Abraxas Petroleum Corporation (“Abraxas” or the “Company”)
(NASDAQ:AXAS) today provided the following operations and guidance
update.
Conference Call
Abraxas will host a conference call on Tuesday, December 16,
2014 at 10 AM Central Time (11 AM Eastern Time) to discuss recent
operational results and changes to the Company’s 2015 capital
program. The conference call can be accessed by dialing
866.318.8615 and entering conference code 33198369. A live webcast
of the conference call can be accessed under the “Investor
Relations” portion of the Company’s website at
www.abraxaspetroleum.com.
Williston Basin
At Abraxas’ North Fork field, in McKenzie County, North Dakota,
the Company successfully fracture stimulated the Stenehjem 2H, 3H
and 4H with a combined 99 frac stages. The Stenehjem 4H is
currently flowing to sales at encouraging rates. Abraxas
successfully drilled out the plugs on the Stenehjem 3H and expects
the well to begin flowback shortly. Abraxas is currently drilling
out the plugs on the Stenehjem 2H. As a reminder, the Stenehjem 2H
and 4H represent Abraxas’ first 660 foot spacing test in the Three
Forks. In late November, the Company’s third party midstream
provider notified the Company that the oil pipeline tie-in of the
three recent Stenehjem completions would be delayed until spring
due to inclement weather conditions. This is forcing the Company to
truck rather than pipe oil from the Stenehjem pad. Thus, the
Company will likely continue to flow back the wells on smaller than
normal chokes due to the limited takeaway capacity. Abraxas owns a
working interest of approximately 73% in the Stenehjem wells.
On the Jore pad, Abraxas recently set intermediate casing on the
Jore 6H, 7H and 8H and is currently drilling the intermediate
section of the Jore 5H at approximately 3,100 feet. Following the
completion of the intermediate section of the Jore 5H, the Company
will drill the laterals of all four wells. Abraxas owns a working
interest of approximately 76% in the Jore wells.
Eagle Ford
At Abraxas’ Jourdanton prospect in Atascosa County, Texas, the
Company successfully completed the Cat Eye 1H with a 27 stage
fracture stimulation. Although early in the well’s flowback, it is
flowing to sales at encouraging rates. The Cat Eye 1H is the
Company’s first well on the Southern Fault Block at Jourdanton.
Abraxas recently drilled the Grass Farm 2H to a total depth of
approximately 12,782 feet. The completion of the Grass Farm 2H has
been postponed until service costs better reflect the current
commodity price environment. After setting surface casing on the
Grass Farm 3H, the Company elected to mobilize to the R. Henry 2H
in an effort to minimize capital expenditures in the current
depressed commodity price environment. The lateral of the Grass
Farm 3H will be drilled at a later date. Abraxas owns a 100%
working interest across the Jourdanton prospect.
At Abraxas’ Cave prospect, in McMullen County, Texas, the Dutch
3H averaged 888 boepd (788 barrels of oil per day, 600 mcf of
natural gas per day) (1) over the well’s peak 30 days of
production. The Dutch 4H averaged 926 boepd (832 barrels of oil per
day, 564 mcf of natural gas per day) (1) over the well’s peak 30
days of production. Abraxas holds a 100% working interest in the
Dutch 3H and 4H.
At Abraxas’ Dilworth East prospect, in McMullen County, Texas,
the Company is currently drilling the R. Henry 1H at approximately
11,800 feet. Abraxas holds a 100% working interest in the R. Henry
1H.
Fourth Quarter 2014 Guidance
Update
Abraxas is adjusting fourth quarter estimated volumes to
6,700-6,800 boepd. Weather and offsetting fracture stimulations led
to higher than anticipated well downtime during the quarter.
Service delays, due to weather and availability, extended the
completions of the Cat Eye 1H and Stenehjem 2H, 3H and 4H by
several weeks. Moreover, Abraxas elected to delay the fracture
stimulation of the Grass Farm 2H until service costs better reflect
the current commodity price environment. The curtailment of the
Stenehjem wells due to the third party takeaway constraints
mentioned above further impacted anticipated fourth quarter
volumes. Despite the operational issues and completion
postponements, Abraxas anticipates the productive capacity of the
Company to reach its forecasted exit rate of 8,500 boepd in the
coming weeks when the Stenehjem wells are all flowing to sales.
4Q14E
Low
High
Production Total (Boepd) 6,700 6,800 % Oil
67%
% NGL
10%
% Natural Gas
24%
Exit Rate (Boepd) (3)
8,500
Operating Costs LOE ($/Boe) $10.00 $12.00 Production
Tax (% Rev) 8.5% 9.0% Cash G&A ($mm) (2) $5.0 $5.5
CAPEX $50 $55 (2) Cash G&A for the fourth
quarter includes the potential accrual of bonuses on the Company’s
incentive bonus plan. Incentive bonuses are calculated based off
Net Asset Value (“NAV”) growth. Any potential bonus earned is
unknown until Abraxas’ receives the Company’s fully audited reserve
report as of December 31, 2014. These reserves numbers are
furnished by the Company’s reserve engineers, Degolyer &
MacNaughton, in the first quarter of 2015 and are used to calculate
NAV growth. For purposes of this estimate, management is assuming a
full bonus accrual. See Abraxas proxy statement filed on April 2,
2014 with the SEC for more information on Abraxas’ incentive bonus
plan. (3) Exit rate measured as the productive capacity of the
Company when all three of the Stenehjem wells begin flowing to
sales.
2015 Guidance Update
Considering the current commodity price weakness, Abraxas
recently elected to reduce the Company’s 2015 drilling budget to
approximately $54 million from $200 million. The reduction in 2015
capital spending comes primarily from the Eagle Ford where the
Company will now release the rig after the drilling of the R. Henry
1H. Abraxas is also postponing its planned 2015 Permian development
until commodity prices recover. Pending a recovery in commodity
prices or service costs better reflecting the current environment,
Abraxas retains the financial and operational flexibility to
quickly adjust the Company’s capital budget higher. Abraxas
adjusted 2015 capital budget is as follows:
Gross
Wells
Net
Wells
Net
Completed
Completed
CAPEX
($mm)
Basin/Region Bakken 7 4 $41.9 Gulf Coast/Eagle Ford 2
2 11.9 Permian - - - Powder River Basin (“PRB”) - - - Leasing/Other
NA
Total $53.8
Abraxas is providing the following updated guidance for 2015.
The Company will provide an anticipated 2015 exit rate and guidance
for the first quarter of 2015 when management has greater clarity
on its planned completion schedule. Despite the approximately 72%
reduction in capital expenditures year over year, Abraxas
anticipates average yearly volumes (at the midpoint of guidance)
will still increase approximately 26% over 2014 expected volumes.
Following the expected initial decline from flush production
volumes associated with the Company’s 2015 exit rate, management
projects the Company’s production base and associated declines to
stabilize considerably. Notably, management projects the Company
can maintain production in outer years at 2015 average volumes with
a similar $60 million capital program.
2015E
Low
High
Production Total (Boepd) 7,200 7,300 % Oil
69%
% NGL
9%
% Natural Gas
22%
Operating Costs LOE ($/Boe) $10.00 $12.00 Production Tax (%
Rev) 8.5% 9.0% Cash G&A ($mm) (2) $11.5 $12.5
Bob Watson, President and CEO of Abraxas, commented, “After
three straight quarters of operational execution above expectations
in 2014, we were unable to overcome significant obstacles in the
fourth quarter. On a positive note, these issues are transitory and
merely pushed out our forecasted production ramp by approximately
one month. Our well performance continues to be exceptional as
evidenced by the Dutch 3H and Dutch 4H results as well as the
encouraging early rates from our recent Stenehjem 4H and Cat Eye 1H
completions.
“We remain driven by achieving a strong rate of return on each
well we drill. Given the current commodity price backdrop, we find
it prudent to meaningfully reduce our capital expenditures by
releasing our Eagle Ford rig after the R. Henry 1H and cancelling
our 2015 Permian program. Based on internal models and current
strip pricing, the new capital plan will allow for free cash flow
generation. We plan to utilize this free cash flow and our balance
sheet to further bolster our production, reserve and acreage base
in the Bakken, Eagle Ford and Permian. At all times, we will
maintain our commitment to keeping a clean and properly levered
balance sheet.
“Abraxas remains in a superb position entering this commodity
price downturn with a pristine balance sheet, high margin
production base and enviable financial and operational flexibility.
We endeavor to enter the next upcycle in an even stronger
position.”
(1) The production rates for each well do not include the impact
of natural gas liquids and shrinkage at the processing plant and
include flared gas.
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.
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 CorporationGeoffrey King, 210-490-4788Vice
President – Chief Financial
Officergking@abraxaspetroleum.comwww.abraxaspetroleum.com