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.