-----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, DV/wfcb7cx9NQGSAxbcihGKSTDL5w2VTbppfKdz/sYWiBqYovO5FiirlWXJPD5Xu aDt9c/H4jKqVtBZhjQVeUg== 0000867665-96-000012.txt : 19961118 0000867665-96-000012.hdr.sgml : 19961118 ACCESSION NUMBER: 0000867665-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96665010 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 - 9/30/96 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 September 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 November 1, 1996, was: Class Shares Outstanding ---------------------------- ------------------- Common Stock, $.01 Par Value 5,804,812 1 of 16 1 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES FORM 10 - Q INDEX PART I FINANCIAL INFORMATION ITEM 1-Financial Statements(Unaudited) Consolidated Balance Sheets - September 30, 1996 and December 31,1995........................................3 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 1996 and 1995.....5 Consolidated Statements of Cash Flows - Nine Months Ended September 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 Signatures......................................................16 2 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS September 30 December 31 1996 1995 --------------- -------------- (Unaudited) ASSETS Current assets: Cash ....................................... $ 9,992,902 $ 4,249,767 Accounts receivable, less allowance for doubtful accounts of $35,900 at September 30, 1996 and$35,900 at December 31, 1995: Joint owners ........................... 593,481 1,334,873 Oil and gas production sales ........... 2,748,505 2,945,681 Affiliates ............................. 59,463 53,224 Other .................................. 563,081 60,367 ------------- ------------- 3,964,530 4,394,145 Equipment inventory ........................ 142,023 80,070 Other currents assets ...................... 138,986 124,820 ------------- Total current assets ......................... 14,238,441 8,848,802 Property and equipment: Oil and gas properties (full cost method) including $8,000,000 excluded from the amortization base at September 30, 1996, less accumulated depreciation,depletion and amortization of $37,601,185 at September 30, 1996 and $29,651,521 at December 31, 1995 ....................... 111,103,581 74,475,683 Other property and equipment: Land ...................................... 139,466 139,466 Equipment ................................. 969,835 692,508 Leasehold improvements .................... 129,398 37,430 Less accumulated depreciation ............. (366,586) (266,686) ------------- ------------- 111,975,694 75,078,401 Investments in and advances to partnership ... 2,396,992 -- Offering issuance costs ...................... 192,109 -- Deferred financing fees, net of accumulated amortization of $850,650 at September 30, 1996 and $289,231 at December 31, 1995 ...................... 778,698 353,514 Restricted cash .............................. 91,160 134,419 Other assets ................................. 766,994 326,222 Marketable securities ........................ -- 326,000 ------------- ------------- Total assets ................................. $ 130,440,088 $ 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) September 30 December 31 1996 1995 --------------- -------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................... $ 4,694,034 $ 3,928,824 Oil and gas production payable ............. 1,414,212 1,787,152 Accrued interest ........................... -- 362,750 Other accrued expenses ..................... 356,263 46,207 Dividends payable on preferred stock ....... 91,482 91,482 ------------- ------------- Total current liabilities .................... 6,555,991 6,216,415 Long-term debt: Financing agreements ....................... 85,000,000 41,556,651 Other long term obligations .................. 123,538 44,737 Deferred income taxes ........................ 186,749 186,749 Minority interest in foreign subsidiary ...... 2,153,223 -- Shareholders' equity: Preferred stock 8% authorized, 1,000,000 shares;issued and outstanding 45,741 shares at September 30, 1996 and December 31, 1995 ........................ 457 457 Common stock, par value $.01 per share - authorized 50,000,000 shares; issued and outstanding 5,804,812 shares at September 30, 1996 and 5,799,762 shares at December 31, 1995, respectively ....... 58,050 57,999 Additional paid-in capital ................. 50,920,154 50,914,078 Unrealized holding loss on securities ...... -- (244,000) Retained earnings (deficit) ................ (14,184,400) (13,663,903) Treasury stock, at cost, 70,711 shares at September 30, 1996 and 2,571 at December 31, 1995, respectively ......... (374,079) (1,825) Foreign currency translation ............... 405 -- ------------- ------------- Total shareholders' equity ................... 36,420,587 37,062,806 ------------- ------------- Total liabilities and shareholders' equity ... $ 130,440,088 $ 85,067,358 ============= ============= See accompanying notes to consolidated financial statements 4
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 -------------------------- ---------------------------- Revenue: Oil & gas production sales ....................... $ 3,771,667 $ 3,247,223 $ 11,785,848 $ 9,794,667 Rig revenues ..................................... 28,700 28,000 106,000 92,250 Other ............................................ 14,036 14,210 17,210 42,257 ------------ ------------ ------------ ------------ 3,814,403 3,289,433 11,909,058 9,929,174 Operating costs and expenses: Lease operating and production taxes ............. 1,114,619 1,084,574 3,295,659 3,182,567 Depreciation, depletion, & amortization .......... 1,274,106 1,254,382 4,145,047 3,540,882 General and administrative ....................... 440,650 275,500 1,250,458 768,575 Rig operations ................................... 42,658 27,302 112,581 94,978 Hedging Loss ..................................... 198,810 -- 510,767 -- ------------ ------------ ------------ ------------ 3,070,843 2,641,758 9,314,512 7,587,002 ------------ ------------ ------------ ------------ 743,560 647,675 2,594,546 2,342,172 Other (income) expense: Interest income .................................. (40,305) (1,035) (155,674) (8,392) Interest expense ................................. 698,023 984,609 2,141,816 2,915,260 Amort. of deferred financing fees ................ 64,419 40,000 192,419 120,000 Loss on securities sale .......................... 235,197 -- 235,197 -- ------------ ------------ ------------ ------------ 957,334 1,023,574 2,413,758 3,026,868 ------------ ------------ ------------ ------------ Income (loss) before minority interest and extraordinary item .......................... (213,774) (375,899) 180,788 (684,696) Minority interest in income of consolidated foreign subsidiary .............. 22,015 -- 57,839 -- ------------ ------------ ------------ ------------ Income (loss) before extraordinary item ............. (235,789) (375,899) 122,949 (684,696) Extraordinary item-debt extinguishment cost .......... 369,000 -- 369,000 -- ------------ ------------ ------------ ------------ Net income (loss) .................................... (604,789) (375,899) (246,051) (684,696) Less dividend requirement on cumulative preferred stock ....................... (91,482) (91,482) (274,446) (274,464) ------------ ------------ ------------ ------------ Net income (loss) applicable to common stock ..................................... $ (696,271) $ (467,381) $ (520,497) $ (959,160) ============ ============ ============ ============ Net income (loss) per share: Income (loss) per common share: Income (loss) before extraordinary item $ (.06) $ (.10) $ (.03) $ (.21) Extraordinary item (.06) -- (.06) -- ------------ ----------- ----------- ------------ Net income (loss) per common and dilutive common equivalent share .......................... $ (.12) $ (.10) $ (.09) (.21) ============ =========== =========== ============ Weighted average shares outstanding ............... 5,804,812 4,457,262 5,804,145 4,456,462 ============ =========== =========== ============
See accompanying notes to consolidated financial statements 5
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30 1996 1995 -------------------------- OPERATING ACTIVITIES Net income (loss) ..................................... $ (246,051) $ (684,696) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest in income of foreign subsidiary . 57,839 Depreciation, depletion, and amortization ......... 4,145,047 3,540,882 Amortization of deferred financing fees ........... 561,419 120,000 Issuance of Common Stock .......................... -- 55,512 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ........ 103,615 (1,892,866) (Increase) decrease in other current assets ....... (14,166) (127,947) (Increase) decrease in equipment inventory ........ (61,953) (16,872) (Decrease) increase in accounts payable and accrued expenses ............................... 712,516 107,469 (Decrease) increase in oil & gas production payable (372,940) 325,992 ------------ ------------ Net cash provided by operating activities ............. 4,885,326 1,427,474 INVESTING ACTIVITIES Development of oil and gas properties ................. (10,016,286) (8,934,853) Proceeds from sale of oil and gas producing properties 16,794,137 2,724,001 Purchase of oil and gas producing properties .......... (46,430,993) (153,139) Purchase of property and equipment .................... (369,295) (89,252) Development of gas processing plants .................. (123,532) (45,843) Purchase of investment and advances to oil and gas partnership ..................................... (2,396,992) Minority interest related to assets acquired of foreign subsidiary .................................. 2,095,384 Purchase of interest in real estate partnership ....... (27,810) Assets of acquired companies, net of cash ............. (645,001) ------------ ------------ Net cash provided (used) in investing activities ...... (41,120,388) (6,499,086)
6
ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) Nine Months Ended September 30 1996 1995 -------------------------- FINANCING ACTIVITIES Issuance of Common Stock .............................. 30,313 Offering issuance costs ............................... (192,109) Purchase of treasury stock ............................ (372,254) Proceeds from long term borrowings .................... 90,400,000 2,750,000 Proceeds from short term borrowings ................... -- 3,000,000 Dividends paid on preferred stock ..................... (274,464) (274,464) Payments on long-term borrowings ...................... (46,956,650) (10,552) Increase in other long-term liabilities ............... 78,800 Loan origination fees ................................. (778,698) (171,996) ------------ ------------ Net cash provided by financing activities ............. 41,934,938 5,292,988 ------------ ------------ Increase (decrease) in cash ........................... 5,699,876 221,376 Cash at beginning of period ........................... 4,384,186 135,297 ------------ ------------ Cash at end of period, including restricted cash ..................................... $ 10,084,062 $ 356,673 ============ ============ Supplemental disclosures of cash flow information: Interest paid ......................................... $ 2,141,816 $ 2,953,296 ============ ============ Supplemental schedule of non-cash investing and financing activity: Accrual of preferred dividends ........................ $ 91,482 $ 91,482 ============ ============ Issuance of Common Stock for compensation ............. $ 6,127 $ 55,512 ============ ============ 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) SEPTEMBER 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 nine month period ended September 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. The weighted average number of shares includes the number of shares that would be issuable under the Contingent Value Rights Agreement if the current market value of the Company's common stock at period-end is less than a specified target price. Common stock equivalents including any shares reusable under the Contingent Value Rights Agreement 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 In September 1996, the Company acquired producing properties in the Wamsutter Area of southwestern Wyoming for $45.9 million, net of a preliminary adjustment for accrual of net revenue and interest from April 1, 1996 to September 30, 1996. The acquisition was accounted for as a purchase and the purchase price was allocated to proved and unproved crude oil and natural gas properties based on the estimated fair values of the properties acquired. The purchase price was funded by a combination of $3.8 million cash on hand and advances under the Company's new credit facility with Bankers Trust Company, (see note 4). No revenue or expenses from this acquisition were included in the consolidated financial statements as the transaction was not closed until September 30, 1996. 8 NOTE 4. LONG TERM DEBT On September 30, 1996, the Company entered into a new credit facility with Bankers Trust Company (BTCo) and ING Capital (together the Lenders), providing a bridge facility in the total amount of $90 million, consisting of a $30 million revolving credit facility, with $25 million initially available, a $35 million term loan and a $25 million term loan (the Bridge Facility). The Bridge Facility is secured by a first priority lien on substantially all of the Company's U.S. assets and matures on October 31, 1997. If borrowings under the Bridge Facility have not been repaid by each of November 15, 1996 and January 1, 1997, the Company will be obligated to pay the Lenders additional fees and/or warrants to purchase common stock of the Company. The agreement limits the Company's debt to the Bridge Facility, restricts the payment of dividends other than to the existing preferred stock, and requires compliance with minimum tangible net worth, current and interest coverage ratios and certain financial reporting requirements. The revolving credit facility and the $35 million term loan carry interest at LIBOR plus 2 1/4% and the $25 million term loan carries interest at the BTCo's prime rate plus 3%, increasing at 1/2% for each 90-day period thereafter to a maximum of prime plus 4 1/2 %. Under an interest rate swap agreement, the Company pays a fixed rate of 6.15% on $25 million of borrowings while the lender under the Bridge Facility will pay a floating rate equal to the USD-LIBOR-BBA rate for one month maturities to the Company. Settlements are due monthly. The agreement terminates in August 1997 and may be extended for an additional year by the lenders. On September 30, 1996, the Company borrowed $85 million under the Bridge Facility which was used to repay all amounts due First Union and to finance the purchase of the Wyoming Properties NOTE 5. SUBSEQUENT EVENTS In October 1996, the Company entered into agreements to purchase the outstanding capital stock of CGGS Canadian Gas Gathering Systems Inc. ("CGGS") after the consummation by CGGS of one of its gas processing facilities for approximately $86.4 million plus the amount of CGGS working capital and interest due to the seller. CGGS owns producing oil and gas properties in western Canada and adjacent gas gathering and processing facilities as well as 47,000 undeveloped net acres of leasehold. See below for financing details. In September 1996, the Company agreed to acquire a 75% partnership interest in Portilla-1996, L.P. (The "Partnership") for $27.5 million, including the repayment of certain indebtedness. The Company currently owns the remaining 25% interest in the Partnership. The Partnership owns a 100% working interest in the Portilla Field, located in the Texas Gulf Coast region and a 12 % working interest in the Happy Field, located in the Permian Basin of west Texas. See below for financing details. On November 5, 1996, the Company completed pricing of a $215 million Senior Notes Debt Offering that is scheduled to close on November 14, 1996. The Company will use these proceeds to close the two acquisitions detailed above as well as payoff all amounts due under the Company's credit facility (see Note 4). Approximately $10.0 million in proceeds will remain for general corporate use after these transactions are completed. Simultaneously, with the closing of the Offering, the Company will enter into an amended credit facility with the Lenders in the amount of $40.0 million with an initial borrowing availability of $20.0 million. Any advances under this facility will bear interest at rates varying from LIBOR Plus 125 basis points to LIBOR Plus 200 basis points depending on the percentage of the amount of availability drawn. The facility calls for no principal reductions for 2 years (pending semi annual borrowing base reviews) followed by amortization over eleven equal quarterly reductions and one final payment not to exceed 10% of the outstanding balance at the beginning of the 3 year amortization period. All U.S. assets of the Company will collateralize the facility and standard and customary covenants will apply. 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 Nine Months Ended September 30 September 30 1996 1995 1996 1995 ------------------- ------------------ Operating Revenue (in thousands): Crude Oil Sales ...................... $ 1,583 $ 1,607 $ 5,306 $ 4,887 Natural Gas Sales .................... 1,710 1,247 5,130 3,743 Natural Gas Liquid Sales ............. 479 394 1,350 1,165 Rig Operations ....................... 28 28 106 92 Other ................................ 14 14 17 42 ------- ------- ------- ------- Total Operating Revenue ............. $ 3,814 $ 3,290 $11,909 $ 9,929 ======= ======= ======= ======= Operating Income (in thousands): ...... $ 744 $ 648 $ 2,595 $ 2,342 Crude Oil Production (MBBLS) .......... 74 97 266 283 Natural Gas Production (MMCFS) ........ 867 950 2,625 2,645 Natural Gas Liquids Production (MBBLS) 36 37 106 106 Average Natural Gas Sales Price ($/MCF) $ 1.97 $ 1.32 $ 1.95 $ 1.41 Average Crude Oil Sales Price ($/Bbl) . $ 21.24 $ 16.62 $ 19.94 $ 17.24 Average Liquids Sale Price ($/Bbl) .... $ 13.40 $ 10.61 $ 12.73 $ 10.94 COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED SEPTEMBER 30, 1995 OPERATING REVENUE. During the three months ended September 30, 1996, operating revenue from crude oil, natural gas and natural gas liquid sales increased to $ 3.8 million compared to $3.2 million in the three months ended September 30, 1995. The increase was attributable to the increase in average sales prices and 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 $951,000 in operating revenue during the third quarter of 1995. Crude oil and natural gas liquids sales volumes decreased by 19% and natural gas sales volumes decreased by 8% in the three months ended September 30, 1996 as compared to the same 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 184,650 Mcf of natural gas (19% of Company total), 31,164 Bbls of crude oil (31% of Company total) and13,115 Bbls of natural gas liquids (35% of Company total) during the three months ended September 30, 1995. Average sales prices were $21.24 per Bbl of crude oil, $1.97 per Mcf of natural gas and $13.40 per Bbl of natural gas liquids in the three months ended September 30, 1996 compared with $16.62 per Bbl of crude oil, $1.32 per Mcf of natural gas and $10.61 per Bbl of natural gas liquids in the same period of 1995. 10 LEASE OPERATING EXPENSES. Lease operating expenses and production taxes ("LOE") for the three months ended September 30, 1996 remained at $1.1 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 September 30, 1995, LOE was $151,000 for Happy and Portilla and $963,000 for the Company's remaining properties. LOE on a $/BOE basis were $4.38 per BOE for the three months ended September 30, 1996 compared to $3.71 per BOE for the three months ended September 30, 1995. During the three months ended September 30, 1995, LOE on a per BOE basis for Happy and Portilla was $2.68 per BOE compared to $4.07 per BOE for the remainder of the Company's producing properties. G&A EXPENSES. G&A expenses increased from $276,000 for the three months ended September 30, 1995 to $441,000 for the same period of 1996 as a result of the Company's hiring additional staff to manage its assets, including establishing a Canadian administrative office. G&A expenses on a $ per BOE basis increased from $.94 per BOE for the three months ended September 30, 1995 to $1.73 per BOE for the three months ended September 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 September 30, 1995 that previously had reduced G&A expenses. DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization ("DD&A") expenses remained at $1.3 million for the three months ended September 30, 1996. DD&A expenses on a $/BOE basis was $5.00 per BOE for the three months ended September 30, 1996 compared to $4.29 per BOE for the three months ended September 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 September 30, 1995 to $790,000 for the three months ended September 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 per BOE basis were $3.10 per BOE for the three months ended September 30, 1996 compared to $3.68 per BOE for the three months ended September 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 September 30, 1996, the Company sustained a $199,000 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. OTHER EXPENSES. In September 1996, the Company repaid its existing bank debt to First Uniooon National Bank and expensed the remaining unamortized deferred financing costs of $433,000 previously carried as an asset. Also, in September the Company entered into an agreement to sell marketable securities it had held since 1993. This transaction, completed in October, resulted in the Company recognizing a loss of $235,000. This anticipated loss had previously been reflected in the equity section of the Company's balance sheet. 11 COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED SEPTEMBER 30, 1995 OPERATING REVENUE. During the nine months ended September 30, 1996, operating revenue from crude oil, natural gas and natural gas liquids sales increased from $9.8 million in 1995 to $11.8 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. Happy and Portilla contributed $951,000 in operating revenue during the third quarter of 1995 and $0 million during the third quarter of 1996. Crude oil and natural gas liquids sales volumes decreased by 4% and natural gas sales volumes decreased by 1% in the first nine months of 1996 as compared to the first nine months of 1995. Happy and Portilla contributed 87,126 MBbls of crude oil and natural gas liquids (31% of Company total) and 375 MMcf of natural gas (14% of Company total) during the first nine 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 (4% of Company total) for the first nine months of 1996. Average sales prices were $19.94 per Bbl of crude oil, $12.73 per Bbl of natural gas liquids and $1.95 per Mcf of natural gas for the nine months ended September 30, 1996 compared with $17.24 per Bbl of crude oil, $10.94 per Bbl of natural gas liquids and $1.41 per Mcf of natural gas for the nine months ended September 30, 1995. A general weakening of crude oil and natural gas prices at the wellhead during the first nine months of 1995 resulted in a higher average crude oil and natural gas sales price received by the Company during the nine months ended September 30, 1996 compared to the same period in 1995. LEASE OPERATING EXPENSES. LOE for the nine months ended September 30, 1996 increased to $ 3.3 million compared to $3.2 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 nine months of 1995, $445,000 was attributable to Happy and Portilla as compared to $233,000 during the first nine months of 1996. LOE on a per BOE basis was $4.07 per BOE for the nine months ended September 30, 1996 compared to $3.83 per BOE for the nine months ended September 30, 1995. DEPRECIATION, DEPLETION AND AMORTIZATION. DD&A expenses increased from $3.5 million for the nine months ended September 30, 1995 to $4.2 million for the nine months ended September 30, 1996, primarily due to the increase in sales volumes of crude oil and natural gas. DD&A expenses on a per BOE basis were $5.27 per BOE for the nine months ended September 30, 1996 compared to $4.27 per BOE for the nine months ended September 30, 1995. G&A EXPENSES. G&A expenses increased from $769,000 for the first nine months of 1995 to $1.2 million 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 per BOE basis increased from $ .93 per BOE for the nine months ended September 30, 1995 to $1.54 per BOE for the nine months ended September 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 $3.2 million for the nine months ended September 30, 1995 to $2.4 million for the nine months ended September 30,1996, largely due to reduced debt levels after application to debt of the sales proceeds from Happy and Portilla. Interest and Dividends on per BOE basis were $2.98 per BOE for the nine months ended September 30, 1996 compared to $3.84 per BOE for the nine months ended September 30, 1995. NATURAL GAS HEDGE. The Company had a loss of $510,767 for the first nine months of 1996 as a result of the commodity swap agreement with First Union. 12 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 prices of crude oil, natural gas liquids and natural gas received by the Company increased during the nine months ended September 30, 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 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 nine months of 1996 amounted to $58.0 million compared to $9.2 million during the same period of 1995. The table below sets forth the components of these capital expenditures on a historical basis for the nine months ended September 30, 1995 and 1996. Nine Months Ended September 30 1996 1995 ----------------- Expenditure category (in thousands): Property acquisitions (1) ................. $47,655 $ 199 Development ............................... 10,016 8,935 Facilities and other ...................... 369 89 ------- ------- Total ........................................ $58,040 $ 9,223 ======= ======= (1) Includes approximately $1.1 million of oil and gas properties acquired from Cascade. At September 30, 1996, the Company had current assets of $14.2 million and current liabilities of $6.6 million resulting in working capital of $7.6 million. This compares to working capital of $2.6 million at December 31, 1995 and a deficiency of $2.5 million at September 30, 1995. The material components of the Company's current liabilities at September 30, 1996 include trade accounts payable of $4.7 million and revenues due third parties of $1.4 million. The Company's current budget for capital expenditures for the last three months of 1996 is $6.5 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. 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. 13 The Company's new credit facility contains three 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; (2) maintaining minimum tangible net worth of $30.0 million; and (3) the ratio of earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) to interest expense shall be at least 1.75 to 1.00. The credit facility also contains covenants relating to maintaining corporate existence, maintaining title to all of the collateral free and clear of all liens except for the lenders liens and those permitted by the the lenders, 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 collateral securing the loans. The Company was in compliance with these covenants at September 30, 1996. Total availability under the credit facility was $85 million at September 30, with $85.0 million currently borrowed. Operating activities during the nine months ended September 30, 1996 provided $ 4.8 million cash to the Company compared to $1.4 million in the same period in 1995. Net income (loss) plus non-cash expense items during 1996 and net changes in operating assets and liabilities accounted for most of these funds. Investing activities required $41.1 million during the first nine months of 1996 primarily from the acquisition of crude oil and natural gas properties in the Wamsutter Area in southwestern Wyoming. See Note 3. This compares to $6.5 million required during the same period of 1995 primarily utilized for the development of crude oil and natural gas properties. Financing activities provided $41.9 million for the first nine months of 1996 primarily from the Company's new credit facility compared to providing $5.3 million for the same period of 1995. In August 1995, the Company entered into a rate swap agreement with First Union relating to $25.0 million of principal amount outstanding under the First Union Credit Facility. This agreement was assumed by the lenders of the new credit facility. Under the agreement, the Company pays a fixed rate of 6.15% while the lenders under the new credit facility will pay a floating rate equal to the USD-LIBOR-BBA rate for one month maturities, quoted on the eighteenth day of each mont, to the Company. Settlements are due monthly. The agreement terminates in August 1997 and may be extended for an additional year by the lenders. 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 $3.6 million 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 $13.4 million will be limited to approximately $1.0 million per year subject to the limitations described above and $7.2 million in the aggregate. 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 $5.7 million and $5.5 million 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 new credit facility, will be adequate to meet its anticipated requirements for working capital, capital expenditures and scheduled interest payments 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. 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: None (b) Reports on Form 8-K: None 15 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: By:/s/Robert L.G. Watson ---------------------- ROBERT L.G. WATSON, President and Chief Executive Officer Date: By:/s/Chris Williford ---------------------- CHRIS WILLIFORD, Executive Vice President and Principal Accounting Officer 16 EX-27 2 FDS SEPTEMBER 30, 1996
5 6-MOS DEC-31-1996 JAN-1-1996 SEP-30-1996 10,084,062 0 4,000,430 35,900 142,023 14,238,441 148,704,766 37,601,185 130,440,088 6,555,991 85,000,000 0 457 58,050 36,362,080 130,440,088 0 11,909,058 0 9,314,512 0 0 2,141,816 155,674 0 180,788 0 426,839 0 (520,497) .09 .09
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