Camber Energy (NYSE: CEI) has become a bit of a memes stock lately, following Twitter user @MrZackMorris pushing the name to his followers. An oil and gas name that has no doubt enjoyed the recent excitement in the energy space, the company has become the latest target this week for short sellers, Kerrisdale Capital released a report on them Tuesday morning.
Operator of oil and gas fields in Texas, Louisiana and Mississippi through a subsidiary, Camber presents itself as a “growth-oriented organization” which is building a “diverse energy and energy solutions company”. The company is said to have 145 active oil and gas wells, with the company identifying a number of target locations for further expansion via continued drilling.
According to Kerrisdale however, the company is a “former oil producer,” as described in its report, “Camber Energy, Inc (CEI): What if they did an entire business with red flags?“
The report itself starts off strong, with the opening paragraph identifying a number of major issues with Camber, including:
- The company has not filed financial statements with the SEC since September 2020, a year ago.
- The company fired its accounting firm last month, which means the likelihood of financial data coming in soon is slim to zero.
- The company is at risk of being delisted next month due to its disclosure flaws.
In addition to these issues, Kerrisdale also points out that its main subsidiary, Viking Energy, is an OTC business in which the company owns 73%, which has its own set of red flags attached. But more on that later.
First, let’s focus on Camber’s stock structure. The company, according to multiple trading platforms, has around 104.2 million shares outstanding, which would translate into a market capitalization of around $ 322 million at the time of the report’s release. Kerrisdale disputes that figure, however, due to dilutive Series C convertible preferred shares and convertible debt, the impact of which has been masked by the lack of financial deposits made by the company over the past year.
Rather than going into the mechanics of the ridiculous 24.95% non-cash dividends owed on an annual basis due to this debt and preferred stock structure, let’s just highlight this chart, provided courtesy of Kerrisdale.
In short, convertible debt and Series C preferred shares would have mechanisms in place that limit the conversion price to a maximum of $ 0.3985 per share, with one Series C preferred share being said to be convertible into 43,885 common shares. of society, according to Kerrisdale’s analysis.
The shares themselves are owned by Discover Growth Fund, with the company itself saying that “the continued sale of shares issuable on successive conversions will likely create significant downward pressure on the price of its common shares.” The debt is so terrible that Camber is said to have sued Discover for fraud after the lawsuit was dismissed by the judge on the basis of “you signed it, it’s your problem”.
To be fair here, the debt is really terrible. Here is an excerpt from the recent merger documents filed by Camber with respect to debt, which, in layman’s terms, indicates that Discover owns this vessel, despite what Camber or its shareholders may attempt to do to escape debt.
In other words, those who reached the bid on Camber Energy in the past few weeks (an average of $ 1.9 billion in shares traded daily last week), appear to have effectively funded the credit card of the Discover Growth Fund. .
Of course, those Series C shares will eventually run out – 2,093 shares would have been held in February 2021, which of course will turn into many, many more common stocks, and recent volatility has likely played a big role. in this objective. . However, another block of preferred shares was issued in July, for which details are slim, while $ 20.5 million of convertible debt was issued in the past year, also affecting the share structure of the company.
Much of the remainder of the report focuses on red flags at Viking, the 73% -owned subsidiary of the company that also trades publicly in over-the-counter markets. A number of flags here are also highlighted:
- The company has negative equity of $ 15 million.
- 48% of companies with $ 101.3 million in debt mature within the next 12 months.
- A Viking subsidiary, Elysium Energy, is in breach of a secured debt covenant, which means its debt is likely now due and current.
- Viking has entered into an intellectual property license agreement for a carbon capture system for natural gas electric generators, but the intellectual property is exclusive only in Canada and 25 locations in the United States, with the intellectual property being created by reported fraudsters.
The nail in the coffin here, however, is a financial advisor to Viking who, in a merger that will see Viking become a 100% owned entity by Camber, has provided an equity opinion on the all-stock transaction originally proposed. between the two companies. Scalar, LLC, the adviser, reportedly provided a valuation in October last year for Viking between $ 0 million and $ 20 million, with a full discounted cash flow model showing a value between $ 0 million and $ 1 million – a Pretty hilarious figure considering Camber right now with only partial ownership is trading at a market cap of at least $ 322 million, if not several multiples more.
The final detail is that Viking apparently had a fictitious CFO for a number of years. Apparently, the role from December 2014 to July 2016 was that of Cécile Yang, who lives in Shanghai, China. The founder of the company, according to the SEC, apparently used it as a placeholder for the role, forging documents to grant himself a power of attorney allowing him to use his signature whenever necessary to file the appropriate documents. Additionally, CEO James Doris, who is also CEO of Camber Energy, clearly never had a problem with this arrangement, although he never even spoke or communicated with Yang, and although she was on paper the main financial employee of the solidifier.
Suffice to say that Kerrisdale seems to have been quite effective in his last short report. Camber Energy closed the market down 50.49% on regular hours at $ 1.53 on the NYSE, while falling 17.65% after-hours trading at $ 1.26, after peaking $ 3.22 in early morning trading – leaving Zack Morris and his group of followers to pick up the remaining chunks.
Information for this briefing was found through Sedar and the companies mentioned. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.
As the founder of Deep divingJay is focused on all aspects of the business. This includes operations, as well as being the lead writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay writes freelance for a number of companies and has been posted on Stockhouse.com and CannaInvestor Magazine among others.