Welcome!

Microsoft Cloud Authors: Pat Romanski, Lori MacVittie, Andreas Grabner, Jim Kaskade, John Basso

News Feed Item

Clinton Group, Inc. Asks Board of Abraxas Petroleum to Sell Assets, Reduce Debt, Step-Up Production and Make Additional Disclosures to Stockholders

NEW YORK, Nov. 27, 2012 /PRNewswire/ -- Clinton Group, Inc. ("Clinton") announced today that it has sent a letter to the board of directors of Abraxas Petroleum Corp. (Nasdaq: AXAS) requesting that the Company divest non-core assets, reduce its debt, increase production and provide additional information to stockholders regarding its operating activities. Clinton Group believes it is one of the top ten owners of Abraxas stock.

The letter notes:

  • Abraxas stock has under-performed its peers and is down more than 30% in the last six months;
  • Abraxas is unfocused for a company its size, owning too much non-operated acreage in too many geographies, leading to capital and operational inefficiencies;
  • Selling non-core assets could reduce the Company's debt significantly, providing more operating flexibility and the opportunity to step-up production at its core operated sites;
  • Abraxas should focus on increasing its production quickly rather than deploying large sums of capital into investment projects (such as Canadian "stealth plays", buying and refurbishing rigs, inventorying drilling pads and developing water treatment infrastructure) that are capital intensive and time consuming; and
  • Abraxas should provide stockholders additional production guidance and real-time results from its drilling activities.

The letter also expresses the Clinton Group's view that the company is undervalued and that taking the steps outlined in the letter can help stockholders realize fair value for the stock. The Clinton Group's sum-of-the-parts and cash flow valuation analyses concludes that fair value is approximately $4.35 per share.

The letter also notes that the board of directors should "expect to hear more" from the Clinton Group if action is not taken soon.

The complete text of the letter sent by Clinton to the board of directors of Abraxas is attached.

About Clinton Group, Inc.

Clinton Group, Inc. is a diversified asset management firm. The firm has been investing in global markets since its inception in 1991 with expertise that spans a wide range of investment styles and asset classes. Clinton Group is a Registered Investment Advisor based in New York City.

[Clinton Group Letterhead]

November 27, 2012

Board of Directors
Abraxas Petroleum Corp.
18803 Meisner Drive
San Antonio, TX  78258

RE:  Maximizing Shareholder Value

Gentlemen:

We write on behalf of Clinton Group, Inc. ("Clinton"), the investment manager of several funds and accounts which, together, are a top ten owner of Abraxas Petroleum Corp. ("Abraxas" or the "Company"). Founded in 1991, Clinton is an SEC Registered Investment Advisor based in New York. 

We have been owners of Abraxas for nearly two years and continue to buy stock. We believe the Company is undervalued in the stock market, given its assets and the opportunity to exploit those assets to generate meaningfully more cash flow and profit.

It is well past time for the management team and Board to use the assets of the Company optimally to generate value for stockholders. As discussed more fully below, we believe the Company is too unfocused, too levered and too sluggish.

For these reasons, the Company's stock has lost significant value and has performed much worse than the stock of peer companies over the last six months, one year, three years and five years. In fact, in the last six months, the Company's stock price is down 32%, which compares very unfavorably to the stock performance of companies identified by the Company as peers,* which have increased on average by 30%. To create value for stockholders, the Board must do something to close this performance gap.

First, we believe the Company is too unfocused. With assets scattered across a wide range of geographies, the Company is simply spread too thin, lacking an optimized allocation of human and financial capital. While such diversity may be fitting for a Company with significantly greater resources, it is unfit for Abraxas. In our view, the Company is too small to effectively support such a highly diversified model, and management must take steps to consolidate operations and exploit economies of scale by focusing on development activities in a small number of key basins.

Because the Company is inefficient in exploiting its highly diversified holdings, the Company trades at a distinct discount to its peers on a net asset value basis. To correct this, the Board should immediately focus the Company's management and capital resources exclusively on the Company's operated assets that have high net working interests, such as in the Bakken, Eagleford and Permian Basin. The non-operating assets and undeveloped acreage should be swiftly sold or swapped for working interests in the Company's core operated plays, at fair prices. By our math, outright sales of non-core acreage should yield the Company nearly $160 million, in addition to the $22 million in proceeds that are expected from the Nordheim and Alberta Basin deals already announced. Our math follows:


Name

Formation

Est. Acres

Est. Price Per

Total











Powder River Basin 

Niobrara 

17,800

$2,500

$44,500,000



Western Alberta 

Pekisko 

6,880

$2,500

$17,200,000



Permian Basin - Reeves 

Strawn / Frio / Yates

2,900

$5,500

$15,950,000



Permian Basin - Other

Strawn / Frio / Yates

32,631

$2,500

$81,577,500



Total


60,211


$159,227,500












Selling these non-core assets would enable the Company to significantly cut its debt and provide capital to deploy for increasing production, goals we think are both appropriate and achievable quickly. And while we applaud management's belated recognition of the leverage issue, we believe more needs to be done, quickly, to refocus the Company on its operated assets with high working interests and to de-lever to provide more flexibility and stability.

Indeed, with less leverage, the Company would have significantly more operating flexibility, and the ability to draw capital from its bank credit facility to increase production from its core producing assets. Moreover, with less leverage, the Company could consider an entirely new bank credit facility (preferably with a lead lender and syndicate agent more seasoned in oil and gas exploration facilities)** to provide additional flexibility and soften the restrictive utilization covenants that have introduced so much uncertainly for the Company and its stockholders.

Right sizing the Company's asset base and borrowing will go a long way to creating value for stockholders. Those steps are obvious. The fact that they have not already been taken is, in our view, symptomatic of the Company's larger ill: Abraxas is being operated as if its pace does not matter and as if stockholders should, and will, be patient. But operational pace does matter and stockholders – at least this one – will not be patient for long.

It is time for the Company to be operated with a sense of urgency. We do not have the luxury of buying, refurbishing and moving our own rigs, at the expense of significant operational delays in the Williston Basin. Like other industry participants the size of Abraxas, we should be leasing them. Nor can we afford the time and upfront capital to develop a large inventory of drilling pads that await future drilling; instead, we should be operating a just-in-time drilling program aimed at achieving a high, near-term cash flow return on our capital. Similarly, we should be handling water disposal through third-party vendors, not by building elaborate infrastructure that is time and capital intensive.

These activities reflect a sub-optimal allocation of human and financial capital, when compared to the returns earned on operated wells in the Williston Basin, Eagleford and Permian Basin. While we appreciate the long-term benefit of owning such infrastructure, given the abundant availability of third-party service providers, this vertically integrated approach is not necessary or appropriate for a company the size of Abraxas. We strongly recommend the company not pursue further vertical expansion. At this point in the Company's life cycle, the exigency is for production, not planning and preparation.

We feel the same way about the Company's recently announced "stealth play" in Canada. We are concerned that efforts to de-risk such projects, even for the purpose of future sale, will take away from the resources needed to develop the existing core operated plays.  Management needs to focus on growing production and proved reserves within its existing premier core operated plays. We strongly believe that the pursuit of "stealth plays" creates significant uncertainty and concern among stockholders and has contributed to the underperformance of the stock.  Management should clearly articulate the operational requirements, costs and timelines surrounding the disposition of this asset.

We also believe stockholders would benefit from greater transparency on the rest of the asset base. While we appreciate today's operational update, the Company's continuing refusal to provide stockholders with 24-hour flow rates, year-end production rates or projections of future production is both off-market and off-putting for investors. We urge the Board and management team to rethink the Company's disclosure and guidance practices and provide stockholders with the information they need to make informed decisions about the value of the Company.

We note that Wall Street sell-side analysts appear ever more pessimistic about the Company's production capabilities and cash flow. At the beginning of 2012, consensus 2013 EBITDA projections were more than $80 million, according to Bloomberg. After operational missteps and a loss of focus, the Company is now expected by analysts to do just $54 million in EBITDA in 2013. We are convinced that the Company can do more, if management would only focus on core assets and execute well.

For that reason and others, we are convinced the Company is seriously undervalued. Indeed, we believe the value of the Company's assets far exceeds the market's recognition and that, with a little focus and urgency, production (and EBITDA) could be stepped up to far exceed analysts' current expectations.

Our view of the Company's assets and their value is as follows:


Name

Formation

Est. Acres

Est. Price Per

Total









Williston

Bakken / Three Forks

23,300

$7,500

$174,750,000


Onshore Gulf Coast

Eagle Ford

7,300

$12,500

$91,250,000


Permian Basin - Spires

Strawn / Frio / Yates

5,600

$4,000

$22,400,000


Canadian Stealth

TBD

20,000

$3,000

$60,000,000


Assets to be Sold*




$181,604,500


Total


56,200


$530,004,500









Metric

Production 

Split

Price Per

Implied Value









Liquids production (boe/d)

2,200

53%

$60,000

$132,000,000


Gas production (mcfe/d)

11,700

47%

$6,000

$70,200,000


Net Debt




($143,190,000)









Net Asset Value (NAV)




$589,014,500



Applied Discount




30%


Adjusted NAV 




$412,310,150


Per Share




$4.42









*Includes Nordheim ($20 mm), Alberta Basin ($2.85 mm) and  other assets (see above)  for $159.3 mm.  


NB: Company had $150.2mm in NOLs as of 12/31/11.




We also believe that with the Company's level of capital expenditures and core operated drilling program, the Company should be able to achieve 2013 EBITDA well in excess of the current consensus number. Based on our own assumptions of keeping 2012 exit-rate production flat, combined with the production growth opportunities from the core operated assets, we believe the Company could generate more than $65 million in 2013 EBITDA. At that level, with a market multiple of 6.25x, the equity should be worth at least $4.35 per share.

Thus, with the sale of the non-core assets and improved execution on the rest, we believe the Company can deliver significant value to stockholders. We urge you to take action immediately on the sale of these properties and to ensure management is working with a fevered pace to execute on the Company's terrific opportunities.

In the event we do not see near-term improvements on these two fronts, you should expect to hear more from us as we aim to protect and grow our investment in Abraxas through all means available to stockholders. We would be pleased to discuss our views at any time. You can reach us at (212) 825-0400.

Sincerely yours,

//s//

Robert Wenzel
Senior Portfolio Manager

//s//

Gregory P. Taxin
Managing Director

Footnotes:

* The Company's 10-K lists the following peers: Double Eagle Petroleum, Endeavor International, Evolution Petroleum, Gulfport Energy, GMX Resources, Petroleum Development (PDC Energy), PetroQuest Energy, and Warren Resources.

** According to Thomson-Reuters, Societe Generale ranked 18th in the league tables for book-running oil and gas deals during the first nine months of 2012.

SOURCE Clinton Group, Inc.

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@ThingsExpo Stories
Extracting business value from Internet of Things (IoT) data doesn’t happen overnight. There are several requirements that must be satisfied, including IoT device enablement, data analysis, real-time detection of complex events and automated orchestration of actions. Unfortunately, too many companies fall short in achieving their business goals by implementing incomplete solutions or not focusing on tangible use cases. In his general session at @ThingsExpo, Dave McCarthy, Director of Products...
Information technology is an industry that has always experienced change, and the dramatic change sweeping across the industry today could not be truthfully described as the first time we've seen such widespread change impacting customer investments. However, the rate of the change, and the potential outcomes from today's digital transformation has the distinct potential to separate the industry into two camps: Organizations that see the change coming, embrace it, and successful leverage it; and...
Everyone knows that truly innovative companies learn as they go along, pushing boundaries in response to market changes and demands. What's more of a mystery is how to balance innovation on a fresh platform built from scratch with the legacy tech stack, product suite and customers that continue to serve as the business' foundation. In his General Session at 19th Cloud Expo, Michael Chambliss, Head of Engineering at ReadyTalk, discussed why and how ReadyTalk diverted from healthy revenue and mor...
20th Cloud Expo, taking place June 6-8, 2017, at the Javits Center in New York City, NY, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy.
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
The 20th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held June 6-8, 2017, at the Javits Center in New York City, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Containers, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportunity. Submit your speaking proposal ...
DevOps is being widely accepted (if not fully adopted) as essential in enterprise IT. But as Enterprise DevOps gains maturity, expands scope, and increases velocity, the need for data-driven decisions across teams becomes more acute. DevOps teams in any modern business must wrangle the ‘digital exhaust’ from the delivery toolchain, "pervasive" and "cognitive" computing, APIs and services, mobile devices and applications, the Internet of Things, and now even blockchain. In this power panel at @...
Major trends and emerging technologies – from virtual reality and IoT, to Big Data and algorithms – are helping organizations innovate in the digital era. However, to create real business value, IT must think beyond the ‘what’ of digital transformation to the ‘how’ to harness emerging trends, innovation and disruption. Architecture is the key that underpins and ties all these efforts together. In the digital age, it’s important to invest in architecture, extend the enterprise footprint to the cl...
Bert Loomis was a visionary. This general session will highlight how Bert Loomis and people like him inspire us to build great things with small inventions. In their general session at 19th Cloud Expo, Harold Hannon, Architect at IBM Bluemix, and Michael O'Neill, Strategic Business Development at Nvidia, discussed the accelerating pace of AI development and how IBM Cloud and NVIDIA are partnering to bring AI capabilities to "every day," on-demand. They also reviewed two "free infrastructure" pr...
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
Businesses and business units of all sizes can benefit from cloud computing, but many don't want the cost, performance and security concerns of public cloud nor the complexity of building their own private clouds. Today, some cloud vendors are using artificial intelligence (AI) to simplify cloud deployment and management. In his session at 20th Cloud Expo, Ajay Gulati, Co-founder and CEO of ZeroStack, will discuss how AI can simplify cloud operations. He will cover the following topics: why clou...
"Dice has been around for the last 20 years. We have been helping tech professionals find new jobs and career opportunities," explained Manish Dixit, VP of Product and Engineering at Dice, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smar...
The Internet of Things will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform and how we integrate our thinking to solve complicated problems. In his session at 19th Cloud Expo, Craig Sproule, CEO of Metavine, demonstrated how to move beyond today's coding paradigm and sh...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life sett...
We are always online. We access our data, our finances, work, and various services on the Internet. But we live in a congested world of information in which the roads were built two decades ago. The quest for better, faster Internet routing has been around for a decade, but nobody solved this problem. We’ve seen band-aid approaches like CDNs that attack a niche's slice of static content part of the Internet, but that’s it. It does not address the dynamic services-based Internet of today. It does...
The WebRTC Summit New York, to be held June 6-8, 2017, at the Javits Center in New York City, NY, announces that its Call for Papers is now open. Topics include all aspects of improving IT delivery by eliminating waste through automated business models leveraging cloud technologies. WebRTC Summit is co-located with 20th International Cloud Expo and @ThingsExpo. WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web ...
20th Cloud Expo, taking place June 6-8, 2017, at the Javits Center in New York City, NY, will feature technical sessions from a rock star conference faculty and the leading industry players in the world. Cloud computing is now being embraced by a majority of enterprises of all sizes. Yesterday's debate about public vs. private has transformed into the reality of hybrid cloud: a recent survey shows that 74% of enterprises have a hybrid cloud strategy.
WebRTC is the future of browser-to-browser communications, and continues to make inroads into the traditional, difficult, plug-in web communications world. The 6th WebRTC Summit continues our tradition of delivering the latest and greatest presentations within the world of WebRTC. Topics include voice calling, video chat, P2P file sharing, and use cases that have already leveraged the power and convenience of WebRTC.
"We're a cybersecurity firm that specializes in engineering security solutions both at the software and hardware level. Security cannot be an after-the-fact afterthought, which is what it's become," stated Richard Blech, Chief Executive Officer at Secure Channels, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.