SAN ANTONIO Aug 6, 2015 (Thomson StreetEvents) -- Edited Transcript of Abraxas Petroleum Corp earnings conference call or presentation Thursday, August 6, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Geoff King Abraxas Petroleum Corp. - VP & CFO * Bob Watson Abraxas Petroleum Corp. - President & CEO ================================================================================ Conference Call Participants ================================================================================ * Will Green Stephens Inc. - Analyst * Steve Berman Canaccord Genuity - Analyst * Joel Musante Euro Pacific Capital - Analyst * Noel Parks Ladenburg Thalmann - Analyst * Welles Fitzpatrick Johnson Rice - Analyst * Kenneth Beyer Stifel Nicolaus - Analyst * Neal Dingman SunTrust Robinson Humphrey - Analyst * Curtis Brewer BLBB Advisors - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the Q2 2015 Abraxas Petroleum Corporation earnings conference call. My name is Whitley and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Geoff King, VP and CFO. Please proceed. -------------------------------------------------------------------------------- Geoff King, Abraxas Petroleum Corp. - VP & CFO [2] -------------------------------------------------------------------------------- Thank you, Whitley, and welcome to the Abraxas Petroleum second-quarter 2015 earnings conference call. Bob Watson, President and CEO of Abraxas, joins me today. In addition we have our Chief Accounting Officer and our VPs of Land, Operations, Engineering and Exploration available to answer any questions that you may have after Bob's overview. As a reminder, today's call is being taped and a webcast replay will be available immediately after the conclusion of the call. I would like to remind everyone that any statements made during this call that are not statements of historical fact are considered forward-looking statements and actual results could vary materially from those contained in these statements. Factors that could cause our actual results to vary are described in our filings with the Securities and Exchange Commission. I would like to encourage everyone to review the risk factors contained in these filings and in our press releases. I will now turn the call over to Bob. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [3] -------------------------------------------------------------------------------- Thanks, Geoff, and good morning. Several months ago we announced reduction curtailments due to simultaneous frac operations on offset wells and therefore second-quarter production was down a bit. The good news is all of the offset fracs were successful and the new wells are on production and the temporarily shut in wells are back on at very limited expense. So our guess that being a little bit conservative on shutting in more wells probably paid off. Production in July has actually averaged about 6,700 barrels a day. Second quarter we were still having gas capture issues in North Dakota and in West Texas. The flow back on our four well Jore West pad, the wells were actually restricted to 18 to 20, 64 [cinch] chokes versus our normal 26 to 30. That is the published 30-day rates were a little lower. But rest assured, the wells are every bit as strong as the offset wells and what our historical wells have done in the North Fork area. Using flexible production rates on a daily basis we are staying on top of gas capture issues and hopefully that will be behind us now. And especially toward the end of the year when our third-party purchaser, ONEOK, has additional processing capacity online. Unfortunately due to regional pricing issues for natural gas and liquids, capturing the gas and selling it doesn't have much impact on our bottom line. But by capturing the gas we are able to sell the oil which does have a significant impact. We are still struggling with high line pressure in our legacy producing area in the Delaware Basin of West Texas. There doesn't appear to be any near-term solution but longer-term there is a lot of midstream activity going on in the area. Going into -- forward into Q3, we expect to continue to operate our Company owned rig in the Bakken. Our last four-well pad, the Jore West, our all-in cost to drill, complete and equip these four wells averaged less than $7 million, which is still generating acceptable economics at current prices. The rig is currently on the second intermediate hole on a six well pad and -- but rest assured, if conditions deteriorate even more we are prepared to shut that rig down at any casing point on this six well pad. Due to some significant decreases in costs for fracking in the Bakken, which are now greater than 50% less than what they were last year, we don't think they are going to go much lower. And actually increased frac crew efficiency, I think we attribute that to they now have time to maintain their equipment. And the layoffs that they sustained have mainly impacted lesser experienced hands, therefore the rig crews that do show up are more experienced and we don't think they will get more efficient going forward. So we have made the decision to accelerate the completion on our three well Raven Northwest pad to this month from either later this year or actually next year. The rates that we expect from these three wells should give us a very good cushion to meet or beat our yearly guidance of 6,500 to 7,000 barrels a day equivalents average for the year, which on the high side represents year-over-year growth of 23% and on the low side 14% while spending cash flow or a little more. For the second half we expect to generate free cash flow as we are only planning these three completions, continued operation of our Bakken rig and one relatively inexpensive vertical well in Montana. Our business plan is working very well. We have a premier asset with four to six years of inventory in front of us. And in fact that might have gotten better recently as we have a small working interest in two new wells operated by Continental Resources directly offsetting us that are testing the second bench in the Three Forks. One of these wells has IP'd for about 1,200 barrels of equivalents per day, the other is not yet on production. But certainly we are going to be watching these wells very closely to see the chances of the second bench of the Three Forks being a target for our development on the offsetting DSUs. This could result in another couple of years of inventory for us if it is a successful target. Our wells in the Bakken are very good, they are very predictable, acceptable rates of return at current commodity prices. And this one asset alone will allow us to keep production flat or actually grow a little year over year for the next several years by spending cash flow or less. That is a rather enviable position in the small and mid cap E&P land which further puts us in a position to grow externally during this downturn, but with the following provisions. We will not do a deal that jeopardizes our balance sheet and we will not do a deal unless it is accretive to our shareholders. We have been very busy looking -- look at a lot of deals, but no results so far. Our focus in the second half of this year is truly cost reduction while we are looking for these external growth opportunities. We don't like the position our industry is in, but we are not fearful of it either. Considering the conditions we like where we stand today. And to put our money where our mouth is, don't be surprised to see some form fours in the very near future. I will now ask for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Neal Dingman, SunTrust. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [2] -------------------------------------------------------------------------------- Hello, Neal. I guess we need the next question. -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- Will Green, Stephens. -------------------------------------------------------------------------------- Will Green, Stephens Inc. - Analyst [4] -------------------------------------------------------------------------------- You mentioned a 50% reduction in frac pricing and then you actually are starting to see maybe a benefit of the crews actually being high rated or something of that nature. Can you talk about -- can you quantify any kind of a betterment of those crews in terms of performance you are seeing? And then what are completion costs currently running at on a well up there? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [5] -------------------------------------------------------------------------------- Well, the last four well Jore pad which we fracked in May, our per stage cost averaged somewhere between $40,000 and $50,000. Last year at this time it was between $100,000 and $120,000 per stage. We actually increased our sand loading this time. So we are getting better than 50% reduction in costs for higher intensity frac. And I guess one thing that you can attribute those lower costs to is very little downtime on the frac equipment. And when you are pumping for three straight weeks 130, 140 stages total, downtime can get very costly. So minimizing downtime, I attribute that to the time these companies now have to maintain their equipment and their yards and the fact that the crews that are out there all know what they are doing, there is very few green hands and that also attributes to a very smooth operation. So all in all, I don't think costs are going to come down much more and I don't think they are going to get much more efficient. So now is the time to go forward and frac the three wells that we have in inventory. -------------------------------------------------------------------------------- Will Green, Stephens Inc. - Analyst [6] -------------------------------------------------------------------------------- Great. And then you kind of mentioned that if crude prices continue to fall maybe you would lay that rig down. Have you guys looked at maybe drilling a backlog of wells and then potentially waiting on those to complete? Or is the cash on hand a higher priority right now? And then if you guys did look to drop that rig what would be kind of the pressure point given where prices are for completions right now or whatever it cost to kind of keep that rig running? What would be the pressure point on crude and is building a backlog well something you guys would potentially look at also? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [7] -------------------------------------------------------------------------------- Well, our current plans are to build a backlog, we changed our methodology a couple years ago and decided that we weren't going to frac any wells in the dead of winter in North Dakota just because of the added costs and the added risks of doing it. So this current six well pad, if we continue the rig working we will finish these six wells and then finish another four wells before we frac anymore which will give us a 10 well job. And the next four could be adjoining these six so we would have 10 wells fracking at one time. Or they might be in another operated unit, we haven't made that decision yet. But if we keep the rig going next springtime we will be looking at -- or early summer -- be fracking roughly 10 wells at one time assuming economic conditions warrant it. The pressure point we would be looking at is probably a $40 WTI. We would have to really scratch our heads and, even though we would still be making a little bit of money with these wells, it gets down to burning up through some very good inventory in a low price environment. So, we are watching it very closely and we are fully prepared to shut the rig down at any point on this six well pad that we have just set casing -- intermediate casing. -------------------------------------------------------------------------------- Will Green, Stephens Inc. - Analyst [8] -------------------------------------------------------------------------------- And so, that would be a -- just so I am clear, that would be a $40 WTI number assuming all else equal -- $40 number that you guys would continue drilling, not necessary completion. So if we were say in the [$30s] you guys would consider shutting down that rig as well? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [9] -------------------------------------------------------------------------------- Yes, I would say the $40 would be the strip price because that is the way we have to look at the flow back (multiple speakers) production. -------------------------------------------------------------------------------- Will Green, Stephens Inc. - Analyst [10] -------------------------------------------------------------------------------- Got you. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [11] -------------------------------------------------------------------------------- It is not going to just the near-term price, it would be the strip. -------------------------------------------------------------------------------- Will Green, Stephens Inc. - Analyst [12] -------------------------------------------------------------------------------- Got you. All right, I appreciate all the color, guys. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Steve Berman, Canaccord. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [14] -------------------------------------------------------------------------------- Bob, what opportunities are you seeing to add to your position in the Williston on the smaller scale? You talked about not doing a bigger deal unless it meets certain criteria. But what about the smaller opportunities up there to add to (multiple speakers)? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [15] -------------------------------------------------------------------------------- Yes, we are still working on the small bolt-ons similar to what we were very successful with earlier this year in our Yellowstone unit, actually looking to acquire some additional interest in that unit which would give us a bigger working interest. But there are some other DSUs up there that we are targeting, working on small deals that collectively add together and give us the greater than 50% operating interest. And that will be an ongoing project for us for the foreseeable future. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [16] -------------------------------------------------------------------------------- Okay. And moving down to the Eagle Ford, a couple questions there. What kind of oil price would you need to bring a rig back to drill there? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [17] -------------------------------------------------------------------------------- I think we would be looking at a $65 strip before we would get comfortable. We have six more wells that we would need to drill by the end of 2017 to hold all of our acreage. So we are not in any real big hurry. We are taking the time to high-grade what we are doing, high-grade our geology and geophysics to try to answer some questions that we still have about the variability of results in our Jourdantan area. So don't expect anything in the near future on that unless for some unforeseen reason the strip gets up above North of $65, which we don't think is going to happen anytime soon. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [18] -------------------------------------------------------------------------------- And what about adding to your position there? I know you are not drilling there, but there is some distressed selling probably going to be happening there in the foreseeable future if it hasn't already started. So any thoughts about adding to your position there? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [19] -------------------------------------------------------------------------------- Yes, we have actually evaluated a number of deals, made one or two offers that were not successful. But we think the stress in the industry will create more acceptable projects for us going forward. And sellers' expectations might be a little bit less, which would allow us to make a deal that conforms to our philosophy of not jeopardizing the balance sheet or doing a deal that is not accretive to our shareholders. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [20] -------------------------------------------------------------------------------- Then one more quick one. You had talked a little while back about maybe doing some permitting up in the Powder River, any updates there? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [21] -------------------------------------------------------------------------------- Yes, the permitting is underway. We finally got rid of the sage grouses and the lambing sheep to where we get access to our land. And the way it stands right now we are probably going to get those permits and then wait and drill them in 2016. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [22] -------------------------------------------------------------------------------- Got it. All right, great, thanks, Bob. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Joel Musante, Euro Pacific Capital. -------------------------------------------------------------------------------- Joel Musante, Euro Pacific Capital - Analyst [24] -------------------------------------------------------------------------------- Just got a couple -- most of my questions have been answered, but I just have one more. On your report of working capital deficit of $27 million, $28 million, I was just wondering if any of that makes its way to your balance sheet. You talk about keeping cash flow neutral and maintaining a good balance sheet, so --. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [25] -------------------------------------------------------------------------------- Well, I think the working capital deficit in the second quarter was a function of the nine wells we fracked during that quarter and getting those bills paid for, which is occurring as we speak. And I think second half we should have a pretty significant under spend. And so, I think we will catch back up. We will use our bank line temporarily and then we will pay it back down with the free cash flow in the second half. -------------------------------------------------------------------------------- Joel Musante, Euro Pacific Capital - Analyst [26] -------------------------------------------------------------------------------- Okay. So going forward we can model in about $108 million in debt kind of flat going forward? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [27] -------------------------------------------------------------------------------- I would say $110 million to $120 million is probably a very good guess at where it should be going forward. -------------------------------------------------------------------------------- Joel Musante, Euro Pacific Capital - Analyst [28] -------------------------------------------------------------------------------- All right, well, that is all I had. Thanks. Appreciate it. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Noel Parks, Ladenburg Thalmann. -------------------------------------------------------------------------------- Noel Parks, Ladenburg Thalmann - Analyst [30] -------------------------------------------------------------------------------- Couple questions. In your last operations update you had specified that you had good results from a lower Three Forks in your second bench that you participated in offsetting North Fork. And I think you gave a 20 gross well location count if it also works at North Fork. Can you just give a sense of sort of what the assumptions are underlying that spacing and so forth? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [31] -------------------------------------------------------------------------------- Well, we spaced pretty conservatively by saying four second bench wells per DSU. We are drilling eight middle Bakken and eight upper Three Forks per DSU. So the four is a pretty conservative number. And who knows what it might play out to in the future, but that is just kind of a guess as we are looking at it right now. -------------------------------------------------------------------------------- Noel Parks, Ladenburg Thalmann - Analyst [32] -------------------------------------------------------------------------------- Great. And you mentioned that at Jourdantan you would be doing some more work, geophysical work, etc., to get a better handle on just the nature of the variability out there. I was wondering, as you head out now with more production history across the various wells there, I was wondering have the production curves sort of converged over time or have they varied as much as some of the individual wells have and sort of left their IPs? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [33] -------------------------------------------------------------------------------- Yes, that is a head scratcher too, Noel. That some of the wells are declining like a typical Eagle Ford well would. And then the most recent well we announced, our Grass Farm's 2, has actually held flat for about almost 60 days now. So it is actually converging to our type curve. We missed the big steep flush production, but the performance has been pretty flat. So we really can't figure that out yet. But as an engineering-based firm, as you know, engineers don't like things they don't understand. So we are (multiple speakers) find an answer. -------------------------------------------------------------------------------- Noel Parks, Ladenburg Thalmann - Analyst [34] -------------------------------------------------------------------------------- And at that Grass Farm's well there wasn't -- was there any issue of staying in zone or anything from as best you can tell? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [35] -------------------------------------------------------------------------------- We've studied and studied and studied, we are comfortable with that we were in the right zone. We fracked them very similar to our offsetting Snake Eyes well and results were -- well, our Snake Eyes is our best and our Grass Farm's our worst and we cannot figure out why. -------------------------------------------------------------------------------- Noel Parks, Ladenburg Thalmann - Analyst [36] -------------------------------------------------------------------------------- Okay. I think that is all for me. Thanks. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Welles Fitzpatrick, Johnson Rice. -------------------------------------------------------------------------------- Welles Fitzpatrick, Johnson Rice - Analyst [38] -------------------------------------------------------------------------------- I apologize, I haven't been able to be on the whole call, so I am sorry if you have already answered this. But I know as of late July the issues were partially clear, but any update on the gas processing that hit you all last quarter? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [39] -------------------------------------------------------------------------------- We think we have got a good handle on it now. The line pressure has dropped a little bit and we have determined a system to look at daily producing rates or producing rates on a daily basis to make sure we are not exceeding our gas capture limit. Feel pretty good about it now and I think we will muddle through until the next -- I think it is the Grasslands 2 plant if ONEOK goes on production here late third quarter, early fourth quarter. And they claim in actual face-to-face meetings with us that that should alleviate the issue that we have on a permanent basis. So pretty comfortable muffling through until then. That is another reason we decided to accelerate the fracs on the Stenehjem wells. We think we have got a pretty good handle on gas capture with a permanent handle here on the horizon. -------------------------------------------------------------------------------- Welles Fitzpatrick, Johnson Rice - Analyst [40] -------------------------------------------------------------------------------- Okay, great. And then jumping to the PRB. If I am remembering correctly, the next kind of couple permits were offsetting the Hedgehog, but there were some coal mining issues and maybe it was a target for later in the year. So is there any update on that? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [41] -------------------------------------------------------------------------------- The -- we have met with the coal mine and we do have the locations set on the offsets to the Hedgehog, so they are being permitted and we will be capable of drilling those when we want. But right now I would say we are going to target warm weather in 2016 to start those. We are still dealing with the coal mine over to the east of us to work on acceptable locations for both of us for multi-well pads on our -- we call that our [Frazier] Federal land. And until we -- that is -- the first project is negotiating with the coal mine. Once we get a satisfactory resolution to that then we will start the permitting process. -------------------------------------------------------------------------------- Welles Fitzpatrick, Johnson Rice - Analyst [42] -------------------------------------------------------------------------------- Okay, perfect. And then one more kind of strategic question. I guess year to date you guys have mentioned the bid/ask spread has been pretty wide to make some new larger acquisitions. Have you seen that tighten up any? And is there any one of your areas in particular that you would be most encouraged to add onto or is it just opportunistic? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [43] -------------------------------------------------------------------------------- We are going to be very opportunistic and we have only made a couple of offers. And the bid/ask spread was much wider than what we could justify with the provision of not hurting our balance sheet nor doing a non-accretive deal. So we are hopeful that there will be some more stress on the horizon which will drive that bid/ask a little bit closer to reality. And maybe some of the private equity money will go to the sidelines because of current economics, I don't know. -------------------------------------------------------------------------------- Welles Fitzpatrick, Johnson Rice - Analyst [44] -------------------------------------------------------------------------------- Great, that is perfect. Thanks so much, guys. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Kenneth Beyer, Stifel. -------------------------------------------------------------------------------- Kenneth Beyer, Stifel Nicolaus - Analyst [46] -------------------------------------------------------------------------------- Yes, this is kind of related to the last question. But just was wondering if you guys could speak to the possibility of an asset sale in the interest of shoring up the balance sheet a little bit or using that capital to -- for further development in some of your higher economic acreage. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [47] -------------------------------------------------------------------------------- Well, we have already got one of the cleanest balance sheets in the small cap land, so we probably wouldn't consider an asset sale unless it was at some crazy price that we couldn't justify not selling. And we certainly have the financial capability of accelerating development if conditions were to warrant it. So don't foresee the need to sell assets to fund a spending gap for us right now. -------------------------------------------------------------------------------- Kenneth Beyer, Stifel Nicolaus - Analyst [48] -------------------------------------------------------------------------------- All right, thanks. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Neal Dingman, SunTrust. -------------------------------------------------------------------------------- Neal Dingman, SunTrust Robinson Humphrey - Analyst [50] -------------------------------------------------------------------------------- Just a question, when you were looking I guess at a lot of these acquisitions, I guess is there any -- I guess when you look to do a deal just a pure acquisition farm in? There is a lot of different ways you can structure it. Are you preferential to one of these or does it just come down to just simply what the cost back into something like this? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [51] -------------------------------------------------------------------------------- We are just going to be opportunistic. I don't think that we would back off from a deal in the Bakken, the Eagle Ford the Permian or in the Powder. Probably would not proceed with a deal that was in the Mid-Continent or somewhere else like that. But certainly those four areas would be a ripe area for us to look. -------------------------------------------------------------------------------- Neal Dingman, SunTrust Robinson Humphrey - Analyst [52] -------------------------------------------------------------------------------- And then just the last one I had. Just I know you are indifferent or maybe you can -- today's environment, as you mentioned, if you can buy things cheaper than you can organically grow it. How do we think about that? If you look at let's say today's M&A market stays about constant, how much do prices -- I guess right now is it sort of 50-50 as far as where the pricing is and how much lower would prices have to go where your preference would be to ramp up all that existing acreage you already have? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [53] -------------------------------------------------------------------------------- Well, we are going to run our economics on the strip, whatever it is, with the philosophy that we can hedge that at that price at that time to lock in whatever return we feel like we need to generate. We don't understand where some people have made some of the offers that we have looked at recently. They must be using a very aggressive forward-looking strip on oil prices. We are probably not going to do that because I think that attributes too much risk to Abraxas going forward. So we are going to be patient and wait for deals to come back to us instead of us coming up to deals. -------------------------------------------------------------------------------- Neal Dingman, SunTrust Robinson Humphrey - Analyst [54] -------------------------------------------------------------------------------- That makes sense. Thanks, Bob. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- (Operator Instructions). Curtis Brewer, BLBB Advisors. -------------------------------------------------------------------------------- Curtis Brewer, BLBB Advisors - Analyst [56] -------------------------------------------------------------------------------- Bob, a couple of years ago, maybe three, in a relatively early stage of Abraxas in the Bakken I think, you indicated that there was a question whether these conference calls had anything to do with the fact that in your initial production from the wells that were being drilled then that you were employing a rather low choke number. I'm pointing out that even with that lower choke that many of our wells were producing at better rates than some of the competition that had more open choking processes or utilization. And the indication was that I guess our engineering people had anticipated that in doing so that the life of the well would be extended and that the well's overall productivity would be enhanced. And so my question is, has that turned out to be a good theory in practice? And are engineering people continuing to -- first of all have we been able to maintain our engineering team? And are they able to continue to enhance the efficiencies of our operations? -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [57] -------------------------------------------------------------------------------- I think we are one of the most efficient operators out there already and have been. I think we are still inclined to say that choking the wells back does enhance the ultimate recovery. What that doesn't address is rate of return. And there is a camp out there that says open them wide open, get the oil out as fast as you can to capture a higher rate of return and don't worry about tomorrow. The companies that are generally doing that have got such a large inventory they don't need to worry about tomorrow. They (multiple speakers) can continue to drill and blow their wells down because they've got so much to do it doesn't matter. But I think from an engineering perspective, being conservative like we are is by far the best for long-term growth in a small cap Company like us. And I think we are going to continue to do that. We have studied very closely two companies, Murphy and EOG in the Eagle Ford. They have marked different philosophies on choke size. Murphy chokes their wells way back; EOG opens their wells wide open. Consequently the IPs that you see are misleading because of that. But we have looked at production a year and two years down the road and Murphy's production rates are considerably higher than EOG's average production rates. So that in effect tells you that choking them back early does prolong the life of the well and perhaps increases the ultimate recovery as well. We are not going to have a real good handle on that until we have many more years of production behind us. But at least right now we are pretty comfortable sticking with what we are doing. -------------------------------------------------------------------------------- Curtis Brewer, BLBB Advisors - Analyst [58] -------------------------------------------------------------------------------- I guess this is just like an editorial comment, but I think that you and your management team out there have done an absolutely superb job through this unanticipated and nearly disastrous period where the price of oil has plummeted 50% or more. It just seems to me that management's approach to these challenges has been well above what might be expected of a company of the size of Abraxas. And I just plead with you to continue to manage as you currently are, because I think the time will come as price is enhanced or enhanced in the world market that Abraxas will see -- the Abraxas shareholders will see the enormous benefits of your management skills. So, thank you. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [59] -------------------------------------------------------------------------------- Well, thank you too and appreciate your comments. And I would say that our philosophy is very aligned with yours. -------------------------------------------------------------------------------- Curtis Brewer, BLBB Advisors - Analyst [60] -------------------------------------------------------------------------------- And that is all I have Bob today, nice to talk with you. -------------------------------------------------------------------------------- Bob Watson, Abraxas Petroleum Corp. - President & CEO [61] -------------------------------------------------------------------------------- Nice talking to you too, Curtis. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- That concludes our Q&A I will now turn the call back over to Mr. King for closing remarks. -------------------------------------------------------------------------------- Geoff King, Abraxas Petroleum Corp. - VP & CFO [63] -------------------------------------------------------------------------------- We appreciate your participation today in Abraxas' earnings conference call. As I mentioned at the start of the call, a webcast replay will be available on our website and a transcript will be posted in approximately 24 hours. Thank you and have a great day. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.
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