Abraxas Petroleum, Abraxas Energy merger will increase liquidity

By Lisa Kerner

Charlotte, N.C., June 17 - Abraxas Petroleum Corp. and Abraxas Energy Partners, LP announced their intention to merge Abraxas Energy into Abraxas Petroleum.

According to the companies, they have entered into a letter of intent with the holders of 96% of the common units of Abraxas Energy not held by a wholly owned subsidiary of Abraxas Petroleum.

The transaction is subject to several conditions, including entry into a definitive merger agreement and negotiation of a new credit facility.

Under the companies' letter of intent, Abraxas Petroleum will acquire the outstanding units of Abraxas Energy not held by the Abraxas Petroleum subsidiary for $6.00 each payable in shares of Abraxas Petroleum common stock.

The number of shares of Abraxas Petroleum common stock will range from 4.25 to 6.00 per common unit of Abraxas Energy, which equates to $1.00 to $1.41 per share of Abraxas Petroleum.

According to Abraxas Petroleum, the letter of intent provides for a 90-day lock-up period followed by a multi-year staggered lock-up period.

In addition, the letter provides for a standstill by the private investors on their rights under the existing exchange and registration rights agreement as well as a standstill by Abraxas Energy on its initial public offering, the companies said.

"The merger will allow the combined entity to increase its drilling activity by reinvesting a greater portion of its cash flow into organic growth projects throughout all of our core regions," Abraxas' president and chief executive officer, Robert L.G. Watson, said in a company news release.

"We believe that the merger will simplify our organizational structure, reduce general and administrative expenses, provide greater transparency, and create a more attractive investment opportunity with increased liquidity and a larger public float," Watson said.

Watson expects that the debt of the combined entity can be refinanced solely with senior debt.

The board of directors of the combined company will include eight independent directors of Abraxas Petroleum and Abraxas Energy who are on the boards at the time the merger is completed.

Abraxas Petroleum and Abraxas Energy are oil and natural gas exploration and production companies based in San Antonio. Abraxas Energy is structured as an upstream master limited partnership.

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