NEAA Presenting Company Enerjex Resources CEO Robert Watson Jr. on The George Jarkesy Show – 3.29.12
6 April 2012
4.6.12
On March 29th, 2012 The National Eagles and Angels Association was proud to have the CEO of EnerJex Resources, Robert Watson Jr. as one of the presenting companies. After the NEAA meeting, NEAA Chairman George Jarkesy had Mr. Watson on The George Jarkesy Show as a guest. EnerJex is a domestic oil producer with over 500 producing oil wells and they trade on the NASDAQ Bulletin Board as Symbol ENRJ.OB. Below is the full interview:
George Jarkesy: Listen, I am so excited. Today at the National Eagles and Angels Luncheon, we had a very special guest, Robert Watson, Jr. He is the president and CEO of EnerJex, Inc. Their symbol on the OTC is ENRJ. Robert is a graduate of Southern Methodist University. EnerJex is a domestic onshore oil company in Kansas and in Texas. They have majority interest in over 500 producing oil wells. What I have to tell you is this fits one of my investing criteria. These guys own the majority of the company, they put up their own money, you are investing alongside them. There’s not a CEO or management team that owns two percent and is looking for a handout with options. These guys put up their money, they own a big percentage of the company, they’ve got a lot of upside and I think that’s why they’re going to win. So, Robert, welcome to the show.
Robert Watson: Thanks, George.
George Jarkesy: So, give our listeners an overview of EnerJex.
Robert Watson: Sure. We’re an oil production company as you mentioned. We’ve got two producing projects in Kansas that would be considered long-lived stable oil production where we have over 500 locations that we still need to drill; those locations would be considered proven locations. Then we’ve got a higher impact project in Texas, it’s a little bit earlier on in its life, but I’m very excited about its potential, we currently have seven wells producing there, and we’re still trying to delineate the economic limits of the field, but we have a ton of drilling to do, and in this environment, it’s very exciting.
George Jarkesy: But you’ve rapidly grown this company. When did you take over the company and tell us about the progress from where you started and where you are today.
Robert Watson: My partners and I took a significant equity interest in the company at the end of December 2010. At that point in time, the story was very much a turnaround story, so we spent last year working really hard to fix a lot of things and start a capital program and fixed a lot of balance sheet and liquidity issues. We’ve done that. So, today we sit here and I believe we’re poised for significant growth. We’ve made that turn. Throughout last year, we significantly increased our production revenue, cash flow while delivering the balance sheet. Now, we’re positioned to be pretty aggressive with our drilling program.
George Jarkesy: And so your revenues right now are running what?
Robert Watson: A little over $6 million.
George Jarkesy: In this environment, you’ve heard me talk about it here on the show; this environment is very difficult to get capital to grow. Now, with oil companies, it has been getting a little easier for oil companies, but you guys are pretty much set on capital right now with lines of credit and equity you’ve done. Tell us about that.
Robert Watson: A couple of things, we have raised common equity through pipes during 2011; some of that capital was used to fund our drilling program. We used some of it to repurchase shares in a very creative way for our shareholders. We also have a $50 million line of credit. We only have $4.5 million outstanding on that which we plan to use once we get a little bit more critical mass; we can use that to develop our assets. Then another very creative thing we did, it is a challenging environment for a company our size to raise capital, we created a very unique structure by forming a partnership, contributing assets to that partnership and using that partnership to pass the tax benefits to our investor. So, we effectively monetized a net operating loss carried forward that we had by doing it this way, and the benefit to us was we were able to raise capital at a cheap cost to capital, and our investors are very happy because their after-tax returns are phenomenal.
George Jarkesy: That’s very creative. I’ve spent some time with Robert today at the meeting, and it’s not often that you have a guy who understands oil and gas and understands complex M&A. But he started out and cut his teeth a CIBC, right?
Robert Watson: That’s right. I started as an energy investment banker and then spent about six years in the private equity world and had an entrepreneurial edge and walked away from that and started out on my own.
George Jarkesy: He grew up in an oil family which a lot of the families in Texas, second and third generation oil, so he understood it and he just put up his hand third generation of oil. So often, those guys, even though they’re brilliant, don’t get the finance game. He’s doing things on both sides. He’s growing by the drill bit, he’s bringing on reserves, he’s bringing on proven reserves, and he is bringing up production. But in addition to that, he’s maximizing shareholder equity and raising capital creatively which is good for the shareholders. You don’t hear of a young company like this where the group put up the money, and not only did you put up all this money alongside the investors and now the management owns its piece, but you did a stock buyback. That tells you, this guy is buying back the stock so that there’s less out there because he believes it’s going a lot higher, right?
Robert Watson: That’s right. I think the message we try to communicate to the investment community is we are big shareholders, we’re long-term value creators and we’re going to look at every way we possibly can to drive per share growth and shareholder value. It governs every decision we make whether it’s a bit decision, repurchasing some shares, how we raise capital. We want to make sure that every dollar we raise that we’re getting a return on.
George Jarkesy: It looks like you’re doing a great job. I was looking at your PV10; your PV10’s running around $50+ million. Your current market cap is $50 million, so that means that his present value is $51 million and that’s about what your market cap, it’s not giving credit to all the future things you’re doing and all the things you’re working on.
Robert Watson: That’s right. That number, it’s kind of interesting timing, but we’re going through our 10K process right now and our reserve redeterminations, all that information ought to be coming out within the next week. But the number you referenced, that $50 million is as of December 2010. It excludes one of our Kansas properties, it excludes our Texas properties, and it excludes all of the work that we’ve done since we took over. It also does include some assets that we sold, but I think at the end of the day, if you’re buying our stock at this current price, you’re basically buying at our net asset value as of 2010 before we did all this work.
George Jarkesy: That’s a net asset value in an inflationary environment where I think oil is going to go a lot higher. We’ll talk about that again on the show later. President Obama will have you believe that he’s been great for the oil business, but tell us the truth. Really, it’s technology that’s gotten so good that’s made you effective in Kansas, right?
Robert Watson: In both areas and contrary to what he said in the State of the Union address, I don’t think that the government invented fracking, but we are using frack and stimulation technology in our project in Texas. What we’re doing in Kansas is all secondary recovery; it’s a water flood technology. I kind of equate it to a manufacturing operation. We have very little expiration risk. We just have to keep our costs down as we bring these barrels of oil to market.
George Jarkesy: Our listeners will want to know how to learn more about EnerJex. How do they do that?
Robert Watson: First off, read anything that we publically disclose, we’re a public company, ENRJ. Also, we’ve just completed a redesign of our website that should be up soon. That website’s www.enerjexresources.com EnerJex.com. We communicate regularly with the marketplace through press releases and through our website
George Jarkesy: Robert, thanks for being on the George Jarkesy show. You can learn more at ENRJ or enerjexresources.com. Thank you so much for being on.
Disclosure: Mr. Jarkesy nor his affiliates does not own any holdings in Enerjex and have no plans to initiate holding in the next 72 hours of open market trading. EnerJex Resources was the sponsor of Mr. Jarkesy’s affiliate company luncheon on March 29th, 2012.
