Checking in on those “Three Bakken Picks Under $10” from Keith Kohl

By Travis Johnson, Stock Gumshoe, October 14, 2013

Keith Kohl and the folks at Energy Investor have been sending out similar “Bakken stocks to buy NOW” teaser ads for a few years now, with some of them certainly doing quite well over the years since I first heard of them — I don’t cover every version of this ad, but a lot of folks have been asking about this latest one so I thought we ought to jump in and see what the stocks are this time around.

The broader pitch about the Bakken is probably something you’ve heard many times, that this booming oil region in (mostly) North Dakota is creating millionaires by the minute, that hydraulic fracturing and horizontal drilling for shale oil have changed the economy so much that North Dakota is the only state with almost no unemployment and, probably, home to the highest-paid Walmart greeters and fry cooks in the world — all thanks to the Williston Basin oil fields.

And every ad of theirs calls attention to two of the barn-burner stocks of the first Bakken burst several years ago, Northern Oil and Gas (NOG), which was an early land grabber in the Bakken and had some huge run-ups, and Brigham Exploration, which was bought out at a large premium (after a big run-up) by Statoil (STO). And those were definitely good picks at the time — so what’s he picking now? In Keith’s words:

“I spend endless hours poring over companies’ field production reports, lease acquisitions, landholdings, SEC filings, and CEO interviews…

“I’ve been to the Bakken and Fort McMurray to get a firsthand look at the operations of some of my favorite oil and gas stocks…

“And all this hard work is about to pay off for you again.

“I have three more unknown stocks in the Bakken that I believe will give you EVEN BIGGER returns than Brigham or Northern Oil & Gas…”

So what are they? I can’t give an in-depth look at every one as we toil through on a holiday here in Massachusetts (here we’re more focused on Casimir Pulaski and giant cornfield mazes than on Christopher Columbus, but the end result — kids out of school and parades through town — is more or less the same), but I should at least be able to name some “secret” stocks for you so you can dig in on your own.

Clues for number one?

“My favorite Bakken stock trades for just $6 a share.

“It has a total of 86,000 prime acres in the Bakken… and just a couple months ago, one insider bought over 9 million shares of this company’s stock.

“There’s only one reason an insider would make a $55 million commitment like this: They know the share price is headed higher.

“What makes this insider so sure?

“This small-cap oil company has a current market valuation of just $300 million, but it has $428 million in cash and other assets. And that’s just for starters…

“In the last year, this company’s proved reserves have jumped a whopping 890%… to over 14 million barrels of oil. And revenues ramped up 646% — to $60 million.”

Sounds pretty exciting, right? Here’s more:

“it’s grown revenues from $8 million… to $60 million last year… to what will be $180 million this year.

“And next year, revenues are expected to hit $265 million.

“There’s only one place you can find growth — and profits — like this: the Bakken.

“There’s just no way this stock can stay this cheap for long. I’m convinced this will be at least a $19 stock in the next few months. That’s a 220% gain!”

This one, sez the Thinkolator, is Triangle Petroleum (TPLM), which also made Kohl’s list in 2011 at around $5.50 … but it’s not a $6 stock any more. The shares had bounced around between $5-7 for most of the past year, but it had a huge run over the last month after reporting an excellent quarter, so Kohl’s ad needs a bit of updating. It’s a $10 stock now. Still looks reasonable on its face, with a solid forward PE valuation of about 10 and pretty strong revenue growth from their growing oil production and what seems to be a pretty nice integrated strategy in the Bakken, but that’s about all I know about that one. You’ve missed an exciting “pick under $10”, I guess, but if you think Kohl’s right that it will hit $19 within a few months then perhaps the $10 share price will be a bit more appealing — your call.

Next? Clues from Kohl:

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“My second blockbuster Bakken stock trades for just $8 a share. I think it will be bought out at a price between $19 and $24 pretty much any day now…


“This company controls over 218,000 acres in the Bakken that hold 95 million barrels of oil.

“Net income skyrocketed 4,266% last year — and will jump 50% this year… and another 50% next year!

“It gets better: In the last couple months, they completed 15 new wells, and they have 7 rigs drilling 24 hours a day….

“… company insiders have already approved new compensation rules that will pay them handsomely if (or rather, when) the buyout comes…

“This $8 stock is the most attractive takeover target in the Bakken. Your gains could be 118% to 175%!”

Looks like the best match for this one is again a stock he has touted before, Kodiak Oil & Gas (KOG) — it made those 2011 “buy under $10” lists, too. And like Triangle it’s no longer “just $8 a share” after a nice run since the Summer lows, it’s now about $12.50. They do have roughly 218,000 gross acres in the Bakken, income did jump spectacularly in 2012 and drive the shares up with it (net income jumped from $2 million to $134 million, so it’s not a 4,266% gain but it’s pretty close — they also created a bunch of new stock, so the per-share numbers are not as impressive).

They do have a pretty aggressive drilling schedule and they are running seven rigs … and they did change their compensation rules back January to allow for bigger payouts to the five top officers in the case of a “change of control” transaction that resulted in them getting terminated. Though if they’re banking on a big premium takeover deal you’d think they’d be buying stock, and they aren’t — the insiders at Kodiak have been very active sellers of their own stock all year.

KOG has had a great run this year — it’s priced for growth, but analysts do think that growth will come with near-50% jumps in earnings both this year and next, so you can certainly justify paying the current price for the shares if those estimates are going to pan out. I know we’ve had a lot of readers on the KOG bandwagon here over the years, so perhaps some of them will chime in with a comment and let us know what the story is today.

And is the third of those “Bakken Picks Under $10” actually under $10? Let’s check out the clues:

“My third Bakken stock — at just $0.40 a share — has the most explosive upside potential. It has 10,000 prime Bakken acres. That may not sound like much, but remember… this is a 40-cent stock!

“By the end of 2013, it will be pumping nearly $3 million of oil every week.

“This a rare opportunity to get into a Bakken oil company at the ground floor — before huge jumps in production pushes the stock price higher, like we’ve seen so many times before…

“And because it’s brand new to the Bakken, there’s no telling how high the stock can go: $3…$5…$10…”

Well, dangit, it looks like this entire teaser ad is still focusing on exactly the same stocks he was touting in late 2011. So much for new ideas.

I did go back and check what I thought this one was back then, since the clues are not exactly overwhelming (there are a lot of tiny companies with small acreage in the Bakken), but we still can’t be 100% certain of this one given the relative paucity of clues. $3 million of oil every week would mean that they’re producing at a rate of about 4,000 barrels a day ($3 million at $100 a barrel would be 30,000 barrels a week, or a bit over 4,000 barrels a day). That’s actually a fair amount for a tiny company, since even wells that are on their first month of production, when Bakken wells typically peak, produce on average something like 500 barrels of oil per day if the estimates I’ve seen hold any water.

So all we can do is guess, still, on this one — and we might as well guess the same stock we guessed last time, Samson Oil & Gas (SSN), an Australian company that trades in the US and does trade around 40 cents (50 cents now) and could conceivably have close to 10,000 acres in the “prime” Bakken (depending on how you define “prime”) as well as some production this year — not a great match, but it’s pretty close. And their Bakken production estimates do indicate that they think they can hit a bit over 4,000 barrels of oil per day in 2013. Will it happen? Dunno. Really still a guess, though this company has made some nice progress in two years.

So … I thought we’d be looking at another set of “Bakken stocks below $10” from Keith Kohl today but from those clues it sounds like the same three stocks he touted similarly in the Fall of 2011. Two are no longer “below $10” but are growing nicely and look like decent growth stocks from a quick glance at their numbers (I’m no expert in evaluating shale oil reserves or land holdings, I’m afraid), and one is, well, still a guess.

Have any Bakken favorites you’d like to share with us today, or any opinion on Triangle or Petroleum or any of the teeny stocks in the Williston Basin? Let us know with a comment below.

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