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TRIANGLE PETROLEUM – COMPANY ANALYSIS
UPDATED September 2013
Note: I am updating this report because this truly is one of my favourite junior oil producers for 2013—and I think the timing could work out well.
I expect big increases in production each quarter, and the bigger this company gets, the less it will trade on macro events and more on its own merits—which I think will give it a smoother, and rising, stock chart.
Triangle also recently announced they are seeding a mid-stream company in the Bakken—offering a full service pipeline solution to producers for oil, natural gas, and both fresh and used water. They are already vertically integrating with their 83% owned fracking company, RockPile. The market loves this strategy.
This is already one of the most followed junior companies in the Bakken, so I’m confident that good results will get rewarded. And they have services lined up—both drill rigs and fracking spread—to continue with an aggressive program.
QUICK FACTS
- Shares Outstanding – 85.4 million
- Share Price – $10.62 (closing price Oct. 22, 2013)
- Market Cap – $548.3 million
- Net Debt – $70 million
- Enterprise Value – $618.3 million
- 2014 Estimated EBITA – $125 million
POSITIVES
- Big land position–45,000 net acres in core area of western North Dakota and 50,000 acres in eastern Montana (still unproven)
- $134 million cash after recent financing
- Pure play on the Bakken which still is the market’s favorite
- Early downspacing results could eventually mean a double in the number of drilling locations in the core areas of the play
- Only vertically integrated small Bakken producer
NEGATIVES
- Small cap oil stock is going to be volatile
- High decline nature of Bakken wells are difficult to manage for a small company
- 50,000 acre Montana asset which could be huge for Triangle is still unproven
BACKGROUND
For my Canadian subscribers, the US Bakken is deeper than in Saskatchewan, and this gives it higher pressure—which gives higher flow rates. The productive geology is in two zones, the middle Bakken and now the Three Forks.
The market pays big for both raw Bakken acreage and production—because this play has been relatively consistent over a large area. Low risk, high growth companies get high valuations. And the economics on the wells are good—wells cost up to $9 million, have 30 day IP rates of just under 600 bopd, produce a total of 600,000 barrels and have IRR’s of 50%.
Now, remember this is an overall statistical snapshot. Individual wells can vary quite a bit from this. But at this stage in TPLMs young growth, this is the profile the market is willing to pay for.
There have been many buyouts and asset sales among the juniors in this play, including a HUGE one—as Norway’s Statoil bought out Brigham Exploration (BEXP-NYSE) for $3.6 billion in Q3 2011. Brigham went from $2 – $36 in two years as it developed its Bakken acreage. While TPLM doesn’t have quite the same size land package, you get an idea of what The Prize is for this stock.
So that brought even more attention to TPLM. The stock has traded in the $8 – $10 range over the last 12 months — and I’m happy to buy it at lower levels.
[To read the remainder of this report, please click here to access our .PDF version]