Seeking Alpha: Abraxas Petroleum Running All-Out

Although the EPX Index has had a so-so run since late December of 2013 (up around 6%), plenty of individual plays have outperformed, but few have done so to the same extent as Abraxas Petroleum (NASDAQ:AXAS). Back in late December, I thought Abraxas was a good candidate to pick up if it traded down closer to $3, which it did within the next month or so, but I didn't think that it was going to shoot through $4.50, $5, and eventually $6. Granted, a lot happened between then and now to help the shares along the way and management has been active in selling non-core assets and picking up new acreage to enhance value.

The acreage Abraxas holds in the Williston Basin (the Bakken) is pretty mature, but there is quite a bit of growth potential via the drill bit in the Eagle Ford acreage, not to mention the possibility that the company will continue to acquire when and where it can. Strong production growth and a pretty clean balance sheet support a fair value range around $6 to $7 per share and I wouldn't underestimate management's ability to execute more value-creating transactions.

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Abraxas Petroleum Running All-Out

Seeking Alpha: A Cleaner, Tighter Abraxas Petroleum Ready For 2014

Some investors get nervous when they see E&P companies selling acreage, but I suspect that may be due to a basic misunderstanding of how oil and gas companies create value. Acreage and reserves are definitely a critical part of long-term production and profit growth, but "acreage at any cost" has to be tempered with profitability and liquidity. I think Abraxas Petroleum (AXAS) has been making a lot of good decisions in 2013, shoring up a once-stretched balance sheet by selling off non-operating acreage in non-core areas and focusing its attention on its Bakken and Eagle Ford properties where the company has been seeing surprisingly good results given the previously assumed quality of the acreage.

Looking into 2014, Abraxas has a cleaner balance sheet and a tighter operating focus. Large acreage positions in areas like the Niobrara and Duvernay give some optionality to long-term development (or sale) plans, while a focused drilling program for 2014 should support the solid execution that the company has been displaying recently. Valuation has me a little cool on this name right now, but I'd definitely keep an eye on it and reconsider if the stock were to pull back to the $3 area.

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A Cleaner, Tighter Abraxas Petroleum Ready For 2014