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Michael Filloon
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Michael Filloon is the head energy analyst at Split Rock Private Trading and wealth management. He is an accomplished and well respected energy analyst covering cyclical sectors including Energy & Commodities. His focus are North American shale plays including the Bakken, Permian Basin and... More
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Split Rock Trading and Wealth Management
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The Bakken Update
  • Triangle Petroleum: 2012 Could Be Its Year 15 comments
    Feb 5, 2012 9:23 PM | about stocks: TPLM, KOG, CLR, WLL, EOG, STO, SSN
    I believe 2012, could be a big year for oil. Not all commodities will do well, but the demand for oil should continue to be strong. If problems persist for the Euro, this could have a negative effect. If not, Bakken oil producers could have a great year.

    The winter in North Dakota has been mild when compared to years past. Not only has the weather been mild, but there has been close to no snow fall. It was originally thought that this winter could be worse than last. Analysts have been guiding upward, and there is a very good chance they have not increased estimates enough. For now, I am operating on the premise that the Bakken oil names will come in at the top end of guidance.

    Triangle Petroleum (NYSEMKT:TPLM) is a top pick for 2012. This is a risky play, but the payoff could be exponential. The argument against Triangle is two-fold. These two variables are price and acreage. I would not suggest using P/E, forward P/E or PEG ratios to determine the value of Triangle. Oil companies generally use 4-6 times cash flow to determine value. This is difficult to use given it is just beginning its operating program, and only a few of its non-operated wells are online. Triangle's acreage is also in question. Station Prospect could prove to have significant middle Bakken resource. Triangle is currently looking for a JV partner in Montana.

    Triangle is a growth story, but also has value. Its Station Prospect was purchased for $385/acre. The Montana acreage is close to other oil and gas producers:

    1. Samson Oil and Gas (NYSEMKT:SSN)
    2. Statoil (NYSE:STO)
    3. EOG Resources (NYSE:EOG)
    4. Whiting (NYSE:WLL)
    5. Continental (C0LR)
    There have been several good wells in this area:
    1. Swindle 16-10: IP rate of 1065 Boe/d
    2. Rogney 17-8: IP rate of 909 Boe/d
    3. Charley 10-15: IP rate of 1069 Boe/d
    4. Tolksdorf 1-1H: IP rate of 642 Boe/d
    5. Rognas 2-22H: IP rate of 1013 Boe/d
    6. Gobbs 17-81H: IP rate of 909 Boe/d
    Whiting's Starbuck Prospect is in this area of Montana. It has over 88000 net acres, which proves Whiting's confidence in the play. Continental is running a two rig program here, and completed 6.9 net wells in 2011. Brigham had estimated its acreage in eastern Montana would produce seven wells/location. Kodiak (NYSE:KOG) is currently estimating two middle Bakken and two Three Forks wells in its Sheridan County leasehold. Station Prospect has very good thickness of the middle Bakken. Thickness in this play varies from 50 to 70 feet. The upper Three Forks is just beginning to be worked. I will be real interested in the upcoming production from this pay zone. Triangle has 54500 net acres in Station Prospect. It estimates three middle Bakken and three upper Three Forks wells per pad.

    Triangle also has operated and non-operated acreage in North Dakota. It has 29000 net acres and has an estimated 168 operated locations, and 952 non-operated locations. Triangle is estimating four middle Bakken and four upper Three Forks wells at 1280 acre spacing in North Dakota. Triangle has just begun its North Dakota operated program. These wells are approved:

    1. Dwyer 150-101-21-16-1H
    2. Larson 149-101-9-4-1H through 4H
    3. Gullickson Trust 150-101-36-25-1H through 4H
    4. Fredrick James 149-101-3-10-1H
    Whiting calls this area Hidden Beach. It has had very good results. Whiting has completed five wells in this prospect. The average IP rate as been 2669 Boe/d, with a high of 3092 Boe/d and a low of 2216 Boe/d. This area has a very good upper Three Forks payzone. To the north, Brigham (STO) and Kodiak have had excellent results. Kodiak's Koala middle Bakken wells could produce 1000 Mboe and 800Mboe in the upper Three Forks. Brigham also had good middle Bakken production to the north of Triangle's acreage, which includes two wells with IP rates over 4000 Boe/d. Other oil production companies have already de-risked this area. At this point Triangle will just need to execute.

    Its non-operated acreage is also good. Triangle has already had three very good wells operated by Newfield (NYSE:NFX). Its working interest and IP rates were:

    1. Holm 150-99-13-24-1H: 2370 Boe/d and 23.44% WI
    2. Staal 150-99-23-14-1H: 3034 Boe/d and 12.84% WI
    3. Lawlar 151-98-31-30-1H: 2789 Boe/d and 6.33% WI
    The biggest problem is valuating Triangle's acreage. Its North Dakota acreage has been purchased for an average cost of $2500/acre. Its current TEV/acres is $2618. There are reasons for this as much of its acreage has not been developed so a valuation at this point is just a guess. But the acreage to the southeast has some upside. Its Montana acreage could very well produce numbers comparable to southeast Divide County. The Station Prospect is inside the thermally mature middle Bakken, it is to the west of the Brockton-Froid Zone. The difference in TEV/acre seems extreme between Triangle and other Bakken players. This number ranges from $8000/acre to over $12000/acre.

    Triangle is growing production significantly in a very short time. In December of 2011, it was producing 800 Boe/d. By year end of 2013, Triangle has a production target of 2600 and 3200 Boe/d. In summary, Triangle has growth and value. Some may think this stock is expensive, but cash flow should increase significantly in a very short time. Its acreage is a value. I believe Triangle's North Dakota and Montana acreage is worth $10. This is without its 475000 acres in Nova Scotia, and its Rockpile Energy pressure pumping business. This stock is not for the faint at heart, and will see large pullbacks and breakouts so be sure to watch this company close.

    Disclosure: I am long KOG, TPLM.

    Additional disclosure: This article is on Triangle Petroleum and its prospects for 2012. It is not a buy recommendation.

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Comments (15)
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  • Noreika
    , contributor
    Comments (460) | Send Message
     
    Thanks for the article Michael. Are there any micro-cap stocks you're looking at?
    5 Feb 2012, 10:11 PM Reply Like
  • Michael Filloon
    , contributor
    Comments (4180) | Send Message
     
    Author’s reply » Noreika,

     

    I currently own ESPH.OB, ESTE, LVLEF.PK
    Also check on CRED
    6 Feb 2012, 01:14 AM Reply Like
  • pipilo_aumak@yahoo.com
    , contributor
    Comments (19) | Send Message
     
    Thanks for the article Michael, I am looking at scaling my purchase into KOG. Based on the last call, they have some execution problem. I am not sure this is a long term management issue. I already start one purchaase ~ $8.74. What do you think is a safe price to continue scaling in?
    Rgds
    6 Feb 2012, 12:16 AM Reply Like
  • Michael Filloon
    , contributor
    Comments (4180) | Send Message
     
    Author’s reply » pipilo,

     

    I like what you are doing. I am planning to buy just below $8. It could find support at $7.75 by the way the chart looks.
    6 Feb 2012, 01:17 AM Reply Like
  • bikerron1
    , contributor
    Comments (518) | Send Message
     
    Michael, A lot of what is happening in and around, Iran will have a big influence on the price of oil. I can see 120 + dollar oil in the next six months. As I have stated before, It's not if,but when. Anytime KOG is below 8 it's a buy. Also looking at oil tankers.(OSG) below 12.
    When you talk about Montana, what do you think of MOUNTAINVIEW ENERGY (MNVWF.PK). I can't put my finger on it + or -?.
    Thanks for the great job your doing.
    6 Feb 2012, 06:24 AM Reply Like
  • Michael Filloon
    , contributor
    Comments (4180) | Send Message
     
    Author’s reply » bikerron1,

     

    I like MNVWF.PK. There is some definate upside here, which could increase significantly going forward. I don't own it, but have though about buying some.
    6 Feb 2012, 01:57 PM Reply Like
  • bikerron1
    , contributor
    Comments (518) | Send Message
     
    Thanks for your input. Have a great day.
    Ron
    7 Feb 2012, 07:22 AM Reply Like
  • rpainter22
    , contributor
    Comments (27) | Send Message
     
    Michael

     

    I sold my TPLM and now I am hoping for a pullback. It hit 6.65 for a few seconds last week before rebounding. When is a good time to get in I feel like it is breaking out.

     

    Ryan
    6 Feb 2012, 09:52 PM Reply Like
  • Michael Filloon
    , contributor
    Comments (4180) | Send Message
     
    Author’s reply » Ryan,
    If TPLM breaks through $7.50 on high volume we could have a breakout, but looking at the stock it seems to be headed up either way.
    8 Feb 2012, 11:32 PM Reply Like
  • dow12000
    , contributor
    Comments (6) | Send Message
     
    Thanks Michael for your thorough work and for sharing with all who are interested. I have learned so much from reading your articles and look forward to learning more
    7 Feb 2012, 01:05 AM Reply Like
  • blueice
    , contributor
    Comments (3458) | Send Message
     
    Since we took a position in Triangle Petroleum, ($7.50) the price action has been nothing but a steep grade downwards...

     

    I have the feeling, that based on it's production rate, it was indeed overpriced...

     

    The stock is today approaching $5.50, something that is more appealing in light of its extremely limited production levels...
    17 Apr 2012, 01:20 PM Reply Like
  • notaspecultor
    , contributor
    Comments (30) | Send Message
     
    ALL THE ABOVE FACTS ARE INTERESTING BUT I WONDER HOW VALUABLE THEY ARE in trying to reach a company's stock price.

     

    I WOULD LIKE SOME OF THE AUTHORS TO TAKE TWO COMPANIES IN THE E&P SECTOR then NAT GAS PRODUCERS,THEN, OILY PRODUCERS,PIPELINE AND LASTLY REFINERS AND PROVIDE THE METRICS THEY USE TO COME UP byu comparing both companiers to each other.

     

    IN AN EARLIER ARTICLE MIKE HAD MENTIONED USING CASHFLOW AS A METRIC [4-6 TIMES] FOR A COMPANY WHICH HAD A PE OF 443 BUT THEN WENT ON TO MENTION THE FORWARD PE WAS ONLY 14 OR SO WHICH CONFUSED ME. I HAVE TRIED TO APPLY CFLO TO MANY COS. IE COG, WITHOUT MUCH SUCCESS .
    FINALLY I PRESUME THE PURPOSE OF PROVIDING ALL THESE FACTS And figures is to arrive at a price but i don't think any of the writers here have done that.
    Again i am sure everyone is using these facts to VALIDATE CURRENT PRICES arrive at Future prices and it would be exceeding helpful to share that info with the rest of us trying to get a handle on these sectors.
    thanks for your help
    20 Nov 2012, 10:56 AM Reply Like
  • Michael Filloon
    , contributor
    Comments (4180) | Send Message
     
    Author’s reply » notaspecultor,

     

    Take a look at this article, it may help describe of the ratios used in oil and gas.
    http://bit.ly/TWSWzr
    20 Nov 2012, 08:58 PM Reply Like
  • blueice
    , contributor
    Comments (3458) | Send Message
     
    Not-A, IMHO, the only metric that matters is the price of goo..
    20 Nov 2012, 12:47 PM Reply Like
  • Vitrinite
    , contributor
    Comments (80) | Send Message
     
    In the Marcellus, they made very poor investments.
    VERY poor choices of land,
    I would avoid not on the specofic.
    but you can;t be making decisions that poor.;
    4 Sep 2013, 02:50 PM Reply Like
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