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Executive Meeting: Up Close and Personal With Robert Watson Jr.

He's young, he's got two young kids and he lives to do anything outdoors. Robert Watson Jr., of San Antonio, also runs an oil and gas company, EnerJex Resources, which just moved into Weld County's rich resource plays with a small acquisition of about 4,000 acres.

He's young, he's got two young kids and he lives to do anything outdoors.

Robert Watson Jr., of San Antonio, also runs an oil and gas company, EnerJex Resources, which just moved into Weld County's rich resource plays with a small acquisition of about 4,000 acres.

Watson is 38, which makes him a young buck as far as oil and gas executives go. But a wave of executive retirements may usher in more in his age group.

"It's not the age, it's the mileage," Watson quipped over the phone from his San Antonio office.

Watson has been leading this small public company out of Texas for the last three years, as it slowly builds its way up into a highly competitive industry. The company, which started in 2007 and took over Black Raven Energy in 2010, has about 100,000 acres in Texas, Colorado, Nebraska and Kansas, and most recently bought acreage in Weld County.

"We're the little engine that could; keep watching us," said Watson, as he works to generate profit for his shareholders for his small publicly-traded company.

Watson, a third-generation oil man out of San Antonio, founded Centerra Energy Partners in 2005 after working his way up in energy investment banking at CIBC World Markets. He founded Black Sable Energy in 2008, developing two oil projects in south Texas, before the company was acquired by EnerJex in 2010.

Then the oil markets hit bottom, and Watson, who ran the company after the acquisition, was faced with a tough task - turnaround.

Difficult as it was to turn around this small ship in a busy ocean of oil companies, Watson has led the way, and acquisition has been the name of the game.

"At that point, EnerJex was very small, and we're still very small," Watson said of the early days. "We needed at the time to have a bigger asset base to grow into public company shoes."

A little more than two years ago, EnerJex acquired Black Raven Energy, taking on 20,000 acres in the Adena Field, which is the third largest producing field in Colorado. But much of it was idled. Watson said the strategy was to re-establish production in the field, then grow its footprint in the Denver-Julesburg Basin.

"We think there are parts of the Niobrara and Codell that are still emerging, and we've done some technical work and wanted to see if we can get a foothold in areas we think have potential to heat up," Watson said. "We bought those areas for two reasons: We think there's a lot of opportunity in the basin and it's still being rationalized."

The new acreage in Weld County, the company's first purchase in the county, is from a variety of players in some areas that have yet to be totally explored. But they're sandwiched in between the likes of Noble Energy and EOG Resources, which are continually experimenting in the area. Watson said he's got his eye on EOG's recent work back in northern Weld County, where it discovered Jake - the well that touched off the shale frenzy - almost five years ago. Drillers later abandoned the area for the more Wattenberg rich resources in central Weld. "They're looking back to see if they could have done anything different there," Watson said.

Though they're not actively drilling, the idea is to get there.

"We're not land flippers. We're trying to book reserves and put ourselves in a position to test that acreage," Watson said.

Like other small players, EnerJex will be looking to see how the big boys proceed, and try to move in with their positions. "With our acreage positions, we're watching what the big guys are doing. A lot of what they can figure out can translate to our acreage," he said.

The Weld County acreage is the first in which the company plans to do horizontal drilling. The rest of the company's time is spent re-developing existing vertical wells with new technology. Though not as lucrative as the big boys, it's a start.

"When you're small, you've got to be scrappy, look hard and shake a lot of trees to see what opportunities fall down, and chase the ones you can make work," Watson said.

Though the company got its start in south Texas, Watson said he and his small team of 35 employees and board of four are looking toward the DJ as its core operations.

"We think the basin has a lot of oily rocks that have been under-explored," Watson said. "The tools we have today from a technology standpoint can unlock those resources.

"If we can prove up the acreage in Weld, that could be answer. It's just an exciting piece of the puzzle we're still building."

Watson has established a team in Denver, which will prove advantageous in the summers, he said. It'll be the perfect time to get up in the mountains and be in the great outdoors.

"I don't mind getting up there in July," he said. "San Antonio Julys are not that fun."

Energy Pipeline took a few minutes to quiz the Wattenberg's newest executive to find out a little more about EnerJex Resources, the newest company to come into Weld County to drill and explore the mighty Niobrara:

EP: Your website states EnerJex's producing assets are characterized by "long lived reserves with low production decline rates." Why do you opt to hit those areas for workover potential?

Robert Watson: In Kansas, we're implementing a water flood, which maintains pressure in an old reservoir, so production is flat and doesn't decline much. We have the ability to expand that operation. Our Adena Field, (in northeastern Colorado) is similar. It's old, we're re-establishing an old water flood. We think there's significant amount of barrels in growth that we use technology to get out. As we're re-establishing a field, production comes on and it's low decline. The reason we highlight that is because it contrasts all the projects you hear today that involves technology like hydraulic drilling and fracs, they have hyperbolic declines ... we're a little different in that we will drop, just not near as much, and so it's more of a platform production profile. We'd certainly love to have some high IRR projects with hyperbolic declines. We point out to investors we have a stable production base. ... Everything we have is conventional and shallow at the moment. It's an appropriate risk for the size of our company at the moment.

The stuff we're doing is relative to our size, so we can generate an attractive rate of return. For big companies like Noble or EOG, they have to focus on bigger projects. There's a niche in a lot of conventional projects where you can create value by going in and putting a little TLC in some older assets, or expanding older assets. There's a niche there for sure, I think.

In all of our fields, we've made a commitment, gone in and spent money, got them up and going and producing, and we're constantly looking for more opportunities. We understand how to do that. But as you're successful at some of the smaller things, you get up to more medium things, then graduate up. Eventually you've got to find a spot where you can really grow.

EP: Has your company identified efficiencies in getting to previously untapped resources in those 500 well locations in your existing properties?

RW: Yeah, just the definition of secondary recovery is just that. When you go into an oil field, you have a lot of fixed costs. You have to leverage those, focus your operation and you're recovering oil that was, for lack of better term, left behind. That's the name of the game. That's exactly what those projects are.

We do have success, but again for us, the reason we bought the Weld acreage, we needed to start looking at projects that were a little bit bigger, higher risk, but a higher rate of return. They're great projects and can make money, but it takes a long time to grow them. ... Everything on our portfolio is conventional and geared toward secondary, except for the acreage in Weld, which we intend to develop horizontally. Our first goal is to de-risk it.

EP: EnerJex got kind of a jolty start just prior to the economic collapse. How difficult was it to turn this boat around?

RW - It was difficult. When I took over, the damage had been done. Turnarounds are difficult and I had some experience doing turnarounds before in my private equity days, and you have to change mindset and have good people. If you look at a successful company, you'll find success-driven people. You focus on the right assets and sell what didn't make sense, and we did all of that. Once we got the thing on track and got it rolling, it started working well. Our issue became, EnerJex was a small company to be public, we were a fraction of the size we are today. Then it became we have to take some risk to get bigger and generate (returns). That's dictated the Raven move and other things. The turn-around work, what helped me, once I got the right people in the right place, oil prices came back and the market came back, it certainly helps to have cooperation from all variables. Turnarounds are difficult. I'd say it's still ongoing, we still have a lot of goals to achieve. To me, we're not finished with our work until we're much bigger and delivered a return for our shareholders. There's still a lot of work to do, but the big hurdle is getting cash flow positive.

EP: By acquiring Black Raven Energy in 2010, EnerJex gained 20,000 acres in northeastern Colorado's (Adena Field) in an area where the wells had been shut-in in since the mid-1980s. Your plan was to aggressively bring the field back to life in 2014. How is drilling there now?

RW: It's going well. Whenever you're restoring production in an old field, it's two steps forward and one step back. Our thesis, we've proven it works, the step back recently and we hinted at this, we've had to focus on some infrastructure issues. As far as bringing it back to life, the 60-year-old pipe doesn't do what it used to do. So the plumbing needed upgrading, and we're working on that. It's coming along. We still think with time and capital, that asset can really be something. Raven had two core areas, the Adena Field, and we owned 55,000 acres in Phillips and Sedgwick, which is focused on the gaseous part of the Niobrara. When gas was at $5-$6 that area was booming, now not so much. We think there are interesting opportunities there, potentially underneath original targets. We've got to keep looking.

EP: How do your newer acquisitions compare to your Texas assets?

RW: Adena and Kansas are similar in that we're redeveloping old fields. Adena is certainly bigger, in complexity as well. Texas would be more akin to more horizontal development and some of those things going on, but on those we just shifted our focus. At the time we were working down there, we were too small to compete for services, and focused on developing Kansas. Texas has become more non-core, it could be a neat little horizontal project, but we've been focused in other areas. Where we are in Kansas, it's an interesting state because you could lop it off into thirds, geologically, so a lot of bigger players are in the western part of the state, and bigger independents and others are ... we're on the eastern part, where players are smaller and wells are little shallower, just by nature of how we started, we started there.

Colorado is a direct focus. We really think we're going to make our hay in Colorado at the moment. We're a deal away from splitting that up a bit, but now Colorado is our focus. If we had the opportunity to find a way into another basin or another play, that could help us grow. Our focus would be split, so we're constantly looking for those opportunities now. We think a majority of upside in our portfolio is the stuff we have in Colorado.

EP: How do you feel about the political environment that comes with acquiring acreage in Colorado?

RW: It's challenging. If you look back at the history of the oil and gas business domestically, there has been an environmental oil and gas development discussion going on for 100 years. With consciousness out there, and awareness and everything going on, and lot is being driven by development near residential areas, which is a relatively new concept. I'm not surprised by the debate, it's going to happen. I think the industry, and really when you're talking about those sorts of issues, talking about industry being represented by much bigger companies than EnerJex. We can't affect that. We have confidence that the industry, environmental groups and governing bodies will come to some sort of balance with how we can operate in environmentally friendly manner and still bring resources to market that our country needs.

The industry has gotten much better technologically at being environmental friendly. I don't think anyone will mistake an oil company for a solar company from a green standpoint. But it's gotten good at containing the environmental footprint given what we're doing. We'll have to deal with it one way or the other. I feel confident looking back, these things have gotten worked out and will get worked out again.

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