Collins: Drill Down on This Small-Cap Driller

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This week, I had the opportunity to sit down with Tom Lapinski, the CEO of Torchlight Energy (TRCH). Torchlight's stock is one the components of the Mad Money portfolio of my firm, Portfolio Guru. It's an exciting story, with tons of growth potential.

Torchlight has four plays:

  • Central Oklahoma in the Hunton limestone formation
  • South Texas in the Austin Chalk and Buda formations, which are geologically adjacent to the Eagle Ford shale
  • Southwest Kansas in a joint venture with Ring Energy, which will be drilling shallow, vertical wells in an area that was exploited in the mid-20th century
  • Central Kansas, in association with the same partner, Husky Ventures, as in Oklahoma

One of the phrases that Lapinski and other Torchlight managers use is "drilling out of inventory." Torchlight is in plays that are relatively riskless, especially the ones in Kansas. The Torchlight guys like to talk about "hitting singles," and that is the key to the story: shallow, cheap wells that require very little expenditure and are quite repeatable. So that's the juice in the Torchlight story, a small company ($89 million market cap) that gives exposure to big plays and big-time partners.

When I talk about Torchlight with my clients, the conversation always turns to Gastar Exploration (GST), which was the hottest stock at Portfolio Guru in 2013. Gastar stock rose 500% last year on the strength of early results from its Oklahoma joint venture with Husky, which is attacking the same Hunton formation that Torchlight is. Gastar's Preferred Series A and B shares will always be favorites for my Portfolio Guru model portfolio and my clients' income portfolios. But when it came time to decide on my 10 Mad Money names, especially given the high energy weighting, I had to choose Torchlight over Gastar as a common-stock play.

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