If there are any investors fretting that they have missed the story in the Bakken, a name like Triangle Petroleum (AMEX:TPLM) may be an answer to those worries. While Triangle is still a very risky story, the company is only just starting to develop its acreage in the Bakken region. If Triangle follows the same path carved out by others like Whiting (NYSE:WLL), Continental (NYSE:CLR), Kodiak (NYSE:KOG) and Oasis (NYSE:OAS), investors may be able to look forward to considerable growth in reserves, production, and market valuation over the coming years.
Still (Mostly) A Land Story
For all of the talk about the Bakken, it's still a new energy-producing region in North America and there is plenty of growth yet to come from the area. While activity in the Bakken is largely dominated by larger, well-established companies for whom the Bakken is just another operating region, Triangle is a different story altogether.
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While Triangle has started to drill its own wells, the company is still in the very early stages of its development and its key asset is its acreage - approximately 81,000 acres in the Bakken region, with 32,000 acres in the Rough Rider region. On the basis of the results already seen by operators like Kodiak, Continental and Brigham (owned by Statoil (NYSE:STO)) in McKenzie and Williams counties, Triangle could well own assets capable of producing IRRs in excess of 50%.
At the same time, the company has some sizable acreage in Nova Scotia to consider. This area is not a priority right now (and seems to be a gas-heavy asset in a market that wants oil), but it could represent some eventual upside either as a partnership asset or an outright sale. (For further reading on natural gas investing, check out How To Profit From Natural Gas Plays.)
Balancing Risk and Reward
One of the apparent issues with fellow Bakken prospect GeoResources (Nasdaq:GEOI) appears to be the extent to which the company has taken non-operating and minority working interests. The same is true for Triangle, as about half of the acreage is non-operated (including a larger percentage of the Rough Rider acreage).
This is not such a terrible thing, though. For starters, partnerships reduce working capital needs and allow companies to learn from other companies' experience. In the case of Triangle, the company is working with top-tier partners like Kodiak, EOG (NYSE:EOG), Brigham, Continental and Marathon (NYSE:MRO) - almost a "who's who" of quality Bakken producers.
As time goes on, I expect that the plan for Triangle will be to acquire more acreage in the Bakken while also increasing its operating efforts.
The Bottom Line
Valuing oil and gas companies is always more art than science, and that's increasingly true for earlier-stage companies like Triangle. At this point, some of the key metrics worth following include additions to the acreage position, drilling schedules, and initial drilling results. If the wells drilled on Triangle's acreage follow the same trends as prior wells in the region, Triangle's valuation should start to move up.
For the time being, an EV/EBITDA analysis on Triangle is not especially instructive, as the numbers are pretty small and even modest changes can lead to big swings in implied value. Turning to the value of the company's acreage, excluding the Canadian assets and recent production, Triangle seems to trade for around $2,200 an acre - well below the range of $4,000 to over $10,000 seen among Bakken plays. Certainly Triangle deserves some discount for its early-stage status and the fact that it splits profits with partners, but fair value still seems as though it should lie above $8 or $9 a share.
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