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TPLM > SEC Filings for TPLM > Form 10-Q/A on 26-Apr-2013All Recent SEC Filings

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Form 10-Q/A for TRIANGLE PETROLEUM CORP


26-Apr-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

We or our representatives may make forward-looking statements, oral or written, including statements in this Quarterly Report, press releases and filings with the SEC, regarding estimated future net revenues from oil and natural gas reserves and the present value thereof, planned capital expenditures (including the amount and nature thereof), increases in oil and natural gas production, the number of wells we anticipate drilling in the future, the potential number of operated drill spacing units and well locations on our acreage, the timing of anticipated drilling, our financial position, business strategy and other plans and objectives for future operations. Although we believe that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effects on our business or operations. Among the factors that could cause actual results to differ materially from our expectations are general economic conditions, inherent uncertainties in interpreting engineering data, operating hazards, delays or cancellations of drilling operations for a variety of reasons, competition, fluctuations in oil and natural gas prices, availability of sufficient capital resources to us or our project participants, government regulations and other factors, including but not limited to, those set forth among the Risk Factors noted in our Annual Report on Form 10-K/A for the fiscal year ended January 31, 2012, filed with the SEC on May 18, 2012, and in this Quarterly Report under the heading "Item 1A. Risk Factors". All subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. We assume no obligation to update any of these statements.

Information Regarding Disclosure of Oil and Natural Gas Reserves. Except for certain disclosures in Note 15 to the accompanying company condensed consolidated financial statements, any references in this Quarterly Report to proved oil and natural gas reserves and future net revenue of such proved reserves have been determined in accordance with SEC guidelines and the United States Financial Accounting Standards Board (the "U.S. Rules") and not in accordance with NI 51-101. The practice of preparing production and reserve quantities data under NI 51-101 differs from the U.S. Rules. The primary differences between the two reporting requirements include, but are not limited to, the following: (i) NI 51-101 requires disclosure of proved and probable reserves; the U.S. Rules usually require disclosure of only proved reserves;
(ii) NI 51-101 requires the use of forecast prices in the estimation of reserves; the U.S. Rules require the use of twelve-month average historical prices which are held constant; (iii) NI 51-101 requires disclosure of reserves on a gross (before royalties) and net (after royalties) basis; the U.S Rules require disclosure on a net (after royalties) basis; (iv) NI 51-101 requires disclosure of production on a gross (before royalties) basis; the U.S. Rules require disclosure on a net (after royalties) basis; and (v) NI 51-101 requires that reserves and other data be reported on a more granular product type basis than required by the U.S. Rules. The reserves data and other oil and natural gas information for the Company prepared in accordance with NI 51-101 can be found for viewing by electronic means in the Company's Form 51-101F1 - Statements of Reserves Data and Other Oil and Gas Information under the Company's profile on SEDAR at www.sedar.com.

Overview

We are an exploration and production company currently focused on the development of unconventional shale oil and natural gas resources in the Bakken Shale and Three Forks formations in the Williston Basin of North Dakota and Montana. Having identified an area of focus in the Bakken Shale and Three Forks formations that we believe will generate attractive returns on invested capital, we are continuing to explore further opportunities in the region. Our production in fiscal year 2013 to date is from wells in North Dakota, primarily from the Bakken Shale formation and the rest from the Three Forks formation.

We commenced drilling our first operated well in October 2011. We had four gross (1.7 net) operated wells completed (with pressure pumping by Schlumberger) in May-June 2012 and six additional gross (3.3 net) operated wells completed (with pressure pumping by RockPile) by October 31, 2012. We expect to have at least five additional gross (2.3 net) operated wells completed (with pressure pumping by RockPile) by the end of January 2013. By January 31, 2013, we anticipate having spud 21 gross operated wells and having completed at least 15 gross (8.3 net) operated, horizontal wells in North Dakota or eastern Montana, for completion in the Middle Bakken or Three Forks formations.

In our core area of North Dakota and eastern Montana, we are directing resources toward our operated program to develop its approximately 35,400 net acres primarily in McKenzie and Williams Counties, North Dakota. In


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Roosevelt and Sheridan Counties, Montana, our "Station Prospect" is a largely contiguous position within the thermally mature area of the Williston Basin. Our approximate 50,600 net acre position in the Station Prospect is predominantly operated acreage and provides us with a development area that we believe is scalable for the future.

With a focus on establishing an efficient development model, when possible the Company is utilizing pad drilling, which expedites our operated program, while controlling costs and minimizing environmental impact. We also intend to continue to use innovative completion, collection and production techniques to optimize reservoir production while also reducing costs. Additionally, with the ability to utilize the completion capacity of RockPile, we are well positioned to have greater control over drilling and completion schedules and costs.

Recent Events

On October 1, 2012, Triangle Caliber Holdings, a wholly owned subsidiary of the Company, entered into a joint venture with FREIF Caliber Holdings, a wholly owned subsidiary of First Reserve Energy Infrastructure Fund, L.P. Caliber, the newly formed joint venture entity, plans to provide crude oil, natural gas and water transportation services to the Company and third parties primarily within the Williston Basin of North Dakota and Montana. In connection with the joint venture, Triangle's subsidiary agreed to transfer certain assets, consisting primarily of rights-of-way located in McKenzie County, North Dakota, as well as cash consideration with an aggregate value of $30.0 million, to the joint venture in exchange for a thirty percent limited partner interest in the joint venture entity and a fifty percent interest in the general partner that manages the joint venture. Upon the achievement of certain operational thresholds, trigger units held by Triangle would convert into limited partner interests to cause Triangle to own a fifty percent limited partner interest in the joint venture. For more information regarding the joint venture, see Note 5-Investment in Unconsolidated Affiliate under Item 1 in this Quarterly Report, as well as the description of the joint venture reported on our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2012 and incorporated herein by reference.

The Company held its 2012 Annual Meeting of Stockholders on November 16, 2012, at which the Company's stockholders approved the reincorporation of the Company from the State of Nevada to the State of Delaware pursuant to a merger of the Company with and into a newly formed Delaware corporation wholly owned by the Company. The reincorporation was effective at 11:59 p.m. EST on November 30, 2012, and the Company is now a Delaware corporation. Additionally, the Company's stockholders approved an increase in the total number of shares of authorized common stock from 70,000,000 shares to 140,000,000 shares. The Company's Delaware Certificate of Incorporation, which authorizes the issuance of up to 140,000,000 shares of common stock, and Bylaws are filed as Exhibits 3.1 and 3.2, respectively, to the Current Report on Form 8-K filed with the SEC on October 1, 2012 and incorporated herein by reference.

Properties, Plan of Operations and Capital Expenditures

Williston Basin

We own operated and non-operated leasehold positions in the Williston Basin. We are currently running a 2 rig drilling program. Two rigs, Xtreme 7 and Precision 106, are contracted full-time and each drilling approximately one well per month. A third rig, Pioneer 42, was contracted to drill five wells between April and November 2012. As of November 9, 2012, Pioneer 42 had drilled five wells and was released from Triangle's drilling program. The focus of our near-term drilling program is on our core North Dakota acreage in McKenzie and Williams Counties.

Our non-operated leasehold position operations are primarily conducted through agreements with major operators in the Williston Basin, including Hess Corporation, Continental Resources, Inc., Statoil (formerly Brigham Exploration Company), Newfield Production Co., EOG Resources, Inc., XTO Energy Inc. (now a part of ExxonMobil), Whiting Petroleum Corporation, Slawson Exploration, Inc., and Kodiak Oil and Gas Corporation. These companies are experienced operators in the development of the Bakken Shale and Three Forks formations.

Using industry accepted well-spacing parameters and long lateral well bores, we believe that there could be over 75 operated drill spacing units and over 450 well locations for the Bakken Shale and Three Forks formations on our acreage in the Williston Basin. Based on current industry practices, we believe we can drill six to eight 9,500+ foot lateral wells on 1,280-acre spacing units within our acreage position. Consistent with leading field operators, we plan to perform multi-stage fracs, with 25 to 31 stages on each lateral well. We also plan to drill shorter lateral wells on smaller units as dictated by our leasehold position. Separately, we have approximately 120 non-operated drill spacing units with greater than 2% working interest in our core area of North Dakota and Montana.


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Other Properties

We have an 87% working interest in approximately 474,625 gross acres (approximately 412,924 net acres) of Nova Scotia oil and natural gas leases in the Windsor Sub-Basin of the Maritimes Basin. The leases are scheduled to expire in 2019, but can be extended pending agreement of further development plans with the Nova Scotia regulators. Nova Scotia has a moratorium on hydraulic fracturing and is currently conducting an extensive review to determine whether and how hydraulic fracturing will be allowed in the future. The review is expected to be completed in calendar year 2014. Nova Scotia also does not currently allow the common industry practice of using salt water disposal wells. While such government restrictions remain in place, it is uneconomic to proceed in further exploration and development of these leases. We do not know if and when the restrictions might be lifted, and we do not know if Nova Scotia would grant an extension to the leases as a result of exploration delays from Nova Scotia's existing hydraulic fracturing review. Because of these factors, we fully impaired our oil and natural gas leases in the Maritimes Basin as of January 31, 2012.

Results of Operations for the Three Months Ended October 31, 2012 Compared to the Three Months Ended October 31, 2011

For the fiscal quarter ended October 31, 2012, we recorded a net loss attributable to common stockholders of $598,346 ($0.01 loss per share of common stock, basic and diluted) as compared to a net loss attributable to common stockholders of $2,110,188 ($0.05 per share of common stock, basic and diluted) for the fiscal quarter ended October 31, 2011.


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Oil and Natural Gas Operations

For the three months ended October 31, 2012, we had total oil and natural gas revenues of $10,443,055 compared with $3,462,471 for the three months ended October 31, 2011. Oil and natural gas sales and production costs for each period are summarized in the following table. Oil sales volumes and revenues in the three months ended October 31, 2012 increased by approximately 200% compared to the three months ended October 31, 2011. The increases were substantially due to our operated wells placed on production in the six months ended October 31, 2012.

                                                               Three months ended October 31,
                                                                   2012               2011
U.S. oil and natural gas operations
Oil sold (barrels)                                                     118,287           39,636
Average oil price per barrel                                 $           86.25    $       85.35
Oil revenue                                                  $      10,202,076    $   3,382,804
Natural gas sold (mcf)                                                  47,277           10,591
Average gas price per mcf                                    $            4.06    $        6.36
Natural gas revenue                                          $         191,950    $      67,331
Natural gas liquids sold (gallons)                                      67,896            7,832
Average gas liquids price per gallon                         $            0.72    $        1.58
Natural gas liquids revenue                                  $          49,029    $      12,336
Total oil and natural gas revenues                           $      10,443,055    $   3,462,471
Less production taxes                                               (1,202,312 )       (407,039 )
Less lease operating expense (excluding production taxes)           (1,437,817 )       (116,848 )
Less oil and natural gas amortization expense                       (3,300,000 )     (1,222,000 )
Less accretion of asset retirement obligations                          (5,065 )         (2,774 )
Income from U.S. oil and natural gas production                      4,497,861        1,713,810
Gross profit from pressure pumping services                          1,261,239                -
Other revenues                                                         113,960                -
Income from U.S. operations                                          5,873,060        1,713,810

Canadian oil and natural gas operations
Lease operating expense                                                (33,030 )        (51,259 )
Accretion of asset retirement obligations                                    -          (68,012 )
Loss from Canadian oil and natural gas operations                      (33,030 )       (119,271 )
Income from operations                                               5,840,030        1,594,539
U.S. and Canadian other income (expense)
Gain on derivative activities                                        1,401,267                -
Other income (expense)                                                 (25,278 )        102,774
Interest expense                                                    (1,430,151 )              -
Foreign exchange gain (loss)                                                 -           (8,862 )
Less depreciation of furniture and equipment                           (82,607 )         (9,817 )
Less general and administrative expenses                            (6,374,919 )     (3,817,758 )
Net income (loss)                                            $        (671,658 )  $  (2,139,124 )
Total U.S. barrels of oil equivalent ("boe") sold                      127,783           41,588
U.S. oil and natural gas revenue per boe sold                $           81.72    $       83.26
U.S. production tax per boe sold                             $            9.41    $        9.79
U.S. other lease operating expense per boe sold              $           11.25    $        2.81
U.S. amortization expense per boe sold                       $           25.83    $       29.38


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U.S. Production Taxes

Due primarily to the 200% increase in oil revenues for the quarterly period ended October 31, 2012 compared with the quarterly period ended October 31, 2011, our U.S. production taxes increased 195% to $1,202,312 from $407,039 for the same respective quarterly periods. With rare exception, North Dakota production tax rates for the past two years were 11.5% of oil revenue and approximately 11 cents per mcf of natural gas.

U.S. Other Lease Operating Expenses

Other lease operating expenses ("OLOE") for U.S. operations increased by $1,320,969 (to $1,437,817 for the three months ended October 31, 2012 as compared with $116,848 for the three months ended October 31, 2011). That is a 1,130% increase attributable to (i) a 200% increase in production and (ii) an increase in OLOE /boe to $11.25/boe from $2.81/boe. That cost-per-boe increase is primarily the result of a $4.45 per BOE increase in non-operated lease operating expense and the addition of lease operating expenses for operated properties. For the three months ended October 31, 2012, lease operating expense for operated properties was $14.52 per BOE. Included in the operated wells' lease operating expense rate above is $6.32/boe in temporary costs, primarily for workover expense and equipment rental on one operated well and higher formation water disposal rates in early months of new well production.

Oil and Natural Gas Amortization Expense

Amortization of oil and natural gas properties increased to $3,300,000 in the three months ended October 31, 2012 from $1,222,000 for the three months ended October 31, 2011. This increase was due primarily to the 207% increase in boe sold (for the fiscal quarter ended October 31, 2012, compared to the fiscal quarter ended October 31, 2011). The amortization expense per boe sold declined 12%, for the same respective quarterly periods, to partially offset the increased amortization expense attributable to increased boe sales.

Pressure Pumping

RockPile, our 83.33% owned subsidiary, began providing pressure pumping (aka hydraulic fracturing) services in July 2012. RockPile currently operates one modern, 15,000 pounds per square inch pressure-rated hydraulic fracturing fleet with eight pumps and an aggregate 18,000 horsepower.

RockPile's financial results are primarily a function of the utilization of its equipment, the drilling and stimulation activities of its customers, the prices it charges for its services, its service performance and the cost of products, materials and labor. RockPile typically provides the chemicals and proppants required by the customer at an agreed upon price determined prior to execution. As a result, per well revenue is dependent upon the type and volume of chemicals and proppant used in the job design and the prevailing market prices for those items at the time the services are provided.

During the third quarter, RockPile completed 183 stages on six wells operated by Triangle and one well operated by a third-party customer resulting in total revenue of $23,866,020 and gross profit of $6,414,550. Because we consolidate RockPile's results, we are required to eliminate intercompany revenue of $11,335,462 and intercompany cost of sales of $7,969,416 related to our working interest in the wells on which services were performed. The $3,366,046 of eliminated gross profit was credited against our capitalized well costs. In addition, we credited $1,787,265 of pressure pumping income against our capitalized well costs as explained in Note 1 - Financial Statement Restatement to the condensed consolidated financial statements in this quarterly report filed on Form 10-Q/A. After intercompany eliminations and the $1,787,265 credit, pressure pumping revenue for the third quarter was $10,743,293 with gross profit of $1,261,238.

Other

Other services revenue of $25,278 for the three months ended October 31, 2012 consists primarily of drilling overhead income, interest income and North Dakota lodging facility rental income. Gain on derivative activities of $1,401,267 is the unrealized gain on our costless collars and single-day puts. Interest expense of $1,430,151 for the three months ended October 31, 2012 is primarily related to our convertible note with NGP. A small part of the interest expense is the amortization of the capitalized loan costs included within long-term assets.


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General and Administrative Expenses



The following table summarizes changes in general and administrative expenses
for the quarterly period ended October 31, 2012 from the quarterly period ended
October 31, 2011:



                                                                           Increase
                                                 2012          2011       (Decrease)
Stock-based compensation                      $ 1,506,635   $ 1,998,586   $  (491,951 )
Salaries, benefits and consulting fees          1,419,816       870,976       548,840
Office rent and other office costs                531,414       329,217       202,197
Professional fees                               1,077,965       281,656       796,309
Public company costs                              153,909       166,670       (12,761 )
                                                4,689,739     3,647,105     1,042,634
RockPile general and administrative expense     1,685,181       170,653     1,514,528
Total general and administrative expense      $ 6,374,920   $ 3,817,758   $ 2,557,162

General and administrative expenses (excluding RockPile) of $4,689,739 for the three months ended October 31, 2012 increased from $3,647,105 for the same period in the prior fiscal year. The increase is primarily attributable to the increased number of employees and increased legal fees. The increased legal fees include approximately $535,000 attributable to the organization of the newly formed Caliber Midstream entities (see Note 5 - Investment in Unconsolidated Affiliate). The substantial increase in RockPile's general and administrative expense is due to RockPile being newly formed a year ago and commencing operations in July 2012.

Results of Operations for the Nine Months Ended October 31, 2012 Compared to the Nine Months Ended October 31, 2011

For the nine months ended October 31, 2012, we recorded a a net loss attributable to common stockholders of $4,579,129 ($0.10 per share of common stock, basic and diluted) as compared to a net loss attributable to common stockholders of $9,309,984 ($0.23 per share of common stock, basic and diluted) for the nine months ended October 31, 2011.


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Oil and Natural Gas Operations

For the nine months ended October 31, 2012, we had total oil and natural gas revenues of $23,122,668 compared with $4,600,739 for the nine months ended October 31, 2011. Oil and natural gas sales and production costs for each period are summarized in the following table. Oil sales volumes and revenues increased in the nine months ended October 31, 2012 compared to the nine months ended October 31, 2011 due to production from our interests in wells in the Bakken Shale and Three Forks formations that were placed on production after October 31, 2011.

                                                         Nine months ended October 31,
                                                             2012              2011
U.S. oil and natural gas operations
Oil sold (barrels)                                              268,139           51,758
Average oil price per barrel                           $          83.23    $       86.85
Oil revenue                                            $     22,317,576    $   4,494,953
Natural gas sold (mcf)                                          142,293           10,591
Average gas price per mcf                              $           4.79    $        6.36
Natural gas revenue                                    $        681,612    $      67,331
Natural gas liquids sold (gallons)                              138,114           20,354
Average gas liquids price per gallon                   $           0.89    $        1.89
Natural gas liquids revenue                            $        123,480    $      38,455
Total oil and gas revenues                             $     23,122,668    $   4,600,739
Less production taxes                                        (2,630,989 )       (535,439 )
Less lease operating expense (excluding production
taxes)                                                       (1,920,711 )       (276,605 )
Less oil and natural gas amortization expense                (8,311,001 )     (1,521,761 )
Less accretion of asset retirement obligations                  (10,271 )         (6,451 )
Income from U.S. oil and natural gas operations              10,249,696        2,260,483
Gross profit from pressure pumping services                   1,824,275                -
Other revenues                                                  338,601                -
Income from U.S. operations                                  12,412,572        2,260,483

Canadian oil and natural gas operations
Lease operating expense                                         (49,690 )       (624,217 )
Accretion of asset retirement obligations                      (162,382 )       (204,654 )
Loss from Canadian oil and natural gas operations              (212,072 )       (828,871 )
Income from operations                                       12,200,500        1,431,612
U.S. and Canadian other income (expense)
Gain on derivative activities                                 1,401,267                -
Other income                                                     81,501          297,011
Interest expense                                             (1,472,025 )              -
Foreign exchange gain (loss)                                          -          (10,928 )
Less depreciation of furniture and equipment                   (241,825 )        (52,041 )
Less general and administrative expenses                    (17,174,162 )    (11,004,574 )
Net loss                                               $     (5,204,744 )  $  (9,338,920 )
Total U.S. barrels of oil equivalent ("boe") sold               295,143           54,008
U.S. oil and natural gas revenue per boe sold          $          78.34    $       85.19
U.S. production tax per boe sold                       $           8.91    $        9.91
U.S.other lease operating expense per boe sold         $           6.51    $        5.12
U.S. amortization expense per boe sold                 $          28.16    $       28.18


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U.S. Production Taxes

Due primarily to the 403% increase in oil revenues for the nine months ended October 31, 2012 compared with the nine months ended October 31, 2011, our U.S. production taxes increased 391% to $2,630,989 from $535,439 for the same respective periods. North Dakota production tax rates for the past two years . . .

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