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| TPLM.OB > SEC Filings for TPLM.OB > Form 10-Q on 2-Sep-2009 | All Recent SEC Filings |
2-Sep-2009
Quarterly Report
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the Securities and
Exchange Commission. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company should be read in
conjunction with the Consolidated Financial Statements and notes related thereto
included in this Quarterly Report on Form 10-Q.
Important factors currently known to Management could cause actual results to
differ materially from those in forward-looking statements. We undertake no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future
operating results over time. We believe that our assumptions are based upon
reasonable data derived from and known about our business and operations. No
assurances are made that actual results of operations or the results of our
future activities will not differ materially from our assumptions. Factors that
could cause differences include, but are not limited to, expected market demand
for our products, fluctuations in pricing for materials, and competition.
Overview
We are an exploration company focused on emerging shale gas opportunities. Our corporate strategy is to utilize our U.S. shale gas experience to secure early stage shale gas projects in Canada. In conjunction with this strategy, we have screened and participated in various projects in North America with numerous potential joint venture partners. These project areas include the Barnett Shale trend in Texas (three producing wells), the Fayetteville Shale trend in Arkansas, the Beech Hill Block in New Brunswick and the Windsor Block in Nova Scotia. We have also participated in conventional oil and gas plays in the province of Alberta (two producing wells) and the states of Montana, Colorado and Wyoming.
We have selected the Windsor Block in Nova Scotia as our core project, which is focused on a shale gas opportunity located in the Maritimes Basin of Eastern Canada. We intend to execute our operating plan in order to realize the full value of the land base that has been established in the Maritimes Basin. We are also in the process of evaluating a potential secondary shale gas project in Western Canada. All other projects are currently designated as non-core due to our desire to focus our limited manpower resources on the one core project.
Prior to May 2005, we were known as Peloton Resources Inc., a mining exploration company. Peloton was actively searching for ore bodies containing gold in British Columbia. A consultant was hired to assess the economic viability of exploring for and developing gold reserves on Peloton's properties. Based upon his report, Peloton decided to abandon all mining activities and to change its focus towards oil and gas exploration. In connection with the shift in operational focus, we changed our name to Triangle Petroleum Corporation.
Plan of Operations
During the first half of fiscal 2010, we finalized the Windsor Block production lease (April 15, 2009), tested one of the exploration wells that was completed in 2008, completed the remaining two exploration wells drilled in 2008 and retested the two wells drilled in 2007. For the balance of fiscal 2010, we plan on continuing the technical evaluation of the five wells drilled to date on the Windsor Block, including further completion operations and testing of the exploration wells that were drilled in 2008, acquiring additional seismic, and searching for one or more new joint venture partners to join us in the next phase of our Windsor Block exploration program. Once we have more certainty on the terms of a new joint venture partner, we plan to revise our work program and budget for the remainder of the 2010 fiscal year. We intend to allocate our available working capital to the Windsor Block as described above. However, there may be circumstances where, for sound business reasons, a reallocation of the funds may be necessary. Furthermore, while we intend to use our working capital as described above, our current working capital is not sufficient to complete the anticipated exploration program.
Properties
All of our oil and gas properties are located in the United States and Canada.
Core Property
Eastern Canadian Shale Gas Project - Windsor Block - We have an 87% working interest in 474,625 gross acres (412,924 net acres) in the Windsor Sub-Basin of the Maritimes Basin located in the Province of Nova Scotia, Canada and serve as operator of the Windsor Block; Zodiac Exploration Corp. has earned a 13% working interest in the Windsor Block. We acquired an additional 30% working interest in the Windsor Block in June 2009 from Contact Exploration Inc. ("Contact") in exchange for agreeing to provide Contact a 5.75% non-convertible gross overriding royalty interest. Contact also received a cash payment of C$270,000 (approximately US$245,000) and we assumed the liabilities related to Contact's former working interest. Up to April 15, 2009, the land was governed by an exploration agreement. On April 15, 2009, the Windsor Block exploration agreement was transferred to a 10-year production lease. Under the terms of this lease:
· The production lease grants rights to 474,625 gross acres (412,924 net acres), covering substantially all of the land which we had leased previously under the terms of the exploration agreement. Fringe acreage deemed non-prospective was voluntarily surrendered;
· We hold rights to conventional oil and gas within the lease, which includes shale gas, in the Windsor and Horton Groups, excluding natural gas from coal. We believe coals are not prospective within the Windsor Block;
· To retain rights to this land block, we have agreed to continue to evaluate the lands during the first five years of the lease by drilling seven wells, completing three exploration wells previously drilled, and acquiring seismic, which was estimated to cost C$12.7 million gross. These wells are to be distributed across the land block to fully evaluate conventional and shale resources. In addition to annual progress reporting to maintain the lease in good standing, on the second anniversary of the lease, we are obliged to provide a detailed report to the Nova Scotia government to assess our evaluation activities to maintain certain lands. After the fifth anniversary, leased areas not adequately drilled or otherwise evaluated may be subject to surrender;
· During the first year of the lease, we agreed to complete the three exploration wells that were drilled in the prior year and acquire seismic, which was estimated to cost C$2 million gross. A C$200,000 gross refundable deposit was posted related to the first year commitment; should the work not be competed, a portion or all of the deposit could be forfeited;
· Current royalty rates are set at 10% in Nova Scotia; and
· Tenure on some or all of the lands is eligible for renewal after the first 10 years, based on the establishment of commercial production and/or the satisfaction of certain drilling and evaluation criteria.
From May 2007 to June 2008, we executed the first phase of the Windsor Block exploration program consisting of a 2D and 3D seismic program, geological studies, and drilling and completing two vertical test wells (Kennetcook #1 and Kennetcook #2). From July 2008 to March 2009, we executed the second phase of the Windsor Block shale gas exploration program consisting of drilling three vertical exploration wells (N-14-A, O-61-C and E-38-A) and completing one of these wells (N-14-A).
During the first quarter of fiscal 2010, we tested the N-14-A well, which was completed in early December 2008 with a four-stage perforation and fracture treatment. The frac flowback operations were suspended in April 2009 after the well recovered 15% of load fluid but negligible gas production. Subsequent analysis indicates an unusually high insitu stress regime in the immediate vicinity of the well, likely due to proximity to a major fault, which contributed to fracture ineffectiveness. Completion operations on the O-61-C well commenced in March 2009 and continued into early May. Several tight sand and carbonate intervals were perforated but not fracture-treated. We obtained useful geological information from the well that will help guide subsequent exploration efforts. No hydrocarbons flowed from the well.
During the second quarter of fiscal 2010, operations on the E-38-A well moved forward with three zones having been perforated and treated with diagnostic "micro-fracs." Engineering data from these tests are currently being evaluated. E-38-A evaluates an area of the Windsor Block which is structurally and geologically distinct from previous wells drilled in the field. Also in the second quarter, the two wells drilled in 2007, Kennetcook #1 and Kennetcook #2, were re-entered to isolate and test individual zones to identify the "gassiest" intervals in each well. From these tests, it appears the fracture treatments undertaken previously have commingled multiple zones together, making it difficult to separate gas from water in the subsurface.
Other Properties
Western Canadian Shale Project - We continue to actively position ourselves for an entry into potential shale gas plays in Alberta and British Columbia. Our objective is to potentially establish an initial land position and to commence an exploration program in 2009 or 2010. To date, we have undertaken in-depth technical studies of several prospective shale horizons using our proprietary shale knowledge and experience, and have identified prospective areas where we believe we may have a technical and business advantage. A joint venture partner will be added at the appropriate time to provide funding and mitigate exploration risk. This approach is consistent with the strategy we employed to establish our position in the Windsor Block in Nova Scotia.
Non-Core Producing Properties - We are producing from two wells in the Alberta Deep Basin of Canada and three low working interest shale gas wells in the Barnett Shale trend of the Fort Worth Basin of Texas, U.S.
Non-Core Undeveloped Properties - In June 2009, we sold 4,327 non-operated net
acres in the U.S. Rocky Mountains for gross proceeds of $83,325. We currently
have 9,852 non-operated net acres in the Fayetteville Shale trend (Arkoma Basin
- Arkansas, U.S.), 4,747 non-operated net acres in the U.S. Rocky Mountains and
3,656 net acres in the Alberta Deep Basin of Canada. In fiscal 2009, there was
no exploration activity on these undeveloped land positions and there continues
to be no exploration activity planned for these projects in fiscal 2010.
Results of operations for the three and six months ended July 31, 2009 compared to the three and six months ended July 31, 2008
Daily Sales Volumes, Working Interest before royalties
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
Barnett Shale in Texas, USA Mcf/day 56 35 56 70
Deep Basin in Alberta, Canada Mcf/day 62 100 66 122
Total Company Mcf/day 118 135 122 192
Total Company Boe/day* 20 23 20 32
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* Thousand Cubic Feet ("Mcf") converted into Barrel of Oil Equivalent ("Boe") on a basis of 6:1
Net Operating Results
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
Volumes Mcf 10,825 12,250 22,140 34,905
Price $/Mcf 3.19 10.53 3.43 9.05
Revenue $ 34,584 $ 128,939 $ 75,984 $ 315,962
Royalties 5,401 21,108 12,897 56,012
Revenue, net of royalties 29,183 107,831 63,087 259,950
Production expenses 31,875 4,154 52,576 63,381
Net $ (2,692 ) $ 103,677 $ 10,511 $ 196,569
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For the three and six month periods ended July 31, 2009, we realized $34,584 and $75,984, respectively, in revenue from sales of natural gas and natural gas liquids, as compared to $128,939 and $315,962 in the same periods of the prior year. Revenue decreased mainly due to reduced natural gas prices and reduced production volumes. Royalties as a percent of revenue were 16% and 17% for the three and six month periods ended July 31, 2009, respectively, which was consistent with 16% and 18% in the same periods of the prior year. Production expenses related to this revenue were $17.67/Boe and $14.25/Boe for the three and six month periods ended July 31, 2009, respectively, compared to $2.03/Boe and $10.89/Boe in the same periods of the prior year; the increase in the per Boe rate in the three and six month period ended July 31, 2009 was mainly due to the higher non-routine maintenance costs of wells.
Depletion, Depreciation and Accretion
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
Depletion - oil and gas properties $ 7,854 $ 13,557 $ 30,345 $ 51,028
Accretion 42,408 9,711 61,132 42,539
Depletion and Accretion 50,262 23,268 91,477 93,567
Depreciation - property and equipment 7,335 9,988 11,674 19,747
Total $ 57,597 $ 33,256 $ 103,151 $ 113,314
Depletion per BOE $ 4.35 $ 6.64 $ 8.22 $ 8.77
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Unproven property costs of $18,071,434 (January 31, 2009 - $16,869,995) were excluded from costs subject to depletion at July 31, 2009. Depletion expense per Boe related to oil and gas properties in the three and six month periods ended July 31, 2009 decreased as compared with the same period of the prior year mainly as a result of the ceiling test write-downs on proved properties in the previous year which decreased the depletion base.
General and Administrative ("G&A")
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
Salaries, benefits and consulting fees $ 462,076 $ 558,182 $ 764,983 $ 958,109
Office costs 142,278 191,552 303,127 458,709
Professional fees 42,910 23,559 183,848 288,725
Public company costs 92,962 172,122 185,055 329,001
Operating overhead recoveries (20,469 ) (30,487 ) (32,328 ) (32,178 )
Stock-based compensation 135,543 227,756 270,463 341,036
Total G&A $ 855,300 $ 1,142,684 $ 1,675,148 $ 2,343,402
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G&A expenses decreased in the three and six month periods ended July 31, 2009 compared to the same period of the prior year primarily due to management implementing cost reductions and the strengthening of the U.S. dollar versus the Canadian dollar.
· Salaries, benefits and consulting fees, which are primarily incurred in Canadian dollars, decreased in the three and six month periods $96,106 and $193,126, respectively, mainly due to reduced staff and consultants of $27,000 and $61,000, respectively, and the strengthening of the U.S. dollar versus the Canadian dollar by 12% and 18%, respectively, causing a decrease of $61,000 and $146,000, respectively;
· Office costs, which are primarily incurred in Canadian dollars, decreased in the three and six month periods $49,274 and $155,582, respectively, mainly due to reduced software, insurance and travel costs of $19,000 and $74,000, respectively, and the strengthening of the U.S. dollar versus the Canadian dollar by 12% and 18%, respectively, causing a decrease of $21,000 and $70,000, respectively;
· Professional fees, which are primarily incurred in Canadian dollars, decreased in the six month period $104,877 mainly due to reduced audit and accounting fees of $83,000, which were higher in the prior year due to non-recurring audit and accounting fees for restatements of financial statements, and the strengthening of the U.S. dollar versus the Canadian dollar by 18% causing a $44,000 decrease, which was offset by increased legal fees of $22,000 due to the TSX Venture listing late in the prior year. Professional fees increased in the three month period $19,351 mainly due to increased reserve evaluation fees of $16,000 and increased legal fees of $6,000 due to the TSX Venture listing late in the prior year; and
· Public company costs decreased in the three and six month periods $79,160 and $143,946, respectively, mainly due to reduced investor relation costs of $66,000 and $137,000, respectively. Public company costs consist mainly of fees for investor relations and also include directors' fees, press release and Securities Exchange Commission ("SEC") filing costs, printing costs and transfer agent fees.
Accretion of Discounts on Convertible Debentures
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Agreement Date July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
December 8, 2005 $ - $ 186,764 $ - $ 813,337
December 28, 2005 - 604,278 - 1,193,063
Total accretion of discounts $ - $ 791,042 $ - $ 2,006,400
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The accretion of discounts was fully recognized in the prior year since the December 8, 2005 debentures were fully converted and repaid June 5, 2008 and the December 28, 2005 debentures were settled December 18, 2008.
Interest Expense
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
Agreement Date July 31, 2009 July 31, 2008 July 31, 2009 July 31, 2008
December 8, 2005 $ - $ 22,312 $ - $ 91,360
December 28, 2005 - 189,041 - 373,973
Total interest expense $ - $ 211,353 $ - $ 465,333
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There was no interest expense in the current period since the December 8, 2005 debentures were fully converted and repaid June 5, 2008 and the December 28, 2005 debentures were settled December 18, 2008.
Oil and Gas Properties
Net Book Value Net Book
January 31, Depletion and Gain Value
2008 Additions Impairment Dispositions (Loss) July 31, 2009
Unproven
Windsor Block Maritimes
Shale - Nova Scotia, Canada $ 16,818,586 $ 1,129,379 $ - $ - $ - $ 17,947,965
Western Canadian Shale -
Alberta and B.C., Canada 51,409 72,060 - - - 123,469
Fayetteville and Rocky
Mountains - 8,704 - (133,325 ) 124,621 -
Proved
Canada 72,869 7,467 (15,891 ) - - 64,445
U.S.A. - 14,454 (14,454 ) - - -
Net $ 16,942,864 $ 1,232,064 $ (30,345 ) $ (133,325 ) $ 124,621 $ 18,135,879
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During the six month period ended July 31, 2009, we focused on the Windsor Block
and spent $1,129,379 primarily for.
· completing the second phase of the Windsor Block exploration program
consisting of testing the N-14-A well (approximately $163,000), completion
operations on the O-61-C well (approximately $200,000), and completion
operations on the E-38-A well (approximately $123,000);
· retesting the Kennetcook #1 and #2 wells (approximately $214,000); and
· acquiring Contact's 30% working interest in the Windsor Block for cash of $245,000 and the assumption of future estimated non-cash asset retirement costs of $144,750. We also agreed to provide Contact a 5.75% non-convertible gross overriding royalty interest.
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