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!

“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 — and the long-term nature of the biggest chunk of their debt, and the fact that they have another almost $300 million in “liquidity” (cash plus additional line of credit) means they aren’t in crisis right now… but who knows what their situation will be if oil stays at $40 for a year or two. They’ll probably do great if oil goes to $100, but who won’t? I have no idea what a good macro forecast for oil is, I continue to find the shifting prices of petroleum to be completely inscrutable.

Shall we find another one?

“My second Bakken stock trades for less than $3 a share!

“This stock is cheap. It has over $66 million in cash in the bank… and minimal debt. It controls over 5,000 acres in the Bakken and also has substantial reserves in the Eagle Ford and Permian Basin.

“This baby could easily double in a year.”

So… with this and the third one (more on that in a minute) I would assume that the stock is probably less than $2 a share now, but that’s not a lot of clues.

For 5,000 acres in the Bakken and reserves in the Eagle Ford and Permian as well, with low debt (relatively speaking) and a low price, the one that jumps out at me right away is Abraxas Petroleum (AXAS), but as far as I can tell from the filings they don’t have anywhere near $66 million in cash, and haven’t for a long time. An interesting company, also really battening down the hatches and cutting production and expenses wherever they can (including shutting down their non-Bakken capex this year), and on the surface they look a lot less levered than Triangle… but Triangle’s debt has pretty loose covenants and isn’t due until 2022, Abraxas has bank loans that are about the same size as their market cap, so much less leverage in an immediate sense, but those bank loans are only “reaffirmed” through next April so there’s a lot more near-term risk on their balance sheet. The shares were around $3 a couple months ago, now they’re at about $1.60. You can see their presentation from last month here if you want to peruse it, but keep in mind that they’ve also cut guidance since that presentation and provided further updates on their activities so it’s not completely up to date.

But anyway, it seems likely not to be AXAS, given the lack of cash in the bank — who could it be?

Ummm… I dunno. Thinkolator hasn’t hit a good candidate for this one yet, but if you’ve got one that better matches those limited clues, well, feel free to throw it on the pile for our consideration.

How about one more?

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

“It trades for just $0.25 a share as you read this… has a total of 10,000 net acres in the Bakken… and the company’s insiders have been buying its stock like crazy in the open market.

“In fact, since the beginning of the bear market, insiders have bought 150,000 shares — with no selling whatsoever. They now own over half of the outstanding shares.

“I love this company.

“You see, even though it’s a small-cap oil company (it has a current market valuation of just $12 million), it has the most potential I’ve seen in the Bakken to date!”

This one I can’t be 100% certain about, I’m afraid, but the best match, with a pretty high degree of certainty from the Thinkolator, is Black Ridge Energy (ANFC). This is a microcap stock in every way, the market cap is now down below $10 million (it was around $12 million a couple months ago, when the shares were at 25 cents — they’re at about 18 cents now). And they have reported that they control 10,000 net acres in the Bakken — though that number on their website is now 8,600 net acres, I’m not sure when it changed but it looks like it was recently (Google’s cache of their website has the 10,000 acre number as of July 27, which is right before the most recent dip in the shares).

And the insiders have been buying the stock, though “like crazy” is a subjective term — they’ve bought about $60,000 worth of shares over the last year… and if we stick with the same late July timeframe for when they pulled data to make this ad, then they had bought just about 150,000 shares. It’s now 200,000, since a Director made a 50,000 share purchase about three weeks ago at 24 cents. Some of the previous insider buys were last year, just as oil was starting to drop, in the 75-cent range, so I don’t know how prescient these insiders might be. The buys have all been from two people: CEO Kenneth Decubellis, who over the past year has spent about $30,000 (his salary is $275,000) to buy 130,000 shares (he now owns a total of 211,000); and Independent Director Joseph Lahti, who has invested $27,000 to buy about 90,000 shares. I don’t know how substantial those investments are for those individuals, but they did buy shares.

Black Ridge is very much a financial/investor company, not an active operator — they have only five employees, and they borrow money and make deals with operators for working interest on prospective properties, and share in the revenue and earnings (and expenses) of the wells. They count on their energy industry expertise and their access to capital, I imagine.

Lately, the problem for them has been a familiar one for small energy companies who expanded aggressively in 2013 or 2014 — they took on a substantial amount of debt financing to make acquisitions when shale deals were running hot and heavy, so now they have a fairly expensive debt burden to deal with. In their case, it’s about $60 million on which they pay interest at an average of probably a little under 5% and which is due in January and June of 2017… so, close enough to be at least a little concerned and start planning how to roll that debt over. There are a fair number of small energy firms in similar condition, where you look at their market cap and think they’re super-tiny but then check the Enterprise Value (which is total capitalization — equity market cap plus outstanding debt) and see that it’s 10X higher than the market cap. That’s a company that’s dominated by the bondholders, and which equity investors are essentially owners of a little stub that will do very well if the company bounces back strongly (as in, if oil prices double), but might go bankrupt if oil prices stay too low. You can see similar stuff in lots of somewhat larger companies that have been teased in past years, like Magnum Hunter Resources (MHR), with a market cap of $150 million and $1.25 billion of debt (enterprise value $1.4 billion).

That’s a generalization, though, you’d have to see how their wells are doing and judge their performance, and tally up the hedging they’ve done to make any good guesses about whether they’ll hit a cash crunch. That’s more work than I’m going to do for a microcap stock that I wouldn’t consider, but if you want to look into it and share your thoughts, well, feel free to do so with a comment below.

So there you go — if we assumed that AXAS was stock number 2 (it doesn’t match the clues, but we need a placeholder), then you could buy one share of each of these companies for about $4.96 cents today. Whether you would want to, well, that I can’t tell you — the one that appeals most to me of that group is Triangle, since their serious debt issues are many years off unless the business gets cut in half from here and their debt covenants get broken, but they’re certainly all levered Bakken plays that would stand a fair chance of jumping higher if oil goes up sharply from here… though none of them are really talking about oil rising sharply, they’re talking about surviving and cutting costs and hoping that prices “recover” by next year sometime.

Sound like the kind of investment you’re interested in making now? Let us know with a comment below.