Click here to close now.

Welcome!

.NET Authors: Greg O'Connor, Jayaram Krishnaswamy, Adine Deford, Peter Silva, Pat Romanski

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
GENBAND has announced that SageNet is leveraging the Nuvia platform to deliver Unified Communications as a Service (UCaaS) to its large base of retail and enterprise customers. Nuvia’s cloud-based solution provides SageNet’s customers with a full suite of business communications and collaboration tools. Two large national SageNet retail customers have recently signed up to deploy the Nuvia platform and the company will continue to sell the service to new and existing customers. Nuvia’s capabilities include HD voice, video, multimedia messaging, mobility, conferencing, Web collaboration, deskt...
The WebRTC Summit 2014 New York, to be held June 9-11, 2015, at the Javits Center in New York, NY, announces that its Call for Papers is 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 16th International Cloud Expo, @ThingsExpo, Big Data Expo, and DevOps Summit.
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
SYS-CON Events announced today that Cisco, the worldwide leader in IT that transforms how people connect, communicate and collaborate, has been named “Gold Sponsor” of 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. Cisco makes amazing things happen by connecting the unconnected. Cisco has shaped the future of the Internet by becoming the worldwide leader in transforming how people connect, communicate and collaborate. Cisco and our partners are building the platform for the Internet of Everything by connecting the...
Temasys has announced senior management additions to its team. Joining are David Holloway as Vice President of Commercial and Nadine Yap as Vice President of Product. Over the past 12 months Temasys has doubled in size as it adds new customers and expands the development of its Skylink platform. Skylink leads the charge to move WebRTC, traditionally seen as a desktop, browser based technology, to become a ubiquitous web communications technology on web and mobile, as well as Internet of Things compatible devices.
SYS-CON Events announced today that robomq.io will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. robomq.io is an interoperable and composable platform that connects any device to any application. It helps systems integrators and the solution providers build new and innovative products and service for industries requiring monitoring or intelligence from devices and sensors.
Wearable technology was dominant at this year’s International Consumer Electronics Show (CES) , and MWC was no exception to this trend. New versions of favorites, such as the Samsung Gear (three new products were released: the Gear 2, the Gear 2 Neo and the Gear Fit), shared the limelight with new wearables like Pebble Time Steel (the new premium version of the company’s previously released smartwatch) and the LG Watch Urbane. The most dramatic difference at MWC was an emphasis on presenting wearables as fashion accessories and moving away from the original clunky technology associated with t...
SYS-CON Events announced today that Akana, formerly SOA Software, has been named “Bronze Sponsor” of SYS-CON's 16th International Cloud Expo® New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY. Akana’s comprehensive suite of API Management, API Security, Integrated SOA Governance, and Cloud Integration solutions helps businesses accelerate digital transformation by securely extending their reach across multiple channels – mobile, cloud and Internet of Things. Akana enables enterprises to share data as APIs, connect and integrate applications, drive part...
Docker is an excellent platform for organizations interested in running microservices. It offers portability and consistency between development and production environments, quick provisioning times, and a simple way to isolate services. In his session at DevOps Summit at 16th Cloud Expo, Shannon Williams, co-founder of Rancher Labs, will walk through these and other benefits of using Docker to run microservices, and provide an overview of RancherOS, a minimalist distribution of Linux designed expressly to run Docker. He will also discuss Rancher, an orchestration and service discovery platf...
SYS-CON Events announced today that Vitria Technology, Inc. will exhibit at SYS-CON’s @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Vitria will showcase the company’s new IoT Analytics Platform through live demonstrations at booth #330. Vitria’s IoT Analytics Platform, fully integrated and powered by an operational intelligence engine, enables customers to rapidly build and operationalize advanced analytics to deliver timely business outcomes for use cases across the industrial, enterprise, and consumer segments.
SYS-CON Events announced today that Solgenia 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, and the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Solgenia is the global market leader in Cloud Collaboration and Cloud Infrastructure software solutions. Designed to “Bridge the Gap” between Personal and Professional Social, Mobile and Cloud user experiences, our solutions help large and medium-sized organizations dr...
SYS-CON Events announced today that Liaison Technologies, a leading provider of data management and integration cloud services and solutions, has been named "Silver Sponsor" of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York, NY. Liaison Technologies is a recognized market leader in providing cloud-enabled data integration and data management solutions to break down complex information barriers, enabling enterprises to make smarter decisions, faster.
Cloud is not a commodity. And no matter what you call it, computing doesn’t come out of the sky. It comes from physical hardware inside brick and mortar facilities connected by hundreds of miles of networking cable. And no two clouds are built the same way. SoftLayer gives you the highest performing cloud infrastructure available. One platform that takes data centers around the world that are full of the widest range of cloud computing options, and then integrates and automates everything. Join SoftLayer on June 9 at 16th Cloud Expo to learn about IBM Cloud's SoftLayer platform, explore se...
@ThingsExpo has been named the Top 5 Most Influential M2M Brand by Onalytica in the ‘Machine to Machine: Top 100 Influencers and Brands.' Onalytica analyzed the online debate on M2M by looking at over 85,000 tweets to provide the most influential individuals and brands that drive the discussion. According to Onalytica the "analysis showed a very engaged community with a lot of interactive tweets. The M2M discussion seems to be more fragmented and driven by some of the major brands present in the M2M space. This really allows some room for influential individuals to create more high value inter...
The world's leading Cloud event, Cloud Expo has launched Microservices Journal on the SYS-CON.com portal, featuring over 19,000 original articles, news stories, features, and blog entries. DevOps Journal is focused on this critical enterprise IT topic in the world of cloud computing. Microservices Journal offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. Follow new article posts on Twitter at @MicroservicesE
SYS-CON Events announced today the IoT Bootcamp – Jumpstart Your IoT Strategy, being held June 9–10, 2015, in conjunction with 16th Cloud Expo and Internet of @ThingsExpo at the Javits Center in New York City. This is your chance to jumpstart your IoT strategy. Combined with real-world scenarios and use cases, the IoT Bootcamp is not just based on presentations but includes hands-on demos and walkthroughs. We will introduce you to a variety of Do-It-Yourself IoT platforms including Arduino, Raspberry Pi, BeagleBone, Spark and Intel Edison. You will also get an overview of cloud technologies s...
SYS-CON Events announced today that SafeLogic has been named “Bag Sponsor” of SYS-CON's 16th International Cloud Expo® New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY. SafeLogic provides security products for applications in mobile and server/appliance environments. SafeLogic’s flagship product CryptoComply is a FIPS 140-2 validated cryptographic engine designed to secure data on servers, workstations, appliances, mobile devices, and in the Cloud.
Containers and microservices have become topics of intense interest throughout the cloud developer and enterprise IT communities. Accordingly, attendees at the upcoming 16th Cloud Expo at the Javits Center in New York June 9-11 will find fresh new content in a new track called PaaS | Containers & Microservices Containers are not being considered for the first time by the cloud community, but a current era of re-consideration has pushed them to the top of the cloud agenda. With the launch of Docker's initial release in March of 2013, interest was revved up several notches. Then late last...
SOA Software has changed its name to Akana. With roots in Web Services and SOA Governance, Akana has established itself as a leader in API Management and is expanding into cloud integration as an alternative to the traditional heavyweight enterprise service bus (ESB). The company recently announced that it achieved more than 90% year-over-year growth. As Akana, the company now addresses the evolution and diversification of SOA, unifying security, management, and DevOps across SOA, APIs, microservices, and more.
After making a doctor’s appointment via your mobile device, you receive a calendar invite. The day of your appointment, you get a reminder with the doctor’s location and contact information. As you enter the doctor’s exam room, the medical team is equipped with the latest tablet containing your medical history – he or she makes real time updates to your medical file. At the end of your visit, you receive an electronic prescription to your preferred pharmacy and can schedule your next appointment.