Abraxas Petroleum (ABP) – 2005 game plan

Abraxas Petroleum (ticker: ABP) is a Exploration and
Production company with geographic focus onshore in south and west Texas and Wyoming.

Game plan: Abraxas is
coming off a very hamstrung period. Debt covenants prevented the company from
fully exploiting their acreage for the last three years. In late 2004 the company was able restructure
the debt and the company plans on spending almost the same amount in Capex in
2005 ($22 million) as they had over the previous three years combined ($24
million).  

The company drills for complex deep plays that take time and
considerable capital. Being constricted
by the debt covenants where they could only spend $10 million in capital ABP
has seed declines in production and reserves. However, the company has announced that it plans to drill 16 wells in
2005. This is considerably higher than
the 4 wells it drilled in 2004.

One of the best ways to follow any company is to see how
management executes. To help in this endeavor,
we will look at the year-end conference call, held March 24, 2005. We will focus on what the company gives for
guidance and use it as a benchmark for the year.  

The call was hosted by Bob Watson, President and CEO; Chris
Williford, CFO and Robert Carrington, EVP. 

Production: 

…the
guidance that we have out there is 6.5 to 7.5 Bcf equivalent for this year…I
think we're still comfortable with that range…dependent on, of course our
success, but also the availability of services…(which) is something that we
have very little control over and is very tight right now.

Notice the caveat
already. Citing the availability of
services as well as operational risk. ABP is drilling deep horizontal wells and that complexity can increase
the risk.

In conjunction with year-end exit rate:  

….we've
talked about is sort of where we end up and intend to be for the full year,
with an exit rate in the 19 to 21 million a day…we just don't control enough in
terms of when we can get the services, and when we can get these things on. 

Again a
caveat. The drilling program is front
end loaded, so the exit rate is conceivable.

 Drilling Program:

…there's no wildcatting…right now, it's all
going to be on PUDs or acreage that has offsets, that have production. They're
perhaps one location type stepouts, that's about as wild as we're going to get
this year. 

This is a good sign for a company that is trying to regain
its footing.

TexasWyomingThe company feels comfortable with
its relationships with service contractors in Texas. But, feels that it might not be able
to start drilling in Wyoming until September  because  of tightness in rig availability.

Sources of Capital: 

 …If you look at the current strip, we
have really no issue with funding our drilling out of cash flow, assuming that
we're able to get the wells on in approximately the time frames that we have
them budgeted for. 

…obviously we didn't budget with the strip, we budgeted with
something more conservative than that, and at the time we put the budget
together... 

The
strip the company used for the budget: $6.00/mcf to $6.50/mcf for
natural gas and the mid-$40s for oil. The
company does have a $13 million credit facitity available. 

The
company did not believe that they would have any new wells adding to production
by the end of 1Q2005 but did think there is a good chance of 3 wells coming on line by the end of
2Q2005.

ABP
has an uphill battle, the program is made up of wells that can take up four
months to drill, its going to be tough for new investors to wait for
results.    

(Quotes are from the CCBN StreetEvents transcript.)