Abraxas Petroleum BUY

Target: US$5.50

Abraxas Petroleum Corporation, an independent energy
company, engages in the acquisition, development,
exploration, and production of oil and gas principally in
the Rocky Mountain, Mid-Continent, Permian Basin, and
Gulf Coast regions of the United States. The company
was founded in 1977 and is based in San Antonio, Texas.
All amounts in US$ unless otherwise noted

Energy — Oil and Gas, Exploration and Production
Investment recommendation
AXAS has positions in two leading US resource plays: the Williston Basin
(WB) and the Eagle Ford (EF). Renewed production growth combined
with deleveraging of the balance sheet in our view should be positive
catalysts, and we are therefore upgrading the stock to BUY from Hold.
Investment highlights
 AXAS has a number of EF wells coming on line in the next few
months that should drive production higher in H2/14. The Snake
Eyes 1H at Jourdanton was recently placed on sub-pump with solid
results. It also completed both the Spanish Eyes 1H and the Eagle
Eyes 1H. These should come online in Q2. At the Cave prospect, the
Dutch 1H is currently drilling and is expected to be fracked and
turned to sales in mid-June. At Dilworth East, the company plans to
complete the R. Henry 2H in late May and turn the well to sales in
early June.
 Along with the company’s upcoming EF wells, eight WB wells coming
online over the next several months should help drive solid Q/Q
production growth as 2014 progresses.
 The company had reiterated 2014 guidance of 5.2-5.3 MBoe/d earlier
this month in its ops update, but on the Q1/14 conference call stated
that in all likelihood it will continue running a rig in the EF all year,
meaning 2014 capex and production guidance will likely go higher.
AXAS has done a very good job in delevering the balance sheet
through asset sales and expects to execute the increased capex spend
while keeping debt/EBITDA at 1.0x or less.
Our $5.50 price target represents a 10% discount applied to a ~$6.10 NAV.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s