Abraxas Sees 7% Increase in 2010 Proved Reserves
Abraxas reported financial and operating results for the three and twelve months ended December 31, 2010 and reserves as of December 31, 2010, and provided an operational update.
Financial and Operating Results
The twelve months ended December 31, 2010 resulted in:
- Production of 1.42 MMBoe (3,896 Boepd);
- Revenue of $59.0 million;
- EBITDA(a) of $28.2 million;
- Discretionary cash flow(a) of $17.3 million;
- Net income of $1.8 million, or $0.02 per share; and
- Adjusted net loss of $3.7 million, or $0.05 per share, excluding certain non-cash items.
Net income for the year ended December 31, 2010 was $1.8 million, or $0.02 per share, compared to a net loss of $18.8 million, or $0.34 per share, for the year ended December 31, 2009.
Adjusted net loss, excluding certain non-cash items, for the year ended December 31, 2010 was $3.7 million, or $0.05 per share, compared to adjusted net income, excluding certain non-cash items, of $8.9 million or $0.16 per share for the year ended December 31, 2009. For the year ended December 31, 2010, adjusted net loss excludes the ceiling test impairment of $4.8 million and unrealized gains on derivative contracts of $10.3 million. For the year ended December 31, 2009, adjusted net income excludes unrealized losses on derivative contracts of $27.7 million.
Unrealized gains or losses on derivative contracts are based on mark-to-market valuations which are non-cash in nature and may fluctuate drastically period to period. As commodity prices fluctuate, these derivative contracts are valued against current market prices at the end of each reporting period in accordance with Accounting Standards Codification (ASC) 815, "Derivatives and Hedging," as amended and interpreted, and require Abraxas to either record an unrealized gain or loss based on the calculated value difference from the previous period-end valuation.
Abraxas records the costs to explore, exploit and develop its oil and gas properties using the full-cost method of accounting and all amounts are included in its "full-cost pool." In accordance with generally accepted accounting principles, the full-cost pool must be calculated separately by country and if the future net cash flows, discounted at 10%, associated with that country's proved reserves are lower than the full-cost pool for that country, the difference must be recorded as an impairment which results in a non-cash charge to earnings and thus, a reduction in stockholders' equity. The ceiling-test impairment of $4.8 million is a result of the discounted future net cash flows of the proved reserves in Canada being lower than the full-cost pool for that country.
Reserves as of December 31, 2010
Abraxas' total proved reserves, including its 50% share of Blue Eagle proved reserves, at December 31, 2010 were 26.6 MMBoe, a 7% increase over proved reserves at December 31, 2009. In addition, DeGolyer and MacNaughton (D&M), Abraxas' independent reservoir engineering firm, estimated 15.1 MMBoe of probable reserves and 9.6 MMBoe of possible reserves on certain properties. D&M estimated approximately 95% of Abraxas' total proved reserves (by volume) and the residual reserves were estimated internally.
Total capital expenditures for 2010 were approximately $36.4 million. Overall 5.4 MMBoe of proved reserves were added through extensions, discoveries and net upward revisions which was offset by 1.4 MMBoe of production and 2.3 MMBoe of divestitures, for a finding and development cost of $15.11 per Boe and a 379% reserve replacement for 2010 (excluding divestitures).
At year-end 2009, Abraxas adopted the Securities and Exchange Commission's (SEC) newly issued regulations for oil and gas reserve reporting. One of the key elements of the new regulations relate to the commodity prices which are used to calculate reserves and PV10. The new regulations require using an average price based upon the prior 12-month period rather than the previous regulations which utilized commodity prices on the last day of the year. The 12-month first-day-of-the-month average commodity prices during 2010 were $79.43 per barrel of oil and $4.45 per Mcf of gas compared to commodity prices on December 31, 2010 of $91.38 per barrel of oil and $4.41 per Mcf of gas.
In Dunn and McKenzie Counties, North Dakota and Richland County, Montana, Abraxas elected to participate in six non-operated horizontal wells, targeting the Bakken or Three Forks formation, which are currently in progress. Two of the wells are drilling, two are completing and two are waiting on completion. Abraxas' working interest ranges from 1.8% to 6.5% in each of these wells.
In Nolan County, Texas, a three well oil development program is scheduled to begin in April 2011 on the Spires Ranch. Each of these horizontal wells will target the Strawn formation at an approximate total measured depth of 9,600 feet, including a 2,300 foot lateral. Abraxas owns a 100% working interest in each of these wells.
In San Patricio County, Texas, a 13-well oil development program began in March 2011. The first three wells will target the dual objectives of the 7,400 and 8,100 foot Frio sands and the next ten wells will target the 7,400 foot Frio sand. The first well recently reached total depth of 8,650 feet. Abraxas owns a 100% working interest in each of these vertical wells.
In DeWitt County, Texas, Blue Eagle elected to participate in a non-operated horizontal well targeting the Eagle Ford formation with its 43.9% working interest. The well is currently drilling below 5,600 feet in the vertical section. It is anticipated that the well will be drilled to a total measured depth of approximately 18,300 feet, including a 4,300 foot lateral, and completed with a multi-stage fracture stimulation. Abraxas currently owns an approximate 50% equity interest in Blue Eagle.
"2010 was a great year for us on many fronts. During the year, we high-graded our asset base, following the merger with our former master limited partnership in October 2009, by selling off certain non-core, non-operated properties principally located in the Mid-Continent region of the U.S. During 2010, we raised $30.0 million through these divestitures, effectively reducing our gross well count by 29% yet only selling 9% of our proved reserves. In August 2010, we entered into a joint venture to develop the Eagle Ford Shale play in South Texas. We contributed 8,333 net acres for a $25 million equity investment in the JV which crystallized a lot of value for our stockholders with no future capital commitment from us. The first well drilled in the JV was in the gas/condensate window of DeWitt County, Texas and was one of the strongest wells in the area to-date. In addition, during the second half of 2010, we operated our first two Bakken/Three Forks wells in the Williston Basin. The first well targeted the Three Forks formation and was one of the strongest wells in the area to-date. The second well targeted the middle Bakken formation and is waiting on a frac date, which we hope to have shortly. In January 2011, we raised $62.0 million in net proceeds from our equity offering which allowed us to reduce our outstanding indebtedness, eliminate the overhang perception on our stock price and increase our 2011 budget to $60 million. The first half of 2011 will be focused on our conventional oil projects in South and West Texas and the second half will be focused on our unconventional oil projects in the Williston Basin and in Wyoming, in addition to our Eagle Ford drilling throughout the year," commented Bob Watson, Abraxas' President and CEO.
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