Abraxas Petroleum Corp. (AXAS): Coors Light Isn’t the Only Brand tapping the Rockies

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While most of the attention on the Bakken in the Williston Basin goes to larger players, Abraxas Petroleum Corp. (NASDAQ:AXAS) is a name worth learning. The company is a smaller E&P with significant exposure to the Rockies — 42% of first quarter production and 50% of proven reserves come from the region. After the Bakken, the company’s Eagle Ford assets are its next most important strategic asset. As the company continues to expand under careful management toward producing assets, Abraxas is seeing the types of improved efficiencies and results that you may wish to include in your portfolio.

Recent results

In early June, Abraxas Petroleum Corp. (NASDAQ:AXAS) announced earnings of $0.08 per share, or $7.9 million, on revenue of $21.5 million. In the second quarter of 2012, the company earned $0.12 per share, or $10.9 million. CEO Bob Watson commented on the company’s efforts to reduce debt during the quarter: “During the first half of 2013 Abraxas successfully executed on numerous asset sales in an effort to refocus our portfolio and true up our balance sheet.”

Abraxas Petroleum Corp.

The company also recently reaffirmed its 2013 production guidance of 4,550 to 4,700 barrels of oil equivalent per day. Watson took a positive outlook as part of the release: “The third quarter of 2013 promises to be exceptional for Abraxas Petroleum Corp. (NASDAQ:AXAS), as we benefit from the two high-rate Eagle Ford wells added late in the second quarter of 2013, three strong Lillibridge wells [in the Bakken], and three recent Eagle Ford completions.” The company looks well positioned heading into the second half of the year.

The strategy

Abraxas Petroleum Corp. (NASDAQ:AXAS) continued to pursue asset divestitures to achieve positive balance sheet events during the second quarter, and, as of June, planned to focus 95% of its capital on the Bakken and Eagle Ford regions. In the Bakken, Abraxas is using a company owned rig to complete pad drilling. In the Eagle Ford, the focus has been on improving efficiencies, having achieved as low as 5.6 drilling days. With 100% of the company’s capital focused on oil or liquids, other regions are being deprioritized. The Powder River Basin in slated to receive no capital in 2013, and only tests will be performed at Permian.

The investment

Part of what makes Abraxas Petroleum Corp. (NASDAQ:AXAS) particularly interesting as an investment is that both the Bakken and Eagle Ford assets have thus far outperformed their respective type curves. These declining curves depict the expected rate of production decline to be expected in a particular well. Shale wells tend to see sharp declines early in the life of the well, so outperforming these curves is positive. It should be noted, however, that the models that define type curves are based on empirical data rather than physical certainty. This means that they are estimated, and that outperforming them is not necessarily indicative of future results.

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