“Three Bakken Stocks Below $5 to Buy Right Now” Revealed (Well, two of ’em, at least)

What are Keith Kohl's Bakken Stocks teased in the Energy Investor ads?

By Travis Johnson, Stock Gumshoe, September 10, 2015

Keith Kohl at Angel’s Energy Investor did a pretty good job of calling attention to Bakken stocks in the first surge that those companies enjoyed a few years ago, when “shale oil” was still a somewhat unfamiliar term for most of us… so when he started pitching his newsletter this week by teasing us that he had “three Bakken stocks to buy right now” and promoted “Triple-Digit Gains,” Gumshoe readers started forwarding those ads to me en masse.

So what’s the idea? Well, Kohl says that “The last time I made a recommendation like this, my readers saw 574% gains….” and while I don’t know if that percentage gain was made by any of his actual subscribers, I can verify that he picked three stocks that posted fantastic returns in the early days of the Bakken — as long as you sold them at the right time, when so many Bakken juniors were subject to bidding wars as the big guys looked for acreage.

If you’re curious about checking some of those stocks, the most recent article I did on him, back in 2013, is here — and that one follows up a bit on some 2011 pieces I wrote when the Bakken was a baby (he pitched other Bakken stocks back in those days as well, but that’s a sample).

And it’s probably a sign of the times that the stocks used to be “three stocks to buy below $10” for the Bakken, and now it’s “Three Bakken Stocks Below $5” (and, actually, you could buy one share of each for less than $5 as of today, assuming the Thinkolator’s answers are correct).

So let’s jump in, shall we? Here’s how the ad gets us interested:

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

“And all three can be bought for less than $5 a share!”

Brigham Exploration was bought out at a big premium years ago, and Northern Oil & Gas had a huge run from $2 to $30 or so while the Bakken land rush was on in 2011. So… shall we try to identify this next batch? That is, after all, what we do here at Stock Gumshoe. Clues, please!

{irregular]Irregulars Quick Take
Newsletter: Energy Investor
Stocks: Triangle Petroleum (TPLM), Black Ridge Energy (ANFC), perhaps (probably not) Abraxas (AXAS)
Travis’ take: Not a lot of certaintly on the second and third ones, but Kohl has touted Triangle for years and that’s a perfect match, and an interesting company. Lots of debt in these names, lots of battening down the hatches and cutting costs — they’ll do great if oil goes back to $100, but they’re all certainly struggling now. I’d pick Triangle over the others, but am not very tempted by any of them — maybe that means it’s time for contrarians to buy.[/irregular]“My first stock controls over 82,000 acres in the Bakken, and it just announced a monster first quarter… Its reported production increased 69%, while reserves increased 46% compared to a year ago!

“It gets better: The company has 127 producing wells, with 24 awaiting completion, and I think sales and net profit will surge higher in the coming quarters.

“This stock is poised to head off to the races (assuming it doesn’t get acquired first at a huge premium).”

This one is Triangle Petroleum (TPLM), and the data tells us that Kohl’s ad copywriter is using figures that are a couple months old.

Triangle did have 69% production growth in the first quarter, and they did report that their reserves increased by 46% in the first quarter. Those numbers are in the (somewhat dated now) June Investor Presentation on their website, though you’d get a better current picture of the company from the new presentation they put up this week.

The numbers are a little bit different now, though not terribly so — Triangle had fantastic numbers last year, so the year-over-year comparisons and growth numbers are going to start looking considerably less impressive than that 69% growth number… even beyond the fact that yes, if oil prices drop by 60%, as they have over the past year, you have to increase production a lot more than that to avoid seeing your revenue and cash flow drop. The wells are still being drilled and completed, though at a much slower pace — that producing wells number is now up to 133, and there are 19 awaiting completion, but they’ve dropped down from four rigs drilling to the current one or 1-1/2 rigs (no, I don’t know what the half rig means — presumably some joint venture).

And the biggest number, of course, is the share price — so Triangle was just below $5 a share back in July, and it’s now “just above $3” since it’s been a dismal two months for junior energy companies (and lots of other stocks, to be fair). Kohl pitched Triangle years ago, too, so he’s certainly familiar with it… whether his investors profited from that idea probably depends on whether he told them to sell last year or during earlier peaks — it hasn’t been nearly as volatile as some, but has spent most of the last five years bouncing around between $3-8 or so, other than the nice run to $12+ late in 2013 and early in 2014.

Triangle is an interesting company, partly because they’ve done a bit of diversifying to become a service provider as well as an explorer and producer — and they have interests both in wells that they’re operating and as a minority holder of wells drilled by others. And they are no dummies, they’re saying all the right things about the current state of investment and production in the Bakken:

“Focused on protecting the balance sheet, maintaining adequate liquidity and managing return on capital”

And, for their Rockpile services division, which does hydraulic fracturing and well completion work (an area where there’s now overcapacity again thanks to slashed drilling budgets), they say…

“Increase in market share through downturn positions company well for a recovery scenario although visibility is very limited and utilization levels are subject to change”

Triangle carries a lot of debt, and is a junk-rated borrower, so future debt rollovers might be expensive, but the good news is that they have six or seven years before rolling over debt becomes a compelling issue, and they’re well within their debt covenants so far. Some of that debt is a convertible bond which doesn’t hurt them much (other than providing future dilution if TPLM shares are over $8), but most of the debt is from a bond trading at 60 cents on the dollar on the secondary market, which gives you some indication of the risks that people perceive… current buyers of those bonds at $600 (for $1,000 of principal), which mature in seven years, are getting an effective 11% coupon.

Clearly, the company is being pretty conservative with all of their businesses right now