“Three Bakken Stocks Below $10 to Buy Right Now” (Part One)

Digging into Keith Kohl's newest Bakken teaser from the $20 Trillion Report

By Travis Johnson, Stock Gumshoe, November 14, 2011

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

That’s the meaty bit of the latest pitch from Keith Kohl for his $20 Trillion Report — he tells us that he recommended a few Bakken stocks years ago, during the heady early days of the Bakken stampede, and he seems to think that the riches you would have seen from those stocks are about to be repeated.

He’s at least mostly telling the truth about the great past performance, by the way — I have no idea how his portfolio was managed or if he would have had you trade in or out of the stocks in the interim, but that newsletter did very actively tease shares in Brigham Exploration (BEXP) and Northern Oil and Gas (NOG) more than two years ago (and that teaser ad repeated many times — it was already pretty old by the time I wrote about it in the Fall of 2009). Those stocks, had you bought them when that article ran and held them, are up somewhere in the neighborhood of 250-300%, with Brigham Exploration (BEXP) in particular getting lots of attention thanks to their recent agreement to be bought out by the Norwegian state-controlled giant Statoil (STO). The third stock that was actively teased in those same ads was Enerplus (ERF), but it was never much of a “pure” Bakken play — other newsletters over the years have teased a handful of other very successful Bakken-related picks, including, among others, Painted Pony and Kodiak Oil and Gas.

So will lightning strike again? That’s the idea, at least. You’ve probably heard all about the Bakken as a general theme in oil investing — the Bakken play is in the Williston Basin of North Dakota (extending into Montana and Canada as well), and you’ll often also hear about the Sanish or the Three Forks fields, which are under the Bakken. All are shale oil, meaning that they’re extracted using horizontal drilling and fracking to break up the rock formations and release the oil (not too different from the shale gas techniques that are enriching folks who own land in the Marcellus and elsewhere, though they’ve found “too much” shale gas so prices have collapsed, the same problem hasn’t hit for shale oil, for a multitude of reasons).

The estimated resource base in the area is massive, and, with more information after a few years of more drilling and more exploration, is likely to be restated higher again. Kohl teases that the current estimate from the USGS that the Bakken and Three Forks hold at least 6.2 billion barrels of oil is likely to be bumped up considerably when they redo this analysis … which he says they’re doing now. Since the USGS estimate back in 2008 was part of what spurred increased interest in the Bakken among investors and speculators, the logic seems reasonable that an increased estimate could be a positive catalyst for companies that have big undeveloped Bakken land holdings (investors should be valuing the developed land holdings and active wells based on their actual production and reserves, one imagines, it’s the undeveloped stuff that should theoretically get more valuable as estimates of the reservoir size increase).

So what, then, are Kohl’s favorite picks in the Bakken now, the picks below $10 that he thinks you should “buy right now?” He gives hints about three picks and I will get to them all before this week ends, but we’re going to start at the ending since that’s the one he sounds most excited about … let’s check out our clues:

“My third and final Bakken stock might be the biggest blockbuster yet.

“It trades for just $6 a share… has a total of 74,000 acres in the Bakken… and the company’s insiders have been buying its stock like crazy in the open market. In fact, in the last six months, insiders have purchased 880,000 shares — with no selling whatsoever.

“I love this company.

“You see, even though it’s a small-cap oil company (it has a current market valuation of just $260 million), it has $110 million in cash and zero debt!”

This one, sez the mighty, mighty Thinkolator, is Triangle Petroleum (TPLM). And yes, they do have 74,000 acres (or maybe 72,000, there’s been some “recalculation”), the stock is in the $5.50 range, and there has been some “insider” buying — though the insiders weren’t actual executives, the big insider buys that give us that 880,000 share number were from Cambrian Capital Partners, a hedge fund that holds a substantial portion of the company (actual insiders have been getting lots of shares, to be sure, but they haven’t been paying for many of them on the open market).

And yes, they do have $110 million in cash and no debt, but that’s mostly because they raised $116 million just six months ago in a public offering — they’re not yet generating positive cash flow (thanks to a near-total absence of revenue until recently), though analysts think they will be profitable next year.

They are very much in the exploratory/development stage after engineering a refocusing of the company toward the Williston basin this year. Most of those 74,000 acres have been bought in the last several months, but they also own some non-operating participation in a couple dozen wells in the Bakken that are producing oil. The company did start drilling their first operated well last month and they have the permit in hand for their second well once the drilling rig is available to move on, and it’s these operated wells that they think will give them the potential to dramatically increase production and cash flow over the next year or so, particularly in what they’re calling the “Station Prospect” area.

I’m not a petroleum geology expert by any means, but this one does sound like an interesting early stage speculation even though one imagines that they’re probably, as late entrants, having to pay a pretty penny for this acreage. As a nice little twist to the story to keep you interested, they’ve also formed a pressure pumping subsidiary that might become a profitable sideline, potentially as a service provider to the smaller operators in the Bakken who may have trouble getting access to fracking crews and pumping equipment. May not lead to anything, but I like that they’re thinking aggressively about building a business.

Most of the junior explorers in the Bakken get quite a bit of investor attention, and Triangle, though newer than most to the region, is no different — there have been quite a few folks covering this one over at SeekingAlpha, for example, including one pretty detailed analysis and forecast here.

We’ll get to the other two Bakken picks probably tomorrow unless something even sexier comes rolling our way overnight — but don’t let us stop you, if you’ve a favorite Bakken pick to share or a thought on Triangle, feel free to shout it out now with a comment below … that’s what our friendly little comment box is for.

Oh, and if you’ve ever subscribed to the peak oil enthusiasts at the $20 Trillion Report, either before or after they made those initial Bakken picks, we’d love to know what you think — click here to share your thoughts with a brief review. Thank you!

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