-----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, D1X4k/rI0gCaYBcuOxDd641yxkLOgns8x+U1n6kgqPh1WmelSNpX+hLePm4vh90p JQu2oIM8Z9eycqeHhch0OQ== 0000867665-97-000018.txt : 19971117 0000867665-97-000018.hdr.sgml : 19971117 ACCESSION NUMBER: 0000867665-97-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-19118 FILM NUMBER: 97720335 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 10Q - 9/30/97 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, 1997 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, 1997, was: Class Shares Outstanding --------------------------- --------------------- Common Stock, $.01 Par Value 6,271,707 1 of 17 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES FORM 10 - Q INDEX PART I FINANCIAL INFORMATION ITEM 1 - Financial Statements(Unaudited) Consolidated Balance Sheets - September 30, 1997 and December 31,1996 ..........................................3 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 1997 and 1996.........5 Consolidated Statements of Cash Flow- Nine Months Ended September 30, 1997 and 1996...................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..................................................15 ITEM 2 - Changes in Securities..............................................15 ITEM 3 - Defaults Upon Senior Securities....................................15 ITEM 4 - Submission of Matters to a Vote of Security Holders................15 ITEM 5 - Other Information..................................................16 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 September 30 December 31 1997 1996 (Unaudited) -------------------------- (In Thousands) Assets Current assets: Cash ................................................ $ 7,559 $ 8,290 Accounts receivable, less allowance for doubtful accounts: Joint owners ................................... 2,067 1,601 Oil and gas production sales ................... 8,164 11,400 Affiliates ..................................... -- 94 Other .......................................... 749 1,289 -------- -------- 10,980 14,384 Equipment inventory ................................. 430 451 Other current assets ................................ 205 187 -------- -------- Total current assets .................................. 19,174 23,312 Property and equipment: ............................... 346,459 310,043 Less accumulated depreciation, depletion and amortization ........................................ 58,250 38,653 -------- -------- Net property and equipment based on the full cost method of accounting for oil and gas properties of which $37,268 was excluded from amortization .... 288,209 271,390 Deferred financing fees, net of accumulated amortization of $280 and $1,213 at December 31, 1996, and September 30, 1997, respectively ........ 8,432 9,335 Restricted cash ....................................... 90 90 Other assets .......................................... 1,277 715 -------- -------- Total Assets ........................................ $317,182 $304,842 ======== ========
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 1997 1996 (Unaudited) -------------------------- (In Thousands) Liabilities and Shareholders' Equity Current liabilities: Accounts payable ................................... $ 14,246 $ 9,960 Oil and gas production payable ..................... 2,410 2,378 Accrued interest ................................... 10,392 3,206 Income tax payable ................................. 145 145 Other accrued expenses ............................. 1,638 1,132 Payable to affiliates .............................. -- 58 -------- -------- Total current liabilities .................... 28,831 16,879 Long-term debt: Senior notes ....................................... 215,000 215,000 Other .............................................. 2,330 32 -------- -------- 217,330 215,032 Other long term obligations .......................... 243 87 Deferred income taxes ................................ 32,024 32,928 Minority interest in foreign subsidiary .............. 4,380 2,157 Future site restoration .............................. 2,248 2,103 Shareholders' equity: Preferred stock 8% authorized, 1,000,000 shares; issued and outstanding -0- shares at September 30, 1997 and 45,741 shares at December 31, 1996 ...... -- -- Common stock, par value $.01 per share - authorized 50,000,000 shares; issued 6,324,730 shares at September 30, 1997 and 5,806,812 shares at December 31, 1996, respectively 63 58 Additional paid-in capital ......................... 51,119 50,926 Accumulated deficit ................................ (15,298) (12,517) Treasury stock, at cost, 53,023 and 74,711 at September 30, 1997 and December 31, 1996, respectively ................................... (281) (405) Foreign currency translation ....................... (3,477) (2,406) -------- -------- Total shareholders' equity ........................... 32,126 35,656 -------- -------- Total liabilities and shareholders' equity ........... $317,182 $304,842 ======== ========
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 1997 1996 1997 1996 ------------------------------------------------------------ (In thousands except share and per share data) Revenue: Oil & gas production sales ............................... $ 14,376 $ 3,572 $ 46,920 $ 11,275 Processing revenue ....................................... 956 -- 2,793 -- Rig revenues ............................................. 144 29 250 106 Other .................................................... 227 14 728 17 --------- ----------- ----------- ---------- 15,703 3,615 50,691 11,398 Operating costs and expenses: Lease operating and production taxes .................... 3,822 1,114 10,604 3,295 Gas processing costs .................................... 477 -- 1,191 -- Depreciation, depletion and amortization ................ 6,385 1,274 19,780 4,145 General and administrative .............................. 1,035 441 3,119 1,250 Rig operations .......................................... 82 43 214 113 --------- ----------- ----------- ---------- 11,801 2,872 34,908 8,803 --------- ----------- ----------- ---------- Operating Income ........................................... 3,902 743 15,783 2,595 Other (income) expense: Interest income ......................................... (45) (40) (438) (155) Interest expense ........................................ 6,385 698 18,757 2,142 Amortization of deferred financing fees ................. 340 64 933 192 Other ................................................... (11) 235 115 235 --------- ----------- ----------- ---------- 6,669 957 19,367 2,414 --------- ----------- ----------- ---------- Income (loss) from operations before taxes ................. (2,767) (214) (3,584) 181 Income tax expense Current ................................................. 41 -- 156 -- Deferred benefit ........................................ (724) -- (1,227) -- Minority interest in income (loss) of consolidated foreign subsidiary ...................... (42) 22 85 58 --------- ----------- ----------- ---------- Income (loss) before extraordinary item .................... (2,042) (236) (2,598) 123 Extraordinary item--debt extinguishment cost ............... -- 369 -- 369 --------- ------------ ----------- ---------- Net income (loss) .......................................... (2,042) (605) (2,598) (246) Less dividend requirement on cumulative preferred stock ......................................... -- (91) (183) (274) --------- ------------ ------------ ---------- Net income (loss) applicable to common stock................ $ (2,042) $ (696) $ (2,781) $ (520) ========= ============ ============ ========== Net income (loss) per share: Income (loss) per common share: Income (loss) before extraordinary item................ $ (.33) $ (.06) $ (.47) $ (.03) Extraordinary item .................................... -- (.06) -- (.06) --------- ------------ ------------ ---------- Net income (loss) ..................................... $ (.33) $ (.12) $ (.47) $ (.09) ========== ============ =========== ========== Weighted average shares outstanding ........................ 6,271,707 5,804,812 5,920,135 5,804,145 =========== =========== =========== ==========
See accompanying notes to consolidated financial statements 5
Abraxas Petroleum Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30 1997 1996 ----------------------- (In Thousands) Operating Activities Net income (loss) ...................................... $ (2,598) $ (246) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest in income of foreign subsidiary 85 58 Depreciation, depletion, and amortization ........ 19,780 4,145 Amortization of deferred financing fees .......... 933 561 Issuance of common stock for compensation ........ 310 -- Decrease in deferred tax ......................... (1,227) -- Changes in operating assets and liabilities: Accounts receivable ......................... 3,404 103 Equipment inventory ......................... 21 (62) Other assets ................................ (18) (14) Accounts payable and accrued expenses ....... 11,920 713 Oil and gas production payable .............. 32 (373) -------- -------- Net cash provided by operating activities ........ 32,642 4,885 Investing Activities Capital expenditures, including purchases and development of properties ............................. (44,604) (55,489) Proceeds from sale of oil and gas producing properties . 8,978 16,794 Purchase of interest partnership ....................... -- (2,425) -------- -------- Net cash provided (used) in investing activities ....... (35,626) (41,120)
See accompanying notes to consolidated financial statements 6
Abraxas Petroleum Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued) (Unaudited) Nine Months Ended September 30 1997 1996 ----------------------- (In Thousands) Financing Activities Issuance of common stock ............................ 11 30 Offering issuance costs ............................. -- (192) Purchase of treasury stock .......................... -- (372) Dividends paid on preferred stock ................... (182) (274) Proceeds from long term borrowings .................. 2,298 90,400 Payments on long term borrowings .................... -- (46,957) Increase in other long term liabilities ............. 156 79 Deferred financing fees ............................. (30) (779) -------- -------- Net cash provided by financing activities ........... 2,253 41,935 -------- -------- Increase (Decrease) in cash ......................... (731) 5,700 Cash at beginning of period ......................... 8,380 4,384 -------- -------- Cash at end of period, including restricted cash .... $ 7,649 $ 10,084 ======== ======== Supplemental disclosures of cash flow information: Interest paid ....................................... $ 12,594 $ 2,142 ======== ======== Supplemental schedule of non-cash investing and financing activity: Accrual of preferred dividends ...................... $ -- $ 91 ======== ========
See accompanying notes to consolidated financial statements 7 Abraxas Petroleum Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 30, 1997 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 for the year ended December 31, 1996 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, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. Any and all adjustments are of a normal and recurring nature. The consolidated financial statements include the accounts of the Company and its wholly-owned foreign subsidiary Canadian Abraxas Petroleum Ltd. ("Canadian Abraxas"), and its 78% owned foreign subsidiary Grey Wolf Exploration, Ltd., ("Grey Wolf"). Grey Wolf has consolidated its 58% 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. Canadian Abraxas' , Grey Wolf's and Cascade's 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 PER SHARE Net income per common share is computed by dividing net income (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. Income 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 if dilutive. Common stock equivalents are not considered in the computation of net income per common share for periods with a loss, as their effect is anti-dilutive. During the second quarter of 1997, the Contingent Value Rights terminated; accordingly, earnings per share for the first six months of 1997 have been retroactively restated. Subsequent to June 30, 1997, the holder of the Company's preferred stock converted its holdings into 508,183 shares of common stock. If the conversion had occurred at the beginning of the periods presented, earnings per share would have been $(.10) for the three months ended September 30, 1996, and $(.41) and $.04 for the nine months ended September 30, 1997 and 1996. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings per Share", which is required to be adopted on December 31, 1997. Under the statement, primary earnings per share will be replaced with basic earnings per share and fully diluted earnings per share will be replaced with diluted earnings per share. The new requirements for calculating basic earnings per share exclude the dilutive effect of stock options, warrants and Contingent Value Rights. The implementation of the new requirements would not have had any impact on basic or fully diluted earnings per share for the period ended September 30, 1997. 8 NOTE 3. SUMMARY FINANCIAL INFORMATION OF CANADIAN ABRAXAS PETROLEUM LTD. The following is summary financial information of Canadian Abraxas, a wholly-owned subsidiary of the Company at September 30, 1997, and for the three and nine months ended September 30, 1997. Canadian Abraxas is jointly and severally liable with the Company for the entire balance of the Company's and Canadian Abraxas' 11.5% Senior Notes (the "Notes") ($215,000,000), of which $74,682,000 was utilized by Canadian Abraxas in connection with the acquisition of Canadian Gas Gathering Systems, Inc. The Company has not presented separate financial statements and other disclosures concerning Canadian Abraxas because management has determined that such information is not material to the holders of the Notes and the Company's Common Stock. Assets Liabilities and Shareholders Equity - ------------------------------------------------------------------------------- (In Thousands) Total current assets $ 9,034 Total current liabilities $ 5,474 Oil and gas properties 97,556 11.5% Senior Notes due 2004 74,682 Other assets 3,998 Other liabilities 33,523 ------------ $ 110,588 Shareholder's equity (3,091) ========== --------- $ 110,588 ========= Three Months Ended Nine Months Ended Sept.30,1997 Sept.30,1997 ------------------------------------------- Revenues $ 3,555 $ 13,382 Operating costs & expenses (3,889) (11,544) Interest expense (2,107) (6,999) Other income (expense) (48) (242) Income tax - benefit 896 1,289 ----------- ----------- Net loss $ (1,593) $ (4,114) =========== =========== NOTE 4. SUBSEQUENT EVENT The Company has entered into a merger agreement to purchase Vessels Energy, Inc., a privately held Denver-based company for Abraxas common stock. The merger is dependent on board and shareholder approval of both companies with closing expected in early 1998. NOTE 5. RECLASSIFICATIONS Certain balances for 1996 have been reclassified for comparative purposes. 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, 1996 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 Sept. 30 Sept. 30 ------------------ ------------------ 1997 1996 1997 1996 Operating Revenue (in thousands): Crude Oil Sales .................... $ 4,282 $ 1,583 $13,383 $ 5,306 Natural Gas Sales .................. 7,709 1,511 25,557 4,619 Natural Gas Liquids Sales .......... 2,385 479 7,980 1,350 Processing revenue ................. 956 -- 2,793 -- Rig Operations ..................... 144 28 250 106 Other ................................ 227 14 728 17 ------- ------- ------- ------- Total Operating Revenue .......... $15,703 $ 3,615 $50,691 $11,398 ======= ======= ======= ======= Operating Income (in thousands): ....... $ 3,902 $ 743 $15,783 $ 2,595 Crude Oil Production (MBBLS) ........... 242 74 712 266 Natural Gas Production (MMCF) .......... 4,959 867 14,985 2,625 Natural Gas Liquids Production (MBBLS) . 245 36 751 106 Average Crude Oil Sales Price ($/BBL)... $ 17.69 $ 21.24 $ 18.79 $ 19.94 Average Natural Gas Sales Price ($/MCF). $ 1.55 $ 1.97 $ 1.71 $ 1.95 Average Liquids Sale Price ($/BBL) ..... $ 9.73 $ 13.40 $ 10.63 $ 12.73 COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED SEPTEMBER 30, 1996 OPERATING REVENUE. During the three months ended September 30, 1997 operating revenue from crude oil, natural gas and natural gas liquid sales increased to $14.4 million compared to $3.6 million in the three months ended September 30, 1996. The $10.8 million increase in revenue was primarily attributable to increased volumes which was partially offset by a decline in the average sales price per BOE. Volume increases from 254,792 BOE to 1,314 MBOE (thousand barrels of oil equivalent "MBOE") contributed $14.8 million, which was offset by $(4.0) million from lower commodity prices. Volume increases were due primarily to increased production from acquisitions of producing properties acquired during the fourth quarter of 1996, as well as increased production attributable to the Company's ongoing development program on existing and acquired properties. Oil and natural gas liquids volumes increased by 342% to 487 MBbls from 110 MBbls for the same period of 1996. Acquisitions and subsequent development of acquired properties contributed 286.0 MBbls while ongoing development of existing properties contributed 91 MBbls of the increase. Natural gas volumes increased from 867 MMcf to 4,959 MMcf for the three months ended September 30, 1997. Acquisitions and subsequent development of acquired properties contributed 1,900 10 MMcf while existing properties contributed 3,059 MMcf. Average sales prices were $17.69 per Bbl of crude oil, $1.55 per Mcf of natural gas and $9.73 per Bbl of natural gas liquids in the three months ended September 30, 1997 compared with $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 same period of 1996. LEASE OPERATING EXPENSES. Lease operating expenses and production taxes ("LOE") and natural gas processing expenses were $4.3 million for three months ended September 30, 1997 compared to $1.1 million for the same period of 1996. The increase of $3.2 million was due to an increase in the number of wells the Company owned as of September 30, 1997 compared to the same period of the prior year. LOE on a per barrel basis decreased to $2.91 per BOE for the three months ended September 30, 1997 from $4.37 for the same period of 1996. G&A EXPENSES. General and administrative ("G&A") expenses increased from $441,000 for the three months ended September 30, 1996 to $1.0 million for the same period of 1997. The increase is primarily attributable to the hiring of additional staff, including an increase in the personnel at the Company's Canadian administrative office to manage and develop properties acquired in the fourth quarter of 1996. G&A expense on a per BOE basis decreased to $.79 per BOE from $1.73 for same period of 1996. DEPRECIATION, DEPLETION AND AMORTIZATION. Due to the increase in sales volumes of crude oil and natural gas, depreciation, depletion and amortization ("DD&A") expenses increased by $5.1 million to $6.4 million for the three months ended September 30, 1997 from $1.3 million for the same period of 1996. DD&A expenses on a per BOE basis was $4.86 per BOE for the three months ended September 30, 1997 compared to $5.00 per BOE for the three months ended September 30, 1996. INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest expense and preferred dividends ("Interest and Dividends") increased to $6.4 million for the three months ended September 30, 1997 from $790,000 for the three months ended September 30, 1996. The increase is due to increased levels of borrowings by the Company to finance the acquisitions consummated in 1996, partially offset by the elimination of dividends on preferred stock due to the conversion of such stock into common stock for the three months ended September 30, 1997. Long-term debt increased from $85 million as of September 30, 1996 to $217.3 million at September 30, 1997. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED SEPTEMBER 30, 1996 OPERATING REVENUE. During the nine months ended September 30, 1997 operating revenue from crude oil, natural gas and natural gas liquid sales increased to $46.9 million compared to $11.3 million in the nine months ended September 30, 1996. The $35.6 million increase in revenue was primarily attributable to increased volumes which was partially offset by a decline in the average sales price per BOE. Volume increases from 809,670 BOE to 3,961 MBOE contributed $43.8 million which was offset by $(8.2) million from lower commodity prices. Volume increases were due primarily to increased production from acquisitions of producing properties acquired in the fourth quarter of 1996, as well as increased production attributable to the Company's ongoing development program on existing and acquired properties. Oil and natural gas liquids volumes increased by 293% to 1,463 Mbbls from 372 Mbbls for the same period of 1996. Acquisitions and subsequent development of acquired properties contributed 777 Mbbls while ongoing development of existing properties contributed 314 Mbbls of the increase. Natural gas volumes increased from 2,625 MMcf to 14,985 MMcf for the nine months ended September 30, 1997. Acquisitions and subsequent development of acquired properties contributed 9,287 MMcf while existing properties contributed 3,073 MMcf. Average sales prices were $18.79 per Bbl of crude oil, $1.71 per Mcf of natural gas and $10.63 per Bbl of natural gas liquids for the nine months ended September 30, 1997, compared with $19.94 per Bbl of crude oil, $1.95 per Mcf of natural gas and $12.73 per Bbl of natural gas liquids in the same period of 1996. LEASE OPERATING EXPENSES. LOE and natural gas processing expenses were $11.8 million for the nine months ended September 30, 1997, compared to $3.3 million for the same period of 1996. The increase of $8.5 million was due to an increase in the number of wells the Company owned as of September 30, 1997, compared to the same period of the prior year. LOE on a per barrel basis decreased to $2.68 per BOE for the nine months ended September 30, 1997, from $4.07 for the same period of 1996. 11 G&A EXPENSES. G&A expenses increased from $1.2 million for the nine months ended September 30, 1996, to $3.1 million for the same period of 1997. The increase is primarily attributable to the hiring of additional staff, including an increase in the personnel at the Company's Canadian administrative office to manage and develop properties acquired in the fourth quarter of 1996. G&A expense on a per BOE basis decreased to $.79 per BOE from $1.54 for same period of 1996. DEPRECIATION, DEPLETION AND AMORTIZATION. Due to the increase in sales volumes of crude oil and natural gas, DD&A expenses increased by $15.6 million to $19.8 million for the nine months ended September 30, 1997, from $4.2 million for the same period of 1996. DD&A expense on a per BOE basis was $5.00 per BOE for the nine months ended September 30, 1997, compared to $5.27 per BOE for the nine months ended September 30, 1996. INTEREST EXPENSE AND PREFERRED DIVIDENDS. Interest expense and preferred dividends increased to $18.9 million for the nine months ended September 30, 1997 from $2.4 million for the six months ended September 30, 1996. The increase was due to increased levels of borrowings by the Company to finance acquisitions consummated in 1996. Long-term debt increased from $85 million as of September 30, 1996, to $217.3 million at September 30, 1997. Preferred dividends were eliminated July 1, 1997 as a result of the conversion of all outstanding preferred stock into common shares. 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 and crude oil received by the Company decreased during the first nine months of 1997. 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 crude oil and natural gas prices continue 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 1997 amounted to $44.6 million compared to $58.0 million during the same period of 1996. The table below sets forth the components of these capital expenditures on a historical basis for the nine months ended September 30, 1996 and 1997. Nine Months Ended Sept. 30 -------------------------------- 1997 1996 Expenditure category (in thousands): Property acquisitions $ 2,067 $ 47,655 Development 41,980 10,016 Facilities and other 557 369 --------- ---------- Total $ 44,604 $ 58,040 ========= ========== At September 30, 1997, the Company had current assets of $19.2 million and current liabilities of $28.8 million resulting in working capital deficit of $9.6 million. This compares to working capital of $6.4 million at December 31, 1996, and $7.6 million at September 30, 1996. The material components of the Company's current liabilities at September 30, 1997, include trade accounts payable of $14.2 million, revenues due third parties of $2.4 million and accrued interest of $10.4 million. The Company's current budget for capital expenditures for the fourth quarter of 1997 is $5.0 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 currently has no agreements, arrangements of undertaking regarding any material acquisitions other than the previously disclosed merger agreement with 12 Vessels Energy, Inc. 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's Credit Facility with Bankers Trust Company ("BT") and other lenders thereunder (the "Banks") provides for a revolving line of credit with an availability of $40 million, subject to certain customary conditions including a borrowing base condition. Commitments available under the Credit Facility are subject to borrowing base redeterminations to be performed semi-annually and, at the option of each of the Company and the Banks one additional time per year. Any outstanding principal balance in excess of the borrowing base will be due and payable in three equal monthly payments after a borrowing base redetermination. The borrowing base will be determined in BT's sole discretion, subject to the approval of the Banks, based on the value of the Company's reserves as set forth in the reserve report of the Company's independent petroleum engineers, with consideration given to other assets and liabilities. The Company currently has $16 million available on the Credit Facility. The Credit Facility has an initial revolving term of two years and a reducing period of three years form the end of the initial two-year period. The commitment under the Credit Facility will be reduced during such reducing period by 11 equal quarterly reductions. Quarterly reductions will equal 8.2% per quarter with the remainder due at the end of the three-year reducing period. The applicable interest rate charged on the outstanding balance of the Credit Facility is based on a facility usage grid. If the borrowings under the Credit Facility represent an amount less than or equal to 33.3% of the available borrowing base, then the applicable interest rate charged on the outstanding balance will be either (a) an adjusted rate of the London Inter-Bank Offered Rate ("LIBOR") plus 1.25% of (b) the prime rate of BT (which is based on BT's published prime rate) plus 0.50%. If the borrowings under the Credit Facility represent an amount greater than or equal to 33.3% but less than 66.7% of the available borrowing base, then the applicable interest rate on the outstanding principal will be either (a) LIBOR plus 1.75% of (b) the prime rate of BT plus 0.50%. If the borrowings under the Credit Facility represent an amount greater than or equal to 66.7% of the available borrowing base, then the applicable interest rate on the outstanding principal will be either (a) LIBOR plus 2.00% or (b) the prime rate of BT plus 0.50%. LIBOR elections can be made for periods of one, three or six months. The Company's Credit Facility contains a number of covenants that, among other things, restrict the ability of the Company to (i) incur certain indebtedness or guarantee obligations, (ii) prepay other indebtedness including the Notes, (iii) make investments, loans or advances, (iv) create certain liens, (v) make certain payments, dividends and distributions, (vi) merge with or sell assets to another person or liquidate, (vii) sell or discount receivables, (viii) engage in certain intercompany transactions and transactions with affiliates, (ix) change its business, (x) experience a change of control and (xi) make amendments to its charter, by-laws and other debt instruments. In addition, under the Credit Facility, the Company is required to comply with specified financial ratios and tests, including minimum debt service coverage ratios, maximum funded debt to EBITDA tests, minimum net worth tests and minimum working capital tests. The Credit Facility contains customary events of default, including nonpayment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties in any material respect, cross default and cross acceleration to certain other indebtedness, bankruptcy, material judgments and liabilities and change of control. On November 14, 1996, the Company and Canadian Abraxas completed the sale of $215.0 million aggregate principal amount of Senior Notes due November 1, 2004 (the "Notes"). The notes are joint and several obligations of Abraxas and Canadian Abraxas and were issued under the terms of an Indenture dated November 14, 1996 (the "Indenture"). The Indenture contains a number of covenants and events of default including covenants restricting, among other things, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, 13 convey or otherwise dispose of all or substantially all of the assets of the Company and events of default including nonpayment of principal or interest on the notes, violations of covenants, cross default on other indebtedness, bankruptcy and material judgments. The Indenture also provides, among other things, that the Company may not, and may not cause or permit certain of its subsidiaries, including Canadian Abraxas, to, directly or indirectly, create or otherwise cause to permit to exist or become effective any encumbrance or restriction on the ability of such subsidiary to pay dividends or make distributions on or in respect of its capital stock, make loans or advances or pay debts owed to Abraxas, guarantee any indebtedness of Abraxas or transfer any of its assets to Abraxas except for such encumbrances or restrictions existing under or by reason of: (i) applicable law; (ii) the Indenture; (iii) the Credit Facility; (iv) customary non-assignment provisions of any contract or any lease governing leasehold interests of such subsidiaries; (v) any instrument governing indebtedness assumed by the Company in an acquisition, which encumbrance or restriction is not applicable to such subsidiaries or the properties or assets of such subsidiaries other than the entity or the properties or assets of the entity so acquired; (vi) customary restrictions with respect to subsidiaries of the Company pursuant to an agreement that has been entered into for the sale or disposition of capital stock or assets of such subsidiaries to be consummated in accordance with the terms of the Indenture solely in respect of the assets or capital stock to be sold or disposed of; (vii) any instrument governing certain liens permitted by the Indenture, to the extent and only to the extent such instrument restricts the transfer or other disposition of assets subject to such lien; or (viii) an agreement governing indebtedness incurred to refinance the indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (ii), (iii) or (v) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such refinancing indebtedness are no less favorable to the holders of the Notes in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgement than the provisions relating to such encumbrance or restriction contained in the applicable agreement referred to in such clause (ii), (iii) or (v). In August 1995, the Company entered into a rate swap agreement with a previous lender relating to $25.0 million of principal amount of outstanding indebtedness. This agreement was assumed by the Company's current lender in connection with a Bridge Facility that was subsequently paid off. Under the agreement, the Company pays a fixed rate of 6.15% while the Banks will pay a floating rate equal to the USD-LIBOR-BBA rate for one month maturities, quoted on the eighteenth day of each month, to the Company. Settlements are due monthly. The agreement terminates in August 1998. At September 30, 1997, the fair value of this swap, as determined by BT CO was approximately $78,000. Operating activities during the nine months ended September 30, 1997 provided $32.6 million cash to the Company compared to $4.8 million in the same period in 1996. Net operating income plus non-cash expense items during 1997 and net changes in operating assets and liabilities accounted for most of these funds. Investing activities used $36.1 million during the first nine months of 1997 primarily for development of oil and gas properties. This compares to $41.1 million provided during the same period of 1996. Financing activities provided $2.3 million for the first nine months of 1997 compared to requiring $41.9 million for the same period of 1996. 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 carry forwards generated prior to December 31, 1991 of $4.9 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 carry forwards of $1.1 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 carry forwards generated through October 1993 of $8.2 million will be limited to approximately $1.0 million per year subject to the lower limitations described above. Of the $8.2 million net operating loss carry forwards existing at October 1993, it is anticipated that the maximum net operating loss that may be utilized before it expires is $5.7 million. Future changes in ownership may further limit the use of the Company's carry forwards. In addition to Section 382 limitations, uncertainties exist as to the future utilization of the operating loss carry forwards under the criteria set forth under FASB Statement No. 109. Therefore, the Company has established a valuation allowance of $5.6 million and for deferred tax assets at December 31, 1996 and 1995, respectively. 14 Based upon the current level of operations, the Company believes that cash flow from operations and the Company's Credit Facility will be adequate to meet its anticipated requirements for working capital, capital expenditures and scheduled interest payments through 1997. 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. 15 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 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11. Statement Re: Computation of earnings per share 27. Financial data schedule (b) Reports on Form 8-K none 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: November 14,1997 By:/s/Robert L.G. Watson ------------------------ ROBERT L.G. WATSON, President and Chief Executive Officer Date: November 14, 1997 By:/s/Chris Williford ---------------------- CHRIS WILLIFORD, Executive Vice President and Principal Accounting Officer 17 EX-27 2 FDS --
5 1000 9-MOS DEC-31-1997 JAN-1-1997 SEP-30-1997 7559 0 11016 (36) 430 19174 346459 (58250) 317182 28831 215000 0 0 63 32063 317182 50691 50691 0 34908 610 0 18757 (3584) (1071) (2598) 0 0 0 (2781) (.47) (.47)
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