TWST: Could you provide us with a brief overview of the company?

Mr. Watson: Abraxas was formed in 1977 and existed as a private company until 1991 when its managed oil and gas partnerships were rolled up into a public entity. The company's first capital markets transaction occurred in 1993. We then became a NASDAQ national market system traded company where we stayed until 1999. At that time, we were de-listed due to the share price drop and loss of shareholders' equity due to the ceiling-test writedown prompted by low commodity prices. A restructure followed with our bondholders in late 1999 which precipitated a swap of approximately $80 million in debt for 16 million shares of stock plus 16 million contingent value rights. The market received this favorably and that, coupled with the rebound in commodity prices, has allowed us to turn the corner and resulted in a fairly compelling growth story again for Abraxas. The company began trading on the American Stock Exchange in August 2000 and traded approximately 300,000 shares a day in January 2001. Abraxas is a focused E&P company. Operations include South Texas, West Texas, Wyoming and Western Canada, but within each of these areas we are very focused. Typically, Abraxas owns and operates 100% of its properties, thereby allowing more control over costs and efficiencies. Abraxas' niche in the business is the utilization of horizontal exploitation, allowing the Company to access known hydrocarbon occurrences that have previously been developed, perhaps marginally so, with vertical wells. After thoroughly evaluating the characteristics of each reservoir, horizontal drilling usually provides a more efficient and economic process, compared to traditional vertical drilling, to develop and complete a reservoir. Abraxas contemplates a number of these projects going forward, most of which have indicated some level of success to date. We feel we can grow the company over the next two or three years, utilizing our large inventory of in-house-identified exploitation projects, without having to do another acquisition or capital markets transaction.

TWST: How do you think your exploration and development expenditures will change in the future?

Mr. Watson: The company plans on maintaining a steady capital budget, allowing us to live within our internally generated cash flow. By developing Abraxas' existing property base, we feel we can show fairly consistent, steady growth in production and reserves, at least over the next two or three years. We do have some concerns that services and supplies in the oil patch are currently stretched pretty much to their limits; however, we do not think the lack of availability of additional services and supplies would allow us to increase our cap ex budget considerably more than what we are projecting right now anyway.

TWST: What are the most significant trends, developments and changes that you anticipate in your marketplace over the next several years?

Mr. Watson: I think the small-cap companies are going to become less and less attractive to the capital markets. The capital markets look for scale and size above almost all else. The small caps that do survive are going to be the niche players, ones that have developed and proven a niche within our business. I believe the small cap companies that go out and attempt to do everything for everybody are going to have difficulties being successful in this environment. At the same time, I think there is a lot of opportunity for developing a niche and benefiting from the current commodity-price environment and achieving substantial success.

TWST: Can you tell us more about Abraxas' competitive advantages?

Mr. Watson: Abraxas' utilization of horizontal technology and innovation has certainly put us at the forefront of that particular technology. We are not necessarily going out and doing research and development on new horizontal techniques, rather we are being very innovative in using ones that have already been developed by the various service companies. The fact that the company spends essentially 100% of its time, at least in the United States, on horizontal wells would indicate that we are concerned about advancing that technology, and especially improving the economics of using it. Our ability to economically apply this horizontal technology sets us apart from a lot of our peers using horizontal technology. Abraxas incorporates 3-D wherever applicable including all our current major projects. We are in various stages on all of them this winter. The shooting of several has already been completed and we are currently processing the data. Two additional shoots in Canada are underway now. What we hope to find in the 3-D is an indication of the heterogeneity of the reservoirs that we are targeting with our horizontal drilling. This will allow the company to orient the horizontal laterals in the most optimum way. The initial results from using 3-D to do this have been very successful for us, and we have done the pilot program. Now we are doing the full-scale project, spending a lot of capital dollars to obtain the data, and are very optimistic that this is going to lead to additional success for Abraxas.

TWST: Are there any plans to expand geographically?

Mr. Watson: Not at the present time, although we would always consider another horizontal project comparable to Abraxas' in-house expertise. We have, as I said before, two or three years of identified projects on our existing properties, and we do not need to go out and find something else. If something comes to Abraxas that we think we can add significant value to because of our horizontal experience, we will certainly consider it.

TWST: What are the major concerns or risks facing Abraxas now and also in the future? Is anything about the company keeping you awake at night?

Mr. Watson: Because of the quality of the assets that Abraxas is developing and the long-life natural gas reserves that we have, I believe that makes us a target for larger companies generating a significant amount of cash in this environment to do a hostile takeover of the company at a price that Abraxas deems to be a discount to fair value. We think our net asset value far exceeds what we are currently trading for in the marketplace. Businesses cannot spend all their cash because the service and supply sector is stretched. Abraxas' concern is that where else are they going to spend their money but to acquire attractive properties or companies and, unfortunately, we do not have a whole lot of defense against that. That is the only thing that keeps me awake at night these days.

TWST: Any opportunities for improvement now within the company?

Mr. Watson: Abraxas is always improving the knowledge and the innovation of our horizontal drilling techniques. We always strive to continue to lower costs. Abraxas will never be satisfied that we are doing everything exactly right, so for every horizontal well the company drills, we are doing something a little different in an attempt to continue to reduce costs and make the project even more economic.

TWST: What are your specific goals for Abraxas over the next several years in terms of market position and growth?

Mr. Watson: We think Abraxas can show the Street that the company can grow 15%-20% organically just from our existing properties over the next two or three years. That is our internal target. We can do that within existing cash flow of the company and, at the same time, be working on our balance sheet to get it more in line. We are currently still over- levered, in my mind ' though in this environment, we are less levered. Still, I would like to take advantage of this high-price environment that we are in as a great opportunity to improve our balance sheet.

TWST: How is your management team doing? Are they equipped to accomplish your ambitious goals in the future?

Mr. Watson: Abraxas has a good core group of people that has been together now for a long time, and we are having fun doing what we are doing while experiencing some significant progress. We are very capable of handling our next two or three years' business plan without having to add or find anybody else to join the team.

TWST: Would you care to comment further about how you feel about your current stock price?

Mr. Watson: Abraxas is certainly undervalued in our minds. There are some structural issues relating to the restructuring that Abraxas did in 1999 that we think have held our stock price down. In conjunction with the restructuring, the company issued to the bondholders who agreed to the debt for equity swap, 16 million contingent value rights in addition to the 16 million shares of common stock. At the time, Abraxas did its restructuring, the common price was about $1 a share, yet the implied equity price in the transaction was $5 a share. The premise of the exchange was to give Abraxas an opportunity to execute its business plan on this core, natural-gas oriented asset base we had developed and give the company an opportunity to see if it could move our share price. If the share price did not respond, the CVRs provided a vehicle for the bondholders to receive more shares of common stock to make up the difference between what Abraxas was trading for at that time and the current stock price. Our current stock price is now close to $5, so we have almost eliminated the potential dilution from those CVRs. We still have another three or four months to completely eliminate any shares to be issued, with May 21 the drop-dead date. The company has been battling through the potential overhang issues from the CVRs. At the same time, the recipients of the common shares in the exchange offer were, typically, high-yield bond funds, which are not typical equity holders. As they have achieved price targets in our common stock, we have had to wade through a significant amount of stock hitting the market. I think we have been very successful in doing that: Abraxas has traded 7 million shares since January 1, and we have been able to place some significant size blocks coming from the bondholders/shareholders into more value- and-growth-oriented energy equity investors. The company has also brought in some very impressive names as institutional holders. This process, and the perception that there has been, or is, the overhang out there, has certainly held the share price down. Abraxas' goal is to get the story out to as many people who will listen to help us get the share price up, (1) to defeat the CVRs, but (2) to get us trading at a multiple that's more comparable to our peers'. I think when fourth quarter numbers are out, people will realize that our business plan is working and that Abraxas does have a good future before it and, hopefully, we'll start achieving a better multiple on the share price and get trading closer to what one could conceive of as a very high net asset value.

TWST: Can you give us two or three more reasons why a potential long- term investor should buy stock in Abraxas today?

Mr. Watson: (1) Abraxas' natural gas orientation and what I believe everyone would agree is a very bright future for North American natural gas. (2) A niche technology the company has already demonstrated a considerable amount of operating success with, which does set us apart from the majority of the small cap E&P companies. (3) We are trading at such a substantial discount to our peer group and to net asset value. (4) My fear is quality E&P companies with quality assets are going to be seen as takeover targets in the future, which certainly is an exit strategy for shareholders, but it also would pretend a higher stock price in the future as well.

TWST: Thank you. (RF)

ROBERT L. G. WATSON Chairman, President & CEO Abraxas Petroleum Corporation 500 North Loop 1604 East Suite 100 San Antonio, TX 78232 (210) 490-4788 (210) 490-8816 - FAX www.abraxaspetroleum.com

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company.

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