Joint Venture

On August 18, 2010, Abraxas Petroleum and its wholly-owned subsidiary, Abraxas Operating, LLC, contributed 8,333 net acres in the Eagle Ford Shale play to Blue Eagle Energy, LLC (“Blue Eagle”) and received a $25.0 million equity interest in Blue Eagle pursuant to the terms of the Subscription and Contribution Agreement among Abraxas Petroleum, Abraxas Operating, Blue Eagle and Rock Oil Company, LLC (“Rock Oil”) formerly known as Blue Stone Oil & Gas, LLC. Simultaneously, Rock Oil contributed $25.0 million in cash to Blue Eagle for a $25.0 million equity interest. Blue Eagle was dissolved effective August 31, 2012.

Through August 31, 2012 we accounted for the joint venture under the equity method of accounting in accordance with ASC 323. Under this method, Abraxas’ share of net income (loss) from the joint venture is reflected as an increase (decrease) in its investment account in “Investment in joint venture” and was also recorded as equity investment income (loss) in “Earnings from equity method investment.” For the years ended December 31, 2011 and 2012 we reported income of $2.2 million and $2.2 million, respectively, related to Blue Eagle.

The following is condensed financial data from Blue Eagle’s August 31, 2012 (date of dissolution) and December 31, 2011 financial statements:



Balance Sheets:	As of August 31, 2012
Assets:
Current assets	$	7,921
Oil and gas properties	75,741
Other assets	30
Total assets	$	83,692

Liabilities and Members’ Capital:
Current liabilities	$	1,474
Other liabilities	48
Members’ capital	82,170
Total liabilities and members’ capital	$	83,692



Statement of Operations:	Year Ended December 31, 2011			Year Ended December 31, 2012 (1)
	(In thousands)
Revenue	$	12,579		$	12,106

Operating expenses	7,138			7,144
Other income	(11		)	(4		)
Net income	$	5,452		$	4,966

(1) Through August 31, 2012