Abraxas Petroleum Management Discusses Q4 2012 Results - Earnings Call Transcript
March 15, 2013 1:01 PM ET
Abraxas Petroleum (AXAS)
Q4 2012 Earnings Call
March 15, 2013 11:00 am ET
Geoffrey R. King - Chief Financial Officer and Vice President
Robert L. G. Watson - Chairman, Chief Executive Officer and President
Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division
Welles W. Fitzpatrick - Johnson Rice & Company, L.L.C., Research Division
J. Curtis Brewer - BLB & B Advisors, LLC
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Abraxas Petroleum Corporation Earnings Conference Call. My name is Shaquana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Geoff King, Vice President and CFO. Please proceed, sir.
Geoffrey R. King
Thank you, Shaquana, and welcome to the Abraxas Petroleum Fourth Quarter and Year-End 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 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 we get started, I would like to remind everyone that the 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 will now turn the call over to Bob.
Robert L. G. Watson
Thanks, Geoff, and good morning. I don't intend to spend a whole lot of time on Q4 results. They are what they are. We're certainly disappointed in the production level, but we also understand that our industry is prone to delays beyond our control such as weather and mechanical issues.
The good news is, those delays have been rectified. February and March production levels are very pleasing. I've heard comments that our production is relatively flat over the last 3 years, and so I thought I would dig you a little bit deeper into our production profile. And I think you'll see that we have increased liquids production over that time period 65%. But it just so happens that our liquids adds on a Boe basis have been about what we have lost on a Boe basis from natural decline of our gas production. We've spent all of our money in the last 3 years on liquids projects while we've neglected our gas projects, but that doesn't mean that they're not substantial. They are. They're just not a priority for us at this point in time with gas prices where they are.
Now that we're putting on high-volume oil wells in both the Eagle Ford and the Bakken on a relatively regular basis, we've now overcome this offset phenomenon, and we're seeing significant overall production growth. Q1 will be a bit lower than originally anticipated as year-end production issues still remained in January. But February, March levels give us confidence to keep overall 2013 guidance in place of 4,900 to 5,200 Boes per day average for the year. We will issue a March exit rate when that is available.
This 4,900 to 5,200 Boe average for the year would indicate an increase of somewhere between 20% and 28% year-over-year. In addition to setting up production growth, we've got a good year for adding proved reserves. Despite losing approximately 3 million barrels due to low gas prices, the gas is still there, they just are not economic, the prices we had to use under the SEC basis. And an additional loss from the sale of our Nordheim Eagle Ford assets, we still grew reduction of -- we grew proved reserves 3% and specifically, oil reserves, 30%.
In the Eagle Ford and South Texas and McMullen County, we drilled our first well early last year. In the first 10 months, the well has produced about 150,000 barrels of oil. With this encouragement, we started a one rig continuous drilling program during the fourth quarter. We've now drilled 6 additional wells and on rig move to the seventh as we speak. We plan to continue this program through 2013, and we are adding wells production at the rate of less than one month per well.
We currently have 5 wells on production, one well starting flowback today and one waiting on a frac, which will be about mid-April. It is our practice to produce these wells on a restricted choke. None had been produced at a choke size larger than a 22/64-inch to date, and the last 4 wells have all tested in excess of 1,000 Boes per day each. These results to date far exceed our expectations.
On 80-acre spacing, we currently have about 60 gross (15 net) additional locations. And in addition, we have driven our cost down substantially to around $7 million or less, some of them even closer to $6 million for a completed well. These drilling economics, combined with Brent-like pricing of our Eagle Ford crude, is yielding some very compelling economics.
In the Jourdanton area, in Atascosa County, we are finishing a 3D seismic survey over our 100%-owned 4,500-acre block targeting the Beulah formation, as well as the Eagle Ford. We have one producing Eagle Ford well at Jourdanton. Up north in the Bakken, Three Forks and McKenzie County, North Dakota, our company-owned drilling rig walked this week to the Lillibridge 3H after successfully drilling the lateral in the Lillibridge 4H into the Three Forks Formation. After the 3H, 2 more laterals remain, which should put us on schedule to frac all 4 wells in May and on production shortly thereafter.
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