Triangle Petroleum (NYSEMKT:TPLM) emerged as having the second most upside from a series of four previous articles where I compared the announced 2012 capital expenditure budgets for 20 various small/ mid/large-cap stocks versus their enterprise value, which is total market cap plus long-term debt. This provides a bang-for-the-buck ratio, which will be a strong predictor of future production and revenue growth of each respective company. The higher the percentage of planned capital expenditures to total capital structure, the greater the growth potential to current valuation.
Three smallcap companies exhibited much higher ratios than the other 17 companies in the comparison; Triangle Petroleum, U.S. Energy (NASDAQ:USEG) , and Voyager Oil & Gas (VOG). Since these three companies emerged from the screening process, I will attempt to give a more in-depth look at each of the three. It should be noted Triangle Petroleum is a smallcap/microcap company and all such companies carry higher risks than larger more well established companies. In general microcap companies can have more difficulty accessing the capital markets to raise additional capital and are often subject to a much higher beta (swings in price) than larger companies.
As of March 27, 2012, Triangle Petroleum had 43,261,133 shares outstanding and a marketcap of $309 million. The company has a very strong balance sheet reporting $93.8 million in cash and no debt in its 10-Q for the third quarter ending October 31, 2011. The company should have the cash and cashflow to fund their $131 million capital expenditure budget for 2012. The company owns 83% of RockPile, which is a pressure pumping company in North Dakota. In addition to its pressure pumping fleet, RockPile will have fully integrated purpose-built proppant loading and storage facilities, fleet maintenance and repair facilities, and employee housing facilities. Triangle Petroleum has a $24.6 million investment in RockPile. The company has contracted for 50% of RockPile's capacity to supply services at market rates and RockPile will market to outside companies the remaining 50% of its service capacity.
Triangle Petroleum's business is exploring for oil and natural gas. The company's main asset is 29,000 net Bakken acres in North Dakota. Over 80% of these acres are non-operated. Triangle has contracted one rig to drill on its operated acreage though the end of 2012. They project adding 8 net operated and non-operated wells over the next four quarters. The company has 54,500 net Bakken acres in Montana. Management intends to hold this acreage and let others in the industry drill around them to potentially prove the play. Triangle also has 410,000 net acres in Nova Scotia, Canada. Five test wells have confirmed the presence of natural gas. The company intends to market this position to raise additional capital to be deployed into the Williston Basin in North Dakota.
For its latest quarter ended October 31, 2011, Triangle reported losses of ($.05) per share on revenue of $3,462,471. The company sold 39,636 barrels of oil and 10,591 Mcf of natural gas. Based on the company's plans to add 8 net Bakken wells oil and gas production are expected to ramp rapidly throughout the year.
Triangle Petroleum is somewhat undervalued based on the assets the company owns. The real upside opportunity for investors exists in Triangle's growth potential. Triangle needs to prove that it can successfully complete wells in a timely manner to have the future cashflow necessary to complete the company's growth plan. The company's growth plan also depends on oil prices staying high. If Triangle can prove itself as a good operator in the Bakken and if oil prices stay high, then Triangle offers investors a significant growth opportunity.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in USEG over the next 72 hours.