UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ |
COMMISSION FILE NUMBER:
ABRAXAS PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
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| (State of Incorporation) |
| (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) (Zip Code) |
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| (Registrant’s telephone number, including area code) |
| Not Applicable |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered: |
| OTCQX |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One)
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
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| Emerging growth company |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Sec 13(a) of the Exchange Act. ☐ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the issuer’s common stock outstanding as of May 13, 2022 was
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.
Forward-Looking Information
We make forward-looking statements throughout this report. Whenever you read a statement that is not simply a statement of historical fact (such as statements including words like “believe,” “expect,” “anticipate,” “intend,” “will,” “plan,” “seek,” “may,” “estimate,” “could,” “potentially” or similar expressions), you must remember that these are forward-looking statements, and that our expectations may not be correct, even though we believe they are reasonable. The forward-looking information contained in this report is generally located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. These forward-looking statements generally relate to our plans and objectives for future operations and are based upon our management’s reasonable estimates of future results or trends. The factors that may affect our expectations regarding our operations include, among others, the following:
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the prices we receive for our production and the effectiveness of our hedging activities, if any; |
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the availability of capital including under any applicable credit facilities; |
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our success in development, exploitation and exploration activities; |
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declines in our production of oil and gas; |
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our indebtedness and the significant amount of cash required to service our indebtedness; |
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| • | the proximity, capacity, cost and availability of pipelines and other transportation facilities; |
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limits on our growth and our ability to finance our operations, fund our capital needs and respond to changing conditions; |
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our ability to make planned capital expenditures; |
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ceiling test write-downs resulting, and that could result in the future, from lower oil and natural gas prices; |
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global or national health concerns, including the outbreak of pandemic or contagious disease, such as the coronavirus (COVID-19); |
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political and economic conditions in oil producing countries, especially those in the Middle East and Russia; |
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price and availability of alternative fuels; |
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our ability to procure services and equipment for our drilling and completion activities; |
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our acquisition and divestiture activities; |
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weather conditions and events; and |
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other factors discussed elsewhere in this report. |
Initial production, or IP rates, for both our wells and for those wells that are located near our properties, are limited data points in each well’s productive history. These rates are sometimes actual rates and sometimes extrapolated or normalized rates. As such, the rates for a particular well may change as additional data become available. Peak production rates are not necessarily indicative or predictive of future production rates, expected ultimate recovery (EUR), or economic rates of return from such wells and should not be relied upon for such purpose. Equally, the way we calculate and report peak IP rates and the methodologies employed by others may not be consistent, and thus the values reported may not be directly and meaningfully comparable. Lateral lengths described are indicative only. Actual completed lateral lengths depend on various considerations such as lease-line offsets. Abraxas standard length laterals, sometimes referred to as 5,000 foot laterals, are laterals with completed length generally between 4,000 feet and 5,500 feet. Mid-length laterals, sometimes referred to as 7,500 foot laterals, are laterals with completed length generally between 6,500 feet and 8,000 feet. Long laterals, sometimes referred to as 10,000 foot laterals, are laterals with completed length generally longer than 8,000 feet.
GLOSSARY OF TERMS
Unless otherwise indicated in this report, gas volumes are stated at the legal pressure base of the State or area in which the reserves are located at 60 degrees Fahrenheit. Oil and gas equivalents are determined using the ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
The following definitions apply to the technical terms used in this report.
Terms used to describe quantities of oil and gas:
“Bbl” – barrel or barrels.
“Bcf” – billion cubic feet of gas.
“Bcfe” – billion cubic feet of gas equivalent.
“Boe” – barrels of oil equivalent.
“Boed or Boepd” – barrels of oil equivalent per day.
“MBbl” – thousand barrels.
“MBoe” – thousand barrels of oil equivalent.
“Mcf” – thousand cubic feet of gas.
“Mcfe” – thousand cubic feet of gas equivalent.
“MMBbl” – million barrels.
“MMBoe” – million barrels of oil equivalent.
“MMBtu” – million British Thermal Units of gas.
“MMcf” – million cubic feet of gas.
“MMcfe” – million cubic feet of gas equivalent.
“NGL” – natural gas liquids measured in barrels.
Terms used to describe our interests in wells and acreage:
“Developed acreage” means acreage which consists of leased acres spaced or assignable to productive wells.
“Development well” is a well drilled within the proved area of an oil or gas reservoir to the depth or stratigraphic horizon (rock layer or formation) noted to be productive for the purpose of extracting reserves.
“Dry hole” is an exploratory or development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion.
“Exploratory well” is a well drilled to find and produce oil and or gas in an unproved area, to find a new reservoir in a field previously found to be producing in another reservoir, or to extend a known reservoir.
“Gross acres” are the number of acres in which we own a working interest.
“Gross well” is a well in which we own a working interest.
“Net acres” are the sum of fractional ownership working interests in gross acres (e.g., a 50% working interest in a lease covering 320 gross acres is equivalent to 160 net acres).
“Net well” is the sum of fractional ownership working interests in gross wells.
“Productive well” is an exploratory or a development well that is not a dry hole.
“Undeveloped acreage” means those leased acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil and gas, regardless of whether such acreage contains proved reserves.
Terms used to assign a present value to or to classify our reserves:
“Developed oil and gas reserves*” Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
“Proved developed non-producing reserves*” are those quantities of oil and gas reserves that are developed behind pipe in an existing well bore, from a shut-in well bore or that can be recovered through improved recovery only after the necessary equipment has been installed, or when the costs to do so are relatively minor. Shut-in reserves are expected to be recovered from (1) completion intervals which are open at the time of the estimate but which have not started producing, (2) wells that were shut-in for market conditions or pipeline connections, or (3) wells not capable of production for mechanical reasons. Behind-pipe reserves are expected to be recovered from zones in existing wells that will require additional completion work or future recompletion prior to the start of production.
“Proved developed reserves*” Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
“Proved reserves*” Reserves that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.
“Proved undeveloped reserves” or “PUDs*” Reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells, in each case where a relatively major expenditure is required.
“PV-10” means estimated future net revenue, discounted at a rate of 10% per annum, before income taxes and with no price or cost escalation or de-escalation, calculated in accordance with guidelines promulgated by the Securities and Exchange Commission (“SEC”). PV-10 is considered a non-GAAP financial measure under SEC regulations because it does not include the effects of future income taxes, as is required in computing the standardized measure of discounted future net cash flows. We believe that PV-10 is an important measure that can be used to evaluate the relative significance of our oil and gas properties and that PV-10 is widely used by securities analysts and investors when evaluating oil and gas companies. Because many factors that are unique to each individual company impact the amount of future income taxes to be paid, the use of a pre-tax measure provides greater comparability of assets when evaluating companies. We believe that most other companies in the oil and gas industry calculate PV-10 on the same basis. PV-10 is computed on the same basis as the standardized measure of discounted future net cash flows but without deducting income taxes.
“Standardized Measure” means estimated future net revenue, discounted at a rate of 10% per annum, after income taxes and with no price or cost escalation or de-escalation, calculated in accordance with Accounting Standards Codification (“ASC”) 932, “Disclosures About Oil and Gas Producing Activities.”
“Undeveloped oil and gas reserves*” Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
* This definition is an abbreviated version of the complete definition set forth in Rule 4-10(a) of Regulation S-X.
FORM 10 – Q
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FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable: | ||||||||
| Joint owners, net | ||||||||
| Oil and gas production sales | ||||||||
| Other | ||||||||
| Total accounts receivable | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Proved oil and gas properties, full cost method | ||||||||
| Other property and equipment | ||||||||
| Total | ||||||||
| Less accumulated depreciation, depletion, amortization and impairment | ( | ) | ( | ) | ||||
| Total property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
ABRAXAS PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share and per share data)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Joint interest oil and gas production payable | ||||||||
| Accrued interest | ||||||||
| Accrued expenses | ||||||||
| Right of use liability | ||||||||
| Derivative liabilities - short-term | ||||||||
| Termination of derivative contracts | ||||||||
| Current maturities of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt – less current maturities | ||||||||
| Operating lease right-of-use liabilities | ||||||||
| Future site restoration | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, par value per share – authorized shares; and -- shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, par value per share, authorized shares; issued and outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Oil and gas production revenues | ||||||||
| Oil | $ | $ | ||||||
| Gas | ||||||||
| Natural gas liquids | ||||||||
| Other | ||||||||
| Total revenue | ||||||||
| Operating costs and expenses: | ||||||||
| Lease operating | ||||||||
| Production and ad valorem taxes | ||||||||
| Rig expense | ||||||||
| Depreciation, depletion, amortization and accretion | ||||||||
| General and administrative (including stock-based compensation of and , respectively) | ||||||||
| Total operating cost and expenses | ||||||||
| Operating income | ||||||||
| Other (income) expense: | ||||||||
| Interest income | ( | ) | ||||||
| Interest expense | ||||||||
| Gain on sale of oil and gas assets | ( | ) | ||||||
| Loss on sale of non-oil and gas assets | ||||||||
| Amortization of deferred financing fees | ||||||||
| Debt forgiveness | ( | ) | ( | ) | ||||
| Loss (gain) on derivative contracts | ||||||||
| Total other (income) expense | ( | ) | ||||||
| Income (loss) before income tax | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Accretion of preferred stock | ||||||||
| Net income (loss) attributable to common stock | $ | $ | ( | ) | ||||
| Net income (loss) per common share - basic | $ | $ | ( | ) | ||||
| Net income (loss) per common share - diluted | $ | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)
(in thousands, except share data)
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Issuance of Preferred Stock | ||||||||||||||||||||||||||||
| Accretion of Preferred Stock | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| (in thousands) |
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Operating Activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Net loss on derivative contracts | ||||||||
| Net cash settlements paid on derivative contracts | ( | ) | ||||||
| Gain on sale of oil and gas properties | ( | ) | ||||||
| Loss on sale of non-oil and gas properties | ||||||||
| Depreciation, depletion, amortization and accretion of future site restoration | ||||||||
| Amortization of deferred financing fees and issuance discount | ||||||||
| Stock-based compensation | ||||||||
| Accretion of preferred stock | ||||||||
| Debt forgiveness | ( | ) | ( | ) | ||||
| Loss on debt extinguishment | ||||||||
| Non-cash interest expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Investing Activities | ||||||||
| Capital expenditures, including purchases and development of properties | ( | ) | ( | ) | ||||
| Proceeds from the sale of oil and gas properties | ||||||||
| Proceeds from the sale of non-oil and gas properties | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing Activities | ||||||||
| Proceeds from PPP loan | ||||||||
| Payments on long-term borrowings | ( | ) | ( | ) | ||||
| Deferred financing fees | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| (Decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Non-cash interest paid in kind | $ | $ | ||||||
| Non-cash issuance of preferred stock | $ | |||||||
| Change in capital expenditures included in accounts payable | $ | ( | ) | $ | ||||
| Change in future site restoration on properties sold | $ | $ | ||||||
| Debt forgiveness | $ | ( | ) | $ | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(tabular amounts in thousands, except per share data)
1. Basis of Presentation
The accounting policies we follow as of January 1, 2022 are set forth in the notes to our audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The accompanying interim condensed consolidated financial statements have not been audited by our independent registered public accountants. In the opinion of management, these statements 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 for the three month period ended March 31, 2022 and the statement of cash flows for the three months ended March 31, 2022, 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 10-K for the year ended December 31, 2021.
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-X, no 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 US 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, Option Plans and Warrants
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 option activity for the three months ended March 31, 2022, (in thousands):
| Number of Shares | Weighted Average Option Exercise Price Per Share | Weighted Average Grant Date Fair Value Per Share | ||||||||||
| Outstanding, December 31, 2021 | $ | $ | ||||||||||
| Cancelled/Forfeited | ( | ) | $ | $ | ||||||||
| Expired | ( | ) | $ | $ | ||||||||
| Balance, March 31, 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, 2022:
| Number of Shares (thousands) | Weighted Average Grant Date Fair Value Per Share | |||||||
| Unvested, December 31, 2021 | $ | |||||||
| Vested/Released | ( | ) | ||||||
| Unvested, March 31, 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 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
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, 2021 | $ | |||||||
| Expired | $ | |||||||
| Unvested, March 31, 2022 | $ | |||||||
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 stock-based compensation from the various forms of compensation utilized by the Company (in thousands) as of the dates indicated.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Options | $ | $ | ( | ) | ||||
| Restricted stock | ||||||||
| Performance shares | ||||||||
| $ | $ | |||||||
As of March 31, 2022, all expense related to stock based compensation has been amortized.
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 and 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
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 no 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, 2022 and the year ended December 31, 2021 (in thousands):
| March 31, 2022 | December 31, 2021 | |||||||
| Beginning future site restoration obligation | $ | $ | ||||||
| New wells placed on production and other | ||||||||
| Deletions related to property sales | ( | ) | ( | ) | ||||
| Deletions related to plugging costs | . | ( | ) | |||||
| Accretion expense | ||||||||
| Revisions and other | ||||||||
| Ending future site restoration obligation | $ | $ | ||||||
2. Revenue from Contracts with Customers
Revenue Recognition
Sales of oil, gas and natural gas liquids (“NGL”) are recognized at the point in time when control of the product is transferred to the customer and collectability is reasonably assured. Our contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, physical location, quality of the oil or gas, and prevailing supply and demand conditions. As a result, the price of the oil, gas and NGL fluctuates to remain competitive with other available oil, gas and NGL supplies in the market. We believe that the pricing provisions of our oil, gas and NGL contracts are customary in the industry.
Oil sales
Our oil sales contracts are generally structured such that we sell our oil production to a purchaser at a contractually specified delivery point at or near the wellhead. The crude oil production is priced on the delivery date based upon prevailing index prices less certain deductions related to oil quality, physical location and transportation costs incurred by the purchaser subsequent to delivery. We recognize revenue when control transfers to the purchaser upon delivery at or near the wellhead at the net price received from the purchaser.
Gas and NGL Sales
Under our gas processing contracts, we deliver wet gas to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity processes the natural gas and remits proceeds to us based upon either (i) the resulting sales price of NGL and residue gas received by the midstream processing entity from third party customers, or (ii) the prevailing index prices for NGL and residue gas in the month of delivery to the midstream processing entity. Gathering, processing, transportation and other expenses incurred by the midstream processing entity are typically deducted from the proceeds that we receive.
In these scenarios, we evaluate whether the midstream processing entity is the principal or the agent in the transaction. In our gas purchase contracts, we have concluded that the midstream processing entity is the agent, and thus, the midstream processing entity is our customer. Accordingly, we recognize revenue upon delivery to the midstream processing entity based on the net amount of the proceeds received from the midstream processing entity.
Disaggregation of Revenue
We have been focused on the development of oil and natural gas properties primarily located in the following two operating regions in the United States: (i) the Permian/Delaware Basin, and (ii) Rocky Mountain. All of our Rocky Mountain properties sold on January 3, 2022. Revenue attributable to each of those regions is disaggregated in the tables below.
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Oil | Gas | NGL | Oil | Gas | NGL | |||||||||||||||||||
| Operating Regions: | ||||||||||||||||||||||||
| Permian/Delaware Basin | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Rocky Mountain | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Significant Judgments
Principal versus agent
We engage in various types of transactions in which midstream entities process our gas and subsequently market resulting NGL and residue gas to third-party customers on our behalf, such as our percentage-of-proceeds and gas purchase contracts. These types of transactions require judgment to determine whether we are the principal or the agent in the contract and, as a result, whether revenues are recorded gross or net.
Transaction price allocated to remaining performance obligations
A significant number of our product sales are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC Topic 606-10-50-14 exempting us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC Topic 606-10-50-14(a) which states we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Contract balances
Under our product sales contracts, we are entitled to payment from purchasers once our performance obligations have been satisfied upon delivery of the product, at which point payment is unconditional. We record invoiced amounts as “Accounts receivable - Oil and gas production sales” in the accompanying condensed consolidated balance sheet.
To the extent actual volumes and prices of oil and natural gas are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and also recorded as “Accounts receivable - Oil and gas production sales” in the accompanying condensed consolidated balance sheets. In this scenario, payment is also unconditional, as we have satisfied our performance obligations through delivery of the relevant product. As a result, we have concluded that our product sales do not give rise to contract assets or liabilities under ASU 2014-09. At March 31, 2022 and December 31, 2021, our receivables from contracts with customers were $
Prior-period performance obligations
We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain gas and NGL sales may not be received for 30 to 60 days after the date production is delivered, and as a result, we are required to estimate the amount of production that was delivered to the midstream purchaser and the price that will be received for the sale of the product. Additionally, to the extent actual volumes and prices of oil are unavailable for a given reporting period because of timing or information not received from third party purchasers, the expected sales volumes and prices for those barrels of oil are also estimated.
We record the differences between our estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Any identified differences between our revenue estimates and actual revenue received historically have not been significant. For the three months ended March 31, 2022 and 2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.
3. Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the tax rates and laws expected to be in effect when the differences are expected to reverse.
For the three months ended March 31, 2022, and 2021, there was
At December 31, 2021, we had, subject to the limitation discussed below, $
Given historical losses, uncertainties exist as to the future utilization of the NOL carryforwards. Therefore, we established a valuation allowance of $
As of March 31, 2022, we did have any accrued interest or penalties related to uncertain tax positions. The tax years through 2021 remain open to examination by the tax jurisdictions to which we are subject.
The Coronavirus Aid, Relief, and Economic Security Act that was enacted March 27, 2020 includes income tax provisions that allow NOLs to be carried back, allow interest expense to be deducted up to a higher percentage of adjusted taxable income, and modify tax depreciation of qualified improvement property, among other provisions. These provisions have no material impact on the Company.
4. Long-Term Debt
The following is a description of our debt as of March 31, 2022 and December 31, 2021 (in thousands):
| March 31, 2022 | December 31, 2021 | |||||||
| First Lien Credit Facility | $ | $ | ||||||
| Second Lien Credit Facility | ||||||||
| Exit fee - Second Lien Credit Facility | ||||||||
| Real estate lien note | ||||||||
| Total long term debt | ||||||||
| Less current maturities | ( | ) | ( | ) | ||||
| Deferred financing fees and debt issuance cost, net | ( | ) | ||||||
| Total long-term debt, net of deferred financing fees and debt issuance costs | $ | $ | ||||||
Restructuring
Pursuant to the Exchange Agreement, dated as of January 3, 2022, between Abraxas and AG Energy Funding, LLC (“AGEF”) and certain other agreements entered into by Abraxas on January 3, 2022, we effectuated a restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) an Asset Purchase and Sale Agreement pursuant to which Abraxas sold to Lime Rock Resources V-A, L.P. certain oil, gas, and mineral properties in the Williston Basin region of North Dakota and other related assets belonging to the Company and its subsidiaries for $
AGEF was issued
Real Estate Lien Note
We have a real estate lien note secured by a first lien deed of trust on the property and improvements which serves as our corporate headquarters. The outstanding principal accrues interest at a fixed rate of
5. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Denominator for basic earnings per share – weighted-average common shares outstanding | ||||||||
| Effect of dilutive securities: | ||||||||
| Stock options, restricted shares and warrants | ||||||||
| Denominator for diluted earnings per share – adjusted weighted-average shares and assumed exercise of options and restricted shares | ||||||||
| Net income (loss) per common share - basic | $ | $ | ( | ) | ||||
| Net income (loss) per common share - diluted | $ | $ | ( | ) | ||||
Basic earnings per share, excluding any dilutive effects of stock options and unvested restricted stock, is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed similar to basic; however diluted income per share reflects the assumed conversion of all potentially dilutive securities. For the three and nine month periods ended March 31, 2022 there were
6. Hedging Program and Derivatives
As of March 31, 2022, the Company is not party to any hedge agreements. The liability as of December 31, 2021 relates to the settlement of the December 2021 contract.:
| Fair Value of Derivative Contracts as December 31, 2021 | |||||||||||
| Asset Derivatives | Liability Derivatives | ||||||||||
| Derivatives not designated as hedging instruments | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
| Commodity price derivatives | Derivatives – current | $ | Derivatives – current | $ | |||||||
| Commodity price derivatives | Derivatives – long-term | Derivatives – long-term | |||||||||
| $ | $ | ||||||||||
7. Financial Instruments
The Company did not have any active financial instruments as of March 31, 2022. The Level 2 financial instruments as of December 31, 2021 relates to the settlement of the December 31, 2021 contract.
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other | Significant Unobservable Inputs (Level 3) | Balance as of December 31, 2021 | |||||||||||||
| Liabilities: | ||||||||||||||||
| NYMEX fixed price derivative contracts | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
Nonrecurring Fair Value Measurements
Non-financial assets and liabilities measured at fair value on a nonrecurring basis included certain non-financial assets and liabilities as may be acquired in a business combination and thereby measured at fair value and the initial recognition of asset retirement obligations for which fair value is used. Unproved oil and gas properties are assessed periodically, at least annually, to determine whether impairment has occurred. The assessment considers the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, the economic viability of development if proved reserves were assigned and other current market conditions. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.
The asset retirement obligation estimates are derived from historical costs as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3. A reconciliation of the beginning and ending balances of the Company’s asset retirement obligation is presented in Note 1.
Other Financial Instruments
The carrying amounts of our cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities. The carrying value of our debt approximates fair value as the interest rates are market rates and this debt is considered Level 2.
8. Leases
Nature of Leases
We lease certain field equipment and other equipment under cancelable and non-cancelable leases to support our operations. A more detailed description of our significant lease types is included below.
Field Equipment
We rent various field equipment from third parties in order to facilitate the downstream movement of our production from our drilling operations to market. Our compressor and cooler arrangements are typically structured with a non-cancelable primary term of one year and continue thereafter on a month-to-month basis subject to termination by either party with thirty days’ notice. These leases are considered short term and are not capitalized. We have a small number of compressor leases that are longer than twelve months. We have concluded that our equipment rental agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term. We enter into daywork contracts for drilling rigs with third parties to support our drilling activities. Our drilling rig arrangements are typically structured with a term that is in effect until drilling operations are completed on a contractually specified well or well pad. Upon mutual agreement with the contractor, we typically have the option to extend the contract term for additional wells or well pads by providing thirty days’ notice prior to the end of the original contract term. We have concluded that our drilling rig arrangements represent short-term operating leases. The accounting guidance requires us to make an assessment at contract commencement if we are reasonably certain that we will exercise the option to extend the term. Due to the continuously evolving nature of our drilling schedules and the potential volatility in commodity prices in an annual period, our strategy to enter into shorter term drilling rig arrangements allows us the flexibility to respond to changes in our operating and economic environment. We exercise our discretion in choosing to extend or not extend contracts on a rig by rig basis depending on the conditions present at the time the contract expires. At the time of contract commencement, we have determined we cannot conclude with reasonable certainty if we will choose to extend the contract beyond its original term. Pursuant to the full cost method, these costs are capitalized as part of natural gas and oil properties on our balance sheet when paid.
Discount Rate
Our leases typically do not provide an implicit rate. Accordingly, we are required to use our incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We use the implicit rate in the limited circumstances in which that rate is readily determinable.
Practical Expedients and Accounting Policy Elections
Certain of our lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, we have utilized the practical expedient that exempts us from separating lease components from non-lease components. Accordingly, we account for the lease and non-lease components in an arrangement as a single lease component. In addition, for all of our existing asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases (that is, a lease that, at commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that we are reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in our statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the period in which the obligation for those payments is incurred. None of our current leases contain variable payments. Refer to “ Nature of Leases” above for further information regarding those asset classes that include material short-term leases.
The components of our total lease expense for the three months ended March 31, 2022, the majority of which is included in lease operating expense, are as follows:
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease expense (1) | $ | $ | ||||||
| Total lease expense | $ | $ | ||||||
| Short-term lease costs (2) | $ | $ | ||||||
|
| (1) | Short-term lease expense represents expense related to leases with a contract term of 12 months or less. |
| (2) | These short-term lease costs are related to leases with a contract term of 12 months or less which are related to drilling rigs and are capitalized as part of natural gas and oil properties on our balance sheet. |
Supplemental balance sheet information related to our operating leases is included in the table below:
| March 31, 2022 | ||||
| Operating lease ROU assets | $ | |||
| Operating lease liability - current | $ | |||
| Operating lease liabilities - long-term | $ | |||
Our weighted average remaining lease term and weighted average discount rate for our operating leases are as follows:
| March 31, 2022 | ||||
| Weighted Average Remaining Lease Term (in years) | ||||
| Weighted Average Discount Rate | % | |||
Our lease liabilities with enforceable contract terms that are greater than one year mature as follows:
| Operating Leases | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ||||
| Total lease liability | $ | |||
At March 31, 2022, we had only a lease on office equipment, with minimum lease payments with commitments that had initial or remaining lease terms in excess of one year.
9. Commitments and Contingencies
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. At March 31, 2022, we were not involved in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our financial position or results of operations.
10. Disposition of Assets and Restructuring
On January 3, 2022, the Company and Lime Rock Resources V-A, L.P., a Delaware limited partnership (“Lime Rock”), entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to Lime Rock certain oil, gas, and mineral properties in the Williston Basin region of North Dakota (the “Properties”) and other related assets (together with the Properties, the “Assets”) belonging to the Company and its subsidiaries for $
As discussed in Note 4 above, on January 3, 2022, the Company effectuated the Restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) the Purchase Agreement and the Sale, (ii) the pay down of the indebtedness and other obligations of Abraxas and its subsidiaries under the First Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Société Générale, as “Issuing Lender” and administrative agent and certain specified secured hedges from the proceeds of the Sale and, to the extent necessary, other cash of Abraxas; and (iii), a debt for equity exchange of the indebtedness and other obligations of Abraxas and its subsidiaries under the Second Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Angelo Gordon Energy Servicer, LLC, as administrative agent and all related loan and security documents.
AGEF was issued
Exchange Agreement
On January 3, 2022, the Company and AG Energy Funding, LLC, a Delaware limited liability company (“AGEF”) and an affiliate of the Second Lien Agent, entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which, and effective immediately
upon the consummation of the transactions contemplated by the Purchase Agreement and the First Lien Release Agreement, AGEF transferred to the Company all of AGEF’s claims outstanding under the Second Lien Debt Agreement (the “Claims”) in exchange for the Company’s issuance to AGEF of
Any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Preferred Stock and the Company’s common stock as follows: (1) first,
In connection with the consummation of the Exchange Agreement, on January 3, 2022, the Second Lien Parties entered into an Amendment No. 2 to Forbearance Agreement (the “Second Lien Forbearance”) with respect to the Second Lien Debt Agreement. Under the Second Lien Forbearance, the parties thereto agreed to (i) extend the temporary forbearance period under the Forbearance Agreement until January 14, 2022, unless terminated earlier by a “Forbearance Termination Event” (as defined in the Second Lien Forbearance), and (ii) amend certain other terms of the Forbearance Agreement. Subject to the terms and conditions set forth in the Second Lien Forbearance, the Second Lien Agent and the Second Lien Lenders agreed to release their liens and security interests on the Assets being sold by the Company to Lime Rock under the Purchase Agreement.
The foregoing description of the Exchange Agreement, the Certificate and the Second Lien Forbearance is a summary only, does not purport to be complete, and is qualified in its entirety by reference to the complete text of the Exchange Agreement, the Certificate, and the Second Lien Forbearance, which are filed as Exhibits 10.3, 3.1 and 4.1, and 10.4, on Form 8-K filed on January 3, 2022, and are incorporated by reference herein.
In connection with the proposed Sale of the Assets to Lime Rock, as contemplated by the Purchase Agreement, and the proposed Exchange of AGEF’s claims outstanding under the Second Lien Debt Agreement for the Preferred Stock, as contemplated by the Exchange Agreement, the Board of Directors of the Company (the “Board”) requested that Petrie Partners Securities, LLC (“Petrie”) render opinions as to whether the Purchase Price and the Exchange are fair, from a financial point of view, to the Company. Petrie represented the Company in the broadly marketed sale of the Assets and is currently acting as financial advisor to the Board and to the Special Committee of the Board in connection with the proposed Exchange. On January 2, 2022, Petrie delivered opinions to the Board, dated January 3, 2022 (the “Fairness Opinions”), stating that the Purchase Price and the Exchange are fair, from a financial point of view, to the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial condition, results of operations, liquidity and capital resources and should be read in conjunction with our consolidated financial statements and the notes thereto, included in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. Please see “Forward Looking Information” above.
Except as otherwise noted, all tabular amounts are in thousands, except per unit values.
Critical Accounting Policies
There have been no changes from the Critical Accounting Policies described in our Annual Report on Form 10-K for the year ended December 31, 2021.
General
We are an independent energy company primarily engaged in the acquisition, development and production of oil and gas in the United States. Historically, we have grown through the acquisition and subsequent development of producing properties, principally through the development of shale or tight oil reservoirs in areas known to be productive of oil and gas utilizing new technologies such as modern log analysis and reservoir modeling techniques as well as 3-D seismic surveys and horizontal drilling and stage fracturing. As a result of these activities, we believe that we have a number of development opportunities on our properties.
Restructuring
Pursuant to the Exchange Agreement, dated as of January 3, 2022, between Abraxas and AGEF and certain other agreements entered into by Abraxas on January 3, 2022, we effectuated a restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) an Asset Purchase and Sale Agreement pursuant to which Abraxas sold to Lime Rock Resources V-A, L.P. certain oil, gas, and mineral properties in the Williston Basin region of North Dakota and other related assets belonging to the Company and its subsidiaries for $87,200,000 in cash ($70.3 million after customary closing adjustments) (the “Sale”), (ii) the pay down of the indebtedness and other obligations of Abraxas and its subsidiaries under the First Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Société Générale, as “Issuing Lender” and administrative agent and certain specified secured hedges from the proceeds of the Sale and, to the extent necessary, other cash of Abraxas; and (iii), a debt for equity exchange of the indebtedness and other obligations of Abraxas and its subsidiaries under the Second Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Angelo Gordon Energy Servicer, LLC, as administrative agent and all related loan and security documents (the “Exchange” and, together with the transactions referred to in clauses (i) and (ii), the “Restructuring”).
AGEF was issued 685,505 shares of Series A Preferred Stock of the Company in the Exchange. The Series A Preferred Stock has the terms set forth in the Company’s filed Preferred Stock Certificate of Designation (the “Certificate). Pursuant to the Certificate, any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Series A Preferred Stock and the Company’s common stock as follows: (1) first, 100% to the Series A Preferred Stock until the Series A Preferred Stock has received $100 million of proceeds in the aggregate (the “Tier One Preference Amount”), (2) second, 95% to the Series A Preferred Stock and 5% to the Company’s common stock until the Series A Preferred Stock has received $137.1 million, plus a 6.0% annual rate of return thereon from the date of issuance; (3) thereafter, 75% to the Series A Preferred Stock and 25% to the Company’s common stock. The Exchange Agreement entered into in connection with the Restructuring also provides for the potential funding by AGEF of an additional amount up to $12.0 million, if agreed to by AGEF and the disinterested members of the Company’s Board of Directors. Any such additional amount funded would result in an increase to the Tier One Preference Amount equal to 1.5 x the amount of such additional funding. The shares of Series A Preferred Stock vote together as a single class with the Company’s common stock, and each share of Series A Preferred Stock entitles the holder thereof to 69 votes. Accordingly, AGEF’s ownership of the Series A Preferred Stock entitle it to approximately 85% of the voting power of the Company’s current outstanding capital stock.
See Note 4 “ Long-Term Debt - Restructuring” and Note 10 “ Disposition of Assets and Restructuring” to the Consolidated Financial Statements.
Factors Affecting Our Financial Results
Our financial results depend upon many factors which significantly affect our results of operations including the following:
| • |
commodity prices and the effectiveness of our hedging arrangements; |
| • |
the level of total sales volumes of oil and gas; |
| • |
the availability of and our ability to raise additional capital resources and provide liquidity to meet cash flow needs; |
| • |
the level of and interest rates on borrowings; and |
| • |
the level and success of exploration and development activity. |
Commodity Prices.
The results of our operations are highly dependent upon the prices received for our oil and gas production. The prices we receive for our production are dependent upon spot market prices, differentials and the effectiveness of our derivative contracts, which we sometimes refer to as hedging arrangements. Substantially all of our sales of oil and gas are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received for our oil and gas production are dependent upon numerous factors beyond our control. Significant declines in prices for oil and gas could have a material adverse effect on our financial condition, results of operations, cash flows and quantities of reserves recoverable on an economic basis.
As a result of the many uncertainties associated with the world political environment, worldwide supplies of oil, NGL and gas, the availability of other worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of consumers, we are unable to predict what changes may occur in oil, NGL and gas prices in the future. The market price of oil and condensate, NGL and gas largely determines the amount of cash generated from operating activities, which will in turn impact our financial position.
During the three months ended March 31, 2022, the NYMEX future price for oil averaged $94.93 per Bbl as compared to $58.14 per Bbl in the same period of 2021. During the three months ended March 31, 2022, the NYMEX future spot price for gas averaged $4.63 per MMBtu compared to $2.72 per MMBtu in the same period of 2021. Prices closed on March 31, 2022 at $100.28 per Bbl of oil and $5.46 per MMBtu of gas, compared to closing on March 31, 2021 at $59.16 per Bbl of oil and $2.61 per MMBtu of gas. On May 10, 2022, prices closed at$99.76 per Bbl of oil and $6.99 per MMBtu of gas. If commodity prices decline, our revenue and cash flow from operations will also likely decline. In addition, lower commodity prices could also reduce the amount of oil and gas that we can produce economically. If oil and gas prices decline, our revenues, profitability and cash flow from operations will also likely decrease which could cause us to alter our business plans, including reducing any then existing drilling activities. Such declines have required, and in future periods could also require us to write down the carrying value of our oil and gas assets which would also cause a reduction in net income. The prices that we receive are also impacted by basis differentials, which can be significant, and are dependent on actual delivery points. Finally, low commodity prices will likely cause a reduction of our proved reserves.
The realized prices that we receive for our production differ from NYMEX futures and spot market prices, principally due to:
| • |
basis differentials which are dependent on actual delivery location; |
| • |
adjustments for BTU content; |
| • |
quality of the hydrocarbons; and |
| • |
gathering, processing and transportation costs. |
The following table sets forth our average differentials for the three month periods ended March 31, 2022 and 2021:
| Oil - NYMEX |
Gas - NYMEX |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Average realized price (1) |
$ | 93.42 | $ | 52.77 | $ | 3.20 | $ | 2.09 | ||||||||
| Average NYMEX price |
94.93 | 58.14 | 4.63 | 2.72 | ||||||||||||
| Differential |
$ | (1.51 | ) | $ | (5.37 | ) | $ | (1.43 | ) | $ | (0.63 | ) | ||||
(1) Excludes the impact of derivative activities.
Production Volumes. Our proved reserves will decline as oil and gas is produced, unless we find, acquire or develop additional properties containing proved reserves or conduct successful exploration and development activities. Based on the reserve information set forth in our reserve report as of December 31, 2021, our average annual estimated decline rate for our net proved developed producing reserves is 20%; 15%; 13%; 12% and 11% in 2022, 2023, 2024, 2025 and 2026, respectively, 9% in the following five years, and approximately 10% thereafter. These rates of decline are estimates and actual production declines could be materially different. While we have had some success in finding, acquiring and developing additional reserves, we have not always been able to fully replace the production volumes lost from natural field declines and property sales. Our ability to acquire or find additional reserves in the future will be dependent, upon the amount of available funds for acquisition, exploration and development projects.
We had capital expenditures during the three months ended March 31, 2022 of $135,000 related to our existing properties. We have not established a capital expenditure budget for 2022 due to the lack of capital resources. Our capital expenditures will not be able to offset oil and gas production decreases caused by natural field declines.
The following table presents historical net production volumes for the three months ended March 31, 2022, and 2021:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Total production (MBoe) |
195 | 499 | ||||||
| Average daily production (Boepd) |
2,168 | 5,541 | ||||||
| % Oil |
56 | % | 53 | % | ||||
The following table presents our net oil, gas and NGL production, the average sales price per Bbl of oil and NGL and per Mcf of gas produced and the average cost of production per Boe of production sold, for the three and nine months ended March 31, 2022 and 2021, by our major operating regions:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Oil production (MBbls) |
||||||||
| Rocky Mountain (2) |
- | 133 | ||||||
| Permian/Delaware Basin |
110 | 131 | ||||||
| Total |
110 | 264 | ||||||
| Gas production (MMcf) |
||||||||
| Rocky Mountain (2) |
- | 458 | ||||||
| Permian/Delaware Basin |
354 | 341 | ||||||
| Total |
354 | 799 | ||||||
| NGL production (MBbls) |
||||||||
| Rocky Mountain (2) |
- | 80 | ||||||
| Permian/Delaware Basin |
26 | 22 | ||||||
| Total |
26 | 102 | ||||||
| Total production (MBoe) (1) |
195 | 499 | ||||||
| Average sales price per Bbl of oil (3) |
||||||||
| Rocky Mountain (2) |
$ | - | $ | 50.73 | ||||
| Permian/Delaware Basin |
93.42 | 54.85 | ||||||
| Composite |
93.42 | 52.77 | ||||||
| Average sales price per Mcf of gas (2) |
||||||||
| Rocky Mountain (2) |
$ | - | $ | 1.21 | ||||
| Permian/Delaware Basin |
3.20 | 3.27 | ||||||
| Composite |
$ | 3.20 | 2.09 | |||||
| Average sales price per Bbl of NGL |
||||||||
| Rocky Mountain (2) |
$ | - | $ | 10.02 | ||||
| Permian/Delaware Basin |
29.16 | 12.35 | ||||||
| Composite |
29.16 | 10.52 | ||||||
| Average sales price per Boe (2) |
$ | 62.43 | $ | 33.42 | ||||
| Average cost of production per Boe produced (4) |
||||||||
| Rocky Mountain (2) |
$ | - | $ | 6.13 | ||||
| Permian/Delaware Basin |
13.19 | 12.55 | ||||||
| Composite |
13.19 | 8.82 | ||||||
| (1) |
Oil and gas were combined by converting gas to Boe on the basis of 6 Mcf of gas to 1 Bbl of oil. |
| (2) | Rocky Mountain properties were sold on January 3, 2022. | |
| (3) |
2021 amounts are before the impact of hedging activities. |
| (4) |
Production costs include direct lease operating costs but exclude ad valorem taxes and production taxes. |
Availability of Capital. As described more fully under “Liquidity and Capital Resources” below, our sources of capital are cash flow from operating activities, proceeds from the sale of properties, and if an appropriate opportunity presents itself, credit facilities, or the sale of debt or equity securities, although we may not be able to complete any asset sales or financings on terms acceptable to us, if at all. Our First Lien Credit Facility was settled and our Second Lien Credit Facility was converted to Class A Preferred Stock in connection with the Restructuring that took place on January 3, 2022. See Note 4 “Long-Term Debt – Restructuring” and Note 10. “Disposition of Assets and Restructuring” to the Consolidated Financial Statements. We do not currently have a credit facility in place..
Borrowings and Interest. At March 31, 2022, we had $2.4 million outstanding under our Real Estate Lien Note (including the current portion).
Exploration and Development Activity. We believe we could access capital to resume development of our assets. We believe that our high quality asset base, high degree of operational control and inventory of drilling projects position us for future growth. At December 31, 2021, we operated properties accounting for virtually all of our PV-10, giving us substantial control over the timing and incurrence of operating and capital expenditures. We have identified numerous additional drilling locations on our existing leaseholds, the successful development of which we believe could significantly increase our production and proved reserves.
Our future oil and gas production, and therefore our success, is highly dependent upon our ability to find, acquire and develop additional reserves that are profitable to produce. The rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves, conduct successful development and exploration activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves. We cannot assure you that we will have any significant exploration and development activities in the near term or that they will result in increases in our proved reserves. If our proved reserves decline in the future, our production may also decline and, consequently, our cash flow from operations will decline. If cash flow declines and we have no access to additional capital, we will be unable to acquire or develop additional reserves or develop our existing undeveloped reserves, in which case our results of operations and financial condition will be adversely affected. Additionally, due to our lack of liquidity, all of our proved undeveloped reserves have been removed from our books.
Results of Operations
Selected Operating Data. The following table sets forth operating data from continuing operations for the periods presented.
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| Operating revenue (1):(2) |
||||||||
| Oil sales |
$ | 10,291 | $ | 13,925 | ||||
| Gas sales |
1,131 | 1,670 | ||||||
| NGL sales |
758 | 1,069 | ||||||
| Other |
5 | 6 | ||||||
| Total operating revenues |
$ | 12,185 | $ | 16,670 | ||||
| Operating income (loss) |
$ | 4,869 | $ | 4,843 | ||||
| Oil sales (MBbls) |
110 | 264 | ||||||
| Gas sales (MMcf) |
354 | 799 | ||||||
| NGL sales (MBbls) |
26 | 102 | ||||||
| Oil equivalents (MBoe) |
195 | 499 | ||||||
| Average oil sales price (per Bbl)(1) |
$ | 93.42 | $ | 52.77 | ||||
| Average gas sales price (per Mcf)(1) |
$ | 3.20 | $ | 2.09 | ||||
| Average NGL sales price (per Bbl) |
$ | 29.16 | $ | 10.52 | ||||
| Average oil equivalent sales price (Boe) (1) |
$ | 62.43 | $ | 33.42 | ||||
___________________
| (1) |
2021 revenue and average sales prices are before the impact of hedging activities. |
|
| (2) | 2021 amounts include activity from our Rocky Mountain properties that were sold on January 3, 2022 |
Comparison of Three Months Ended March 31, 2022 to Three Months Ended March 31, 2021
Operating Revenue. During the three months ended March 31, 2022, operating revenue decreased to $12.2 million from $16.7 million for the same period of 2021. The decrease in revenue was primarily due to lower sales volumes offset by higher commodity prices. Higher realized prices for all products added $7.3 million to operating revenue for the three months ended March 31, 2022. Lower sales volumes negatively impacted revenue by $11.7 million. Lower sales volumes were primarily due to the sale of our Bakken properties in North Dakota on January 3, 2022. Sales from the Bakken properties contributed 289 MBoe and $8.1 million to revenue in the first quarter of 2021.
Oil sales volumes decreased to 110 MBbl during the three months ended March 31, 2022 from 264 MBbl for the same period of 2021. The decrease in oil sales volume was primarily due to the sale of our Bakken properties on January 3, 2022, which contributed 133 MBbls as well as natural field declines and not bringing any new production on line during the first quarter of 2022. Gas sales volumes decreased to 354 MMcf for the three months ended March 31, 2022 from 799 MMcf for the same period of 2021. The decrease in gas volumes was primarily due to the sale of our Bakken properties on January 3, 2022, which contributed 458 MMcf in the first quarter of 2021.
Lease Operating Expenses (“LOE”). LOE for the three months ended March 31, 2022 decreased to $2.6 million from $4.4 million for the same period of 2021. The decrease in LOE was primarily due to sale of our Bakken properties on January 3, 2022, which incurred $1.8 million in LOE in the first quarter of 2021. LOE per Boe for the three months ended March 31, 2022 was $13.19 compared to $8.78 for the same period of 2021. The increase per Boe was due primarily to higher cost of services in 2022 as compared to 2021.
Production and Ad Valorem Taxes. Production and ad valorem taxes for the three months ended March 31, 2022 decreased to $1.1 million from $1.4 million for the same period of 2021. Production and ad valorem taxes for the three months ended March 31, 2022 were 9% of total oil, gas and NGL sales compared to 8% for the same period of 2021.
General and Administrative (“G&A”) Expense. G&A expenses, excluding stock-based compensation, was $1.7 million for the three months ended March 31, 2022 and 2021. G&A per Boe, excluding stock-based compensation, was $8.87 for the quarter ended March 31, 2022 compared to $3.49 for the same period of 2021. The increase in G&A per Boe, excluding stock based compensation, was primarily due to lower sales volumes for the three months ended March 31, 2022 compared to the same period of 2021.
Stock-Based Compensation. Options granted to employees and directors are valued at the date of grant and expense is recognized over the options' vesting period. In addition to options, restricted shares of our common stock have been granted and are valued at the date of grant and expense is recognized over their vesting period. For the three months ended March 31, 2022, stock-based compensation was $0.2 million compared to $0.3 million for the period ended March 31, 2021. As of March 31, 2022 all of our stock based compensation has been fully amortized.
Depreciation, Depletion and Amortization (“DD&A”) Expense. DD&A expense, excluding accretion of future site restoration, for the three months ended March 31, 2022 decreased to $1.5 million from $3.8 million for the same period of 2021. The decrease was primarily due to lower production volumes offset by a lower full cost pool as a result of the impairments recorded in 2020 as well as lower future development cost included in the March 31, 2022 internal reserve report given the removal of proved undeveloped reserves. Proved undeveloped reserves were removed due to the lack of available liquidity to develop the reserves. DD&A expense per Boe for the three months ended March 31, 2022 was $7.88 compared to $7.82 in the same period of 2021.
Ceiling Limitation Write-Down. We record the carrying value of our oil and gas properties using the full cost method of accounting for oil and gas properties. Under this method, we capitalize the cost to acquire, explore for and develop oil and gas properties. Under the full cost accounting rules, the net capitalized cost of oil and gas properties less related deferred taxes, are limited by country, to the lower of the unamortized cost or the cost ceiling, defined as the sum of the present value of estimated unescalated future revenues from proved reserves, 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. If the net capitalized cost of oil and gas properties exceeds the ceiling limit, we are subject to a ceiling limitation write-down to the extent of such excess. A ceiling limitation write-down is a charge to earnings which does not impact cash flow from operating activities. However, such write-downs do impact the amount of our stockholders’ equity and reported earnings. As of March 31, 2022 and March 31, 2021, our net capitalized costs of oil and gas properties did not exceed the cost ceiling of our estimated proved reserves.
The risk that we will be required to write-down the carrying value of our oil and gas assets increases when oil and gas prices are depressed or volatile. In addition, write-downs may occur if we have substantial downward revisions in our estimated proved reserves. We cannot assure you that we will not experience additional write-downs in the future.
Interest Expense. Interest expense for the three months ended March 31, 2022 decreased to $0.1 million compared to $6.0 million for the same period of 2021. The decrease in interest expense in 2022 was due to the settlement of our First Lien Credit Facility and the conversion of our Second Lien Credit Facility into preferred stock on January 3, 2022. See Note 4 “ Long-Term Debt - Restructuring and Note 10. “ Disposition of Assets and Restructuring” to the Consolidated Financial Statements.
Loss (Gain) on Derivative Contracts. As of January 1, 2022 we are not party to any derivative agreements. Derivative gains or losses were determined by actual derivative settlements during the period and on the periodic mark to market valuation of derivative contracts in place at period end. We have elected not to apply hedge accounting to our derivative contracts; therefore, fluctuations in the market value of the derivative contracts are recognized in earnings during the current period. Our derivative contracts consisted of NYMEX-based fixed price swaps and basis differential swaps as of March 31, 2021. The net estimated value of our commodity derivative contracts was a net liability of approximately $0.4 million which represents the January settlement of our December 2021 contract. When our derivative contract prices are higher than prevailing market prices, we incur gains and, conversely, when our derivative contract prices are lower than prevailing market prices, we incur losses. For the three months ended March 31, 2021, we recognized a loss on our commodity derivative contracts of $22.7 million.
Income Tax Expense. For the three months ended March 31, 2022 and March 31, 2021 there was no income tax expense recognized due to our NOL carryforwards. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), that was enacted March 27, 2020, includes income tax provisions that allow net operating losses (“NOLs”) to be carried back, allows interest expense to be deducted up to a higher percentage of adjusted taxable income, and modifies tax depreciation of qualified improvement property, among other provisions. These provisions did not have a material impact on the Company.
Liquidity and Capital Resources
General. The oil and gas industry is a highly capital intensive and cyclical business. Our capital requirements are driven principally by our obligations to service debt and to fund the following:
| • |
the development and exploration of existing properties, including drilling and completion costs of wells; |
| • |
acquisition of interests in additional oil and gas properties; and |
| • |
production and transportation facilities. |
The amount of capital expenditures we are able to make has a direct impact on our ability to increase cash flow from operations and, thereby, will directly affect our ability to grow the business through the development of existing properties and the acquisition of new properties. Due to our lack of capital, we are currently not able to develop our existing properties.
Our principal sources of capital are cash flows from operations, proceeds from the sale of properties, and if an opportunity presents itself, credit facility, or the sale of debt or equity securities, although we may not be able to sell properties or complete sales or financings on terms acceptable to us, if at all. We believe that our cash flow from these sources going forward, will be adequate to fund our operations.
Working Capital (Deficit). At March 31, 2022, our current assets of $18.2 exceed our current liabilities of $12.1 million, resulting in a working capital surplus of $6.1 million. This compares to a working capital deficit of $216.0 million at December 31, 2021. Current assets as of March 31, 2022 primarily consisted of cash of $9.4 million, accounts receivable of $7.5 million and other current assets of $1.3 million. Current liabilities at March 31, 2022 primarily consisted of trade payables of $7.9 million, including $5.9 million in post closing costs related to the sale of our North Dakota properties on January 3, 2022,, revenues due third parties of $3.6 million, current maturities of long-term debt of $0.3 million, and other accrued expenses of $0.3 million.
Capital Expenditures. Capital expenditures for the three months ended March 31, 2022 and 2021 were $0.1 million for each period.
The table below sets forth the components of these capital expenditures:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| (In thousands) |
||||||||
| Expenditure category: |
||||||||
| Exploration/Development |
$ | 125 | $ | 85 | ||||
| Facilities and other |
10 | 6 | ||||||
| Total |
$ | 135 | $ | 91 | ||||
During the three months ended March 31, 2022 and 2021, our capital expenditures were primarily on our existing properties.
Sources of Capital. The net funds provided by and/or used in each of the operating, investing and financing activities are summarized in the following table and discussed in further detail below:
| Three Months Ended March 31, |
||||||||
| 2022 |
2021 |
|||||||
| (In thousands) |
||||||||
| Net cash provided by operating activities |
$ | 4,356 | $ | 5,825 | ||||
| Net cash provided by (used in) investing activities |
71,746 | (91 | ) | |||||
| Net cash used in financing activities |
(76,730 | ) | (4,236 | ) | ||||
| Total |
$ | (628 | ) | $ | 1,498 | |||
Operating activities for the three months ended March 31, 2022 provided $4.4 million in cash compared to providing $5.8 million in the same period of 2021. Higher net income and changes in operating assets and liabilities accounted for most of these funds. Investing activities provided $71.7 million during the three months ended March 31, 2022, primarily from sales of oil and gas properties in North Dakota as well as various non-oil and gas assets on January 3, 2022. Investing activities used $0.01 million during the three months ended March 31, 2021, primarily for the development of our existing properties. Financing activities used $76.7 million for the three months ended March 31, 2022 primarily to the settlement of the First Lien Credit Facility in connection with the Restructuring,compared to using $4.2 million for the same period of 2021,primarily for the reduction of long-term debt. See Note45 “Long-Term Debt – Restructuring” and Note 10 “Disposition of Assets and Restructuring” to the Consolidated Financial Statements.
Future Capital Resources.
Our principal sources of capital going forward, are cash flows from operations, proceeds from the sale of properties, and if an opportunity presents itself, credit facilities, or the sale of debt or equity securities, although we may not be able to complete sales of financings on terms acceptable to us, if at all.
Cash from operating activities is dependent upon commodity prices and production volumes. A decrease in commodity prices from current levels would likely reduce our cash flows from operations. This could cause us to alter our business plans, including reducing our exploration and development plans. Unless we otherwise expand and develop reserves, our production volumes may decline as reserves are produced. In the future we may continue to sell producing properties, which could further reduce our production volumes. To offset the loss in production volumes resulting from natural field declines and sales of producing properties, we must conduct successful exploration and development activities, acquire additional producing properties or identify and develop additional behind-pipe zones or secondary recovery reserves. We believe our numerous drilling opportunities will allow us to increase our production volumes; however, our drilling activities are subject to numerous risks, including the risk that no commercially productive oil and gas reservoirs will be found. If our proved reserves decline in the future, our production will also decline and, consequently, our cash flows from operations will decline.
Contractual Obligations. We are committed to making cash payments in the future on the following types of agreements:
| • |
Long-term debt, and |
| • |
Operating leases. |
Below is a schedule of the future payments that we are obligated to make based on agreements in place as of March 31, 2022:
| Payments due in twelve month periods ending: |
||||||||||||||||||||
| Contractual Obligations |
Total |
March 31, 2023 |
March 31, 2024-2025 |
March 31, 2026-2027 |
Thereafter |
|||||||||||||||
| Long-term debt (1) |
$ | 2,439 | $ | 314 | $ | 2,125 | $ | - | $ | - | ||||||||||
| Interest on long-term debt (2) |
145 | 114 | 31 | - | ||||||||||||||||
| Lease obligations |
6 | 6 | — | — | — | |||||||||||||||
| Total |
$ | 2,590 | $ | 434 | $ | 2,156 | $ | - | $ | - | ||||||||||
| (1) |
These amounts represent the balances outstanding under our credit facilities and the real estate lien note. These payments assume that we will not borrow additional funds. |
| (2) |
Interest expense based on amortization schedule of our Real Estate Lien Note |
We maintain a reserve for costs associated with future site restoration related to the retirement of tangible long-lived assets. At March 31, 2022, our reserve for these obligations totaled $3.0 million for which no contractual commitments exist. For additional information relating to this obligation, see Note 1 of the Notes to Condensed Consolidated Financial Statements.
Off-Balance Sheet Arrangements. At March 31, 2022, we had no existing off-balance sheet arrangements, as defined under SEC regulations, that have, or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Contingencies. From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. At March 31, 2022, we were not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on us.
Long-Term Indebtedness.
Long-term debt consisted of the following (in thousands):
| March 31, 2022 |
December 31, 2021 |
|||||||
| First Lien Credit Facility |
$ | - | $ | 71,400 | ||||
| Second Lien Credit Facility |
- | 134,907 | ||||||
| Exit fee - Second Lien Credit Facility |
- | 10,000 | ||||||
| Real estate lien note |
2,439 | 2,515 | ||||||
| Total long term debt |
2,439 | 218,822 | ||||||
| Less current maturities |
(314 | ) | (212,688 | ) | ||||
| 2,125 | 6,134 | |||||||
| Deferred financing fees and debt issuance cost, net |
- | (3,929 | ) | |||||
| Total long-term debt, net of deferred financing fees and debt issuance costs |
$ | 2,125 | $ | 2,205 | ||||
Restructuring
Pursuant to the Exchange Agreement, dated as of January 3, 2022, between Abraxas and AGEF and certain other agreements entered into by Abraxas on January 3, 2022, we effectuated a restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) an Asset Purchase and Sale Agreement pursuant to which Abraxas sold to Lime Rock Resources V-A, L.P. certain oil, gas, and mineral properties in the Williston Basin region of North Dakota and other related assets belonging to the Company and its subsidiaries for $87,200,000 in cash ($70.3 million after customary closing adjustments) (the “Sale”), (ii) the pay down of the indebtedness and other obligations of Abraxas and its subsidiaries under the First Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Société Générale, as “Issuing Lender” and administrative agent and certain specified secured hedges from the proceeds of the Sale and, to the extent necessary, other cash of Abraxas; and (iii), a debt for equity exchange of the indebtedness and other obligations of Abraxas and its subsidiaries under the Second Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Angelo Gordon Energy Servicer, LLC, as administrative agent and all related loan and security documents (the “Exchange” and, together with the transactions referred to in clauses (i) and (ii), the “Restructuring”).
AGEF was issued 685,505 shares of Series A Preferred Stock of the Company in the Exchange. The Series A Preferred Stock has the terms set forth in the Company’s filed Preferred Stock Certificate of Designation (the “Certificate). Pursuant to the Certificate, any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Series A Preferred Stock and the Company’s common stock as follows: (1) first, 100% to the Series A Preferred Stock until the Series A Preferred Stock has received $100 million of proceeds in the aggregate (the “Tier One Preference Amount”), (2) second, 95% to the Series A Preferred Stock and 5% to the Company’s common stock until the Series A Preferred Stock has received $137.1 million, plus a 6.0% annual rate of return thereon from the date of issuance; (3) thereafter, 75% to the Series A Preferred Stock and 25% to the Company’s common stock. The Exchange Agreement entered into in connection with the Restructuring also provides for the potential funding by AGEF of an additional amount up to $12.0 million, if agreed to by AGEF and the disinterested members of the Company’s Board of Directors. Any such additional amount funded would result in an increase to the Tier One Preference Amount equal to 1.5 x the amount of such additional funding. The shares of Series A Preferred Stock vote together as a single class with the Company’s common stock, and each share of Series A Preferred Stock entitles the holder thereof to 69 votes. Accordingly, AGEF’s ownership of the Series A Preferred Stock entitle it to approximately 85% of the voting power of the Company’s current outstanding capital stock.
Real Estate Lien Note
We have a real estate lien note secured by a first lien deed of trust on the property and improvements which serves as our corporate headquarters. The note was modified on June 20, 2018 to a fixed rate of 4.9% and is payable in monthly installments of $35,672. The maturity date of the note is July 20, 2023. As of March 31, 2022, and December 31, 2021, $2.4 million and $2.5 million, respectively, were outstanding on the note.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Commodity Price Risk
As an independent oil and gas producer, our revenue, cash flow from operations, other income and profitability, reserve values, access to capital and future rate of growth are substantially dependent upon the prevailing prices of oil and gas. Declines in commodity prices will adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower commodity prices may reduce the amount of oil and gas that we can produce economically. Prevailing prices for such commodities are subject to wide fluctuation in response to relatively minor changes in supply and demand and a variety of additional factors beyond our control, such as global, political and economic conditions. Historically, prices received for our oil and gas production have been volatile and unpredictable, and such volatility is expected to continue. Most of our production is sold at market prices. Generally, if the commodity indexes fall, the price that we receive for our production will also decline. Therefore, the amount of revenue that we realize is partially determined by factors beyond our control. Assuming the production levels we attained during the three months ended March 31, 2022, a 10% decline in oil and gas prices would have reduced our operating revenue, cash flow and net income by approximately $1.2 million. If commodity prices decline from current levels, the impact on operating revenues and cash flow, could be much more significant.
Interest Rate Risk
The interest rate on our Real Estate Lien note is fixed, accordingly we are not currently subject to interest rate risk.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our “ disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)and 15d-15(e)) and concluded that the disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the three months ended March 31, 2022 covered by this report that could materially affect, or are reasonably likely to materially affect, our financial reporting.
From time to time, we are involved in litigation relating to claims arising out of its operations in the normal course of business. At March 31, 2022, we were not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse impact on our financial position or results of operations.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing Abraxas. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosure.
Not applicable
None
| (a) |
Exhibits |
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Exhibit 31.1 |
|
|
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Exhibit 31.2 |
|
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Exhibit 32.1 |
Certification pursuant to 18 U.S.C. Section 1350 - Robert L.G. Watson, CEO |
|
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Exhibit 32.2 |
Certification pursuant to 18 U.S.C. Section 1350 - Steven P. Harris, CFO |
| 101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date |
May 16, 2022 |
|
By: /s/Robert L.G. Watson |
|
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|
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ROBERT L.G. WATSON, |
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|
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President and |
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|
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Principal Executive Officer |
| Date |
May 16, 2022 |
|
By: /s/Steven P. Harris |
|
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STEVEN P. HARRIS |
|
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Vice President and |
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|
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Principal Financial Officer |
| Date |
May 16, 2022 |
|
By: /s/G. William Krog, Jr. |
|
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G. WILLIAM KROG, JR., |
|
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Vice President and |
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|
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Principal Accounting Officer |
Exhibit 31.1
CERTIFICATIONS
I, Robert L. G. Watson, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Abraxas Petroleum Corporation. |
|
2. |
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 16, 2022
/s/ Robert L.G. Watson
Robert L.G. Watson
Chairman of the Board, President and
Principal Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Steven P. Harris, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Abraxas Petroleum Corporation. |
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2. |
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 16, 2022
/s/ Steven P. Harris
Steven P. Harris
Vice President and
Principal Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Abraxas Petroleum Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L.G. Watson, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Robert L.G. Watson
Robert L.G. Watson
Chairman of the Board, President and Chief Executive Officer
May 16, 2022
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Abraxas Petroleum Corporation (the “Company”) on Form 10-Q for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven P. Harris, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/Steven P. Harris
Steven P. Harris
Vice President and Chief Financial Officer
May 16, 2022
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
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| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, authorized (in shares) | 1,000,000 | 1,000,000 |
| Preferred stock, issued (in shares) | 685,505 | 0 |
| Preferred stock, outstanding (in shares) | 685,505 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, authorized (in shares) | 20,000,000 | 20,000,000 |
| Common stock, issued (in shares) | 8,421,910 | 8,421,910 |
| Common stock, outstanding (in shares) | 8,421,910 | 8,421,910 |
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2022 |
Mar. 31, 2021 |
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| Stock-based compensation | $ 187 | $ 311 |
Condensed Consolidated Statements of Stockholders Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member] |
Preferred Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
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| Balance (in shares) at Dec. 31, 2020 | 8,421,910 | 0 | |||
| Balance at Dec. 31, 2020 | $ 84 | $ 0 | $ 429,476 | $ (502,527) | $ (72,967) |
| Net income | 0 | 0 | 0 | (23,690) | (23,690) |
| Stock-based compensation | $ 0 | $ 0 | 311 | 0 | 311 |
| Balance (in shares) at Mar. 31, 2021 | 8,421,910 | 0 | |||
| Balance at Mar. 31, 2021 | $ 84 | $ 0 | 429,787 | (526,217) | (96,346) |
| Balance (in shares) at Dec. 31, 2021 | 8,421,910 | 0 | |||
| Balance at Dec. 31, 2021 | $ 84 | $ 0 | 430,422 | (547,094) | (116,588) |
| Net income | $ 0 | $ 0 | 0 | 38,151 | 38,151 |
| Issuance of Preferred Stock (in shares) | 0 | 685,505 | |||
| Issuance of Preferred Stock | $ 0 | $ 7 | 137,094 | 0 | 137,101 |
| Accretion of Preferred Stock | 0 | 0 | 1,983 | 0 | 1,983 |
| Stock-based compensation | $ 0 | $ 0 | 187 | 0 | 187 |
| Balance (in shares) at Mar. 31, 2022 | 8,421,910 | 685,505 | |||
| Balance at Mar. 31, 2022 | $ 84 | $ 7 | $ 569,686 | $ (508,943) | $ 60,834 |
Note 1 - Basis of Presentation |
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| Basis of Presentation and Significant Accounting Policies [Text Block] |
1. Basis of Presentation
The accounting policies we follow as of January 1, 2022 are set forth in the notes to our audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The accompanying interim condensed consolidated financial statements have not been audited by our independent registered public accountants. In the opinion of management, these statements 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 for the three month period ended March 31, 2022 and the statement of cash flows for the three months ended March 31, 2022, 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 10-K for the year ended December 31, 2021.
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-X, no 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 US 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, Option Plans and Warrants
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 option activity for the three months ended March 31, 2022, (in thousands):
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, 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 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:
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 stock-based compensation from the various forms of compensation utilized by the Company (in thousands) as of the dates indicated.
As of March 31, 2022, all expense related to stock based compensation has been amortized.
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 and 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. No 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, 2022, the net capitalized costs of oil and gas properties did not exceed the cost ceiling of our estimated proved reserves.
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 no 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, 2022 and the year ended December 31, 2021 (in thousands):
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Note 2 - Revenue From Contracts With Customers |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Text Block] |
2. Revenue from Contracts with Customers
Revenue Recognition
Sales of oil, gas and natural gas liquids (“NGL”) are recognized at the point in time when control of the product is transferred to the customer and collectability is reasonably assured. Our contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, physical location, quality of the oil or gas, and prevailing supply and demand conditions. As a result, the price of the oil, gas and NGL fluctuates to remain competitive with other available oil, gas and NGL supplies in the market. We believe that the pricing provisions of our oil, gas and NGL contracts are customary in the industry.
Oil sales
Our oil sales contracts are generally structured such that we sell our oil production to a purchaser at a contractually specified delivery point at or near the wellhead. The crude oil production is priced on the delivery date based upon prevailing index prices less certain deductions related to oil quality, physical location and transportation costs incurred by the purchaser subsequent to delivery. We recognize revenue when control transfers to the purchaser upon delivery at or near the wellhead at the net price received from the purchaser.
Gas and NGL Sales
Under our gas processing contracts, we deliver wet gas to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity processes the natural gas and remits proceeds to us based upon either (i) the resulting sales price of NGL and residue gas received by the midstream processing entity from third party customers, or (ii) the prevailing index prices for NGL and residue gas in the month of delivery to the midstream processing entity. Gathering, processing, transportation and other expenses incurred by the midstream processing entity are typically deducted from the proceeds that we receive.
In these scenarios, we evaluate whether the midstream processing entity is the principal or the agent in the transaction. In our gas purchase contracts, we have concluded that the midstream processing entity is the agent, and thus, the midstream processing entity is our customer. Accordingly, we recognize revenue upon delivery to the midstream processing entity based on the net amount of the proceeds received from the midstream processing entity.
Disaggregation of Revenue
We have been focused on the development of oil and natural gas properties primarily located in the following two operating regions in the United States: (i) the Permian/Delaware Basin, and (ii) Rocky Mountain. All of our Rocky Mountain properties sold on January 3, 2022. Revenue attributable to each of those regions is disaggregated in the tables below.
Significant Judgments
Principal versus agent
We engage in various types of transactions in which midstream entities process our gas and subsequently market resulting NGL and residue gas to third-party customers on our behalf, such as our percentage-of-proceeds and gas purchase contracts. These types of transactions require judgment to determine whether we are the principal or the agent in the contract and, as a result, whether revenues are recorded gross or net.
Transaction price allocated to remaining performance obligations
A significant number of our product sales are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC Topic 606-10-50-14 exempting us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC Topic 606-10-50-14(a) which states we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Contract balances
Under our product sales contracts, we are entitled to payment from purchasers once our performance obligations have been satisfied upon delivery of the product, at which point payment is unconditional. We record invoiced amounts as “Accounts receivable - Oil and gas production sales” in the accompanying condensed consolidated balance sheet.
To the extent actual volumes and prices of oil and natural gas are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and also recorded as “Accounts receivable - Oil and gas production sales” in the accompanying condensed consolidated balance sheets. In this scenario, payment is also unconditional, as we have satisfied our performance obligations through delivery of the relevant product. As a result, we have concluded that our product sales do not give rise to contract assets or liabilities under ASU 2014-09. At March 31, 2022 and December 31, 2021, our receivables from contracts with customers were $7.4 million and $12.3 million, respectively.
Prior-period performance obligations
We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain gas and NGL sales may not be received for 30 to 60 days after the date production is delivered, and as a result, we are required to estimate the amount of production that was delivered to the midstream purchaser and the price that will be received for the sale of the product. Additionally, to the extent actual volumes and prices of oil are unavailable for a given reporting period because of timing or information not received from third party purchasers, the expected sales volumes and prices for those barrels of oil are also estimated.
We record the differences between our estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Any identified differences between our revenue estimates and actual revenue received historically have not been significant. For the three months ended March 31, 2022 and 2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material. |
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Note 3 - Income Taxes |
3 Months Ended |
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Mar. 31, 2022 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
3. Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the tax rates and laws expected to be in effect when the differences are expected to reverse.
For the three months ended March 31, 2022, and 2021, there was no income tax benefit due to net operating loss carryforwards (“NOLs”) and we recorded a full valuation allowance against our net deferred tax asset.
At December 31, 2021, we had, subject to the limitation discussed below, $245.2 million of pre-2018 NOLs and $190.8 million of post 2017 NOL carryforwards for U.S. tax purposes. Our pre-2018 NOLs will expire in varying amounts from through if not utilized. Any NOLs arising in 2018, 2019, 2020, and 2021 can generally be carried back five years, carried forward indefinitely and can offset 100% of taxable income for tax years 2020 and up to 80% of future taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021 can generally be carried forward indefinitely and can offset up to 80% of future taxable income. The use of our NOLs will be limited if there is an “ownership change” in our common stock, generally a cumulative ownership change exceeding 50% during a three year period, as determined under Section 382 of the Internal Revenue Code. As of March 31, 2022, we have not had an ownership change in our common stock as defined by Section 382.
Given historical losses, uncertainties exist as to the future utilization of the NOL carryforwards. Therefore, we established a valuation allowance of $117.3 million for deferred tax assets at December 31, 2021.
As of March 31, 2022, we did have any accrued interest or penalties related to uncertain tax positions. The tax years through 2021 remain open to examination by the tax jurisdictions to which we are subject.
The Coronavirus Aid, Relief, and Economic Security Act that was enacted March 27, 2020 includes income tax provisions that allow NOLs to be carried back, allow interest expense to be deducted up to a higher percentage of adjusted taxable income, and modify tax depreciation of qualified improvement property, among other provisions. These provisions have no material impact on the Company.
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Note 4 - Long-term Debt |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt [Text Block] |
4. Long-Term Debt
The following is a description of our debt as of March 31, 2022 and December 31, 2021 (in thousands):
Restructuring
Pursuant to the Exchange Agreement, dated as of January 3, 2022, between Abraxas and AG Energy Funding, LLC (“AGEF”) and certain other agreements entered into by Abraxas on January 3, 2022, we effectuated a restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) an Asset Purchase and Sale Agreement pursuant to which Abraxas sold to Lime Rock Resources V-A, L.P. certain oil, gas, and mineral properties in the Williston Basin region of North Dakota and other related assets belonging to the Company and its subsidiaries for $87,200,000 in cash ($70.3 million after customary closing adjustments) (the “Sale”), (ii) the pay down of the indebtedness and other obligations of Abraxas and its subsidiaries under the First Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Société Générale, as “Issuing Lender” and administrative agent and certain specified secured hedges from the proceeds of the Sale and, to the extent necessary, other cash of Abraxas, and (iii), a debt for equity exchange of the indebtedness and other obligations of Abraxas and its subsidiaries under the Second Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Angelo Gordon Energy Servicer, LLC, as administrative agent and all related loan and security documents (the “Exchange” and, together with the transactions referred to in clauses (i) and (ii), the “Restructuring”).
AGEF was issued 685,505 shares of Series A Preferred Stock of the Company in the Exchange. The Series A Preferred Stock has the terms set forth in the Company’s filed Preferred Stock Certificate of Designation (the “Certificate). Pursuant to the Certificate, any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Series A Preferred Stock and the Company’s common stock as follows: (1) first, 100% to the Series A Preferred Stock until the Series A Preferred Stock has received $100 million of proceeds in the aggregate (the “Tier One Preference Amount”), (2) second, 95% to the Series A Preferred Stock and 5% to the Company’s common stock until the Series A Preferred Stock has received $137.1 million, plus a 6.0% annual rate of return thereon from the date of issuance; (3) thereafter, 75% to the Series A Preferred Stock and 25% to the Company’s common stock. The Exchange Agreement entered into in connection with the Restructuring also provides for the potential funding by AGEF of an additional amount up to $12.0 million, if agreed to by AGEF and the disinterested members of the Company’s Board of Directors. Any such additional amount funded would result in an increase to the Tier One Preference Amount equal to 1.5 x the amount of such additional funding. The shares of Series A Preferred Stock vote together as a single class with the Company’s common stock, and each share of Series A Preferred Stock entitles the holder thereof to 69 votes. Accordingly, AGEF’s ownership of the Series A Preferred Stock entitle it to approximately 85% of the voting power of the Company’s current outstanding capital stock.
Real Estate Lien Note
We have a real estate lien note secured by a first lien deed of trust on the property and improvements which serves as our corporate headquarters. The outstanding principal accrues interest at a fixed rate of 4.9%. The note is payable in monthly installments of principal and accrued interest in the amount of $35,672. The maturity date of the note is July 20, 2023. As of March 31, 2022 and December 31, 2021, $2.4 million and $2.5 million, respectively, were outstanding on the note.
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Note 5 - Earnings Per Share |
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| Earnings Per Share [Text Block] |
5. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Basic earnings per share, excluding any dilutive effects of stock options and unvested restricted stock, is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed similar to basic; however diluted income per share reflects the assumed conversion of all potentially dilutive securities. For the three and nine month periods ended March 31, 2022 there were no dilutive potential shares relating to stock options and restricted stock due to our depressed stock price.
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Note 6 - Hedging Program and Derivatives |
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
6. Hedging Program and Derivatives
As of March 31, 2022, the Company is not party to any hedge agreements. The liability as of December 31, 2021 relates to the settlement of the December 2021 contract.:
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Note 7 - Financial Instruments |
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| Fair Value Disclosures [Text Block] |
7. Financial Instruments
The Company did not have any active financial instruments as of March 31, 2022. The Level 2 financial instruments as of December 31, 2021 relates to the settlement of the December 31, 2021 contract.
Nonrecurring Fair Value Measurements
Non-financial assets and liabilities measured at fair value on a nonrecurring basis included certain non-financial assets and liabilities as may be acquired in a business combination and thereby measured at fair value and the initial recognition of asset retirement obligations for which fair value is used. Unproved oil and gas properties are assessed periodically, at least annually, to determine whether impairment has occurred. The assessment considers the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, the economic viability of development if proved reserves were assigned and other current market conditions. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.
The asset retirement obligation estimates are derived from historical costs as well as management’s expectation of future cost environments. As there is no corroborating market activity to support the assumptions used, the Company has designated these liabilities as Level 3. A reconciliation of the beginning and ending balances of the Company’s asset retirement obligation is presented in Note 1.
Other Financial Instruments
The carrying amounts of our cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities. The carrying value of our debt approximates fair value as the interest rates are market rates and this debt is considered Level 2. |
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Note 8 - Leases |
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| Lessee, Operating Leases [Text Block] |
8. Leases
Nature of Leases
We lease certain field equipment and other equipment under cancelable and non-cancelable leases to support our operations. A more detailed description of our significant lease types is included below.
Field Equipment
We rent various field equipment from third parties in order to facilitate the downstream movement of our production from our drilling operations to market. Our compressor and cooler arrangements are typically structured with a non-cancelable primary term of one year and continue thereafter on a month-to-month basis subject to termination by either party with thirty days’ notice. These leases are considered short term and are not capitalized. We have a small number of compressor leases that are longer than twelve months. We have concluded that our equipment rental agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term. We enter into daywork contracts for drilling rigs with third parties to support our drilling activities. Our drilling rig arrangements are typically structured with a term that is in effect until drilling operations are completed on a contractually specified well or well pad. Upon mutual agreement with the contractor, we typically have the option to extend the contract term for additional wells or well pads by providing thirty days’ notice prior to the end of the original contract term. We have concluded that our drilling rig arrangements represent short-term operating leases. The accounting guidance requires us to make an assessment at contract commencement if we are reasonably certain that we will exercise the option to extend the term. Due to the continuously evolving nature of our drilling schedules and the potential volatility in commodity prices in an annual period, our strategy to enter into shorter term drilling rig arrangements allows us the flexibility to respond to changes in our operating and economic environment. We exercise our discretion in choosing to extend or not extend contracts on a rig by rig basis depending on the conditions present at the time the contract expires. At the time of contract commencement, we have determined we cannot conclude with reasonable certainty if we will choose to extend the contract beyond its original term. Pursuant to the full cost method, these costs are capitalized as part of natural gas and oil properties on our balance sheet when paid.
Discount Rate
Our leases typically do not provide an implicit rate. Accordingly, we are required to use our incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We use the implicit rate in the limited circumstances in which that rate is readily determinable.
Practical Expedients and Accounting Policy Elections
Certain of our lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, we have utilized the practical expedient that exempts us from separating lease components from non-lease components. Accordingly, we account for the lease and non-lease components in an arrangement as a single lease component. In addition, for all of our existing asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases (that is, a lease that, at commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that we are reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in our statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the period in which the obligation for those payments is incurred. None of our current leases contain variable payments. Refer to “ Nature of Leases” above for further information regarding those asset classes that include material short-term leases.
The components of our total lease expense for the three months ended March 31, 2022, the majority of which is included in lease operating expense, are as follows:
Supplemental balance sheet information related to our operating leases is included in the table below:
Our weighted average remaining lease term and weighted average discount rate for our operating leases are as follows:
Our lease liabilities with enforceable contract terms that are greater than one year mature as follows:
At March 31, 2022, we had only a lease on office equipment, with minimum lease payments with commitments that had initial or remaining lease terms in excess of one year.
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Note 9 - Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Text Block] |
9. Commitments and Contingencies
From time to time, we are involved in litigation relating to claims arising out of our operations in the normal course of business. At March 31, 2022, we were not involved in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our financial position or results of operations. |
Note 10 - Disposition of Assets and Restructuring |
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Mar. 31, 2022 | |
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| Restructuring, Impairment, and Other Activities Disclosure [Text Block] |
10. Disposition of Assets and Restructuring
On January 3, 2022, the Company and Lime Rock Resources V-A, L.P., a Delaware limited partnership (“Lime Rock”), entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell to Lime Rock certain oil, gas, and mineral properties in the Williston Basin region of North Dakota (the “Properties”) and other related assets (together with the Properties, the “Assets”) belonging to the Company and its subsidiaries for $87,200,000 in cash, subject to customary purchase price adjustments (the “Purchase Price”; such sale, the “Sale”). As described in and subject to the limitations set forth in the Purchase Agreement, the Assets include, among other things, the oil and gas leases described in the Purchase Agreement; the leasehold, mineral, and royalty interests in, and the production and development rights to, the Properties; all contracts, agreements, and instruments by which the Properties are bound; and all rights and interests in the drilling, spacing, or pooled units designated in the Purchase Agreement. The Purchase Agreement includes customary terms and conditions for agreements of this nature. The Purchase Agreement also contains indemnification obligations of both the Company and Lime Rock with respect to customary matters, including breaches of representations, warranties, and covenants. The closing of the transactions contemplated by the Purchase Agreement occurred concurrently with execution of the agreement on January 3, 2022.
As discussed in Note 4 above, on January 3, 2022, the Company effectuated the Restructuring of our then-existing indebtedness through a multi-part interdependent de levering transaction consisting of: (i) the Purchase Agreement and the Sale, (ii) the pay down of the indebtedness and other obligations of Abraxas and its subsidiaries under the First Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Société Générale, as “Issuing Lender” and administrative agent and certain specified secured hedges from the proceeds of the Sale and, to the extent necessary, other cash of Abraxas; and (iii), a debt for equity exchange of the indebtedness and other obligations of Abraxas and its subsidiaries under the Second Lien Credit Facility, by and among Abraxas, the financial institutions party thereto as lenders, and Angelo Gordon Energy Servicer, LLC, as administrative agent and all related loan and security documents.
AGEF was issued 685,505 shares of Series A Preferred Stock of the Company in the Exchange. The Series A Preferred Stock has the terms set forth in the Company’s filed Preferred Stock Certificate of Designation (the “Certificate). Pursuant to the Certificate, any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Series A Preferred Stock and the Company’s common stock as follows: (1) first, 100% to the Series A Preferred Stock until the Series A Preferred Stock has received $100 million of proceeds in the aggregate (the “Tier One Preference Amount”), (2) second, 95% to the Series A Preferred Stock and 5% to the Company’s common stock until the Series A Preferred Stock has received $137.1 million, plus a 6.0% annual rate of return thereon from the date of issuance; (3) thereafter, 75% to the Series A Preferred Stock and 25% to the Company’s common stock. The Exchange Agreement entered into in connection with the Restructuring also provides for the potential funding by AGEF of an additional amount up to $12.0 million, if agreed to by AGEF and the disinterested members of the Company’s Board of Directors. Any such additional amount funded would result in an increase to the Tier One Preference Amount equal to 1.5 x the amount of such additional funding. The shares of Series A Preferred Stock vote together as a single class with the Company’s common stock, and each share of Series A Preferred Stock entitles the holder thereof to 69 votes. Accordingly, AGEF’s ownership of the Series A Preferred Stock entitle it to approximately 85% of the voting power of the Company’s current outstanding capital stock.
Exchange Agreement
On January 3, 2022, the Company and AG Energy Funding, LLC, a Delaware limited liability company (“AGEF”) and an affiliate of the Second Lien Agent, entered into an Exchange Agreement (the “Exchange Agreement”) pursuant to which, and effective immediately upon the consummation of the transactions contemplated by the Purchase Agreement and the First Lien Release Agreement, AGEF transferred to the Company all of AGEF’s claims outstanding under the Second Lien Debt Agreement (the “Claims”) in exchange for the Company’s issuance to AGEF of 685,505 shares of the Company’s preferred stock, par value $0.01 per share, designated as “Series A Preferred Stock” (the “Preferred Stock”), having the terms set forth in the Preferred Stock Certificate of Designation (the “Certificate”; such exchange between the Company and AGEF, the “Exchange”). Effective upon the Exchange, all of the Claims in favor of AGEF were automatically deemed paid and satisfied in full, discharged, terminated, released, and cancelled for all purposes under the Second Lien Debt Agreement.
Any proceeds distributed to the Company’s stockholders or otherwise received in respect of the capital stock of the Company in a merger or other liquidity event will be allocated among the Preferred Stock and the Company’s common stock as follows: (1) first, 100% to the Preferred Stock until the Preferred Stock has received $100 million of proceeds in the aggregate (the “Tier One Preference Amount”), (2) second, 95% to the Preferred Stock and 5% to the Company’s common stock until the Preferred Stock has received $137.1 million (which is equal to the amount of the aggregate Claims outstanding under the Second Lien Debt Agreement) plus a 6.0% annual rate of return thereon from the date hereof; (3) thereafter, 75% to the Preferred Stock and 25% to the Company’s common stock. The Exchange Agreement also provides for the potential funding by AGEF of an additional amount up to $12.0 million, which may be funded following closing if agreed to by AGEF and the disinterested members of the Company’s Board of Directors. Any such additional amount funded will result in an increase to the Tier One Preference Amount equal to 1.5 x the amount of such additional funding. The shares of Preferred Stock will vote together as a single class with the Company’s common stock, and each share of Preferred Stock will entitle the holder thereof to 69 votes. Accordingly, AGEF’s ownership of the Preferred Stock will entitle it to approximately 85% of the voting power of the Company’s outstanding capital stock.
In connection with the consummation of the Exchange Agreement, on January 3, 2022, the Second Lien Parties entered into an Amendment No. 2 to Forbearance Agreement (the “Second Lien Forbearance”) with respect to the Second Lien Debt Agreement. Under the Second Lien Forbearance, the parties thereto agreed to (i) extend the temporary forbearance period under the Forbearance Agreement until January 14, 2022, unless terminated earlier by a “Forbearance Termination Event” (as defined in the Second Lien Forbearance), and (ii) amend certain other terms of the Forbearance Agreement. Subject to the terms and conditions set forth in the Second Lien Forbearance, the Second Lien Agent and the Second Lien Lenders agreed to release their liens and security interests on the Assets being sold by the Company to Lime Rock under the Purchase Agreement.
The foregoing description of the Exchange Agreement, the Certificate and the Second Lien Forbearance is a summary only, does not purport to be complete, and is qualified in its entirety by reference to the complete text of the Exchange Agreement, the Certificate, and the Second Lien Forbearance, which are filed as Exhibits 10.3, 3.1 and 4.1, and 10.4, on Form 8-K filed on January 3, 2022, and are incorporated by reference herein.
In connection with the proposed Sale of the Assets to Lime Rock, as contemplated by the Purchase Agreement, and the proposed Exchange of AGEF’s claims outstanding under the Second Lien Debt Agreement for the Preferred Stock, as contemplated by the Exchange Agreement, the Board of Directors of the Company (the “Board”) requested that Petrie Partners Securities, LLC (“Petrie”) render opinions as to whether the Purchase Price and the Exchange are fair, from a financial point of view, to the Company. Petrie represented the Company in the broadly marketed sale of the Assets and is currently acting as financial advisor to the Board and to the Special Committee of the Board in connection with the proposed Exchange. On January 2, 2022, Petrie delivered opinions to the Board, dated January 3, 2022 (the “Fairness Opinions”), stating that the Purchase Price and the Exchange are fair, from a financial point of view, to the Company.
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Significant Accounting Policies (Policies) |
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| Basis of Accounting, Policy [Policy Text Block] | The accounting policies we follow as of January 1, 2022 are set forth in the notes to our audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The accompanying interim condensed consolidated financial statements have not been audited by our independent registered public accountants. In the opinion of management, these statements 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 for the three month period ended March 31, 2022 and the statement of cash flows for the three months ended March 31, 2022, 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 10-K for the year ended December 31, 2021.
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| Consolidation, Policy [Policy Text Block] | 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”).
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| Rig Accounting [Policy Text Block] | Rig Accounting
In accordance with SEC Regulation S-X, no 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.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates
The preparation of financial statements in conformity with US 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.
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| Share-Based Payment Arrangement [Policy Text Block] | Stock-Based Compensation, Option Plans and Warrants
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 option activity for the three months ended March 31, 2022, (in thousands):
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, 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 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:
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 stock-based compensation from the various forms of compensation utilized by the Company (in thousands) as of the dates indicated.
As of March 31, 2022, all expense related to stock based compensation has been amortized. |
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| Oil and Gas Properties Policy [Policy Text Block] | 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 and 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. No 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, 2022, the net capitalized costs of oil and gas properties did not exceed the cost ceiling of our estimated proved reserves.
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| Asset Retirement Obligation and Environmental Cost [Policy Text Block] | 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 no 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, 2022 and the year ended December 31, 2021 (in thousands):
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Note 1 - Basis of Presentation (Tables) |
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| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Nonvested Restricted Stock Shares Activity [Table Text Block] |
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| Schedule of Nonvested Performance-Based Units Activity [Table Text Block] |
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| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] |
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| Schedule of Change in Asset Retirement Obligation [Table Text Block] |
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Note 2 - Revenue From Contracts With Customers (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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Note 4 - Long-term Debt (Tables) |
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| Schedule of Long-Term Debt Instruments [Table Text Block] |
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Note 5 - Earnings Per Share (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 6 - Hedging Program and Derivatives (Tables) |
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| Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block] |
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Note 7 - Financial Instruments (Tables) |
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| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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Note 8 - Leases (Tables) |
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| Lease, Cost [Table Text Block] |
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| Schedule of Operating Leased Assets [Table Text Block] |
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| Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Note 1 - Basis of Presentation - Restricted Stock Activity (Details) - Restricted Stock [Member] shares in Thousands |
3 Months Ended |
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Mar. 31, 2021
$ / shares
shares
| |
| Unvested (in shares) | shares | 14 |
| Unvested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 27.97 |
| Vested/Released (in shares) | shares | (14) |
| Vested/Released, weighted average grant date fair value (in dollars per share) | $ / shares | $ 27.97 |
| Unvested (in shares) | shares | 0 |
| Unvested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 0 |
Note 1 - Basis of Presentation - Performance Based Restricted Stock Activity (Details) - Performance Shares [Member] shares in Thousands |
3 Months Ended |
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Mar. 31, 2022
$ / shares
shares
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| Unvested (in shares) | shares | 28 |
| Unvested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 26.80 |
| Expired (in shares) | shares | 0 |
| Expired, weighted average option exercise price per share (in dollars per share) | $ / shares | $ 0 |
| Unvested (in shares) | shares | 28 |
| Unvested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 26.80 |
Note 1 - Basis of Presentation - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
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| Stock-based compensation expense | $ 187 | $ 311 |
| Share-Based Payment Arrangement, Option [Member] | ||
| Stock-based compensation expense | 0 | (22) |
| Restricted Stock [Member] | ||
| Stock-based compensation expense | 108 | 199 |
| Performance Shares [Member] | ||
| Stock-based compensation expense | $ 79 | $ 134 |
Note 1 - Basis of Presentation - Future Site Restoration Obligation (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
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| Beginning future site restoration obligation | $ 4,708 | $ 7,360 |
| New wells placed on production and other | 0 | 1 |
| Deletions related to property sales | (1,725) | (2,845) |
| Deletions related to plugging costs | (342) | |
| Accretion expense | 42 | 330 |
| Revisions and other | 0 | 204 |
| Ending future site restoration obligation | $ 3,025 | $ 4,708 |
Note 2 - Revenue From Contracts With Customers (Details Textual) - USD ($) $ in Millions |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Contract with Customer, Asset, after Allowance for Credit Loss, Total | $ 7.4 | $ 12.3 |
Note 2 - Revenue From Contracts With Customers - Disaggregation of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
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| Oil Revenues [Member] | ||
| Revenue | $ 10,291 | $ 13,925 |
| Gas Revenues [Member] | ||
| Revenue | 1,131 | 1,670 |
| Natural Gas Liquids Revenues [Member] | ||
| Revenue | 758 | 1,069 |
| Permian / Delaware Basin [Member] | Oil Revenues [Member] | ||
| Revenue | 10,291 | 7,166 |
| Permian / Delaware Basin [Member] | Gas Revenues [Member] | ||
| Revenue | 1,131 | 1,114 |
| Permian / Delaware Basin [Member] | Natural Gas Liquids Revenues [Member] | ||
| Revenue | 758 | 269 |
| Rocky Mountain [Member] | Oil Revenues [Member] | ||
| Revenue | 0 | 6,759 |
| Rocky Mountain [Member] | Gas Revenues [Member] | ||
| Revenue | 0 | 556 |
| Rocky Mountain [Member] | Natural Gas Liquids Revenues [Member] | ||
| Revenue | $ 0 | $ 800 |
Note 3 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
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| Income Tax Expense (Benefit), Total | $ 0 | $ 0 | |
| Deferred Tax Assets, Valuation Allowance | $ 117,300 | ||
| Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued, Total | $ 0 | ||
| Open Tax Year | 2014 2015 2016 2017 2018 2019 2020 2021 | ||
| Pre 2018 [Member] | Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | |||
| Operating Loss Carryforwards | 245,200 | ||
| Post 2017 [Member] | Domestic Tax Authority [Member] | Internal Revenue Service (IRS) [Member] | |||
| Operating Loss Carryforwards | $ 190,800 | ||
| Earliest Tax Year [Member] | |||
| Operating Loss Carryforwards, Expiration Date | Dec. 31, 2022 | ||
| Latest Tax Year [Member] | |||
| Operating Loss Carryforwards, Expiration Date | Dec. 31, 2037 | ||
Note 4 - Long-term Debt - Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Long-term debt | $ 2,439 | $ 218,822 |
| Less current maturities | (314) | (212,688) |
| Long-term Debt, Noncurrent, Gross | 2,125 | 6,134 |
| Deferred financing fees and debt issuance cost, net | 0 | (3,929) |
| Total long-term debt, net of deferred financing fees and debt issuance costs | 2,125 | 2,205 |
| Line of Credit [Member] | First Lien Credit Facility [Member] | ||
| Long-term debt | 0 | 71,400 |
| Line of Credit [Member] | Second Lien Credit Facility [Member] | ||
| Long-term debt | 0 | 134,907 |
| Exit fee - Second Lien Credit Facility | 0 | 10,000 |
| Mortgages [Member] | ||
| Long-term debt | $ 2,439 | $ 2,515 |
Note 5 - Earnings Per Share (Details Textual) - shares shares in Thousands |
3 Months Ended | 9 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 0 | 0 |
Note 5 - Earnings Per Share - Computation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Net income (loss) | $ 38,151 | $ (23,690) |
| Basic (in shares) | 8,422 | 8,382 |
| Stock options, restricted shares and warrants (in shares) | 0 | 0 |
| Denominator for diluted earnings per share – adjusted weighted-average shares and assumed exercise of options and restricted shares (in shares) | 8,422 | 8,382 |
| Net income (loss) per common share - basic (in dollars per share) | $ 4.53 | $ (2.83) |
| Net income (loss) per common share - diluted (in dollars per share) | $ 4.53 | $ (2.83) |
Note 6 - Hedging Program and Derivatives - Impact of Derivative Contracts on Balance Sheet (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Derivative liability, current | $ 0 | $ 442 |
| Derivative asset | 0 | |
| Derivative liability | 442 | |
| Commodity Contract [Member] | Derivative Assets Current [Member] | ||
| Derivative asset, current | 0 | |
| Commodity Contract [Member] | Derivative Liabilities Current [Member] | ||
| Derivative liability, current | 442 | |
| Commodity Contract [Member] | Derivative Assets Noncurrent [Member] | ||
| Derivative asset, long-term | 0 | |
| Commodity Contract [Member] | Derivative Liabilities Noncurrent [Member] | ||
| Derivative liability, long-term | $ 0 |
Note 8 - Leases- Total Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
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| Operating lease cost | $ 6 | $ 26 | ||||
| Short-term lease expense | [1] | 220 | 500 | |||
| Total lease expense | $ 226 | 526 | ||||
| Weighted Average Remaining Lease Term (Year) | 9 months 18 days | |||||
| Weighted Average Discount Rate | 6.00% | |||||
| Drilling Rig [Member] | ||||||
| Short-term lease expense | [2] | $ 0 | $ 0 | |||
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Note 8 - Leases - Balance Sheet Information (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Operating lease ROU assets | $ 6 | $ 173 |
| Operating lease liability - current | 6 | 40 |
| Operating lease liabilities - long-term | $ 0 | $ 110 |
Note 8 - Leases - Lease Liabilities Maturity (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| Remainder of 2022 | $ 6 |
| 2023 | 0 |
| 2024 | 0 |
| 2025 | 0 |
| 2026 | 0 |
| Thereafter | 0 |
| Total lease payments | 6 |
| Less imputed interest | 0 |
| Total lease liability | $ 6 |