UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A Number 2

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

January 31, 2008

Date of Report (Date of earliest event reported)

ABRAXAS PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)

500 N. Loop 1604 East, Suite 100

San Antonio, Texas 78232

(210) 490-4788

(Address of principal executive offices and Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

Explanatory Note: We are filing this Form 8-K/A Number 2 in response to comments we have received from the Division of Corporation Finance of the SEC

This Form 8-K/A Number 2 amends our Form 8-K filed on February 6, 2008 as amended by the Original Form 8-K/A number 1 filed on April 17 2008.

 

This amendment does not reflect events occurring after the filing of the Original Form 8-K, and does not modify or update the disclosures therein in any way other than as required to reflect the matters described above.

 

ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETSAs described on the Current Report on Form 8-K of Abraxas Petroleum Corporation filed on February 6, 2008 (the “Initial 8-K”), on January 31, 2008, Abraxas Operating Company, LLC, a wholly-owned subsidiary of Abraxas Energy Partners, L.P., an indirect subsidiary of Abraxas Petroleum Corporation consummated the acquisition of certain oil and gas properties located in various states from St. Mary Land & Exploration Company and certain other sellers. The properties are primarily located in the Rockies and Mid-Continent regions of the United States. The sole purpose of this amendment to the Initial 8-K is to incorporate as part of the Initial 8-K the information set forth below under Item 9.01 as required by Item 9.01 of Form 8-K.

.

 

 

(d) Exhibits

 

23.1 Consent of Deloitte & Touche LLP

 

23.2 Consent of Ryder Scott Company, L.P.

 

 

 

 

ABRAXAS OPERATING, LLC

ACQUIRED PROPERTIES

 

Statements of Revenues and Direct Operating Expenses

For the years ended December 31, 2007, 2006, and 2005

 

(With Report of Independent Registered Public Accounting Firm Thereon)

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

St. Mary Land & Exploration Company

Denver, Colorado

We have audited the accompanying statements of revenues and direct operating expenses of the Acquired Properties (the “Properties”) of St. Mary Land & Exploration Company (the “Company”) for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Properties are not required to have, nor were we engaged to perform, an audit of the Properties’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting . Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in the notes to the financial statements and are not intended to be a complete presentation of the Company’s interests in the Properties.

In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses, described in the notes, of the Properties for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ DELOITTE & TOUCHE LLP

 

Denver, Colorado

March 11, 2008

 

 

ACQUIRED PROPERTIES

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

(In thousands)

 

 

 

See accompanying notes to the statements of revenues and direct operating expenses.

 

 

ACQUIRED PROPERTIES

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005

 

 

On January 31, 2008, Abraxas Operating, LLC (“Abraxas Operating”) acquired certain producing oil and gas properties (the ”Acquired Properties”) from St. Mary Land & Exploration Company (“St. Mary”). The Acquired Properties are net interests in oil and gas producing properties located in mature producing fields in the Rocky Mountain, Mid-Continent, Permian Basin, Arklatex, and Gulf Coast regions of the United States that have established production profiles.

Oil and gas production revenues in the accompanying statements of revenues and direct operating expenses are recognized on the sales method. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. Direct operating expenses are recognized on the accrual method and include lease operating expenses, production taxes, transportation, and all other direct costs associated with the properties. Direct operating expenses do not include corporate overhead, interest, and income taxes.

During the periods presented, the Acquired Properties were not accounted for or operated as a separate division by the former owners. Accordingly, full separate financial statements prepared in accordance with generally accepted accounting principles do not exist and are not practicable to obtain in these circumstances.

The statements of revenue and direct operating expenses of the Acquired Properties were derived from the historical accounting records of St. Mary and vary from a statement of operations in that they do not show certain expenses, which were incurred in connection with the ownership of the properties, such as general and administrative expense, interest expense, income taxes, or other expenses of an indirect nature. These expenses were not separately allocated to the Acquired Properties in St. Mary’s historical financial records and any pro forma allocation would not be a reliable estimate of what these expenses would actually have been had the Acquired Properties been operated historically as a stand alone entity. In addition, these allocations, if made using historical general and administrative structures and tax burdens, would not produce allocations that would be indicative of the historical performance of the Acquired Properties had they been assets of the buyer, due to the greatly varying size, structure, and operations between Abraxas Operating and St. Mary. The statements also do not include provisions for depletion, depreciation, amortization, and asset retirement obligation liability accretion as such amounts would not be indicative of future costs of those expenses which would be incurred by Abraxas Operating upon allocation of the purchase price. Accordingly, the financial statements and other information presented are not indicative of the financial condition and results of operations of the Acquired Properties, but rather simply represent the historical operating results associated with the direct operations of the Acquired Properties.

Historical financial statements representing financial position, results of operations and cash flows required by generally accepted accounting principles are not presented as such information is not readily available on an individual property basis. Accordingly, the statements of revenue and direct operating expenses are presented in accordance with Staff Accounting Bulletin Topic 2-D, Financial Statements of Oil and Gas Exchange Offers.

Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

For 2007 and 2006, St. Mary personnel prepared the reserve estimates for the Acquired Properties and selected reserves associated with properties included in the Acquired Properties were reviewed by Ryder Scott Company, L.P. (“Ryder Scott”) within the overall reserve preparation process utilized by St. Mary. For 2005, Ryder Scott prepared the reserve estimates for at least 60 percent of the PV-10 value associated with the Acquired Properties, and St. Mary personnel prepared reserve estimates for the remainder of the Acquired Properties. Reserve estimates are inherently imprecise and estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available.

Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are those expected to be recovered through existing wells with existing equipment and operating methods. All of the proved reserves are located in the continental United States.

Presented below is a summary of the changes in estimated reserves of the Acquired Properties:

 

 

 

Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities” (“SFAS No. 69”) prescribes guidelines for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. All guidelines, which are briefly discussed below, have been followed.

Future cash inflows and future production and development costs are determined by applying benchmark prices and costs, including transportation, quality, and basis differentials, in effect at year-end to the year-end estimated quantities of oil and gas to be produced in the future. Each operated property is also charged with field-level overhead in the estimated reserve calculation. Future income taxes have not been considered as the Acquired Properties are not a tax paying entity. The resulting future net cash flows are reduced to present value amounts by applying a ten percent annual discount factor.

 

 

Future operating costs are determined based on estimates of expenditures to be incurred in developing and producing the proved oil and gas reserves in place at the end of the period, using year-end costs and assuming continuation of existing economic conditions, plus overhead incurred by the central administrative office attributable to operating activities.

The following disclosure does not include the effect of any income taxes. While this is a departure from the prescribed methodology of calculating the standardized measure, it is believed to be appropriate as the basis of the accompanying financial statements relates only to direct revenues and operating expenses, without regard for income taxes. Therefore the presentation of the standardized measure without income taxes is more comparable.

    The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and the Securities and Exchange Commission, except for the exclusion of the effect of income taxes as discussed previously. These assumptions do not necessarily reflect the expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these estimates are the basis for the valuation process. The following prices as adjusted for transportation, quality, and basis differentials were used in the calculation of the standardized measure:

 

The following summary sets forth the future net cash flows relating to the Acquired Properties based on the standardized measure prescribed in SFAS No. 69:

 

 

The principle sources of change in the standardized measure of discounted future net cash flows are:

 

 

 

 

 

 

 

 

Item 9.01         Financial Statements and Exhibits.

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated financial information is derived from the historical financials of Abraxas Petroleum Corporation (“Abraxas Petroleum”) and subsidiaries, and gives effect to the acquisition of oil and gas properties by Abraxas Operating, LLC, a wholly-owned subsidiary of Abraxas Energy Partners, L.P (the “Partnership”) from St. Mary Land & Exploration Company (“St. Mary”) described in the Form 8-K filed February 6, 2008 Abraxas Petroleum beneficially owns 47.2% of the partnership interests of the Partnership and controls the general partner.

 

The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2007 is presented as if the acquisition had occurred on December 31, 2007. The Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2007 are presented as if the acquisition had occurred at the beginning of the period presented.

 

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the notes thereto, the Consolidated Financial Statements of Abraxas Petroleum and the notes thereto and the statements of revenues and direct operating expenses of the Acquired Properties of St. Mary Land & Exploration and the notes thereto.

 

In a separate transaction, Abraxas Petroleum acquired certain oil and gas properties from St. Mary. These properties were not material to the consolidated operations and have accordingly not been included in these pro forma statements.

 

The Unaudited Pro Forma Consolidated Financial Information is not indicative of our financial position or the results of our operations that might have actually occurred if the St. Mary acquisition had occurred at the dates presented or of our future financial position or results of operations. In addition the results may vary significantly from the results reflected in such statements due to normal oil and gas production declines, reductions in prices paid for oil and gas, future acquisitions and other factors.

 

 

ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

 

DECEMBER 31, 2007

(in thousands)

 

See notes to unaudited pro forma condensed consolidated financial statements

 

 

ABRAXAS PETROLEUM CORPORATION AND SUBSIDIARIES

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands except per share data) 

 

 

See notes to unaudited pro forma condensed consolidated financial statements

 

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. The Unaudited Proforma Condensed Consolidated Balance Sheet as of December 31, 2007, reflects the Partnership’s acquisition of the St. Mary properties as if it had occurred as of December 31, 2007.

 

 

 

 

Note 2. The Unaudited Proforma Condensed Consolidated Statement of Operations for the year ended December 31, 2007 reflects the acquisition of the St. Mary properties as if it had occurred at the beginning of the period.

 

 

  The following table illustrates interest expense on the above borrowings. Interest rates are not fixed, accordingly, actual expense incurred may vary from these amounts.

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

ABRAXAS PETROLEUM CORPORATION

By: /s/ Chris E. Williford                                                                                                        

Chris E. Williford

Executive Vice President, Chief Financial

Officer and Treasurer

 

Dated: August 11, 2008