EnerJex to merge with Black Raven
Posted: Mon Jul 29, 2013 10:10 am
EnerJex Resources (ENRJ) is in our Small-Cap Growth Portfolio.
San Antonio, Texas and Kansas City, Missouri (July 29, 2013) – EnerJex Resources, Inc. (OTCMarkets: ENRJ) (“EnerJex” or the “Company”), a domestic onshore oil company, announced today that it has entered into a merger agreement to acquire Black Raven Energy, Inc. (“Black Raven”), a privately held oil and natural gas exploration and production company. Upon consummation of the merger, each share of Black Raven common stock will be converted into 0.34791 of a common share of EnerJex, subject to certain adjustments, resulting in Black Raven stockholders owning approximately 37% of the post-merger Company on a diluted basis.
Following the merger, the combined enterprise will be a midcontinent-focused independent oil and natural gas exploration and production company with a deep inventory of low-risk drilling opportunities and exposure to emerging unconventional oil resource plays through its sizeable acreage footprint in the Denver-Julesburg (“DJ”) Basin.
Terms of the Transaction
The exchange ratio of 0.34791 of a share of EnerJex common stock for each Black Raven share was established based on a negotiated value of $0.70 per EnerJex share. On July 22, 2013, the last trading day preceding the execution of the merger agreement, the over-the-counter price quoted for an EnerJex share was $0.54.
Based on a negotiated value of $0.70 per share of EnerJex common stock, this transaction represents an implied price per share for Black Raven of $0.24. Aggregate consideration in the transaction is expected to be approximately $45 million based on the assumed issuance of approximately 43.5 million shares of EnerJex common stock and the anticipated assumption by EnerJex of approximately $15 million of additional long-term debt in order to discharge or acquire Black Raven’s existing debt. EnerJex believes that it will be able to obtain this funding through traditional bank financing. Shareholders of Black Raven other than West Coast Opportunity Fund, LLC (“WCOF”) may elect to receive $0.40 per share in cash, up to an aggregate amount of $600,000, in lieu of EnerJex common stock.
Black Raven is majority-owned by WCOF, which currently owns approximately 16% of EnerJex and will own approximately 46% of the post-merger Company on a diluted basis. Affiliates of WCOF own approximately 24% of EnerJex and will own approximately 15% of the post-merger Company on a diluted basis. Two members of EnerJex’s Board of Directors (the “Affiliated Directors”) are affiliated with WCOF and one such member serves on Black Raven’s Board of Directors and is the Chairman of its Audit Committee.
The Company’s Board of Directors created a Special Transactions Committee (the “Committee”) consisting of its two independent Directors to evaluate this transaction and negotiate the merger agreement on behalf of EnerJex’s stockholders. The Committee engaged independent counsel, Kirkland & Ellis LLP, along with an independent financial advisor, Stifel, Nicolaus & Company, Incorporated (“Stifel”), to advise the Committee throughout this process. Black Raven’s Board of Directors also created an independent special committee to negotiate the merger agreement on behalf of Black Raven and to represent the interests of Black Raven stockholders. Following a rigorous evaluation and negotiation process and the receipt from Stifel of an opinion as to the fairness of the transaction, from a financial point of view, to the Company, the Committee voted unanimously in favor of the transaction and recommended that the Company’s Board of Directors vote in favor of the transaction and approve the merger agreement. The Affiliated Directors abstained from voting and the remainder of EnerJex’s Board of Directors voted unanimously in favor of the transaction and to recommend to EnerJex’s stockholders that they approve the issuance of EnerJex shares in the merger.
The issuance of EnerJex common stock pursuant to the merger is subject to the approval of the stockholders of EnerJex. In addition, the transaction is subject to certain other customary closing conditions. WCOF has delivered its written consent to the transaction, providing the majority vote required to approve the transaction for Black Raven. The merger is expected to close before the end of the third quarter of 2013.
Management Comments
EnerJex’s CEO, Robert Watson, Jr., commented, “I am excited to announce this transformative transaction and I am very thankful to everyone involved at both companies for their time and efforts throughout this process. Black Raven’s team will compliment EnerJex’s team and add a significant amount of depth and talent in areas that do not overlap between the two companies. I strongly believe this transaction will enable EnerJex to accelerate growth and increase per-share value while exposing our shareholders to a substantial amount of upside potential.”
Preservation of Potential Lawsuit Proceeds
EnerJex is involved in certain litigation that was disclosed on a Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2012. A trial is currently scheduled to hear this case in the 16 Circuit Court of Jackson County, Missouri on November 12, 2013. EnerJex believes its claims are substantial. Pursuant to the terms of the merger agreement between the Company and Black Raven, EnerJex is permitted to declare and distribute a special dividend to its stockholders of record as of a date to be determined by its Board of Directors prior to the closing of the merger, under which the Company may issue to such stockholders shares of stock, a warrant, or another right or security entitling such stockholders to receive in the aggregate a number of shares of EnerJex’s common stock equal to the quotient determined by dividing (x) the Company’s net proceeds from the lawsuit, if any, by (y) $0.70. There can be no assurance of the outcome of this litigation, including whether and in what amount EnerJex may recover damages, or what, if any, value such dividend may have.
About Black Raven Energy, Inc.
Black Raven is a Denver-based oil and natural gas exploration and production company with more than 75,000 net acres leased in the DJ Basin, including approximately 45,000 net acres that are held by production. Black Raven’s assets are focused in two core projects described below, both of which are located on trend with emerging unconventional oil resource plays.
Adena Field: Black Raven owns a 100% working interest in approximately 19,000 acres located in Morgan County, Colorado covering the vast majority of Adena Field, which has been held by production since it was unitized by the Union Oil Company of California (Unocal) in 1956. According to the Colorado Oil and Gas Conservation Commission, Adena is the third largest oil field in the history of Colorado behind Rangely and Wattenberg, having produced 75 million barrels of oil and 125 billion cubic feet of natural gas. Nearly all of the producing wells in Adena Field were temporarily abandoned or shut-in during the secondary recovery phase in the mid-1980s when oil prices collapsed, and only a small number of wells have been produced since that time.
Black Raven currently produces approximately 250 gross barrels of oil and natural gas equivalent (68% oil) per day from 8 J-Sand wells and 7 D-Sand wells in this field at a depth of approximately 5,500 feet. Approximately 135 wells are currently shut-in or temporarily abandoned, of which Black Raven has initially identified approximately 80 wells to be re-activated in the J-Sand formation or re-completed in the D-sand formation. Black Raven’s producing J-Sand wells currently average more than 10 barrels of oil per day (BOPD) and its most recent D-Sand re-completion achieved an initial peak production rate of approximately 100 BOPD before stabilizing at a rate of approximately 30 BOPD. In addition, Black Raven initiated a secondary waterflood project in an isolated D-Sand oil pool during the first quarter of 2013.
Niobrara Project: Black Raven owns leases covering more than 55,000 net acres primarily located in Phillips and Sedgwick Counties, Colorado and Perkins County, Nebraska, of which approximately 25,000 acres are held by production and more than 15,000 acres expire after 2015. Black Raven currently produces approximately 250 thousand cubic feet (MCF) of natural gas per day from the Niobrara formation in this project, the majority of which is attributable to a 6% overriding royalty interest that it owns in approximately 200 wells that were drilled during the past few years by a large independent oil and gas company.
Black Raven’s Niobrara acreage was high-graded based on structural features identified through analysis of 114 miles of 2D and 165 square miles (105,000 acres) of 3D seismic data on its original position of 330,000 net acres. The company has identified more than 150 high-ranked Niobrara drilling locations on its existing acreage based on 3D seismic analysis which has historically yielded success rates of approximately 90% in this play. Black Raven’s acreage is well situated with direct access to to the Cheyenne Hub market and immediate proximity to the 1,679-mile Rocky Mountain Express pipeline and the 436-mile Trailblazer pipeline.
About EnerJex Resources, Inc.
EnerJex is a domestic onshore oil company with assets located in Eastern Kansas and South Texas. The Company’s primary business is to acquire, develop, explore and produce oil properties onshore in the United States. Additional information is available on the Company’s web site at www.enerjex.com.
San Antonio, Texas and Kansas City, Missouri (July 29, 2013) – EnerJex Resources, Inc. (OTCMarkets: ENRJ) (“EnerJex” or the “Company”), a domestic onshore oil company, announced today that it has entered into a merger agreement to acquire Black Raven Energy, Inc. (“Black Raven”), a privately held oil and natural gas exploration and production company. Upon consummation of the merger, each share of Black Raven common stock will be converted into 0.34791 of a common share of EnerJex, subject to certain adjustments, resulting in Black Raven stockholders owning approximately 37% of the post-merger Company on a diluted basis.
Following the merger, the combined enterprise will be a midcontinent-focused independent oil and natural gas exploration and production company with a deep inventory of low-risk drilling opportunities and exposure to emerging unconventional oil resource plays through its sizeable acreage footprint in the Denver-Julesburg (“DJ”) Basin.
Terms of the Transaction
The exchange ratio of 0.34791 of a share of EnerJex common stock for each Black Raven share was established based on a negotiated value of $0.70 per EnerJex share. On July 22, 2013, the last trading day preceding the execution of the merger agreement, the over-the-counter price quoted for an EnerJex share was $0.54.
Based on a negotiated value of $0.70 per share of EnerJex common stock, this transaction represents an implied price per share for Black Raven of $0.24. Aggregate consideration in the transaction is expected to be approximately $45 million based on the assumed issuance of approximately 43.5 million shares of EnerJex common stock and the anticipated assumption by EnerJex of approximately $15 million of additional long-term debt in order to discharge or acquire Black Raven’s existing debt. EnerJex believes that it will be able to obtain this funding through traditional bank financing. Shareholders of Black Raven other than West Coast Opportunity Fund, LLC (“WCOF”) may elect to receive $0.40 per share in cash, up to an aggregate amount of $600,000, in lieu of EnerJex common stock.
Black Raven is majority-owned by WCOF, which currently owns approximately 16% of EnerJex and will own approximately 46% of the post-merger Company on a diluted basis. Affiliates of WCOF own approximately 24% of EnerJex and will own approximately 15% of the post-merger Company on a diluted basis. Two members of EnerJex’s Board of Directors (the “Affiliated Directors”) are affiliated with WCOF and one such member serves on Black Raven’s Board of Directors and is the Chairman of its Audit Committee.
The Company’s Board of Directors created a Special Transactions Committee (the “Committee”) consisting of its two independent Directors to evaluate this transaction and negotiate the merger agreement on behalf of EnerJex’s stockholders. The Committee engaged independent counsel, Kirkland & Ellis LLP, along with an independent financial advisor, Stifel, Nicolaus & Company, Incorporated (“Stifel”), to advise the Committee throughout this process. Black Raven’s Board of Directors also created an independent special committee to negotiate the merger agreement on behalf of Black Raven and to represent the interests of Black Raven stockholders. Following a rigorous evaluation and negotiation process and the receipt from Stifel of an opinion as to the fairness of the transaction, from a financial point of view, to the Company, the Committee voted unanimously in favor of the transaction and recommended that the Company’s Board of Directors vote in favor of the transaction and approve the merger agreement. The Affiliated Directors abstained from voting and the remainder of EnerJex’s Board of Directors voted unanimously in favor of the transaction and to recommend to EnerJex’s stockholders that they approve the issuance of EnerJex shares in the merger.
The issuance of EnerJex common stock pursuant to the merger is subject to the approval of the stockholders of EnerJex. In addition, the transaction is subject to certain other customary closing conditions. WCOF has delivered its written consent to the transaction, providing the majority vote required to approve the transaction for Black Raven. The merger is expected to close before the end of the third quarter of 2013.
Management Comments
EnerJex’s CEO, Robert Watson, Jr., commented, “I am excited to announce this transformative transaction and I am very thankful to everyone involved at both companies for their time and efforts throughout this process. Black Raven’s team will compliment EnerJex’s team and add a significant amount of depth and talent in areas that do not overlap between the two companies. I strongly believe this transaction will enable EnerJex to accelerate growth and increase per-share value while exposing our shareholders to a substantial amount of upside potential.”
Preservation of Potential Lawsuit Proceeds
EnerJex is involved in certain litigation that was disclosed on a Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 27, 2012. A trial is currently scheduled to hear this case in the 16 Circuit Court of Jackson County, Missouri on November 12, 2013. EnerJex believes its claims are substantial. Pursuant to the terms of the merger agreement between the Company and Black Raven, EnerJex is permitted to declare and distribute a special dividend to its stockholders of record as of a date to be determined by its Board of Directors prior to the closing of the merger, under which the Company may issue to such stockholders shares of stock, a warrant, or another right or security entitling such stockholders to receive in the aggregate a number of shares of EnerJex’s common stock equal to the quotient determined by dividing (x) the Company’s net proceeds from the lawsuit, if any, by (y) $0.70. There can be no assurance of the outcome of this litigation, including whether and in what amount EnerJex may recover damages, or what, if any, value such dividend may have.
About Black Raven Energy, Inc.
Black Raven is a Denver-based oil and natural gas exploration and production company with more than 75,000 net acres leased in the DJ Basin, including approximately 45,000 net acres that are held by production. Black Raven’s assets are focused in two core projects described below, both of which are located on trend with emerging unconventional oil resource plays.
Adena Field: Black Raven owns a 100% working interest in approximately 19,000 acres located in Morgan County, Colorado covering the vast majority of Adena Field, which has been held by production since it was unitized by the Union Oil Company of California (Unocal) in 1956. According to the Colorado Oil and Gas Conservation Commission, Adena is the third largest oil field in the history of Colorado behind Rangely and Wattenberg, having produced 75 million barrels of oil and 125 billion cubic feet of natural gas. Nearly all of the producing wells in Adena Field were temporarily abandoned or shut-in during the secondary recovery phase in the mid-1980s when oil prices collapsed, and only a small number of wells have been produced since that time.
Black Raven currently produces approximately 250 gross barrels of oil and natural gas equivalent (68% oil) per day from 8 J-Sand wells and 7 D-Sand wells in this field at a depth of approximately 5,500 feet. Approximately 135 wells are currently shut-in or temporarily abandoned, of which Black Raven has initially identified approximately 80 wells to be re-activated in the J-Sand formation or re-completed in the D-sand formation. Black Raven’s producing J-Sand wells currently average more than 10 barrels of oil per day (BOPD) and its most recent D-Sand re-completion achieved an initial peak production rate of approximately 100 BOPD before stabilizing at a rate of approximately 30 BOPD. In addition, Black Raven initiated a secondary waterflood project in an isolated D-Sand oil pool during the first quarter of 2013.
Niobrara Project: Black Raven owns leases covering more than 55,000 net acres primarily located in Phillips and Sedgwick Counties, Colorado and Perkins County, Nebraska, of which approximately 25,000 acres are held by production and more than 15,000 acres expire after 2015. Black Raven currently produces approximately 250 thousand cubic feet (MCF) of natural gas per day from the Niobrara formation in this project, the majority of which is attributable to a 6% overriding royalty interest that it owns in approximately 200 wells that were drilled during the past few years by a large independent oil and gas company.
Black Raven’s Niobrara acreage was high-graded based on structural features identified through analysis of 114 miles of 2D and 165 square miles (105,000 acres) of 3D seismic data on its original position of 330,000 net acres. The company has identified more than 150 high-ranked Niobrara drilling locations on its existing acreage based on 3D seismic analysis which has historically yielded success rates of approximately 90% in this play. Black Raven’s acreage is well situated with direct access to to the Cheyenne Hub market and immediate proximity to the 1,679-mile Rocky Mountain Express pipeline and the 436-mile Trailblazer pipeline.
About EnerJex Resources, Inc.
EnerJex is a domestic onshore oil company with assets located in Eastern Kansas and South Texas. The Company’s primary business is to acquire, develop, explore and produce oil properties onshore in the United States. Additional information is available on the Company’s web site at www.enerjex.com.