Summary
- The management team at Abraxas Petroleum continues to make accretive transactions for the firm's sake.
- This latest move further deleverages the company's books and moves it into a healthier place.
- Add to this its low share price and it's becoming challenging to say no to investing in it.
- Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Get started today »
The management team at Abraxas Petroleum (AXAS) announced yet another asset sale aimed at reducing the company's leverage. Though not large in and of itself, the sale does help to reduce debt, and while the company did state that they plan to temporarily halt some drilling activities, there's no evidence at this time that these changes will impair the company's production by any material degree. With shares having recently touched a new low and debt in-line with where it needs to be, the picture for the business, so long as it can at least maintain current production without seeing a rise in capex, is looking up, and for long-term investors looking to get into a relatively-attractive prospect, now might be the time to consider that lunge.
A Look At The News
There were, rolled into one, really two news items at issue that Abraxas released on October 3rd. First and foremost, management announced that they had struck two different non-core asset sales, which they expect to close within 45 days. The first of these covers all of their remaining interests in their South Texas assets and the other includes non-operated acreage in Reeves County, West Texas. Unfortunately, significant details, like cash flow metrics, projected capex savings, PV-10 info, and more were not provided, but management did include one piece of valuable information: production.
According to the management team at Abraxas, the combined assets sold were responsible for only 310 boe (barrels of oil equivalent) in the month of August this year. Assuming that figure holds, it should translate to around 3,650 boe of output for the year. This compares to 4.015 million boe of output for the company as a whole or about 0.09% of total production. Of the output from these properties, 49% is in the form of oil. We don't know if there's some split between natural gas and NGLs, but if we assume that the remaining 51% is natural gas, then revenue, in a world where oil is $55 per barrel and natural gas averages $2.50 per Mcf, from the properties would be about $126,000 per annum.
In exchange for these properties, the company is expected to receive cash proceeds of $7.9 million. It's worth mentioning that this sale follows another one earlier this year for $15.5 million, plus $5.4 million worth of outstanding AFEs, for assets located in the Bakken that represented about 5% of the production the company generated in that region. Taking the company's second quarter financial results into consideration, net debt for the business should now stand around $175.1 million.
The other development announced was that the firm intends to temporarily halt drilling in the Delaware Basin. That said, they said that they will have three wells that will require drilling (per their contract) in the region in 2020. Of these three wells, two provide the company with a 100% interest, while the third amounts to interest of only 50%. This doesn't mean that the firm is stopping all drilling though. In North Dakota, for instance, the firm has some wells starting up next Spring that it said it has a 90% interest over.
