Operating in the heart of the Permian basin and onshore the Texas Gulf Coast, Red Mountain Resources Inc. is a new, growth-oriented E&P focused on the acquisition, development, and exploration of oil and natural gas properties.

During 3Q 2012, Red Mountain Resources drilled and completed the Madera 24-2H horizontal well with an initial production rate of 1,043 boe/d from the Delaware formation. It also identified 26 potential well locations that include the Delaware, Avalon shale, and Strawn formation, according to a public statement. To date, the company has amassed approximately 6,000 net acres and is targeting production of 2,000 boe/d and proved reserves of 6 MMboe by year-end 2012.

Barksdale has been president, CEO, and a director at Red Mountain Resources since June 2011 and has held the position of president at Black Rock Capital since its inception. He also has been owner and president of advisory and management services provider StoneStreet Group since 2008.

According to Barksdale, Red Mountain Resources is a heavily operated model with more than 300 years of combined technical expertise on staff. Its focus is on operating the properties it owns, particularly in the prolific and liquids-rich Permian basin.

The Dallas, Texas-based company, which also has satellite offices in Midland, Texas, and Lafayette, La., had a market capitalization of US $128.5 million as of March 2012, with 82.9 million shares outstanding.

“When I founded Black Rock Capital, we initiated our E&P business with the acquisition of conventional onshore Gulf Coast assets. We thought these assets were undervalued based on our expectations for intermediate and long-term natural gas demand and prices.

“In the short term, however, we decided to pursue oil-related opportunities and begin development of those properties. We decided to use a public vehicle to raise capital, and a reverse merger was the quickest means of doing so. The public company route also worked well for us because our investor base comprises individuals.

“The reverse merger presented an effective way to build our shareholder base, provide public market transparency, and add liquidity in our shares,” he said.

The company has been able to achieve many of its initial goals by acquiring acreage, investing in equipment, initiating development projects, and creating a vehicle to access the capital markets.

Unique New Operating Company

One of the unique features of Red Mountain is the capability of its team. The company has extremely experienced personnel with extensive technical capabilities on the management team and board.

“Our team’s combined experience exceeds 300 years in the E&P and oilfield service sectors. This experience and local knowledge have provided our team with relationships that give us the ability to execute better than our peers, big or small.

“We have a conventional, achievable approach that is not necessarily unique -- but our ability to execute with a high level of success sets us apart. I also would say that we all share the same focus on safety, quality control, and execution, which comes from the combination of an experienced team and the flexibility of being a smaller company,” Barksdale explained.

Red Mountain operates 95% of what it owns. “In terms of joint ventures (JVs), we already work with several industry peers and have a lot of experience being a good partner. We would consider JVs to the extent the terms would be consistent with our operating approach, but as a general practice we won’t put our success on another company’s ability to make technical decisions,” he added.

Long-Life, Low-Risk Drilling Opportunities

“We are focused on the Permian basin because it is very conducive to long-life, low-risk drilling. The Permian has had significant development -- nearly a century -- which means there is a tremendous amount of data to access that makes it possible to clearly define opportunities.

“There is a model for repeatable success that makes the Permian appealing to us, and we believe the Permian provides a unique opportunity for smaller, growing players. The industry dynamics in the region, combined with our technical skills and strategy of acquiring and developing properties will enable us to deliver sustained production results and reserve growth in both the near and long term, he continued.

Gulf Coast Assets, Future Plans

Today, Red Mountain owns 4,595 gross acres (1,387 net) in onshore Gulf Coast acreage across four prospects, which represents a long-term opportunity that is overlooked by the market today. There is now a window of opportunity for assimilating these assets at a fair price.

“We’re continuing to look at the purchase of potential acreage despite our near-term strategy of being more oil-related. We have a conservative set of return parameters we’re using to evaluate these potential purchases and believe returns would be consistent with what we’re seeking overall.

“While we don’t have any current plans to drill, if the economics become more favorable we will absolutely consider development,” Barksdale said.

Challenges In Developing Domestic Resources?

“We are absolutely focused on domestic oil opportunities in the near-term. Currently we already generate more operating revenues from oil than gas,” he noted. The company expects to focus even more on oil in the coming months and years.

“Commodity price fluctuation is not a new challenge for this industry, so we have plans in place to manage that volatility,” he continued.

One major challenge is regulatory uncertainty. “The government is involved in the oil and gas industry on many levels as mineral owner, regulator, etc. This is a broad category that includes local, state, and federal levels of process and approvals.

“The ever-changing landscape of government makes long-term planning and budgeting difficult. In addition to rulings and regulation, fiscal problems have created staffing issues for the government agencies which further delays development and approvals. These are the types of unpredictable issues that keep our business interesting,” he emphasized.

“Our intermediate to long-term plan is to continue building, acquiring, and growing assets that are consistent with our low-risk approach. Our goal is to build a capable team and create a portfolio that provides recurring and predictable earnings.

“We also intend to solidify our balance sheet to prepare the volatility of the commodity markets. These are necessary components to create and maintain shareholder value. In short, we will put our experience and assets to work wherever it will benefit our stakeholders.”

Contact the author, Nancy Agin, at nagin@hartenergy.com.