Issue Spring 14
There are many methods of growth, but for Enerjex Resources, the strategy of acquisitions has proved to be the most beneficial, CEO Robert Watson Jr. says. “We have pieced together companies and assets where we think we can create value for our shareholders,” he says.
Based in San Antonio, Texas, Enerjex is focused on acquiring and developing oil and natural gas properties in the mid-continent and rocky mountain regions of the United States. A longtime veteran of the oil and gas industry, Watson took over management of the company in 2010.
At the time, “It was a distressed situation and we spent a year fixing those assets,” Watson says. “When I took over, it was a pretty traditional ‘uh oh’ situation.”
Previously, he explains, Enerjex tried to compile assets and go to market with an equity deal. Unfortunately, “They got caught in the crash of ’08,” Watson says.
As Watson started leading Enerjex to recovery, the company raised $8.5 million via PIPE transactions. “We used that capital to repay some debt and fund our growth operations,” he recalls.
Afterward, Enerjex focused on the assets in its portfolio and areas where it could lower the operating costs, Watson says. Then, “We focused on getting the operation efficient and started growing,” he recalls.
A Transformative Time
Part of Enerjex’s growth included the 2013 acquisition of Black Raven Energy Inc., an oil and natural gas exploration company based in Denver. “It took us half of a year to pull that off,” Watson recalls, noting that he is proud of the company’s most recent acquisition. “Twelve months from now, we’re going to realize that was a transformative time for the company’s growth.”
What made Black Raven attractive to Enerjex were assets such as its Adena project, located in Morgan County, Colo. The field, Watson notes, is the third-largest ever discovered in Colorado and at one point, was producing 25,000 barrels of oil a day.
However, activity stopped in the field after the economic crash in the 1980s. “No one ever went in, re-engineered and reactivated the field,” Watson explains, noting that Enerjex is doing just that. “We feel very good about the risk return profile.”
Another Black Raven asset is the Niobrara project, which consists of more than 50,000 net acres in Phillips and Sedgwick counties, Colo., and Perkins County, Neb. Previously, the formation produced more than 500 billion cubic feet of natural gas in Colorado.
“That’s really the first gas asset that the company has put together,” according to Watson. “Through both of these projects in Colorado, we’ve got approximately 70,000 acres in the Denver-Julesburg Basin.”
Many other independents, he notes, are performing research in the basin. “Because we’ve got a position in the middle of that, we can piggy back on their R&D,” he says.
In a Good Place
Enerjex is at a point where it has ample liquidity, Watson says. “We would like to spend between $10 and $15 million this year,” he says. “It’s very attractive from an internal rate of return perspective, and we’re pretty excited about it.”
But Enerjex still has hurdles to overcome. “The big challenge is always the cost and the availability of services,” he says, noting that the company runs into this challenge in Colorado and Texas.
“When you’re a smaller E&P company, getting services timely and at a market price can be challenge,” he admits. “[But] we’ve done a pretty good job of managing that.”
Enerjex, he explains, can contract with smaller equipment since its projects do not require the horsepower of some of the larger plays.
“We also have relationships, and we try to contract rigs for a longer period of time so we don’t end up on a waiting list,” he says.
He also remains optimistic about the Adena project, which is Enerjex’s main focus. “I’m really excited with what we’ve seen so far,” Watson says, noting that he is pleased with the team he has at Enerjex.
“We’ve been able to put good people in place and get them to buy into the story,” he says, noting that Enerjex has equitized its staff so that employees own shares or stock options, or even both. “Philosophically, I want everyone to think like an owner.”
The pride of ownership is a powerful motivator, Watson says. “It allows self-motivated people to excel,” he states. “We try to hire self-motivated folks and make sure they own equity with the instruction to grow the value of that equity.”
Before joining Enerjex, Watson’s experience included co-founding Black Sable Energy LLC, where he served as its CEO. There, he oversaw the development of two grassroots oil projects in South Texas.
He also started his career at the Energy Investment Banking Group at CIBC World Markets and founded Centerra Energy Partners, where he served as the managing partner.
Watson says that Enerjex has made progress over the past year, and may make more in 2014.
“All those things are going to be very good for our shareholders,” he says. “We’ve just got to focus, execute and be opportunistic where we can be.”
But the company will stay careful as it moves forward. “We’re in a hyper-competitive business,“ he says. “But we’re good at focusing on actual cash on cash economics and not getting distracted by some of the sexier, more expensive plays that are currently generating headlines.”