EnerJex Resources announces joint venture, hedging successes, debt reduction
As low oil prices continue to hammer American producers, prudent companies like EnerJex Resources continue to manage their way through challenging times.
San Antonio, TX-based EnerJex Resources issued an operational and financial update Monday:
On August 12, 2015, EnerJex completed the sale of various oil and gas leases, equipment and wells in Kansas for approximately $2.8 million. The Company repaid $1.5 million of bank debt with the proceeds and plans to invest the balance of $1.3 million in its existing oil and gas assets.
“Management has been working diligently to position the company for an eventual recovery in oil prices,” said EnerJex Resources CEO Robert Watson, Jr. in a press release.
On July 21, 2015, EnerJex received a liquidating distribution in the amount of $1.45 million with respect to the shares of Oakridge Energy, Inc. (“Oakridge”) that are owned by the Company. EnerJex expects to receive one or more additional liquidating distributions from Oakridge although the timing and amount of such distributions are uncertain. The Company repaid $750,000 of bank debt with the proceeds from this distribution.
“It’s notable that EnerJex Resources said it has reduced debt. That’s something we’ve been talking about for a while in terms of smaller producers surviving the downturn. Those with better balance sheets have the best chance of persevering,” said Darrell Proctor, senior market analyst with Ponderosa Advisors in Denver.
“Finances are tight, bank notes are coming up for review, and if capital is not available producers will have to cut back cash flow or find other financing. We have said for months that there will be period of pain and to look for consolidation.”
The EnerJex Resources bank debt has been reduced to $19.1 million, accounts payable have been reduced to approximately $0.4 million, and cash on the balance sheet (inlcuding restricted cash) was approximately $3.2 million as of August 14, 2015.
EnerJex Resources recently added additional oil hedges in the form of deferred premium put options, which provide downside protection while preserving upside potential. For the second half of 2015, EnerJex has hedged approximately 320 barrels of oil per day through swaps at an average price of $85.86 per barrel.
For the first half of 2016, EnerJex Resources has hedged approximately 300 barrels of oil per day through put options at an average price of $85.00 per barel, excluding a deffered put premium of $5.03 per barrel.
For the second half of 2016, EnerJex Resources has hedged approximately 160 barrels of oil per day through put options at an average price of $60.00 per barrel, excluding a deferred put premium of $5.72 per barrel.
“EnerJex’s hedging strategy has proven to be invaluable in the current difficult commodity price environment,” said Watson.
EnerJex Resources recently entered into a joint venture arrangement with multiple industry partners pursuant to which the company will contribute certain undeveloped oil and gas leases and retain a 50% working interest in the project. In return for the acreage contribution, EnerJex will retain a 50% carried interest in four exploration wells targeting oil from multiple stacked pay zones on large subsurface structures that have been identified through the interpretation of extensive 3D seismic data.
Management anticipates that these will be vertical wells drilled to a total depth of approximately 6,000 feet. EnerJex Resources expects the first of these wells to be spudded in the fourth quarter 2015. Further details on this joint venture will be forthcoming, the company said in its release.
“I am proud of our team’s commitment and accomplishments during 2015, and I am pleased to announce that the Company expects to increase its operational activity during the remainder of this year through investment in existing oil and gas assets and through the joint venture,” said Watson.
“EnerJex’s Board of Directors continues to evaluate strategic initiatives including but not limited to potential mergers and asset acquisitions.”
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