-----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, Jx283mTI5wFsNUxo9V48mur2//k4JbvmhYc3IAkwTm5k46UsAO15sOPt5HdUurvB 99vJZnWlYLhDLPhp1em19A== 0000950129-96-000853.txt : 19960802 0000950129-96-000853.hdr.sgml : 19960802 ACCESSION NUMBER: 0000950129-96-000853 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABRAXAS PETROLEUM CORP CENTRAL INDEX KEY: 0000867665 STANDARD INDUSTRIAL CLASSIFICATION: 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: 96564531 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 DATED 03/31/96 1 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 March 31, 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 May 1, 1996, was: Class Shares Outstanding ----- ------------------ Common Stock, $.01 Par Value 5,804,812 1 of 15 2 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES FORM 10 - Q INDEX PART I FINANCIAL INFORMATION ITEM 1 - Financial Statements(Unaudited) Consolidated Balance Sheets - March 31, 1996 and December 31,1995 . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations - Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . 5 Consolidated Statements of Cash Flows - Three Months Ended March 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2 3 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31 1996 1995 --------------------------------------- (UNAUDITED) Assets Current assets: Cash $ 5,440,276 $ 4,249,767 Accounts receivable, less allowance for doubtful accounts of $35,900 at March 31, 1996 and $44,369 at December 31, 1995: Joint owners 1,061,313 1,334,873 Oil and gas production sales 2,938,279 2,945,681 Affiliates 86,682 53,224 Other 85,594 60,367 ----------- ----------- 4,171,868 4,394,145 Equipment inventory 95,200 80,070 Other currents assets 177,754 124,820 ----------- ----------- Total current assets 9,885,098 8,848,802 Property and equipment: Oil and gas properties (full cost method), less accumulated depreciation, depletion and amortization of $31,069,555 at March 31, 1996 and $29,651,521 at December 31, 1995 63,565,963 74,475,683 Other property and equipment: Equipment 794,561 692,508 Land 194,694 176,896 Less accumulated depreciation (299,986) (266,686) ----------- ----------- 64,255,232 75,078,401 Deferred financing fees, net of accumulated amortization of $353,231 at March 31, 1996 333,208 353,514 and $289,231 at December 31, 1995 Restricted cash 99,912 134,419 Other assets 728,797 326,222 Marketable Securities 326,000 326,000 ----------- ----------- Total assets $75,628,247 $85,067,358 =========== ===========
See accompanying notes to consolidated financial statements 3 4 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31 DECEMBER 31 ----------- ----------- 1996 1995 ------------------------------------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,438,100 $ 3,928,824 Oil and gas production payable 1,652,929 1,787,152 Accrued interest 321,450 362,750 Other accrued expenses 201,770 46,207 Dividends payable on preferred stock 91,482 91,482 ----------- ----------- Total current liabilities 5,705,731 6,216,415 Long-term debt: Financing agreements (Note 4) 29,598,660 41,556,651 Other long term obligations -- 44,737 Deferred income (Note 3) 600,000 -- Deferred income taxes 186,749 186,749 Minority interest in foreign subsidiary 2,031,000 -- Shareholders' equity: Preferred stock 8%, 1,000,000 shares; issued and outstanding 45,741 shares at March 31, 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 March 31, 1996 and 5,799,762 shares at December 31, 1995, respectively 58,048 57,999 Additional paid-in capital 50,912,312 50,914,078 Unrealized loss on securities (244,000) (244,000) Retained earnings (deficit) (13,156,442) (13,663,903) Treasury stock, at cost, 12,211 shares at March 31, 1996 and 2,571 at December 31, 1995, respectively (64,479) (1,825) Foreign currency translation 211 -- ----------- ----------- Total shareholders' equity 37,506,107 37,062,806 ----------- ----------- Total liabilities and shareholders' equity $75,628,247 $85,067,358 =========== ===========
See accompanying notes to consolidated financial statements 4 5 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ------------------------------ 1996 1995 Revenue: Oil & gas production sales $ 4,493,815 $3,204,053 Rig revenues 37,450 25,800 Other 1,153 7,053 ----------- ---------- 4,532,418 3,236,906 Operating costs and expenses: Lease operating and production taxes 1,164,432 1,059,033 Depreciation, depletion, and amortization 1,451,334 1,151,300 General and administrative 339,252 229,206 Rig Operations 36,461 34,304 Hedging loss 54,650 ----------- ---------- 3,046,129 2,473,843 ----------- ---------- 1,486,289 763,063 Other (income) expense: Interest income (57,209) (3,014) Interest expense 850,914 951,266 Amortization of deferred financing fees 64,000 40,000 ----------- ---------- 857,705 988,252 Income (loss) before minority interest 628,584 (225,189) Minority interest in income of consolidated foreign subsidiary 29,641 -- ----------- ---------- Net income (loss) 598,943 (225,189) Less dividend requirement on cumulative preferred stock ( 91,482) (91,482) ----------- ---------- Net income (loss) applicable to common stock $ 507,461 $ (316,671) =========== ========== Net income (loss) per share: Net income (loss) per common and dilutive common equivalent share $ .08 $ (.07) Net income (loss) per common and common equivalent share - assuming full dilution $ .08 $ (.07) =========== ==========
See accompanying notes ot consolidated financial statements 5 6 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 -------------------------- 1996 1995 OPERATING ACTIVITIES Net income $598,943 $ (316,671) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Minority interest in income of foreign subsidiary 29,641 -- Depreciation, depletion, and amortization 1,451,334 1,151,300 Amortization of deferred financing fees 64,000 40,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 222,277 797,978 (Increase) decrease in other assets (88,713) (125,272) (Increase) decrease in equipment inventory (15,130) 12,200 (Decrease) increase in accounts payable and accrued expenses (376,461) 536,189 (Decrease) increase in oil & gas production payable (134,223) 431,023 ------------ ------------ Net cash provided by operating activities 1,751,668 2,526,747 INVESTING ACTIVITIES Development of oil and gas properties (4,338,714) (2,495,921) Proceeds from sale of oil and gas producing properties 14,049,845 -- Purchase of oil and gas producing properties (186,324) -- Purchase of equipment (119,851) (6,676) Development of gas processing plants (60,290) (19,014) Increase in Minority interest in equity of foreign subsidiary 2,001,359 -- Deferred income 600,000 -- Increase in other assets (366,346) ------------ ------------ Net cash provided (used) in investing activities 11,579,679 (2,521,611)
See accompanying notes to consolidated financial statements 6 7 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31 --------------------- 1996 1995 FINANCING ACTIVITIES Issuance of common stock $ 25,213 $ 18,504 Purchase of treasury stock (62,654) -- Dividends paid on preferred stock (91,482) -- Payments on long-term borrowings (12,002,728) -- Loan origination fees (43,694) (25,177) ------------ ----------- Net cash used for financing activities (12,175,345) (6,673) ------------ ----------- Increase (decrease) in cash 1,156,002 (1,537) Cash at beginning of period 4,384,186 135,297 ------------ -------- Cash at end of period, including restricted cash 5,540,188 133,760 ============ =========== Supplemental disclosures of cash flow information: Interest paid $ 868,577 $ 951,279 ============ =========== Supplemental schedule of non-cash investing and financing activity: Accrual of preferred dividends 91,482 -- Exchange of treasury stock for non-compete agreement $ -- $ 70,625 ============ ===========
See accompanying notes to consolidated financial statements 7 8 ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 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 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. 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 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 net income 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. On March 21, 1996 the Company sold all of its interests in its Portilla and Happy Fields (Properties) to an unrelated purchaser (Purchaser or Limited Partner). The Purchaser contributed the Properties to Portilla-1996, L.P., a Texas limited partnership (Partnership). A subsidiary of the Company, Portilla-Happy Corporation (Portilla-Happy), is the general partner of the Partnership. The aggregate net purchase price received by the Company was $17,600,000, of which a portion was used to purchase a minority interest in the Partnership. The Limited Partner acquired the 50% overriding royalty interest in the Portilla Field 8 9 owned by the Commingled Pension Trust Fund, the trustee of which is Morgan Guaranty Trust Company of New York, for approximately $11,900,000. The Company, through Happy-Portilla will receive approximately 8% of the Partnership's Available Cash, as defined in the Partnership Agreement, until the limited partner's loan (Bank Loan) in the original principal amount of $21,750,000 has been repaid and the Limited Partner has received distributions of Available Cash equal to 110% of its initial investment, at which time Portilla-Happy's share of distributions will increase to 25%. The Limited Partner's Bank Loan is nonrecourse to Portilla-Happy and is secured by the Properties. The Partnership also received loans in the aggregate principal amount of approximately $5,920,000 from three pension trust funds (Pension Fund Loans) and the pension trust funds were granted an option to purchase a 74% overriding royalty interest in the Properties. The overriding royalty interest options may be exercised by the payment from the Partnership of $5,920,000 either in cash or in exchange for the outstanding principal amount of the Pension Fund Loans. The overriding royalty interests will decrease to 55.25% when the pension trust funds have received the sum of $8,880,000 plus 10% of the option price per annum, compounded annually. Portilla-Happy's distributive share of the Partnership's Available Cash will remain at 25% until the pension trust funds' overriding royalty interests decrease to 55.25% or, if the royalty option is not exercised, until April 30, 2004. Thereafter, Portilla-Happy's distributive share of the Partnership's Available Cash will increase to 43.75%. The Company continues to manage and operate the properties after the sale. Terms of the sale dictate that no overhead will be charged to the partnership by the Company going forward. A discounted valuation of that future overhead, if it were to be charged, was calculated at $600,000 and that portion of the sales price was allocated to deferred income. This income will be utilized to offset continuing servicing costs related to the Company's responsibilities as operator. 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 and requires 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 of 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. 9 10 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. See 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 MARCH 31 ---------------------- 1996 1995 Operating Revenue (in thousands): Crude Oil Sales $2,225 $1,592 Natural Gas Sales 1,771 1,235 Natural Gas Liquid Sales 498 376 Rig Operations 37 26 Other 1 7 ------ ------ Total Operating Revenue 4,532 3,236 ====== ====== Operating Income (in thousands): 1,486 763 Natural Gas Production (MMCFS) 954 835 Crude Oil Production (MBbls) 118 93 Natural Gas Liquids Production(MBbls) 39 34 Average Natural Gas Sales Price ($/MCF) $1.86 $ 1.48 Average Crude Oil Sales Price ($/Bbl) $18.78 $17.03 Average Liquids Sale Price($/Bbl) $12.75 $11.13
Operating Revenue. During the three months ended March 31, 1996, operating revenue from crude oil, natural gas and natural gas liquid sales increased from $3.2 million in the first quarter of 1995 to $4.5 million primarily due to higher prices received by the Company for its crude oil and natural gas production. Also, crude oil production increased by 27% from the first quarter of 1995 due to continuing development drilling of the Company's West Texas acreage and a contribution of Canadian production, resulting from the Company's 1996 acquisition of Grey Wolf. Average sales prices were $18.78 per Bbl of crude oil, $1.86 per Mcf of natural gas and $12.75 per Bbl of natural gas liquids in the first three months of 1996 compared with $17.03 per Bbl of crude oil, $1.48 per Mcf of natural gas and $11.13 per Bbl of natural gas liquids in the same period of 1995. Of the $4.5 million of operating revenue in the current period, $1.2 million related to the properties sold at the end of the period. These properties contributed 117,000 MCF of natural gas (12% of Company total), 43,600 Bbls of crude oil (37% of Company total) and 10,600 BBLs of natural gas liquids (27% of Company total) during the first quarter of 1996. 10 11 Costs and Expenses. Operating costs and expenses for the quarter ended March 31, 1996 increased to $3.1 million compared to $2.5 million in 1995. Contributing to this increase was depreciation, depletion and amortization expense increasing from $1.2 million in 1995 to $1.5 million in 1996. Higher production levels during the first quarter of 1996 compared to the same period of 1995 rendered higher depletion costs. General and administrative expenses increased from $229,000 for the first quarter of 1995 to $339,000 for the same period of 1996 as a result of hiring additional staff to manage the Company's growing asset base, including establishing a Canadian administrative office to manage its Canadian assets. Of the costs incurred during the first quarter of 1996, $588,000 was attributable to the Properties including depreciation, depletion and amortization of $353,000 compared to $503,000 and $290,000, respectively during the first quarter of 1996. 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 March 31, 1996, there was a $55,000 negative effect on income from continuing operations related to this swap agreement. 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. 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 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 including property divestitures during the first three months of 1996 amounted to $(9.4) million compared to $2.5 million during the same period of 1995. The table below sets forth the components of these capital expenditures on a historical basis for the three months ended March 31, 1995 and 1996.
THREE MONTHS ENDED MARCH 31 ----------------------- 1996 1995 --------- ------ Expenditure category (in thousands): Development $ 4,633 $2,500 Divestitures (14,108) -- Facilities and other 72 7 --------- ------ Total $ (9,403) $2,507 ========= ======
11 12 At March 31, 1996, the Company had current assets of $9.9 million and current liabilities of $5.7 million resulting in working capital of $4.2 million. This compares to working capital of $2.6 million at December 31, 1995 and a deficiency of $3.0 million at March 31, 1995. The material components of the Company's current liabilities at March 31, 1996 include trade accounts payable of $3.4 million and revenues due third parties of $1.6 million. The Company's current budget for capital expenditures for the last nine months of 1996 is $10.0 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 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 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 B Preferred Stock and not selling any of the collateral securing the loans. The Company was in compliance with these covenants at March 31, 1996. Total availability under the First Union agreement was $31 million at March 31, with $29.5 million currently borrowed. Operating activities during the three months ended March 31, 1996 provided $1.8 million cash to the Company compared to $2.5 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 $11.6 million during the first three months of 1996 primarily from the divestiture of crude oil and natural gas properties. This compares to $2.5 million required during the same period of 1995 primarily utilized for the development of crude oil and natural gas properties. Financing activities required $12.2 million for the first three months of 1996 compared to requiring $7,000 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. 12 13 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 through 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. 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 1. Form 8-K filed on January 17, 1996 related to the purchase of the Company's interest in Grey Wolf. 13 14 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: May 14,1996 BY:/S/ ------------- ------------------------------- ROBERT L.G. WATSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER DATE: May 14, 1996 BY:/S/ -------------- ------------------------------- CHRIS WILLIFORD, EXECUTIVE VICE PRESIDENT AND PRINCIPAL ACCOUNTING OFFICER 15 15 INDEX TO EXHIBITS Exhibit No. Description 11 Statement Re: Computatin of earnings per share. 27 Financial data schedule. EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit (11) - Statement Re: Computation of Earnings Per Share
Three Months Ended March 31 1996 1995 Primary: Average shares outstanding 5,800,779 4,454,862 Net effect of dilutive stock options- based on the Treasury/Stock method using average market price 16,555 -- Assumed issuance under existing Contingent Value Rights agreement 916,622 -- ----------- ------------- Totals 6,733,956 4,454,862 Net income (loss) $ 507,461 $ (316,671) Per share amount $.08 $ ( .07) Fully diluted: Average shares outstanding 4,454,862 5,800,779 Net effect of dilutive stock options- based on the Treasury Stock Method using average market price which is greater than the qtr.-end market price 16,555 -- Assumed conversion of 8% convertible preferred stock 508,233 -- Assumed issuance under existing Contingent Value Rights agreement 916,622 -- ----------- ------------- Totals 7,242,189 4,454,862 Net income (loss) $ 598,943 $ (316,671) Per share amount $ .08 $ ( .07)
14 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 5,440,276 0 4,207,768 (35,900) 95,200 9,885,098 95,624,773 (31,369,541) 75,628,247 5,705,731 29,598,660 58,048 0 457 37,447,602 75,628,247 0 4,532,418 0 3,046,129 0 0 857,705 628,584 0 628,584 0 121,123 0 507,461 .08 .08
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