Summary
- Over the past two years CAMAC Energy has transformed itself into an oil and gas exploration and production company and changed its name to Erin Energy, with its main asset.
- The company consolidated shares in a reverse merger, pushing it up into the institutional investing range and was recently added to the Russell Index.
- The company has seen some negative publicity, but continues to deliver on its plan for developing Nigeria and exploring potential oil and gas in Ghana, The Gambia, and Kenya.
Erin Energy (NYSEMKT:ERN) has had a tumultuous two years. Over the past two years the Africa Oil and Gas Exploration and Production company has:
- Completed a reorganization that included acquiring a significant offshore Nigerian oil field
- Completed and began production on two off shore oil wells with output of over 14,000 bopd
- Continued to pursuit exploration in its other claims in The Gambia, Kenya, and Ghana
In spite of the operational success, the company has come under fire twice in the past two years by bearish articles.
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24 Month Review
Nov 20th 2013: The company (at the time CAMAC Energy) announced a massive restructuring that included:
- Acquire the remaining economic interests covering Oil Mining Leases 120 and 121 offshore Nigeria, which include the currently producing Oyo Field
- To acquire the interests, issue 497,454,857 shares of common stock, pay US$170 million in cash and issue a US$50 million convertible subordinated note
- Entered into a definitive agreement with the Public Investment Corporation (SOC) Limited ("PIC") of South Africa for a US$270 million equity investment through a private placement of 376,884,422 shares of common stock
- Declare a dividend for current shareholders in the form of additional shares of CAMAC Energy common stock, equal to approximately 1.435 shares per share outstanding
Jan 2nd 2014: Value Digger releases an article claiming the company is grossly overvalued and should be shorted. In spite of the article, the company continues to climb.
Feb 13th 2014: The company begins to close the restructuring plan and issues the stock dividend of 1.435 additional shares to current shareholders. The company continues to climb.
4th Quarter 2014: The company looses ground as drilling issues push back the timelines on getting the Oyo 7 and Oyo 8 wells drilled. Some of those issuesinclude operational issues with the Energy Searcher drill ship, owned by Northern Offshore Ltd. The company would go on to terminate the contract due to breach of contract and sue the company for damages and delays. The Energy Searcher would be replaced by the Sedco Express, owned and operated by Transocean…eventually finishing and hooking the wells up.
Mar 31st 2015: The company announces it has completed the Oyo 8 well, it is hooked up to the FPSO, and is ready to begin production. Production eventually stabilizes at 7,080 bopd.
Apr 22nd 2015: The company announces a reverse split. The 1:6 reverse split puts the stock price above $5, the limit for most institutional funds to invest in. The company also announces it will change its name and ticker from CAMAC Energy (CAK), to Erin Energy . After bouncing around a little, it eventually soars to almost $9.
June 4th 2015: Cannell Capital LLC releases its article calling into question the valuation of the company and past actions of the leadership in the company. The company responds calling the accusations baseless, but the stock is still cut in half.
June 18th 2015: The company announces the commencement of production from the Oyo 7 well with an expectation of 7,000 bopd.
June 30th 2015: The company announces it has been added to the Russell Indexes.
The So What…
In spite of the negative press and bearish calls, the company has defied the critics and continues to deliver on its plans. While the company did retreat during 4Q14, it immediately recovered once news of the first oil well was completed and the reverse stock split.
For investors currently underwater from the recent drop, be patient. The company still has a plan for continued development in Nigeria and developing the other oil fields in Ghana, The Gambia, and Kenya. While those fields are a few years off from development, the prospects are high the company will hit oil.
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(Source: company presentation from 1 June)
For investors that have yet to enter the company, the recent pull back presents a tempting opportunity. The addition to the Russell Index increases the customer base as those funds that are tied to the index will initiate positions for their funds. Increased volume brings an increase in price. In the long term, the company is still expanding and will increase its daily production as more wells are drilled.
Conclusion
As with any explosive stock, there is always a pullback as investors and traders secure profits and take money off the table. The recent fall in ERN was exacerbated by the bearish article published by Cannell Capital. The valuation had been high for the current oil production, but with the further development of OML 120 and 121 in addition to Ghana, The Gambia, and Kenya, this company will climb back up there.