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"They (Abraxas) haven't drilled a well in two years, don't plan to drill or pay for drilling going forward. They sold their only drilling rig in February, sold their headquarters building, they have hardly any employees left, fired their CEO subsequent to year-end, and will let the production decline and collect the cash flows unless a third party comes in a pays to drill wells in exchange for an interest in those wells."

To get an idea of how big Abraxas was I took a quick look at their Permian production.
https://webapps2.rrc.texas.gov/EWA/productionQuery...
With no drilling during the last two years their Permian oil production has fallen from 2,216 BOPD in January 2021 to 1,274 BOPD in January 2023 (last data point). Down 43% in the last two years.

The production table below should represent the bulk of their Permian production. Production numbers are "gross". Revenue interest barrels net to Abraxas will be lower.

Abraxas' 12/31/22 10-K filing states they operate 97% of their proved BOE's.
"At December 31, 2022, we operated properties comprising approximately 97% of the Boe's of our estimated net proved reserves, giving us substantial control over the timing and incurrence of operating and capital expenditures. We have identified numerous additional drilling locations on our existing leaseholds."
https://app.quotemedia.com/data/downloadFiling?web...

Biglari bought Abraxas for $80 MM last October.

https://www.expressnews.com/business/local/article...
http://www.biglariholdings.com/letters/2022/2022.p...

Assuming oil stays flat at $80/bbl and they get $4/MCF for their casing head gas (optimistic?), they might recoup the $80 MM investment in 4-5 years, depending on decline rates, operating expenses and their net revenue interest.

What will production be in 4-5 years? A rough guess, using an average of terminal decline rates in the Permian, would be ~600 BOPD.
https://onepetro.org/JPT/article-abstract/72/02/32...

What's the discounted value of future cash flows starting at 600 BOPD beginning 4-5 years into the future? Not zero, but not huge.

Operator Name: ABRAXAS PETROLEUM CORPORATION, Operator No.: 003125
Initial View: Operator
District: 08
Date Range: Jan 2019 - Jan 2023

Date /Oil (BBL) /Casinghead (MCF) /Oil (BOPD) /Gas (MCFD) /BOEPD
Jan 2019 103276 193843 3,397 6,376 4,460
Feb 2019 88700 170269 2,918 5,601 3,851
Mar 2019 80559 139168 2,650 4,578 3,413
Apr 2019 104978 192570 3,453 6,335 4,509
May 2019 138096 250902 4,543 8,253 5,918
Jun 2019 118195 261208 3,888 8,592 5,320
Jul 2019 113102 269865 3,720 8,877 5,200
Aug 2019 134284 261444 4,417 8,600 5,851
Sep 2019 109421 242000 3,599 7,961 4,926
Oct 2019 110598 245255 3,638 8,068 4,983
Nov 2019 118865 241947 3,910 7,959 5,236
Dec 2019 106726 231520 3,511 7,616 4,780
Jan 2020 84430 198803 2,777 6,540 3,867
Feb 2020 80707 186073 2,655 6,121 3,675
Mar 2020 90532 215667 2,978 7,094 4,160
Apr 2020 20839 53138 685 1,748 977
May 2020 209 639 7 21 10
Jun 2020 28153 43187 926 1,421 1,163
Jul 2020 78426 122775 2,580 4,039 3,253
Aug 2020 93483 183995 3,075 6,052 4,084
Sep 2020 80611 179301 2,652 5,898 3,635
Oct 2020 79032 209270 2,600 6,884 3,747
Nov 2020 71172 203980 2,341 6,710 3,459
Dec 2020 68199 212562 2,243 6,992 3,409
Jan 2021 67368 208036 2,216 6,843 3,357
Feb 2021 44545 116158 1,465 3,821 2,102
Mar 2021 62076 151914 2,042 4,997 2,875
Apr 2021 60201 172989 1,980 5,690 2,929
May 2021 56053 173820 1,844 5,718 2,797
Jun 2021 53617 166996 1,764 5,493 2,679
Jul 2021 56847 195068 1,870 6,417 2,939
Aug 2021 54639 210652 1,797 6,929 2,952
Sep 2021 52014 204259 1,711 6,719 2,831
Oct 2021 51176 202033 1,683 6,646 2,791
Nov 2021 48244 184156 1,587 6,058 2,597
Dec 2021 48381 177014 1,591 5,823 2,562
Jan 2022 47475 170046 1,562 5,594 2,494
Feb 2022 41452 155310 1,364 5,109 2,215
Mar 2022 44746 167695 1,472 5,516 2,391
Apr 2022 45876 164334 1,509 5,406 2,410
May 2022 39900 152675 1,313 5,022 2,150
Jun 2022 40364 154053 1,328 5,068 2,172
Jul 2022 45259 177586 1,489 5,842 2,462
Aug 2022 42154 161249 1,387 5,304 2,271
Sep 2022 40592 159321 1,335 5,241 2,209
Oct 2022 41235 163465 1,356 5,377 2,253
Nov 2022 38122 141366 1,254 4,650 2,029
Dec 2022 41265 166205 1,357 5,467 2,269
Jan 2023 38729 156814 1,274 5,158 2,134

they might recoup the $80 MM investment in 4-5 years

I appreciate all the work you are putting into this and this is way off-topic so I'll leave it at this. The $80m paid for 90% of the company included $25m cash on Abraxas's debt-free balance sheet. So you are already at $54.9m net of cash acquired. Then they sold the headquarters and the drilling rig for cash. Abraxas has been in crisis (essentially bankrupt) for years. The Biglari deal retained a diminished pile of tax assets ($74m, fully reserved). We will see how they cash cow it going forward but I think they will get their $50m back soon enough and still have something of value left. Expenses will be way down (including the non-cash expenses incurred when you fire almost everyone), they moved the few remaining employees into the Biglari office. They moved $19.5m of excess cash into CBRL, JACK and RACE shares. It is a deeply unpopular company, I was just struck that they were the only one I have seen following Charlie's unconventional scenario. So when someone mentioned "does anybody know of any other companies following this playbook" I realized I did know of one odd bird behaving unconventionally.

"Abraxas has been in crisis (essentially bankrupt) for years. The Biglari deal retained a diminished pile of tax assets ($74m, fully reserved). We will see how they cash cow it going forward but I think they will get their $50m back soon enough and still have something of value left.

Thanks for the additional detail. The transaction is obviously better than what I projected. I knew of Abraxas. They were a basket case. The name caught my attention. Don't know where their Permian acreage is. Imagine it is marginal. Everything else they owned was (sold off over time). After milking this cow for a few years, Bigliari might be able the sell the acreage for a decent price and avoid abandonment costs, assuming they don't just own the wellbore interests.

Deals like this happen all the time in the private sector. Buy depleting assets from small, mid and large companies and ride the production decline down, doing their best to minimize operating costs. As you point out, the sellers often have massive overhead costs that can be eliminated by the buyer. Wouldn't be surprised if they had one contract person, working out of a pickup truck, operating these wells.

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