Revisiting My Small Cap Bakken Plays

Includes: AXAS, EOX, TPLM
by: Bret Jensen

Anyone that has read my columns over the last year knows that I have been a huge bull on the domestic energy boom. I have written countless articles on the E&P concerns, MLPs and oil service firms that are positioned to prosper as the country marches its way to energy independence. Even with the massive increase in oil & gas production in the United States over the past six years, I still think we are in the early innings of this multi-decade build out.

Some of my favorite and most rewarding plays around this explosion in domestic energy production are some of the smaller E&P concerns that are leading the shale revolution. Today we revisit some of my favorite small cap plays in the Bakken which is rapidly becoming the number one producing energy region in the country.

It seems appropriate we open with Triangle Petroleum (NYSEMKT:TPLM) as it just reported earnings this morning. The company met revenue expectations and easily beat on the bottom line. The company posted earnings of 19 cents a share besting expectations of 15 cents a share.

Back in June when the shares were selling at $5.40 a share, I postulated that the shares could double within the next two years. This may prove to be too conservative given we are halfway to that prediction already. In the article I stated the company's oil services subsidiary RockPile Energy Services was an underappreciated growth driver. In the just completed quarter, consolidated revenues at RockPile grew better than 600% Y/Y to $15.8mm.

The company is on track to achieve more than 250% revenue growth this fiscal year and analysts have almost 60% growth pegged for the next fiscal year. Given this, the stock is too cheap at less than 8x forward earnings even after its huge recent run.

Emerald Oil (NYSEMKT:EOX) is another Bakken producer that has done well since I highlighted it in June. It has risen more than 10% since its last profile but its best days still lie ahead. The company just sold its non-operated acreage in the Bakken for $113mm and upped its 2013 exit rate production guidance on its operated wells.

The proceeds from this sale will be allocated to bringing more production online from the company's operating acreage which is the core reason the 2013 production exit rate was taken up 20% for Emerald's operated wells.

The company has a very solid balance sheet bolstered even more by this sale. The company should turn a profit of better than 30 cents a share in FY2014 after losses this year driven by ~doubling its production on operated acreage in 2014. The median price target on the stock by the seven analysts that cover the stock is $10 a share, more than 40% above its current price.

Abraxas Petroleum (NASDAQ:AXAS) is a small (~$230mm market capitalization) with its key acreage in both the Bakken and Eagle Ford shale regions. The stock is up some ~20% since I wrote about it in July, but still has further upside.

Like Emerald it recently sold non-operated assets and raised production guidance in August. A good portion of this production guidance upward revision was driven by solid results from new operated wells in the Bakken. Consensus earnings estimates for both FY2013 & FY2014 have moved substantially higher since the article ran in July.

Revenue growth is tracking towards a 40% increase this fiscal and analysts believe sales will increase some ~35% in FY2014. Insiders have bought over $150k in new shares over the last two months and the stock is too cheap at less than 9x forward earnings.

Disclosure: I am long AXAS, EOX, TPLM. 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.