3 Portfolio 'Must Haves' For 2012

by: Kairos

For the small cap energy investor, 2011 was a roller coaster year but if you were nimble and exited your positions based on macro events, it was an extremely profitable year. 2012 looks to have the makings of being even better and I’d like to start you off on the right foot with 3 companies you absolutely must add to your portfolio for exceptional gains in 2012.

Primary Petroleum (PETEF.PK) – Primary controls over 300 000 acres in the Canadian Bakken (Southern Alberta Bakken Basin), is trading near its 52 week low and has had considerable insider buying over the past 12 months.

With the recent press release advising that Primary plans to purchase approximately 7.3 million common shares (roughly 5% of the outstanding) over the next year for cancellation, management is sending a clear message that they feel their shares are severely undervalued. I would personally think this money would be better spent developing their lands - drilling additional wells, which makes me question if they in fact have something else already in the works to bring additional cash into the company.

Mike Marandino has repeatedly expressed his goal to be bought out by a major and with drilling results expected throughout 2012, the potential gains are simply too great to ignore.

Visit Primary’s website for a complete overview of the company and to sign up for direct email updates.

Samson Oil and Gas (NYSEMKT:SSN) – Although it seems to have fallen out of favour with the market in general, Samson does have a multitude of prospects or potential catalysts as it welcomes 2012.

Management and shareholders alike are awaiting the completion of several wells including:

  • Defender (37.5% CWI) – the first well drilled into the Niobrara acreage that had been kept out of the original land sale to Chesapeake (NYSE:CHK) earlier in 2010. Recent press releases indicate that the frac fluid continues to be pumped and an IP rate is expected shortly.
  • Also in Goshen County is the Sprit of America (100% WI) that had experienced some issues getting to the original target but has been re-worked to test the ‘muddy J-sand formation’.
  • Australia II (100% WI - 33% back in provision) is currently being drilled to assess the potential of the recently purchased Fort Peck acreage (20 000 acres with an option to obtain an additional 20 000 acres).
  • The much anticipated Everett (26% WI) - which will be Samson’s 6th Bakken well in Williams County ND - is finally scheduled to be fracture stimulated with results expected early in the new year.

Planning to exit 2011 with zero debt, over $30 million in the bank and various working interest in 4 wells expected to come online imminently, Samson could definitely re-visit it’s 2011 highs resulting in an easy 100-150% gain from here.

Dejour Energy (DEJ) – Without question Dejour is my ultimate pick for 2012 as it is currently trading around a third of its NAV value of $1.00 - $1.25/share - a NAV value that has been calculated based solely on proven/probable reserves from a fraction of the total acreage within Dejour's control.

Management has spent the past couple of years building a foundation to withstand any market downturn and is about to show why they are a formidable company going forward. Current production is in excess of 500 boe/d net with the next stages of development already underway (Kokapelli Field in Northwest Colorado) to support management’s expectations of successfully increasing production to over 2000 boe/d by the end of 2012 from less than 5% of their total land holdings of over 120 000 acres.

Immediate catalysts include announcement of financing for further development at Kokapelli, production numbers attributed to the third oil well drilled at Woodrush BC as well as the test well completion results in respect to the South Rangely prospect in Colorado.

Dejour is definitely on the fast track to huge gains with profitability just around the corner, a vast array of premium acreage and continued success increasing their production and reserves. I personally feel that Dejour will outshine the others by at least a 3 to 1 margin throughout 2012. Please take the time to review Dejour’s latest presentation.

Other notable stocks worth considering for your energy portfolio sitting around the middle (lower end) of their past 52 week range and which most certainly have the potential to experience 100% gains or better throughout 2012 include:

Lucas Energy Inc (LEI) – currently sitting at the lower end of its 52 week range of $1.04-$5.23 (website)

Lucas Energy continues to search for a potential buyer of its Eagle Ford acreage which, if successful, coupled with its extremely low float (approx 16 M) could result in an overnight double or better. Even without a suitor to take the Eagle Ford acreage, William Sawyer and Co. have done a tremendous job building on their mandate of bringing old wells online and more importantly increasing production. The recent announcement that drilling of a new horizontal well into the Austin Chalk formation has begun should result in a production increase very early in the new year.

From here, it is a pretty safe bet to suggest that Lucas could see a 100 – 150% increase or better throughout 2012.

Royale Energy Inc (NASDAQ:ROYL) – currently $4.49 (52 week range of 1.73-7.90)

With improving cash flows and the recently announced acquisition of over 100 000 acres within the Shublik Shale of Alaska, Royale seems to be on the right track to capitalize on the increasing price of oil and an overall positive market outlook. It seems reasonable that Royale Energy could quickly see its share price back within striking distance of the 52 week high.

Magnum Hunter Resources (MHR) – currently sitting around the middle of its 52 week range at $4.66 ($2.33 - $8.66)

Magnum, currently producing just shy of 10 000 boe/d from approximately 450 000 acres throughout the US has aggressive plans to increase production throughout 2012 by an exceptional 30% to exit the year at 13 000 boe/d. Considering the world events, including the continued unrest throughout the Middle East, it is reasonable to expect oil to continue to rise and likely average over $100/bbl throughout 2012 supporting the case that Magnum could easily see a double or better from today’s prices.

Triangle Petroleum (NYSEMKT:TPLM) – sitting just north of its 52 week midpoint at $5.73 ($3.00 - $9.73)

Triangle controls over 400 000 acres within the Maritimes Basin (Nova Scotia, Canada) as well as over 80 000 acres within the Williston Basin (North Dakota). At present, all production (approximately 800 boe/d) is from non-operated wells in which their partners include the likes of Slawson Exploration, Continental Resources (NYSE:CLR), Kodiak Oil and Gas (NYSE:KOG) and Whiting Petroleum (NYSE:WLL). Plans with Triangle reach a little farther into the future than the others as management has recently indicated hopes to exit 2013 with production in excess of 2600 boe/d or a 200% increase. With this type of guidance as well as the large holding of Bakken acreage, Triangle is definitely worth keeping an eye on.

As 2011 comes to a close, I would like to sincerely wish you a very happy, safe and prosperous 2012.

Disclosure: I am long DEJ.