Saratoga Resources Inc (OTCMKTS:SARA) Rockets Higher, Sheds The Q Symbol

Here's one that could have dramatic implications across its space. Saratoga Resources Inc (OTCMKTS:SARA) just announced that it has emerged from Chapter 11 bankruptcy, and its shares are up massively on the news. Across the Thursday session, the company went from trading as low as $0.005 a share, to highs ahead of $0.5 a share, before closing out the session at $0.34 (and then gaining close to an extra 10% after hours). That's more than 6500% gains across the session. Just have a look at the chart below to see what we mean.The company is an independent oil and natural gas company, which earlier in the year, entered Chapter 11 bankruptcy based on a growing discrepancy between its assets and liabilities valuations. In its Monthly Operating Report, which Saratoga had to file as part of the standard Chapter 11 proceedings, the company reported, as of July 31, 2016, total consolidated assets of $6.7 million and total consolidated liabilities of $223.8 million.Now, as per the emerging from bankruptcy, the company is debt free, and while it has lost a substantial portion of its assets, it has retained the following:(a) all federal leases in the Gulf of Mexico, state and parish leases in St. Bernard Parish and St. Mary Parish, (b) certain associated operator bonds, and (c) certain associated site specific trust accountsThe value of these assets is unclear as things stand, but for shareholders, that's not immediately important. What is important is the following, taken from the 8K announcing the emerging:

“all holders of equity securities of the Debtors will continue to hold such equity securities, without adjustment, upon effectiveness of the Plan.”

Basically, these are shares that markets deemed completely worthless, assuming they would be written off even if the company emerged from its Chapter 11, and they have now been revitalized, to the tune of 6500%.So what implications does this have for the wider space?Well, here at Insider Financial we have covered a number of bankruptcy stocks over the last couple of quarters, specifically in the energy sector. With energy prices falling across the last 24 months, the asset values of even the largest companies (we are looking at you, Peabody Energy Corporation (OTCMKTS:BTUUQ)) have suffered considerably. Liabilities, of course, have not comparably declined, and this has led to many an insolvency in space. A quick scan of the sector reveals numerous instances of a stop having the dreaded Q after its ticker, and while sentiment surrounding every one of these is probably at its weakest ever right now, this latest announcement could easily serve to inject some upside momentum in their market capitalization. Why? Because even though there have been suggestions that equity shareholdings will be canceled, even if the company in question emerges from bankruptcy, what has happened with Saratoga suggests that this isn't necessarily the only outcome – even without an equity committee in place.Getting back to Saratoga, what is next for the company?Well, don't get too excited just yet. We predict a pretty hefty correction across the coming few sessions as traders take profits of the table. Beyond that, we see some steady upside potential based on management clarifying, and in turn, executing, on a forward strategy. We're going to be watching this one closely to find out exactly what the remaining asset value tallies up as, and where this puts the company in terms of proportion to its previous market capitalization – that is, before the bankruptcy.Until we have these numbers, it's impossible to say outside of a general directional trend exactly where this one is going to land medium term. That said, we're confident in suggesting it is set for strength as we head into 2017.We will be updating our subscribers as soon as we know more. For the latest updates on SARA, sign up below!Disclosure: We have no position in SARA and have not been compensated for this article.