A Ten Gallon Petroleum Play

Abraxas Petroleum (AXAS) is a small, independent oil-and-gas explorer and producer in Texas that, at first glance, looks no different from dozens of other companies in the oil patch. So why have some big institutions bought large stakes in this unknown small fry?

Bob Gershen, managing partner at AEM Associated Energy Managers, says Abraxas has been growing at a rapid pace through acquisitions. That has made its stock, currently at 7 a share, "extremely cheap" based on the company's assets and growth rate. Gershen says AEM bought a 17% stake in Abraxas because he sees its stock more than doubling in a year.

Analyst C. Van Levy of the securities firm Jefferies & Co. figures that the company's net asset value is $13.50 a share. At its current price, he notes, Abraxas is trading at 57% of its liquidation value--"making it one of the most inexpensive stocks in our universe."


That may be modest. Abraxas has signed a letter of intent to buy the properties of Canadian GatewaySystems, consisting of 140 gas-producing wells in Alberta, for $85 million. Earnings from the Canadian properties (before interest, taxes, depreciation, and amortization) are projected at $15 million a year. Abraxas' pretax earnings would jump to $36 million for 1996 from $9 million in '95, analysts say.

Abraxas Chairman and CEO Bob Watson says production from many of the company's wells has exceeded initial estimates. Before the Canadian acquisition, Van Levy's estimates of Abraxas' cash flow were $1.09 a share for 1996 and $2.08 for 1997.

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