CAMBER ENERGY INC CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are generally located in the material set forth below under the
headings " Risk Factors " and " Management's Discussion and Analysis of
Financial Condition and Results of Operations " but may be found in other
locations as well. For a more detailed description of the risks and
uncertainties involved, the following discussion and analysis should be read in
conjunction with management's discussion and analysis contained in
Camber's Annual Report on Form 10-K for the fiscal year ended
These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, among others: ? the availability of funding and the terms of such funding;
? our ability to integrate and realize the benefits from future acquisitions
that we may complete, including our pending Merger with Viking Energy Group,
Inc. ("Viking") and the costs of such integrations;
? our ability to close the announced Merger with Viking on the terms disclosed,
if at all;
? consideration we may be required to pay under certain circumstances upon
termination of the Merger with Viking;
? our ability to timely collect amounts owed to us under secured and unsecured
notes payable;
? costs associated with the Viking Merger;
? significant dilution caused by the conversion of Series C Preferred Stock into
common stock, as well as downward pressure on our stock price as a result of
the sale of such shares;
? our growth strategies;
? anticipated trends in our business;
? our ability to repay outstanding loans and satisfy our outstanding
liabilities;
? our liquidity and ability to finance our exploration, acquisition and
development strategies;
? market conditions in the oil and gas and pipeline services industries;
? the timing, cost and procedure for future acquisitions;
? the impact of government regulation;
? estimates regarding future net revenues from oil and natural gas reserves and
the present value thereof;
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? legal proceedings and/or the outcome of and/or negative perceptions associated
therewith;
? planned capital expenditures (including the amount and nature thereof);
? increases in oil and gas production;
? changes in the market price of oil and gas;
? changes in the number of drilling rigs available;
? the number of wells we anticipate drilling in the future;
? estimates, plans and projections relating to acquired properties;
? the number of potential drilling locations;
? our ability to maintain our NYSE listing;
? the voting and conversion rights of our preferred stock;
? the effects of global pandemics, such as COVID-19 on our operations,properties, the market for oil and gas and the demand for oil and gas; and
? our financial position, business strategy and other plans and objectives for
future operations.
We identify forward-looking statements by use of terms such as "may," "will,"
"expect," "anticipate," "estimate," "hope," "plan," "believe," "predict,"
"envision," "intend," "continue," "potential," "should," "confident," "could"
and similar words and expressions, although some forward-looking statements may
be expressed differently. You should be aware that our actual results could
differ materially from those contained in the forward-looking statements. You
should consider carefully the statements under the "Risk Factors" section of
this report and other sections of this report which describe factors that could
cause our actual results to differ from those set forth in the forward-looking
statements, and the following factors:
? the availability of funding and the terms of such funding;
? our ability to integrate and realize the benefits from future acquisitions
that we may complete, including the pending Merger with Viking;
? our ability to timely close the Viking Merger on the terms disclosed and
closing conditions associated therewith;
? significant dilution caused by the conversion of Series C Preferred Stock into
common stock, as well as downward pressure on our stock price as a result of
the sale of such shares;
? our growth strategies;
? anticipated trends in our businesses;
? our ability to repay outstanding loans and satisfy our outstanding
liabilities;
? our liquidity and ability to finance our acquisition and development
strategies;
? market conditions in the oil and gas and pipeline services industries;
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? the timing, cost and procedure for future acquisitions;
? the impact of operational hazards;
? the outcome of competitive bids;
? customer defaults;
? estimates regarding future net revenues from oil and natural gas reserves and
the present value thereof;
? legal proceedings and/or the outcome of and/or negative perceptions associated
therewith;
? planned capital expenditures (including the amount and nature thereof);
? increases in oil and gas production;
? changes in the market price of oil and gas;
? changes in the number of drilling rigs available;
? the number of wells we anticipate drilling in the future;
? estimates, plans and projections relating to acquired properties, businesses
and operations;
? the number of potential drilling locations;
? our ability to maintain our NYSE American listing; and
? our financial position, business strategy and other plans and objectives for
future operations.
Forward-looking statements speak only as of the date of this report or the date of any document incorporated by reference in this report. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Review of Information and Definitions
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedMarch 31, 2020 .
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under "Part I - Financial Information - Item 1. Financial Statements ".
Unless the context requires otherwise, references to the "Company," "we," "us," "our," "Camber", and "Camber Energy, Inc. " refer specifically toCamber Energy, Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this report only:
? "Exchange Act" refers to the Securities Exchange Act of 1934, as amended;
? "Bbl" refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used
in this report in reference to crude oil or other liquid hydrocarbons;
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? "SEC" or the "Commission" refers to the
Commission;
? "Boe" barrels of oil equivalent, determined using the ratio of one Bbl of
crude oil, condensate or natural gas liquids, to six Mcf of natural gas;
? "Mcf" refers to a thousand cubic feet of natural gas; and ? "Securities Act" refers to the Securities Act of 1933, as amended. Overview
Corporate History and Operations
Camber Energy, Inc. , aNevada corporation, is based inHouston, Texas . We are currently primarily engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations inLouisiana andTexas . Incorporated inNevada inDecember 2003 under the namePanorama Investments Corp. , the Company changed its name toLucas Energy, Inc. , effectiveJune 9, 2006 , and effectiveJanuary 4, 2017 , the Company changed its name toCamber Energy, Inc. After the divestiture of ourSouth Texas properties during fiscal 2019, we initiated discussions with several potential acquisition and merger candidates to diversify our operations. Pursuant to those discussions onJuly 8, 2019 , we acquiredLineal Star Holdings, LLC ("Lineal") pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the "Lineal Plan of Merger" and the merger contemplated therein, the "Lineal Merger" or the "Lineal Acquisition"), by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber's wholly-owned subsidiary ("Merger Sub"), and the Members of Lineal (the "Lineal Members"). Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry. Pursuant to the Lineal Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock ("Series E Preferred Stock") and Series F Redeemable Preferred Stock ("Series F Preferred Stock"), as discussed in greater detail under " Note 1 - General " and " Note 11 - Lineal Merger Agreement and Divestiture ", to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements".
OnDecember 31, 2019 , the Company entered into, and closed the transactions contemplated by a Preferred Stock Redemption Agreement, by and between the Company, Lineal and the holders of the Company's Series E Preferred Stock and Series F Preferred Stock (the "Redemption Agreement" and the "Preferred Holders"). Pursuant to the Redemption Agreement, effective as ofDecember 31, 2019 , each holder of Series E Preferred Stock transferred such Series E Preferred Stock to Camber in consideration for their pro rata share (except as discussed below in connection with the Series F Preferred Stock holder,who was also a holder of Series E Preferred Stock) of 100% of the Common Shares of Lineal and the holder of the Series F Preferred Stock transferred such Series F Preferred Stock (and such Series E Preferred Stock shares held by such holder) to Camber in consideration for 100% of the Preferred Shares of Lineal and as a result, ownership of 100% of Lineal was transferred back to the Preferred Holders, the original owners of Lineal prior to the Lineal Merger. Additionally, all of the Series E Preferred Stock and Series F Preferred Stock of the Company were automatically cancelled and deemed redeemed by the Company and the Series F Holder waived and forgave any and all accrued dividends on the Series F Preferred Stock. See also - " Note 1 - General " and " Note 11 - Lineal Merger Agreement and Divestiture ", to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements". OnFebruary 3, 2020 , the Company entered into an Agreement and Plan of Merger (as amended to date, the "Merger Agreement") with Viking Energy Group, Inc. ("Viking"). The Merger Agreement provides that a newly-formed wholly-owned subsidiary of the Company ("Merger Sub") will merge with and into Viking (the "Merger"), with Viking surviving the Merger as a wholly-owned subsidiary of the Company, as described in greater detail below. 27 Table of Contents Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking's properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may be through the sale of debt or equity. As described below, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all. Recent Events Viking Plan of Merger OnFebruary 3, 2020 , the Company and Viking entered into the Merger Agreement. Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of common stock of Viking (the "Viking Common Stock") issued and outstanding, other than certain shares owned by the Company, Viking and Merger Sub, will be converted into the right to receive the pro rata share of 80% of the Company's post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company). Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. Specifically, the percentage of shares retained by Camber shareholders (initially 80%, the "Camber Percentage") is adjusted as follows: (i) for each (A)$500,000 in Camber unencumbered cash (without any associated debt) available for use by the combined company (the "Combined Company") after the Effective Time, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking's Ichor division or Elysium division, which comes from equity sold by Camber for cash fromFebruary 3, 2020 , through the Effective Time, which is not contingent or conditional upon the closing of the Merger (the "Camber Surplus Cash"), or (B)$500,000 in other unencumbered assets acquired by Camber afterFebruary 3, 2020 and prior to closing without increasing Camber's liabilities (the "Other Camber Surplus Assets"), the Camber Percentage will increase by an incremental 0.5% (a "Camber Percentage Increase"); and (ii) for each additional$500,000 in Viking unencumbered cash (without any associated debt) for use by the Combined Company after the Effective Time which is not contingent or conditional upon the closing of the Plan of Merger, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking's Ichor division or Elysium division in excess of$500,000 at Closing, which comes from equity sold by Viking for cash fromFebruary 3, 2020 through the Effective Time, the Camber Percentage will decrease by an incremental 0.5% (a "Camber Percentage Decrease"). The aggregate Camber Percentage Increase or Camber Percentage Decrease shall not exceed 5% pursuant to this particular section of the Merger Agreement, and neither party will raise capital from the other party's existing shareholders without the prior written consent of such other party. Finally, any funds advanced to Viking by Camber prior to the Effective Time will not result in an adjustment of the Camber Percentage. The completion of the Merger is subject to certain closing conditions. The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Viking or the Company if the Merger shall not have been consummated on or beforeSeptember 30, 2020 , provided that the Company or Viking shall have the right to extend such date from time to time, until up toDecember 31, 2020 , in the event that the Company has not fully resolvedSEC comments on the Form S-4 (which the Company and Viking are in the process of addressing) or otherSEC filings related to the Merger, and the Company is responding to such comments in a reasonable fashion, subject to certain exceptions; (iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by the Company if Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Viking if the Company is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Viking or the Company if the other party's directors change their recommendation to their stockholders to approve the Merger, subject to certain exceptions set forth in the Merger Agreement, or if there is a willful breach of the Merger Agreement by the other party thereto. 28 Table of Contents
A further requirement to the closing of the Merger was that the Company was required to have acquired 25% of Viking's subsidiaryElysium Energy Holdings, LLC ("Elysium") as part of a$5,000,000 investment in Viking's Rule 506(c) offering, which transaction was completed onFebruary 3, 2020 , and have acquired an additional 5% of Elysium as part of a subsequent$4,200,000 investment in Viking's Rule 506(c) offering, which transaction was completed onJune 25, 2020 , as discussed above under " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements". In the event of termination of the Merger Agreement, we are required, under certain circumstances described under " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements", above to redeem 630 shares of Series C Preferred Stock sold onJune 22, 2020 , which have a redemption value of$6,930,000 . The Merger Agreement provides that the Secured Notes (defined below) will be forgiven in the event the Merger closes, and the Secured Notes will be due 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an additional payment equal to (i) 115.5% of the original principal amount of the Secured Notes (defined above under " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements"), minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment thereof (the "Additional Payment") is due. The Company obtained the funds for the Viking loans through the sale of Series C Preferred Stock to Discover as discussed above under " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , to the consolidated unaudited financial statements included under "Part I. - Item 1. Financial Statements". As of the date of the filing, the Company holds a 30% interest in Elysium, which through its wholly-owned subsidiary, holds certain working interests and over-riding royalty interests in oil and gas properties inTexas (approximately 71 wells in 11 counties) andLouisiana (approximately 52 wells in 6 parishes), along with associated wells and equipment, and was producing an average of approximately 2,700 Boe per day atJune 30, 2020 .
Corporate Information and Summary of Current Operations
Our website address is http://www.camber.energy. Our fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report. We refer to the twelve-month periods endedMarch 31, 2021 , 2020 andMarch 31, 2019 as our 2021 Fiscal Year, 2020 Fiscal Year and 2019 Fiscal Year, respectively. As ofJune 30, 2020 , the Company had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remainingTexas acreage as ofMarch 31, 2020 consisted of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in thePanhandle inHutchinson County, Texas , which was acquired by the Company inMarch 2018 , and which was transferred as part of the PetroGlobe settlement discussed in "Part I. Financial Information- Item 1. Financial Statements" - " Note 9 - Commitments and Contingencies " - "Legal Proceedings", inJuly 2020 . OnMay 30, 2019 , the Company received a Severance Order from theTexas Railroad Commission (the "TRC") for noncompliance with TRC rules, suspending the Company's ability to produce or sell oil and gas from itsPanhandle leases inHutchinson County, Texas , until certain well performance criteria are met. The Company subsequently followed TRC procedures in order to regain TRC compliance for thePanhandle wells. Additionally, as a result of a notice from its working interest partner, PetroGlobe Energy, and related litigation, all prior production on thePanhandle wells was held in suspense for the past several fiscal quarters. The Company cured the issues raised by the TRC transferred its ownership of itsHutchinson County, Texas properties and wells to PetroGlobe onJuly 16, 2020 . As a result of such transfer, the Company no longer holds any interests in suchHutchinson County, Texas wells or assets. 29 Table of Contents
As ofJune 30, 2020 , Camber was producing an average of approximately 29.8 net barrels of oil equivalent per day ("Boepd") from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Our production sales totaled 2,707 Boe, net to our interest, for the three months endedJune 30, 2020 . AtJune 30, 2020 , Camber's total estimated proved producing reserves were 133,442 Boe, of which 98,600 Bbls were crude oil and NGL reserves, and 207,823 Mcf were natural gas reserves. None of these reserves relate to the Company'sPanhandle properties, which has since been divested.
Camber holds an interest in 25 producing wells in Glascock County.
OnJuly 12, 2018 , we entered into an Asset Purchase Agreement, which closed onSeptember 26, 2018 , with N&B Energy. Pursuant to the Asset Purchase Agreement and the related Assumption Agreement, the Company transferred a significant portion of its assets to N&B Energy in consideration for N&B Energy assuming all of its debt owed toInternational Bank of Commerce . Notwithstanding the sale of the Company's assets to N&B Energy, the Company retained its assets inGlasscock County andHutchinson County, Texas (whichHutchinson County, Texas assets have now been divested), and also retained a 12.5% production payment (effective until a total of$2.5 million has been received); a 3% overriding royalty interest in its existingOkfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the retained items noted throughJune 30, 2020 or through the date of this filing.
As of
Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking's properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may be accomplished through the sale of debt or equity. As described above, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all.
Recent Reverse Stock Splits and Amendments to Articles
OnMarch 1, 2018 , the Company filed a Certificate of Amendment to the Company's Articles of Incorporation with the Secretary ofState of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company which was effective onMarch 5, 2018 . OnDecember 20, 2018 , the Company filed a Certificate of Change with the Secretary ofState of Nevada to affect another 1-for-25 reverse stock split of the Company's (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock, which was effective onDecember 24, 2018 . Effective onApril 10, 2019 , the Company amended its Articles of Incorporation to increase the number of the Company's authorized shares of common stock,$0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. OnJuly 3, 2019 , the Company filed a Certificate of Amendment to the Company's Articles of Incorporation with the Secretary ofState of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of the Company, which was effective onJuly 8, 2019 . OnOctober 28, 2019 , the Company filed a Certificate of Change with the Secretary ofState of Nevada to affect a 1-for-50 reverse stock split of the Company's (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective onOctober 29, 2019 . The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate 1-for-50 reduction in the Company's authorized shares of common stock, but with no change in the par value per share of the common stock. The result of the reverse stock split was to reduce the number of common stock shares outstanding on the effective date of the reverse, from approximately 74.5 million shares to approximately 1.5 million shares (prior to rounding). Effective onApril 16, 2020 , with the approval of the Company's stockholders at itsApril 16, 2020 special meeting of stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock to 25 million shares of common stock, which filing was effective the same date. 30 Table of Contents All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained herein have been retroactively adjusted to reflect the reverse splits for all periods presented. Industry Segments Our operations during the three months endedJune 30, 2020 and 2019 were all crude oil and natural gas exploration and production related, respectively. During the period fromJuly 8, 2019 toDecember 31, 2019 , we also owned and operated Lineal, which operated as an oil and gas service company and generated oil and gas service revenues. As described above under "Part I. Financial Information - Item 1. Financial Statements" - " Note 1 - General " and " Note 11 - Lineal Merger Agreement and Divestiture ", onDecember 31, 2019 , we divested our entire interest in Lineal, in conjunction with the Lineal Divestiture. OperationsOil and Gas Properties
We operate and invest in areas that are known to be productive, with a
reasonably established production history, in order to decrease geological and
exploratory risk. The Company has certain interests in wells producing from
various formations in
Financing A summary of our financing transactions, funding agreements and other material funding and loan transactions can be found under "Part I. Financial Information - Item 1. Financial Statements" - " Note 1 - General ", " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , " Note 6 - Long-Term Notes Receivable ", " Note 11 - Lineal Merger Agreement and Divestiture " and " Note 13 - Stockholders' Equity (Deficit) ", above. The Company believes that it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein unless it can close the Viking Merger, which is the Company's current plan, which Merger is anticipated to close in the third or fourth calendar quarter of 2020, and which required closing date is currentlySeptember 30, 2020 , but can be extended until up toDecember 31, 2020 , pursuant to certain conditions in the Merger Agreement.
Market Conditions and Commodity Prices
Our financial results depend on many factors, particularly the price of natural gas, natural gas liquids and crude oil and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues. We expect prices to remain volatile for the remainder of the year. For information about the impact of realized commodity prices on our crude oil revenues, refer to "Results of Operations" below.
Novel Coronavirus ("COVID-19")
InDecember 2019 , a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported inWuhan, China . TheWorld Health Organization declared COVID-19 a "Public Health Emergency of International Concern" onJanuary 30, 2020 and a global pandemic onMarch 11, 2020 . In March and April, manyU.S. states and local jurisdictions, includingTexas , where the Company has its operations, began issuing 'stay-at-home' orders, which continue in various forms as of the date of this report. Notwithstanding the above, because all of the Company's properties are non-operated, the Company's operations have not been materially affected by COVID-19 to date. 31 Table of Contents However, the oil and gas industry experienced multiple factors which lowered both the demand for, and prices of, oil and gas as a result of the pandemic. First, the COVID-19 pandemic lowered global demand for hydrocarbons, as social distancing and travel restrictions were implemented across the world. Second, the lifting ofOrganization of the Petroleum Exporting Countries (OPEC)+ supply curtailments, and the associated increase in production of oil, drove the global supply of hydrocarbons higher through the first quarter of calendar 2020. In addition, while global gross domestic product (GDP) growth was impacted by COVID-19 during the first half of calendar 2020, we expect GDP to continue to decline globally throughout the remainder of calendar 2020 and for at least the early part of calendar 2021, as a result of the COVID-19 pandemic. As a result, we expect oil and gas related markets will continue to experience significant volatility in 2020 and 2021.
The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic.
Currently we believe that we have sufficient cash on hand to support our operations for the foreseeable future, through the closing of the Merger Agreement; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.
The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks. RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for the three-month periods endedJune 30, 2020 and 2019 should be read in conjunction with our consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q under "Part I. Financial Information - Item 1. Financial Statements ". The majority of the numbers presented below are rounded numbers and should be considered as approximate.
Three Months Ended
We reported a net loss for the three months endedJune 30, 2020 of$1.6 million , or$0.44 per share of common stock. We reported a net loss for the three months endedJune 30, 2019 of$1.3 million , or$206.26 per share of common stock. The increase in net loss of$0.3 million relates primarily to the$1.1 million loss associated with the operations of Elysium, an unconsolidated entity, which we owned 30% of as ofJune 30, 2020 , and held 25% of as ofMarch 31, 2020 (having first acquired such 25% interest onFebruary 3, 2020 , and an additional 5% interest onJune 25, 2020 ).
Oil and Gas Exploration and Production Segment Information
The following table sets forth the operating results and production data for our oil and gas exploration and production segment, for the periods indicated:
Three Months Ended %
June 30, Increase Increase
2020 2019 (Decrease) (Decrease)
Sale Volumes:
Crude Oil (Bbls) 1,192 1,561 (369 ) (24 )%
Natural Gas (Mcf) 3,671 4,350 (679 ) (16 )%
NGL (Gallons) 37,915 46,899 (8,984 ) (19 )%
Total (Boe)(1) 2,707 3,402 (695 ) (20 )%
Crude Oil (Bbls per day) 13 17 (4 ) (24 )% Natural Gas (Mcf per day) 40 48 (8 )
(16 )%
NGL (Gallons per day) 417 515 (98 ) (19 )%
Total (Boe per day)(1) 29 37 (8 ) (20 )%
Average Sale Price:
Crude Oil ($/Bbl) $ 18.28 $ 60.02 $ (41.74 ) (70 )%
Natural Gas ($/Mcf) $ 1.13 $ 1.66 $ (0.53 ) (32 )%
NGL ($/Bbl) $ 8.57 $ 18.31 $ (9.74 ) (53 )%
Net Operating Revenues:
Crude Oil $ 21,789 $ 93,699 $ (71,910 ) (77 )%
Natural Gas 4,164 7,204 (3,040 ) (42 )%
NGL 7,736 20,448 (12,712 ) (62 )%Total Oil and Gas Revenues$ 33,689 $ 121,351 $ (87,662 )
(72 )%
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Sales volumes decreased by approximately 20% from the three months ended June
30, 2019 to the three months ended June 30, 2020 , due to a significant drop in
the market price of oil and gas compared to the same period in the prior year,
due mainly to decreased demand due to COVID-19, including an approximate 70%
decline in the average sales price of crude oil.
(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.
Operating and Other Expenses
The following table summarizes our production costs and operating expenses for
the periods indicated:
Three Months Ended %
June 30, Increase Increase
2020 2019 (Decrease) (Decrease)
Direct lease operating expense $ 57,549 $ 98,935 $ (41,386 ) (42 )%
Other 11,742 24,622 (12,880 ) (52 )%
Lease Operating Expenses $ 69,291 $ 123,557 $ (54,266 ) (44 )%
Severance and Property Taxes $ 1,349 $ 2,574 $ (1,225 ) (48 )%
Depreciation, Depletion, Amortization
and Accretion 2,295 4,242 (1,947 ) (46 )%
General and Administrative ("G&A") 686,663 1,304,301 (617,638 ) (47 )%
Share-Based Compensation - 27,690 (27,690 ) (100 )%
Total G & A Expense 686,663 1,331,991 (645,328 ) (48 )%
Interest Expense $ - $ 847 $ (847 ) (100 )%
Equity in Loss of Unconsolidated
Entity $ 1,083,355 $ - $ 1,083,355 100 %
Other Expense (Income), Net $ (214,632 ) $ (54,262 ) $ (160,370 ) 296 %
Lease Operating Expenses
There was a decrease in lease operating expense of approximately$54,000 when comparing the current quarter to the prior year's quarter. The decrease is primarily due to the decline in production due to significant price declines as a result of decreased demand due to COVID-19 and governmental responses thereto. 33 Table of Contents
Depreciation, Depletion, Amortization and Accretion ("DD&A")
DD&A decreased for the current quarter as compared to the prior year's quarter
by approximately
General and Administrative (G&A) Expenses
G&A expenses decreased by approximately$0.6 million for the three months endedJune 30, 2020 , compared to the prior year's period. The decrease was due primarily to costs incurred in the prior year's period related to the Lineal merger that were not present in the current period. Interest Expense
Interest expense for the three months ended
Equity in Loss of Unconsolidated Entity
Equity in loss of unconsolidated entity for the three months endedJune 30, 2020 increased by approximately$1.1 million when compared to the three-month period endedJune 30, 2019 , due to the inclusion of the equity loss ofElysium Holdings, LLC , which the Company acquired 25% of onFebruary 3, 2020 and an additional 5% of onJune 25, 2020 . Other Expense (Income), Net Other income, net, for the three months endedJune 30, 2020 increased by approximately$0.2 million , compared to the same period endedJune 30, 2019 , due to the interest earned on theDecember 2019 Lineal Note and Lineal Note No. 2 and the Secured Notes due from Viking.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Additionally, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had, and are expected to continue to have, a negative impact on the Company's financial position and results of operations. Negative impacts could include but are not limited to: the Company's ability to sell its oil and gas production, reduction in the selling price of the Company's oil and gas, failure of a counterparty to make required payments, possible disruption of production as a result of worker illness or mandated production shutdowns or 'stay-at-home' orders, and access to new capital and financing. Our primary sources of cash for the three months endedJune 30, 2019 were from funds generated from the sale of preferred stock, and the primary sources of cash for the three months endedJune 30, 2030 were from funds generated from the sale of preferred stock. The primary uses of cash were funds used in operations and funds invested in connection with Viking's Rule 506(c) convertible note offering, as described above under "Part I. Financial Information - Item 1. Financial Statements" - " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , and " Note 6 - Long-Term Notes Receivable ". As ofJune 30, 2020 , the Company had working capital of approximately$0.5 million . The Company believes that it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein unless it can close the Viking Merger, which is the Company's current plan, which Merger is anticipated to close in the third calendar quarter of 2020, and which required closing date is currentlySeptember 30, 2020 , but can be extended until up toDecember 31, 2020 , pursuant to certain conditions in the Merger Agreement. 34 Table of Contents Pursuant to theDecember 31, 2019 Redemption Agreement, we entered into a new unsecured promissory note in the amount of$1,539,719 with Lineal, evidencing the repayment of the priorJuly 2019 Lineal Note, together with additional amounts loaned by Camber to Lineal throughDecember 31, 2019 ; and loaned Lineal an additional$800,000 , which was evidenced by an unsecured promissory note in the amount of$800,000 , entered into by Lineal in favor of the Company onDecember 31, 2019 . TheDecember 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning onMarch 31, 2020 and continuing untilDecember 31, 2021 , when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. TheDecember 2019 Lineal Note and Lineal Note No. 2 are unsecured. Such loans are described in greater detail above under "Part I. Financial Information - Item 1. Financial Statements" - " Note 1 - General ", " Note 6 - Long-Term Notes Receivable " and " Note 11 - Lineal Merger Agreement and Divestiture ".
OnFebruary 3, 2020 , the Company and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 525 shares of Series C Preferred Stock for$5 million , at a 5% original issue discount to the$10,000 face value of such preferred stock. OnFebruary 3, 2020 , we advanced the$5.0 million raised from the sale of Series C Preferred Stock to Discover to Viking, and Viking provided us, among other things, a$5 million , 10.5% Secured Promissory Note. OnJune 25, 2020 , we advanced an additional$4.2 million to Viking in consideration for, among other things, an additional 10.5% Secured Promissory Note in the principal amount of$4.2 million . The Secured Notes accrue interest at the rate of 10.5% per annum, payable quarterly and are due and payable onFebruary 3, 2022 . The notes include standard events of default, including certain defaults relating to the trading status of Viking's common stock and change of control transactions involving Viking. The Secured Notes can be prepaid at any time with prior notice as provided therein, and together with a pre-payment penalty equal to 10.5% of the original amount of the Secured Notes. The Secured Notes are secured by a security interest, pari passu with the other investors in Viking's Secured Note offering (subject to certain pre-requisites) in Viking's 70% ownership of Elysium and 100% ofIchor Energy Holdings, LLC . Additionally, pursuant to a separate Security and Pledge Agreement, Viking provided the Company a security interest in the membership, common stock and/or ownership interests of all of Viking's existing and future, directly owned or majority owned subsidiaries, to secure the repayment of the Secured Notes. As additional consideration for providing the Secured Notes, Viking assigned us 30% of Elysium, which is fully or partially assignable back to Viking upon termination of the Merger, under certain circumstances as discussed in greater detail above under "Part I. Financial Information - Item 1. Financial Statements" - " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , and " Note 6 - Long-Term Notes Receivable ". OnJune 22, 2020 , the Company and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 630 shares of Series C Preferred Stock for$6 million (of which$4.2 million of such funds were subsequently loaned to Viking as discussed above). In the event the Merger Agreement is terminated in specified circumstances, upon termination thereof, the Company is required to redeem the 630 shares of Series C Preferred Stock held by Discover at an aggregate price of$6,930,000 , provided that if the Merger is terminated, Viking has agreed to pay the Company, a break-up fee equal to (i) 115.5% of the original principal amount of the Secured Notes, minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment thereof (the "Additional Payment"), which Additional Payment, if timely paid, should enable the Company to redeem the Series C Preferred Stock required to be redeemed
upon termination of the Merger. Plan of Operations
As described in greater detail above under "Part I. Financial Information - Item 1. Financial Statements" - " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , onFebruary 3, 2020 , the Company entered into a Merger Agreement with Viking, which contemplates Viking merging with and into a newly-formed wholly-owned subsidiary of the Company, with Viking surviving the Merger as a wholly-owned subsidiary of the Company. Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking's properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may through the sale of debt or equity. As described above, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all. 35 Table of Contents Separately, the price Camber receives for its oil heavily influences its revenue and cash flows, and the present value and quality of its reserves. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate ("WTI") crude rising from a low of$27 inFebruary 2016 to a high of$76 inOctober 2018 , then, in 2020, dropping below$20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, until more recently increasing back to above$40 a barrel. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, due to the COVID-19 outbreak, governmental responses thereto, decreased demand in connection therewith, or other factors will likely adversely affect Camber's business, financial condition and liquidity and its ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy. Working Capital AtJune 30, 2020 , the Company's total current assets of$2.2 million were greater than its total current liabilities of approximately$1.7 million , resulting in working capital of$0.5 million , while atMarch 31, 2020 , the Company's total current assets of$1.1 million were less than its total current liabilities of approximately$2.0 million , resulting in a working capital deficit of$0.9 million . The increase from a working capital deficit of$0.9 million to positive working capital of$0.5 million is due to the sale of$6 million of Series C Preferred Stock inJune 2020 . Cash Flows Year EndedJune 30, 2020 2019
Cash flows used in operating activities$ (751,241 ) $ (1,298,906 ) Cash flows used in investing activities (4,200,000 ) (75,000 ) Cash flows provided by financing activities 6,000,000 - Net (decrease) increase in cash$ 1,048,759 $ (1,373,906
)
Net cash used in operating activities was$0.8 million for the three months endedJune 30, 2020 , compared to$1.3 million for the same period a year ago. Net cash used in operating activities decreased mainly due to the reduction in G&A and operating costs during the three months endedJune 30, 2020 , offset
by the increase in net loss.
Net cash used in investing activities was$4.2 million for the three months endedJune 30, 2020 , compared to$0.1 million for the same period a year ago. The increase in net cash used in investing activities was primarily due to the$4.2 loan made to Viking during the three months endedJune 30, 2020 , as discussed above. Net cash provided by financing activities was$6.0 million for the three months endedJune 30, 2020 , and cash provided by financing activities was$0 for the three months endedJune 30, 2019 . The increase in net cash provided by financing activities was due to the sale of 630 shares of Series C Preferred Stock for$6 million inJune 2020 . 36 Table of Contents Financing A summary of our financing transactions, funding agreements, lending transactions and other material funding transactions can be found under "Part I - Item 1. Financial Statements" - " Note 1 - General ", " Note 5 - Plan of Merger and Investment In Unconsolidated Entity" , " Note 6 - Long-Term Notes Receivable ", " Note 11 - Lineal Merger Agreement and Divestiture ", and " Note 13 - Stockholders' Equity (Deficit) ".
Off-Balance Sheet Arrangements
Camber does not participate in financial transactions that generate relationships with unconsolidated entities or financial partnerships, other than the Company's 30% interest in Elysium which it held as ofJune 30, 2020 (25% as ofMarch 31, 2020 ) as discussed herein.
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