Bakken Update: 2012 Stock Picks Revisited

| About: Triangle Petroleum (TPLM)

On January 1st of 2012, I wrote a series of articles on Bakken producers that were the best investments for this year. In Bakken Update: What To Buy In 2012, I analyzed several different companies that were good buys either on value, growth or both. These producers have seen some big moves in both directions in just four months, and it is my guess this will continue throughout 2012. GeoResources (NASDAQ:GEOI) was one of these stocks, which was recently purchased by Halcon Resources (NYSE:HK). I covered this in Bakken Update: Why Halcon Resources Bought One Of My Top Stocks For 2012.

Triangle Petroleum (NYSEMKT:TPLM) is a small Bakken player with 83000 net acres. 51000 of these acres are located in its Station Prospect, which is located in southwest Sheridan and central Roosevelt counties. Its 32000 core acres are located throughout North Dakota and into eastern Montana. The image below shows where Triangle's acreage is located.

Triangle is currently a non-operator that just began its operated program. It is being really aggressive in this program as it started completion work on 4 or 5 operated wells, for which we should have results on quite soon. It recently added 45 gross operated locations in McKenzie County, while selling 7% of its Station Prospect for $750/acre. Its Rockpile Energy Service will begin pumping operations on July 1st.

In the short term, Triangle has four operated wells to be completed, the first two wells will take 6 to 7 days to complete and the Gullickson wells will take a total of 10 days via zipper frac:

  1. Dwyer 150-101-21-16-1H: 75% white sand/25% ceramic
  2. Larson 149-100-9-4-1H: 100% ceramic
  3. Gullickson 150-101-36-25-3H: 75% white sand/25% ceramic
  4. Gullickson 150-101-36-25-1H: 100% ceramic

The last two wells were drilled from a pad. Spud to TD times have improved significantly from the first. The Dwyer well took 62 days, while Gullickson 3H well was only 32 days. This is two days faster than its average non-operated well. Well results are expected in mid to late June.

A lot rests on the results of these first four wells, which could push the price of Triangle's stock significantly. The Dwyer well is furthest to the northwest, which is a little over 3 miles to the Gullickson wells as the crow flies. The same is true for the Gullickson wells with respect to the Larson well, so the Dwyer well is approximately 7 miles northwest of Larson. To give an idea of comparable results near these wells, I will find a few of the closest wells in the area and show their results. The Dwyer well is located closely to:

  1. Link 12-1H: IP rate of 983 Bopd, 90 day IP rate of 265 Bopd, 36/64 choke, 9444 foot lateral, 26 stages, Zenergy Inc.
  2. Skedsvold 150-101-4B-9-1H: IP rate of 732 Bopd, 90 day IP rate of 288 Bopd, 26/64 choke, 9337 foot lateral, 23 stages, Petro-Hunt
  3. Pesek 151-102-26B-35-1H: IP rate of 399 Bopd, 90 day IP rate of 315 Bopd, 16/64 choke, 9387 foot lateral, 23 stages, Petro-Hunt
  4. Mrachek Trust 22-15 1-H: IP rate of 1492 Bopd, 72 day IP rate of 269 Bopd, 192/64 choke, 9394 foot lateral, 37 stages, Brigham (NYSE:STO)
  5. TJelde 29-32 1-H: IP rate of 2803 Bopd, 90 day IP rate of 126 Bopd, 158/64 choke, 9075 foot lateral, Brigham

The Gullickson wells are located near these wells:

  1. Cyclone 1-21-16H: IP rate of 880 Bopd, 90 day IP rate of 464 Bopd, 32/64 choke, 9338 foot lateral, 40 stages, Slawson
  2. Sovig 150-100-22C-15-1H: IP rate of 949 Bopd, 90 day IP rate 438 Bopd, 24/64 choke, 9155 foot lateral, 27 stages, Petro-Hunt
  3. Arnegard 21-26H: IP rate of 2423, 90 day IP rate of 434 Bopd, 48/64 choke, 8913 foot lateral, 30 stages, Whiting (NYSE:WLL)

The Larson well is located near these wells:

  1. Gudmunsen 27-1H: IP rate of 1006 Bopd, 90 day IP rate of 454 Bopd, 24/64 choke, 8650 foot lateral, Hess Corp (NYSE:HES)
  2. Norgard 21-13H: IP rate of 2522 Bopd, 90 day IP rate of 349 Bopd, 48/64 choke, 9414 foot lateral, 30 stages, Whiting
  3. Johnson 34-8H: IP rate of 886 Bopd, 90 day IP rate of 260 Bopd, 9342 foot lateral, 30 stages, Whiting

The interesting issue with these results, is the area has had significant differences in IP rates, but these differences seem to decrease at 90 day rates. Triangle currently has 17 permits to drill wells in North Dakota, and is awaiting approval of 28 more. These first four wells are very important, and IP rates in the area of 800 to 1000 Bopd would significantly lift this stock.

Those that bought Triangle in the beginning of January, when I recommended the stock, had seen the stock price rise from $6.25/share to a high of $7.99. Hopefully you took some profits, but if you didn't, the stock price has pulled back to where it was purchased.

There has been some confusion as to how Triangle missed so badly with respect to earnings. It missed on revenues, reporting $3.5 million versus estimates of $5.1 million. It missed EPS estimates of a 3 cent loss, and reported losing 21 cents per share. Some think this could be due to its forming of Caliber Midstream LLC. It is not strange for Triangle to have some cost issues early, but many focused on the miss reported of $4.28/share. This number includes the entire write down of its acreage in Nova Scotia. Given the price of natural gas, this is not a surprise. Triangle will have little luck finding a partner for this acreage, so it may be better to get off the books and exit this play entirely.

Other stocks I recommended last January with stock price as of the beginning of 2012 versus stock price today are:

  1. Oasis (NYSE:OAS): $29.09 at the end of 2011. Stock is now trading for $32.94.
  2. GeoResources : $29.31 at the end of 2011. Stock is now trading for $37.99.
  3. Flotek (NYSE:FTK): $9.96 at the end of 2011. Stock is now at $14.23.
  4. Basic Energy (NYSE:BAS): $19.70 at the end of 2011. Stock is now at $15.08.
  5. Northern Oil (NYSEMKT:NOG): $23.98 at the end of 2011. Stock is now at $19.26.
  6. Kodiak (NYSE:KOG): $9.50 at the end of 2011. Stock is now at $8.79.
  7. Earthstone (NASDAQ:ESTE): $15.44 at the end of 2011. Stock is now at $21.09.
  8. Ecosphere (OTCQB:ESPH): $.44 at the end of 2011. Stock is now at $.54.

In summary, I am still bullish Triangle for 2012 and it remains one of my top Bakken stocks. Although it will have well results earlier, it plans to release the results of all four wells at once in mid to late June. The recent pullback can be thought of as a chance to get in if you missed it earlier this year. Remember, this is a very small stock and the price can vary significantly from one day to the next, so do not invest anything you are not willing to lose, as poor execution could significantly decrease the price of this stock.

Disclosure: I am long TPLM, OTCQB:ESPH, FTK, KOG, OAS.

Additional disclosure: I currently own ESTE. This is not a buy recommendation.