In a Jan. 29 research note, Stifel analyst Michael Scialla reported the news in Abraxas Petroleum Corp.'s (AXAS:NASDAQ) release the prior day, which included Q4/18 production and capex numbers and guidance for 2019 production and capex, was "neutral."
Scialla categorized the news items as positive or negative. One positive is Abraxas having engaged the investment bank Petrie Partners to monetize its Williston Basin assets.
Management made this move on the belief the market is undervaluing those holdings, and the company might be able to realize their true worth through a cash sale or securitization of them. "Assuming a price of $35,000 per thousand barrels of oil equivalent per day (Mboe/d), a transaction could fetch about $200 million, equivalent to the company's current market cap," Scialla highlighted.
Also positive is Abraxas' capital budget for 2019 of $95 million because it is 12% less than Stifel and the Street's forecasts.
In terms of the negatives, they include Abraxas' 2018 capex of $171 million, which exceeded guidance of $140 million by $31 million, Scialla indicated. It also surpassed Stifel's $140 million projection by 22% and consensus' estimated $151 million by 17%. "The missed estimates and guidance were due to higher-than-expected working interest in Delaware Basin wells and an Eagle Ford sale that did not sell," Scialla explained.
The company's Q4/18 productionof 10.5 Mboe/d came in 9% below the Street's forecast but 2% above Stifel's estimate. Volumes increased 4% since Q3/18 and 19% since Q4/17. Scialla noted "the company's Q4/18 sales were adversely affected by shut-ins for frac protection, gas flaring and voluntary production curtailment due to a high December basis differential in the Williston Basin."
A final negative is that Abraxas' production guidance for 2019, of 10.5–11.5 Mboe/d, is 9% less than Stifel's forecast and 4% below consensus' projection. The midpoint does, however, reflect a 12.5% production increase.
Overall, Stifel forecasts a cash flow neutral year for the energy firm based on the midpoints of its capex and production guidance ranges.
Scialla briefly reviewed Abraxas' work plans for 2019. In the Delaware Basin it will finish drilling its Hackberry pad, currently underway, and then drill its Woodberry pad. In mid-February, it intends to complete its Creosote pad.
In the Williston Basin this year, Abraxas aims to complete four gross drilled but uncompleted wells. It also plans to drill and complete six gross wells.
Stifel has a Buy rating and a $3.80 per share target price on Abraxas, whose stock is now trading at around $1.12 per share.[NLINSERT]
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Disclosures from Stifel Nicolaus & Company, Abraxas Petroleum Corp., January 29, 2019
I, Michael S. Scialla, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Michael Scialla, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.
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