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Abraxas Petroleum Corporation

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Msg  10570 of 10670  at  10/22/2019 11:27:20 AM  by

richardclovis


Abraxas Petroleum: Speculative Potential Despite Challenges At Low $50s Oil

 
Summary

Abraxas's non-core asset sales should modestly reduce its debt without much impact on its EBITDAX.

It is also likely to generate positive cash flow in 2H 2019 and in 2020.

However, it is running out of Bakken inventory, and its Delaware Basin inventory offers mediocre returns at low-$50s oil.

Despite those issues, at $0.32 per share, Abraxas may be worth a speculative look.

Acquisition Interest

Reports indicate that Whiting Petroleum (NYSE:WLL) may be interested in acquiring Abraxas in an all-stock deal. This could provide a moderate amount of upside for Abraxas (from current levels). Upstream deals have typically involved a fairly modest premium (such as 20% to 25%) to the current share price. In this particular case, a value of $0.40 per share would represent a 25% premium to Abraxas's current share price. This would require Whiting to issue around 10 million shares, which would add around 11% to its share count.

Upstream companies (such as Callon (NYSE:CPE)) have sometimes seen their stock drop significantly after an acquisition, although, in this case, the effect on Whiting's stock price is unlikely to be as dramatically negative due to the much smaller level of dilution.

That being said, I'm not sure how much sense such a deal (described as a purchase of the whole company in an all-stock deal) would make for either party. Abraxas would be selling itself while its stock is at all-time lows, which would only make sense if it expected its credit facility (maturing in May 2021 and mostly utilized) to cause major difficulties in the future. Whiting also has a series of debt maturities coming up that it will need to deal with.

From Whiting's perspective, acquiring Abraxas would only result in very modest deleveraging due to Abraxas's significant credit facility debt. It would also only gain a handful of proved undeveloped locations (with another 20 probable undeveloped locations in the Three Forks 2nd Bench). As well, it would probably then want to sell the Delaware Basin assets it acquired, rather than try to operate in a new area.

Conclusion

Abraxas Petroleum has managed to modestly reduce its debt with its asset sales and should be able to generate positive cash flow in the second half of 2019 and in 2020. However, it also faces challenges in that it is running quite low on Bakken inventory, while its Delaware Basin position offers mediocre economics at low-$50s WTI oil.

It is looking at various strategic opportunities and reportedly has seen interest from Whiting Petroleum (although as mentioned above, I have questions about how much sense such a deal would make). Despite its challenges, Abraxas may be worth a speculative look at $0.32 per share given the potential for various catalysts (sale of the whole company or the Bakken asset, an improvement in oil prices) to boost the stock. With its enterprise value at under 3.0x projected 2020 EBITDAX now, Abraxas also seems to be trading at less than what it could probably liquidate itself for.

 


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