With debt falling and oil prices rising, the struggling San Antonio company is poised to restart drilling. Where is it?

Abraxas Petroleum had a tough few years as the pandemic and a financial crisis forced it to stop drilling. Now, with rising oil prices and the discovery that Abraxas’ oil and gas reserves are larger than expected, there could be an opportunity for the company to rebound and restart drilling – or sell. its assets and to liquidate.

The San Antonio-based driller has been a shaky operator in recent years; it hasn’t posted a profit or had a quarterly earnings call with analysts since 2018. Last year, it floated on the Nasdaq stock exchange after its stock price failed to rise above 1 $ for several days.

But shares of Abraxas soared this month alongside crude oil prices, which soared after the Russian invasion of Ukraine rocked global oil markets.

The price of West Texas crude peaked at $123 a barrel on March 8 after breaking through the $100 mark earlier in the month. On Thursday, the benchmark for domestic oil closed just below $103.

Abraxas’ share price rose from just over $1 at the end of February to over $4 per share on March 7. Its move coincided with gains for stocks of companies in the industry. The high price of crude around the world has potentially opened a window for US producers to profitably pump more oil.

Abraxas, which was already facing financial difficulties at the start of 2020, has seen its share price fall during the COVID-19 pandemic and agreements with creditors to limit expenses have prevented it from pouring money. in the borehole.

‘A new chapter’

In January, it sold assets in North Dakota’s Williston Basin for $87.2 million to Houston-based Lime Rock Resources. He used the proceeds to repay a bank loan.

She converted other debt held by creditor Angelo Gordon Energy Financing into preferred stock. Angelo Gordon took control of the company’s five-member board and now holds 85% of the vote.

The decision to make Angelo Gordon a shareholder — rather than a creditor — erased Abraxas’ debt and allowed the company to access capital and develop a drilling plan, CEO Robert Watson said on Monday. last month.

“This is a new chapter for the company as we enter 2022 as a pure debt-free Delaware Basin operator,” Watson said, referring to a segment of the Permian Basin where Abraxas has assets.

The discovery of potentially larger oil and gas reserves also boosted the company, increasing its value.

In a report released in early February, it said its oil and gas reserves at the end of 2021 had increased by 8.5 million barrels compared to the previous year – an increase attributed to the implementation of a two-mile lateral well strategy in its Permian acreage. This discovery – combined with rising oil prices – has boosted the value of its oil and gas reserves by 370% compared to the end of 2020.

At the end of 2021, Abraxas’ oil and gas reserves at 200 well sites were valued at nearly $230 million based on a price of $66.55 per barrel. That was up from $49 million at the end of 2020, with oil at $39.54 a barrel.

But while continued rising prices and the ability to invest in new drilling could present an opportunity for Abraxas, it could head into liquidation instead.

New reserves

Among the reasons is the fact that most of its new oil and gas reserves are considered “probable” and “possible”. This means that while there is a chance that a driller will extract oil or gas from these locations, it is not guaranteed.

Only 27 of Abraxas’ 200 drill sites are classified as “proven”, with reserves worth $89 million at the end of last year.

A Securities and Exchange Commission rule says companies can only classify oil and gas reserves as proven if they can show they plan to develop the location within five years. Otherwise, companies must qualify a reservation as “probable” or “possible” if they want to disclose it.

Abraxas said it lacks the cash to develop hundreds of drill sites over the next half-decade. But he suggested a larger oil company might be able to operate the company’s sites.

“Alternatively, a company with the funds to develop all of the sites could book the majority of these engineering sites as proven,” Watson said in a statement last month.

In an SEC filing in early January, Abraxas said proceeds from an acquisition or sale of company assets of up to $137 million would go to Angelo Gordon. A quarter of the proceeds exceeding this amount would go to other shareholders of the company.

Abraxas does not say he is looking for a buyer. Watson said the company plans to take on lenders so it can “start” its own drilling in the Permian.

“We’re excited about the balance sheet moves we’ve made,” he said last month. “We will seek to drill at a measured pace and within cash flow to generate multiple years of growth and returns for our shareholders.”

Shares of Abraxas closed Thursday at $2.12, up 16% from Wednesday and 97% higher than a month ago.

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