Camber Energy (NYSE:CEI) is best seen as a holding company with a 62% interest in another oil and gas company, Viking Energy (OTCMKTS:VKIN). The issue is CEI stock has spiked on a speculative deal it recently signed with a third company, privately held ESG Clean Energy (“ESG”).
ESG says it has a way to capture carbon and other exhaust emissions and signed a deal with Viking on Aug. 24 that requires huge upfront and ongoing royalty payments. The problem is their technology does not seem to be anything special, at least according to one analyst at Seeking Alpha.
Issues With Camber Energy
And this is only just one of the problems with the deal. Nevertheless, CEI stock spiked close to $4.00 ($3.94 as of mid-day Sept. 29). This gave it an apparent valuation of $411 million, according to Yahoo! Finance.
However, Seeking Alpha says the market value was $283.4 million. The problem is no one really knows how many shares exactly are outstanding. That is mainly due to the fact that Camber Energy has not filed any financial statements with the SEC recently.
In fact, on Sept. 22, the company filed an 8-K report with the SEC reporting that the company had switched its accounting firm. Moreover, on Sept. 11 the company revealed to its shareholders that its prior financial statements for the years ending March 2020 and March 2019 could not be relied on.
Somehow, Viking Energy still seems to be willing to go through with its reverse triangular merger with Camber Energy. This was announced on Feb. 18, but since then there has been no update on when the deal will close. The question that remains is why would the minority shareholders agree to this merger without knowing the full financial situation at Camber Energy?
Issues With the ESG Deal
If you read the details of the ESG deal on the 8-K filing, it shows that Viking has to pay $5 million in cash or stock by April 2022. After that, there is a 15% royalty, presumably from the sale of the captured exhaust materials from the company’s oil and gas wells and internal combustion engines.
This includes carbon (CO2), and “in a manner to facilitate the production of precious commodities (e.g. distilled/ de-ionized water; UREA (NH4); ammonia (NH3); ethanol; and methanol) for sale.”
The problem is we don’t have any idea how much of these “precious commodities” will be produced. Moreover, the minimum royalty payments are fairly high. For example, by year 2 there is a required royalty payment of $500,000. That works out to 15% of $3.333 million in sales of captured commodities. But by year 8 the minimum payment is $3.25 million, which is 15% of $21.667 million in carbon sales.
The lack of a business plan or presentation means we have no concept of how many engines at Viking’s US and Canadian operations will be using this ESG technology. There is no cost analysis, profit potential or even an ROI type number for the deal from Viking’s standpoint.
So the huge runup in CEI stock (assuming the Viking merger goes through) seems to be premature at best.
What To Do With CEI Stock
At this point, with a new accounting firm, lack of financials, no ROI analysis or presentation on the ESG deal by Viking, most investors should be wary. That is especially the case after the recent runup in CEI stock.
The best course then seems to be to wait for the company to either issue their required financial filings or close the merger with Viking Energy. The least they can do is indicate when exactly the deal will close.
After that, assuming these things happen the company needs to explain the economics to investors of why that deal makes any financial sense. Short of these requirements, most value-oriented investors will stay on the sidelines. This highly speculative stock is likely to fall before any defensive investors will buy it.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.