Abraxas CEO: Frustrations May Lead To Powder River Basin Divestment

The San Antonio-based company has no plans to drill the formation in 2014 and no capital allocated to the area.

By Darren Barbee, Hart Energy

Abraxas Petroleum Corp. (NASDAQ: AXAS) has been a frustrated buyer in the Powder River Basin (PRB) and may move to the seller’s side instead.

AXAS, which operates primarily in the Eagle Ford Shale and the Bakken, owns 21,733 net acres in the Turner Sandstone horizontal play, mostly in Converse and Campbell counties, Wyo.

With increased interest in the play following EOG Resources Inc.’s (NYSE: EOG) announcement May 6 to add the Turner Formation to its core portfolio, AXAS is considering divesting or swapping its Turner acreage to add to its core Bakken and Eagle Ford holdings, said Hsulin Peng, senior analyst for Baird Equity Research.

The San Antonio-based company has no plans to drill the formation in 2014 and no capital allocated to the area.

On a May 8 conference call, Robert L. G. Watson, chairman, CEO and president of AXAS, said the acreage is “probably a divestiture candidate for us” though the company has no immediate plan in place.

“We've been frustrated that we have not been able to increase our acreage position in this area,” Watson said. “We've tried. We've looked at numbers of deals, tried to do numbers of deals. People are pretty proud of the acreage and don't want to give it up. But that doesn't mean it's not valuable.”

Table of Abraxas' Powder River Basin assets

Watson said the acreage could be traded for an interest in another area that AXAS can have more growth in.

“We're very happy that we own it. We're very happy that EOG has now placed the Turner as one of their primary development zones in the whole company,” he said. “It doesn't surprise us because we've been monitoring their results offsetting us and they've been pretty impressive.”

EOG is targeting the Parkman and Turner formations. In 2013, EOG held about 30% of PRB permits and was one of the few names that showed increasing production said David Tameron, senior analyst for Wells Fargo Securities LLC.

In May, EOG said that north of the Denver-Julesburg (D-J) Basin in the PRB, it added the Parkman and Turner plays to its drilling portfolio. Active in this area for several years, EOG has transferred advanced completion technology from its other shale basins to improve well productivity in the plays. During 2014, EOG plans to drill 28 net wells in the Parkman and six net wells in the Turner.

Watson said AXAS’ geology is similar to EOG's and in close proximity to its activity. It makes more sense for AXAS to trade with another company with surrounding acreage because “it’s a great bolt-on for them.”

“And we can hopefully use that to increase our inventory in the Bakken or the Eagle Ford or both. But no active plans at this point,” he said.

AXAS has recently divested several assets that have given it financial flexibility, including the sale of nonoperated Bakken assets for $40 million in proceeds, and WyCross Eagle Ford assets for $73 million in proceeds that allowed the company to clean up its balance sheet and focus on its core areas, Peng said.