Camac Energy: Looking Forward To 2nd Quarter Earnings

Aug. 7.14 | About: Erin Energy (ERN)

Summary

CAMAC appears on track with completing its Nigeria plan.

Oyo-7 and Oyo-8 both appear to have the potential for meeting the targets of 14,000 bopd.

Long term, the company is investigating leads and potential for Kenya, Gambia, and Ghana.

CAMAC Energy, Inc. (CAK) has transformed itself over the past year and will report 2nd Quarter earnings on August 11th. Over the past Quarter, the company has seen some highs and lows, but appears to be on track to continue increasing shareholder value through its drilling and exploration plans.

The Lows

After reviewing the 1st Quarter earnings, the company had to revise the financial statements for the quarter based on oversights made during the transaction with Allied Energy and the acquisition of 100% interest in OML 120 and 121. The revised financial statements for the quarter included:

-an increase in crude oil inventory as of December 31, 2013 and a corresponding increase in production costs for the first quarter of 2014

-an increase in operating costs due to the receipt of additional third-party vendor cost information from Allied following the completion of the first quarter 2014 financial statements

The company stated the oversight didn't have any effects on the cash position and wouldn't affect future results. While it didn't affect the bottom line, it did shake investor confidence, causing the stock to fall 14% on the news and another 10% over the next month.

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The Highs

The company announced on June 16th that it had spud the Oyo-8 well and in just under two months it had drilled to a total depth of 6,059 feet. Once again it had hit pay dirt with four reservoirs of gas and oil totaling 112 feet. This is comparable to the oil and gas discovered in Oyo-7, which discovered net oil of 115 feet and net gas of 93 feet. The company has estimates of 7,000 barrels of oil per day from each well when they are completed.

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(Source: Company presentation)

2nd Quarter Expectations

When the 2nd Quarter Earnings are released there are a few things investors should be anxious to hear that will help the stock:

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(Source: Company presentation)

-Nigerian Progress: The discoveries at Oyo-8 and Oyo-7 have already been publicized, but the company has stated it plans on having the production of 14,000 bopd by year end. With the year half way over, they will either confirm or deny they are on target to meet those expectations.

-Kenyan Update: The company planned on beginning the 2D seismic studies in L27 and L28 in order to assess the potential reservoirs available. During the 3rd Quarter the company plans on acquiring the acquiring the 2D seismic studies for the onshore blocks in L16 and L18.

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(Source: Company presentation)

-Gambia: The company will begin reprocessing previous 2D seismic data in order to refine locations for potential oil reservoirs. The company state there are a combined 1.3 billion barrels of oil in the leases, but has to find the optimum locations for drilling.

-Ghana: The company has a relatively short time line with Ghana and needs to assess the commerciality of the oil there:

In April 2014, the Company signed a Petroleum Agreement relating to the Expanded Shallow Water Tano block in Ghana. The Company has been named technical operator and will hold a 30% interest in the block. The block contains three discovered fields, and the work program requires the partners to determine, within nine months, the economic viability of developing the discovered fields.

While the company has identified oil fields there, it may not be economically feasible to pull the oil from the ground.

Risks

Africa is still a dangerous place and the outbreak of Ebola there only complicates the matter. While the company operates off shore, and the virus is not airborne, the presence of it on the mainland could complicate things logistically.

"This cluster of cases in Lagos, Nigeria is very concerning," said Dr. Tom Frieden, director of the U.S. Centers for Disease Controls and Prevention, which is dispatching 50 experienced disease control specialists to West Africa.

In addition to the disease threat to the area, there are still security threats brought on by piracy. Although reports have subsided over the past six months, the threat is still present.

Conclusion

CAMAC continues to execute its plan for oil and gas exploration in Africa. The pay day from Nigeria will likely begin this year, and will be the near term catalyst for shareholder value. Long term, the company is studying leads and options for Gambia, Ghana, and Kenya, which will help to sustain the growth of the company.

Disclosure: The author is long CAK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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