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Executives

Chris Williford – CFO

Bob Watson – President and CEO

Lee Billingsley – VP of Exploration

Analyst

Joel Musante – CK Cooper & Company

Michael Henzi – Sterne, Agee & Leach

Barbara Fee [ph]

Joseph Golato [ph] – Private Investor

Tom Raudenbush [ph] – Private Investor

Abraxas Petroleum Corporation (ABP) Q2 2008 Earnings Call Transcript August 12, 2008 3:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Abraxas Petroleum earnings conference call. My name is Erika and I’ll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Chris Williford, Chief Financial Officer. You may proceed, sir.

Chris Williford

Thank you. Welcome to the Abraxas 2008 second quarter financial results conference call. Bob Watson, President and CEO of Abraxas, joins me today for the call. After Bob’s comments, we will be available for any questions that you may have.

Just a reminder that today’s call is being taped and a webcast replay will be available beginning tomorrow. More information regarding the playback and how long it will be available will be provided at the end of this call.

Before Bob’s comments, I'm obliged to tell you that statements made in this call looking forward in time involve known and unknown risks and uncertainties which may cause the company’s actual results in future periods to be materially different from any future performance suggested in this call in the context of forward-looking information provided in this call, references made to the discussion of risk factors detailed in the company’s filings with the SEC during the past 12 months.

Q2 represents the first full quarter of results from the property acquisition that we closed in January of this year from St. Mary Land & Exploration. Q1 only had two months of acquisition impact while Q2 included all three months. Bob will discuss some operational highlights for Q2, but one point that I would like to address is the statement of operations line item entitled loss on derivative contracts, which reflects an $81 million amount for Q2, $74 million of which is non-cash.

As discussed at Q1 but worth revisiting now, this amount represents the change in estimated potential cost to settle the company’s fixed price swaps over the life of those instruments compared to what that liability was at the end of Q1.

With the continuing run up of commodity prices from April 1 to June 30, especially in the future out months through the end of 2011 when these instruments expire, the calculated potential cost was worth $100 million at June 30, an increase of $74 million from March 31 which represents the lion's share of the Q2 P&L impact.

Fortunately, from a financial statement presentation perspective only, falling commodity prices since the end of the quarter will result in Abraxas’ recovering a large portion, if not all, of this $74 million in Q3 and result in significant net earnings in Q3 as a result. Those amounts, like the Q2 amounts, related to this issue are non-cash and have absolutely no impact on operations or liquidity. Now that that issue is clear as mud [ph], Bob will provide an overview for the quarter followed by your questions.

Bob Watson

Thank you, Chris. Chris, my 92-year-old mother doesn’t really understand mark-to-market derivative accounting which creates unrealized future losses and gains as you say from hedge contract. She saw the headlines in our local express newspaper this morning and she thinks we’re going broke.

Obviously, it’s totally irresponsible sensationalism by a local paper which should be supportive of local companies and they wonder why AT&T moved to Dallas. So in case, there are some others out there that are subjected to sensationalist journalism and are confused about our financial well-being, I’d like to go over what should have been reported locally but wasn’t.

The facts are, on a stand-alone basis, Abraxas’ production was up 49% over Q1 to 760 barrels per day. Revenue including the actual cash distribution from our partnership was up 78% over Q1 to $8.3 million. Cash flow including the actual cash distribution, and we’re talking about actual cash now not just some paper accounting entry, from our partnership, was up over 204% over Q1 to $6.6 million. And net income including the cash distribution was up 429% over Q1 to $5.2 million or $0.11 a share which beats Street expectations. You would have thought the newspaper would have said something about that, but they didn’t.

As most of you know and as Chris just reiterated, under GAAP accounting, we’re required to consolidate with Abraxas Energy partners, our master limited partnership, and being a master limited partnership by its very nature, it is heavily hedged to protect our ability to make distributions from commodity price risk. Now as you said, GAAP also requires us to mark-to-market each month the value of our future hedges as they relate to current commodity prices and as prices went up during the quarter higher than our hedged prices, we had a booked and unrealized paper loss of $74.5 million.

Now to show you crazy this accounting treatment is, as prices declined at the end of July, we booked a $43 million gain. Now I wonder if the express news will sensationalize about that one. Enough editorializing on accounting issues to mask the facts, but even on a consolidated basis, ignored by our local papers, the facts are production overall was up 17% over Q1 to 4,732 barrels per day. Revenue increased 62% over Q1 to $34.4 million. Cash flow increased 93% over Q1 to $23.3 million and net income before the derivative and minority interest issues increased 73% to $5.7 million or $0.12 a share and again beating the Street estimate.

Now we would not have had results like this if weren't performing as we said we would. Production continues to increase and our drilling program is getting more and more active. The partnership is performing better than expected. The St. Mary’s acquisition has been transitioned into our existing operation very smoothly and the partnership continues to have very significant drilling success.

The partnership distributions have actually increased now, the last two quarters, and keep in mind that Abraxas Petroleum owns 47% of the partnership, thus we have been a recipient of increasing distributions over the last couple of quarters.

Now, from an operation standpoint, in South Texas, our Horizontal Edwards well in DeWitt County in which Abraxas owns a 75% interest is currently drilling a horizontal lateral below a measured depth of 14,000 feet. Progress is a little slow because we are dealing with some high pressure and a lot of gas and we are very, very excited about what we are seeing in this well. It will be another couple of weeks of drilling and then hopefully completion shortly thereafter and then a couple of more weeks to tie the well in. But at this point, we are very excited about what we are seeing.

Our Wilcox Program in South Texas continues; we are actually re-entering an old well, the McElroy #1 in Bee County, Abraxas owns 100%. Our geologists found a couple of zones in this well that were never tested that certainly produced in the area and they look like they are productive, so we are re-entering an old well at quite a savings to drilling a new one, to test these other zones. That well is down around 7,500 feet this morning.

In West Texas, our multi-zone oil well, the Beulah Coleman #13 has been successfully completed and the Devonian below 11,500 feet, the well actually went on production yesterday. We still got about 2,000 barrels of frac fluid to recover before we can evaluate what its oil and gas production capabilities are. But this well is also owned 100% by Abraxas.

Our Shallow Oil project in West Texas near Ira in Scurry County actually started this past weekend. We spudded our first well and as of this morning, it is drilling below 2,800 feet already on its way to 3,400 feet. This is the first of four wells that we planned in this summer’s program as a prelude on installing a water flood on this property and again Abraxas owns 100% of this project.

Now in Wyoming, we’ve been talking about that a long a time. We finally built a location on the Lakeside #1H, Abraxas owns 100% of this, it is in the Brooks Draw area and we are currently waiting on the rig which is scheduled to arrive next week. This well will be a horizontal well targeting the Turner Sand and this is a little different that what you have been hearing from us but after an internal study, it was confirmed by an indepth field study that Halliburton performed for us.

It has turned out that the Turner has more near-term promise than the Mowry and a lot of this is because we had previously drilled, some of you know the story in 2005 horizontal well from the Turner. They are all productive. They are all field producing today but none of them were subjected to the Bakken type completion using isolation packers and stage fracs. So we are very excited about this opportunity to move the Bakken technology down into Wyoming. At the same time, we are still gathering information on the Mowry. We are participating in a work group. They met recently at Denver, all the companies that are doing work in the Mowry to swap information and that meeting led us to believe that we still need to gain more information before we haul up on a multi-well drilling program, but in the meantime we’re very excited about what the Turner might do for us.

Abraxas Energy Partners, so far this year has drilled 19 wells on the St. Mary’s properties, mostly on the Rockies and the Mid-Continent area. Nine of those wells are on production and ten are being completed for an indicated success of 100%.

From a financial front, we are continuing with the IPO process for Abraxas Energy Partners. We expect to file a final amendment to our S-1 next week incorporating Q2 numbers and then this statement should be good until mid-November and if the market becomes more receptive, we do plan to launch the offering.

Several weeks ago, as some of you may know, Abraxas was included in the Russell 3000 Index which is a nice feather in our hat and it certainly includes a number of funds who trade as indexes to the Russell 3000 as new shareholders, significant shareholders to Abraxas. And then again a couple of weeks ago after eight great years on the American Stock Exchange, and I truly mean this from our heart, they did us a good job and I think we did them a good job but we felt like it was time to move on, so we moved over to the NASDAQ. We went back to our old trading symbol AXAS and we’re very happy with the results that we’ve seen on the NASDAQ to date.

So despite what those of you who read the San Antonio Express news might have read, things are going quite well at Abraxas. And with that, we’ll throw it open for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Joel Musante from CK Cooper & Company. You may proceed.

Joel Musante – CK Cooper & Company

How are you doing everybody? Good afternoon.

Bob Watson

How you doing?

Joel Musante – CK Cooper & Company

Pretty good, I just had a couple of questions for you. Are the wells that you’re going to drill this year for the standalone operation? Can you give us an estimate of your exposure to reserves from those wells?

Bob Watson

Of the wells?

Joel Musante – CK Cooper & Company

Yes, of the wells that you’re going to drill for Abraxas standalone, sort of the upside, the unbooked portion.

Bob Watson

Okay. It’ll start with the Nordheim well, I believe that has about 3 Bcf of puds booked to it. If we have except equal to the last one we drilled in the Yoakum, which you’re well aware of, that could be conservative, The Beulah Coleman well at Midland County, West Texas and the Devonian, – who knows 50,000 to 100,000 barrels and then 50,000 to 100,000 barrels in the Wolf Camps, Sprayberry and Dean [ph]. When we get to them, they’re still behind pipe. So 150,000 to 200,000 barrels project there that we own a 100% of and that's going to be at about a $10 finding cost. The wells in the Ira area, those are probably 50,000 barrels per well plus double that when you look at potential water flood potential. Again those will be in the $10 per barrel finding cost area.

We have other wells in West Texas which we haven’t mentioned yet, but we did plan toward the end of the year and we’ll get into those as we continue. In Wyoming, that’s a real wildcard. I think we ran our economics at 150,000 to 200,000 barrels for that and it certainly works.

I guess there’s some upside in that but who knows, we’re really going out and charting new waters on that one. But the existing wells that have not been stimulated, there are five horizontals, they’re going to average about 60,000 to 70,000 barrels per well. But we hope to at least double that with stimulation and if that’s the case, then we have a very economic venture.

Joel Musante – CK Cooper & Company

Okay, what is the well cost in Brooks Draw?

Bob Watson

About $3.5 million to $4.5 million depending on the size of frac that we do.

Joel Musante – CK Cooper & Company

Okay. And the frac portion of that?

Bob Watson

$1 million to $1.5 million.

Joel Musante – CK Cooper & Company

Okay. All right. You mentioned in the last call that you were going to high grade some of the St. Mary’s properties and potentially sell some – possibly selling interest in some of those areas. Do you have an update on that?

Bob Watson

Well, we haven’t started yet. We’ve been busy trying to quantify what we have in the Bakken and the Haynesville and then the Central Oklahoma Woodford which we’re very excited about, especially the Bakken. We’ve done more work on it, up in North Dakota and Montana than in the others, and we’ve got some very, very interesting acreage that will be both in the corporation and in the partnership that we’ll be evaluating probably on ’09 project.

Joel Musante – CK Cooper & Company

Where is that Bakken acreage, is it on the west side of the – is it in Montana or North Dakota?

Bob Watson

It’s in North Dakota; it’s kind of in the Southwest of the Nesson Anticline which is kind of the new fairway where the Three Forks/Spanish has all of a sudden become a nice contributor to those wells. We went to a land sale last week with St. Mary's as a partner, 50/50. We had a $500 per acre-top on acreage that was surrounding our existing acreage which we have a good deal of and those leases went from $5,000 to $6,000 an acre, so and from the big players in the Bakken, so we’re pretty comfortable that – at least that acreage block is right in the middle of the new fairway. We’re pretty excited about it, but there won’t be anything done probably until ’09 on it.

Joel Musante – CK Cooper & Company

How many acres do you have there?

Bob Watson

We haven’t quantified – Lee is telling me now, we’ve got – that’s net?

Lee Billingsley

Gross, about 800.

Bob Watson

In that one play, we have about 800 net acres.

Joel Musante – CK Cooper & Company

Okay, all right. Just last question –

Bob Watson

It’s more than that Joel. We better get back to you on that. We’ve got more than that Joel, don’t write that number down.

Joel Musante – CK Cooper & Company

Okay. And just the last question. Your current production rates, at the end, I guess either at the end of the quarter kind of just looking to project for third quarter and beyond.

Bob Watson

On the standalone basis, we’re just shy of 800 barrels a day for June. Haven’t seen July numbers yet; we’ll see those very shortly.

Joel Musante – CK Cooper & Company

Okay.

Bob Watson

But as we said last call, we expect to see month-to-month increases just from our drilling program. Obviously, when the horizontal well comes on line, that could be a nice hockey stick up.

Joel Musante – CK Cooper & Company

All right, and what do you think that’ll IP rate, what are you kind of expecting for an IP rate right there?

Bob Watson

It’s too early to say. Obviously the well we drilled in the Yoakum Field earlier this year came on at a rate in excess of 8 million a day, so who knows?

Joel Musante – CK Cooper & Company

Okay, yes, that could be. All right, and then for the MLP, the production rate there?

Bob Watson

The production rate there was about 4,200 – 4,300 BOEs per day.

Joel Musante – CK Cooper & Company

Okay. When you complete those other ten wells, I mean are these big wells, or are they just kind of – are they going to be incremental?

Bob Watson

They are big wells with small interests.

Joel Musante – CK Cooper & Company

Okay. So a lot of incremental –

Bob Watson

What we’re trying to do in the partnership is show gradual growth that allows us to gradually increase distributions over time. We’re not trying to hockey stick the growth of the partnership up.

Joel Musante – CK Cooper & Company

Okay. All right, well, I’ll get back in the queue. Thanks.

Bob Watson

Good, thanks.

Operator

Your next question comes from the line of Michael Henzi from Sterne, Agee & Leach. You may proceed.

Michael Henzi – Sterne, Agee & Leach

Bob, hi.

Bob Watson

Hi, Michael.

Michael Henzi – Sterne, Agee & Leach

In the past, you’ve guided production growth in the C-corp [ph] to about 10% quarter-over-quarter for a while. Given the large increase in the second quarter, 49% year-over-year and 17% quarter-over-quarter, are you guys ready to increase the guidance there?

Bob Watson

I knew someone would ask about that. What we’re actually going to do, just for everybody’s sake and to try to direct people into looking at the standalone numbers as opposed to the consolidated numbers, is that we’re going to issue more guidance than we ever have towards the end of August, early September both on production, cash flow and all that kind of stuff, but just on the standalone numbers. We feel like that’s a way that people will be forced to look at the standalone numbers if they want to compare to what we’ve been saying we’re going do. So hold off for a couple weeks on that. Yes, the 10% was conservative. I’ll be very disappointed if that’s all we grow, but I think you’ll see why in a couple of weeks.

Michael Henzi – Sterne, Agee & Leach

How about going forward trends for the MLP production?

Bob Watson

We’re targeting growth there about 7% to 8% per year in production just from our drilling program. That would be exclusive of any acquisitions that we might make. We don’t want to get too far out over our skies on production growth by drilling. We don’t have to. We don’t have any leases expiring. We’ll just drill as we need wells to continue a gradual production growth.

Michael Henzi – Sterne, Agee & Leach

I think that you guys – this increasing of production which is a tough thing to do is, I think you’re doing great job there.

Bob Watson

Yes, thank you.

Michael Henzi – Sterne, Agee & Leach

One final question, are the units in the MLP in the second quarter the same as they were in the first quarter?

Bob Watson

Yes, no change.

Michael Henzi – Sterne, Agee & Leach

Okay. Thank you very much. Great quarter.

Operator

(Operator instructions) Your next question comes from the line of Barbara Fee [ph]. You may proceed.

Unidentified Analyst

Hi, Bob.

Bob Watson

How are you doing?

Unidentified Analyst

Good. We got a couple of questions for you. There's two of us here, is that all right?

Bob Watson

You bet.

Unidentified Analyst

All right. The first question is, if quarter two is going so well, how come the shares declined most of the quarter? We’re down like a lot this quarter in the shares but production’s up. What’s the – you got any – ?

Bob Watson

I think a lot of it has to do with what’s happening on Wall Street. There are a lot of companies in our same position that are even bigger cap than we are that have seen 30% to 35%, 40% price reductions over the last month.

Unidentified Analyst

Yes.

Bob Watson

It’s not systemic to Abraxas by itself; that’s for sure.

Unidentified Analyst

Yes, that’s good to hear. What do you think about quarter three? You think you it’s going to start looking better? Is the market going to turning around as far as oil is concerned?

Bob Watson

You tell me. If I could predict Wall Street, I wouldn’t be sitting here today; I’ll be on the golf course somewhere.

Unidentified Analyst

I see your point.

Barbara Fee

I think you covered my question. I was going to ask about the IPO because I know when I read was that it was predicted to come out between $12.50 and $17.50 a share but I heard you say there’s no way you can really make a prediction on that. I was wondering how accurate you might think that was though?

Bob Watson

I think the filing was $17.50 to $18.50.

Barbara Fee

Okay. Well, I read it on my Bank of America site, so...

Bob Watson

Yes, I think they might have picked up a wrong digit there.

Barbara Fee

Okay. Well, that’s even better. So did that sound – are you still predicting that then?

Bob Watson

No, it’s all subject to market conditions. There’s just no way of knowing until we finally launch and then we’ll know about what the market will accept.

Barbara Fee

And you’re looking at that like around November you said?

Bob Watson

Well, again, it depends on when the market becomes receptive. We could probably not do a deal today. The market’s just not interested in IPOs; it’s struggling just to hold its own on what it’s got. So the timing is going to be perfectly up to the market. What I said was that the S-1 Registration Statement will be good until the numbers go stale around that mid-November area.

Barbara Fee

Okay. We just don’t know when then, right?

Bob Watson

Yes, unfortunately; I wish I knew.

Barbara Fee

Yes. Do you think it will be 2008?

Bob Watson

I certainly hope so, but it so much depends on things that are completely out of our control right now. It’s just impossible to predict.

Barbara Fee

Okay. Thank you.

Bob Watson

Thank you.

Operator

Your new question comes from the line of Joseph Golato [ph], Private Investor. You may proceed.

Joseph Golato

Hi, congratulations. Good quarter.

Bob Watson

Thank you.

Joseph Golato

I have three different questions. One pertains to the IPO. We’ve had a couple of secondaries recently, Petrohawk 25 million shares in a pretty crappy market. We’ve had 25 million shares of XCO admittedly done by big houses, I understand that. But is our problem perhaps Wachovia Bank and AG Edwards, that they can’t get a small thing like this out the door? I mean, is there some kind of pressure that could be put on these guys because this seems like a doable deal even in today’s atmosphere, given the fact that the stock is very low, given the fact that there are a lot of positives for the future, and given the fact that there are hundreds of millions of dollars of new stock being pushed out the door? So, I’d like to hear your comments or what your thoughts on that are, with regards to Wachovia especially, the fact that may be there are a tainted company and so forth and so on. The other thing is I would like you to comment if you could please on the release of the Hansen #3H, the release said producing at a plant and pipeline restricted gross rate of approximately 8 Mcf. What does plant and pipeline restricted mean exactly? That the well could have produced more except for the fact that there was a restriction on the pipeline, or what does that mean? I am a little confused because 8 Mcf sounds like a pretty darn good well for company our size.

Bob Watson

Let me address the questions in order before I forget them.

Joseph Golato

Okay, and then I have one last question when you’re finished with those two.

Bob Watson

Okay.

Joseph Golato – Private Investing

If you don’t mind.

Bob Watson

I don’t necessarily think that we are wedded to Wachovia nor don’t necessarily think they are wedded to us. We can pick whoever we want and they can pick whoever they want as far as an underwriting group goes. So I do not think that is an issue. I think is a structural issue and you are talking about two very large cap companies selling common stock and yes, there was a market for that but at a considerable discount. What we’re talking about is the master limited partnership and there is just no market for the MLPs right now, almost at any price and certainly not at a price that we would consider going public at. So I think we’re talking about two different issues there and there has only been one MLP issue done this year by Pioneer; it was a large offering with a big group of bulge bracket firms as underwriters. It came out, it initially performed well and it is now trading considerably below the offer price. So that kind of a track record does not appeal to the investors because they are kind of disincentivized thinking that if they pay x today, it is going to be worth x-minus something in a couple of months. So we have to get that period behind us before we can even contemplate doing an MLP offering.

The Hanson Well, when it initially came on, we only had room in the processing plant for 8 million a day. We actually had to shut in one of our wells to make room for it. Plants are only designed for a certain amount of capacity and you can’t just snap your fingers and increase capacity. So initially that well came on at a rate that exceeded their ability to process the gas, so we had to hold it back. Now since then, as we expect it, the well falls off naturally to where now we are back within the plant limit. I cannot tell you today what the well is making. It is still a very good well but it is not constrained by pipeline or plant anymore and actually we’re looking at starting up an operation on another well on that field since we now have room to process the gas. Hopefully that answers your question. You said you had one more?

Joseph Golato

Yes, I do have one more. In days gone by, you have given us some indication of net worth of the shares based on a PV 10. There are two subjects that I have not heard in the last year or so and that is maybe Michael [inaudible] by the way, I am not sure. I am interested in proven reserves. I can never get straightened out the PUD proven, you got 27 different categories of what you might have.

Bob Watson

Welcome to our world.

Joseph Golato

Yes, so you have not talked about reserves as far as I can recall and you haven’t given out recently within the last year or so, or seven or eight months, or maybe last two or three calls, the PV10 that you had offered to us in some calls gone by. So could you –

Bob Watson

The last number we would have issued would have been our year-end 2007 reserves which including pro forma the St. Mary acquisition was about 38 million Bcf, billion cubic feet of gas equivalents of proved reserves. We have not done another reserve report since then, so that is why you have not seen us issue another reserve number and we do not plan to do one until year-end 2008. They are expensive to do. We really don't have a reason to do one, so we do it just when we have to which is once a year. And we haven’t done a PV10 number because at current commodity prices, our PV10 would be astronomical which means our NAV would be astronomical and people are no longer paying a lot of attention to NAV, so we felt like it was just a worthless exercise on our part.

Joseph Golato

Wow, am I understanding or let me repeat this again, you’re telling me that you’re not giving out a PV10 because it would be so high as to distort the real – distort the function of the market?

Bob Watson

Yes, in a way. One, it’s not up to date and two, let’s just use 38 Bcf of reserves and say the current average price driving [ph] number is $10. That’s $38 million of crude reserve value, divide that by 50 million shares and you get $7.50 a share just on crude reserve alone and then you have to add in the value of the partnership, which is not easily determined right now; you got to add in the value of the acreage that we have, we have no debt; so it becomes a number that people don’t believe because it’s so big, so we tend to not give it out.

Joseph Golato

Okay, it’s your call I guess.

Bob Watson

I guaranty it won’t do any good.

Joseph Golato

I think transparency is better than non-transparency. Let us do with the number whatever we choose to do, but I don’t think that informing us is less good than not informing us.

Bob Watson

Well, I think it boils down to we have given you all of the numbers that go into the NAV number. What we are not prescribing is a commodity price deck because we’re no better at predicting that than you are probably, so what we’d like to do is just let people determine what their own price deck is and come up with their own NAV number. That’s what the analyst do anyway; they use their own price deck and come up with their own methodology.

Joseph Golato

Fair enough, thanks for your time, Bob. Thank you.

Operator

Your next question comes from the line of Tom Raudenbush [ph] from Private Investing, You may proceed.

Tom Raudenbush

Bob, how are you doing today?

Bob Watson

Good, thank you.

Tom Raudenbush

I’ve got a couple of quick questions here for you and they’re more – they’re not technical questions. They are more just in the kind of how the Abraxas Energy and Abraxas Petroleum are being – how that combination is working for you? Are you finding a strain on running both entities?

Bob Watson

Oh, absolutely not. It’s transparent in our shop which entity we’re working for that minute. All of our properties are operated as if they’re one and the same, which in fact they are. Since the partnership is not public yet, there’s not a lot of public time required on it, so it’s no issue whatsoever.

Tom Raudenbush

You mentioned a little while ago that if you knew what Wall Street was going to do, you’d be out on the golf course; I don’t think you’d been out in the golf course very much lately, have you?

Bob Watson

No, my golf game has suffered this year.

Tom Raudenbush

How about – in the last conference call, I think it was – you mentioned the frustration and I could tell again with the newspaper article in your local area there. But the frustration of getting the Abraxas story out and you mentioned something to the effect that you felt that you had to do a better job in that area, try to educate – even I think some people on Wall Street who don’t even understand what’s going on. You think still the problem is the combination of Abraxas Energy and the Corporation and still being consolidated reports?

Bob Watson

I certainly think that has a negative impact. Before the market turns south, I did get out of the road quite a bit and met a lot of people and had a lot of positive response, got a lot of new shareholders involved. Then when the market turned south and people started hunkering down, they really didn’t care to see people, so we decided to take most of the summer off from road showing and hopefully get it cranked up again in September when may be people will be a little bit more receptive.

Tom Raudenbush

One final question, Bob. Again, it looks like things are really going well if you understand what’s going on, and do you guys have any internal projections as far as oil prices say in the next year or where it may stabilize at and natural gas prices internally that you’re using?

Bob Watson

I'll tell you, if I had a crystal ball like that again, that would put me out in the golf course but I don’t.

Tom Raudenbush

I'm trying to get you out on the golf course a little bit, see?

Bob Watson

I tend to think that gas prices have seen the highs for the year pending a weather confrontation that we don’t see yet. Oil prices, they’re going to vacillate between say $110 and $130 a barrel; I don’t think we’ll see a $145 any time soon. And gas prices somewhere between $8 and $10.50 or something like that; those are all numbers that we make very good money at. They go higher than that; we’ll make more. Keep in mind that Abraxas Petroleum Corporation has no hedges, so we are being paid market prices for our production and as our production grows, certainly our cash flow is going to grow accordingly.

Tom Raudenbush

Well, I consider myself a long-term holder. I got in there about two years ago; I’m trying to look at things from a perspective of – trying to find something that I can find critical that I could offer to you, but I think things are going very well. I want to congratulate you and the entire administration for turning this around. I know there’s a lot of frustrated investors with the price, the way it peaked there for a while over 5 and then the market kind of tanked and I know that there’s some frustration but if you look inside the numbers, really understand what’s going on, you’re doing well.

The final question I have or final comment was with the move to the NASDAQ and with the positive things that are going on in Abraxas, I would offer a suggestion, maybe I think so many people rely on web sites today and I think if we could update the Abraxas Petroleum web site a little bit…

Bob Watson

You’re not the only one that said that. That is on our list of things to do.

Tom Raudenbush

Great. Well, congratulations, great quarter and we look forward to the future.

Bob Watson

Great. Thank you.

Operator

Sir, we don’t have further questions at this time.

Bob Watson

All right. Thanks again to our listeners today for your time and interest in Abraxas. For those wishing to listen to the audio webcast replay, beginning tomorrow and running for at least the next 60 days, please visit the Abraxas web site at abraxaspetroleum.com under the Investor Relations section. This concludes the Abraxas call. Thank you again.

Operator

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect and have a wonderful day.

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Source: Abraxas Petroleum Corporation Q2 2008 Earnings Call Transcript
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