English: An Oil Pump in western North Dakota (Photo credit: Wikipedia)
Triangle Petroleum Corp.
TPLM : NYSE MKT : US$5.90
BUY Target: US$10.00
COMPANY DESCRIPTION:
Triangle Petroleum is an E&P company with operations in the Bakken and Three Forks Shales of North Dakota and Montana. A majority-owned (83% interest) subsidiary operates one pressure pumping spread .
Investment recommendation
We are assuming coverage of TPLM with a BUY rating and $10 price target. The company has 86K net Williston Basin (WB) acres, and is
successfully transitioning its business strategy toward an emphasis on operated drilling activity in the Bakken/Three Forks play in McKenzie/Williams Counties, North Dakota. TPLM, in our view, has the liquidity to conduct a two-rig operated drilling program to drive
substantial production and reserve growth.
Investment highlights
In FY14, TPLM plans to conduct a two-rig program and drill 24 gross (~12 net) wells in the WB. The FQ3/13 exit rate of 2.0 MBoe/d was well above the average for the quarter (1.4MBoe/d), and we are confident the company will hit its 2.6-3.2 MBoe/d full year exit rate target. We are modeling production growth of 158% and 63% in FY14 and FY15, respectively.
Vertical integration into oilfield services and midstream, while in its early stages, should help the company drive costs lower while
generating incremental revenue and profits from third-party customers.
At October 31, 2012, TPLM had $45M in cash and an undrawn borrowing base of $52.5M. We believe this liquidity, along with continued increases in the borrowing base and cash flow, should mostly, if not entirely, cover the $190M in capex budgeted for F14.
Valuation
Our price target of $10 is NAV-driven and based on a ~15% discount to an ~$11.75 NAV. Moving forward with an operated model should, in our
view, help unlock the potential of the acreage and narrow the valuation gap to its NAV.
