Basis of Presentation

The accounting policies we follow as of

January 1,

2020

are set forth in the notes to our audited consolidated financial statements in the Annual Report on Form

-K for the year ended

December 31, 2019

filed with the SEC on

June 26,

2020

. The accompanying interim condensed consolidated financial statements have

not

been audited by our independent registered public accountants, and in the opinion of management, reflect all adjustments necessary for a fair presentation of the financial position and results of operations. Any and all adjustments are of a normal and recurring nature. Although management believes the unaudited interim related disclosures in these condensed consolidated financial statements are adequate to make the information presented

not

misleading, certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. The results of operations and the cash flows for the

three

month period ended

March 31, 2020

are

not

necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated audited financial statements and the notes thereto included in our Annual Report on Form

-K for the year ended

December 31, 2019

COVI

D-

January 30, 2020,

the World Health Organization ("WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-

19”

) and the risks to the international community as the virus spreads globally beyond its point of origin. In

March 2020,

the WHO classified the COVID-

as a pandemic, based on the rapid increase in exposure globally. In addition, in

March 2020,

members of OPEC failed to agree on production levels which is expected to cause an increased supply and has led to a substantial decrease in oil prices and an increasingly volatile market.

The price of both oil and gas has decreased primarily as a result of oil demand concerns due to the economic impacts of the COVID-

virus and anticipated increases in supply from Russia and OPEC, particularly Saudi Arabia. Declines in oil and natural gas prices affect the Company's liquidity, however the Company's commodity hedges protect its cash flows from such price declines. Additionally, if oil or natural gas prices remain depressed or continue to decline the Company will be required to record oil and gas property write-downs.

Consumer demand has decreased since the spread of the COVID-

outbreak and new travel restrictions placed by governments in an effort to curtail the spread of the coronavirus. The full impact of the coronavirus and the decrease in oil prices continue to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that they will have on the Company’s financial condition, liquidity and future results of operations. Management is actively monitoring the global situation and the impact or adverse effect on the Company’s results of future operations, financial position and liquidity in fiscal year

2020.

Due to the recent oil price volatility, the Company has suspended its

2020

capital spending program. The Company has also laid off selected employees, reduced officer salaries from

20%

40%

and reduced all other salaries from

20%.

The Company has also eliminated all overtime for field employees. Additionally, we have curtailed our capital expenditures. The Company began shutting in production in mid

March 2020

and began bringing wells back on production in mid

June 2020.

In early

March 2020,

global oil and natural gas prices declined sharply, have since been volatile, and

may

decline again. The Company expects ongoing oil price volatility over the short term. Continued depressed oil prices could have and will continue to have a material adverse impact on the Company's oil revenue, which is mitigated somewhat by the Company's our hedge contracts.

Consolidation Principles

The terms “Abraxas,” “Abraxas Petroleum,” “we,” “us,” “our” or the “Company” refer to Abraxas Petroleum Corporation and all of its subsidiaries, including Raven Drilling, LLC (“Raven Drilling”).

Rig Accounting

In accordance with SEC Regulation S-

income is recognized in connection with contractual drilling services performed in connection with properties in which we or our affiliates hold an ownership, or other economic interest. Any income

not

recognized as a result of this limitation is credited to the full cost pool and recognized through lower amortization as reserves are produced.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation and Option Plans

Stock Options

We currently utilize a standard option-pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees and directors.

The following table summarizes our stock-based compensation expense related to stock options for the periods presented:

The following table summarizes our stock option activity for the

three

months ended

March 31, 2020

	Number of Shares			Weighted Average Option Exercise Price Per Share		Weighted Average Grant Date Fair Value Per Share
Outstanding, December 31, 2019		5,926		$	2.47	$	1.75
Forfeited		(315	)	$	2.09	$	1.53
Outstanding, March 31, 2020		5,611		$	2.49	$	1.76

As of

March 31, 2020

, there was approximately

$0.1

million of unamortized compensation expense related to outstanding stock options that will be recognized from

2020

through

2022.

Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the recipient of the award terminates employment with us prior to the lapse of the restrictions. The fair value of such stock was determined using the closing price on the grant date and compensation expense is recorded over the applicable vesting periods.

The following table summarizes our restricted stock activity for the

three

months ended

March 31, 2020

	Number of Shares (thousands)			Weighted Average Grant Date Fair Value Per Share
Unvested, December 31, 2019		1,781		$	1.58
Vested/Released		(77	)	$	1.59
Forfeited		(302	)	$	1.58
Unvested, March 31, 2020		1,402		$	1.58

The following table summarizes our stock-based compensation expense related to restricted stock for the periods presented:

As of

March 31, 2020

, there was approximately

$1.3

million of unamortized compensation expense relating to outstanding restricted shares that will be recognized from

2020

through

2022.

Performance Based Restricted Stock

We issue performance-based shares of restricted stock to certain officers and employees under the Abraxas Petroleum Corporation Amended and Restated

2005

Employee Long-Term Equity Incentive Plan. The shares will vest in

three

years from the grant date upon the achievement of performance goals based on our Total Shareholder Return (“TSR”) as compared to a peer group of companies. The number of shares which would vest depends upon the rank of our TSR as compared to the peer group at the end of the

three

-year vesting period and can range from

zero

percent of the initial grant up to

200%

of the initial grant.

The table below provides a summary of Performance Based Restricted Stock as of the date indicated:

	Number of Shares (thousands)			Weighted Average Grant Date Fair Value Per Share
Unvested, December 31, 2019		1,154		$	1.69
Forfeited		(188	)	$	1.72
Unvested, March 31, 2020		966		$	1.69

Compensation expense associated with the performance based restricted stock is based on the grant date fair value of a single share as determined using a Monte Carlo Simulation model which utilizes a stochastic process to create a range of potential future outcomes given a variety of inputs. As the Compensation Committee intends to settle the performance based restricted stock awards with shares of our common stock, the awards are accounted for as equity awards and the expense is calculated on the grant date assuming a

100%

target payout and amortized over the life of the awards.

The following table summarizes our stock-based compensation expense related to performance based restricted stock for the periods presented:

As of

March 31, 2020

, there was approximately

$0.9

million of unamortized compensation expense relating to outstanding performance based restricted shares that will be recognized from

2020

through

2022.

Oil and Gas Properties

We follow the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with the acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method based on proved reserves. Net capitalized costs of oil and gas properties, less related deferred taxes, are limited by country, to the lower of unamortized cost or the cost ceiling, defined as the sum of the present value of estimated future net revenues from proved reserves based on unescalated prices discounted at

10%,

plus the cost of properties

not

being amortized, if any, plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any, less related income taxes. Costs in excess of the present value of estimated net revenue from proved reserves discounted at

10%

are charged to proved property impairment expense.

gain or loss is recognized upon sale or disposition of oil and gas properties for full cost accounting companies with proceeds accounted for as an adjustment of capitalized cost. An exception to this rule occurs when the adjustment to the full cost pool results in a significant alteration of the relationship between capitalized cost and proved reserves. We apply the full cost ceiling test on a quarterly basis on the date of the latest balance sheet presented. At

March 31, 2020

our net capitalized costs of oil and gas properties exceeded the cost ceiling of our estimated proved reserves resulting in an impairment of

$26.7

million. At

March 31, 2019,

our net capitalized costs of oil and gas properties did

not

exceed the cost ceiling of our estimated proved reserves. If prices remain weak, we expect that we will have future impairments.

Restoration, Removal and Environmental Liabilities

We are subject to extensive federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and

may

require us to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have

future economic benefit are expensed.

Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component is fixed or reliably determinable.

We account for future site restoration obligations based on the guidance of ASC

410

which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. ASC

410

requires that the fair value of a liability for an asset's retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. For all periods presented, we have included estimated future costs of abandonment and dismantlement in our full cost amortization base and amortize these costs as a component of our depletion expense in the accompanying condensed consolidated financial statements.

The following table summarizes our future site restoration obligation transactions for the

three

months ended

March 31, 2020

and the year ended

December 31, 2019

	March 31, 2020			December 31, 2019
Beginning future site restoration obligation	$	7,420		$	7,492
New wells placed on production and other		41			80
Deletions related to property disposals		-			(473	)
Deletions related to plugging costs		-			(890	)
Accretion expense		103			436
Revisions and other		(117	)		775
Ending future site restoration obligation	$	7,447		$	7,420

Recently Issued Accounting Standards

Effective

January 1, 2020,

the Company adopted Accounting Standards Update ("ASU")

2016

and its related amendments. This ASU primarily applies to the Company’s accounts receivable, of which the majority are due within

days. The Company monitors the credit quality of its counterparties through review of collections, credit ratings, and other analyses. The Company develops its estimated allowance for credit losses primarily using an aging method and analyses of historical loss rates as well as consideration of current and future conditions that could impact its counterparties’ credit quality and liquidity. The adoption and implementation of this ASU did

not

have a material impact on the Company’s financial statements.

November 2019,

the FASB issued ASU

2019

– Income Taxes (“Topic

740”

): Simplifying the Accounting for Income Taxes. The amendments in ASU

2019

are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic

740

and making minor improvements to the codification. ASU

2019

and its related amendments will be effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2020.

The provisions of this update are

not

expected to have a material impact on the Company’s financial position or results of operations.

March 2020,

the FASB issued ASU

2020

04,

Reference Rate Reform (Topic

848

): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU

2020

04”

). ASU

2020

provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. ASU

2020

and its related amendments will be in effect through

December 31, 2022.

We are currently assessing the potential impact of ASU

2020

on our consolidated financial statements.

Three Months Ended