Is Empire Petroleum Corporation IPO a Good Investment?

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Contributor, Benzinga
March 7, 2022
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Vol / Avg.40.583K / 37.379KMkt Cap225.874M
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Though widely considered a positive development, globalization — as with any concept in life — features critical vulnerabilities that largely only arise when circumstances compel developed societies to look beyond the self-reflecting shadows of complacency. As utterly inconceivable and dangerous Russian President Vladimir Putin’s decision was to invade Ukraine, it forced a severe reality check that may save the future of democracy.

Be careful who you trust.

Indeed, the global unity against Russian aggression — a key message during President Joe Biden’s State of the Union address — undeniably demonstrates that Ukraine has won the information war. But the cost in human life may be devastatingly more than necessary, in part because of the lack of comprehensive effectiveness of U.S.-backed economic sanctions.

Yes, the sanctions have had their effect. Bank runs have become the norm in major Russian cities. The ruble currency has essentially been rendered rubble. Everyday citizens — many of whom protested their government’s reckless military order — are preparing for a radical (and likely negative) paradigm shift.

But Russia is a major exporter of oil and other natural resources, resources that neighboring European countries have become dependent upon following their broader decision to reduce their nuclear power footprint. Ironically, that decision may come back to haunt them, though it may bode cynically well for Empire Petroleum Corporation (PINK: EMPR), which will uplist shortly.

What Does Empire Petroleum Corporation Do?

An operator of conventional oil and gas properties, Empire Petroleum has seesawed over the decades from various economic and geopolitical flashpoints. However, since late 2010, its share price would grant it literal consideration for best penny stocks. Of course, as soaring consumer inflation hit the pump, the relevancy of Empire’s business rocketed to low-earth orbit.

Initially incorporated in 1983, Empire focuses on U.S. onshore fossil-fuel projects. Per its website, the company features long-life, low operational cost, mature, producing assets with slow decline profiles. Below is a list of its main operations:

  • Empire North Dakota: Commands impressive, near-flat production rates over the last five years and operational improvements on three sub-optimally managed waterflood fields.
  • Empire Louisiana: Featuring oil-weighted production from legacy assets, this project enjoys high working interest and operational control.
  • Empire Texas: Leveraging concentrated acreage and stacked pay in the historically prolific East Texas Basin, the region features strong potential for consistent production.
  • Empire New Mexico: Showcasing contiguous and consolidated acreage positions consisting of 48,000 gross and 40,000 net acres held by production (HBP) from over 700 wells, New Mexico also levers 14 royalty wells on the project.

According to its public statements, Empire Petroleum aims to acquire projects with predictable, low-decline production profiles while targeting acquisitions that feature 2X to 4X cash flows. As well, through the deployment of rigorous field management programs, the company seeks to minimize costs.

Nevertheless, as attractive as oil-and-gas plays are these days, you must be aware of the heavy risks associated not only with the underlying sector but also in banking on geopolitical tensions. At any moment, circumstances could rip a sharp turn — in fact, French President Emmanuel Macron is convinced of it following his conversation with Putin.

When is the Empire Petroleum IPO Date?

Unlike most of the recent market debuts, Empire Petroleum is not about to launch an initial public offering (IPO), or the first time a private firm distributes its equity shares to retail investors. Instead, the company is uplisting from the over-the-counter market to a proper exchange, in this case to the NYSE American exchange.

Shares will make the transition on March 8, 2022. In addition, Empire’s ticker symbol will change to EP from its present EMPR.

On paper, Empire does not technically qualify as an IPO since its shares already exchange hands in a public forum. However, the OTC market is not an exchange but rather a decentralized mechanism where traders directly negotiate transactional terms with each other, often through broker-dealer networks.

Though you may occasionally find a diamond in the rough in the OTC market — also colloquially known as the pink sheets — investors should be aware of the risks listed here (which are not comprehensive):

  • Low volume: Even if your OTC stock rises exponentially in value, you’re not guaranteed to find a buyer because of a general lack of participation in decentralized trades as opposed to established centralized exchanges.
  • Wide spreads: Under exchange-based transactions, market makers act as intermediaries, providing liquidity for the trade and in turn, profiting from the spread or the difference between the bid and ask price. Since no intermediaries exist in the OTC market, the spread can be very unfavorable because of low volume.
  • Lesser regulation: Though outright fraud is always illegal, the reality is that the OTC market features lower regulatory requirements than listing shares in an internationally recognized exchange. Therefore, the business you are acquiring could be somewhat dubious.

What’s particularly troublesome for legitimate businesses listed in the pink sheets is the concept of guilt by association. As you know, penny stocks have a reputation — a single viewing of The Wolf of Wall Street will provide graphic lucidity. Thus, an uplisting very much deserves consideration within the confines of the IPO calendar.

Think of it as a third-string quarterback suddenly called up to take the snaps under center. It may not be the player’s first year in the pros. But for all intents and purposes, it’s the debut. So it is with Empire Petroleum.

What Analysts are Saying About Empire Petroleum IPO

According to data from The Wall Street Journal, no analyst coverage exists at this juncture. However, from the archives, two analysts provided coverage for the soon-to-be EP stock. Both rated shares a “buy” with an average target of 68 cents. Given that the security is trading hands at around $3 at time of writing, it’s obvious that this oil-and-gas trade greatly exceeded expectations.

Moving forward, Empire Petroleum will enter a promising though ambiguous backdrop. On the positive front, the global community may face a significant supply crunch of crude oil. Of the top three producers of this critical commodity, Russia ranks in third place behind the U.S. and Saudi Arabia, according to The New York Times.

By allocation, Russia contributes approximately 10% of global oil supply. Because the geopolitical flashpoint has become dangerously unpredictable, the country could decide to eliminate this supply flow altogether in retaliation for western-backed sanctions. Cynically, that would benefit oil-related investments like EP stock because of simple supply demand dynamics.

More troublesome is Russia’s dominant stance on natural gas. The country commands about 1.7 quadrillion cubic feet of proven gas reserves as of 2017, ranking it first in the world and accounting for approximately 24% of all natural gas reserves. If the Kremlin decides to choke this supply off, it could send energy prices ballistic.

While the immediate shock and awe augurs well for EP stock, it’s not without risks. Over the long run, the catastrophic decision that the Russians imposed sends a clear message that western nations must invest in alternative energy sources. Therefore, Empire and its industry could one day face obsolescence.

In the nearer term, a rising possibility exists of regime change in Russia, whether voluntarily or otherwise. Everyday Russians are hurting from Moscow’s terrifying recklessness, as is the shared brotherhood of the Slavic people. An isolated country could internally coerce a transition in power, which may then normalize global supply chains.

Empire Petroleum Financial History

Although Empire has recently come alive from geopolitical rumblings affording it extraordinary relevance, investors must be aware that its financials leave much to be desired. In 2020, the company generated revenue of $6 million against a net loss of nearly $17 million. To be fair, against the trailing-12-month basis, sales have shot up to $19.5 million. However, net losses also increased to nearly $24 million.

Looking ahead, outside conditions must continue to shine favorably on Empire. Historically, the company has long generated negative free cash flow. In addition, its balance sheet is weak, with financial metrics indicating that Empire is in a distressed state.

Empire Petroleum Potential

As with other oil stocks, Empire Petroleum will be looking to rising consumer prices and exceptional demand to continue bolstering its profile. Another factor beyond the geopolitical crisis to consider is the COVID-19 pandemic, which has receded into the shadows. With more people eager to reclaim their normal socialization patterns, transportation traffic could rise, causing an even greater oil supply crunch.

However, Empire’s less-than-desirable financial situation means that it’s dependent on factors that it cannot control to sustain positive momentum in EP stock. Of course, such a circumstance is far from guaranteed, making EP a high-risk, potentially high-reward venture.

Where to Buy Empire Petroleum IPO Stock

Interested participants of Empire’s uplisting must do so in the open market, which necessitates knowing how to buy stocks. But before that, you must open an account with a brokerage firm. If you haven’t done so, below is a list of best brokers to consider.

EP Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

EP Petroleum Pre-IPO

Unfortunately, no pre-IPO opportunity is available for Empire. However, those interested in early bird opportunities should open an account with Freedom Finance.

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