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EnerJex Resources, Inc. has commenced natural gas production under a new improved purchase contract in Morgan County, Colorado, where the Company owns a 100% working interest in approximately 19,000 acres covering the majority of Adena Field.
EnerJex has successfully initiated production from certain D-Sand wells in Adena Field at a rate of approximately 500 thousand cubic feet (MCF) of liquids-rich natural gas per day. This equates to approximately 100 barrels of oil equivalent (BOE) per day based on an energy equivalent ratio of 6 MCF per barrel of oil and an expected yield of 1.4 gallons of natural gas liquids per MCF. Commencement of this production was achieved at virtually no cost to the Company.
In addition, EnerJex is in the process of building a pipeline which it expects will result in the commencement of natural gas production from at least one J-Sand well during the first quarter. Management estimates that this J-Sand project will cost less than $100,000.
The Company also announced today that it has entered into a new five-year contract to sell natural gas from Adena Field at a significant premium to the price it received in the past under a prior arrangement. EnerJex estimates that it will now receive approximately 80% of end market natural gas pricing under the new contract, including the sale of associated natural gas liquids. Management anticipates that operating expenses associated with the Company's natural gas production from Adena Field will average less than $1.00 per MCF.
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. Approximately 130 wells are currently shut-in or temporarily abandoned, of which the Company has initially identified approximately 75 wells to be reactivated in the J-Sand formation or recompleted in the D-Sand formation.
EnerJex's CEO, Robert Watson, Jr., commented, "Natural gas prices have increased substantially in recent weeks due to unusually cold weather, and prices are expected to remain strong throughout 2014 as a result of reduced storage levels which are at five-year lows. As a result, EnerJex has accelerated the pace of its natural gas development and I expect this to have a meaningful impact on the Company's production and cash flow in 2014."