Crude Oil has been running higher for most the past year, advancing as much as 120% during the trailing twelve-month period. The story has been clear: demand is taking off, but production capacity has been barren of new investment for the past 18 months and US shale players refuse to ramp up production despite the rising price.
OPEC+ recent forecast deficits – where supply falls short of demand – next month and over ensuing months. The US rig count for active oil rigs stands at under 400. It was at over 700 early last year, ahead of the onset of the pandemic. And yet, oil demand has already fully recovered.
US shale oil producers have been through multiple major bear markets over the past 8 years, shattering balance sheets in the space and teaching investors to only supply fresh capital to management teams that avoid levering up production by chasing rising output prices.
That has armed only the most conservative teams with access to capital, and they have used to shore up balance sheets and pay themselves and their shareholders through new dividend issuances, rather than by increasing output. The result is a return to the good ol’ days for OPEC officials. Because of the lack of market share competition coming from US producers, OPEC can go back to what they like doing best: coming up with excuses to avoid major production hikes and nursing the price as high as possible before it starts to break the economy.
Given the robust expectations of economists right now, that will likely be a whole lot higher than $65-70/bbl. That means the current pullback could be an extremely valuable opportunity. This is especially true for oil stocks, which have sharply lagged in terms of forward valuation multiples relative to oil prices.
Now, if oil stocks constrict even further during a big shakeout in oil prices, it could be a very important opportunity for investors to snatch up uber-cheap small-cap energy producers and hold them for the next twist in the story – when oil hits its next gear and retail market participants finally start to get excited about the space.
That could have enormous implications for names like SilverBow Resources Inc (NYSE:SBOW), Matador Resources Co (NYSE:MTDR), Camber Energy Inc (NYSEAMERICAN:CEI), Diamondback Energy Inc (NASDAQ:FANG), Helmerich & Payne, Inc. (NYSE:HP), SM Energy Co (NYSE:SM), Viking Energy Group Inc (OTC US:VKIN), and VanEck Vectors Oil Services Etf (NYSEARCA:OIH).
We take a closer look at some of the more interesting stories in this space below, including the dark horse play on the OTC, Viking (VKIN), which looks to possibly now have a clear path to accelerating growth due to a very favorable funding round cultivated by Camber (CEI), which is its majority owner. We will talk more about that news below given its potentially big implications for growth in shareholder value from an interesting early-stage player.
SilverBow Resources Inc (NYSE:SBOW) is a growth-oriented independent oil and gas company in the dead-center of what you might call the small-cap growth niche in the US shale energy space.
The company engages in the acquiring and developing assets in the Eagle Ford Shale.
SilverBow Resources Inc (NYSE:SBOW) recently announced operating and financial results for the first quarter of 2021. Highlights include news that net production averaged approximately 180 million cubic feet of natural gas equivalent per day (“MMcfe/d”), above the high end of guidance, it reported net income of $28 million, Adjusted EBITDA of $63 million and free cash flow (“FCF”) of $24 million, and it increased full year 2021 FCF guidance range by $10 million at the midpoint to a range of $30-$50 million.
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “In April, we provided a preview of our stellar results for the quarter. We paid down $30 million of debt, or 13% of our revolver borrowings, and reduced our leverage ratio to 2.1x. We successfully renegotiated and extended our Credit Facility, which provides us the runway to expand our development program and pursue our strategic objectives. We generated free cash flow for the fifth consecutive quarter and raised the midpoint of our 2021 free cash flow guidance to $40 million, a $10 million increase from our prior guidance. Operationally, we continue to see strong performance from our first Webb County Austin Chalk well and plan to drill additional appraisal wells this year, with the goal of increasing our inventory with incremental, high-return locations. The continued capital efficiency gains we demonstrated on our second La Mesa pad should support further upside potential to our stakeholder returns as we apply those learnings and efficiencies across our balanced portfolio.”
Even in light of this news, SBOW has had a rough past week of trading action, with shares sinking something like -19% in that time. That said, chart support is nearby, and we may be in the process of constructing a nice setup for some movement back the other way. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -20%.
SilverBow Resources Inc (NYSE:SBOW) managed to rope in revenues totaling $86.7M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 62.5%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($3.4M against $75.2M, respectively).
Camber Energy Inc (NYSEAMERICAN:CEI) is an interesting name in the space. We mentioned above that it is the majority owner of an OTC producer (VKIN), and equity interest in CEI also grants exposure to VKIN. The prospects for VKIN have improved over the past week due to a very important financing agreement obtained by CEI.
We would also point out a very interesting update from CEI in a video update from the guy who is currently the CEO of both VKIN and CEI, which can be viewed here.
Camber Energy Inc (NYSEAMERICAN:CEI) most recently announced that it closed a $15,000,000 equity transaction from an Institutional Investor. The most important part, as described in the release, is that this is a premium-to-market convertible deal that appears to help dispense with apparent dilution risk from other notes in play for CEI – and thus, for VKIN.
According to the release, the company plans to use the funds for “working capital, new acquisitions (directly or through the Company’s majority-owned subsidiary), and other purposes.” In other words, the funds could help VKIN expand its production footprint. As noted, in a separate transaction, the Company extended the maturity date of existing promissory notes from December 11, 2022 to January 1, 2024, and incorporated a conversion feature in each of the promissory notes entitling the holder to convert all or a portion of the principal amount(s) into shares of common stock of the Company at a fixed conversion price of $1.25 per share, which equates to an approx. 117% premium from the closing price of the common shares on July 9, 2021.
James Doris, President and Chief Executive Officer of Camber, commented, ‘These transactions serve as significant catalysts for advancing Camber’s growth initiatives. The $15M commitment by the institutional investor is encouraging and seemingly reflective of the confidence in Camber and our operations both short and long term. We are excited about the Company’s future and remain focused on forging a path toward profitability and increasing shareholder value.’
Camber Energy Inc (NYSEAMERICAN:CEI) CEO noted, ‘These transactions serve as significant catalysts for advancing Camber’s growth initiatives. The $15M commitment by the institutional investor is encouraging and seemingly reflective of the confidence in Camber and our operations both short and long term. We are excited about the Company’s future and remain focused on forging a path toward profitability and increasing shareholder value.’
Matador Resources Co (NYSE:MTDR) engages in the exploration, development, production, and acquisition of oil and natural gas resources. It operates through the following segments: Exploration and Production, Midstream, and Corporate.
The Exploration and Production segment focuses on the exploration, development, production, and acquisition of oil and liquids-rich portion of the Wolfcamp and Bone Spring. The Midstream segment conducts natural gas processing, oil transportation services, oil, natural gas and produced water gathering services, and produced water disposal services to third parties.
Matador Resources Co (NYSE:MTDR) announced recent upgrades by S&P Global Ratings to the Company’s corporate credit rating and senior unsecured notes and the closing of an amendment to the credit facility of its midstream affiliate, San Mateo Midstream, LLC, providing for increased lender commitments.
Joseph Wm. Foran, Matador’s Chairman and CEO, commented, “We are very pleased with S&P’s upgrades to our corporate and issue-level credit ratings, which reflect our ongoing commitment to repaying debt and strengthening our balance sheet. We are also very pleased by the $75 million increase in lender commitments to San Mateo’s credit facility, which should provide our midstream joint venture with greater operating and financial flexibility. We greatly value the strong relationships we enjoy with our lenders, which have been pivotal to the growth and success of both Matador and San Mateo over many years. We wish to express our sincere appreciation to all of the institutions comprising our banking groups for their continued confidence and support, and we look forward to working together with each of them as we grow and build value for our shareholders and bondholders.”
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action MTDR shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -19% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -9%.
Matador Resources Co (NYSE:MTDR) managed to rope in revenues totaling $336.2M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 49.9%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($48.3M against $376.4M, respectively).
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