Bakken Update: Small Oil And Gas Stock Picks On The Pullback

by: Michael Filloon

Earlier this year, I highlighted my Bakken stock picks for 2013. Kodiak (NYSE:KOG) and Triangle (NYSEMKT:TPLM) were among those stocks. I did not recommend buying those stocks in January, but thought it was important to keep cash on the sidelines. That cash could be used today, as we received a great opportunity to start positions. Not only do I believe this is a good trade, but longer term today's stock prices provide value. This weighs heavy on the price of WTI, which I believe is headed lower in the short term. Longer time the fundamentals of oil remain the same, and I still have a 2013 WTI average price of $92 to $94/barrel. If I am correct this pullback is an excellent buying opportunity.

In my last article, I covered some stocks that I liked going forward. Of those names there are several that are well placed. I would not recommend buying small oil and gas names blindly. It is important to know the company, as market outperformers are the ones to own. Good well results is the key and it separates investments from speculative plays. Good acreage is a must, as fringe players are speculative. Poor well results and acreage can kill a small operator. Cost containment is also important, but it is easy to overlook the bottom line if revenues are better than expected. Don't get me wrong, as I like to speculate but I wouldn't risk a large investment on a stock I cannot qualify.

In the Bakken, Triangle may be the cheapest of the small operators I like. It has good core acreage in McKenzie and Williams counties. It has additional upside in Montana that is also prospective the Red River formation. It has had excellent results for that area due to a good well design. The stock dropped over 11% today and is down from a high of $7.91/share. This stock was a good buy below $6, and has now fallen to $5.23/share. I currently own Triangle and added to my position earlier today. Kodiak finally dropped below $8, and I started a position today. Although Kodiak is a high growth, levered name it is an excellent investment. It is a consistent operator, and has some of the best well results in the Bakken. There are multiple reasons to be bullish this stock. Management has done a very good job of adding very good acreage. It also continues to cut costs and has two 10 well pads in process. This will give a better idea of how good the Three Forks is in Williams and McKenzie counties. Kodiak's stock has value here, but could continue lower over the next few weeks so be prepared to add to the position.

The Niobrara has also been a hot spot in 2013, and today provided a buying opportunity. Bonanza Creek (NYSE:BCEI) has been one of the best performers in small oil and gas this year. It continues to have great results, and does this with a very low well cost. In 2012, analysts discounted the Niobrara and this has been a mistake. I have a buy on Bonanza Creek at $34. I started a position today, and will continue to add shares if the stock pulls back. Synergy Resources (SYRG) is also in the Niobrara. It has acreage in Wattenberg Field and the northern D-J Basin. Additional upside is found in its Nebraska acreage. It is prospective the Penn, Cherokee and Mississippi Lime formations.

The recent pullback in the refiners are also an opportunity. WTI/Brent differentials have tightened significantly in a short period of time. These should widen as we continue to see oil production increase in the United States. PBF Energy (NYSE:PBF) has the greatest value in the sector. It continues to increase Bakken feedstock to its refineries in the northeast. This will continue to increase margins as it replaces Brent. Tesoro (TSO) already ships Bakken crude to Washington. It plans to displace Alaskan crude in California as well.

In summary, these stocks seem well placed going forward. The recent market pullback is temporary and I believe the names above are good investments going forward. In the short term, these stocks will probably continue lower, so use these pullbacks to add to your positions.

Disclosure: I am long BCEI, KOG, TPLM, SYRG, PBF, TSO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: 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 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