Despite the Delaware Basin’s status as the capital of A&D activity for much of 2016, Abraxas Petroleum Corp. (NASDAQ: AXAS) recently found itself tripped up by a fickle buyer.
Abraxas said Jan. 3 that the undisclosed buyer of a Delaware Basin property in Pecos County, Texas, walked away ‘in the eleventh hour.’ Similarly, bids for some Powder River Basin assets fell short, the company said in December.
Nevertheless, the small-cap E&P sees itself sprinting into 2017 after having agreed to $28.8 million in divestments last year, excluding the Delaware deal. Though scattered in multiple plays, Abraxas is focusing most of its firepower on the Williston Basin this year, and to a lesser extent the Delaware and Eagle Ford Shale.
Despite the botched deal, the San Antonio-based company’s marketed assets remain viable; its test wells in the Delaware are progressing; and it’s spudding wells in the Bakken. The company continues to market assets in other areas, none of which are expected to substantially impact its borrowing base.
The company’s strong well results in the Delaware, in particular, outweigh the pulled asset sale in the Permian among other developments in its portfolio, according to Mike Kelly, senior analyst with Seaport Global Securities LLC.
Abraxas expected the Delaware transaction to close in December.
However, it received a termination notice from the potential buyer of about 13,468 acres in western Pecos on its Hudgins Ranch property, the company said Jan. 3. The acreage neighbors Apache Corp.’s (NYSE: APA) Alpine High discovery.
“Although we are disappointed our Hudgins Ranch sale counterparty walked in the eleventh hour from his contractual obligations, there remains a high level of interest in the property,” Bob Watson, president and CEO of Abraxas, said in a statement.
In September, Abraxas said it had signed a contract to sell its 12,178 acre surface ranch and half of its minerals on the Hudgins Ranch property to an undisclosed buyer for $6.7 million. The company plans to retain the remaining mineral interests and executive rights over the property.
The company retained 50% of the survey fees associated with the terminated sale and said it’s currently in talks with several interested buyers.
In addition to the sale of the surface ranch and half of its current mineral ownership, the company is looking for a third party to lease the property and take over its existing production and related infrastructure.
In the Powder River Basin, Abraxas said Jan. 3 it closed the sale of its Brooks Draw assets for $11.1 million. The assets included roughly 14,229 net acres and produced about 28 barrels of oil per day on average in third-quarter 2016.
Watson said the company will continue to market its remaining Powder River Basin assets with anticipated proceeds used to further reduce debt in 2017.
As of December, bids for 2,088 net acres in Campbell and Converse counties, Wyo., and 1,895 net acres in other areas were not acceptable. Abraxas said it would wait to exit.
Average net production in Campbell and Converse was 150 boe/d (45% oil) in December, the company said.
Delaware Test/Bakken Ops
On the eastern side of the Delaware in Ward County, Texas, early results from Abraxas’ first test in the basin were ‘extremely compelling,’ Kelly said in a Jan. 4 report.
Abraxas’ Delaware test, the Caprito 99-101H well, posted a 30-day IP of 997 barrels of oil equivalent per day (boe/d), of which 81% is oil. This is 24% higher than the company’s roughly 500,000 boe EUR type curve, Kelly said.
Assuming Abraxas’ average Delaware well now has about a 24% larger EUR in Seaport’s model, the firm’s Delaware drillbit internal rate of returns would jump to more than 125% from roughly 68%, he said.
Abraxas completed the 4,963-foot effective lateral of the Caprito 99-101H with a 25-stage completion. The company owns 100% working interest in the well.
“This has encouraged us to start up our planned 2017 Delaware Basin program as soon as practical as well as focus on expanding our position in this play,” Watson said.
The company plans to spud the Caprito 98-201H and 301H in February.
Abraxas controls 5,811 net HBP acres on the eastern edge of the Delaware Basin in Reeves and Ward counties, Texas. The company continues to explore opportunities to expand its existing position in the area and said it recently acquired an additional 24 net acres.
The company plans to spend about $11 million in the Delaware in 2017, about 18% of its $60 million capex. Most of the E&Ps’ spending will be focused on the Bakken, where it will devote $36.8 million, or about $61%.
In the Williston Basin, Abraxas recently spudded and cased the intermediate section of a four-well pad in the Stenehjem 6H-9H at its North Fork prospect in McKenzie County, N.D. The company is currently drilling the intermediate section of the Stenehjem 7H.
The company said its Stenehjem 10H-15H continue to exceed expectations with two of the wells achieving cumulative oil production of more than 100,000 barrels in just over four months of production.
In Atascosa County, Texas, Abraxas’ first Austin Chalk test well, the Bulls Eye 101H, averaged 366 boe/d over the highest 30 days of production. The company owns a 100% working interest in the well.
The Austin Chalk test well’s production rates came in more than 20% lower than what Seaport had modeled, Kelly said.
“Though disappointing, these results have no effect on our net asset value as we currently ascribe $0 credit to the Austin Chalk in our model,” he said.
Kelly said Seaport raised its net asset value-based price target for Abraxas to $3.25 from $2.75 on increased confidence in the company’s Delaware acreage.
The company’s net debt totaled $95 million, as of Sept. 30.
Emily Patsy can be reached at email@example.com.