Saltstone Pushes Abraxas for Strategic Alternatives

Saltstone Pushes Abraxas for Strategic Alternatives
The company's latest earnings report marked the ninth consecutive quarter of failing to meet consensus estimates.

Dallas-based Saltstone Capital Management LLC is pushing for Abraxas Petroleum Corp.’s board to review strategic alternatives to maximize shareholder value. On Aug. 8, the firm sent a letter to the company’s board citing “another earnings release and another series of disappointments.”

The letter highlighted that the latest company earnings report marked the ninth consecutive quarter of failing to meet consensus estimates. “Management’s failure to work for the best interests of shareholders is galling and its ineptitude in acknowledging the importance of preserving the balance sheet by limiting drilling is very concerning,” the letter stated. “Their perpetual outspend is irresponsible.”

While the firm commended management’s move to release the rig in the Permian Basin recently, it called the decision to commence drilling on six wells in the Bakken with “no foresight into the timing of cash flows a preposterous waste of shareholder money.”

Abraxas focuses primarily on the development of conventional and unconventional resources in the Rocky Mountains, South Texas, Powder River Basin and Permian Basin.

According to the company’s latest earnings release on Aug. 7, the three months ended June 30, 2019 resulted in:

  • Production of 871 MBoe (9,572 Boe/d)
  • Revenue of $34.8 million
  • Net income of $11.7 million, or $0.07 per share
  • Adjusted net income (excluding certain non-cash items) of $4.2 million, or $0.02 per share
  • EBITDA of $19.8 million
  • Adjusted EBITDA per bank loan covenants of $19.8 million

Production (sales) for the quarter ended June 30, 2019 averaged 9,572 barrels of oil equivalent per day (Boe/d), down 12 percent from the average for the previous quarter. Approximately 71 percent was oil compared to 67 percent in the first quarter. The release confirmed that seven new wells were placed on production during the second quarter.

According to the company, production for the period was negatively impacted by the shut-in of wells in North Dakota to accommodate the fracking of its Lillibridge NW pad. Realized production was also impacted by the company’s monetization of roughly 350 net Boe/d of non-operated Bakken assets during the quarter, and roughly 650 net Boe/d of shut-in natural gas volumes in West Texas due to low gas prices in the region.

Saltstone has presented a four-point plan designed to restore shareholder value and added that the firm’s views are shared by “many frustrated large and small shareholders.”

“Nothing is happening. We need to implement this plan now. Every day that passes is another day wasted,” the letter concluded.

At press time, Abraxas shares were trading at 67 cents per share on NASDAQ, down sharply from its 52-week high of $2.57 per share.


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