We found Camber Energy late in 2017, and the company quickly became our favorite turnaround story in the energy sector. Last October, interim CEO, Richard Azar, put out a letter to shareholders with detailed plans for the company’s turn-around strategy. Since the letter was released, we’ve been following Camber’s progress closely to see if the new management team could deliver on its promises.
So far, we’ve been extremely impressed.
The company has met or exceeded its objectives, and this week we received two more proof-points, as the company hit key milestones. On Monday, the company announced that it had acquired approximately 3,000 leasehold acres in Oklahoma including seven non-producing well bores, and three salt-water disposal wells. The acquisition fits into one of the company’s strategic plans of acquiring undervalued assets, reworking non producing or under producing wells, and turning the properties into cash-flow producing assets. Azar alluded to potential acquisitions in Oklahoma in last October’s letter, and in the company’s latest press release, he reiterated his intent to seek out similar opportunities going forward.
Acquiring undervalued properties and revitalizing them is one of the strategies Azar has used in his career to great effect. Azar has been in the energy business since 1982 and he, along with his team, have drilled over 1,400 wells in Texas, Oklahoma, and other surrounding states.
The business model is practically formulaic, which has tremendous appeal to us, because the energy business is all about risk mitigation. By targeting properties with known resources in the ground and downed equipment, Azar is able to acquire assets at a discount, even though they present relatively low geologic risk. These assets can then be revitalized with a relatively modest amount of additional capital. Once the wells are back online, the assets begin to generate revenue, and within a matter of months the acquisition has paid for itself. The strategy is very straight forward, and very effective. Since Azar has been able to use this exact strategy countless times throughout his career, our bet is he can do it again with Camber. If he can, the company will be extremely well positioned by the end of this year.
Then on Wednesday, the company announced the extinguishment of $5.8 million in debt associated with its wholly owned subsidiary, CATI Operating, LLC. The move significantly strengthened the company’s balance sheet, which was a key objective according to Azar’s previous shareholder communications. Azar is attempting to position the company for maintaining its listing on the NYSE-American exchange, and possessing a healthy balance sheet is an essential part of the company’s plan for maintaining its listing
According Azar’s previous shareholder communications, the company’s turnaround plan is largely dependent upon three fundamental tenants: i) increasing the company’s cash flow by reworking downed assets owned by the company; ii) acquiring assets that are cash flowing or can become cash flowing within a relatively short period of time; and 3) restructuring or eliminating the company’s debt. By increasing cash flow and reducing liabilities, Azar believes the company will be strong enough to maintain its listing on the NYSE-American.
So far, the Camber appears to be on track, and Azar has been diligent about keeping shareholders abreast of the company’s progress. We’re going to continue keeping a close watch on Camber, but so far our faith in this company and its new management team has been very well founded. With each passing week we become more confident in our call on Camber for 2018. We continue to believe that this could be the best turnaround story of the year.
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