-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IM6Nzb8YhQOh8ELEZ5SshGfYRIHLujv7PK50SIqbnox6aT9uG2B99VpoGz54MNxQ oh2tSvDJ89SmsLz6d581tQ== 0000867665-96-000003.txt : 19960816 0000867665-96-000003.hdr.sgml : 19960816 ACCESSION NUMBER: 0000867665-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABRAXAS PETROLEUM CORP CENTRAL INDEX KEY: 0000867665 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 742584033 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19118 FILM NUMBER: 96614704 BUSINESS ADDRESS: STREET 1: 500 N LOOP 1604 EAST STE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78209 BUSINESS PHONE: 2104904788 MAIL ADDRESS: STREET 1: 500 N LOOP 1604 EAST STE 100 CITY: SAN ANTONIO STATE: TX ZIP: 78232 10-Q 1 ABRAXAS PETROLEUM CORPORATION - 10Q - 6/30/96 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, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-19118 ABRAXAS PETROLEUM CORPORATION - -------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Nevada 74-2584033 ---------- -------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 500 N. Loop 1604 E, Suite 100, San Antonio, Texas 78232 ---------------------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (210)490-4788 ------------- Not Applicable - -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X or No The number of shares of the issuer's common stock outstanding as of August 1, 1996, was: Class Shares Outstanding ----- ------------------ Common Stock, $.01 Par Value 5,804,812 1 of 17 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES FORM 10 - Q INDEX PART I FINANCIAL INFORMATION ITEM 1 - Financial Statements(Unaudited) Consolidated Balance Sheets - June 30, 1996 and December 31,1995.....................................3 Consolidated Statements of Operations - Three and Six Months Ended June 30, 1996 and 1995.......5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995.................6 Notes to Consolidated Financial Statements.................8 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......................10 PART II OTHER INFORMATION ITEM 1 - Legal proceedings............................................13 ITEM 2 - Changes in Securities........................................13 ITEM 3 - Defaults Upon Senior Securities..............................13 ITEM 4 - Submission of Matters to a Vote of Security Holders..........13 ITEM 5 - Other Information............................................15 ITEM 6 - Exhibits and Reports on Form 8-K.............................16 Signatures.....................................................17 2 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
June 30 December 31 1996 1995 --------- ----------- (Unaudited) Assets Current assets: Cash ....................................................... $ 2,241,352 $ 4,249,767 Accounts receivable, less allowance for doubtful accounts of $35,900 at June 30, 1996 and $35,900 at December 31, 1995: Joint owners ........................................... 610,667 1,334,873 Oil and gas production sales ........................... 2,296,850 2,945,681 Affiliates ............................................. 89,166 53,224 Other .................................................. 70,781 60,367 ------------ ------------ 3,067,464 4,394,145 Equipment inventory ........................................ 94,183 80,070 Other currents assets ...................................... 245,530 124,820 ------------ ------------ Total current assets ......................................... 5,648,529 8,848,802 Property and equipment: Oil and gas properties (full cost method), less accumulated depreciation, depletion and amortization of $36,350,758 at June 30, 1996 and $29,651,521 at December 31, 1995 ..................................... 61,709,380 74,475,683 Other property and equipment: Land ...................................................... 139,466 139,466 Equipment ................................................. 913,791 692,508 Leasehold improvements .................................... 115,533 37,430 Less accumulated depreciation ............................. (333,286) (266,686) ------------ ------------ 62,544,884 75,078,401 Investments in and advances to partnership ................... 3,934,781 -- Deposit ...................................................... 3,800,000 -- Deferred financing fees, net of accumulated amortization of $417,231 at June 30, 1996 and $289,231 at December 31, 1995 ....................... 398,868 353,514 Restricted cash .............................................. 90,520 134,419 Other assets ................................................. 779,008 326,222 Marketable securities ........................................ 326,000 326,000 ------------ ------------ Total assets ................................................. $ 77,522,590 $ 85,067,358 ============ ============
See accompanying notes to consolidated financial statements 3 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30 December 31 1996 1995 --------- ----------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................... $ 4,117,133 $ 3,928,824 Oil and gas production payable ............................. 1,129,007 1,787,152 Accrued interest ........................................... 114,049 362,750 Other accrued expenses ..................................... 282,030 46,207 Dividends payable on preferred stock ....................... 91,482 91,482 ------------ ------------ Total current liabilities .................................... 5,733,701 6,216,415 Long-term debt: Financing agreements ....................................... 32,456,651 41,556,651 Other long term obligations .................................. 63,095 44,737 Deferred income taxes ........................................ 186,749 186,749 Minority interest in foreign subsidiary ...................... 2,128,044 -- Shareholders' equity: Preferred stock 8% authorized, 1,000,000 shares; issued and outstanding 45,741 shares at June 30, 1996 and December 31, 1995 ................... 457 457 Common stock, par value $.01 per share - authorized 50,000,000 shares; issued and outstanding 5,803,812 shares at June 30, 1996 and 5,799,762 shares at December 31, 1995, respectively ...... 58,040 57,999 Additional paid-in capital ................................. 50,902,597 50,914,078 Unrealized loss on securities .............................. (244,000) (244,000) Accumulated (deficit) ...................................... (13,488,126) (13,663,903) Treasury stock, at cost, 53,211 shares at June 30, 1996 and 2,571 at December 31, 1995, respectively ......... (274,604) (1,825) Foreign currency translation ............................... (14) -- ------------ ------------ Total shareholders' equity ................................... 36,954,350 37,062,806 ------------ ------------ Total liabilities and shareholders' equity ................... $ 77,522,590 $ 85,067,358 ============ ============
See accompanying notes to consolidated financial statements 4 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended June 30 June 30 --------------------------- ---------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenue: Oil & gas production sales ................... $ 3,520,368 $ 3,342,873 $ 8,014,181 $ 6,546,926 Rig revenues ................................. 39,850 38,450 77,300 64,250 Other ........................................ 2,024 20,994 3,177 28,047 ----------- ----------- ----------- ----------- 3,562,242 3,402,317 8,094,658 6,639,223 Operating costs and expenses: Lease operating and production taxes .......... 1,016,606 1,038,918 2,181,038 2,097,951 Depreciation, depletion, & amortization ...... 1,419,607 1,135,200 2,870,941 2,286,500 General and administrative ................... 470,556 263,199 809,808 492,405 Rig operations ................................ 33,462 33,372 69,923 67,676 Hedging loss .................................. 257,308 -- 311,959 -- ----------- ----------- ----------- ----------- 3,197,539 2,470,689 6,243,669 4,944,532 ----------- ----------- ----------- ----------- 364,703 931,628 1,850,989 1,694,691 Other (income) expense: Interest income ............................... (58,160) (4,343) (115,369) (7,357) Interest expense .............................. 592,878 979,385 1,443,793 1,930,651 Amort. of deferred financing fees ............. 64,000 40,000 128,000 80,000 ----------- ----------- ----------- ----------- 598,718 1,015,042 1,456,424 2,003,294 ----------- ----------- ----------- ----------- Income (loss) before minority interest ........... (234,015) (83,414) 394,565 (308,603) Minority interest in income of consolidated foreign subsidiary ........... 6,183 -- 35,824 -- ----------- ----------- ----------- ----------- Net income (loss) ................................ (240,198) (83,414) 358,741 (308,603) Less dividend requirement on cumulative preferred stock ................... (91,482) (91,500) (182,964) (182,982) ----------- ----------- ----------- ----------- Net income (loss) applicable to common stock ................................. $ (331,680) $ (174,914) $ 175,777 $ (491,585) =========== =========== =========== =========== Net income (loss) per share: Net income (loss) per common and dilutive common equivalent share ...................... $ (.06) $ (.04) $ .03 $ (.11) Weighted average shares outstanding ........... 5,763,222 4,469,762 6,521,910 4,468,655
See accompanying notes to consolidated financial statements 5 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30 1996 1995 ---------- ---------- OPERATING ACTIVITIES Net income ................................................... $ 358,741 $ (308,603) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Minority interest in income of foreign subsidiary ......... 35,824 -- Depreciation, depletion, and amortization ................. 2,870,941 2,286,500 Amortization of deferred financing fees ................... 128,000 80,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ............... 1,326,681 (161,283) (Increase) decrease in other current assets ............. (120,710) (113,350) (Increase) decrease in equipment inventory ............... (14,113) (19,009) (Decrease) increase in accounts payable and accrued expenses .................................. 175,431 1,001,270 (Decrease) increase in oil & gas production payable ...... (658,145) 10,148 ---------- ---------- Net cash provided by operating activities .................... 4,102,650 2,775,673 INVESTING ACTIVITIES Development of oil and gas properties ........................ (4,864,666) (4,730,489) Proceeds from sale of oil and gas producing properties ...................................... 16,598,000 224,001 Purchase of oil and gas producing properties ................ (430,441) (153,139) Purchase of property and equipment ........................ (299,386) (33,186) Development of gas processing plants ......................... (60,290) (34,617) Payment of deposit for purchase of oil and gas properties ................................. (3,800,000) -- Assets of acquired companies, net of cash ................... (645,001) -- Purchase of investment and advances to partnership .......... (4,936,781) -- Purchase of interest in real estate partnership ............. (27,810) -- Minority interest related to assets acquired of foreign subsidiary ...................................... 2,092,220 -- Increase in other assets ................................. (58,630) -- ---------- ---------- Net cash provided (used) in investing activities ........... 3,567,215 (4,727,430)
6 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
Six Months Ended June 30 1996 1995 ------------ ------------ FINANCING ACTIVITIES Issuance of common stock ..................................... $ 25,313 $ 18,504 Expenses paid related to private placement offering .......... (36,753) -- Purchase of treasury stock ................................... (272,779) -- Proceeds from long term borrowing ............................ 2,900,000 2,500,000 Dividends paid on preferred stock ............................ (182,964) (182,982) Payments on long-term borrowings ............................. (12,000,000) -- Increase in other long-term liabilities ...................... 18,358 -- Loan origination fees ........................................ (173,354) (105,835) ------------ ------------ Net cash used for financing activities ...................... (9,722,179) 2,229,687 ------------ ------------ Increase (decrease) in cash .................................. (2,052,314) 277,930 Cash at beginning of period .................................. 4,384,186 135,297 ------------ ------------ Cash at end of period, including restricted cash ............. $ 2,331,872 $ 413,227 ============ ============ Supplemental disclosures of cash flow information: Interest paid ................................................ $ 1,668,858 $ 1,445,649 ============ ============ Supplemental schedule of non-cash investing and financing activity: Issuance of Common Stock for compensation .................... $ -- $ 37,600 ============ ============ Exchange of treasury stock for non-compete agreement .................................................. $ -- $ 70,625 ============ ============
See accompanying notes to consolidated financial statements 7 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 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, 1995 which is incorporated herein by reference. Such policies have been continued without change. Also, refer to the notes to those financial statements for additional details of the Company's financial condition, results of operations, and cash flows. All the material items included in those notes have not changed except as a result of normal transactions in the interim, or as disclosed within this report. The consolidated interim financial statements have not been audited by independent accountants, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the financial position and results of operations. Operating results for the three-month and six-month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. Any and all adjustments are of a normal and recurring nature. The consolidated financial statements include the accounts of the Company and its 78% owned foreign subsidiary Grey Wolf Exploration, Ltd., ("Grey Wolf"). Grey Wolf has consolidated its 67% owned interest in Cascade Oil and Gas, Ltd. ("Cascade"). Minority interest represents the minority shareholders' proportionate share of the equity and income of both Grey Wolf and Cascade. Grey Wolf and Cascade assets and liabilities are translated to U.S. dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are accumulated as a separate component of shareholders' equity. NOTE 2. NET INCOME (LOSS) PER SHARE Net income (loss) per common share is computed by dividing net income (loss) (adjusted for dividends on preferred stock) by the weighted average number of shares of common stock outstanding during the period, options and warrants that are dilutive and the shares that would be issued in conjunction with the Company's Contingent Value Rights. Income (loss) per common and common equivalent share assuming full dilution was determined on the assumption that the preferred stock was converted into common stock at the beginning of the period. Common stock equivalents are not considered in the computation of earnings per common share for periods with a loss, as their effect is anti-dilutive. NOTE 3. ACQUISITION AND DIVESTITURE In January 1996, the Company made a $3,000,000 investment in Grey Wolf, a privately held Canadian Corporation, which in turn, invested these proceeds in newly issued shares of Cascade, an Alberta-based corporation whose shares are traded on the Alberta Stock Exchange. The Company owns 78% of the outstanding capital stock of Grey Wolf, and, through Grey Wolf, the Company owns approximately 52% of the outstanding capital stock of Cascade. Certain officers and directors of the Company own approximately 6% of the common stock of Grey Wolf and serve as directors of Grey Wolf. In March 1996, the Company sold all of its interest in its Portilla and Happy Fields to an unrelated purchaser (Purchaser or "Limited Partner"). Simultaneously with this sale, the Limited Partner also acquired the 50% overriding royalty interest in the Portilla Field owned by the Commingled Pension Trust Fund (Petroleum II), the trustee of which is Morgan Guaranty Trust Company of New York (the "Pension Fund"). In connection with the purchase of both the Company's interest in the Portilla and Happy Fields and the Pension Funds interest in the Portilla Field (together, the "Properties"), the Limited Partner obtained a loan 8 (the "Bank Loan") secured by the Properties and contributed the Properties to Portilla-1996, L.P., a Texas limited partnership (the "Partnership"). A subsidiary of the Company, Portilla-Happy Corporation ("Portilla-Happy"), is the general partner of the Partnership. The aggregate purchase price received by the Company was $17,600,000, of which $2,000,000 was used to purchase a minority interest in the Partnership, which has been accounted for using the equity method. At June 30, 1996, the Company's investment in and advances to the Partnership represents the original investment of $2,000,000 and advances made to the Partnership primarily for development drilling net of production revenue collected by the Company on behalf of the Partnership. In August 1996, the Company entered into a non-binding letter of intent with the Limited Partner and certain noteholders ("the Noteholders") of the Partnership, pursuant to which the Company agreed to purchase the Limited Partner's interest in the Partnership and the Noteholders notes in the aggregate principal amount of $5,920,000 (the "Notes"), resulting in the Company's owning, on a consolidated basis, all of the equity interests in the Partnership. The aggregate consideration for the purchase of the Limited Partners interest in the Partnership and the Notes is $6,918,000. The Company will also assume the Bank Loan which had an outstanding principal balance of approximately $20,600,000 as of July 31, 1996. The proposed transaction is subject to the receipt by the Company of satisfactory financing. The Company is required to contribute funds to the Partnership necessary to pay its operating expenses and to make the minimum distribution to the Limited Partner necessary for it to make the required payments on the Bank Loan through December 31, 1996. The Bank Loan requires monthly interest payments of approximately $140,000, which have been made through July 1996. The transaction will result in the Company's reacquiring direct ownership in the Portilla and Happy Fields which it previously owned, as well as the interest in the Portilla Field previously owned by the Pension Fund. Upon consumation of the acquisition, the Company will include in its balance sheet, the amount previously removed from oil and gas properties in connection with the sale of its interest in the Portilla and Happy Fields during the quarter ended March 31, 1996, as well as amount of the purchase price paid for the Pension Funds interest in the Portilla Field, and all development drilling expenditures incurred on the properties, less the amount of depreciation, depletion and amortization related to the properties from the formation of the Partnership through the closing of the transaction. In May 1996, the Company entered into an agreement to acquire certain oil and gas properties in Wyoming for $47.5 million, subject to price adjustments. The Company has made a $3.8 million earnest money deposit with the seller. This purchase is scheduled to close no later than September 30, 1996 and has an effective date of April 1, 1996. NOTE 4. LONG-TERM DEBT In June 1994, the Company entered into a revolving credit facility with First Union National Bank of North Carolina ("First Union"). The facility calls for monthly interest payments at prime plus one quarter percent, or LIBOR plus two and one half percent, a maturity date of June 1997, semi-annual review of the borrowing base amount. First Union has a first lien mortgage on all of the Company's oil and gas properties and a security interest in the Company's receivables and general intangibles. In April 1996 the First Union facility was amended, decreasing the total borrowing base to $31,000,000 with a maturity date of June 1999, and adjusted the interest rate to LIBOR plus two percent. In August 1996, the facility was further amended, increasing the borrowing base to $35,000,000. As of August 1, 1996, the Company had outstanding advances of $33.5 million under this facility. 9 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the Company's financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the consolidated financial statements of the Company, and the notes thereto included in the Company's annual report on Form 10-K filed for the year ended December 31, 1995 which is incorporated herein by reference. RESULTS OF OPERATIONS The factors which most significantly affect the Company's results of operations are (1) the sales prices of crude oil and natural gas, (2) the level of total sales volumes of crude oil and natural gas, (3) the level of and interest rates on borrowings and (4) the level and success of exploration and development activity. Selected operating data. The following table sets forth certain operating data of the Company for the periods presented. Three Months Ended Six Months Ended June 30 June 30 ------------------- --------------- 1996 1995 1996 1995 Operating Revenue (in thousands): Crude Oil Sales ................... $1,499 $1,688 $3,724 $3,280 Natural Gas Sales ................. 1,648 1,260 3,420 2,496 Natural Gas Liquid Sales .......... 373 395 871 771 Rig Operations ...................... 40 38 77 64 Other ............................... 2 21 3 28 ------ ------ ------ ------ Total Operating Revenue ............. $3,562 $3,402 $8,095 $6,639 ====== ====== ====== ====== Operating Income (in thousands): ...... $ 364 $ 932 $1,851 $1,695 Natural Gas Production (MMCFS) ........ 804 860 1,758 1,695 Crude Oil Production (MBBLS) .......... 73 93 192 186 Natural Gas Liquids Production (MBBLS). 31 36 70 69 Average Natural Gas Sales Price ($/MCF) $ 2.05 $ 1.47 $ 1.95 $ 1.47 Average Crude Oil Sales Price ($/Bbl) . $20.50 $18.12 $19.44 $17.63 Average Liquids Sale Price ($/Bbl) .... $11.92 $11.08 $12.38 $11.17 COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS ENDED JUNE 30, 1995 OPERATING REVENUE. During the three months ended June 30, 1996, operating revenue from crude oil, natural gas and natural gas liquid sales increased to $3.5 million compared to $3.3 million in the three months ended June 30, 1995. The increase was attributable to the increase in average sales prices and increased production volumes from the Company's properties other than Happy and Portilla in 1996 as compared to 1995, which somewhat offset the loss in production volumes from the sale of Happy and Portilla. Happy and Portilla contributed $1.1 million in operating revenue during the second quarter of 1995. Crude oil and natural gas liquids sales volumes decreased by 19% and natural gas sales volumes decreased by 6% in the three months ended June 30, 1996 as compared to the second three months of 1995 as a result of the sale of Happy and Portilla which was somewhat offset by continued development drilling in west Texas and the production from the Company's Canadian properties. Happy and Portilla contributed 113,600 Mcf of natural gas (13% of Company total), 41,745 Bbls of crude oil (45% of Company total) and 9,220 Bbls of natural gas liquids (26% of Company total) during the three months ended June 30, 1995. Average sales prices were $20.50 per Bbl of crude oil, $2.05 per Mcf of natural gas and 10 $11.92 per Bbl of natural gas liquids in the three months ended June 30, 1996 compared with $18.12 per Bbl of crude oil, $1.47 per Mcf of natural gas and $11.08 per Bbl of natural gas liquids in the same period of 1995. LEASE OPERATING EXPENSES. Lease operating expenses and production taxes ("LOE")for the three months ended June 30, 1996 remained at $1.0 million, the same as in 1995, as a result of the production from Happy and Portilla, which have relatively low LOE, being replaced by production from the Company's other properties which have a higher LOE cost. During the three months ended June 30, 1995, LOE was $220,000 for Happy and Portilla and $819,000 for the Company's remaining properties. LOE on a $/BOE basis were $4.26/BOE for the three months ended June 30, 1996 compared to $3.82/BOE for the three months ended June 30, 1995. During the three months ended June 30, 1995, LOE on a per BOE basis for Happy and Portilla was $3.15 BOE compared to $4.05 BOE for the remainder of the Company's producing properties. G&A EXPENSES. G&A expenses increased from $263,000 for the three months ended June 30, 1995 to $471,000 for the same period of 1996 as a result of the Company's hiring additional staff to manage the its assets, including establishing a Canadian administrative office. G&A expenses on a $/BOE basis increased from $.97/BOE for the three months ended June 30, 1995 to $1.97/BOE for the three months ended June 30, 1996. This increase was due to the Company's smaller production base following the sale of Happy and Portilla and the loss of overhead reimbursement on the Portilla properties of $72,000 in the three months ended June 30, 1995 that previously had reduced G&A expenses. DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization ("DD&A") expenses increased from $1.1 million for the three months ended June 30, 1995 to $1.4 million for the three months ended June 30, 1996 The increase in DD&A was due to the sale of Happy and Portilla which have longer reserve lives than the Company's remaining properties. DD&A expenses on a $/BOE basis was $5.96/BOE for the three months ended June 30, 1996 compared to $4.17/BOE for the three months ended June 30, 1995. INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest expense and preferred dividends ("Interest and Dividends") decreased from $1.1 million for the three months ended June 30, 1995 to $684,000 for the three months ended June 30, 1996, largely attributable to the sale of Happy and Portilla and the repayment by the Company of $12 million previously borrowed under the First Union Credit Facility. Interest and Dividends on a $/BOE basis were $2.87/BOE for the three months ended June 30, 1996 compared to $3.92/BOE for the three months ended June 30, 1995. NATURAL GAS HEDGE. In December 1995, the Company entered into a commodity swap agreement with First Union Bank. Under the commodity swap agreement, the Company receives or makes payments to First Union based on the differential between a fixed and variable price for natural gas. At December 31, 1995, the Company had agreed to exchange payments monthly on 5,000 MMBTU of natural gas per day beginning in March 1996 and extending through November 1996. Under the swap agreement, as in effect during the first quarter of 1996, the Company received fixed prices averaging $1.747 per MMBTU and paid a variable price based on the arithmetic average of the last three trading days' settlement price of the first nearby contract for natural gas as quoted by the New York Merchantile Exchange. For the quarter ended June 30, 1996, the Company sustained a $257,000 loss related to the difference between the price received by the Company and the price paid by the Company. This agreement was amended, effective June 1, 1996, to reduce the fixed price by $ .255 per MMBTU and the variable price to the Inside FERC, El Paso price, eliminating any basis differential for the remainder of the agreement. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995 OPERATING REVENUE. During the six months ended June 30, 1996, operating revenue from crude oil, natural gas and natural gas liquids sales increased from $6.5 million in 1995 to $8.0 million. This increase was primarily attributable to an increase in crude oil, natural gas liquids and natural gas sales prices and increased production volumes from the Company's properties other than Happy and Portilla in 1996 as compared to 1995 which somewhat offset the loss in production volumes from the sale of Happy and Portilla. 11 Happy and Portilla contributed $2.1 million in operating revenue during the first six months of 1995 and $1.2 million during the first six months of 1996. Crude oil and natural gas liquids sales volumes increased by 3% and natural gas sales volumes increased by 4% in the first six months of 1996 as compared to the first six months of 1995 as a result of the increased production from the Company's properties other than Happy and Portilla. Happy and Portilla contributed 104 MBbls of crude oil and natural gas liquids (40% of Company total) and 190 MMcf of natural gas (11% of Company total) during the first six months of 1995 as compared to 54 MBbls of crude oil and natural gas liquids (21% of Company total) and 117 MMcf of natural gas (7% of Company total) for the first six months of 1996. Average sales prices were $19.44 per Bbl of crude oil, $12.38 per Bbl of natural gas liquids and $1.95 per Mcf of natural gas for the six months ended June 30, 1996 compared with $17.63 per Bbl of crude oil, $11.17 per Bbl of natural gas liquids and $1.47 per Mcf of natural gas for the six months ended June 30, 1995. A general weakening of crude oil and natural gas prices at the wellhead during the first six months of 1995 resulted in a higher average crude oil and natural gas sales price received by the Company during the six months ended June 30, 1996 compared to the same period in 1995. LEASE OPERATING EXPENSES. LOE for the six months ended June 30, 1996 increased to $2.2 million compared to $2.1 million in 1995. This increase was caused by the increased percentage of the Company's production base attributable to west Texas oil development than that represented by Texas gulf coast properties which generally have lower LOE than west Texas. Of the LOE incurred during the first six months of 1995, $433,000 was attributable to Happy and Portilla as compared to $233,000 during the first six months of 1996. LOE on a $/BOE basis was $3.93/BOE for the six months ended June 30, 1996 compared to $3.90/BOE for the six months ended June 30, 1995. DEPRECIATION, DEPLETION AND AMORTIZATION. DD&A expenses increased from $2.3 million for the six months ended June 30, 1995 to $2.9 million for the six months ended June 30, 1996, primarily due to the increase in sales volumes of crude oil and natural gas. DD&A expenses on a $/BOE basis were $5.17/BOE for the six months ended June 30, 1996 compared to $4.25/BOE for the six months ended June 30, 1995. G&A EXPENSES. G&A expenses increased from $492,000 for the first six months of 1995 to $810,000 for the same period of 1996 as a result of the Company's hiring additional staff to manage the Company's assets, including establishing a Canadian administrative office. G&A expenses on a $/BOE basis increased from $.91/BOE for the six months ended June 30, 1995 to $1.46/BOE for the six months ended June 30, 1996. This increase was due to the smaller production base of the Company following the sale of Happy and Portilla and the loss of overhead reimbursement on the Portilla properties that previously had reduced G&A expenses. . INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest and dividends decreased from $2.1 million for the six months ended June 30, 1995 to $1.6 million for the six months ended June 30,1996, largely due to reduced debt levels after application to debt of the sales proceeds from Happy and Portilla. Interest and Dividends on $/BOE basis were $2.93/BOE for the six months ended June 30, 1996 compared to $3.91/BOE for the six months ended June 30, 1995. NATURAL GAS HEDGE. The Company had a loss of $312,000 for the first six months of 1996 as a result of the commodity swap agreement with First Union. GENERAL The Company has incurred operating losses and net losses for a number of years. The Company's revenues, profitability and future rate of growth are substantially dependent upon prevailing prices for crude oil and natural gas and the volumes of crude oil, natural gas and natural gas liquids produced by the Company. The price of natural gas received by the Company increased during the first quarter of 1996, but there can be no assurance that operating income and net earnings will be achieved in future periods. In addition, the Company's proved reserves will decline as crude oil, natural gas and natural gas liquids 12 are produced unless the Company is successful in acquiring properties containing proved reserves or conducts successful exploration and development activities. In the event natural gas prices return to depressed levels or if crude oil prices begin to decrease, or if the Company's production levels decrease, the Company's revenues, cash flow from operations and profitability will be materially adversely affected. LIQUIDITY AND CAPITAL RESOURCES Capital expenditures excluding property divestitures during the first six months of 1996 amounted to $6.7 million compared to $5.0 million during the same period of 1995. The table below sets forth the components of these capital expenditures on a historical basis for the six months ended June 30, 1995 and 1996. Six Months Ended June 30 1996 1995 ------- ------ Expenditure category (in thousands): Property acquisitions (1) ............. $1,530 $ 153 Development ........................... 4,925 4,765 Facilities and other .................. 299 33 ------ ------ Total .................................... $6,754 $4,951 ====== ====== (1) Includes approximately $1.1 million of oil and gas properties acquired from Cascade. At June 30, 1996, the Company had current assets of $5.6 million and current liabilities of $5.7 million resulting in working capital deficiency of $100,000. This compares to working capital of $2.6 million at December 31, 1995 and a deficiency of $1.7 million at June 30, 1995. The material components of the Company's current liabilities at June 30, 1996 include trade accounts payable of $4.1 million and revenues due third parties of $1.1 million. The Company's current budget for capital expenditures for the last six months of 1996 is $10.5 million. Such expenditures will be made primarily for the development of existing properties. Additional capital expenditures may be made for acquisitions of producing properties as such opportunities arise including $43.8 million for the acquisition of the Wyoming properties and $27.5 million for the acquisition of Portilla and Happy. Other than the commitments to complete these acquisitions, the Company has no material long-term capital commitments and is consequently able to adjust the level of its expenditures as circumstances dictate. Additionally, the level of capital expenditures will vary during future periods depending on market conditions and other related economic factors. The Company is currently exploring financing alternatives to complete the acquisitions with its financial advisors. These alternatives include the sale of debt securities, equity securities or some combination thereof and traditional bank financing. There can be no assurance that the Company will be able to obtain such financing. If the Company were unable to obtain such financing, the Company would forfeit its $3.8 million earnest money deposit made to the seller of the Wyoming properties. The First Union Financing Agreement contains two financial covenants: (1) the ratio of current assets to current liabilities (exclusive of any part of the loan which is current) shall not be less than 1:1 with any unborrowed dollars available under the Company's credit facility being computed as a current asset; and (2) the cash flow coverage ratio shall not be greater than 5:1 with cash flow coverage ratio defined as the ratio of (i) indebtedness plus any other funded long-term debt to (ii) annualized consolidated net income for each quarter, plus non-cash charges, less non-cash revenues. The First Union Financing Agreement also contains covenants relating to maintaining corporate existence, maintaining title to all of the collateral free and clear of all liens except for First Union's liens and those permitted by First Union, maintaining all mineral interests in good repair, and in compliance with all laws, maintaining insurance, paying all taxes, not paying dividends except as required on the Series 1995-B Preferred Stock and not selling any of the 13 collateral securing the loans. The Company was in compliance with these covenants at June 30, 1996 or has obtained appropriate waivers through January 1, 1997. Total availability under the First Union agreement was $35 million at August 1, with $33.5 million currently borrowed. Operating activities during the six months ended June 30, 1996 provided $4.1 million cash to the Company compared to $2.8 million in the same period in 1995. Net income plus non-cash expense items during 1996 and net changes in operating assets and liabilities accounted for most of these funds. Investing activities provided $3.6 million during the first six months of 1996 primarily from the divestiture of crude oil and natural gas properties. This compares to $4.7 million required during the same period of 1995 primarily utilized for the development of crude oil and natural gas properties. Financing activities required $9.7 million for the first six months of 1996 compared to providing $2.2 million for the same period of 1995. As a result of the acquisition of certain partnership interests and crude oil and natural gas properties in 1990 and 1991, an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), occurred in December 1991. Accordingly, it is expected that the use of net operating loss carryforwards generated prior to December 31, 1991 of $6.9 million will be limited to approximately $235,000 per year. During 1992, the Company acquired 100% of the common stock of an unrelated corporation. The use of net operating loss carryforwards of $3,607,000 acquired in the acquisition are limited to approximately $115,000 per year. As a result of the issuance of additional shares of Common Stock for acquisitions and sales of Common Stock, an additional ownership change under Section 382 occurred in October 1993. Accordingly, it is expected that the use of all net operating loss carryforwards generated through October 1993 of $13,430, 000 will be limited to approximately $1,034,000 per year subject to the lower limitations described above. Of the $13,430,000 net operating loss carryforwards existing at October 1993, it is anticipated that the maximum net operating loss that may be utilized before it expires is $7,188,000. Future changes in ownership may further limit the use of the Company's carryforwards. In addition to Section 382 limitations, uncertainties exist as to the future utilization of the operating loss carryforwards under the criteria set forth under FASB Statement No. 109. Therefore, the Company has established a valuation allowance of $5,656,000 and $5,482,000 for deferred tax assets at December 31, 1995 and 1994, respectively. Based upon the current level of operations, the Company believes that cash flow from operations and the Company's credit facility with First Union, will be adequate to meet its anticipated requirements for working capital, capital expenditures and scheduled interest payments other than the capital needed to complete the acquisitions described above through the end of 1996. A depressed price for natural gas or crude oil will have a material adverse effect on the Company's cash flow from operations and anticipated levels of working capital, and could force the Company to revise its planned capital expenditures. DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy, budgets and plans and objectives of management for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed under "Risk Factors" in the Company's Annual Report on Form 10-K which is incorporated by reference herein and this report. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the Cautionary Statements. 14 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11 Statement Re: Computation of earnings per share Exhibit 27 Financial data schedule (b) Reports on Form 8-K None 15 Exhibit (11) - Statement Re: Computation of Earnings Per Share
Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Primary: Average shares outstanding .......... 5,763,222 4,469,762 5,778,981 4,468,655 Net effect of dilutive stock options- based on the Treasury/Stock method using average market price ... -- -- 17,414 Assumed issuance under existing Contingent Value Rights agreement ... -- -- 725,515 ---------- ---------- ---------- ---------- Totals ................................. 5,763,222 4,469,762 6,521,910 4,468,655 Net income (loss) ...................... $ (331,680) $ (174,914) $ 175,777 $ (491,585) Per share amount ....................... $ (.06) $ (.04) $ .03 $ (.11)
16 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 14,1996 By:/s/ ------------------ ROBERT L.G. WATSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER Date: August 14, 1996 By:/s/ ------------------ CHRIS WILLIFORD, EXECUTIVE VICE PRESIDENT AND PRINCIPAL ACCOUNTING OFFICER 17 EX-27 2 FDS JUNE 30, 1996
5 6-Mos DEC-31-1996 JAN-1-1996 JUN-30-1996 2,331,872 326,000 3,103,364 (35,900) 94,183 5,648,529 99,228,928 (36,684,044) 77,522,590 5,733,701 32,456,651 0 457 58,040 36,895,853 77,522,590 0 8,094,658 0 6,243,669 0 0 1,456,424 394,565 0 394,565 0 218,788 0 175,777 .03 .03
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