Hi Andy -
Abraxas Petroleum Corp. (AXAS)
AXAS makes up only 5% of my small Cap E&P basket while MHR is now over 25%. My next largest holding is SSN at 13%. I have now been in these small E&P companies for about 14 months and as the Value picture (for me) becomes clearer, I have been moving my holdings into the value names rather than the "speculative" names.
AXAS is still a speculative name for me. Their Boepd is small and the big bet is on how they have been deploying their Capex budget drilling several new wells. I like their land holdings but am still waiting on their on going production results. I have not reviewed the company lately based on their barrels of flowing production (Boepd) and I suspect it does not even begin to approach the levels seen in MHR or SSN (or even to a lesser extent LEI). I may be wrong so it might be worth looking at their most current presentation ( phx.corporate-ir.net ).
According to their report, they have a 50% mix of OIL & NG. Their exit Boepd rate for 2011 is 4,800. According to YAHOO debt is $104M w/ 91.53M shares outstanding so they have $0.88/share LT debt.
At 4,800 Boep x $60,000/flowing barrel (This is the value I have been using based on what the large integrator pay; It's worth much less for NG and maybe 10% more for all Oil) = $288M
First, according to Paul's analysis (he see's NG equivalent as worth very little sometime $0.00) and for AXAS I see it as not worth too much since they have no ownership in a NG gathering business and/or Midstream operation to reap the full value of those assets. Unless NG goes back up to $8.00/MMBTU (it is now around $3.44/MMBTU), it cost too much to lift, transport & process the gas and is more valuable to leave in the ground. Therefore, the $288M is an overvalued estimate and could be much lower if you look at the Oil assets only (perhaps as low as $144M).
Assume you do use the full vale estimate of $288M, this is equivalent to $3.15/share. You must subtract out the LT debt per share of $0.88/share and you are left with a flowing # of Barrels value of $2.26/share.
The company still has valuable assets in their land holdings, new well development and their efficient cost of production in both drilling & operating their wells.
At $3.07/share the stock could be seen as 27% to 60% overvalued based on a flowing barrel analysis w/ and w/o NG added into the valuation. In other words, I would only back the truck up and buy this stock if the price traded somewhere in the range of $1.16/share and $2.26/share. In October 2011 the stock did trade at a low of $1.86/share. I am currently under water with this one with an average price of $3.75/share.
If the company can double their Boep production w/o diluting the common shares too much the stock will gain value. I choose this company because of their use of the drill pad technology a method for drilling wells in one location for the least cost per well. This is the most cost efficient drilling system in the in the industry now and AXAS uses it for most if not all of their new wells. Their land holdings are good and I especially like their exposure to Niobrara Shale (about 23% of their acres).
Using the # of Barrells of flowing oil analysis (at least in my E&P Basket) MHR, SSN and LEI are my best value bets at this time. My other 10 small cap E&P companies are currently speculations but do have significant (potential) value in their land assets.
EKS |
