Shares of Lucas Energy (NYSEMKT:LEI) went parabolic on the last trading day of 2015. The day's range was $1.85 to $10.65 before closing at $7.30 for a 342% gain on the day.
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Driving shares higher was the announcement to acquire, from 21 different entities and individuals, working interests in producing properties and undeveloped acreage. The assets being acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region. According to LEI:
The properties currently produce in excess of 1,200 net barrels of oil equivalent per day (BOE/d), of which 53% are liquids from 114 producing wells. The bulk of the production is from the Hunton formation holding approximately 43,000 gross acres (9,900 net acres) in central Oklahoma. Further, offset development drilling opportunities for at least 40 additional wells have already been identified. According to a recent third-party reserve report (as of December 1, 2015), total proved developed reserves (PDP) are 5.4 million barrels of oil equivalent (MMBOE) comprised of 6% oil, 47% natural gas liquids (NGL) and 47% natural gas.
The terms of the deal are as follows:
In exchange for the assets being acquired, Lucas will assume $31,350,000 in commercial bank debt, issue 552,000 shares of a newly designated form of convertible preferred stock, issue 13,009,664 shares of common stock, and pay $4,975,000 in cash. At the closing of the transaction, Lucas will rebrand and change its name to Camber Energy, Inc. There are no significant management changes planned at this time as Anthony C. Schnur will maintain his role as President and Chief Executive Officer of the Company. However, the sellers will have the right to appoint three members to the Board of Directors at closing, including Richard N. Azar II. Mr. Azar, the principal seller and manager of the properties, will be appointed as Executive Chairman following the closing.
What's interesting is the bio of Richard Azar. He is the founding partner of Segundo Resources, representative of the sellers, and for over 20 years has been instrumental in developing the Hunton resource play in Central Oklahoma through his direction of Segundo, ownership in Altex Resources, Inc., and various other successful oil and gas ventures.What this means is that Richard Azar is effectively taking his assets public via the deal with Lucas Energy. LEI shareholders get some great oil assets while Azar gets a public vehicle for his assets and to most likely do more deals. For a dealmaker like Azar, it gives him control of a public company to acquire other assets through the issuance of shares, debt and cash. The goal for Azar is a rising stock price to enrich not only himself, but also fellow shareholders. For existing shareholders of LEI, this is a great deal and rescues the company from trading below $5.
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According to Lucas Energy CEO Anthony Schnur:
"The completion of this transaction will raise the trajectory of opportunities for Lucas, not only as we increase our existing production base and future development opportunities, but also as we expand our reach into a key play in the Mid-continent and broaden our strategic horizons. We are extremely excited to have identified an acquisition that provides us with stable, long-lived reserves with substantial current production and ample drilling opportunities that are economic in a prolonged depressed commodity price environment. We are further encouraged by the planned upcoming additions to our board, especially the appointment of Richard N. Azar II as our Chairman. I have known Richard over the last three years, and I welcome his depth of knowledge and strategic sense to our Company."
In the long run, this is all great news for Lucas Energy. However, in the short run, the stock is going to be attacked by the shorts. It already is as Timothy Sykes has told all of his followers to short the stock. The good news is that there isn't much stock that the shorts can borrow and they won't be able to hammer the stock much lower. I do expect the stock to drift lower in the short run before consolidating and then heading higher. We will be monitoring Lucas Energy and alerting our subscribers when to jump in. Sign up below and don't miss the next big move in LEI and all of our other hot stock picks!
Disclosure: We own no shares of Lucas Energy and have not been compensated for this article.
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