AXAS Abraxas Petroleum Corporation (CE)

Abraxas Petroleum Corporation (NASDAQ:AXAS) today reported financial and operating results for the three months ended June 30, 2014.

Financial and Operating Results for the Three Months Ended June 30, 2014

The three months ended June 30, 2014 resulted in:

• Production of 454 MBoe (4,987 Boepd)
• Revenue of $33.6 million
• Adjusted EBITDA(a) of $22.9 million inclusive of Raven Drilling
• Adjusted discretionary cash flow(a) of $22.2 million inclusive of Raven Drilling
• Net income of $3.0 million, or $0.03 per share
• Adjusted net income(a), excluding certain non-cash items and inclusive of Raven Drilling of $11.0 million, or $0.11 per share

(a) See reconciliation of non-GAAP financial measures below.

Net income for the three months ended June 30, 2014 was $3.0 million, or $0.03 per share, compared to a net income of $7.9 million, or $0.08 per share, for the three months ended June 30, 2013.

Adjusted net income, excluding certain non-cash items, for the three months ended June 30, 2014 was $11.0 million, or $0.11 per share, compared to an adjusted net income, excluding certain non-cash items, of $3.0 million or $0.03 per share for the three months ended June 30, 2013. For the three months ended June 30, 2014 and 2013, adjusted net income excludes the unrealized gain (loss) on derivative contracts of $(7.1) million and $7.5 million, respectively. Included in adjusted net income for the quarters ended June 30, 2014 and June 30, 2013 is the net income from our subsidiary, Raven Drilling, LLC of $0.8 million and $0.7 million, respectively.

Pursuant to SEC Regulation S-X, no income is recognized for Raven Drilling, LLC. Contractual drilling services performed in connection with properties in which Abraxas holds an ownership interest cannot be recognized as income, rather it is credited to the full cost pool and recognized through lower amortization as reserves are produced.

Unrealized gains or losses on derivative contracts are based on mark-to-market valuations which are non-cash in nature and may fluctuate drastically from period to period. As commodity prices fluctuate, these derivative contracts are valued against current market prices at the end of each reporting period in accordance with Accounting Standards Codification 815, “Derivatives and Hedging,” as amended and interpreted, and require Abraxas to either record an unrealized gain or loss based on the calculated value difference from the previous period-end valuation. For example, NYMEX oil prices on June 30, 2013 were $96.56 per barrel compared to $105.37 on June 30, 2014; therefore, the mark-to-market valuation changed considerably period to period.

Comments

Bob Watson, Abraxas’ President and CEO, commented, "Our financials continue to benefit from robust oil weighted production growth and lower expenses on a per Boe basis. Together with the strong commodity price environment we have been experiencing, we expect our margins to continue to improve. Although we cannot control the volatility in the markets, we continue to focus on what we can control - executing operationally, growing production and maintaining a pristine balance sheet."

Conference Call

Abraxas Petroleum Corporation (NASDAQ:AXAS) will host its second quarter 2014 earnings conference call at 11 AM ET on August 6, 2014. To participate in the conference call, please dial 888.680.0890 and enter the passcode 54244106. Additionally, a live listen only webcast of the conference call can be accessed under the investor relations section of the Abraxas website at www.abraxaspetroleum.com. A replay of the conference call will be available until September 6, 2014 by dialing 888.286.8010 and entering the passcode 67689280 or can be accessed under the investor relations section of the Abraxas website.

Abraxas Petroleum Corporation is a San Antonio based crude oil and natural gas exploration and production company with operations across the Rocky Mountain, Permian Basin and onshore Gulf Coast regions of the United States and in the province of Alberta, Canada.

Safe Harbor for forward-looking statements: Statements in this release looking forward in time involve known and unknown risks and uncertainties, which may cause Abraxas’ 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 Abraxas for crude oil and natural gas. In addition, Abraxas’ future crude oil and natural gas production is highly dependent upon Abraxas’ level of success in acquiring or finding additional reserves. Further, Abraxas operates in an industry sector where the value of securities is highly volatile and may be influenced by economic and other factors beyond Abraxas’ control. In the context of forward-looking information provided for in this release, reference is made to the discussion of risk factors detailed in Abraxas’ filings with the Securities and Exchange Commission during the past 12 months.

        ABRAXAS PETROLEUM CORPORATION

CONSOLIDATED

  FINANCIAL HIGHLIGHTS     (In thousands except per share data)

Three Months EndedJune 30,

Six Months EndedJune 30,

2014     2013 2014     2013   Financial Results: Revenues $ 33,559 $ 21,494 $ 59,452 $ 42,690 Adjusted EBITDA(a) 22,850 11,723 38,961 23,197 Adjusted discretionary cash flow(a) 22,153 10,553 37,733 20,916 Net income 3,034 7,866 7,738 8,461 Net income per share – diluted $ 0.03 $ 0.08 $ 0.08 $ 0.09 Adjusted net income, excluding certain non-cash items(a) 10,952 3,039 17,243 5,370 Adjusted net income, excluding certain non-cash items(a), per share – diluted $ 0.11 $ 0.03 $ 0.18 $ 0.06 Weighted average shares outstanding – diluted 97,322 93,361 95,844 93,311   Production: Crude oil per day (Bblpd) 3,438 2,094 3,011 2,100 Natural gas per day (Mcfpd) 6,957 9,825 7,069 10,162 Natural gas liquids per day (Bblpd) 390 377 401 368 Crude oil equivalent per day (Boepd) 4,987 4,109 4,590 4,162 Crude oil equivalent (MBoe) 453.8 373.9 830.8 753.3   Realized Prices, net of realized hedging activity: Crude oil ($ per Bbl) $ 90.59 $ 86.48 $ 89.34 $ 86.11 Natural gas ($ per Mcf) 4.06 3.51 4.43 3.26 Natural gas liquids ($ per Bbl) 36.16 31.46 40.61 33.12 Crude oil equivalent ($ per Boe) 70.94 55.35 68.98 54.34   Expenses: Lease operating ($ per Boe) $ 12.72 $ 16.49 $ 14.04 $ 16.76 Production taxes (% of oil and gas revenue) 8.5 % 8.9 % 8.5 % 9.0 % General and administrative, excluding stock-based compensation ($ per Boe) 4.60 5.69 5.38 5.56 Cash interest ($ per Boe) 1.40 2.93 1.32 2.83

Depreciation, depletion and amortization ($ per Boe)

20.36 15.45 20.31 16.31  

(a) See reconciliation of non-GAAP financial measures below.

         

BALANCE SHEET DATA

  (In thousands) June 30, 2014 December 31, 2013   Cash $ 3,742 $ 5,205 Working capital (a) (34,742 ) (38,401 ) Property and equipment – net 251,049 180,645 Total assets 286,874 223,650   Long-term debt 44,850 41,790 Stockholders’ equity 150,239 86,906 Common shares outstanding 105,346 92,906  

(a) Excludes current maturities of long-term debt and current derivative assets and liabilities in accordance with our loan covenants.

          ABRAXAS PETROLEUM CORPORATION

CONSOLIDATED

  STATEMENTS OF OPERATIONS       (In thousands except per share data)

Three Months EndedJune 30,

Six Months EndedJune 30,

2014     2013 2014     2013   Revenues: Oil and gas production $ 33,548 $ 21,478 $ 59,398 $ 42,641 Other 11   16   54   49   33,559 21,494 59,452 42,690 Operating costs and expenses: Lease operating 5,772 6,166 11,664 12,628 Production and ad valorem taxes 2,838 1,911 5,042 3,838 Depreciation, depletion, and amortization 9,242 5,776 16,877 12,285 Impairment — 1,977 — 1,977 General and administrative (including stock-based compensation of $1,029, $669, $1,468 and $1,142, respectively) 3,117   2,797   5,940   5,327   20,969   18,627   39,523   36,055   Operating income 12,590 2,867 19,929 6,635   Other (income) expense: Interest income (1 ) — (1 ) (1 ) Interest expense 783 1,259 1,391 2,467 Amortization of deferred financing fees 280 343 629 676 Loss on derivative contracts - realized 1,356 783 2,090 1,708 Loss (gain) on derivative contracts - unrealized 7,136 (7,485 ) 8,080 (6,864 ) Other 2   14   2   101   9,556   (5,086 ) 12,191   (1,913 ) Net income before income tax 3,034 7,953 7,738 8,548 Income tax expense —   87   —   87   Net income $ 3,034   $ 7,866   $ 7,738   $ 8,461     Net income per common share - basic $ 0.03   $ 0.09   $ 0.08   $ 0.09   Net income per common share - diluted $ 0.03   $ 0.08   $ 0.08   $ 0.09     Weighted average shares outstanding: Basic 93,448 92,351 93,009 92,323 Diluted 97,322 93,361 95,844 93,311  

ABRAXAS PETROLEUM CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

To fully assess Abraxas’ operating results, management believes that, although not prescribed under generally accepted accounting principles ("GAAP"), discretionary cash flow and EBITDA are appropriate measures of Abraxas' ability to satisfy capital expenditure obligations and working capital requirements. Discretionary cash flow and EBITDA are non-GAAP financial measures as defined under SEC rules. Abraxas' discretionary cash flow and EBITDA should not be considered in isolation or as a substitute for other financial measurements prepared in accordance with GAAP or as a measure of the Company's profitability or liquidity. As discretionary cash flow and EBITDA exclude some, but not all items that affect net income and may vary among companies, the discretionary cash flow and EBITDA presented below may not be comparable to similarly titled measures of other companies. Management believes that operating income calculated in accordance with GAAP is the most directly comparable measure to discretionary cash flow; therefore, operating income is utilized as the starting point for the discretionary cash flow reconciliation.

Discretionary cash flow is defined as operating income plus depreciation, depletion and amortization expenses, non-cash expenses and impairments, cash portion of other income (expense) less cash interest. Adjusted discretionary cash flow is defined as discretionary cash flow, plus cash flow from Raven Drilling’s operations. Accounting rules do not permit the inclusion of the net income and other components of Raven Drilling’s operations to be included in our consolidated results of operations and cash flow, instead, the results of Raven Drilling’s operations are credited to the full cost pool. Accordingly, for purposes of adjusted discretionary cash flow, Raven Drilling’s cash flow is added back. The following table provides a reconciliation of discretionary cash flow and adjusted discretionary cash flow to operating income for the periods presented.

            (In thousands)

Three Months EndedJune 30,

Six Months EndedJune 30,

2014     2013 2014     2013 Operating income $ 12,590 $ 2,867 $ 19,929 $ 6,635 Depreciation, depletion and amortization 9,242 5,776 16,877 12,285 Impairment — 1,977 — 1,977 Stock-based compensation 1,029 669 1,468 1,142 Realized (loss) on derivative contracts (1,356 ) (783 ) (2,090 ) (1,708 ) Cash interest       (636 )     (1,095 ) (1,100 )     (2,131 ) Discretionary cash flow $ 20,869 $ 9,411 $ 35,084 $ 18,200 Cash flow from Raven Drilling operations       1,284       1,142   2,649       2,716   Adjusted discretionary cash flow       $ 22,153       $ 10,553   $ 37,733       $ 20,916    

EBITDA is defined as net income plus interest expense, depreciation, depletion and amortization expenses, deferred income taxes and other non-cash items. Adjusted EBITDA includes all of the components of EBITDA plus Raven Drilling’s EBITDA. Accounting rules do not permit the inclusion of the net income and other components of Raven Drilling’s operations to be included in our consolidated results of operations, instead, the results of Raven Drilling’s operations are credited to the full cost pool. Accordingly, for purposes of Adjusted EBITDA, Raven Drilling’s EBITDA is added back. The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income for the periods presented.

            (In thousands)

Three Months EndedJune 30,

Six Months EndedJune 30,

2014   2013 2014   2013 Net income $ 3,034 $ 7,866 $ 7,738 $ 8,461 Net interest expense 782 1,259 1,390 2,466 Income tax expense — 87 — 87 Depreciation, depletion and amortization 9,242 5,776 16,877 12,285 Amortization of deferred financing fees 280 343 629 676 Stock-based compensation 1,029 669 1,468 1,142 Impairment — 1,977 — 1,977 Unrealized loss (gain) on derivative contracts 7,136 (7,485 ) 8,080 (6,864 ) Other non-cash items       2     14   2     101   EBITDA       $ 21,505     $ 10,506   $ 36,184     $ 20,331   Raven Drilling EBITDA       1,345     1,217   2,777     2,866   Adjusted EBITDA       $ 22,850     $ 11,723   $ 38,961     $ 23,197    

This release also includes a discussion of “adjusted net income, excluding certain non-cash items,” which is a non-GAAP financial measure as defined under SEC rules. The following table provides a reconciliation of adjusted net income, excluding ceiling test impairment and unrealized changes in derivative contracts and net income related to Raven Drilling, LLC capitalized to the full cost pool, to net income for the periods presented. Management believes that net income calculated in accordance with GAAP is the most directly comparable measure to adjusted net income, excluding certain non-cash items.

            (In thousands)

Three Months EndedJune 30,

Six Months EndedJune 30,

2014   2013 2014   2013   Net income $ 3,034 $ 7,866 $ 7,738 $ 8,461 Impairment — 1,977 — 1,977 Net income related to Raven Drilling 782 681 1,425 1,796 Unrealized loss (gain) on derivative contracts       7,136     (7,485 ) 8,080     (6,864 ) Adjusted net income, excluding certain non-cash items       $ 10,952     $ 3,039   $ 17,243     $ 5,370   Adjusted net income, excluding certain non-cash items, per share – diluted       $ 0.11     $ 0.03   $ 0.18     $ 0.06   Net income per share – diluted       $ 0.03     $ 0.08   $ 0.08     $ 0.09  

Abraxas Petroleum CorporationGeoffrey King, 210-490-4788Vice President – Chief Financial Officergking@abraxaspetroleum.comwww.abraxaspetroleum.com