Filed pursuant to
Rule 424(b)(1)
Registration No. 333-127480
ABRAXAS PETROLEUM CORPORATION
5,096,479 Shares
of Common Stock
This prospectus relates to the offer and sale from time to time of up
to an aggregate of 5,096,479 shares of our common stock by the selling
stockholders named in this prospectus. The selling stockholders may sell none,
some or all of the shares offered by this prospectus. We cannot predict when or
in what amounts a selling stockholder may sell any of the shares offered by this
prospectus. We will not receive any proceeds from any such sale by any selling
stockholder.
Investing in our common stock involves risks. Please carefully read the
information under the headings "Forward-Looking Statements" on page ii and "Risk
Factors" beginning on page 3 of this prospectus before you invest in our common
stock.
Our common stock trades on The American Stock Exchange under the symbol
"ABP." On September 13, 2005, the closing price of our common stock on The
American Stock Exchange was $4.59.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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This Prospectus is dated September 29, 2005
ii
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
TABLE OF CONTENTS
FORWARD-LOOKING INFORMATION..........................................ii
SUMMARY...............................................................1
RISK FACTORS..........................................................3
USE OF PROCEEDS......................................................11
DESCRIPTION OF CAPITAL STOCK.........................................11
SELLING STOCKHOLDERS.................................................15
PLAN OF DISTRIBUTION.................................................16
LEGAL MATTERS........................................................17
EXPERTS..............................................................17
WHERE YOU CAN FIND MORE INFORMATION..................................18
INCORPORATION BY REFERENCE...........................................18
GLOSSARY OF TERMS....................................................19
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission utilizing a "shelf" registration process
or continuous offering process. Under this shelf registration process, the
selling stockholders may, from time to time, sell the securities described in
this prospectus in one or more offerings. This prospectus provides you with a
general description of the securities which may be offered by the selling
stockholders. Each time a selling stockholder sells securities, the stelling
stockholder is required to provide you with this prospectus and, in certain
cases, a prospectus supplement containing specific information about the selling
stockholder and the terms of the securities being offered. That prospectus
supplement may include additional risk factors or other special considerations
applicable to those securities. Any prospectus supplement may also add, update,
or change information in this prospectus. If there is any inconsistency between
the information in this prospectus and any prospectus supplement, you should
rely on the information in that prospectus supplement. You should read both this
prospectus and any prospectus supplement together with additional information
described under "Where You Can Find More Information."
i
FORWARD-LOOKING INFORMATION
We make forward-looking statements throughout this prospectus and the
documents included or incorporated by reference in this prospectus. Whenever you
read a statement that is not simply a statement of historical fact (such as
statements including words like "believe," "expect," "anticipate," "intend,"
"plan," "seek," "estimate," "could," "potentially" or similar expressions), you
must remember that these are forward-looking statements, and that our
expectations may not be correct, even though we believe they are reasonable. The
forward-looking information contained in this prospectus or in the documents
included or incorporated by reference in this prospectus is generally located in
the material set forth under the headings "Summary," "Risk Factors," "Business,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" but may be found in other locations as well. These forward-looking
statements generally relate to our plans and objectives for future operations
and are based upon our management's reasonable estimates of future results or
trends. The factors that may affect our expectations regarding our operations
include, among others, the following:
o our high debt level;
o our success in development, exploitation and exploration
activities;
o our ability to make planned capital expenditures;
o declines in our production of natural gas and crude oil;
o prices for natural gas and crude oil;
o our ability to raise equity capital or incur additional
indebtedness;
o political and economic conditions in oil producing countries,
especially those in the Middle East;
o price and availability of alternative fuels;
o our restrictive debt covenants;
o our acquisition and divestiture activities;
o results of our hedging activities; and
o other factors discussed elsewhere in this offering memorandum and
the documents incorporated by reference in this offering
memorandum.
ii
SUMMARY
This summary highlights selected information from this prospectus, but
does not contain all information that may be important to you. This prospectus
includes specific terms of this offering, information about our business and
financial data. To understand all of the terms of this offering and for a more
complete understanding of our business, you should carefully read this entire
prospectus, particularly the section entitled "Risk Factors", our annual report
on Form 10-K for the year ended December 31, 2004 and our quarterly reports on
Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005, which are
incorporated by reference herein. When we use the terms "Abraxas," "we," "us,"
"our," or the "Company," we are referring to Abraxas Petroleum Corporation,
together with its consolidated subsidiaries, unless the context otherwise
requires. We have provided definitions for some of the natural gas and crude oil
industry terms used in this prospectus in the section entitled "Glossary of
Terms."
Our Business
Abraxas Petroleum Corporation is an independent energy company engaged
primarily in the acquisition, development, exploitation and production of
natural gas and crude oil. Our principal means of growth has been through the
acquisition and subsequent development and exploitation of producing properties.
As a result of our historical acquisition activities, we believe that we have a
substantial inventory of low risk exploitation and development opportunities,
the successful completion of which is critical to the maintenance and growth of
our current production levels.
Our core areas of operation are in south and west Texas and east
central Wyoming. Our current producing properties are typically characterized by
long-lived reserves, established production profiles and an emphasis on natural
gas. At December 31, 2004, we owned interests in 93,341 gross acres (81,748 net
acres) applicable to our continuing operations, and operated properties
accounting for approximately 95% of our PV-10. At December 31, 2004, estimated
total proved reserves were 93.7 Bcfe with an aggregate PV-10 of $149.0 million.
During the first six months of 2005, we participated in the drilling of 7 gross
(7 net) wells with 6 gross (6 net) being successful and invested $17.3 million
in capital spending on these activities.
We believe that our high quality asset base, high degree of operational
control and large inventory of drilling projects position us for future growth.
Our properties are concentrated in locations that facilitate substantial
economies of scale in drilling and production operations and efficient reservoir
management practices. In addition, at December 31, 2004, we had 47 proved
undeveloped locations and have identified over 100 drilling and recompletion
opportunities on our existing U.S. acreage, the successful development of which
we believe could significantly increase our daily production and proved
reserves.
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The Offering
On July 20, 2005, we issued 4,000,000 shares of our common stock to
certain accredited investors pursuant to a private placement. In connection with
the private placement, we agreed to prepare and file with the Securities and
Exchange Commission, no later than August 31, 2005, a registration statement to
enable the resale of the common stock by the selling stockholders or their
transferees. We also agreed to use our commercially reasonable efforts to cause
such registration statement to become effective as soon as practicable (subject
to certain conditions) and to remain continuously effective for a period ending
on the date that is the earlier of (i) the date on which the selling stockholder
may sell all of the shares of common stock purchased pursuant to the private
placement and then held by such selling stockholder without restriction under
Rule 144(k), or (ii) such time as all of such shares of common stock purchased
by such selling stockholder pursuant to the private placement have been sold or
otherwise transferred pursuant to a registration statement or otherwise.
In connection with a refinancing of our indebtedness in October 2004,
we issued warrants to purchase up to a total of 1,100,000 shares of our common
stock at a purchase price of $0.01 per share to Guggenheim Corporate Funding,
LLC (1,000,000 shares) and Durham Capital Corporation (100,000 shares). Durham
exercised its warrant in November 2004. Guggenheim exercised its warrant in
March 2005 by instructing us to issue 996,479 shares and withhold 3,521 shares
of stock as consideration for the shares to be issued pursuant to the exercise.
Guggenheim and Durham each have certain piggy-back registration rights and have
required us to include their shares in the registration statement of which this
prospectus is a part.
As a result of the exercise of the Durham and Guggenheim warrants and
our obligations in connection with the private placement, we have filed a
registration statement, of which this prospectus is a part, for the resale of a
total of 5,096,479 shares of our common stock, consisting of the 1,096,479
shares of our common stock issued to Guggenheim and Durham and the 4,000,000
shares of our common stock issued in the July 20, 2005 private placement.
Corporate Information
Abraxas was originally incorporated in Texas in 1977 and
re-incorporated in Nevada in 1990 when it became a public company. Our common
stock is listed on The American Stock Exchange under the symbol "ABP." Our
principal offices are located at 500 North Loop 1604 East, Suite 100, San
Antonio, Texas 78232, and our telephone number is (210) 490-4788. Our internet
address is www.abraxaspetroleum.com.
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RISK FACTORS
Risks Related to Our Business
We have a highly leveraged capital structure, which limits our
operating and financial flexibility.
We have a highly leveraged capital structure. At September 13, 2005, we
had total indebtedness, including our floating rate senior secured notes due
2009, or notes, which we issued in connection with our October 2004 refinancing,
of approximately $129 million, all of which is secured indebtedness. We also had
availability of $11.2 million under our revolving credit facility.
Our highly leveraged capital structure will have several important
effects on our future operations, including:
o a substantial amount of our cash flow from operations will be
required to service our indebtedness, which will reduce the funds
that would otherwise be available for operations, capital
expenditures and expansion opportunities, including developing
our properties;
o the covenants contained in our revolving credit facility require
us to meet certain financial tests and comply with certain other
restrictions, including limitations on capital expenditures.
These restrictions, together with those in the indenture
governing the notes, may limit our ability to undertake certain
activities and respond to changes in our business and our
industry;
o our debt level may impair our ability to obtain additional
capital, through equity offerings or debt financings, for working
capital, capital expenditures, or refinancing of indebtedness;
o our debt level makes us more vulnerable to economic downturns and
adverse developments in our industry (especially declines in
natural gas and crude oil prices) and the economy in general; and
o the notes and our revolving credit facility are subject to
variable interest rates which makes us vulnerable to interest
rate increases.
We may not be able to fund the substantial capital expenditures that
will be required for us to increase our reserves and our production.
We are required to make substantial capital expenditures to develop our
existing reserves and to discover new reserves. Historically, we have financed
our capital expenditures primarily with cash flow from operations, borrowings
under credit facilities and sales of producing properties, and we expect to
continue to do so in the future; however, we cannot assure you that we will have
sufficient capital resources in the future to finance our capital expenditures.
Volatility in natural gas and crude oil prices, the timing of our
drilling program and our drilling results will affect our cash flow from
operations. Lower prices and/or lower production will also decrease revenues and
cash flow, thus reducing the amount of financial resources available to meet our
capital requirements, including reducing the amount available to pursue our
drilling opportunities. If our cash flow from operations does not increase as a
result of our planned capital expenditures, a greater percentage of our cash
flow from operations will be required for debt service and our planned capital
expenditures would, by necessity, be decreased.
The borrowing base under our revolving credit facility will be
determined from time to time by our lenders, consistent with their customary
natural gas and crude oil lending practices. Reductions in estimates of our
natural gas and crude oil reserves could result in a reduction in our borrowing
base, which would reduce the amount of financial resources available under our
3
revolving credit facility to meet our capital requirements. Such a reduction
could be the result of lower commodity prices or production, inability to drill
or unfavorable drilling results, changes in natural gas and crude oil reserve
engineering, the lenders' inability to agree to an adequate borrowing base or
adverse changes in the lenders' practices regarding estimation of reserves.
If cash flow from operations or our borrowing base decrease for any
reason, our ability to undertake exploitation and development activities could
be adversely affected. As a result, our ability to replace production may be
limited. In addition, if the borrowing base under our revolving credit facility
is reduced, we would be required to reduce our borrowings under our revolving
credit facility so that such borrowings do not exceed the borrowing base. This
could further reduce the cash available to us for capital spending and, if we
did not have sufficient capital to reduce our borrowing level, could cause us to
default under our revolving credit facility and the notes.
We have sold producing properties to provide us with liquidity and
capital resources in the past and may do so in the future. After any such sale,
we would expect to utilize the proceeds to drill new wells. If we cannot replace
the production lost from properties sold with production from new properties,
our cash flow from operations will likely decrease which, in turn, would
decrease the amount of cash available for debt service and additional capital
spending.
We may be unable to acquire or develop additional reserves, in which
case our results of operations and financial condition would be adversely
affected.
Our future natural gas and crude oil production, and therefore our
success, is highly dependent upon our ability to find, acquire and develop
additional reserves that are profitable to produce. The rate of production from
our natural gas and crude oil properties and our proved reserves will decline as
our reserves are produced unless we acquire additional properties containing
proved reserves, conduct successful development and exploitation activities or,
through engineering studies, identify additional behind-pipe zones or secondary
recovery reserves. We cannot assure you that our exploration, exploitation and
development activities will result in increases in our proved reserves. While we
have had some success in pursuing these activities, we have not been able to
fully replace the production volumes lost from natural field declines and
property sales. As our proved reserves, and consequently our production,
decline, our cash flow from operations and the amount that we are able to borrow
under our revolving credit facility will also decline. In addition,
approximately 49% of our total estimated proved reserves at December 31, 2004
were undeveloped. By their nature, estimates of undeveloped reserves are less
certain. Recovery of such reserves will require significant capital expenditures
and successful drilling operations.
Prior to our January 2003 financial restructuring, we implemented a
number of measures to conserve our cash resources, including postponement of
drilling projects. While these measures helped conserve our cash resources, they
also limited our ability to replenish our depleting reserves. We also postponed
drilling projects as a result of the capital spending limitations that existed
in our 11 1/2% secured notes due 2007, which were redeemed in October 2004. As a
result, our current producing properties have continued to deplete, and we have
not been able to drill new wells at a rate that we would have desired in the
absence of these limitations. The terms of our revolving credit facility place
limits on our capital expenditures, which could limit our ability to replenish
our reserves and increase production.
We may not find any commercially productive natural gas or crude oil
reservoirs.
We cannot assure you that the new wells we drill will be productive or
that we will recover all or any portion of our capital investment. Drilling for
natural gas and crude oil may be unprofitable. Dry holes and wells that are
productive but do not produce sufficient net revenues after drilling, operating
and other costs are unprofitable. The inherent risk of not finding commercially
productive reservoirs will be compounded by the fact that 49% of our total
estimated proved reserves at December 31, 2004 were undeveloped. By their
nature, estimates of undeveloped reserves are less certain. Recovery of such
reserves will require significant capital expenditures and successful drilling
operations. In addition, our properties may be susceptible to drainage from
4
production by other operations on adjacent properties. If the volume of natural
gas and crude oil we produce decreases, our cash flow from operations will
decrease.
Restrictive debt covenants could limit our growth and our ability to
finance our operations, fund our capital needs, respond to changing conditions
and engage in other business activities that may be in our best interests.
Our revolving credit facility and the indenture governing the notes
contain a number of significant covenants that, among other things, limit our
ability to:
o incur or guarantee additional indebtedness and issue certain
types of preferred stock or redeemable stock;
o transfer or sell assets;
o create liens on assets;
o pay dividends or make other distributions on capital stock or
make other restricted payments, including repurchasing, redeeming
or retiring capital stock or subordinated debt or making certain
investments or acquisitions;
o engage in transactions with affiliates;
o guarantee other indebtedness;
o make any change in the principal nature of our business;
o prepay, redeem, purchase or otherwise acquire any of our or our
restricted subsidiaries' indebtedness;
o permit a change of control;
o directly or indirectly make or acquire any investment;
o cause a restricted subsidiary to issue or sell our capital stock;
and
o consolidate, merge or transfer all or substantially all of the
consolidated assets of Abraxas and our restricted subsidiaries.
In addition, our revolving credit facility requires us to maintain
compliance with specified financial ratios and satisfy certain financial
condition tests. Our ability to comply with these ratios and financial condition
tests may be affected by events beyond our control, and we cannot assure you
that we will meet these ratios and financial condition tests. These financial
ratio restrictions and financial condition tests could limit our ability to
obtain future financings, make needed capital expenditures, withstand a future
downturn in our business or the economy in general or otherwise conduct
necessary or desirable corporate activities.
A breach of any of these covenants or our inability to comply with the
required financial ratios or financial condition tests could result in a default
under our revolving credit facility and the notes. A default, if not cured or
waived, could result in all of our indebtedness, including the notes, becoming
immediately due and payable. If that should occur, we may not be able to pay all
such debt or to borrow sufficient funds to refinance it. Even if new financing
were then available, it may not be on terms that are acceptable to us.
The marketability of our production depends largely upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities.
The marketability of our production depends in part upon processing and
transportation facilities. Transportation space on such gathering systems and
pipelines is occasionally limited and at times unavailable due to repairs or
improvements being made to such facilities or due to such space being utilized
by other companies with priority transportation agreements. Our access to
transportation options can also be affected by U.S. Federal and state regulation
5
of natural gas and crude oil production and transportation, general economic
conditions and changes in supply and demand. These factors and the availability
of markets are beyond our control. If market factors dramatically change, the
financial impact on us could be substantial and adversely affect our ability to
produce and market natural gas and crude oil.
Hedging transactions have in the past and may in the future impact our
cash flow from operations.
We enter into hedging arrangements from time to time to reduce our
exposure to fluctuations in natural gas and crude oil prices and to achieve more
predictable cash flow. In 2002 and 2003, we experienced hedging costs of $1.5
million and $842,000, respectively, resulting from the price ceilings we
established being exceeded by the index prices. For the year ended December 31,
2004, we recognized a gain from hedging activities of approximately $118,000.
Currently, we believe our hedging arrangements, which are in the form of price
floors, do not expose us to significant financial risk. Although our hedging
activities may limit our exposure to declines in natural gas and crude oil
prices, such activities may also limit, and have in the past limited, additional
revenues from increases in natural gas and crude oil prices.
We cannot assure you that the hedging transactions we have entered
into, or will enter into, will adequately protect us from financial loss due to
circumstances such as:
o highly volatile natural gas and crude oil prices;
o our production being less than expected; or
o a counterparty to one of our hedging transactions defaulting on
our contractual obligations.
We have experienced recurring significant operating losses.
We recorded net losses from continuing operations for 2002 and 2003 of
$55.2 million and $14.1 million, respectively. We recorded net income from
continuing operations for 2004 of $7.8 million, which includes $12.6 million of
gain on debt extinguishment relating to our October 2004 refinancing and a
deferred tax benefit of $6.1 million.
Lower natural gas and crude oil prices increase the risk of ceiling
limitation write-downs.
We use the full cost method to account for our natural gas and crude
oil operations. Accordingly, we capitalize the cost to acquire, explore for and
develop natural gas and crude oil properties. Under full cost accounting rules,
the net capitalized cost of natural gas and crude oil properties may not exceed
a "ceiling limit" which is based upon the present value of estimated future net
cash flows from proved reserves, discounted at 10%. If net capitalized costs of
natural gas and crude oil properties exceed the ceiling limit, we must charge
the amount of the excess to earnings. This is called a "ceiling limitation
write-down." This charge does not impact cash flow from operating activities,
but does reduce our stockholders' equity and earnings. The risk that we will be
required to write-down the carrying value of natural gas and crude oil
properties increases when natural gas and crude oil prices are low. In addition,
write-downs may occur if we experience substantial downward adjustments to our
estimated proved reserves. An expense recorded in one period may not be reversed
in a subsequent period even though higher natural gas and crude oil prices may
have increased the ceiling applicable to the subsequent period.
We have incurred ceiling limitation write-downs in the past. At June
30, 2002, for example, we recorded a ceiling limitation write-down of $28.2
million. We cannot assure you that we will not experience additional ceiling
limitation write-downs in the future.
Use of our net operating loss carryforwards may be limited.
At December 31, 2004, we had, subject to the limitation discussed
below, $184.0 million of net operating loss carryforwards for U.S. tax purposes.
These loss carryforwards will expire through 2022 if not utilized. In addition,
6
as to a portion of the U.S. net operating loss carryforwards, the amount of such
carryforwards that we can use annually is limited under U.S. tax law. Moreover,
uncertainties exist as to the future utilization of the operating loss
carryforwards under the criteria set forth under FASB Statement No. 109.
Therefore, we have established a valuation allowance of $73.2 million and $73.0
million for deferred tax assets at December 31, 2003 and 2004, respectively.
We depend on our Chairman, President and CEO and the loss of his
services could have an adverse effect on our operations.
We depend to a large extent on Robert L. G. Watson, our Chairman of the
Board, President and Chief Executive Officer, for our management and business
and financial contacts. Mr. Watson may terminate his employment agreement with
us at any time on 30 days notice, but, if he terminates without cause, he would
not be entitled to the severance benefits provided under the terms of that
agreement. Mr. Watson is not precluded from working for, with or on behalf of a
competitor upon termination of his employment with us. If Mr. Watson were no
longer able or willing to act as our Chairman, the loss of his services could
have an adverse effect on our operations. In addition, in connection with the
initial public offering by our previously wholly-owned subsidiary, Grey Wolf
Exploration Inc., we, Grey Wolf and Mr. Watson agreed that Mr. Watson would
continue to serve as our Chief Executive Officer and President and as the Chief
Executive Officer for Grey Wolf, with Mr. Watson devoting two-thirds of his time
to his positions and duties with us and one-third of his time to his position
and duties with Grey Wolf. In consideration for receiving Mr. Watson's services,
Grey Wolf makes an annual payment to Abraxas of US$100,000 and reimburses
Abraxas for Mr. Watson's expenses incurred in connection with providing such
services.
Risks Related to Our Industry
Market conditions for natural gas and crude oil, and particularly
volatility of prices for natural gas and crude oil, could adversely affect our
revenue, cash flows, profitability and growth.
Our revenue, cash flows, profitability and future rate of growth depend
substantially upon prevailing prices for natural gas and crude oil. Natural gas
prices affect us more than crude oil prices because most of our production and
reserves are natural gas. Prices also affect the amount of cash flow available
for capital expenditures and our ability to borrow money or raise additional
capital. Lower prices may also make it uneconomical for us to increase or even
continue current production levels of natural gas and crude oil.
Prices for natural gas and crude oil are subject to large fluctuations
in response to relatively minor changes in the supply and demand for natural gas
and crude oil, market uncertainty and a variety of other factors beyond our
control, including:
o changes in foreign and domestic supply and demand for natural gas
and crude oil;
o political stability and economic conditions in oil producing
countries, particularly in the Middle East;
o general economic conditions;
o domestic and foreign governmental regulation; and
o the price and availability of alternative fuel sources.
In addition to decreasing our revenue and cash flow from operations,
low or declining natural gas and crude oil prices could have additional material
adverse effects on us, such as:
o reducing the overall volume of natural gas and crude oil that we
can produce economically, thereby adversely affecting our
revenue, profitability and cash flow and our ability to perform
our obligations with respect to the notes;
7
o reducing our borrowing base under the credit facility; and
o impairing our borrowing capacity and our ability to obtain equity
capital.
Estimates of our proved reserves and future net revenue are uncertain
and inherently imprecise.
The process of estimating natural gas and crude oil reserves is complex
involving decisions and assumptions in evaluating the available geological,
geophysical, engineering and economic data. Accordingly, these estimates are
imprecise. Actual future production, natural gas and crude oil prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable natural gas and crude oil reserves most likely will vary from those
estimated. Any significant variance could materially affect the estimated
quantities and present value of reserves set forth in this report. In addition,
we may adjust estimates of proved reserves to reflect production history,
results of exploitation and development, prevailing natural gas and crude oil
prices and other factors, many of which are beyond our control.
The estimates of our reserves are based upon various assumptions about
future production levels, prices and costs that may not prove to be correct over
time. In particular, estimates of natural gas and crude oil reserves, future net
revenue from proved reserves and the PV-10 thereof for the natural gas and crude
oil properties described in this report are based on the assumption that future
natural gas and crude oil prices remain the same as natural gas and crude oil
prices at December 31, 2004. The sales prices as of such date used for purposes
of such estimates were $4.94 per Mcf of natural gas and $41.01 per Bbl of crude
oil. This compares with $5.05 per Mcf of natural gas and $31.03 per Bbl of crude
oil as of December 31, 2003. These estimates also assume that we will make
future capital expenditures of approximately $45.0 million in the aggregate
through 2019, with the majority expected to be incurred from 2005 to 2008, which
are necessary to develop and realize the value of proved undeveloped reserves on
our properties. Any significant variance in actual results from these
assumptions could also materially affect the estimated quantity and value of
reserves set forth in this report.
The present value of future net revenues referred to in this report may
not be the current market value of our estimated natural gas and crude oil
reserves. In accordance with SEC requirements, the estimated discounted future
net cash flows from proved reserves are generally based on prices and costs as
of the end of the period of the estimate. Actual future prices and costs may be
materially higher or lower than the prices and costs as of the end of the year
of the estimate. Any changes in consumption by natural gas purchasers or in
governmental regulations or taxation will also affect actual future net cash
flows. The timing of both the production and the expenses from the development
and production of natural gas and crude oil properties will affect the timing of
actual future net cash flows from proved reserves and their present value. In
addition, the 10% discount factor, which is required by the SEC to be used in
calculating discounted future net cash flows for reporting purposes, is not
necessarily the most accurate discount factor. The effective interest rate at
various times and the risks associated with us or the natural gas and crude oil
industry in general will affect the accuracy of the 10% discount factor.
Our operations are subject to the numerous risks of natural gas and
crude oil drilling and production activities.
Our natural gas and crude oil drilling and production activities are
subject to numerous risks, many of which are beyond our control. These risks
include the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards. Environmental hazards include
oil spills, natural gas leaks, ruptures and discharges of toxic gases. In
addition, title problems, weather conditions and mechanical difficulties or
shortages or delays in delivery of drilling rigs and other equipment could
negatively affect our operations. If any of these or other similar industry
operating risks occur, we could have substantial losses. Substantial losses also
may result from injury or loss of life, severe damage to or destruction of
property, clean-up responsibilities, regulatory investigation and penalties and
suspension of operations. In accordance with industry practice, we maintain
insurance against some, but not all, of the risks described above. We cannot
assure you that our insurance will be adequate to cover losses or liabilities.
8
Also, we cannot predict the continued availability of insurance at premium
levels that justify its purchase.
We operate in a highly competitive industry which may adversely affect
our operations, including our ability to secure drilling equipment to service
our core areas.
We operate in a highly competitive environment. The principal resources
necessary for the exploration and production of natural gas and crude oil are
leasehold prospects under which natural gas and crude oil reserves may be
discovered, drilling rigs and related equipment to explore for such reserves and
knowledgeable personnel to conduct all phases of natural gas and crude oil
operations. We must compete for such resources with both major natural gas and
crude oil companies and independent operators. Many of these competitors have
financial and other resources substantially greater than ours. In the past, we
have had difficulty securing drilling equipment in certain of our core areas.
Although we believe our current operating and financial resources are adequate
to preclude any significant disruption of our operations in the immediate
future, we cannot assure you that such materials and resources will be available
to us.
Our natural gas and crude oil operations are subject to various
Federal, state and local regulations that materially affect our operations.
Matters regulated include permits for drilling operations, drilling and
abandonment bonds, reports concerning operations, the spacing of wells and
unitization and pooling of properties and taxation. At various times, regulatory
agencies have imposed price controls and limitations on production. In order to
conserve supplies of natural gas and crude oil, these agencies have restricted
the rates of flow of natural gas and crude oil wells below actual production
capacity. Federal, state and local laws regulate production, handling, storage,
transportation and disposal of natural gas and crude oil, by-products from
natural gas and crude oil and other substances and materials produced or used in
connection with natural gas and crude oil operations. To date, our expenditures
related to complying with these laws and for remediation of existing
environmental contamination have not been significant. We believe that we are in
substantial compliance with all applicable laws and regulations. However, the
requirements of such laws and regulations are frequently changed. We cannot
predict the ultimate cost of compliance with these requirements or their effect
on our operations.
Risks Related to the Common Stock
We do not pay dividends on common stock.
We have never paid a cash dividend on our common stock and the terms of
the revolving credit facility and the indenture relating to the notes limit our
ability to pay dividends on our common stock.
Shares eligible for future sale may depress our stock price.
At September 13, 2005, we had 42,035,167 shares of common stock
outstanding of which 4,434,773 shares were held by affiliates and, in addition,
2,472,123 shares of common stock were subject to outstanding options granted
under certain stock option plans (of which 2,127,070 shares were vested at
September 13, 2005).
All of the shares of common stock held by affiliates are restricted or
control securities under Rule 144 promulgated under the Securities Act. The
shares of the common stock issuable upon exercise of the stock options have been
registered under the Securities Act. Sales of shares of common stock under Rule
144 or another exemption under the Securities Act or pursuant to a registration
statement could have a material adverse effect on the price of the common stock
and could impair our ability to raise additional capital through the sale of
equity securities.
9
The price of our common stock has been volatile and could continue to
fluctuate substantially.
Our common stock is traded on The American Stock Exchange. The market
price of our common stock has been volatile and could fluctuate substantially
based on a variety of factors, including the following:
o fluctuations in commodity prices;
o variations in results of operations;
o legislative or regulatory changes;
o general trends in the industry;
o market conditions; and
o analysts' estimates and other events in the natural gas and crude
oil industry.
We may issue shares of preferred stock with greater rights than our
common stock.
Subject to the rules of The American Stock Exchange, our articles of
incorporation authorize our board of directors to issue one or more series of
preferred stock and set the terms of the preferred stock without seeking any
further approval from holders of our common stock. Any preferred stock that is
issued may rank ahead of our common stock in terms of dividends, priority and
liquidation premiums and may have greater voting rights than our common stock.
Anti-takeover provisions could make a third party acquisition of
Abraxas difficult.
Our articles of incorporation and bylaws provide for a classified board
of directors, with each member serving a three-year term, and eliminate the
ability of stockholders to call special meetings or take action by written
consent. Each of the provisions in the articles of incorporation and bylaws
could make it more difficult for a third party to acquire Abraxas without the
approval of our board. In addition, the Nevada corporate statute also contains
certain provisions that could make an acquisition by a third party more
difficult.
An active market may not develop for our common stock.
Our common stock is quoted on The American Stock Exchange. While there
is currently one specialist in our common stock, this specialist is not
obligated to continue to make a market in our common stock. In this event, the
liquidity of our common stock could be adversely impacted and a stockholder
could have difficulty obtaining accurate stock quotes.
Future issuance of additional shares of our common stock could cause
dilution of ownership interests and adversely affect our stock price.
We may in the future issue our previously authorized and unissued
securities, resulting in the dilution of the ownership interests of our current
stockholders and purchasers of common stock offered hereby. We are currently
authorized to issue 200,000,000 shares of common stock with such rights as
determined by our board of directors. The potential issuance of such additional
shares of common stock may create downward pressure on the trading price of our
common stock. We may also issue additional shares of our common stock or other
securities that are convertible into or exercisable for capital raising or other
business purposes. Future sales of substantial amounts of common stock, or the
perception that sales could occur, could have a material adverse effect on the
price of our common stock.
10
USE OF PROCEEDS
All of the shares of common stock covered by this prospectus are being
sold by the selling stockholders. See "Selling Stockholders." We will not
receive any proceeds from these sales of shares of our common stock.
DESCRIPTION OF CAPITAL STOCK
Common Stock
Abraxas is currently authorized to issue up to 200,000,000 shares of
common stock, par value $.01 per share.
As of September 13, 2005 there were 42,035,167 shares of our common
stock issued and outstanding. Holders of the common stock are entitled to cast
one vote for each share held of record on all matters submitted to a vote of
stockholders and are not entitled to cumulate votes for the election of
directors. Holders of common stock do not have preemptive rights to subscribe
for additional shares of common stock issued by us.
Holders of the common stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefore.
Under the terms of the notes indenture, we may not pay dividends on shares of
our common stock. In the event of liquidation, holders of the common stock are
entitled to share pro rata in any distribution of our assets remaining after
payment of liabilities, subject to the preferences and rights of the holders of
any outstanding shares of preferred stock. All of the outstanding shares of the
common stock are fully paid and nonassessable.
Preferred Stock
Our articles of incorporation authorize the issuance of up to 1,000,000
shares of preferred stock, par value $.01 per share, in one or more series. The
Board of Directors is authorized, without any further action by the
stockholders, to determine the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences,
sinking fund terms and other rights, preferences, privileges and restrictions of
any series of preferred stock, the number of shares constituting any such
series, and the designation thereof. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of holders of
any preferred stock that may be issued in the future.
Option Plans
Pursuant to our 2005 Non-Employee Director Long Term Equity Incentive
Plan, we grant non-qualified stock options and restricted stock to non-employee
directors. This plan is administered by the compensation committee and provides
that each year, at the first regular meeting of the Board of Directors
immediately following our annual stockholder's meeting, each non-employee
director shall be granted or issued awards of 10,000 shares of our common stock,
for participation in Board and Committee meetings during the previous calendar
year. Immediately following our 2005 annual stockholder's meeting, each
non-employee director received non-qualified stock options for 10,000 shares of
our common stock.
The compensation committee also administers our 1993 Key Contributor
Stock Option Plan, 1994 Long Term Incentive Plan, Directors Restricted Share
Plan and Director Stock Option Plan, each of which is now expired, but under
which we previously granted restricted stock, incentive stock options and
non-qualified stock options as permitted by such plans.
The following table sets forth the number of options issued and
outstanding, the amount of those options outstanding that are fully vested and
the average exercise price per share of such options under our 2005 Non-Employee
Director Long Term Equity Incentive Plan, 1993 Key Contributor Stock Option
11
Plan, 1994 Long Term Incentive Plan, Directors Restricted Share Plan and
Director Stock Option Plan, as of September 13, 2005:
Average
Exercise
Options Issued and Price Per
Plan Outstanding Options Vested Share
--------------------------------------------- -------------------- ------------------ --------------
2005 Non-Employee Director Long Term Equity 100,000 100,000 $2.75
Incentive Plan
1993 Key Contributor Stock Option Plan 36,077 36,077 $2.46
1994 Long Term Incentive Plan 1,721,046 1,540,993 $0.90
Directors Restricted Share Plan 60,000 60,000 $1.41
Director Stock Option Plan 60,000 60,000 $2.06
-------------------- ------------------ --------------
Total 1,977,123 1,797,070 $1.09
We have also granted options to purchase shares of our common stock pursuant to
individual option agreements not covered by any of the above-described plans, of
which, as of September 13, 2005, 495,000 were outstanding and 330,000 were fully
vested at an average exercise price of $0.90 per share. As of September 13,
2005, in the aggregate there were options to purchase 2,472,123 shares of our
common stock outstanding, of which 2,127,070 were fully vested at an average
exercise price of $1.06 per share.
Anti-takeover Effects of Certain Provisions of the Articles of Incorporation and
Bylaws
Our articles of incorporation and bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
th\ree-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. The articles of incorporation and bylaws
provide that the Board of Directors will consist of not less than three nor more
than twelve members, with the exact number to be determined from time to time by
the affirmative vote of a majority of directors then in office. The Board of
Directors, and not the stockholders, has the authority to determine the number
of directors. This provision could prevent any stockholder from obtaining
majority representation on our Board of Directors by enlarging the Board of
Directors and by filling the new directorships with the stockholder's own
nominees. In addition, directors may be removed by the stockholders only for
cause.
The articles of incorporation and bylaws provide that special meetings
of our stockholders may be called only by the Chairman of the Board, the
President or a majority of the members of the Board of Directors. This provision
may make it more difficult for stockholders to take actions opposed by the Board
of Directors.
The articles of incorporation and bylaws provide that any action
required to be taken or which may be taken by holders of our common stock must
be effected at a duly called annual or special meeting of such holders, and may
not be taken by any written consent of such stockholders. These provisions may
have the effect of delaying consideration of a stockholder proposal until the
next annual meeting unless a special meeting is called by the persons set forth
above. The provisions of the articles of incorporation and bylaws prohibiting
stockholder action by written consent could prevent the holders of a majority of
the voting power of Abraxas from using the written consent procedure to take
stockholder action and taking action by consent without giving all of our
stockholders entitled to vote on a proposed action the opportunity to
participate in determining such proposed action.
12
Anti-Takeover Statutes
The Nevada General Corporation Law (the "Nevada GCL") contains two
provisions, described below as "Combination Provisions" and the "Control Share
Act," that may make the unsolicited or hostile attempts to acquire control of a
corporation through certain types of transactions more difficult.
Restrictions on Certain Combinations between Nevada Resident
Corporations and Interested Stockholders.
The Nevada GCL includes certain provisions (the "Combination
Provisions") prohibiting certain "combinations" (generally defined to include
certain mergers, disposition of assets transactions, and share issuance or
transfer transactions) between a resident domestic corporation and an
"interested stockholder" (generally defined to be the beneficial owner of 10% or
more of the voting power of the outstanding shares of the corporation), except
those combinations which are approved by the board of directors before the
interested stockholder first obtained a 10% interest in the corporation's stock.
There are additional exceptions to the prohibition, which apply to combinations
if they occur more than three years after the interested stockholder's date of
acquiring shares. The Combination Provisions apply unless the corporation elects
against their application in its original articles of incorporation or an
amendment thereto, or timely elected against their application in its bylaws no
later than October 31, 1991. Our articles of incorporation and bylaws do not
currently contain a provision rendering the Combination Provisions inapplicable.
Nevada Control Share Act.
Nevada's Control Share Acquisition Act (the "Control Share Act")
imposes procedural hurdles on and curtails greenmail practices of corporate
raiders. The Control Share Act temporarily disenfranchises the voting power of
"control shares" of a person or group ("Acquiring Person") purchasing a
"controlling interest" in an "issuing corporation" (as defined in the Nevada
GCL) not opting out of the Control Share Act. In this regard, the Control Share
Act will apply to an "issuing corporation" unless, before an acquisition is
made, the articles of incorporation or bylaws in effect on the tenth day
following the acquisition of a controlling interest provide that it is
inapplicable. Our articles of incorporation and bylaws do not currently contain
a provision rendering the Control Share Act inapplicable.
Under the Control Share Act, an "issuing corporation" is a corporation
organized in Nevada which has 200 or more stockholders, at least 100 of whom are
stockholders of record and residents of Nevada, and which does business in
Nevada directly or through an affiliated company. Our status at the time of the
occurrence of a transaction governed by the Control Share Act (assuming that our
articles of incorporation or bylaws have not theretofore been amended to include
an opting out provision) would determine whether the Control Share Act is
applicable.
The Control Share Act requires an Acquiring Person to take certain
procedural steps before such Acquiring Person can obtain the full voting power
of the control shares. "Control shares" are the shares of a corporation (1)
acquired or offered to be acquired which will enable the Acquiring Person to own
a "controlling interest," and (2) acquired within 90 days immediately preceding
that date. A "controlling interest" is defined as the ownership of shares which
would enable the Acquiring Person to exercise certain graduated amounts
(beginning with one-fifth) of all voting power of the corporation. The Acquiring
Person may not vote any control shares without first obtaining approval from the
stockholders not characterized as "interested stockholders" (as defined below).
To obtain voting rights in control shares, the Acquiring Person must
file a statement at the registered office of the issuer ("Offeror's Statement")
setting forth certain information about the acquisition or intended acquisition
of stock. The Offeror's Statement may also request a special meeting of
stockholders to determine the voting rights to be accorded to the Acquiring
Person. A special stockholders' meeting must then be held at the Acquiring
Person's expense within 30 to 50 days after the Offeror's Statement is filed. If
a special meeting is not requested by the Acquiring Person, the matter will be
addressed at the next regular or special meeting of stockholders.
13
At the special or annual meeting at which the issue of voting rights of
control shares will be addressed, "interested stockholders" may not vote on the
question of granting voting rights to control the corporation or its parent
unless the articles of incorporation of the issuing corporation provide
otherwise. Our articles of incorporation do not currently contain a provision
allowing for such voting power.
If full voting power is granted to the Acquiring Person by the
disinterested stockholders, and the Acquiring Person has acquired control shares
with a majority or more of the voting power, then (unless otherwise provided in
the articles of incorporation or bylaws in effect on the tenth day following the
acquisition of a controlling interest) all stockholders of record, other than
the Acquiring Person, who have not voted in favor of authorizing voting rights
for the control shares, must be sent a "dissenter's notice" advising them of the
fact and of their right to receive "fair value" for their shares. Our articles
of incorporation and bylaws do not provide otherwise. By the date set in the
dissenter's notice, which may not be less than 30 nor more than 60 days after
the dissenter's notice is delivered, any such stockholder may demand to receive
from the corporation the "fair value" for all or part of his shares. "Fair
value" is defined in the Control Share Act as "not less than the highest price
per share paid by the Acquiring Person in an acquisition."
The Control Share Act permits a corporation to redeem the control
shares in the following two instances, if so provided in the articles of
incorporation or bylaws of the corporation in effect on the tenth day following
the acquisition of a controlling interest: (1) if the Acquiring Person fails to
deliver the Offeror's Statement to the corporation within 10 days after the
Acquiring Person's acquisition of the control shares; or (2) an Offeror's
Statement is delivered, but the control shares are not accorded full voting
rights by the stockholders. Our articles of incorporation and bylaws do not
address this matter.
14
SELLING STOCKHOLDERS
The shares of our common stock covered by this prospectus are being
offered by the selling stockholders listed in the table below. This prospectus
will not cover subsequent sales of common stock purchased from a selling
stockholder named in this prospectus.
No offer or sale under this prospectus may be made by a stockholder
unless that holder is listed in the table below, in a supplement to this
prospectus or in an amendment to the related registration statement that has
become effective. We will supplement or amend this prospectus to include
additional selling stockholders upon request and upon provision of all required
information to us, subject to the terms of registration rights agreements
between us and the selling stockholders.
The following table sets forth the name of each selling stockholder,
the nature of any position, office, or other material relationship which the
selling stockholder has had, within the past three years, with us or with any of
our predecessors or affiliates, the amount of shares of our common stock
beneficially owned by such stockholder prior to the offering, the amount being
offered for the stockholder's account and the amount to be owned by such
stockholders after completion of the offering.
We prepared the table based on information supplied to us by the
selling stockholders. We have not sought to verify such information.
Additionally, the selling stockholders may have sold or transferred some or all
of their shares of our common stock in transactions exempt from the registration
requirements of the Securities Act since the date on which the information in
the table was provided to us. Other information about the selling stockholders
may also change over time.
Number of Shares
Number of Shares of Common Stock Percentage of Shares
of Common Stock Number of Shares Beneficially of Common Stock
Beneficially of Common Stock Owned After Beneficially Owned
Owned Prior to Being Offered Completion of the After Completion of
Name the Offering Hereby Offering the Offering
------------------------------------ ------------------ ------------------- ------------------- ----------------------
Bonanza Master Fund, Ltd.(1) 1,666,667 1,666,667 0 *
Bernay Box(1) 1,666,667 1,666,667 0 *
Tonga Partners, L.P.(2) 1,030,472 1,030,472 0 *
Anegada Master Fund, Ltd.(2) 636,195 636,195 0 *
J. Carlo Cannell (2) 1,666,667 1,666,667 0 *
Guggenheim Corporate Funding,
LLC(3) 996,479 996,479 0 *
Todd L. Boehly(3) 996,479 996,479 0 *
Ironman Energy Capital LP(4) 463,333 463,333 0 *
G. Bryan Dutt (4) 463,333 463,333 0 *
Blanco Partners, L.P.(5) 160,000 120,000 40,000 *
Joe B. Kercheville (5) 160,000 120,000 40,000 *
Durham Capital Corporation(6) 100,000 100,000 0 *
Sylvester Miniter (6) 100,000 100,000 0 *
Brian & Allison Grove 443,333 83,333 360,000 *
15
* Less than 1%
(1) Bernay Box, in his capacity as the President of Bonanza Fund Management,
Inc., as the general partner of Bonanza Capital, Ltd., as the general partner of
Bonanza Master Fund, Ltd., has voting and investment control over the shares
held by Bonanza Master Fund, Ltd.
(2) J. Carlo Cannell, in his capacity as the general partner of Tonga Partners,
L.P. and as the Investment Advisor to Anegada Master Fund, Ltd., has voting and
investment control over the shares held by both Tonga Partners, L.P. and Anegada
Master Fund, Ltd.
(3) In connection with our October 2004 refinancing, Guggenheim Corporate
Funding, LLC received warrants to purchase up to 1,000,000 shares of our common
stock, which warrants were exercised pursuant to a cashless exercise in March
2005. Guggenheim Corporate Funding, LLC is an affiliate of a broker-dealer.
Guggenheim Corporate Funding, LLC received its shares in the ordinary course of
business and at the time of receiving such shares, had no agreements or
understandings, directly or indirectly, with any party to distribute the shares.
Todd L. Boehly, in his capacity as a Managing Director of Guggenheim Corporate
Funding, LLC, has voting and investment control over the shares held by
Guggenheim Corporate Funding, LLC. Mr. Boehly disclaims beneficial ownership of
such shares.
(4) G. Bryan Dutt, in his capacity as Managing Director of Ironman Energy
Capital LP, has voting and investment control over the shares held by Ironman
Energy Capital LP.
(5) Joe B. Kercheville, in his capacity as general partner of Blanco Partners,
L.P., has voting and investment control over the shares held by Blanco Partners,
L.P.
(6) In connection with our October 2004 refinancing, Durham Capital Corporation
received warrants to purchase 100,000 shares of our common stock, which warrants
were exercised in November 2004. Sylvester Miniter, in his capacity as President
of Durham Capital Corporation, has voting and investment control over the shares
held by Durham Capital Corporation.
PLAN OF DISTRIBUTION
Our common stock is being registered to permit public secondary trading
of these securities by the selling stockholders from time to time after the date
of this prospectus. We have agreed, among other things, to bear all expenses
(other than underwriting discounts and selling commissions) in connection with
the registration and sale of the common stock covered by this prospectus. We
will not receive any of the proceeds from the offering of the common stock by
the selling stockholders.
We have been advised by the selling stockholders that the selling
stockholders may sell all or a portion of the common stock beneficially owned by
them and offered hereby from time to time on any exchange on which the
securities are listed on terms to be determined at the times of such sales. The
selling stockholders may also make private sales directly or through a broker or
brokers. Alternatively, the selling stockholders may from time to time offer the
common stock beneficially owned by them through underwriters, dealers or agents,
who may receive compensation in the form of underwriting discounts, commissions
or concessions from the selling stockholders and the purchasers of the common
stock for whom they may act as agent. The aggregate proceeds to the selling
stockholders from the sale of the common stock will be the purchase price of
such common stock less discounts and commissions, if any.
The common stock may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. These prices will
be determined by the holders of such securities or by agreement between these
holders and underwriters or dealers who may receive fees or commissions in
connection therewith. These transactions may include block transactions or
crosses. Crosses are transactions in which the same broker acts as an agent on
both sides of the trade.
16
In connection with sales of our common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers or others,
which may in turn engage in short sales of our common stock in the course of
hedging the positions they assume. The selling stockholders may also sell our
common stock short and deliver our common stock to close out short positions, or
loan or pledge our common stock to broker-dealers or others that in turn may
sell such securities. The selling stockholders may pledge or grant a security
interest in some or all of our common stock owned by them and if a selling
stockholder defaults in the performance of its secured obligations, the pledgees
or secured parties may offer and sell such selling stockholder's pledged common
stock from time to time pursuant to this prospectus. The selling stockholders
also may transfer and donate shares of our common stock in other circumstances
in which case the transferees, donees, pledgees or other successors in interest
will be the selling stockholders for purposes of the prospectus. The selling
stockholders may sell short our common stock and may deliver this prospectus in
connection with such short sales and use the shares of our common stock covered
by the prospectus to cover such short sales. In addition, any shares of our
common stock covered by this prospectus that qualify for sale pursuant to Rule
144 or any other available exemption from registration under the Securities Act
may be sold under Rule 144 or such other available exemption.
At the time a particular offering of shares of our common stock covered
by this prospectus is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate number of shares of our common
stock being offered and the terms of the offering, including the name or names
of any underwriters, dealers, brokers or agents, if any, and any discounts,
commissions or concessions allowed or reallowed to be paid to brokers or
dealers.
Selling stockholders and any underwriters, dealers, brokers or agents
who participate in the distribution of the common stock may be deemed to be
"underwriters" within the meaning of the Securities Act and any profits on the
sale of the common stock by them and any discounts, commissions or concessions
received by any such underwriters, dealers, brokers or agents may be deemed to
be underwriting discounts and commissions under the Securities Act.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M which may limit the timing of purchases and sales of the common
stock by the selling stockholders and any other such person. Furthermore,
Regulation M under the Securities Exchange Act may restrict the ability of any
person engaged in a distribution of the common stock being distributed for a
period of up to five business days prior to the commencement of such
distribution. All of the foregoing may affect the marketability of the common
stock and the ability of any person or entity to engage in market-making
activities with respect to the common stock.
We will use our reasonable efforts to keep the registration statement
of which this prospectus is a part effective until the earliest of (a) the date
all common stock covered by this prospectus has been sold or otherwise
transferred pursuant to a registration statement or otherwise, (b) the
expiration of 180 days following the holding period applicable to such
securities held by persons that are not our affiliates under Rule 144(k) under
the Securities Act or any successor provision, subject to certain permitted
exceptions, and (c) the date that is three years from the date this registration
statement is declared effective by the SEC.
LEGAL MATTERS
The validity of the issuance of the common stock covered by this
prospectus has been passed upon for us by Cox Smith Matthews Incorporated, San
Antonio, Texas.
EXPERTS
The consolidated financial statements of Abraxas as of December 31,
2004 and December 31, 2003 and for the years ended December 31, 2004 and
December 31, 2003, included in this prospectus have been audited by BDO Seidman,
LLP, independent registered public accounting firm, as stated in their report
appearing herein (which report expresses an unqualified opinion and includes a
paragraph referring to a change in accounting method), and have been so included
17
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Abraxas for the year ended
December 31, 2002, incorporated in this prospectus by reference from Abraxas'
Annual Report on Form 10-K for the year ended December 31, 2004 have been
audited by Deloitte & Touche LLP, independent registered public accounting firm,
as stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The historical reserve information prepared by DeGolyer and MacNaughton
included in this prospectus has been included herein in reliance upon the
authority of such firm as experts with respect to matters contained in such
reserve reports.
WHERE YOU CAN FIND MORE INFORMATION
Our SEC filings are available to the public over the Internet at the
SEC's web site at www.sec.gov. You may also read and copy any document we file
at the SEC's public reference rooms located at 450 Fifth Street, N.W.,
Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms and their copy charges. Also, using
our website, www.abraxaspetroleum.com, you can access electronic copies of
documents we file with the SEC, including our annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K and any
amendments to those reports. Information on our website is not incorporated by
reference in this prospectus. Access to those electronic filings is available as
soon as practical after filing with the SEC. You may also request a copy of
those filings, excluding exhibits, at no cost by writing, emailing or
telephoning our principal executive office, which is:
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
Attn: Chris Williford
(210) 490-4788
INCORPORATION BY REFERENCE
The following documents we filed with the SEC pursuant to the Exchange Act
are incorporated herein by reference:
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 2004, filed with the Commission on March 29, 2005;
o Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2005, filed with the Commission on May 13, 2005;
o Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2005, filed with the Commission on August 10, 2005;
o Our Current Report on Form 8-K filed with the Commission on
February 23, 2005;
o Our Current Report on Form 8-K filed with the Commission on March
3, 2005;
o Our Current Report on Form 8-K filed with the Commission on April
5, 2005;
o Our Current Report on Form 8-K filed with the Commission on June
6, 2005;
o Our Current Report on Form 8-K filed with the Commission on July
22, 2005;
18
o Our Current Report on Form 8-K filed with the Commission on
August 23, 2005;
o Our Current Report on Form 8-K filed with the Commission on
September 14, 2005;
o Our Current Report on Form 8-K/A No. 1 filed with the Commission
on September 14, 2005; and
o The description of our common stock contained in our Registration
Statement on Form 8-A, filed on August 17, 2000, including any
amendments or reports filed for the purpose of updating such
description.
Notwithstanding the foregoing, information that we elect to furnish,
but not file, or have furnished, but not filed, with the Commission in
accordance with Commission rules and regulations is not incorporated into this
Registration Statement and does not constitute a part hereof.
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act (excluding any information furnished pursuant to Item
2.02 or Item 7.01 on any current report on Form 8-K) subsequent to the date of
this filing and prior to the termination of this offering shall be deemed to be
incorporated in this prospectus and to be a part hereof from the date of the
filing of such document. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained in this prospectus, or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference, modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus.
GLOSSARY OF TERMS
Unless otherwise indicated in this prospectus, natural gas volumes are
stated at the legal pressure base of the State or area in which the reserves are
located at 60 degrees Fahrenheit. Natural gas equivalents are determined using
the ratio of six Mcf of natural gas to one barrel of crude oil, condensate or
NGLs.
The following definitions shall apply to the technical terms used in
this prospectus.
Terms used to describe quantities of natural gas and crude oil
"Bbl" -- barrel or barrels.
"Bcf" -- billion cubic feet.
"Bcfe" -- billion cubic feet equivalent.
"BoE" -- barrels of
"MBbl" -- thousand barrels.
"Mcf" -- thousand cubic feet.
"Mcfe" -- thousand cubic feet equivalent.
"MMBbls" -- million barrels.
"MMBTU" -- million British Thermal Units.
"MMcf" -- million cubic feet.
"MMcfe" -- million cubic feet equivalent.
"MMcfpd" -- million cubic feet per day.
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Terms used to describe our interests in wells and acreage
"Developed acreage" means acreage which consists of acres
spaced or assignable to productive wells.
"Gross" natural gas and crude oil wells or "gross" wells or
acres is the number of wells or acres in which we have an interest.
"Net" natural gas and crude oil wells or "net" acres are
determined by multiplying "gross" wells or acres by our working
interest in such wells or acres.
"Productive" well means an exploratory or a development well
that is not a dry hole.
"Undeveloped acreage" means leased acres on which wells have
not been drilled or completed to a point that would permit the
production of commercial quantities of natural gas and crude oil,
regardless whether or not such acreage contains proved reserves.
Terms used to assign a present value to or to classify our reserves
"PV-10" means estimated future net revenue, discounted at a
rate of 10% per annum, before income taxes and with no price or cost
escalation or de-escalation in accordance with guidelines promulgated
by the SEC.
"Proved reserves" or "reserves" means natural gas and crude
oil, condensate and NGLs on a net revenue interest basis, found to be
commercially recoverable.
"Proved undeveloped reserves" includes those proved reserves
expected to be recovered from new wells on undrilled acreage or from
existing wells where a relatively major expenditure is required for
recompletion.
Terms used to describe costs
"DD&A" means depletion, depreciation and amortization.
"LOE" means lease operating expenses and production taxes.
Terms used to describe types of wells
"Development well" means a well drilled within the proved area
of a natural gas or crude oil reservoir to the depth of stratigraphic
horizon (rock layer or formation) known to be productive for the
purpose of extraction of proved natural gas or crude oil reserves.
"Dry hole" means an exploratory or development well found to
be incapable of producing either crude oil or gas in sufficient
quantities to justify completion as a natural gas or crude oil well.
"Exploratory well" means a well drilled to find and produce
natural gas or crude oil in an unproved area, to find a new reservoir
in a field previously found to be producing natural gas or crude oil in
another reservoir, or to extend a known reservoir.
"Productive wells" mean producing wells and wells capable of
production.
"Service Well" is a well used for water injection in secondary
recovery projects or for the disposal of produced water.
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Other terms
"Charge" means an encumbrance, lien, claim or other interest
in property securing payment or performance of an obligation.
"EBITDA" means earnings from before income taxes, interest
expense, DD&A and other non-cash charges.
"NGL" means natural gas liquid.
"NYMEX" means the New York Mercantile Exchange.