Triangle Petroleum Corporation (TPLM) Gets Bigger, As Expected. Time To Watch The Real World / Stock World Acreage Arb In Motion The Next Household Bakken Name. The story has been one of a little Bakken player with a seasoned management team, a strong balance sheet, a big promise to get bigger quick, and eventually to operate. We originally wrote them up in a book report on January 10th that laid out the basic strategy and management's plan and ability to carry it out. We followed that up with piece examining a hypothetical 10 mm share raise that would allow them to add acreage on the cheap and have that acreage subsequently revalued by the stock market ... the so-called real world / stock world acreage arbitrage. Upon seeing the breakout in TPLM shares Friday, I mused in comments on the site that: TPLM extending, could get to $10 today, and then, I really would not be at all surprised to see a secondary announced.
Mission Accomplished. Friday evening TPLM announced two items:
- A 18.975 mm Share Secondary Offering ... Including the shoe, the deal will likely net them proceeds of about $140 mm (assuming they price at $8). They only had 22.5 mm share outstanding prior to the deal so this is a big leap for them, but their intention was fully communicated in recent presentations. So threaten a deal and deliver on it. Besides, if you have not been paying attention of late, secondaries amongst the Bakken players (and even the wannabe players) have been universally well-accepted.
- ... And It Announced That It Has Penned Deals To Double Its Williston Basin (Bakken) Acreage Positions, In The Core of the Play. And the acquisition of 15,000 net acres in the Williston Basin (McKensie and Williams Counties, North Dakota) for $45.3 mm.
- This yields an average purchase price of $3,017 per acre.
- Recent auction results in McKensie and Williams Counties have averaged about $6,000 and $4,500 per acre respectively.
Now on to thinking about that arbitrage between what companies have to spend in the Williston vs what they are likely to be valued at:
- Pro forma this deal, TPLM should have 1) a cash position of over $150 mm (about $3.70 /share) after paying for the new leases and 2) 30,000 net acres in the Bakken.
- Netting out the cash from their total enterprise value and giving no value to their large lease block in Nova Scota, that yields a TEV / Williston Basin acre multiple of $5,928 assuming a stock price of $8 or $7,500 per acre assuming Friday's close of $9.13 (but also assuming that the deal is still priced "in the hole" at $8). Note that prior to the announcement of the new acres and the secondary, the market was giving them a valuation of close to $10,000 per acre.
- Looking at the Bakken Players List reveals the market giving all of the name brand "Bakken" players, operated or not, higher valuations. Much higher valuations. While a few of these names (WLL and CLR) have other significant operations outside of the Williston it is the oily growth of their Williston positions that has been in the drivers seat for quite some time now.
The New TPLM
Nutshell: They are doing exactly what they said they would. After grabbing a toehold in the Bakken and having some well-known operators drill on their leases, they are taking the next logical step by raising equity and bolting on more acreage while the bolting is still affordable. Given that activity in the Basin set to continue to rise in part due to high oil prices relative to natural gas prices, and with positive comments from Brigham Exploration (BEXP), Whiting Petroleum (WLL), and Kodiak Oil & Gas Corp (KOG) in recent days regarding the likelihood of increased well density in the play (only two years ago people were thinking 1 Bakken and maybe and Three Forks well per unit vs 4 and 4 now) acreage prices are likely to continue to spiral higher.
With many of the mainstay Bakken players (both operated and non-operated) seeing stock market valuations north of $11,000 per acre opportunistically bulking up on acreage now while using the higher multiple currency that the public equity currently allows, makes a great deal of sense. CFPS is not a concern for the moment, but will be in the not-too-distant future, and the position built now will provide the early basis for running then. I would still expect them to add more acreage, say another 20,000 to 40,000 acres by year end. I continue to own a full-sized core position in the ZLT as well as a half sized trading position.
