Why the Street Is So Bullish on This Junior Oil ProducerWith all the things going on in the world, it’s a good time to be in the oil business. Bakken oil stocks are almost all high-valuation; but the marketplace knows this, and it’s getting what it’s paying for—there’s big growth among many of these producers.
Everything is relative in the stock market. Valuations among junior oil producers with growing production (on strong oil prices) aren’t comparable to other businesses or industry sectors.
Triangle Petroleum Corporation (TPLM) recently shot way up on the stock market after reporting exceptional growth in production and its financials. This company is developing the Bakken Shale and Three Forks formations in the Williston Basin of North Dakota and Montana.
The stock’s actually been flat over the last two years. Part of the reason for this is that the company has had to sell a number of new shares in order to finance its business plan.
Triangle Petroleum recently reported fiscal 2014 second-quarter (ended July 31, 2013) revenues of $50.4 million, compared to $10.3 million a year ago.
Operating income was an impressive $13.0 million compared to a loss of $1.3 million. Net income was $6.8 million, or $0.12 per diluted share, compared to a net loss of $1.2 million, or $0.02 per diluted share.
The company finished the quarter with 57 million diluted shares outstanding, compared to 44.3 million shares last year.
The tough call in junior oil stocks isn’t knowing which companies are the big growth stories; it’s knowing the spot price of oil, because that’s always what energy stocks trade off. And naturally, you can’t predict the spot price of oil just like you can’t predict the extraneous factors that are part of its pricing mechanism. Costs or profitability come as a secondary concern.
So the oil business remains very much a speculative business even with proven operators and good growth stories. Just like precious metals mining, the junior energy business is a risk-capital, venture industry. (See “My Favorite Bakken Oil Play.”)
Which is why companies like Triangle Petroleum can be so volatile, trying to make things happen while going to the stock market for new financing. The growth in this specific case is coming by diluting existing shareholders.
It is a good time for this company, however, because the business is becoming profitable. I always like the period when an enterprise transitions from losses to earnings—it really is a milestone for any business and for shareholders, as well.
Oil is vulnerable to geopolitical events, obviously, and it also trades off U.S. and Chinese economic data. At just under $110.00 a barrel, the business case for higher-cost producers becomes attractive.
The Bakken oil boom continues, and Street estimates for Triangle Petroleum are going up.
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