A recent confluence of world events has driven oil prices past the $70 mark. Strong global demand in conjunction with depleted reserves, OPEC-led production cuts, and renewed prospect of sanctions on Iran, have all worked to send oil prices to their highest levels since November of 2014.
While some economists are concerned that the recent spike in the price of oil will act as a silent tax on the economy constraining growth, companies with direct exposure to the energy space are likely to benefit from $70 oil.
Our favorite small cap energy and resources play is Camber Energy (CEI). The company is in the midst of a turnaround, and according to the last shareholder letter, authored by CEO, Richard Azar, the company appears to be on track.
The spike in oil prices should act as a significant tailwind for the company, and not just because Camber is an oil producer. While the company does have direct exposure to oil, the majority of its revenue is generated through the sale of liquid natural gasses (LNGs) such as natural gas and butane. Our guess is that the price of LNGs could run because historically the prices of oil and LNGs tend to track fairly well. If that were to occur, Camber’s revenue and gross margins should increase because it has tremendous exposure to both oil and LNG’s.
Additionally, Camber generates all of its revenue in the U.S., which means the recent tax cuts will also become a tailwind. According to public statements made by Camber, the company could be cash-flow positive later this year, and perhaps the increase in oil prices will accelerate that timeline.
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