The first quarter of 2012 held good news for many small oil and gas outfits. Kodiak Oil & Gas (NYSE: KOG) put its 2011 first quarter net income loss behind it with earnings of $1.7 million. Northern Oil & Gas (AMEX: NOG) accomplished the same feat, coming into the black with earnings of $8.8 million, after a 2011 first quarter loss of $7.1 million.

Joining its peers, Abraxas Petroleum (Nasdaq: AXAS) showed up in the black for the first quarter of this year. Last year, the San Antonio-based exploration and production company recorded a net loss of $10 million, or $0.12 per share, but this year things are on the up and up.

Earnings
Net profit rose to $817,000 on total revenue of $16.39 million, good for $0.01 per share. Adjusted net income for the quarter was $1.69 million, or $0.02 per share. Analysts expected EPS of $0.03 to $0.06, however, so while there is plenty to like with this news, someone, somewhere is disappointed.

Production mix in the first quarter was 52% oil and natural gas liquids, and both segments increased over the first quarter of last year. Overall production came in at 3,815 barrels of oil equivalent per day, compared with 3,670 BOE/D last year.

Looking ahead
Abraxas plans to shore up its balance sheet by divesting assets in two hot regions right now. The company is in the middle of divesting its Eagle Ford interests and has initiated the process of selling leaseholds in Alberta, Canada.

Though the divestiture of these assets will hit production numbers, the company did have 10 gross wells come on line in the Bakken during the first quarter, with five additional gross wells being drilled or awaiting completion. It also brought another well on line in Wyoming that is performing well.

Perhaps the most interesting part of the Abraxas story is the company-owned rig. It was refurbished and put to work in the first quarter and is currently drilling on a multi-pad well site in McKenzie County in North Dakota.

The thinking here is that a company-owned rig run by a company crew provides greater flexibility and cost savings than contracting those services out. Having full control over the rig has already bailed the company out of a tricky situation regarding federal lease expiry issues.

Foolish takeaway
The smaller exploration and production companies are important to watch as they develop acreage in the most important domestic oil plays. The tide is starting to turn, and many of these companies are finally producing enough to turn a profit, making them more viable as investments, as well as candidates for mergers and acquisitions.