Abraxas Petroleum and Abraxas Energy Partners Ink Merger, Loan Deals

Abraxas Petroleum and Abraxas Energy Partners announced that they have executed a definitive merger agreement (Merger Agreement), pursuant to which Abraxas Energy will merge with and into Abraxas Petroleum, and that holders of 96 percent of the common units of Abraxas Energy not held by a wholly-owned subsidiary of Abraxas Petroleum have executed a voting, registration rights and lock-up agreement (Voting Agreement) with Abraxas Petroleum and Abraxas Energy.

A conference call to discuss the merger has been scheduled for Tuesday, July 7, at 10 a.m. CT.

In a release dated June 30, the companies stated:

- The Merger Agreement provides that each outstanding common unit of Abraxas Energy not currently held by a wholly-owned subsidiary of Abraxas will be acquired by Abraxas Petroleum for $6.00 per common unit 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 and will amount to 26 - 36 million shares of Abraxas Petroleum common stock. The share range equates to $1.00 to $1.41 per share of Abraxas Petroleum and will be determined based on the 20-day trading average prior to a special meeting of Abraxas Petroleum stockholders.

- The Voting Agreement provides an automatic vote, or proxy to vote, by the unaffiliated unitholders of Abraxas Energy in favor of the merger and for a 90-day lock-up period followed by a multi-year staggered lock-up period. The Voting Agreement also provides for a standstill by the private investors on their rights under the existing exchange and registration rights agreement and a standstill by Abraxas Energy on its initial public offering.

- The Abraxas Petroleum board of directors and a special committee of Abraxas Petroleum directors comprised entirely of independent directors have approved and adopted the Merger Agreement and the transactions contemplated thereby and have resolved to recommend that the Abraxas Petroleum stockholders vote in favor of the stock issuance as contemplated in the Merger Agreement.

- The board of directors of the general partner of Abraxas Energy and the audit and conflicts committee of the general partner's directors comprised entirely of independent directors have approved and adopted the Merger Agreement and the transactions contemplated thereby and have resolved to recommend that the Abraxas Energy unitholders adopt and approve the same.

- The transaction will be subject to approval by the holders of a majority of the outstanding Abraxas Petroleum common stock and 80 percent of the outstanding Abraxas Energy common units, negotiation of a new credit facility, and other usual and customary closing conditions.

"The merger brings all of the assets, properties and projects of Abraxas Energy into the fold of Abraxas Petroleum without the significant dilution that could have occurred under the existing exchange and registration rights agreement. Under the terms of the Merger Agreement, we will issue between 26 and 36 million shares of common stock which reduces the otherwise potential dilution by approximately 64 percent to 74 percent. We believe that the merger is quite attractive and very accretive to all shareholders on a number of different metrics. 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 which encompass the entire central portion of the United States from North Dakota to the Gulf Coast. We further 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," said Bob Watson, Abraxas' President and CEO.

- The combination of Abraxas Petroleum and Abraxas Energy will result in a single class of equity with one board of directors. The board of directors of the combined entity will consist of eight independent directors of Abraxas Petroleum and Abraxas Energy serving at the time the merger is consummated, with Robert (Bob) L.G. Watson serving as the President, Chief Executive Officer and Chairman of the Board of the combined entity. Pending consummation of the merger, Abraxas Energy has suspended distributions to its unitholders.

- Abraxas Energy has finalized agreements with its lenders to amend the terms of its senior credit agreement and its subordinated credit agreement. The maturity date on the subordinated credit agreement has been amended to August 14. Under the terms of the senior credit agreement, a $2.4 million consent fee was paid on June 30, payment of which will be netted from the fees of the new credit facility for the merged entity.

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