Diluted earnings (loss) per share:
Income (loss) ....................................... $ (.99) $ (.72)
=========== ===========
</TABLE>
For the three months ended March 31, 1999 and 1998, none of the shares
issuable in connection with stock options or warrants are included in dilutive
shares. Inclusion of these shares would be antidilutive due to losses incurred
in these periods.
11
<PAGE>
Note 4. 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 March 31, 1999. 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 due 2004 (the "Notes") ($275,000,000),
of which $84,612,000 was utilized by Canadian Abraxas in connection with the
acquisition of CGGS. 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.
BALANCE SHEET
Assets Liabilities and Shareholders Equity
(In Thousands)
Total current assets $ 1,818 Total current liabilities $ 4,901
Oil and gas properties 92,251 11.5% Senior Notes due 2004 74,682
Other assets 91,682 Note payable to Abraxas
========= Petroleum Corporation 21,533
$ 185,751 Other liabilities 20,007
========= Shareholder's equity 64,628
---------
$ 185,751
=========
STATEMENT OF OPERATIONS
Revenues $ 3,654
Operating costs & expenses (4,177)
Interest expense (2,563)
Other income 53
Income tax benefit 1,848
============
Net loss $ (1,185)
============
12
<PAGE>
Note 5. Business Segments
Business segment information about the Company's first quarter
operations in different geographic areas is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------------------
U.S. Canada Total
------------------ ------------------ -------------------
(In thousands)
<S> <C> <C> <C>
Revenues ................................... $ 6,548 $ 9,422 $ 15,970
================== ================== ===================
Operating profit (loss)..................... $ (614) $ 2,044 $ 1,430
================== ==================
General corporate .......................... (826)
Interest expense and amortization of
deferred financing fees ................. (8,841)
===================
Income before income taxes .............. $ (8,237)
===================
Identifiable assets at March 31, 1999 ...... $ 111,547 $ 232,663 $ 344,210
================== ==================
Corporate assets ........................... 11,251
-------------------
Total assets ............................ $ 355,461
===================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
----------------------------------------------------------
U.S. Canada Total
------------------ ------------------ -------------------
(In thousands)
<S> <C> <C> <C>
Revenues ................................... $ 11,151 $ 5,588 $ 16,739
================== ================== ===================
Operating profit (loss)..................... $ (89) $ 3,483 $ 3,394
================== ==================
General corporate .......................... (971)
Interest expense and amortization of
deferred financing fees ................. (7,707)
===================
Income before income taxes .............. $ (5,284)
===================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------
U.S. Canada Total
------------------ ------------------ -------------------
<S> <C> <C> <C>
Identifiable assets at December 31, 1998 ... $ 153,030 $ 129,301 $ 282,331
================== ==================
Corporate assets ........................... 9,167
-------------------
Total assets ............................ $ 291,498
===================
</TABLE>
Note 4. Contingencies
In May 1995, certain plaintiffs filed a lawsuit against the Company alleging
13
<PAGE>
negligence and gross negligence, tortious interference with contract, conversion
and waste. In March 1998, a jury found against the Company, on May 22, 1998,
final judgement in the amount of approximately $1.3 was entered. The Company has
filed an appeal. As of May 5, 1999, no ruling has been made on the appeal.
Management believes, based on the advice of legal counsel, that the plaintiffs'
claims are without merit and that damages should not be recoverable under this
action; however, the ultimate effect on the Company's financial position and
results of operations cannot be determined at this time. The Company has not
established a reserve for this matter at March 31, 1999.
Additionally, from time to time, the Company is involved in litigation
relating to claims arising out of its operations in the normal course of
business. At March 31, 1999, the Company was not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on the Company.
Note 5. Reclassifications
Certain balances for 1998 have been reclassified for comparative purposes.
14
<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, 1998, 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
March 31,
--------------------
1999 1998
---------- ---------
Operating Revenue (in thousands):
Crude Oil Sales ....................... $ 2,731 $ 2,880
Natural Gas Sales ..................... 10,555 9,786
Natural Gas Liquids Sales ............. 552 1,989
Processing Revenue .................... 865 736
Rig Operations ........................ 90 116
Other ................................. 1,177 1,232
------- -------
$15,970 $16,739
======= =======
Operating Income (in thousands) ....... $ 604 $ 2,423
Crude Oil Production (MBBLS) .......... 225.0 199.0
Natural Gas Production (MMCFS) ........ 7,149.5 6,139.2
Natural Gas Liquids Production (MBBLS) 73.3 241.5
Average Crude Oil Sales Price ($/BBL) . $ 12.14 $ 14.47
Average Natural Gas Sales Price ($/MCF) $ 1.48 $ 1.59
Average Liquids Sales Price ($/BBL) ... $ 7.56 $ 8.24
Operating Revenue. During the three months ended March 31, 1999, operating
revenue from crude oil, natural gas and natural gas liquid sales decreased 5.6%
to $13.8 million compared to $14.7 million in the three months ended March 31,
1998. The decrease in revenue was primarily due to a decrease in crude oil,
natural gas and natural gas liquids prices realized during the period. Average
sales prices were $12.14 per Bbl of crude oil, $7.53 per Bbl of natural gas
liquid and $1.48per Mcf of natural gas for the quarter ended March 31, 1999
compared with $14.47 per Bbl of crude oil, $8.24 per Bbl of natural gas liquid
and $1.59 per Mcf of natural gas in the same period of 1998. The decline in
prices contributed $1.1 million of the decrease in revenue which was partially
offset by $0.2 million attributable to increased crude oil and natural gas
volumes. Natural gas volumes increased 16.5% from 6,139 MMCFs for the period
ended March 31,1998 to 7,149 MMCFs for the same period in 1999. The increase in
natural gas volumes was primarily attributable to the Company's ongoing
15
<PAGE>
development program and from the acquisition of New Cache Petroleums Ltd.("New
Cache") in January 1999. New Cache contributed 1,777 MMCFs for the period ended
March 31, 1999. This natural gas production replaced the production from the
Company's Wyoming Properties which were sold in the fourth quarter of 1999. (the
"Wyoming Properties"). The Wyoming Properties contributed 1,511 MMCFs for the
three months ended March 31, 1998. Crude oil volumes increased 13.1% from 199.0
MBBLs in the first three months of 1998 to 225.0 MBBLs. The increase in crude
oil volumes was primarily due to the New Cache acquisition. The New Cache
properties contributed 89.2 MBBLs during the first three months of 1999 compared
to 22.9 MBBLs produced from the Wyoming Properties during the same period of
1998. Crude oil from the Company's existing properties declined by approximately
40.2 MBBLs as a result of the de-emphasis of the Company's oil exploration and
development, due to the decline in crude oil prices during the later part of
1998 and the first quarter of 1999. Natural gas liquids volumes declined 69.6%
for the period ended March 31, 1999 to 73.2 MBBLs compared to 241.5 MBBLs for
the same period of 1998. The decline in natural gas liquids volumes was due to
the divestiture of the Wyoming properties in the fourth quarter of 1998 and the
Company's decision to shut down two natural gas processing plants in South
Texas. The Wyoming Properties contributed 125.5 MBBLs of natural gas liquids
during the first three months of 1998 which was offset by only 21.0 MBBLS from
the New Cache properties acquired in January 1999. The Company shut down it's
East White Point processing plant during the fourth quarter of 1998 and shut
down it's Portilla Plant in January 1999. The East White Point plant produced
13.0 MBBLs of natural gas liquids during the first three months of 1998, the
Portilla Plant contributed 11.4 MBBLs of natural gas liquids during the first
three months of 1998 compared to 2.1 MBBLs in 1999. The Company began processing
the East White Point gas through a third party plant in April 1999. The Company
also elected not to process it's West Texas gas during the first quarter of 1999
due to the depressed prices of natural gas liquids. Processing of the West Texas
gas resumed in April 1999.
Lease Operating Expenses. Lease operating expenses and natural gas
processing costs ("LOE") for the three months ended March 31, 1999 increased to
$4.7 million compared to $4.6 million for the same period in 1998. The Company's
LOE on a per MCFE basis for the three months ended March 31, 1999 and March 31,
1998 remained the same at $0.53 per MCFE.
G&A Expenses. G&A expenses were unchanged at $1.3 million for the first
three months of 1999 and 1998. G&A expense on a per MCFE basis was $0.148 for
each of the three month periods ended March 31, 1999 and 1998.
Depreciation, Depletion and Amortization Expenses. Depreciation, depletion
and amortization ("DD&A") expense increased by $0.89 million to $9.1 million for
the three months ended March 31, 1999, from $8.3 million in the same period of
1998. The increase is primarily due to increased production during the first
three months of 1999. The Company's DD&A on a per MCFE basis for the three
months ended March 31, 1999 was $1.02 per MCFE compared to $0.94 in 1998. The
per BOE increase is due to higher finding costs added to the full cost pool in
1998 and the first quarter of 1999.
Interest Expense . Interest expense increased to $8.7 million for the first
three months of 1999 from $7.5 million for the same period of 1998. This
increase is attributable to increased borrowings by the Company during the first
quarter of 1999. Long-term debt increased from $277.4 million at March 31, 1998
to $344.9 million at March 31, 1999. The increase in debt levels is the result
of the Company's issuing $63.5 million of its 12.875% Senior Secured Notes due
2003 (the "Secured Notes") in March 1999.
General . The Company's revenues, profitability and future rate of growth
are substantially dependent upon prevailing prices for crude oil and natural gas
and the volumes of crude oil, natural gas and natural gas liquids produced by
the Company. The prices of natural gas, crude oil and natural gas liquids
received by the Company declined during the first quarter of 1999. The average
natural gas price realized by the Company declined to $1.48 per MCF during the
first three months of 1999 compared with $1.59 per MCF during the same period of
1998. Crude oil prices declined from $14.47 per BBL during the first three
months of 1998, to $12.14 per BBL for the same period of 1999. Natural gas
liquids prices declined to $7.53 per BBL compared to $8.24 per BBL in the first
quarter of 1998. 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,
natural gas and natural gas liquids prices remain at depressed levels or if the
16
<PAGE>
Company's production levels decrease, the Company's revenues, cash flow from
operations and profitability will be materially adversely affected.
Possible Delisting of Common Stock on The Nasdaq National Market
The Company has received notification from The Nasdaq National Market
("NMS") that the Company does not meet the minimum net tangible assets and
"inside bid" price requirements for NMS listed companies. The Company has also
been notified that it does not meet the minimum market value of the "public
float" for NMS listed companies. The Company has requested and been granted a
hearing regarding the proposed delisting of the Company's Common Stock on the
Nasdaq National Market and intends to request an exception from the designated
criteria to permit continued inclusion of the Company's common stock on the NMS.
No assurance can be given that the Company's request for an exception will be
granted. The Company's common stock will continue to be traded on the NMS until
action by the Nasdaq Review Panel.
If the Company's Common Stock is no longer traded on the NMS, the Company
intends to apply for listing its Common Stock on The American Stock Exchange or
on a regional exchange, such as the Boston Stock Exchange. If the Company's
Common Stock is not approved for listing on The American Stock Exchange or a
regional exchange, trading in the Company's Common Stock would be conducted in
the over-the-counter market in the "pink sheets" or the electronic bulletin
board administered by the National Association of Securities Dealers, Inc. In
such an event, the liquidity and market price of the Company's Common Stock may
be adversely impacted. As a result, an investor may find it more difficult to
obtain accurate stock quotations.
Liquidity and Capital Resources
General: Capital expenditures including property divestitures during the
first three months of 1999 were $97.9 million compared to $18.3 million during
the same period of 1998. The table below sets forth the components of these
capital expenditures on a historical basis for the three months ended March 31,
1999 and 1998.
Three Months Ended
March 31
--------------------------------------
1999 1998
------------------- -----------------
Expenditure category (in thousands):
Acquisitions $ 86,103 $ 2,359
Development 13,319 15,945
Divestitures (1,497) (129)
Facilities and other -- 128
=============== =============
Total $ 97,925 $ 18,303
=============== =============
At March 31, 1999, the Company had current assets of $28.4 million and
current liabilities of $34.5 million resulting in a working capital deficit of
$6.1 million. This compares to working capital of $50.6 million at December 31,
1998 and working capital of $5.7 million at March 31, 1998. The material
components of the Company's current liabilities at March 31, 1999 include trade
accounts payable of $13.5 million, revenues due third parties of $6.6 million
and accrued interest of $13.5 million.
Operating activities during the three months ended March 31, 1999 provided
$7.8 million cash to the Company compared to $4.4 million in the same period in
1998. Net income plus non-cash expense items during 1999 and net changes in
operating assets and liabilities accounted for most of these funds. Investing
activities required $97.9 million net during the first three months of 1999,
$86.1 million of which was used for the purchase of New Cache, $13.3 million of
which was utilized for the development of crude oil and natural gas properties
and other facilities. This compares to $18.3 million required during the same
period of 1998 of which $15.9 million was utilized for the development of crude
oil and natural gas properties and other facilities, and $2.4 million of which
was used for acquisition of oil and gas properties. Financing activities
provided $43.5 million for the first three months of 1999 compared to requiring
$30.7 million for the same period of 1998. Financing activities include the
17
<PAGE>
proceeds of the $63.5 million from the issuance of the Secured Notes in March
1999 and borrowings under the Credit Facility of $19.5 million, which were
offset by the repayment of the existing Credit Facility in the amount of $35.2
million.
The Company's current budget for capital expenditures for the last nine
months of 1999 other than acquisition expenditures is approximately $9.2
million. Such expenditures will be made primarily for the development of
existing properties. Additional capital expenditures may be made for
acquisitions of producing properties if such opportunities arise, but the
Company currently has no agreements, arrangements or undertakings 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. Should commodity prices remain at depressed levels or decline further,
reductions in the capital expenditure budget may be required.
Current Liquidity Needs. The Company has historically funded its
operations and acquisitions primarily through its cash flow from operations and
borrowings under the Credit Facility and other credit sources. In March 1999,
the Company issued $63.5 million principal amount of the Secured Notes and
repaid all amounts outstanding under the Credit Facility and the New Cache Debt.
Due to severely depressed prices for crude oil and natural gas, the Company's
cash flow from operations has been substantially reduced.
The Company will have two principal sources of liquidity during the next
nine months: (i) cash on hand, and (ii) cash generated by operations. While the
availability of capital resources cannot be predicted with certainty and is
dependent upon a number of factors including factors outside of management's
control, management believes that cash on hand plus the Company's cash flow from
operations will be adequate to fund operations and planned capital expenditures
for the remainder of 1999. Another potential source of capital is from the sale
of properties. The Company is exploring the option of selling a portion of New
Cache, acquired in January 1999, to it's 48% owned Canadian subsidiary, Grey
Wolf Exploration, Inc.
The Company's ability to obtain additional financing will be
substantially limited under the terms of the Indentures. Substantially all of
the Company's crude oil and natural gas properties and natural gas processing
facilities are subject to a first lien or charge for the benefit of the holders
of the Secured Notes. Thus, the Company will be required to rely on its cash
flow from operations to fund its operations and service its debt. The Company
may also choose to issue equity securities or sell certain of its assets to fund
its operations, although the Indentures governing the Company's outstanding
Secured Notes and Series D notes (as defined below) substantially limit the
Company's use of the proceeds of any such asset sales. Due to the Company's
diminished cash flow from operations and the resulting depressed prices for its
common stock, there can be no assurance that the Company would be able to obtain
equity financing on terms satisfactory to the Company.
Long-Term Indebtedness
Series D Notes. On November 14, 1996, Abraxas and Canadian Abraxas
consummated the offering of $215.0 million of their 11.5% Senior Notes due 2004,
Series A, which were exchanged for the Series B Notes in February 1997. On
January 27, 1998, Abraxas and Canadian Abraxas completed the sale of $60.0
million of the Series C Notes. The Series B Notes and the Series C Notes were
subsequently exchanged for $275.0 million in principal amount the Series D Notes
in June 1998.
Interest on the Series D Notes is payable semi-annually in arrears on
May 1 and November 1 of each year at the rate of 11.5% per annum. The Series D
Notes are redeemable, in whole or in part, at the option of Abraxas and Canadian
Abraxas, on or after November 1, 2000, at the redemption prices set forth below,
plus accrued and unpaid interest to the date of redemption, if redeemed during
the 12-month period commencing on November 1 of the years set forth below:
18
<PAGE>
Year Percentage
2000.................................... 105.750%
2001.................................... 102.875%
2002 and thereafter..................... 100.000%
In addition, at any time on or prior to November 1, 1999, Abraxas and
Canadian Abraxas may, at their option, redeem up to 35% of the aggregate
principal amount of the Series D Notes originally issued with the net cash
proceeds of one or more equity offerings, at a redemption price equal to 111.5%
of the aggregate principal amount of the Series D Notes to be redeemed, plus
accrued and unpaid interest to the date of redemption; provided, however, that
after giving effect to any such redemption, at least 65% of the aggregate
principal amount of the Series D Notes remains outstanding.
The Series D Notes are joint and several obligations of Abraxas and
Canadian Abraxas, and rank pari passu in right of payment to all existing and
future unsubordinated indebtedness of Abraxas and Canadian Abraxas. The Series D
Notes rank senior in right of payment to all future subordinated indebtedness of
Abraxas and Canadian Abraxas. The Series D Notes will, however, be effectively
subordinated to the Notes to the extent of the value of the Collateral. The
Series D Notes are unconditionally guaranteed, jointly and severally, by the
Subsidiary Guarantors. The guarantees are general unsecured obligations of the
Subsidiary Guarantors and rank pari passu in right of payment to all
unsubordinated indebtedness of the Subsidiary Guarantors and senior in right of
payment to all subordinated indebtedness of the Subsidiary Guarantors. The
Guarantees are effectively subordinated to the Notes to the extent of the value
of the Collateral.
Upon a Change of Control (as defined in the Series D Indenture), each
holder of the Series D Notes will have the right to require Abraxas and Canadian
Abraxas to repurchase all or a portion of such holder's Series D Notes at a
redemption price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase. In addition, Abraxas and Canadian
Abraxas will be obligated to offer to repurchase the Series D Notes at 100% of
the principal amount thereof plus accrued and unpaid interest to the date of
repurchase in the event of certain asset sales.
The Series D 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 Series D Indenture; (iii) the Credit Facility
(as defined in the Series D Indenture); (iv) customary non-assignment provisions
of any contract or any lease governing leasehold interest 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 Series D 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 Series D Notes in any
material respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment that the provisions relating to such
encumbrance or restriction contained in the applicable agreement referred to in
such clause (ii), (iii) or (v).
Secured Notes: In March 1999 the Company consummated the sale of $63.5 million
of the Secured Notes due 2003. Interest on the Secured Notes is payable
19
<PAGE>
semi-annually in cash in arrears on March 15 and September 15, commencing
September 15, 1999. The Secured Notes are redeemable, in whole or in part, at
the option of Abraxas on or after March 15, 2001, at the redemption prices set
forth below, plus accrued and unpaid interest to the date of redemption, if
redeemed during the 12-month period commencing on March 15 of the years set
forth below:
Year Percentage
2001.................................... 103.000%
2002 and thereafter..................... 100.000%
At any time, or from time to time, prior to March 15, 2001, Abraxas may, at its
option, use all or a portion of the net cash proceeds of one or more equity
offerings to redeem up to 35% of the aggregate original principal amount of the
Notes at a redemption price equal to 112.875% of the aggregate principal amount
of the Notes to be redeemed, plus accrued and unpaid interest and liquidating
damages, if any.
The Secured Notes are senior indebtedness of Abraxas secured by a first lien
on substantially all of the crude oil and natural gas properties of Abraxas and
the shares of Grey Wolf owned by Abraxas. The Secured Notes are unconditionally
guaranteed (the "Guarantees") on a senior basis, jointly and severally, by
Canadian Abraxas, New Cache and Sandia Oil & Gas Corporation ("Sandia"), a
wholly-owned subsidiary of Abraxas (collectively, the "Guarantors"). The
Guarantees are secured by substantially all of the crude oil and natural gas
properties of the Guarantors and the shares of Grey Wolf owned by Canadian
Abraxas.
Upon a Change of Control, each holder of the Secured Notes will have the right
to require Abraxas to repurchase such holder's Secured Notes at a redemption
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase. In addition, the Issuers will be obligated
to offer to repurchase the Secured Notes at 100% of the principal amount thereof
plus accrued and unpaid interest to the date of redemption in the event of
certain asset sales
The Secured Notes Indenture contains certain covenants that limit the ability of
Abraxas and certain of its subsidiaries, including the Guarantors (the
"Restricted Subsidiaries") to, among other things, incur additional
indebtedness, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur liens, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company.
The Secured Notes Indenture provides, among other things, that the
Company may not, and may not cause or permit the Restricted Subsidiaries, 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 or any other Restricted
Subsidiary, guarantee any indebtedness of Abraxas or any other Restricted
Subsidiary or transfer any of its assets to Abraxas or any other Restricted
Subsidiary except for such encumbrances or restrictions existing under or by
reason of: (i) applicable law; (ii) the Indentures; (iii) customary
non-assignment provisions of any contract or any lease governing leasehold
interest of such subsidiaries; (iv) any instrument governing indebtedness
assumed by the Company in an acquisition, which encumbrance or restriction is
not applicable to such Restricted Subsidiary or the properties or assets of such
subsidiary other than the entity or the properties or assets of the entity so
acquired; (v) agreements existing on the Issue Date (as defined in the Secured
Notes Indenture) to the extent and in the manner such agreements were in effect
on the Issue Date; (vi) customary restrictions with respect to subsidiary of the
Company pursuant to an agreement that has been entered into for the sale or
disposition of capital stock or assets of such Restricted Subsidiary to be
consummated in accordance with the terms of the Secured Notes Indenture or any
Security Documents (as defined in the Secured Notes 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 Secured Notes 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), (iv) or (v) above;
20
<PAGE>
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 Secured Notes in any material respect as determined by the
Board of Directors of the Company in their reasonable and good faith judgment
that the provisions relating to such encumbrance or restriction contained in the
applicable agreement referred to in such clause (ii), (iv) or (v).
Hedging Activities. In November 1996, the Company assumed hedge
agreements extending through October 2001 with a counterparty involving various
quantities and fixed prices. These hedge agreements provided for the Company to
make payments to the counterparty to the extent the market prices, determined
based on the price for crude oil on the NYMEX and the Inside FERC, Tennessee Gas
Pipeline Co. Texas (Zone O) price for natural gas exceeded certain fixed prices
and for the counterparty to make payments to the Company to the extent the
market prices were less than such fixed prices. The Company accounted for the
related gains or losses (a gain of $204,600 during the first quarter of 1999) in
crude oil and natural gas revenue in the period of the hedged production. The
Company terminated these hedge agreements in January 1999 and was paid $750,000
by the counterparty for such termination. This amount is included in other
income in the accompanying financial statements.
In March 1998, the Company entered into a costless collar hedge
agreement with Enron Capital and Trade Resources Corp. for 2,000 Bbls of crude
oil per day with a floor price of $14.00 per Bbl and a ceiling price of $22.30
per Bbl for crude oil on the NYMEX. The agreement was effective April 1, 1998
and extended through March 31, 1999. Under the terms of the agreement the
Company was paid when the average monthly price for crude oil on the NYMEX is
below the floor price and will pay the counterparty when the average monthly
price exceeds the ceiling price. During 1998, the Company realized a gain of
$282,000 on this agreement, which is accounted for in crude oil and natural gas
revenue. The Company has also entered into a hedge agreement with Barrett
Resources Corporation covering 2,000 Bbls per day of crude oil calling for the
Company to be paid an average NYMEX price of $14.29 per Bbl over the period
April 1, 1999 to October 31, 1999. In May 1999, the Company and Barrett amended
this hedge agreement resulting in the Company being paid an average NYMEX price
of $17.00 per Bbl from June through October 1999. A new agreement was entered
into in May of 1999 for the period November 1999 through October 2000. This
agreement is for 1,000 Bbls per day with the Company being paid $17.02 per Bbl.
Additionally, Barrett has a call on an either 1,000 Bbls of crude oil or 20,000
MMBtu of natural gas per day at Barrets option over the term of the agreement at
fixed prices.
As of March 31, 1999, the Company had 37.0 MMBTUpd hedged at an average
NYMEX price of approximately $1.93 per MMBTU from April 1, 1999 to October 31,
1999 and 2.4 MMBTUpd at an average NYMEX price of approximately $1.10 per MMBTU
from November 1, 1998 to October 31, 2000. Of the 37.0 MMBTUpd hedged at $1.93
per MMBTU, 20.0 MMBTUpd is hedged with Barrett Resources Corporation, 11.0
MMBTUpd is hedged with Engage Energy Capital Canada LP, and 6.0 MMBTUpd is
hedged with Amoco. The 2.4 MMBTUpd hedged at $1.10 per MMBTU is hedged with
Barrett Resources Corporation and was assumed by the Company in connection with
the acquisition of New Cache.
Net Operating Loss Carryforwards. At December 31, 1998, the Company had,
subject to the limitations discussed below, $46.6 million of net operating loss
carryforwards for U.S. tax purposes, of which approximately $43.8 million are
available for utilization without limitation. These loss carryforwards will
expire from 2002 through 2010 if not utilized. At December 31, 1998, the Company
had approximately $11.9 million of net operating loss carryforwards for Canadian
tax purposes which expire in varying amounts in 2002-2005. 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, occurred in
December 1991. Accordingly, it is expected that the use of $4.9 million in net
operating loss carryforwards generated prior to December 31, 1991 will be
limited to approximately $235,000 per year. As a result of the issuance of
additional shares of common stock for acquisitions and sales of stock, an
additional ownership change under Section 382 occurred in October 1993.
Accordingly, it is expected that the use of all U.S. net operating loss
carryforwards generated through October 1993, or $8.9 million, will be limited
to approximately $1 million per year subject to the lower limitations described
above. Of the $8.9 million net operating loss carryforwards, it is anticipated
that the maximum net operating loss that may be utilized before it expires is
$6.1 million. Future changes in ownership may further limit the use of the
21
<PAGE>
Company's carryforwards. In addition to the 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 $5.9 million and
$32.8 million for deferred tax assets at December 31, 1997 and 1998,
respectively.
Based upon the current level of operations, the Company believes that
cash on hand and cash flow from operations will be adequate to meet its
anticipated requirements for working capital, capital expenditures and scheduled
interest payments through 1999. Continued depressed prices for natural gas,
crude oil or natural gas liquids 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 Cautionary
22
<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) Exhibit 27 Financial data
schedule (b) Reports on Form 8-K:
January 28, 1999 - Form 8-K/A - Pro forma financial statements
giving effect of divestiture of Wyoming properties, described
in Form 8-K filed November 30, 1998.
Janauary 28, 1999 - Form 8-K - Acquisition of New Cache
Petroluems LTD.
February 26, 1999 - Form 8-K/A - Pro forma financial
statements giving effect o divestiture of Wyoming properties
and acquisition of New Cache Petroleums, LTD
March 22, 1999 - Form 8-K - 1998 year end earnings release and
unaudited financial statements.
March 29, 1999 - Form 8-K/A - New Cache Petroleums LTD, year
end November 30, 1998 audited financial statements.
23
<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: May 14,1999 By:/s/ ______________________
ROBERT L.G. WATSON,
President and Chief
Executive Officer
Date: May 14, 1999 By:/s/____________________________
CHRIS WILLIFORD,
Executive Vice President and
Principal Accounting Officer
24
<PAGE>
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