CAPScall of the Week: Triangle Petroleum

For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.

For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Triangle Petroleum (AMEX: TPLM)

What Triangle Petroleum does
Triangle Petroleum is a relatively newer oil and gas exploration driller in the Bakken Shale and Three Forks region of the Williston Basin. It has acquired 83,000 acres in the region and also owns land in Nova Scotia which it has completely written down and may actually divest. Currently, Triangle has drilled four wells to date and has plans to increase that number to 15 by the end of January 2013, with production rates expected to be in the range of 2600-3200 barrels of oil equivalent per day by the end of fiscal 2013. As for its latest quarter, production totaled 530 BoE per day with the company sitting on 1,447,091 BoE in reserves.

Who it competes against
I can't emphasize enough just how small of a player Triangle is in relation to other Bakken Shale oil and gas exploration companies. That can be both a boon, since it largely flies under investors' radars and can maneuver without many companies taking interest, and a bane since its lack of diversification means a boom or bust is dependent on its success in the Bakken.

With that being said, there is no shortage of competitors vying for drilling space in the Williston Basin. According to a report from RBC Capital Market from last year, there are no fewer than 41 other E&P companies vying for oil and natural gas in the Williston Basin! Samson Oil & Gas (AMEX: SSN), Kodiak Oil & Gas (NYSE: KOG), Whiting Petroleum (NYSE: WLL), and Continental Resources (NYSE: CLR) are just four players that call the Bakken Shale home. Let's break out our pencils and take a closer look at how these players compare to one another:

Source: Morningstar, RBC Capital, Company press releases, N/M = not meaningful.

Continental Resources and Whiting Petroleum are the clear leaders in acreage and total rig count among this group. As of March, Continental had 22 active drilling rigs while Whiting had 15. To put that into context, despite having 42 current players in the region, there were only 172 active rigs as of March 2012, and Continental/Whiting have 37 of them! Clearly those two companies have shown strong results, with Whiting appearing to be significantly cheaper than Continental.

Triangle is most similarly comparable to Kodiak and Samson Oil & Gas. Samson, despite its moderately sized acreage, has grown total production but has really failed to reap the benefits of that production as of yet. Kodiak has seen strong growth, with revenue nearly quintupling year over year. But, it has also suffered from higher acquisition costs. Triangle has yet to produce that elusive first profit, but its production is growing rapidly as more wells are put in place.

The call
After reviewing the prospects for Triangle Petroleum, I've decided to break tradition and anoint it with a CAPScall of outperform despite its money-losing ways.

Triangle's growth plans are aggressive, but it has a few factors on its side that should make it a winner. First, Triangle relies on its $69.6 million in cash and share issuances to fund its capital expenditures. I can't say that any shareholders really care to be diluted by share offerings, but the simple fact that Triangle has no debt throws any financing concerns down the well. Second, Triangle's production target of 2600-3200 BoE per day would put it on course to crush the average production of just 1,711 BoE per day in the region. Of course it needs to first get its infrastructure in place first, but nothing has pointed to any slowdown in executing its plans. Finally, Triangle is just cheap. There are plenty of Bakken plays trading at single-digit forward P/E ratios, but there just isn't a company with a lower enterprise value to acre ratio than Triangle according to RBC. When all is said and done, investors may be kicking themselves two to three years from now for not taking a closer look at Triangle Petroleum.

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