Abraxas Petroleum Corporation (AXAS)

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Abraxas Petroleum Corporation (AXAS)

Q3 2012 Earnings Call

November 12, 2012 11:30 a.m. ET


Robert Watson - President & Chief Executive Officer

Geoffrey King - Vice President & Chief Financial Officer

Lee Billingsley - Vice President, Exploration


Welles Fitzpatrick - Johnson Rice & Company

Irene Haas - Wunderlich Securities

Trevor Menke - Robert W. Baird

Steve Berman - Canaccord Genuity

Joel Musante - C. K. Cooper & Company

Joshua Young - Young Capital Management



Good day, ladies and gentlemen, and welcome to the Q3 2012 Abraxas Petroleum Corporation Earnings Conference Call. My name is Cheverly and I'll be your operator for today. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Geoffrey King, Vice President and Chief Financial Officer. You may proceed, sir.

Geoffrey King

Thank you, Cheverly, and welcome to the Abraxas Petroleum Third Quarter 2012 Earnings Conference Call. Bob Watson, President and CEO of Abraxas, joins me today for the call. In addition, we have our Chief Accounting Officer and our VPs of Land, Operations, Engineering and Exploration available to answer any questions that you may have after Bob's overview. As a reminder, today's call is being taped and a webcast replay will be available immediately after the conclusion of the call.

Before I get started, I would like to remind everyone that any statements made during this call that are not statements of historical fact are considered forward-looking statements and actual results could vary materially from those contained in these statements. Factors that could cause our actual results to vary are described in our filings with the Securities and Exchange Commission. I would encourage everyone to review the risk factors contained in these filings and in our press releases.

I'll now turn the call over to Bob.

Robert Watson

Thank you, Geoff, and good morning. First, I want to apologize for the two releases. The pretty simple answer is that we had to get the Q out and today is Veterans Day which is a SEC holiday, so we couldn’t get it out today and we were not ready to get our operations release out in Friday so we had to have two releases. Hopefully everybody has a chance to see this morning’s release.

Earlier this year we embarked on a plan to create liquidity and to focus on our four identified core areas. And they are the Bakken and the Williston Basin of North Dakota and Montana, the Eagle Ford here in South Texas, the Power River Basin in Wyoming, and our West Texas legacy asset area. We have got good assets outside these areas and we are going to use those to create liquidity. And even some assets inside of our areas that are either non-operated, low working interest or isolated, could also be crystallized for value.

This is not an easy process. There are always bumps along the road. So predicting timing is next to impossible. This weekend we finished negotiating the sale of our Nordheim assets in the Eagle Ford DeWitt County. Definitive agreements should be signed today. For about $20 million cash we sold 544 net acres and approximately 64 barrels of equivalent production per day, which was about 50% gas.

Also late week we did execute a purchase and sales agreement with a large independent to sell our leases in the Alberta Basin Bakken play in Montana, for approximately $2.9 million plus an overriding royalty interest between 1.25% and 5%. Now we also leased our minerals up there to the same party for a 20% royalty. These are just the first of a long list of other assets of considerable value that we expect to use to create liquidity over the next six to 12 months.

We also recently upsized our bank borrowing base to $150 million. I would like to emphasize that this was net of the Nordheim assets and production. We let the banks know early on to remove these from the borrowing base calculation. Now some would say that this sounds like a shrinking to grow business plan. It’s absolutely not. These assets sales allow us to clean up our balance sheet but our business plan is going to still allows us to grow production double-digits for the foreseeable future. It’s a good business plan. It’s all self funded.

So now I will bring you up to date on what is happening in various of our core areas. In North Dakota, there is a [boom] going on, in case you haven’t figured that out. And consequently nothing goes as fast, as smooth as you would like. Winter weather also arrived a little sooner than we expected. So things have been delayed somewhat, frustratingly so. Our first three well pad in the Bakken, completions are underway. We do have one well on production, two more hopefully shortly.

We do announce the initial potential in shale plays. The Bakken and the Eagle Ford, we feel like initial potentials IPs are subject to too many variables. If everybody did the same practices on potentialing their wells it would be different, but everybody is different in their practices and consequently IPs can vary all across the map.

We will intend to announce 30-day rates. We think most the variables have passed at that time. A 90-day rate would be even better. I will say that our first well is above our curve and we own a 76% working interest in it. Our company owned drilling rig has moved over to the Lillibridge east pad which is a four well pad. All four wells had surface casing set at about 2000 feet in record time and we are now drilling the first intermediate hole. We are at 9900 feet this morning. Abraxas currently has about a 40% working interest in the Lillibridge east pad or four wells.

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