Click here to close now.

Welcome!

Microsoft Cloud Authors: Aleksei Gavrilenko, Elizabeth White, Liz McMillan, Pat Romanski, Jaynesh Shah

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
SYS-CON Events announced today that Secure Infrastructure & Services will exhibit at SYS-CON's 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Secure Infrastructure & Services (SIAS) is a managed services provider of cloud computing solutions for the IBM Power Systems market. The company helps mid-market firms built on IBM hardware platforms to deploy new levels of reliable and cost-effective computing and high availability solutions, leveraging the cloud and the benefits of Infrastructure-as-a-Service (IaaS...
It is one thing to build single industrial IoT applications, but what will it take to build the Smart Cities and truly society-changing applications of the future? The technology won’t be the problem, it will be the number of parties that need to work together and be aligned in their motivation to succeed. In his session at @ThingsExpo, Jason Mondanaro, Director, Product Management at Metanga, discussed how you can plan to cooperate, partner, and form lasting all-star teams to change the world and it starts with business models and monetization strategies.
Today air travel is a minefield of delays, hassles and customer disappointment. Airlines struggle to revitalize the experience. GE and M2Mi will demonstrate practical examples of how IoT solutions are helping airlines bring back personalization, reduce trip time and improve reliability. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Dr. Sarah Cooper, M2Mi’s VP Business Development and Engineering, will explore the IoT cloud-based platform technologies driving this change including privacy controls, data transparency and integration of real time context wi...
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at @ThingsExpo, James Kirkland, Red Hat's Chief Architect for the Internet of Things and Intelligent Systems, described how to revolutionize your archit...
WebRTC converts the entire network into a ubiquitous communications cloud thereby connecting anytime, anywhere through any point. In his session at WebRTC Summit,, Mark Castleman, EIR at Bell Labs and Head of Future X Labs, will discuss how the transformational nature of communications is achieved through the democratizing force of WebRTC. WebRTC is doing for voice what HTML did for web content.
The Internet of Things is not only adding billions of sensors and billions of terabytes to the Internet. It is also forcing a fundamental change in the way we envision Information Technology. For the first time, more data is being created by devices at the edge of the Internet rather than from centralized systems. What does this mean for today's IT professional? In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists addressed this very serious issue of profound change in the industry.
Internet of Things (IoT) will be a hybrid ecosystem of diverse devices and sensors collaborating with operational and enterprise systems to create the next big application. In their session at @ThingsExpo, Bramh Gupta, founder and CEO of robomq.io, and Fred Yatzeck, principal architect leading product development at robomq.io, discussed how choosing the right middleware and integration strategy from the get-go will enable IoT solution developers to adapt and grow with the industry, while at the same time reduce Time to Market (TTM) by using plug and play capabilities offered by a robust IoT ...
"We have a tagline - "Power in the API Economy." What that means is everything that is built in applications and connected applications is done through APIs," explained Roberto Medrano, Executive Vice President at Akana, in this SYS-CON.tv interview at 16th Cloud Expo, held June 9-11, 2015, at the Javits Center in New York City.
Internet of Things is moving from being a hype to a reality. Experts estimate that internet connected cars will grow to 152 million, while over 100 million internet connected wireless light bulbs and lamps will be operational by 2020. These and many other intriguing statistics highlight the importance of Internet powered devices and how market penetration is going to multiply many times over in the next few years.
To many people, IoT is a buzzword whose value is not understood. Many people think IoT is all about wearables and home automation. In his session at @ThingsExpo, Mike Kavis, Vice President & Principal Cloud Architect at Cloud Technology Partners, discussed some incredible game-changing use cases and how they are transforming industries like agriculture, manufacturing, health care, and smart cities. He will discuss cool technologies like smart dust, robotics, smart labels, and much more. Prepare to be blown away with a glimpse of the future.
The basic integration architecture, as defined by ESBs, hasn’t changed for more than a decade. Most cloud integration providers still rely on an ESB architecture and their proprietary connectors. As a result, enterprise integration projects suffer from constraints of availability and reliability of these connectors that are not re-usable across other integration vendors. However, the rapid adoption of APIs and almost ubiquitous availability of APIs amongst most SaaS and Cloud applications are rapidly redefining traditional integration approaches and their reliance on proprietary connectors. ...
SYS-CON Events announced today that BMC will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. BMC delivers software solutions that help IT transform digital enterprises for the ultimate competitive business advantage. BMC has worked with thousands of leading companies to create and deliver powerful IT management services. From mainframe to cloud to mobile, BMC pairs high-speed digital innovation with robust IT industrialization – allowing customers to provide amazing user experiences with optimized IT per...
There will be 150 billion connected devices by 2020. New digital businesses have already disrupted value chains across every industry. APIs are at the center of the digital business. You need to understand what assets you have that can be exposed digitally, what their digital value chain is, and how to create an effective business model around that value chain to compete in this economy. No enterprise can be complacent and not engage in the digital economy. Learn how to be the disruptor and not the disruptee.
The Internet of Things is not only adding billions of sensors and billions of terabytes to the Internet. It is also forcing a fundamental change in the way we envision Information Technology. For the first time, more data is being created by devices at the edge of the Internet rather than from centralized systems. What does this mean for today's IT professional? In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists will addresses this very serious issue of profound change in the industry.
Business as usual for IT is evolving into a "Make or Buy" decision on a service-by-service conversation with input from the LOBs. How does your organization move forward with cloud? In his general session at 16th Cloud Expo, Paul Maravei, Regional Sales Manager, Hybrid Cloud and Managed Services at Cisco, discusses how Cisco and its partners offer a market-leading portfolio and ecosystem of cloud infrastructure and application services that allow you to uniquely and securely combine cloud business applications and services across multiple cloud delivery models.
In his General Session at 16th Cloud Expo, David Shacochis, host of The Hybrid IT Files podcast and Vice President at CenturyLink, investigated three key trends of the “gigabit economy" though the story of a Fortune 500 communications company in transformation. Narrating how multi-modal hybrid IT, service automation, and agile delivery all intersect, he will cover the role of storytelling and empathy in achieving strategic alignment between the enterprise and its information technology.
Buzzword alert: Microservices and IoT at a DevOps conference? What could possibly go wrong? In this Power Panel at DevOps Summit, moderated by Jason Bloomberg, the leading expert on architecting agility for the enterprise and president of Intellyx, panelists peeled away the buzz and discuss the important architectural principles behind implementing IoT solutions for the enterprise. As remote IoT devices and sensors become increasingly intelligent, they become part of our distributed cloud environment, and we must architect and code accordingly. At the very least, you'll have no problem fillin...
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Opening Keynote at 16th Cloud Expo, Sandy Carter, IBM General Manager Cloud Ecosystem and Developers, and a Social Business Evangelist, d...
Converging digital disruptions is creating a major sea change - Cisco calls this the Internet of Everything (IoE). IoE is the network connection of People, Process, Data and Things, fueled by Cloud, Mobile, Social, Analytics and Security, and it represents a $19Trillion value-at-stake over the next 10 years. In her keynote at @ThingsExpo, Manjula Talreja, VP of Cisco Consulting Services, discussed IoE and the enormous opportunities it provides to public and private firms alike. She will share what businesses must do to thrive in the IoE economy, citing examples from several industry sectors.
In his keynote at 16th Cloud Expo, Rodney Rogers, CEO of Virtustream, discussed the evolution of the company from inception to its recent acquisition by EMC – including personal insights, lessons learned (and some WTF moments) along the way. Learn how Virtustream’s unique approach of combining the economics and elasticity of the consumer cloud model with proper performance, application automation and security into a platform became a breakout success with enterprise customers and a natural fit for the EMC Federation.