EX-99.1 2 axasq309earnings.htm NEWS RELEASE axasq309earnings.htm

 
 
 
ABRAXAS PETROLEUM CORPORATION
www.abraxaspetroleum.com
Exhibit 99.1

NEWS RELEASE

Abraxas Reports Third Quarter 2008 Results

SAN ANTONIO (November 10, 2008) – Abraxas Petroleum Corporation (NASDAQ:AXAS) today reported financial and operating results for the three and nine months ended September 30, 2008 and provided an operational update.

Herein, we refer to Abraxas Petroleum Corporation and its subsidiaries as “Abraxas Petroleum” or “AXAS” and Abraxas Energy Partners, L.P. and its subsidiaries as “Abraxas Energy”, “AXLP” or the “Partnership.”

On a stand-alone basis for Abraxas Petroleum (which exclude the results of Abraxas Energy), the three months ended September 30, 2008 resulted in:
 
·
Production of 60.6 MBoe (658 Boepd);
 
·
Revenue of $4.9 million ($7.3 million including cash distributions);
 
·
EBITDA(a) of $2.7 million ($5.1 million including cash distributions);
 
·
Cash flow(a) of $2.7 million ($5.0 million including cash distributions); and
 
·
Net income of $1.5 million, or $0.03 per share ($3.9 million including cash distributions, or $0.08 per share).

For financial reporting purposes, results are consolidated and include Abraxas Petroleum and Abraxas Energy.  Abraxas Petroleum owns 47% of the Partnership and records minority interest for the portion that it does not own.  On a consolidated basis, the three months ended September 30, 2008 resulted in:
 
·
Production of 417.0 MBoe (4,532 Boepd);
 
·
Revenue of $29.2 million;
 
·
EBITDA(a) of $20.1 million;
 
·
Cash flow(a) of $17.6 million;
 
·
Net income of $70.8 million, or $1.44 per share; and
 
·
Adjusted net income of $2.8 million, or $0.06 per share, excluding the non-minority interest share of the non-cash change in derivative fair value in the amount of $39.7 million and the gain attributable to the minority interest loss that exceeded the minority interest equity capital in the Partnership in Q2 2008 the amount of $28.2 million.

 
(a)
See reconciliation of non-GAAP financial measures below.


18803 Meisner Drive
San Antonio, Texas 78258
Phone: 210.490.4788    Fax: 210.918.6675
 
 
 




On a consolidated basis, adjusted net income, excluding the non-cash change in derivative fair value and the gain associated with the minority interest loss in Q2 2008, for the quarter ended September 30, 2008 was $2.8 million, or $0.06 per share, compared to adjusted net income, excluding the non-cash change in derivative fair value, of $2.7 million or $0.05 per share during the same quarter of 2007.  Adjusted net income excluding the non-cash change in derivative fair value excludes the unrealized gains or losses on derivative contracts that are based on mark-to-market valuations which are non-cash in nature.  The unrealized gain on derivative contracts for the quarter ended September 30, 2008 is attributable to the hedging activity of the Partnership and does not impact Abraxas Petroleum on a stand-alone basis.  These unrealized gains or losses on derivative contracts are non-cash items and may fluctuate drastically period to period.  During the third quarter of 2008, Abraxas Energy recorded a non-cash change in derivative fair value of $84.1 million.

Cash Distribution from Affiliate
Abraxas Energy Partners, L.P., the master limited partnership formed by Abraxas Petroleum in May 2007, declared a cash distribution of $0.44 per unit for the third quarter of 2008.  The distribution was approximately 1% higher than the Partnership’s distribution for the second quarter of 2008 of $0.4375 per unit.  The distribution will be made on or about November 14, 2008 to unitholders of record at the close of business on November 7, 2008.  Abraxas Petroleum owns approximately 47% of the outstanding units and will receive $2.4 million in cash distributions from its ownership interest in Abraxas Energy for the third quarter of 2008.

Operations
Wyoming:
 
·
In Brooks Draw, the Lakeside #1H, a horizontal well targeting the Turner sandstone was drilled to a total measured depth of approximately 12,500’, including a 3,800’ lateral.  A liner with eight isolation packers has been set in the lateral section after oil and gas were encountered while drilling and a multi-stage fracture stimulation will be scheduled in the fourth quarter of 2008 after fluid sensitivity study results are received and evaluated.  Abraxas Petroleum owns a 100% working interest in this well.

South Texas:
 
·
In DeWitt County, the Nordheim #2H, a horizontal development well targeting the Edwards formation was drilled to a total measured depth of approximately 17,100’, including a 3,000’ lateral.  A liner with seven isolation packers has been set in the lateral section after encouraging indications of gas were encountered while drilling and a multi-stage fracture stimulation will be scheduled in the fourth quarter of 2008 pending availability of frac sand and completion of pipeline hookup.  Abraxas Petroleum owns a 75% working interest in this well.
 
·
In Lavaca County, the Henson #2H, a horizontal Edwards well, was recently re-completed with a multi-stage fracture stimulation and is currently recovering frac fluid.  Abraxas Energy owns a 75% working interest in this well.
 
·
In Bee County, the Muckleroy #1, a re-entry well was successfully cleaned out to 9,500’, completed in the Wilcox sand, and is currently producing nominal amounts of gas. Abraxas Petroleum owns a 100% working interest in this well.


 
 
 




West Texas:
 
·
In Midland County, the Beulah Coleman #13, a development well targeting the Devonian and Spraberry formations was fracture stimulated in the Devonian and is currently making commercial quantities of oil and gas.  Abraxas Petroleum owns a 100% working interest in this well.
 
·
In Scurry County, three wells of the four-well program on our Huddleston lease have been drilled to total depths of approximately 3,500’, completed in the Clearfork / Glorietta formations and each well is currently producing 10 – 25 barrels of oil per day while recovering frac fluid.  The fourth well is expected to reach total depth this week.  Abraxas Petroleum owns a 100% working interest in each of these wells.
 
·
In Coke County, a three-well program in our Millican Reef Unit targeting the Strawn formation commenced drilling last week.  Abraxas Petroleum owns a 92% working interest in each of these wells.

Drilling and re-completion activity continues on numerous non-operated wells on the properties acquired from St. Mary Land & Exploration Company in January 2008.  These properties are principally located in the Rockies and Mid-Continent regions of the U.S.  On average, Abraxas Energy owns a relatively small working interest in these wells.

“Although our third quarter production was negatively impacted by shut-ins associated with Hurricane Gustav and Ike, we were very active from an operational stand-point and the impact from those projects will be partially reflected in the fourth quarter with the full impact coming in the first quarter of 2009, as we experienced unexpected delays in certain services, such as frac sand, which delayed completions on several key wells drilled during the third quarter.  We look forward to sharing the results of these projects as they are known together with the issuance of guidance after the more impactful wells have been brought on-line. While we cannot ignore what has occurred in the markets over the past few months, including a staggering decline in commodity prices and unprecedented turmoil in the equity and credit markets, these events have caused us to re-evaluate our future capital spending and we have chosen to be conservative and reduce our capital spending.  For 2009, we are in the process of prioritizing our inventory of projects and formulating a budget based on our assumptions about future commodity prices and service costs.  We remain committed to our long-term business strategy and are very pleased to have a large inventory of projects to choose from.  As promised, we continue to provide a transparent presentation of our financial and operating results detailing the results of the consolidated entity as well as on a stand-alone basis for both Abraxas Petroleum and Abraxas Energy – please read “Basis of Presentation” for a detailed explanation,” commented Bob Watson, Abraxas’ President and CEO.

Conference Call
Abraxas invites you to participate in a conference call on Wednesday, November 12, 2008, at 3:00 p.m. CT (4:00 p.m. ET) to discuss the contents of this release and respond to questions.  Please dial 1.888.679.8018, passcode 63089596, 10 minutes before the scheduled start time, if you would like to participate in the call.  The conference call will also be webcast live on the Internet and can be accessed directly on the Company’s website at www.abraxaspetroleum.com under Investor Relations.  In addition to the audio webcast replay, a podcast and transcript of the conference call will be posted on the Investor Relations section of the Company’s website approximately 24 hours after the conclusion of the call, and will be accessible for at least 60 days.


 
 
 





Abraxas Petroleum Corporation is a San Antonio based crude oil and natural gas exploration and production company with operations principally in Texas and Wyoming.  Abraxas Petroleum Corporation also owns a 47% interest in an upstream master limited partnership, Abraxas Energy Partners, L.P., which entitles Abraxas Petroleum Corporation to receive its proportionate share of cash distributions made by Abraxas Energy Partners, L.P.

Safe Harbor for forward-looking statements:  Statements in this release looking forward in time involve known and unknown risks and uncertainties, which may cause Abraxas’ actual results in future periods to be materially different from any future performance suggested in this release.  Such factors may include, but may not be necessarily limited to, changes in the prices received by Abraxas for natural gas and crude oil.  In addition, Abraxas’ future natural gas and crude oil production is highly dependent upon Abraxas’ level of success in acquiring or finding additional reserves.  Further, Abraxas operates in an industry sector where the value of securities is highly volatile and may be influenced by economic and other factors beyond Abraxas’ control.  In the context of forward-looking information provided for in this release, reference is made to the discussion of risk factors detailed in Abraxas’ filings with the Securities and Exchange Commission during the past 12 months.

FOR MORE INFORMATION CONTACT:
Barbara M. Stuckey/Vice President - Corporate Development
Telephone 210.490.4788
bstuckey@abraxaspetroleum.com
www.abraxaspetroleum.com



 
 
 


ABRAXAS PETROLEUM CORPORATION
BASIS OF PRESENTATION

For financial reporting purposes, accounting principles generally accepted in the United States of America (GAAP) require Abraxas Petroleum to consolidate (and incorporate) the financial results of Abraxas Energy and its subsidiaries into Abraxas Petroleum’s financial results because Abraxas Petroleum owns a significant percentage of the Partnership and controls its general partner.  While this presentation may be proper under GAAP, it can be confusing to the investment community.  As a result, all operating and financial results are presented herein on a consolidated basis and on a stand-alone basis for the current period.  The stand-alone results include AXAS without AXLP, which reflect operating and financial results of Abraxas Petroleum and its subsidiaries on a stand-alone basis and AXLP, which reflect operating and financial results of Abraxas Energy and its subsidiaries on a stand-alone basis.  The consolidating entries column reflects adjustments to the stand-alone presentations in the consolidation treatment under GAAP.

Abraxas Energy has approximately 85% of its projected oil and gas production from its net proved developed producing reserves hedged with NYMEX-based fixed priced swaps through December 2011 at volume weighted average prices of $84.54 per barrel of oil and $8.32 per Mcf of gas.  As commodity prices fluctuate, these derivative contracts are valued against current market prices at the end of each reporting period in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted, and require Abraxas Energy to either record an unrealized gain or loss based on the calculated value difference from the previous period end valuation.


 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATED

FINANCIAL HIGHLIGHTS
(UNAUDITED)

(In thousands except per share data):
  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
Financial Results:
                        
Revenues                                           
   $ 29,246     $ 11,404     $ 85,839     $ 36,238  
EBITDA (a)                                           
     20,131       7,463       61,174       23,860  
Cash flow (a)
     17,583       6,960       53,877       16,544  
Net income
     70,755       2,998       4,076       59,495  
Net income per share – basic
   $ 1.44     $ 0.06     $ 0.08     $ 1.31  
Adjusted net income, excluding non-cash change in derivative fair value and gain associated with minority interest
       2,812         2,672         11,854         58,312  
Adjusted net income, excluding non-cash change in derivative fair value and gain associated with minority interest, per share – basic
   $ .06     $ 0.05     $ 0.24     $  1.28  
Weighted average shares outstanding – basic
     49,043       48,814       48,955       45,524  
                                 
Production:
                                
Crude oil per day (Bopd)
     1,519       522       1,472       540  
Natural gas per day (Mcfpd)
     18,077       15,317       17,756       15,876  
Crude oil equivalent per day (Boepd)
     4,532       3,075       4,432       3,186  
Crude oil equivalent (MBoe)
     417.0       282.9       1,214.2       869.7  
                                 
Realized Prices, net of realized hedging activity:
                                
Crude oil ($ per Bbl)
   $ 84.02     $ 67.98     $ 86.43     $ 61.05  
Natural gas ($ per Mcf)
     6.69       6.58       7.49       6.37  
Crude oil equivalent ($ per Boe)
     54.84       44.30       58.73       42.08  
                                 
Expenses:
                                
Lease operating ($ per Boe)
   $ 11.60     $ 6.97     $ 10.36     $ 6.66  
Production taxes (% of oil and gas revenue)
     9.2 %     7.5 %     8.6 %     8.6 %
General and administrative, excluding stock-based compensation ($ per Boe)
     3.28       3.37       3.41       3.44  
Cash interest ($ per Boe)
     6.11       1.78       6.01       8.41  
Depreciation, depletion and amortization
($ per Boe)
     13.92       12.77       13.92       12.50  

 
(a)
See reconciliation of non-GAAP financial measures below.


BALANCE SHEET DATA

(In thousands)
  
September 30, 2008
    
December 31, 2007
  
             
Cash
   $ 6,073     $ 18,936  
Working capital 
     1,728 (a)     11,348  
Property and equipment – net
     272,938       117,027  
Total assets
     300,152       147,119  
                 
Long-term debt
     130,545       45,900  
Stockholders’ equity
     61,026       55,847  
Common shares outstanding
     49,258       49,021  


 
(a)
Excludes current maturities of long-term debt, including $40.0 million of debt outstanding under the Partnership’s Subordinated Credit Facility due January 31, 2009, and current derivative assets and liabilities.


 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATING

FINANCIAL HIGHLIGHTS
(UNAUDITED)

(In thousands except per share data):
  
Three Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
Financial Results:
                        
Revenues
   $ 4,913     $ 24,333     $ —     $ 29,246  
EBITDA(a)
     2,714       17,417       —       20,131  
Cash flow(a)
     2,652       14,931       —       17,583  
Net income (loss)
     1,518       86,859       (17,622 ) (b)     70,755  
Net income per share – basic
                             1.44  
Adjusted net income (loss), excluding non-cash change in derivative fair value and gain associated with minority interest
     1,518       2,745       (1,451 ) (c)     2,812  
Adjusted net income, excluding non-cash
    change in derivative fair value and gain
    associated with minority interest,
    per share – basic
                           $ 0.06  
Weighted average shares outstanding – basic
                             49,043  
                                 
Production:
                                
Crude oil per day (Bopd)
     255       1,264       —       1,519  
Natural gas per day (Mcfpd)
     2,417       15,660       —       18,077  
Crude oil equivalent per day (Boepd)
     658       3,874       —       4,532  
Crude oil equivalent (MBoe)
     60.6       356.4       —       417.0  
                                 
Realized Prices, net of realized hedging activity:
                                
Crude oil ($ per Bbl)
   $ 111.82     $ 78.40     $ —     $ 84.02  
Natural gas ($ per Mcf)
     8.76       6.37       —       6.69  
Crude oil equivalent ($ per Boe)
     75.57       51.31       —       54.84  
                                 
Expenses:
                                
Lease operating ($ per Boe)
   $ 15.44     $ 10.95     $ —     $ 11.60  
Production taxes (% of oil and gas revenue)
     7.6 %     9.6 %     —       9.2 %
General and administrative, excluding stock-based compensation ($ per Boe)
     11.20       1.93       —       3.28  
Cash interest ($ per Boe)
     1.02       6.98       —       6.11  
Depreciation, depletion and amortization
($ per Boe)
     14.08       13.90       —       13.92  

 
(a)
See reconciliation of non-GAAP financial measures below.
 
(b)
Minority interest (53% of the Partnership’s net income for the period) and the gains attributable to the minority interest loss that exceeded the minority interest equity capital in the Partnership in Q2 2008.
 
(c)
Minority interest (53% of the Partnership’s net income for the period excluding the non-cash change in derivative fair value).
Note:  The financial results presented above of AXAS without AXLP for the three months ended September 30, 2008 do not include cash distributions received from the Partnership in the amount of $2.4 million attributable to the third quarter of 2008.


 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATING

FINANCIAL HIGHLIGHTS
(UNAUDITED)


(In thousands except per share data):
      
   
Nine Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
Financial Results:
                        
Revenues
   $ 14,246     $ 71,593     $ —     $ 85,839  
EBITDA(a)
     8,319       52,855       —       61,174  
Cash flow(a)
     8,337       45,540       —       53,877  
Net income (loss)
     4,931       (1,811 )     956 (b)     4,076  
Net income per share – basic
                           $ 0.08  
Adjusted net income (loss), excluding non-cash change in derivative fair value
     4,931       14,667       (7,744 ) (c)     11,854  
Adjusted net income, excluding non-cash
change in derivative fair value, per share – basic
                           $ 0.24  
Weighted average shares outstanding – basic
                             48,955  
                                 
Production:
                                
Crude oil per day (Bopd)
     252       1,220       —       1,472  
Natural gas per day (Mcfpd)
     2,342       15,414       —       17,756  
Crude oil equivalent per day (Boepd)
     643       3,789       —       4,432  
Crude oil equivalent (Mboe)
     176.1       1,038.1       —       1,214.2  
                                 
Realized Prices, net of realized hedging activity:
                                
Crude oil ($ per Bbl)
   $ 108.38     $ 81.89     $ —     $ 86.43  
Natural gas ($ per Mcf)
     8.99       7.26       —       7.49  
Crude oil equivalent ($ per Boe)
     75.33       55.91       —       58.73  
                                 
Expenses:
                                
Lease operating ($ per Boe)
   $ 11.71     $ 10.13     $ —     $ 10.36  
Production taxes (% of oil and gas revenue)
     6.3 %     9.0 %     —       8.6 %
General and administrative, excluding stock-based compensation ($ per Boe)
     13.55       1.69       —       3.41  
Cash interest (income) ($ per Boe)
     (0.10 )     7.05       —       6.01  
Depreciation, depletion and amortization
($ per Boe)
     13.45       14.00       —       13.92  

 
(a)
See reconciliation of non-GAAP financial measures below.
 
(b)
Minority interest (53% of the Partnership’s net loss for the period).
 
(c)
Minority interest (53% of the Partnership’s net income for the period excluding the non-cash change in derivative fair value).
Note:  The financial results presented above of AXAS without AXLP for the nine months ended September 30, 2008 do not include cash distributions received from the Partnership in the amount of $6.8 million attributable to the first, second and third quarters of 2008.



 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATING

BALANCE SHEET DATA
(UNAUDITED)


(In thousands)
  
September 30, 2008
  
   
AXAS without AXLP
    
AXLP
          
Consolidating Entries
    
Consolidated
  
                               
Cash
   $ 5,056     $ 1,017     $       $ —     $ 6,073  
Working capital (a)
     (7,643 )     9,371               —       1,728  
Property and equipment – net
     54,900       218,038               —       272,938  
Total assets
     100,709       233,477               (34,034 ) (b)     300,152  
                                         
Long-term debt
     4,945       125,600               —       130,545  
Stockholders’ equity (deficit)
     63,528       33,757               (36,259 ) (b)     61,026  
Common shares outstanding
                                     49,258  
                                         
 
(a)
Excludes current maturities of long-term debt, including $40.0 million of debt outstanding under the Partnership’s Subordinated Credit Facility due January 31, 2009, and current derivative assets and liabilities.
 
(b)
Includes the minority interest share of basis in the Partnership.

 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATED

STATEMENTS OF OPERATIONS
(UNAUDITED)

(In thousands except per share data)
  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Revenues:
                        
Oil and gas production revenues
   $ 28,910     $ 10,959     $ 84,856     $ 35,151  
Rig revenues
     333       443       968       1,082  
Other
     3       2       15       5  
      29,246       11,404       85,839       36,238  
Operating costs and expenses:
                                
Lease operating
     4,837       1,971       12,580       5,792  
Production taxes
     2,670       819       7,299       3,023  
Depreciation, depletion, and amortization
     5,806       3,611       16,904       10,867  
Rig operations
     241       199       644       572  
General and administrative (including stock-based compensation of $400, $204 , $1,297 and $748)
     1,767       1,156       5,439       3,739  
      15,321       7,756       42,866       23,993  
Operating income
     13,925       3,648       42,973       12,245  
                                 
Other (income) expense:
                                
Interest income
     (47 )     (167 )     (174 )     (234 )
Interest expense
     3,033       699       8,171       7,634  
Amortization of deferred financing fees
     281       62       748       609  
Loss (gain) on derivative contracts (unrealized of $(84,114), $(690), $16,478 and $(2,506))
     (78,069 )     (2,263 )     30,024       (3,953 )
Loss on debt extinguishment
     —       —       —       6,455  
Gain on sale of assets
     —       —       —       (59,335 )
Other
     350       —       1,084       —  
      (74,452 )     (1,669 )     39,853       (48,824 )
Income before income tax and minority interest
     88,377       5,317       3,120       61,069  
Income tax expense
     —       —       —       715  
Income before minority interest
     88,377       5,317       3,120       60,354  
Minority interest (a)
     (17,622 )     (2,319 )     956       (859 )
Net income
   $ 70,755     $ 2,998     $ 4,076     $ 59,495  
                                 
Net income per common share - basic
   $ 1.44     $ 0.06     $ 0.08     $ 1.31  
Net income per common share  - diluted
   $ 1.43     $ 0.06     $ 0.08     $ 1.30  
                                 
Weighted average shares outstanding:
                                
Basic
     49,043       48,814       48,955       45,524  
    Diluted
     49,398       48,941       49,424       45,870  

 
(a)
Includes the minority interest share (53%) of the net income (loss) of the Partnership and includes any gains attributable to the minority interest loss that exceeded the minority interest equity capital in the Partnership in Q2 2008.


 
 
 


ABRAXAS PETROLEUM CORPORATION
CONSOLIDATING

STATEMENTS OF OPERATIONS
(UNAUDITED)

(In thousands except per share data)
  
Three Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
Revenues:
                        
Oil and gas production revenues
   $ 4,577     $ 24,333     $ —     $  28,910  
Rig revenues
     333       —       —       333  
Other
     3       —       —       3  
      4,913       24,333       —       29,246  
Operating costs and expenses:
                                
Lease operating
     935       3,902       —       4,837  
Production taxes
     345       2,325       —       2,670  
Depreciation, depletion, and amortization
     853       4,953       —       5,806  
Rig operations
     241       —       —       241  
General and administrative (including stock-based compensation of $250 and $150)
     928       839       —       1,767  
      3,302       12,019       —       15,321  
Operating income
     1,611       12,314       —       13,925  
                                 
Other (income) expense:
                                
Interest income
     (45 )     (2 )     —       (47 )
Interest expense
     119       2,914       —       3,033  
Amortization of deferred financing fees
     10       271       —       281  
Loss (gain) on derivative contracts (unrealized of $0 and $(84,114))
     —       (78,069 )     —       (78,069 )
Other
     9       341       —       350  
      93       (74,545 )     —       (74,452 )
Income before minority interest
     1,518       86,859       —       88,377  
Minority interest (a)
     —       —       (17,622 )     (17,622 )
Net income (loss)
   $ 1,518     $ 86,859     $ (17,622 )   $ 70,755  
                                 
Net income per common share – basic
                           $ 1.44  
Net income per common share – diluted
                           $ 1.43  
                                 
Weighted average shares outstanding
                                
Basic
                             49,043  
Diluted
                             49,398  

 
(a)
Includes the minority interest share (53%) of the net income of the Partnership and includes any gains attributable to the minority interest loss that exceeded the minority interest equity capital in the Partnership in Q2 2008.

Note:  The financial results presented above of AXAS without AXLP for the three months ended September 30, 2008 do not include cash distributions received from the Partnership in the amount of $2.4 million attributable to the third quarter of 2008.



 
 
 

ABRAXAS PETROLEUM CORPORATION
CONSOLIDATING

STATEMENTS OF OPERATIONS
(UNAUDITED)

(In thousands except per share data)
  
Nine Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
Revenues:
                        
Oil and gas production revenues
   $ 12,263     $ 71,593     $ —     $  84,856  
Rig revenues
     968       —       —       333  
Other
     15       —       —       3  
      14,246       71,593       —       85,839  
Operating costs and expenses:
                                
Lease operating
     2,062       10,518       —       12,580  
Production taxes
     835       6,464       —       7,299  
Depreciation, depletion, and amortization
     2,368       14,536       —       16,904  
Rig operations
     644       —       —       644  
General and administrative (including stock-based compensation of $924 and $373)
     3,310       2,129       —       5,439  
      9,219       33,647       —       43,866  
Operating income
     5,027       37,946       —       42,973  
                                 
Other (income) expense:
                                
Interest income
     (156 )     (18 )     —       (174 )
Interest expense
     190       7,971       —       8,181  
Amortization of deferred financing fees
     30       718       —       748  
Loss (gain) on derivative contracts (unrealized of $0 and $(16,478))
     —       30,024       —       30,024  
Other
     32       1,052       —       1,084  
      96       39,757       —       39,853  
Income before minority interest
     4,931       (1,811 )     —       3,120  
Minority interest (a)
     —       —       956       956  
Net income (loss)
   $ 4,931     $ (1,811 )   $ 956     $ 4,076  
                                 
Net income per common share – basic
                           $ 0.08  
Net income per common share – diluted
                           $ 0.08  
                                 
Weighted average shares outstanding
                                
Basic
                             49,955  
Diluted
                             49,424  


 
(a)
Includes the minority interest share (53%) of the net loss of the Partnership.

Note:  The financial results presented above of AXAS without AXLP for the nine months ended September 30, 2008 do not include cash distributions received from the Partnership in the amount of $6.8 million attributable to the first, second and third quarters of 2008.










 
 
 

ABRAXAS PETROLEUM CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
To fully assess Abraxas’ operating results, management believes that, although not prescribed under generally accepted accounting principles ("GAAP"), discretionary cash flow and EBITDA are appropriate measures of Abraxas' ability to satisfy capital expenditure obligations and working capital requirements.  Cash flow and EBITDA are non-GAAP financial measures as defined under SEC rules. Abraxas' cash flow and EBITDA should not be considered in isolation or as a substitute for other financial measurements prepared in accordance with GAAP or as a measure of the Company's profitability or liquidity.  As cash flow and EBITDA exclude some, but not all items that affect net income and may vary among companies, the cash flow and EBITDA presented below may not be comparable to similarly titled measures of other companies.  Management believes that operating income calculated in accordance with GAAP is the most directly comparable measure to cash flow and EBITDA; therefore, operating income is utilized as the starting point for these reconciliations.
 
 
Cash flow is defined as operating income (loss) plus depletion, depreciation and amortization expenses, non-cash expenses and cash portion of other income (expense) and cash interest. The following table provides a reconciliation of cash flow to operating income for the periods presented.
 


   
CONSOLIDATED
  
(In thousands)
  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Operating income                                                  
   $ 13,925     $ 3,648     $ 42,973     $ 12,245  
Depreciation, depletion and amortization
     5,806       3,611       16,904       10,867  
Stock-based compensation
     400       204       1,297       748  
Cash interest                                                  
     (2,548 )     (503 )     (7,297 )     (7,316 )
Cash flow                                                  
   $ 17,583     $ 6,960     $ 53,877     $ 16,544  



   
CONSOLIDATING
  
(In thousands)
  
Three Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidated
  
                   
Operating income
   $ 1,611     $ 12,314     $ 13,925  
Depreciation, depletion, and amortization
     853       4,953       5,806  
Stock-based compensation
     250       150       400  
Cash interest
     (62 )     (2,486 )     (2,548 )
Cash flow
   $ 2,652     $ 14,931     $ 17,583  


(In thousands)
  
Nine Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidated
  
                   
Operating income
   $ 5,027     $ 37,946     $ 42,973  
Depreciation, depletion, and amortization
     2,368       14,536       16,904  
Stock-based compensation
     924       373       1,297  
Cash interest
     18       (7,315 )     (7,297 )
Cash flow
   $ 8,337     $ 45,540     $ 53,877  



 
 
 


EBITDA is defined as net income (loss) plus interest expense, depletion, depreciation and amortization expenses, deferred income taxes and other non-cash items. The following table provides a reconciliation of EBITDA to operating income for the periods presented – see consolidated statements of operations for a reconciliation of net income (loss) to operating income.


   
CONSOLIDATED
  
(In thousands)
  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Operating income                                                
   $ 13,925     $ 3,648     $ 42,973     $ 12,245  
Depreciation, depletion and amortization
     5,806       3,611       16,904       10,867  
Stock-based compensation
     400       204       1,297       748  
EBITDA                                                
   $ 20,131     $ 7,463     $ 61,174     $ 23,860  



   
CONSOLIDATING
  
(In thousands)
  
Three Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidated
  
                   
Operating income
   $ 1,611     $ 12,314     $ 13,925  
Depreciation, depletion, and amortization
     853       4,953       5,806  
Stock-based compensation
     250       150       400  
EBITDA
   $ 2,714     $ 17,417     $ 20,131  


(In thousands)
  
Nine Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidated
  
                   
Operating income
   $ 5,027     $ 37,946     $ 42,973  
Depreciation, depletion, and amortization
     2,368       14,536       16,904  
Stock-based compensation
     924       373       1,297  
EBITDA                                                    
   $ 8,319     $ 52,855     $ 61,174  

This release also includes a discussion of “adjusted net income (loss), excluding non-cash change in derivative fair value and loss associated with minority interest”, which is a non-GAAP financial measure as defined under SEC rules.  The following table provides a reconciliation of adjusted net income (loss), excluding non-cash change in derivative fair value and loss associated with minority interest, to net income (loss) for the periods presented.  Management believes that net income (loss) calculated in accordance with GAAP is the most directly comparable measure to adjusted net income (loss), excluding non-cash change in derivative fair value and loss associated with minority interest.


   
CONSOLIDATED
  
(In thousands)
  
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Net income                                                    
   $ 70,755     $ 2,998     $ 4,076     $ 59,495  
Gain associated with minority interest
     (28,241 ) (a)     —       —       —  
Loss (gain) on unrealized derivative contracts
     (39,702 ) (b)     (326 )     7,778 (b)     (1,183 )
Adjusted net income, excluding non-cash change in derivative fair value and gain associated with minority interest
   $  2,812     $ 2,672     $  11,854     $ 58,312  
Net income per share – basic
     1.44       0.06       0.08       1.31  
Adjusted net income, excluding non-cash change in derivative fair value and gain associated with minority interest, per share – basic
   $    0.06     $   0.05     $   0.24     $   1.28  

 
(a)
Gain attributable to the minority interest loss in Q2 2008 that exceeded the minority interest equity capital in the Partnership.
 
(b)
Abraxas’ share (47%) of the Partnership’s unrealized loss (gain) on derivative contracts for the period.



   
CONSOLIDATING
  
(In thousands)
  
Three Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
                         
Net income (loss)                                                    
   $ 1,518     $ 86,859     $ (17,622 ) (a)   $ 70,755  
Gain associated with minority interest
     —       —       (28,241 ) (b)     (28,241 )
Loss (gain) on unrealized derivative contracts
     —       (84,114 )     44,412     (c)     (39,702 )
Adjusted net income (loss), excluding non-cash change in derivative fair value and gain associated with minority interest
   $     1,518     $     2,745     $   (1,451 )   $     2,812  
Net income per share – basic
     $ 1.44  
Adjusted net income, excluding non-cash
 change in derivative fair value and
 gain associated with minority interest,
 per share – basic
     $ 0.06  


(In thousands)
  
Nine Months Ended September 30, 2008
  
   
AXAS without AXLP
    
AXLP
    
Consolidating Entries
    
Consolidated
  
                         
Net income (loss)                                                    
   $ 4,931     $ (1,811 )   $ 956    (a)   $ 4,076  
Loss (gain) on unrealized derivative contracts
     —       16,478       (8,700 ) (c)     7,778  
Adjusted net income (loss), excluding non-cash change in derivative fair value
   $ 4,931     $ 14,667     $ (7,744 )   $ 11,854  
Net income per share – basic
     $ 0.08  
Adjusted net income, excluding non-cash
 change in derivative fair value,
 per share – basic
     $     0.24  

 
(a)
Minority interest (53% of the Partnership’s net income (loss) for the period).
 
(b)
Gain attributable to the minority interest loss in Q2 2008 that exceeded the minority interest equity capital in the Partnership.
 
(c)
Minority interest share (53%) of the Partnership’s unrealized loss (gain) on derivative contracts for the period.