Abraxas Petroleum Corp. (NASDAQ:AXAS) provided a divestiture update and addressed the company’s 2016 and 2017 guidance and capital budget.
Abraxas recently signed a definitive agreement to divest its Brooks Draw assets in the Powder River Basin assets for approximately $11.3 million subject to closing conditions and purchase price adjustments. The assets sold consist of approximately 14,229 net acres and produced approximately 28 barrels of oil per day on average for the quarter ended September 30, 2016. Closing is scheduled for December 15, 2016. Proceeds will be used to reduce borrowings on the company’s credit facility. Abraxas continues to market its remaining assets in the Powder River Basin.
In the Permian Basin, Abraxas now expects to close the previously announced sale of Hudgins Ranch (Pecos County, Texas) in December, 2016.
Abraxas’ Borrowing Base was recently redetermined to $115 million. This Borrowing Base is fully conforming and represents a $5 million reduction from the company’s previously fully conforming Borrowing Base of $120 million, and compensates for all announced asset sales to date. Abraxas exited the quarter ended September 30, 2016 $90 million drawn on this line of credit. As mentioned above, asset sale proceeds from the anticipated Hudgins Ranch and Brooks Draw sales will be used to further reduce borrowings on this line.
Abraxas plans to restart its Bakken rig in December, 2016. The rig will begin drilling a four well pad on the Stenehjem 6H-9H and will continually drill through 2017. Despite the resumption of Bakken drilling, Abraxas is lowering the company’s 2016 capital budget from $40 million to $35 million largely due to service cost savings. The midpoint of 2016 production guidance remains unchanged at 6,200 boepd. Abraxas is also lowering lease operating expense guidance by $0.75/boe following the divestiture of several higher cost properties and solid cost control over the course of 2016.
For 2017, Abraxas anticipates drilling expenditures to approximate cash flow. The current capital expenditure budget plans for drilling and completing eight gross, five net wells in the Bakken. Also in the Bakken, Abraxas anticipates drilling an additional three gross, two net wells that will be completed in 2018. At Jourdanton, Abraxas anticipates drilling two gross, net wells targeting the Austin Chalk. In the Permian, Abraxas anticipates drilling two gross, net wells targeting the Wolfcamp. Abraxas forecasts this will lead to 7,200 boepd or approximately 16% growth at the midpoint of guidance. Importantly, Abraxas expects a material decrease in LOE due to the divestiture of several higher cost properties and continued cost control. As evidence of this anticipated improvement, LOE expenses averaged $5.49/boe for the month of September, 2016. The 2017 capital expenditure budget is subject to change depending upon a number of factors.