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, 2000
( ) 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, 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
August 10, 2000, was:
Class Shares Outstanding
Common Stock, $.01 Par Value 22,620,116
1 of 28
<PAGE>
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
FORM 10 - Q
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2000
and December 31,1999................................3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999...5
Consolidated Statement of Stockholders Equity (Deficit)
June 30, 2000 and December 31, 1999.................6
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999.............7
Notes to Consolidated Financial Statements...................8
PART II
OTHER INFORMATION
ITEM 1 - Legal proceedings...............................................27
ITEM 2 - Changes in Securities...........................................27
ITEM 3 - Defaults Upon Senior Securities.................................27
ITEM 4 - Submission of Matters to a Vote of Security Holders.............27
ITEM 5 - Other Information...............................................27
ITEM 6 - Exhibits and Reports on Form 8-K................................27
Signatures ..............................................28
2
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Part 1- Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------
(In thousands)
<S> <C> <C>
Current assets:
Cash ................................................... $ 8,342 $ 3,799
Account receivable, less allowance for doubtful
accounts ............................................. 18,473 14,352
Equipment inventory .................................... 1,409 447
Other current assets ................................... 493 431
------------------ -------------------
Total current assets ................................. 28,717 19,029
Property and equipment..................................... 535,762 514,353
Less accumulated depreciation, depletion, and amortization 236,709 219,687
------------------ -------------------
Net property and equipment based on the full cost method
of accounting for oil and gas properties of which
$17,057 at December 31, 1999 and June 30, 2000, was
excluded from amortization ............................ 299,053 294,666
Deferred financing fees, net of accumulated amortization
of $4,826 and $ 5,841 at December 31, 1999 and June 30,
2000, respectively ..................................... 7,221 7,711
Other assets .............................................. 3,880 878
------------------ -------------------
Total assets ........................................... $ 338,871 $ 322,284
================== ===================
</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)
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------
(In thousands)
<S> <C> <C>
Current liabilities:
Accounts payable........................................... $ 16,063 $ 19,053
Accrued interest........................................... 6,390 6,358
Other accrued expenses..................................... 2,059 923
------------------ -------------------
Total current liabilities ............................... 24,512 26,334
Long-term debt................................................ 268,293 273,421
Deferred income taxes ........................................ 19,289 16,935
Minority interest in foreign subsidiary ...................... 11,078 10,496
Future site restoration ..................................... 4,625 4,603
Commitments and contingencies
Stockholders' equity (Deficit):
Common stock, par value $.01 per share - authorized
200,000,000 shares; issued 22,759,852 and 22,747,099
shares at June 30, 2000 and December 31,1999, respectively 227 227
Additional paid-in capital ................................ 127,423 127,562
Accumulated deficit ....................................... (116,301) (139,825)
Treasury stock, at cost, 127,083 and 152,083 shares at June
30, 2000 and December 31, 1999, respectively ............ (886) (1,071)
Accumulated other comprehensive loss....................... 611 3,602
------------------ -------------------
Total stockholders' equity (deficit) 11,074 (9,505)
------------------ -------------------
Total liabilities and stockholders' equity (deficit).... $ 338,871 $ 322,284
================== ===================
</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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------------- ----------------- ----------------- -------------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenue:
Oil and gas production revenues ................... $ 17,282 $ 14,204 $ 32,908 $ 28,042
Gas processing revenues ........................... 645 1,050 1,402 1,915
Rig revenues ...................................... 119 109 250 199
Other ............................................ 22 1,413 225 2,590
------------------- ----------------- ----------------- -------------------
18,068 16,776 34,785 32,746
Operating costs and expenses:
Lease operating and production taxes .............. 4,301 4,647 8,930 9,405
Depreciation, depletion, and amortization ......... 8,518 8,821 17,466 17,967
Rig operations .................................... 196 157 384 296
General and administrative ........................ 1,643 1,459 3,082 2,782
------------------- ----------------- ----------------- -------------------
14,658 15,084 29,862 30,450
------------------- ----------------- ----------------- -------------------
Operating income ..................................... 3,410 1,692 4,923 2,296
Other (income) expense:
Interest income ................................... (267) (81) (327) (267)
Amortization of deferred financing fee ............ 508 346 1,015 691
Interest expense .................................. 7,892 9,723 15,665 18,406
Gain on sale of partnership investment............. - - (33,983) -
Other expense ..................................... - - 436 -
------------------- ----------------- ----------------- -------------------
8,133 9,988 (17,194) 18,830
------------------- ----------------- ----------------- -------------------
Net income (loss) from operations before taxes and
extraordinary item ............................. (4,723) (8,296) 22,117 (16,534)
Income tax expense (benefit):
Current ........................................... 57 111 183 213
Deferred .......................................... (26) (1,698) (479) (3,737)
Minority interest in income of consolidated foreign
subsidiary ........................................ 204 32 215 25
------------------- ----------------- ----------------- -------------------
Net income (loss) before extraordinary item ...... (4,958) (6,741) 22,198 (13,035)
Extraordinary item:
Debt extinguishment and restructure................ 1,326 - 1,326 -
------------------- ----------------- ----------------- -------------------
Net income (loss) ................................ $ (3,632) $ (6,741) $ 23,524 $ (13,035)
=================== ================= ================= ===================
Earnings (loss) per common share:
Net Income (loss) before extraordinary item... $ (0.22) $ (1.06) $ 0.97 $ (2.05)
Extraordinary item ........................... 0.06 - 0.06 -
------------------- ----------------- ----------------- -------------------
Net income (loss) per common share ................ $ (0.16) $ (1.06) $ 1.03 $ (2.05)
=================== ================= ================= ===================
Earnings (loss) per common share assuming dilution:
Net Income (loss) before extraordinary item... $ (0.22) $ (1.06) $ 0.47 $ (2.05)
Extraordinary item ........................... 0.06 - 0.03 -
------------------- ----------------- ----------------- -------------------
Net income (loss) per common share ................ $ (0.16) $ (1.06) $ 0.50 $ (2.05)
=================== ================= ================= ===================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share amounts)
Other
Common Stock Treasury Stock Additional Accumulated
------------------------------------------ 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, 1999.. 22,747,099 $ 227 152,083 $(1,071) $ 127,562 $ (139,825) $ 3,602 $ (9,505)
Comprehensive income
(loss):
Net income .............. - - - - - 23,524 - 23,524
Other comprehensive
income:
Foreign currency
translation
adjustment........... - - - - - - (2,991) (2,991)
--------------------------------------------
Comprehensive income (loss) - - - - - 23,524 (2,991) 20,533
Issuance of common stock
for compensation ........ 12,753 - (25,000) 185 (139) - - 46
------------------------------------------------------- ------------------------------------------
Balance at June 30, 2000
(unaudited) 22,759,852 $ 227 127,083 $ (886) $ 127,423 $ (116,301) $ 611 $ 11,074
======================================================= ============================================
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
Abraxas Petroleum Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
-------------------------
2000 1999
---------- ----------
(In Thousands)
<S> <C> <C>
Operating Activities
Net income (loss) .......................................................... $ 23,524 $ (13,035)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Minority interest in income of foreign subsidiary ..................... 215 25
Gain on sale of partnership investment ................................ (33,983) --
Extraordinary gain on extinguishment of debt .......................... (1,326) --
Depreciation, depletion, and amortization ............................. 17,466 17,967
Amortization of deferred financing fees ............................... 1,015 691
Amortization of premium on Senior Notes ............................... -- (289)
Deferred income tax benefit ........................................... (479) (3,737)
Issuance of common stock for compensation ............................. 46 52
Changes in operating assets and liabilities:
Accounts receivable ............................................... (4,676) 1,938
Equipment inventory and other assets .............................. (687) 517
Accounts payable and accrued expenses ............................. (1,670) (3,098)
--------- ---------
Net cash provided (used) by operating activities .......................... (555) 1,031
Investing Activities
Capital expenditures, including purchases and development of properties ... (25,933) (105,581)
Proceeds from sale of oil and gas properties and equipment inventory ....... 842 1,795
Proceeds from sale of partnership investment ............................... 34,482 --
--------- ---------
Net cash provided (used) by investing activities ........................... 9,391 (103,786)
Financing Activities
Purchase of treasury stock, net ............................................ -- (5)
Proceeds from long-term borrowings ......................................... 4,750 83,000
Payments on long-term borrowings ........................................... (8,329) (37,145)
Deferred financing fees .................................................... (544) (2,680)
--------- ---------
Net cash used by financing activities ...................................... (4,123) 43,170
Effect of exchange rate changes on cash .................................... (170) 188
--------- ---------
Increase (decrease) in cash ................................................ 4,543 (59,397)
Cash at beginning of period ................................................ 3,799 61,390
--------- ---------
Cash at end of period ...................................................... $ 8,342 $ 1,993
========= =========
Supplemental Disclosures
Supplemental disclosures of cash flow information:
Interest paid ......................................................... $ 15,633 $ 16,656
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
Abraxas Petroleum Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
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, 1999 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
Limited. ("Canadian Abraxas"), and its 49% owned foreign subsidiary Grey Wolf
Exploration Inc. ("Grey Wolf"). Minority interest represents the minority
shareholders' proportionate share of the equity and income of Grey Wolf.
Canadian Abraxas 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.
Note 2. Sale of partnership investment
On March 31, 2000, we sold our interest in certain crude oil and
natural gas properties in Wyoming. In addition, we sold our equity investment in
Abraxas Wamsutter, L.P., a limited partnership of which one of our subsidiaries
was the general partner, which owned an interest in crude oil and natural gas
properties in the same area. Our investment Abraxas Wamsutter, L.P. was
accounted for by the equity method since inception in 1998. Prior to the sale of
the partnership in March 2000, our equity investee share of oil and gas property
cost, results of operations and amortization were not material to our
consolidated operations. As a result of the sale, we received approximately $34
million, which represented a proportional interest in the partnership's proved
properties. Our equity investee interest in such properties as of December 31,
1999, the effective date of the sale, were 2.8 MBbls of crude oil and natural
gas liquids and 25.8 MMcf of natural gas. These equity investment reserves were
not included in consolidated DD&A computations during 1999 or 2000. Our share of
the equity investee standardized measure of discounted future net cash flows at
December 31, 1999 was $12.3 million. The following table illustrates the impact
of our interest in the equity method investment as of December 31, 1999.
<TABLE>
<CAPTION>
Total United States Canada
-------------------------------- -------------------------------- --------------------------------
Liquid Natural Liquid Natural Liquid Natural
Hydrocarbons Gas Hydrocarbons Gas Hydrocarbons Gas
------------------- ------------ ------------------- ------------ ------------------- ------------
(Barrels) (Mcf) (Barrels) (Mcf) (Barrels) (Mcf)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves
Balance December 31,1999 .. 9,849 164,305 6,421 80,417 3,428 83,888
Equity investee ........ 2,793 25,810 2,793 25,810 - -
------------------- ------------ ------------------- ------------ ------------------- ------------
Consolidated .............. 12,642 190,115 9,214 106,227 3,428 83,888
=================== ============ =================== ============ =================== ============
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Total U.S. Canada
--------------- -------------- -------------
(In thousands)
<S> <C> <C>
Standardized Measure of
discounted net cash flow
related to proved reserves
at December 31, 1999 ...... $ 238,451 $ 123,283 $ 115,168
Equity investee ............. 12,334 12,334 -
---------------- ------------- --------------
Consolidated ................ $ 250,785 $ 135,617 $ 115,168
=============== ============== ==============
</TABLE>
Note 3. Extraordinary items
In June 2000, we retired $7.1 million of our 11.5% Senior Notes, due
2004 at a discount of $1.7 million. The transaction was consummated at the
current market value of the notes. In addition, we incurred approximately
$400,000 in non-recurring restructuring cost, relating to the acquisition of New
Cache Petroleums, L.T.D. in 1999.
Note 4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
-------------------------------------
(In thousands)
<S> <C> <C>
11.5% Senior Notes due 2004, Series D ("Old Notes") (see below). $ 801 $ 4,321
12.875% Senior Secured Notes due 2003 ("First Lien Notes") (see
below). ................................................... 63,500 63,500
11.5% Senior Secured Notes due 2004, Series A ("Second Lien Notes")
(see below). .............................................. 190,178 193,769
Credit facility payable to a Canadian bank (due 2001),
providing for borrowings to approximately $15,870,000 at
the bank's prime rate plus .125%, 7.50% at June 30, 2000,
secured by the assets of Grey Wolf........................ 10,887 8,360
Other .......................................................... 2,927 3,471
-------------------- ----------------
268,293 273,421
Less current maturities ........................................ - -
-------------------- ----------------------
$ 268,293 $ 273,421
==================== ======================
</TABLE>
In June 2000, we retired $7.1 million of our 11.5% Senior Notes, ($3.5
million of the Old Notes and $3.6 million of the Second Lien Notes). These notes
were retired at current market value resulting in an extraordinary gain of $1.7
million.
Old 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 Series B Notes in February 1997. On January
27, 1998, Abraxas and Canadian Abraxas completed the sale of $60.0 million of
their 11.5% senior notes due 2004, Series C. The Series B Notes and the Series C
Notes were subsequently exchanged for $275.0 million in principal amount of the
Old Notes in June 1998.
Interest on the Old 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 Old 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:
9
<PAGE>
Year Percentage
-------- ------------
2000............................... 105.750%
2001............................... 102.875%
2002 and thereafter................ 100.000%
The Old 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 Old Notes rank
senior in right of payment to all future subordinated indebtedness of Abraxas
and Canadian Abraxas. The Old Notes are, however, effectively subordinated to
the First Lien Notes to the extent of the value of the collateral securing the
First Lien Notes and the Second Lien Notes to the extent of the value of the
collateral securing the Second Lien Notes. The Old Notes are unconditionally
guaranteed, on a senior basis by a wholly-owned Abraxas subsidiary, Sandia Oil &
Gas Corporation ("Sandia"). The guarantee is a general unsecured obligation of
Sandia and ranks pari passu in right of payment to all unsubordinated
indebtedness of Sandia and senior in right of payment to all subordinated
indebtedness of Sandia. The guarantee is effectively subordinated to the First
Lien Notes and the Second Lien Notes to the extent of the value of the
collateral securing these obligations.
Upon a change of control, each holder of the Old Notes will have the
right to require Abraxas and Canadian Abraxas to repurchase all or a portion of
such holder's Old 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 Old 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.
First Lien Notes. In March 1999, Abraxas consummated the sale of $63.5
million of the First Lien Notes. Interest on the First Lien Notes is payable
semi-annually in arrears on March 15 and September 15, commencing September 15,
1999. The First Lien 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 First Lien Notes at a redemption price equal to 112.875% of the aggregate
principal amount of the First Lien Notes be redeemed, plus accrued and unpaid
interest.
The First Lien 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 First Lien Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Canadian
Abraxas, Sandia and one of our wholly-owned subsidiaries, Wamsutter Holdings,
Inc. 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 First Lien Notes will have
the right to require Abraxas to repurchase such holder's First Lien 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 will be
obligated to offer to repurchase the First Lien 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 indenture governing the First Lien Notes (the "First Lien Notes
Indenture") contains certain covenants that limit the ability of Abraxas and
certain of its subsidiaries, including the guarantors of the First Lien Notes
(the "First Lien Restricted Subsidiaries") to, among other things, incur
10
<PAGE>
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 Abraxas.
The First Lien Notes Indenture provides, among other things, that
Abraxas may not, and may not cause or permit the First Lien 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
First Lien Restricted Subsidiary, guarantee any indebtedness of Abraxas or any
other First Lien Restricted Subsidiary or transfer any of its assets to Abraxas
or any other First Lien Restricted Subsidiary except for such encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the First Lien Notes Indenture;
(3) customary non-assignment provisions of any contract or any lease
governing leasehold interest of such subsidiaries;
(4) any instrument governing indebtedness assumed by us in an
acquisition, which encumbrance or restriction is not applicable to such First
Lien Restricted Subsidiary or the properties or assets of such subsidiary other
than the entity or the properties or assets of the entity so acquired;
(5) agreements existing on the Issue Date (as defined in the First Lien
Notes Indenture) to the extent and in the manner such agreements were in effect
on the Issue Date;
(6) customary restrictions with respect to subsidiaries of Abraxas
pursuant to an agreement that has been entered into for the sale or disposition
of capital stock or assets of such First Lien Restricted Subsidiary to be
consummated in accordance with the terms of the First Lien Notes Indenture or
any Security Documents (as defined in the First Lien Notes Indenture) solely in
respect of the assets or capital stock to be sold or disposed of;
(7) any instrument governing certain liens permitted by the First Lien
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
(8) an agreement governing indebtedness incurred to refinance the
indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) 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 First Lien Notes in any material
respect as determined by the Board of Directors of Abraxas 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
(2), (4) or (5) and do not extend to or cover any new or additional property or
assets and, with respect to newly created liens, (A) such liens are expressly
junior to the liens securing the First Lien Notes, (B) the refinancing results
in an improvement on a pro forma basis in Abraxas' Consolidated EBITDA Coverage
Ratio (as defined in the First Lien Notes Indenture) and (C) the instruments
creating such liens expressly subject the foreclosure rights of the holders of
the refinanced indebtedness to a stand-still of not less than 179 days.
Second Lien Notes. In December 1999, Abraxas and Canadian Abraxas
consummated an exchange offer whereby $188,778,000 of the Second Lien Notes were
exchanged for $269,699,000 of the Old Notes. An additional $5,000,000 of the
Second Lien Notes were issued in payment of fees and expenses. Interest on the
Second Lien Notes is payable semi-annually in arrears on May 1 and November 1,
commencing May 1, 2000. The Second Lien Notes are redeemable, in whole or in
part, at the option of Abraxas and Canadian Abraxas on or after December 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
December 1 of the years set forth below:
11
<PAGE>
Year Percentage
---------- ------------
2000.............................. 105.750%
2001.............................. 102.875%
2002 and thereafter............... 100.000%
Prior to December 1, 2000, Abraxas and Canadian Abraxas may use all or
a portion of the net cash proceeds of one or more equity offerings to redeem up
to 50% of the aggregate original principal amount of the Second Lien Notes at a
redemption price equal to 111.50% of the principal amount of the Second Lien
Notes be redeemed, plus accrued and unpaid interest.
The Second Lien Notes are senior indebtedness of Abraxas and Canadian
Abraxas and are secured by a second lien on substantially all of the crude oil
and natural gas properties of Abraxas and Canadian Abraxas and the shares of
Grey Wolf owned by Abraxas and Canadian Abraxas. The Second Lien Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Sandia
and Wamsutter. The guarantees are secured by substantially all of the crude oil
and natural gas properties of the guarantors. The Second Lien Notes are,
however, effectively subordinated to the First Lien Notes and related guarantees
to the extent the value of the collateral securing the Second Lien Notes and
related guarantees and the First Lien Notes and related guarantees is
insufficient to pay both the Second Lien Notes and the First Lien Notes.
Upon a change of control, each holder of the Second Lien Notes will
have the right to require Abraxas and Canadian Abraxas to repurchase such
holder's Second Lien 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 Second Lien 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 indenture governing the Second Lien Notes (the "Second Lien Notes
Indenture") contains certain covenants that limit the ability of Abraxas and
Canadian Abraxas and certain of their subsidiaries, including the guarantors of
the Second Lien Notes (the "Second Lien 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 Abraxas or Canadian Abraxas.
The Second Lien Notes Indenture provides, among other things, that
Abraxas and Canadian Abraxas may not, and may not cause or permit the Second
Lien 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, Canadian Abraxas or any other Second Lien Restricted Subsidiary,
guarantee any indebtedness of Abraxas, Canadian Abraxas or any other Second Lien
Restricted Subsidiary or transfer any of its assets to Abraxas, Canadian Abraxas
or any other Second Lien Restricted Subsidiary except for such encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the Old Notes Indenture, the First Lien Notes Indenture, or the
Second Lien Notes Indenture;
(3) customary non-assignment provisions of any contract or any lease
governing leasehold interest of such subsidiaries;
(4) any instrument governing indebtedness assumed by us in an
acquisition, which encumbrance or restriction is not applicable to such Second
Lien Restricted Subsidiary or the properties or assets of such subsidiary other
than the entity or the properties or assets of the entity so acquired;
(5) agreements existing on the Issue Date (as defined in the Second
Lien Notes Indenture) to the extent and in the manner such agreements were in
effect on the Issue Date;
(6) customary restrictions with respect to subsidiaries of Abraxas and
Canadian Abraxas pursuant to an agreement that has been entered into for the
sale or disposition of capital stock or assets of such Second Lien Restricted
Subsidiary to be consummated in accordance with the terms of the Second Lien
Notes solely in respect of the assets or capital stock to be sold or disposed
of;
12
<PAGE>
(7) any instrument governing certain liens permitted by the Second Lien
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
(8) an agreement governing indebtedness incurred to refinance the
indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) 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 Second Lien Notes in any material
respect as determined by the Board of Directors of Abraxas 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
(2), (4) or (5).
Contingent Value Rights ("CVRs")
As part of the exchange offer, Abraxas issued CVRs the terms of which
provide that the holders thereof could receive up to a total of 104,365,326
shares of Abraxas common stock. Subsequent to the issuance of the CVRs, Abraxas'
common stock traded at an average price per share of $2.15 or higher for 30 days
during the 45-day trading period beginning on March 3, 2000, and ending on May
5, 2000. As a result, under the terms of the CVRs, the maximum number of shares
which holders of the CVRs could be entitled to receive has been reduced to
26,400,000 shares of Abraxas common stock. In addition, in the event Abraxas
common stock trades at an average price per share higher than $2.15 for 30 days
during any future 45-day trading period, the number of shares issuable under the
CVRs would decrease correspondingly to a number below 26,400,000.
On December 21, 2000, or at the election of Abraxas, on May 21, 2001,
Abraxas may be required to issue additional shares of common stock to the
holders of the contingent value rights. The actual number of shares issued will
depend on the market price of Abraxas common stock. The CVRs will terminate if
the market price of Abraxas common stock exceeds certain target prices for a
period of 30 trading days during any 45 consecutive trading day period prior to
the expiration date. The target price on any given date will equal $5.03 plus
daily interest at an annual rate of 11.5%. On December 21, 2000, the target
price will be $5.68 and on May 21, 2001, the target price will be $5.97.
13
<PAGE>
Note 5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- -----------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) from continuing operations $ (4,958) $ (6,741) $ 22,198 $ (13,035)
-------------- ------------- -------------
Numerator for basic and diluted earnings per
share - income (loss) continuing operations (4,958) (6,741) 22,198 (13,035)
Extraordinary item 1,326 - 1,326 -
------------- -------------- ------------- -------------
Numerator for basic earnings per share -
income (loss) applicable to common stock (3,632) (6,741) 23,524 (13,035)
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 22,651,701 6,340,745 22,648,946
6,337,318
Effect of dilutive securities:
Stock options, warrants and CVR's - - 24,643,676 -
------------- -------------- ------------- -------------
Dilutive potential common shares Denominator
for diluted earnings per share -
adjusted weighted-average shares and assumed
Conversions 22,651,701 6,340,745 47,292,622 6,337,318
Basic earnings (loss) per share:
Income (loss) from operations $ (0.22) $ (1.06) $ 0.98 $ (2.05)
Extraordinary item 0.06 - 0.06 -
------------- -------------- ------------- -------------
$ (0.16) $ (1.06) $ 1.04 $ (2.05)
============= ============== ============= =============
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ (0.22) $ (1.06) $ 0.47 $ (2.05)
0.06 - 0.03 -
------------- -------------- ------------- -------------
$ (0.16) $ (1.06) $ 0.50 $ (2.05)
============= ============== ============= =============
</TABLE>
For the three months and six months ended June 30, 1999 and for the
three months ended June 30, 2000, none of the shares issuable in connection with
stock options, warrants or CVR's are included in diluted shares. Inclusion of
these shares would be antidilutive due to losses incurred in the periods.
14
<PAGE>
Note 6. Summary Financial Information of Canadian Abraxas Petroleum Ltd.
The following is summary financial information of Canadian Abraxas, a
wholly owned subsidiary of Abraxas at June 30, 2000. Canadian Abraxas is jointly
and severally liable with Abraxas for the entire balance of Abraxas' and
Canadian Abraxas' 11.5% Senior Notes due 2004.
BALANCE SHEET
-------------------------------------------------------------------------
Assets Liabilities and Shareholders Equity
---------------------------------- -------------------------------------
(In Thousands)
Total current assets $ 6,478 Total current liabilities $ 3,272
Oil and gas properties 154,839 11.5% Notes due 2004 56,629
Other assets 2,520 Note payable to Abraxas 32,103
--------- Other liabilities 18,334
$ 163,837 Equity 53,499
========= -----------
$ 163,837
===========
Note 7. Business Segments
Business segment information about the Company's second quarter
operations in different geographic areas is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
-------------------------------------------------------------
U.S. Canada Total
------------------ ----------------- -------------------
(In thousands)
<S> <C> <C> <C>
Revenues ............................... $ 6,778 $ 10,504 $ 17,282
================== ================= ===================
Operating profit........................ $ 2,181 $ 2,282 $ 4,463
================== =================
General corporate ...................... (1,053)
Interest expense and amortization of
deferred financing fees ............. (8,133)
-------------------
Income (loss) before income taxes
and extraordinary item............. $ (4,723)
===================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
-------------------------------------------------------------
U.S. Canada Total
------------------ ----------------- -------------------
(In thousands)
<S> <C> <C> <C>
Revenues ............................... $ 6,210 $ 10,566 $ 16,776
================== ================= ===================
Operating profit ....................... $ 2,273 $ 176 $ 2,449
================== =================
General corporate....................... (757)
Interest expense and amortization of
deferred financing fees ............. (9,988)
-------------------
Income before income taxes .......... $ (8,296)
===================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
-------------------------------------------------------------
U.S. Canada Total
------------------ ----------------- -------------------
(In thousands)
<S> <C> <C> <C>
Revenues ............................... $ 13,064 $ 21,721 $ 34,785
================== ================= ===================
Operating profit........................ $ 3,505 $ 3,227 $ 6,732
================== =================
General corporate ...................... (1,809)
Interest expense and amortization of
deferred financing fees ............. (16,353)
Other income 33,547
-------------------
Income before income taxes and
extraordinary item ................ $ 22,117
===================
Six Months Ended June 30, 1999
-------------------------------------------------------------
U.S. Canada Total
------------------ ----------------- -------------------
(In thousands)
Revenues ............................... $ 12,757 $ 19,989 $ 32,746
================== ================= ===================
Operating profit (loss)................. $ 4,226 $ (437) $ 3,789
================== =================
General corporate ...................... (1,493)
Interest expense and amortization of
deferred financing fees ............. (18,830)
-------------------
Income before income taxes .......... $ (16,534)
===================
June 30, 2000
-------------------------------------------------------------
U.S. Canada Total
------------------ ----------------- -------------------
(In Thousands)
Identifiable assets at June 30, 2000 .. $ 125,470 $ 200,034 $ 325,504
================== =================
Corporate assets ....................... 9,911
-------------------
Total assets ........................ $ 335,415
===================
December, 31, 1999
------------------ -----------------
U.S. Canada Total
------------------ ----------------- -------------------
(In Thousands)
Identifiable assets at December 31, 1999
$ 107,336 $ 206,474 $ 313,810
================== =================
Corporate assets ....................... 8,474
-------------------
Total assets ........................ $ 322,284
===================
</TABLE>
Note 8. Contingencies
In May 1995, certain plaintiffs filed a lawsuit against us alleging
negligence and gross negligence, tortious interference with contract, conversion
and waste. In March 1998, a jury found against us, and on May 22, 1998, final
judgement in the amount of approximately $1.3 million was entered. We filed an
appeal and in March 2000, the Court of Appeals reduced the plaintiff's award to
$362,495 plus post judgement interest of $68,915. We settled the suit on April
26, 2000, for $435,781which was charged to earnings in the accompanying
financial statement.
Additionally, from time to time, we are involved in litigation relating
to claims arising out of our operations in the normal course of business. At
June 30, 2000, we were not engaged in any legal proceedings that are expected,
individually or in the aggregate, to have a material adverse effect on us.
16
<PAGE>
Note 9. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (as amended
by SFAS No. 138), which is required to be adopted in years beginning after June
15, 1999. In June 1999, SFAS No. 137 was issued, which delays the required
adoption of SFAS No. 133 by one year. The statement permits early adoption as of
the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, of firm commitments through earnings or recognized in other
comprehensive income until the hedge item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined the effect of SFAS
No. 133 will be on the earnings and financial position of the Company
17
<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 our financial condition, results of
operations, liquidity and capital resources. This discussion should be read in
conjunction with our consolidated financial statements and the notes thereto
included in the our Annual Report on Form 10-K filed for the year ended December
31, 1999, which is incorporated herein by reference.
Results of Operations
The factors which most significantly affect our results of operations are:
o the sales prices of crude oil and natural gas
o the level of total sales volumes of crude oil and natural gas, and
o the level and success of exploration and development activity.
Selected operating data. The following table sets forth certain of our
operating data for the periods presented.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------
2000 1999 2000 1999
----------------------------------------
Operating Revenue (in thousands):
Crude Oil Sales ....................... $ 3,200 $ 2,532 $ 5,850 $ 5,264
Natural Gas Sales ..................... 12,469 10,383 23,670 20,938
Natural Gas Liquids Sales ............. 1,613 1,289 3,388 1,840
Processing Revenue .................... 645 1,050 1,402 1,915
Rig Operations ........................ 119 109 250 199
Other ................................. 22 1,413 225 2,590
------- ------- ------- -------
$18,068 $16,776 $34,785 $32,746
======= ======= ======= =======
Operating Income (in thousands) ....... $ 3,410 $ 1,692 $ 4,923 $ 2,296
Crude Oil Production (MBBLS) .......... 161 192 330 417
Natural Gas Production (MMCFS) ........ 5,108 6,732 10,548 13,882
Natural Gas Liquids Production (MBBLS) 82 111 164 184
Average Crude Oil Sales Price ($/BBL) . $ 19.84 $ 13.22 $ 17.74 $ 12.64
Average Natural Gas Sales Price ($/MCF) $ 2.44 $ 1.54 $ 2.24 $ 1.51
Average Liquids Sales Price ($/BBL) ... $ 19.70 $ 11.65 $ 20.62 $ 10.01
Comparison of Three Months Ended June 30, 2000 to Three Months Ended June 30,
1999
Operating Revenue. During the three months ended June 30, 2000, operating
revenue from crude oil, natural gas and natural gas liquid sales increased by
21.67% to $17.2 million from $14.2 million for the same period in 1999. This
increase was primarily attributable to higher prices. After deducting losses
from hedging activities of $2.8 million increased prices contributed $6.4
million in additional revenue. Reduced production volumes had a $3.3 million
negative impact on revenue.
Average sales price for the quarter ended June 30, 2000 were:
o $19.84 per Bbl of crude oil,
o $19.72 per Bbl of natural gas liquid, and
o $ 2.44 per Mcf of natural gas
18
<PAGE>
Average sales price for the quarter ended June 30, 1999 were:
o $13.22 per Bbl of crude oil
o $11.65 per Bbl of natrual gas liquid, and
o $ 1.54 per Mcf of natural gas
Crude oil production declined from 191.5 Mbbls for the three months ended June
30, 1999 to 161.3 MBbls for the same period of 2000. This decline is a result of
our de-emphasis on crude oil drilling during 1999 and the natural field decline
in production. Natural gas production volumes declined to 5,108 MMcf for the
three months ended June 30, 2000 from 6,732 MMcf for the same period of 1999.
During 1999 and the first part of 2000 a significant portion of our drilling
activity has been in the Edwards Trend in south Texas. Natural gas production
volumes in this area increased by 348.8 MMcf from 712.3 MMcf for the three
months ended June 30, 1999 to 1,061.0 MMcf for the same period of 2000.
Production in our other areas declined due to decreased drilling activity and
the fields' natural decline. Natural gas liquids volumes declined from 110.6
MBbls for the three months ended June 30, 1999, to 81.9 MBbls for the same
period of 2000. The decline in natural gas liquids is primarily due to a decline
in natural gas volumes in the areas that we process liquids.
Lease Operating Expenses. Lease operating expenses and natural gas
processing costs ("LOE") for the three months ended June 30, 2000 decreased to
$4.3 million compared to $4.6 million for the same period in 1999. The decrease
in LOE was primarily due to reduced gas lift cost. Our LOE on a per MCFE basis
for the three months ended June 30, 2000 was $0.66 compared to $0.54 for the
same period of 1999. The increase on a MCFE basis was primarily due to a decline
in production volumes.
G&A Expenses. G&A expenses increased from $1.5 million for the three months
ended June 30, 1999 to $1.6 million for the same period of 2000. G&A expense on
a per MCFE basis increased from $0.17 for the quarter ended June 30, 1999 to
$0.25 for the same period of 2000. The increase in per MCFE cost is primarily
due to the decline in production volumes during the second quarter of 2000
compared to the same period of 1999.
Depreciation, Depletion and Amortization Expenses. Depreciation, depletion
and amortization ("DD&A") expense decreased from $8.8 million for the three
months ended June 30, 1999, to $8.5 million in the same period of 2000. Our DD&A
on a per MCFE basis for the three months ended June 30, 2000 was $1.30 per MCFE
compared to $1.03 in 1999. The decline is primarily due to decreased production
during the second quarter of 2000 and a reduction on the full cost pool relating
to the write down of Canadian reserves at December 31, 1999. The per MCFE
increase is due to higher finding costs added to the full cost pool in 1999 and
the first six months of 2000 primarily relating to Canadian operations.
Interest Expense. Interest expense deceased from $9.7 million for the three
months ended June 30, 1999 to $7.9 million for the same period of 2000. This
decrease resulted from reduced debt levels during the first six months of 2000
compared to the same period of 1999. The reduced debt level is the result of the
exchange of approximately $269.7 million principal amount of our 11.5% Senior
Notes due 2004 , Series D (the "Old Notes") for approximately $188.8 million
principal amount of our 11.5% Senior Secured Notes due 2004, Series A (the
"Second Lien Notes"), shares of our common stock and contingent value rights.
The interest savings related to this exchange was partially offset by interest
on our 12.875% Senior Secured Notes due 2003 (the "First Lien Notes") which were
issued on March 27, 1999. Long-term debt declined from $345.5 million at June
30, 1999 to $268.3 million at June 30, 2000.
Comparison of Six Months Ended June 30, 2000 to Six Months Ended June 30, 1999
Operating Revenue. During the six months ended June 30, 2000, operating
revenue from crude oil, natural gas and natural gas liquid sales increased from
$28.0 million in the six months ended June 30, 1999 to $32.9 million for the
same period in 2000. The increase in revenue was primarily attributable to
higher prices realized during the six months ended June 30, 2000 as compared to
the same period of 1999. After deducting losses from hedging activities of $4.9
million, increased prices contributed $11.2 million in additional revenue.
Reduced production volumes had a $6.4 million negative impact on revenue.
Average sales price for the six months ended June 30, 2000 were:
o $17.74 per Bbl of crude oil,
o $20.62 per Bbl of natural gas liquid, and
o $ 2.24 per Mcf of natural gas
19
<PAGE>
Average sales price for the quarter ended June 30, 1999 were:
o $12.64 per Bbl of crude oil
o $10.01 per Bbl of natural gas liquid, and
o $ 1.51 per Mcf of natural gas
Crude oil production declined from 416.5 MBbls for the six months ended
June 30, 1999 to 329.83 MBbls for the same period of 2000. This decline in crude
oil production is a result of our de-emphasis on crude oil drilling during 1999
and the natural field decline in production. Natural gas production volumes
declined to 10,548.1 MMcf for the six months ended June 30, 2000 from 13,881.7
MMcf for the same period of 1999. During 1999 and the first part of 2000 a
significant portion of our drilling activity has been in the Edwards Trend in
south Texas. Natural gas production volumes in this area increased by 675.0 MMcf
from 1,501.4 MMcf for the six months ended June 30, 1999 to 2,176.4 MMcf for the
same period of 2000. Production in our other areas declined due to decreased
drilling activity and the fields' natural decline. Natural gas liquids volumes
declined from 183.8 MBbls for the six months ended June 30, 1999 to 164.4 MBbls
for the same period of 2000. The decline in natural gas liquids is primarily do
to a decline in natural gas volumes in the areas that we process liquids.
Lease Operating Expenses. LOE and natural gas processing expenses were $8.9
million for six months ended June 30, 2000 from $9.4 million for the same period
in 1999. The decrease was primarily due to reduced gas lift cost partially
offset by a general increase in cost of services. LOE on a per MCFE basis
increased to $0.66 per MCFE for the six months ended June 30, 2000 from $0.54
for the same period of 1999. The increase on a MCFE basis was due to a decline
in production volumes.
G&A Expenses. G&A expenses increased from $2.8 million for the six months
ended June 30, 1999 to $3.1 million for the same period of 2000. The increase is
primarily due to the hiring of additional staff to manage and develop our
properties and a general increase in the cost of doing business from 1999 to
2000. G&A expense on a per MCFE basis increased to $0.23 per MCFE from $0.16 for
the same period of 1999. The increase in per MCFE expense is primarily due to
lower production volumes for the six months ended June 30, 2000 compared to the
same period of 1999.
Depreciation, Depletion and Amortization Expenses. DD&A expense decreased
from $18.0 million for the six months ended June 30, 1999, to $17.5 million for
the same period of 2000. DD&A expense on a per MCFE basis was $1.29 per MCFE for
the six months ended June 30, 2000 compared to $1.03 per MCFE for the six months
ended June 30, 1999. The decline is primarily due to decreased production during
the first six months of 2000 and a reduction on the full cost pool relating to
the write down of Canadian reserves at December 31, 1999. The per MCFE increase
is due to higher finding costs added to the full cost pool in 1999 and the first
six months of 2000.
Interest Expense. Interest expense decreased from $18.4 million for the six
months ended June 30, 1999 to $15.7 million for the six months ended June 30,
2000. This decrease is due to reduced debt levels during the first half of 2000
compared to the same period of 1999. The reduced debt level is the result of the
exchange of approximately $269.70 million principal amount of the Old Notes for
approximately $188.8 million principal amount of the Second Lien Notes, shares
of our common stock and contingent value rights. The interest savings related to
this exchange was partially offset by interest on our First Lien Notes which
were issued on March 27, 1999. Long-term debt declined from $345.5 million at
June 30, 1999 to $268.3 million at June 30, 2000.
General. Our 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 we produce. The
prices of natural gas and, crude oil and natural gas liquids we receive
increased during the first six months of 2000. The average natural gas price we
realized increased by 48% to $2.24 per MCF during the first six months of 2000,
including the impact of a loss from hedging activities of $1.7 million, compared
with $1.51 per MCF during the same period of 1999. Crude oil prices increased
from $12.64 per BBL during the six months of 1999, to $17.74 per BBL for the
20
<PAGE>
same period of 2000, including the impact of a loss from hedging activities of
$3.2 million for the six months ended June 30, 2000. Natural gas liquids prices
increased to $20.62 per BBL compared to $10.01 per BBL in the first quarter of
1999. In addition, our proved reserves will decline as crude oil, natural gas
and natural gas liquids are produced unless we are successful in acquiring
properties containing proved reserves or conducts successful exploration and
development activities. In the event crude oil, natural gas and natural gas
liquid prices return to depressed levels or if our production levels decrease,
our revenues, cash flow from operations and profitability will be materially
adversely affected.
Liquidity and Capital Resources
General. Capital expenditures excluding property divestitures during the
six months ended June 30, 2000 were $25.9 million compared to $105.6 million
during the same period of 1999. The table below sets forth the components of
these capital expenditures on a historical basis for the six months ended June
30, 2000 and 1999.
Six Months Ended
June 30
-----------------------------------------
2000 1999
-----------------------------------------
Expenditure category (in thousands):
Acquisitions $ 135 $ 90,291
Development 25,031 14,040
Facilities and other 767 1,250
--------------- ---------------
Total $ 25,933 $ 105,581
=============== ===============
At June 30, 2000, we had current assets of $28.7 million and current
liabilities of $24.5 million resulting in a working capital of $4.2 million.
This compares to a working capital deficit of $7.3 million at December 31, 1999
and a working capital deficit of $6.9 million at June 30, 1999. The material
components of our current liabilities at June 30, 2000 include trade accounts
payable and revenues due third parties of $16.0 million and accrued interest of
$6.4 million.
Operating activities during the six months ended June 30, 2000 used $0.6
million cash compared to providing $1.0 million in the same period in 1999. Net
income plus non-cash expense items during 2000 and net changes in operating
assets and liabilities accounted for most of these funds. Investing provided
$8.9 million net during the first six months of 2000. The sale of our equity
investment in Abraxas Wamsutter, L.P. provided $34.0 million with $25.0 million
being utilized for the acquisition and development of crude oil and natural gas
properties and $0.77 million of which was utilized for facilities and other.
This compares to $103.8 million required during the same period of 1999, $90.3
million of which was utilized for the acquisition of oil and gas properties,
$14.0 million of which was utilized for the development of crude oil and natural
gas properties and other facilities, and $1.3 million of which was utilized for
facilities and other. Financing activities used $4.1 million for the first six
months of 2000 compared to providing $43.2 million for the same period of 1999.
Financing activities in 1999 include the proceeds of $63.5 million from the
issuance of the First Line Notes in March 1999 and borrowings under a credit
facility of $19.5 million, which were offset by the repayment of the credit
facility in the amount of $35.2 million.
Our current budget for capital expenditures for the last six months of 2000
other than acquisition expenditures is approximately $23.7 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 we currently have no agreements,
arrangements or undertakings regarding any material acquisitions. We have no
material long-term capital commitments and are consequently able to adjust the
level of our 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. Since January 1999, we have sought to improve our
liquidity in order to allow us to meet our debt service requirements and to
maintain and increase existing production.
Our sale in March 1999 of our First Lien Notes allowed us to refinance our
bank debt, meet our near-term debt service requirements and make limited crude
oil and natural gas capital expenditures.
21
<PAGE>
In October 1999, we sold a dollar denominated production payment for $4.0
million relating to existing natural gas wells in the Edwards Trend in South
Texas to a unit of Southern Energy, Inc. and in January 2000, we sold an
additional production payment for $2.0 million relating to additional natural
gas wells in the Edwards Trend to Southern. We have the ability to sell up to
$50 million to Southern for drilling opportunities in the Edwards Trend.
In December 1999, Abraxas and Canadian Abraxas, completed an exchange offer
whereby we exchanged the Second Lien Notes, common stock, and contingent value
rights for approximately 98.43% of our outstanding Old Notes. The exchange offer
reduced our long term debt by $76 million net of fees and expenses.
In March 2000, we sold our interest in certain crude oil and natural gas
properties that we owned and operated in Wyoming. In addition, we sold our
equity investment in Abraxas Wamsutter L.P., a limited partnership of which one
of our subsidiaries was the general partner, which owns an interest in crude oil
and natural gas properties in the same area. Our net proceeds from these
transactions were approximately $34.0 million.
We are continuing to rationalize our significant non-core Canadian assets
to allow us to continue to grow while reducing our debt. Subsequent to June 30,
we have agreements to sell non-core Canadian assets for approximately $8.5
million. All such sales are expected to close by the end of the third quarter.
We may sell other non-core assets or seek partners to fund a portion of the
exploration costs of undeveloped acreage and are considering other potential
strategic alternatives.
We will have three principal sources of liquidity going forward: (i) cash
on hand, including the proceeds from the sale of the Wyoming properties, (ii)
cash flow from operations, and (iii) the production payment with Southern. We
also intend to sell certain non-core properties, although the terms of the First
Lien Notes Indenture, the Second Lien Notes Indenture and the Old Notes
Indenture substantially limit our use of proceeds from such sales. 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 the net cash flow from operations plus cash on
hand, cash available under the production payment and the proceeds from the sale
of certain non-core properties will be adequate to fund operations and planned
capital expenditures
Long-Term Indebtedness.
Old 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 Series B Notes in February 1997. On January 27, 1998,
Abraxas and Canadian Abraxas completed the sale of $60.0 million of their 11.5%
Senior Notes due 2004, Series C. The Series B Notes and the Series C Notes were
subsequently exchanged for $275.0 million in principal amount of the Old Notes
in June 1998.
Interest on the Old 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 Old 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:
Year Percentage
-------
2000................................... 105.750%
2001................................... 102.875%
2002 and thereafter.................... 100.000%
The Old 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 Old Notes rank
senior in right of payment to all future subordinated indebtedness of Abraxas
and Canadian Abraxas. The Old Notes are, however, effectively subordinated to
the First Lien Notes to the extent of the value of the collateral securing the
22
<PAGE>
First Lien Notes and the Second Lien Notes to the extent of the value of the
collateral securing the Second Lien Notes. The Old Notes are unconditionally
guaranteed, on a senior basis by a wholly-owned Abraxas subsidiary, Sandia Oil &
Gas Corporation. The guarantee is a general unsecured obligation of Sandia and
ranks pari passu in right of payment to all unsubordinated indebtedness of
Sandia and senior in right of payment to all subordinated indebtedness of
Sandia. The guarantee is effectively subordinated to the First Lien Notes and
the Second Lien Notes to the extent of the value of the collateral securing
these obligations.
Upon a change of control, each holder of the Old Notes will have the right
to require Abraxas and Canadian Abraxas to repurchase all or a portion of such
holder's Old 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 Old 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.
First Lien Notes. In March 1999, Abraxas consummated the sale of $63.5
million of the First Lien Notes. Interest on the First Lien Notes is payable
semi-annually in arrears on March 15 and September 15, commencing September 15,
1999. The First Lien 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
First Lien Notes at a redemption price equal to 112.875% of the aggregate
principal amount of the First Lien Notes be redeemed, plus accrued and unpaid
interest.
The First Lien 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 First Lien Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Canadian
Abraxas, Sandia and one of our wholly-owned subsidiaries, Wamsutter Holdings,
Inc. 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 First Lien Notes will have the
right to require Abraxas to repurchase such holder's First Lien 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 will be
obligated to offer to repurchase the First Lien 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 First Lien Notes Indenture contains certain covenants that limit the
ability of Abraxas and certain of its subsidiaries, including the guarantors of
the First Lien Notes (the "First Lien 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 Abraxas.
The First Lien Notes Indenture provides, among other things, that Abraxas
may not, and may not cause or permit the First Lien 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 First Lien
Restricted Subsidiary, guarantee any indebtedness of Abraxas or any other First
Lien Restricted Subsidiary or transfer any of its assets to Abraxas or any other
First Lien Restricted Subsidiary except for such encumbrances or restrictions
existing under or by reason of:
(1) applicable law;
(2) the First Lien Notes Indenture;
23
<PAGE>
(3) customary non-assignment provisions of any contract or any lease
governing leasehold interest of such subsidiaries;
(4) any instrument governing indebtedness assumed by us in an acquisition,
which encumbrance or restriction is not applicable to such First Lien Restricted
Subsidiary or the properties or assets of such subsidiary other than the entity
or the properties or assets of the entity so acquired;
(5) agreements existing on the Issue Date (as defined in the First Lien
Notes Indenture) to the extent and in the manner such agreements were in effect
on the Issue Date;
(6) customary restrictions with respect to subsidiaries of Abraxas pursuant
to an agreement that has been entered into for the sale or disposition of
capital stock or assets of such First Lien Restricted Subsidiary to be
consummated in accordance with the terms of the First Lien Notes Indenture or
any Security Documents (as defined in the First Lien Notes Indenture) solely in
respect of the assets or capital stock to be sold or disposed of;
(7) any instrument governing certain liens permitted by the First Lien
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
(8) an agreement governing indebtedness incurred to refinance the
indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) 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 First Lien Notes in any material
respect as determined by the Board of Directors of Abraxas 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
(2), (4) or (5) and do not extend to or cover any new or additional property or
assets and, with respect to newly created liens, (A) such liens are expressly
junior to the liens securing the First Lien Notes, (B) the refinancing results
in an improvement on a pro forma basis in Abraxas' Consolidated EBITDA Coverage
Ratio (as defined in the First Lien Notes Indenture) and (C) the instruments
creating such liens expressly subject the foreclosure rights of the holders of
the refinanced indebtedness to a stand-still of not less than 179 days.
Second Lien Notes. In December 1999, Abraxas and Canadian Abraxas
consummated an exchange offer whereby $188,778,000 of the Second Lien Notes were
exchanged for $269,699,000 of the Old Notes. An additional $5,000,000 of the
Second Lien Notes were issued in payment of fees and expenses. Interest on the
Second Lien Notes is payable semi-annually in arrears on May 1 and November 1,
commencing May 1, 2000. The Second Lien Notes are redeemable, in whole or in
part, at the option of Abraxas and Canadian Abraxas on or after December 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
December 1 of the years set forth below:
Year Percentage
------- ------------
2000.......................................... 105.750%
2001.......................................... 102.875%
2002 and thereafter........................... 100.000%
Prior to December 1, 2000, Abraxas and Canadian Abraxas may use all or a
portion of the net cash proceeds of one or more equity offerings to redeem up to
50% of the aggregate original principal amount of the Second Lien Notes at a
redemption price equal to 111.50% of the principal amount of the Second Lien
Notes be redeemed, plus accrued and unpaid interest.
The Second Lien Notes are senior indebtedness of Abraxas and Canadian
Abraxas and are secured by a second lien on substantially all of the crude oil
and natural gas properties of Abraxas and Canadian Abraxas and the shares of
Grey Wolf owned by Abraxas and Canadian Abraxas. The Second Lien Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Sandia
and Wamsutter. The guarantees are secured by substantially all of the crude oil
and natural gas properties of the guarantors. The Second Lien Notes are,
however, effectively subordinated to the First Lien Notes and related guarantees
to the extent the value of the collateral securing the Second Lien Notes and
related guarantees and the First Lien Notes and related guarantees is
insufficient to pay both the Second Lien Notes and the First Lien Notes.
24
<PAGE>
Upon a change of control, each holder of the Second Lien Notes will have
the right to require Abraxas and Canadian Abraxas to repurchase such holder's
Second Lien 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 Second
Lien 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 indenture governing the Second Lien Notes contains certain covenants
that limit the ability of Abraxas and Canadian Abraxas and certain of their
subsidiaries, including the guarantors of the Second Lien Notes (the "Second
Lien 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 Abraxas or Canadian Abraxas.
The Second Lien Notes Indenture provides, among other things, that Abraxas
and Canadian Abraxas may not, and may not cause or permit the Second Lien
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, Canadian Abraxas or any other Second Lien Restricted Subsidiary,
guarantee any indebtedness of Abraxas, Canadian Abraxas or any other Second Lien
Restricted Subsidiary or transfer any of its assets to Abraxas, Canadian Abraxas
or any other Second Lien Restricted Subsidiary except for such encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the Old Notes Indenture, the First Lien Notes Indenture, or the Second
Lien Notes Indenture;
(3) customary non-assignment provisions of any contract or any lease
governing leasehold interest of such subsidiaries;
(4) any instrument governing indebtedness assumed by us in an acquisition,
which encumbrance or restriction is not applicable to such Second Lien
Restricted Subsidiary or the properties or assets of such subsidiary other than
the entity or the properties or assets of the entity so acquired;
(5) agreements existing on the Issue Date (as defined in the Second Lien
Notes Indenture) to the extent and in the manner such agreements were in effect
on the Issue Date;
(6) customary restrictions with respect to subsidiaries of Abraxas and
Canadian Abraxas pursuant to an agreement that has been entered into for the
sale or disposition of capital stock or assets of such Second Lien Restricted
Subsidiary to be consummated in accordance with the terms of the Second Lien
Notes solely in respect of the assets or capital stock to be sold or disposed
of;
(7) any instrument governing certain liens permitted by the Second Lien
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
(8) an agreement governing indebtedness incurred to refinance the
indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) 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 Second Lien Notes in any material
respect as determined by the Board of Directors of Abraxas 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
(2), (4) or (5).
Hedging Activities. In October of 1999 we entered into a hedge agreement
with Barrett Resources Corporation ("Barrett") for the period November 1999
through October 2000. This agreement is for 1,000 Bbls per day with us being
paid $20.30 per Bbl and 1,000 Bbls per day with a floor of $18.00 and a ceiling
of $22.00 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 Barret's option over the
term of the agreement at fixed prices through October 31, 2002. We realized a
loss of $3.2 million on this agreement during the first six months of 2000,
which is accounted for in crude oil and natural gas revenue.
25
<PAGE>
As of June 30, 2000, we had 22.5 MMBtupd hedged through October 31, 2000,
of which 2.5 MMBtupd is hedged at an average NYMEX price less $0.83
(approximately $3.65 per MMBtu as of June 30, 2000) and 20.0 MMBtupd with a
ceiling of $2.39 and a floor of $2.07 based on an AECO index. Both of these
hedges are with Barrett. In connection with the 20.0 MMBtupd Barrett hedge, we
realized a loss of $1.7 million for the six months ended June 30, 2000, which is
accounted for in crude oil and natural gas revenue.
Net Operating Loss Carryforwards At December 31, 1999, we had, subject to
the limitation discussed below, $94,573,000 of net operating loss carryforwards
for U.S. tax purposes, of which it is estimated a maximum of $7,260,000 may be
utilized before it expires, absent the application of Section 382(h) which
allows built-in gains to offset carryforwards otherwise limited by Section 382
of the Internal Revenue Code of 1986, as amended, (Section 382). These loss
carryforwards will expire from 2002 through 2018 if not utilized. At December
31, 1999, we had approximately $10,262,000 of net operating loss carryforwards
for Canadian tax purposes of which $274,000 will expire in 2000, $3,542,000 will
expire in 2001, $151,000 will expire in 2002 and $6,295,000 will expire in
2003-2005.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Commodity Price Risk
Our exposure to market risk rests primarily with the volatile nature of
crude oil, natural gas and natural gas liquids prices. We manage crude oil and
natural gas prices through the periodic use of commodity price hedging
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources". Assuming the production
levels we attained during the six months ended June 30, 2000, a 10% decline in
crude oil, natural gas and natural gas liquids prices would have reduced our
operating revenue, cash flow and net income (loss) by approximately $3.3 million
for the six months ended June 30, 2000. . Interest rate risk
At June 30, 2000, substantially all of our long-term debt is at fixed
interest rates and not subject to fluctuations in market rates.
Foreign currency
Our Canadian operations are measured in the local currency of Canada. As a
result, our financial results could be affected by changes in foreign currency
exchange rates or weak economic conditions in the foreign markets. Canadian
operations reported a pre tax loss of $1.8 million for the six months ended June
30, 2000. It is estimated that a 5% change in the value of the U.S. dollar to
the Canadian dollar would have changed our net income by approximately $90,000.
We do not maintain any derivative instruments to mitigate the exposure to
translation risk. However, this does not preclude the adoption of specific
hedging strategies in the future.
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 our financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from our expectations ("Cautionary Statements") are disclosed
under "Risk Factors" in our 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 us, or persons acting on our behalf,
are expressly qualified in their entirety by the Cautionary Statements.
26
<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 26, 2000 the
following proposals were adopted by the margins indicated:
1. Election of one director for term of three years, to hold
office until the expiration of his term in 2003 or until a
successor shall have been elected & qualified.
Number of Shares
For Against
Franklin A. Burke 18,685,848 1,636,032
Directors whose term continued after the meeting
Robert L.G. Watson
James C. Phelps
Craig S. Bartlett, Jr.
Ralph F. Cox
Fredrick M. Pevow, Jr.
Joseph A. Wagda
2. Proposal to approve amendment to Abraxas Petroleum Corporation
Articles of Incorporation to increase the number of authorized
shares of Common Stock to 200,000,000.
Number of Shares
For Against Abstain
14,578,364 5,626,851 116,665
3. Approval of the appointment of Ernst & Young LLP as the
Company's auditors.
Number of Shares
For Against Abstain
20,161,996 7,042 152,842
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
April 6, 2000 - Disposition of partnership interest.
(c) Exhibit 99.1 - Press Release dated August 10, 2000
(d) Exhibit 99.2 - Press Release dated August 7, 2000
27
<PAGE>
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABRAXAS PETROLEUM CORPORATION
(Registrant)
Date: August 14, 2000 By:/s/
----------------- ---
ROBERT L.G. WATSON,
President and Chief
Executive Officer
Date: August 14, 2000 By:/s/
----------------- ---
CHRIS WILLIFORD,
Executive Vice President and
Principal Accounting Officer
28
<PAGE>
EXHIBIT 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE www.abraxaspetroleum.com
FOR MORE INFORMATION CONTACT:
JANICE HERNDON/MANAGER CORP. COMMUNICATIONS
ABRAXAS PETROLEUM CORPORATION COMMON STOCK
TO BEGIN TRADING ON THE AMERICAN STOCK EXCHANGE
SAN ANTONIO, TX - (August 10, 2000) - Abraxas Petroleum Corporation (OTC
Bulletin Board: AXAS) announced today its application to list its common stock
on the American Stock Exchange (AMEX) has been approved and trading is expected
to commence on or about August 18, 2000.
The Company's common stock on the AMEX will be listed under the new ticker
symbol "ABP".
Bob Watson, Company CEO commented, "We are extremely pleased to be able to
announce that Abraxas shares will now be traded on the AMEX. We feel this move
puts the Company in the position to benefit from the increased exposure that the
AMEX offers, greatly improving the analytical and investor following that should
accompany trading on this exchange. The American Stock Exchange has evolved into
the home of many E&P companies and we feel fortunate to be able to now compete
in the same trading arena."
Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas
exploration and production company that also processes natural gas. It operates
in Texas, Kansas, Wyoming and western Canada.
Safe Harbor for forward-looking statement: Statements in this release looking
forward in time involve known and unknown risks and uncertainties, which may
cause the Company's actual results in future periods to be materially different
from any future performance suggested in this release. Such factors may include,
but may not be necessarily limited to, changes in the prices received by the
Company for crude oil and natural gas. In addition, the Company's future crude
oil and natural gas production is highly dependent upon the Company's level of
success in acquiring or finding additional reserves. Further, the Company
operates in an industry sector where securities values are highly volatile and
may be influenced by economic and other factors beyond the Company's control. In
the context of forward-looking information provided for in this release,
reference is made to the discussion of risk factors detailed in the Company's
filing with the Securities and Exchange Commission during the past 12 months.
<PAGE>
EXHIBIT 99.2
NEWS RELEASE
FOR IMMEDIATE RELEASE www.abraxaspetroleum.com
FOR MORE INFORMATION CONTACT:
CHRIS WILLIFORD, EVP/CFO
ABRAXAS PETROLEUM CORPORATION ANNOUNCES DRILLING JOINT VENTURE
WITH EOG RESOURCES, INC.
SAN ANTONIO, TX - (August 7, 2000) - Abraxas Petroleum Corporation (OTC Bulletin
Board: AXAS) announced today it has entered into a letter of intent for a joint
venture with EOG Resources, Inc. (EOG) to develop its Montoya play in west
Texas. EOG Resources, Inc. will pay Abraxas $2.5 million to earn 75% of Abraxas'
working interest in the Montoya formation covering approximately 11,000 net
acres in Ward and Reeves Counties. EOG will operate and pay 100% of the costs of
up to five horizontal wells in the Montoya formation and will spud two of the
wells before year end. Abraxas will retain a carried 25% working interest in
four of the wells and will have an override and a 30% working interest after
payout in the fifth well. The two companies will enter into an AMI covering the
Montoya formation in this area. The wells will offset several wells drilled by
ExxonMobil and ARCO that have tested at rates of 8 to 17 mmcfpd per well.
Abraxas' CEO Bob Watson said, "This joint venture validates the value of one of
several horizontal exploitation projects none of which are reflected in our
proved reserves. We are proud to have such a quality partner as EOG. The savings
in capital expenditures to the Company of over $15 million will allow us to more
aggressively pursue other horizontal exploitation ventures while maintaining
prudent liquidity."
The joint venture is subject to final documentation and due diligence and is
expected to close by the end of August.
Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas
exploration and production company that also processes natural gas. It operates
primarily along the Texas Gulf Coast, in the Permian Basin of western Texas,
western Canada and Wyoming.
Safe Harbor for forward-looking statement: Statements in this release looking
forward in time involve known and unknown risks and uncertainties, which may
cause the Company's actual results in future periods to be materially different
from any future performance suggested in this release. Such factors may include,
but may not be necessarily limited to, changes in the prices received by the
Company for crude oil and natural gas. In addition, the Company's future crude
oil and natural gas production is highly dependent upon the Company's level of
success in acquiring or finding additional reserves. Further, the Company
operates in an industry sector where securities values are highly volatile and
may be influenced by economic and other factors beyond the Company's control. In
the context of forward-looking information provided for in this release,
reference is made to the discussion of risk factors detailed in the Company's
filing with the Securities and Exchange Commission during the past 12 months.
<PAGE>
