Abraxas Petroleum (AXAS)
Q2 2012 Earnings Call
August 09, 2012 3:00 pm ET
Executives
George William Krog - Chief Accounting Officer and Treasurer
Robert L. G. Watson - Chairman, Chief Executive Officer and President
Peter Bommer
Analysts
Will Green - Stephens Inc., Research Division
Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division
Welles W. Fitzpatrick - Johnson Rice & Company, L.L.C., Research Division
Irene O. Haas - Wunderlich Securities Inc., Research Division
Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division
Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the Abraxas Petroleum Corporation Earnings Conference Call. My name is Carol, and I'll be your coordinator for today. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. It is now my pleasure to turn your presentation over to Mr. Bill Krog, Chief Accounting Officer. Sir?
George William Krog
Thank you, Carol. Good afternoon and welcome to the Abraxas Petroleum Second Quarter 2012 Earnings Conference Call. Bob Watson, President and CEO of Abraxas joins me today for the call. In addition, we have our VPs of 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 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'll 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 L. G. Watson
Thank you, Bill, and good afternoon. First thing I wanted to do today was walk you through a couple of transactions that we announced yesterday. The first one will be the Eagle Ford transaction with Blue Eagle Energy, and I think a full cycle summary is probably in order. Two years ago, we formed a joint venture with a private equity to back Denver independents, Abraxas contributed 8,300 net acres, and keep that number in mind, and the -- our partner contributed cash. In that time, we've -- since that time, we've now drilled 4 wells, 3 of them were operated by Abraxas and we own, or the joint venture owns 100%. And one of them was operated by Talisman in which the joint venture owned 44%. We derisked a considerable amount of our acreage during that time. We also acquired an additional 4,000 net acres. And about 6 months ago, the Eagle Ford was really hot in the transaction business and we decided we would capitalize on that hot market and so we started the sale process. We have very valuable properties and we expected a very high value. We actually received several offers that met our value expectations and a couple of which, we agreed to negotiate further. During the negotiations, the oil market took a nosedive and the market turned into a risk-off mode, transaction volume in the Eagle Ford as well as other areas in the country dropped precipitously and unfortunately, our offers went down as well, below our expected value. So we now have done the next best thing. We've entered into an agreement with our partner to dissolve the joint venture, distribute the assets fairly to where each party can use them to their utmost benefit. And now we are here 2 years later to the month, 2 years to August, when this deal closes, hopefully in early September, Abraxas will walk away with 8,000 net acres, 205 barrels of equivalent production, which is 73% oil and liquids and approximately 6 million barrels of equivalent 2P reserves, and these are D&M year-end reserves, they're not in-house. And at our midyear, we expect the proved reserve portion to grow substantially. One of our areas has no booked reserves, so it definitely has acreage value without double dipping into the reserve value. And another area only has 1 PDP producing well given reserves and nothing else. So therefore, it has upside for acreage value as well, without double dipping into reserve value.
And finally, we're going to walk away with $8 million to $9 million cash. If you'll notice nowhere in this summary did I say anything about Abraxas investing one cent in cash. So I would say this is a pretty good rate of return for Abraxas and our shareholders. We still have fabulous properties and a great rate of return play for another day. And although failure to consummate a transaction in our numbers is somewhat frustrating to me, I think given the times and the asset quality, I'm very comfortable with the outcome. We now have 4 -- 3 focus areas, the South Texas, including the Eagle Ford, Williston Basin, including the Bakken and West Texas. And all of our other areas, we feel comfortable in transacting on one way or another.
The other transaction we announced yesterday was in West Texas. And I go back to 1994, when Abraxas originally bought these legacy assets in Ward County, properties that have, for the most part, previously been owned by major oil companies. We soon thereafter found a Shallow Oil field on them it's called the Abraxas Cherry Canyon field, and that field has now produced over 5 million barrels of equivalents to date and still producing.
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