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Michael Filloon, Split Rock (390 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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It has been awhile since my last update on how to best play the energy space in 2013. Last year was a difficult year in the Bakken and for oil producers in general. I reported on my Bakken favorites earlier this year, and the recent pullback could give us an opportunity to get in at a good price. I still believe the refiners are a great way to play energy going forward, and I hope investors took the opportunity to start some positions yesterday.

Of the refiners, I have started positions in both PBF Energy (PBF) and Tesoro (TSO). There are several reasons to like both companies, but the main reason is Bakken oil. Refiners north of Cushing are already getting the majority of their feedstocks domestically. HollyFrontier (HFC) is a great example as it already has access, while Tesoro and PBF can still get access to more domestic crude through the rails. Moreover, Alberta crude will make its way to the U.S. even if the Keystone pipeline is delayed. Simmons & Co. recently stated PBF had the highest reward/risk in the refining universe. PBF's early success in procuring domestic feedstocks was one of the reasons to be bullish. Its expansion of the Delaware refinery has seen success and also bodes well for this stock.

Macquarie recently stated that Tesoro was better positioned due to it being better integrated between refining and midstream terminal assets that support self-blending of ethanol. This leaves it less vulnerable to costs escalation of RINs. There is a possibility this sector could continue to pull back in the short term as crack spreads have tightened. In my opinion, WTI/Brent differentials will widen in upcoming months. This should be bullish the sector later this year.

Outside of the refining sector, there are additional ways to play this pullback. Both Kodiak (KOG) and Triangle (TPLM) are 2013 picks. Kodiak has been a big disappointment, trading within a range so far this year. The chart is beginning to break down, with $8.30 continuing to be support. I believe Kodiak is heading lower, and this could prove to be the buying opportunity we have been waiting for. I have not initiated a position as yet, but believe this could be an OK place to start. There are very good reasons to be bullish Kodiak, as costs will continue to decrease. Its two large pad sites could provide very good information in the Polar and Smokey prospects.

Also, we continue to see better results in northeast McKenzie County, most notably from the Three Forks wells. Whiting's (WLL) Tarpon Federal wells are monsters, and at this point are the top five oil-producing wells. Both have higher GORs than other wells on the list, which leads me to believe EURs in barrels of oil equivalent are much better. Over the next 12 months this stock could easily trade for $11 or better.

I owned Triangle for a short time earlier this year. The stock moved up relatively fast, so I sold the position. I still like Triangle and would like to start a position below $6. As a small-cap, vertically integrated Bakken pure play, it is unique. Management continues to impress me, and there are several reasons to be bullish here as well. Its core acreage has produced good middle Bakken results, and I believe its Three Forks is still better than average when compared to other areas in North Dakota. The biggest catalyst for Triangle isn't the Bakken, but the Red River. Whiting is currently conducting a seismic study of its Starbuck Prospect. If the Red River is economic, it could increase Triangle's acreage valuation significantly. It is very possible that the Red River source rock could produce as well in Montana as it has in Golden Valley County, N.D. Triangle is a $9 stock over the next 12 months if the price of oil holds up.

Outside the Bakken, there are some real good names that also are getting cheap. My favorites are Bonanza Creek (BCEI), PDC Energy (PDCE), and Synergy Resources (SYRG). All three are highfliers that have benefited from very good results in the Niobrara. Not only have the results been good, but also well costs are low. PDC Energy sold off on high volume today in response to its analyst day results. $45 is an OK place to start a position here. Bonanza Creek is OK around $34, and Synergy looks very good at today's levels. Diamondback Energy is also interesting, and I'd be looking to buy around $23.

It is tough to know how far these names will pull back, but it is good to get a shopping list ready. Also, remember to start a position and add shares if the stock continues lower. In October 2011 we made some real good money on Kodiak pulling well below $5/share. I am not saying this will happen now, but if one of these names gets really cheap, have some cash on the sidelines so you can turn the profit.

Disclaimer: This is not a buy recommendation. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results, do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. For more articles like this check out my website at shaleexperts.com. Fracwater Solutions L.L.C. engages in industrial water solutions for oil and gas companies in North Dakota. This includes constructing water depots, pipelines and disposal wells. It also provides contracting services for all types of construction at well sites. Other services include soil remediation. Please contact me via email if you are interested in working with us. More of my articles and other pertinent information on the oil and gas sector, go to shaleexperts.com.

Source: Bakken Update: Buy The Pullback