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TPLM > SEC Filings for TPLM > Form 10-Q on 10-Jun-2013All Recent SEC Filings

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Form 10-Q for TRIANGLE PETROLEUM CORP


10-Jun-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 on Form 10-Q, press releases and filings with the Securities and Exchange Commission ("SEC"), regarding, among other things, 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 Fiscal 2013 Form 10-K and in this Quarterly Report on Form 10-Q 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.

Overview

Triangle Petroleum Corporation ("Triangle" or the "Company" or "we" or "our") is an independent energy company focused on the exploration, development and production of unconventional shale oil and natural gas resources in the United States. Our oil and natural gas reserves and operations are primarily concentrated in the Bakken Shale and Three Forks formations of the Williston Basin in North Dakota and Montana. As of April 30, 2013, we held leasehold interests in approximately 86,000 net acres primarily in McKenzie and Williams Counties of North Dakota and Roosevelt and Sheridan Counties of 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 proved oil and natural gas reserves as of April 30, 2013 totaled 16,050 MBoe. We conduct our U.S. exploration and production operations through our wholly-owned subsidiary Triangle USA Petroleum Corporation ("TUSA").

Our daily production for first quarter of fiscal year 2014 averaged approximately 2,714 Boepd of which 1,908 Boepd is net to our interests in wells we operate ("operated wells") and 806 Boepd is from wells operated by third-parties ("non-operated wells"). All production in fiscal year 2014 is from wells in North Dakota, primarily from the Bakken Shale formation and, to a lesser extent, the Three Forks formation.

As of May 31, 2013, we have completed a total of 23 (13.88 net) operated wells since entering the Williston Basin. During fiscal year 2014, we anticipate drilling approximately 33 (15.7 net) operated wells and completing approximately
29 (13.2 net) operated wells in North Dakota or eastern Montana. Of the 29 wells expected to be completed in fiscal year 2014, we have completed seven gross wells and have an additional eight gross wells in progress as of May 31, 2013. Twenty-seven of the wells are planned to be in the Bakken Shale and two are planned for the Three Forks formation. We also have economic interests in approximately 200 (8.55 net) non-operated wells.

In our core area of North Dakota and eastern Montana, Triangle is directing resources toward its operated program to develop its approximately 36,000 net acres, primarily in McKenzie and Williams County, North Dakota. In Roosevelt County, Montana, our "Station Prospect" is a largely contiguous position within the thermally mature area of the Williston Basin. Our approximate 50,000 net acre position in the Station Prospect is predominantly operated acreage with an average remaining lease term of two and one half years and provides us with a development area that we believe is scalable for the future.


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With a focus on establishing an efficient development model, the Company is utilizing pad drilling, which expedites our operated program while controlling costs and minimizing environmental impact. We also endeavor to use completion, collection and production techniques that optimize reservoir production while also reducing costs. With the completion capacity of RockPile Energy Services, LLC ("RockPile"), our wholly-owned subsidiary, we are positioned to lower our well completion costs and have greater control over drilling and completion schedules. Integrated solutions for water, oil and natural gas transportation and processing are to be provided by our 30% owned affiliate, Caliber Midstream Partners, L.P. ("Caliber"). We expect to reduce the cost and environmental impacts of trucking, reduce or eliminate the emissions generated by the flaring of produced natural gas, and improve the efficiency and reduce the costs of winter and spring operations.

Summary of first quarter fiscal 2014 operating and financial results:

Production volumes averaged 2,714 Boe per day, up 289% from 697 Boe per day for the first quarter of fiscal year 2013.

Oil and natural gas sales were $21.1 million, compared to $5.2 million for the first fiscal quarter of fiscal year 2013.

Our average realized oil price increased to $89.69 per barrel compared to $87.27 per barrel in the first quarter of fiscal year 2013.

Proved reserves were 16,050 Mboe at April 30, 2013 compared to 2,000 Mboe at April 30, 2012.

Net income of $5.2 million increased from net loss of $3.3 million in the first quarter of fiscal year 2013.

Cash flow provided by operating activities was $8.3 million compared to cash used by operating activities of $2.4 million for the fiscal quarter ended April 30, 2012.

Syndicated TUSA's credit facility with an increased maximum credit availability of $500 million and a borrowing base of $110 million.

Drilled and completed 5 gross (2.66 net) operated wells in the first quarter of fiscal year 2014.

Recent Events

RockPile Credit Facility

On February 25, 2013, RockPile entered into a Credit and Security Agreement (the "Credit Agreement") by and between RockPile, as borrower, and Wells Fargo Bank, National Association, as lender (the "Lender"). The Credit Agreement provides for a $7,500,000 revolving loan facility, a $10,500,000 equipment term loan facility and a $2,000,000 capex term loan facility. The $10,500,000 equipment term loan facility was fully drawn at closing and is the only amount outstanding under the Credit Agreement at April 30, 2013.

NGP Common Stock Purchase

On March 8, 2013, the Company sold to two affiliates of Natural Gas Partners ("NGP") an aggregate of 9,300,000 shares of common stock of the Company in a private placement at $6.00 per share for aggregate consideration of $55.8 million.

TUSA Amended and Restated Credit Facility

On April 11, 2013, TUSA's credit facility was amended and restated to, among other things, add syndicate lenders and increase the maximum credit availability to $500 million. The borrowing base of the amended and restated facility's borrowing base was increased to $110 million.

Properties, Plan of Operations and Capital Expenditures

Williston Basin

We own operated and non-operated leasehold positions in the Williston Basin. As of May 31, 2013, we have completed a total of 23 (13.88 net) operated wells and have economic interests in 201 (8.55 net) non-operated wells in the


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Williston Basin. During fiscal year 2014, we anticipate drilling and completing an additional 29 (13.2 net) operated wells in North Dakota or eastern Montana for completion in the Bakken Shale or Three Forks formations.

Triangle is currently running a four-rig drilling program. We anticipate continuing a four-rig program until late in the second quarter or early in the third quarter of fiscal year 2014 at which time we will cut back to a three-rig program for the remainder of fiscal year 2014. The focus of our drilling program is on our core North Dakota acreage in McKenzie and Williams Counties.

Our non-operated leasehold positions are primarily conducted through agreements with major operators in the Williston Basin, including Hess Corporation ("Hess"), Continental Resources, Inc. ("Continental"), Statoil (formerly Brigham Exploration Company) ("Statoil"), Newfield Production Co. ("Newfield"), EOG Resources, Inc. ("EOG"), XTO Energy Inc. (now a part of ExxonMobil) ("XTO"), Whiting Petroleum Corporation ("Whiting"), Slawson Exploration, Inc. ("Slawson"), and Kodiak Oil and Gas Corporation ("Kodiak"). These companies are experienced operators in the development of the Bakken Shale and Three Forks formations. As of May 31, 2013, we have participated in the drilling of approximately 209 gross non-operated wells, including 160 producing wells and 49 wells in various stages of permitting, drilling or completion.

In our core area of North Dakota and eastern Montana, we are directing resources toward our operated program to develop our approximately 36,000 net acres primarily in McKenzie and Williams Counties, North Dakota. In Roosevelt and Sheridan Counties, Montana, our Station Prospect is a largely contiguous position within the thermally mature area of the Williston Basin. Our approximate 50,000 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.

Our oil and natural gas property expenditures are summarized in the following tables for the periods indicated (in thousands):

                                   Three Months Ended April 30,
                                     2013               2012
Leasehold acquisitions          $         2,180    $         6,804
Drilling and Completion
Operated                                 42,898             10,060
Non-operated                             16,768              5,818
Facilities and Infrastructure             1,115                  -
                                $        62,961    $        22,682

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 to expire in 2019, but can be extended pending agreement of further development plans with the Nova Scotia regulators. As of January 31, 2012, we fully impaired and expensed the carrying value of our oil and natural gas leases in the Maritimes Basin.

Results of Operations for the Three Months Ended April 30, 2013 Compared to the Three Months Ended April 30, 2012

For the fiscal quarter ended April 30, 2013, we recorded net income attributable to common stockholders of $5.2 million ($0.10 per share of common stock, basic and diluted) as compared to a net loss attributable to common stockholders of $3.0 million ($0.07 per share of common stock, basic and diluted) for the fiscal quarter ended April 30, 2012.

Oil and Natural Gas Operations

For the three months ended April 30, 2013, we had total oil and natural gas revenues of $21.1 million compared with $5.2 million for the three months ended April 30, 2012. Oil and natural gas sales and production costs are summarized in the following table. Oil and natural gas sales revenues for the three months ended April 30, 2013 increased by approximately 307% compared to the three months ended April 30, 2012. The increases were substantially due to our


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operated wells placed on production in fiscal year 2013.

                                                               Three months ended April 30,
(in thousands or as indicated)                                   2013               2012
U.S. oil and natural gas operations
Oil sold (barrels)                                                  232,253             56,122
Average oil price per barrel                                $         89.69    $         87.27
Oil revenue                                                 $        20,831    $         4,897
Natural gas sold (mcf)                                               47,451             34,790
Average natural gas price per mcf                           $          3.81    $          6.80
Natural gas revenue                                         $           181    $           237
Natural gas liquids sold (gallons)                                   57,249             32,758
Average natural gas liquids price per gallon                $          0.84    $          1.17
Natural gas liquids revenue                                 $            48    $            38
Total oil, natural gas and natural gas liquids revenues     $        21,060    $         5,172
Less production taxes                                                (2,444 )             (592 )
Less lease operating expense (excluding production
taxes)                                                               (2,216 )             (243 )
Less gathering, transportation and processing expense                   (37 )              (10 )
Less oil and natural gas amortization expense                        (6,607 )           (2,111 )
Less accretion of asset retirement obligations                           (8 )               (2 )
Income (loss) from U.S. oil and natural gas production      $         9,748    $         2,214
Gross profit from pressure pumping services                           1,934               (186 )
Other revenues                                                            -                 69
Income (loss) from U.S. operations                          $        11,682    $         2,097

Canadian oil and natural gas operations
Accretion of asset retirement obligations                                 -                (82 )
Loss from Canadian oil and natural gas operations                         -                (82 )
Income (loss) from operations                                        11,682              2,015
U.S. and Canadian other income (expense)
Income from derivative activities                                     1,212                  -
Other income (expense)                                                1,159                 13
Interest expense                                                     (1,472 )                -
Less depreciation of furniture and equipment                           (866 )              (62 )
Less general and administrative expenses                             (6,504 )           (5,290 )
Net income (loss)                                           $         5,211    $        (3,324 )
Total U.S. barrels of oil equivalent ("boe") sold                   241,525             62,700
U.S. oil and natural gas revenue per boe sold               $         87.20    $         82.49
U.S. production tax per boe sold                            $         10.12    $          9.44
U.S. other lease operating expense per boe sold             $          9.18    $          3.88
U.S. gathering, transportation and processing expense
per boe sold                                                $          0.15    $          0.16
U.S. amortization expense per boe sold                      $         27.36    $         33.67

Pressure Pumping Services

RockPile commenced operations in July 2012. We formed RockPile with strategic objectives to have both greater control over our largest cost center as well as to provide locally-sourced, high-quality completion services to Triangle and other operators in the Williston Basin. From formation through April 30, 2013, RockPile has been focused on procuring new pressure pumping and complementary equipment, building physical and supply chain infrastructure in North Dakota,


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recruiting and training employees, establishing third-party customers in the Williston Basin, and securing multiple credit facilities. RockPile's results of operations are affected by a number of variables including drilling and stimulation activity in the Williston Basin, pricing environment, service performance, equipment utilization, and the ability to secure and retain third-party customers.

For the fiscal quarter ended April 30, 2013, RockPile performed hydraulic fracturing and complementary services for Triangle and two distinct third-party customers. This work resulted in ten total well completions: five for Triangle and five for third-parties. All Triangle wells were completed using plug-and-perf applications. All third-party wells were completed using a sliding sleeve application. RockPile revenue is comprised of service revenue, which is what we charge for equipment and labor, and materials revenue, which is what we charge for chemicals and proppant. Pressure pumping direct costs include the cost of chemicals and proppant, labor (wages and benefits), logistic expenses, insurance, repairs and maintenance and safety costs. Cost of goods sold as a percentage of revenue will vary based upon equipment utilization.

The $1.9 million of gross profit from pressure pumping services for the first quarter of fiscal year 2014 is after elimination of $13.6 million in intercompany gross profit. See Note 3 - Segment Reporting in the accompanying Condensed Consolidated Financial Statements.

U.S. Production Taxes

Due primarily to the 307% increase in oil and natural gas revenues for the quarterly period ended April 30, 2013, as compared with the quarterly period ended April 30, 2012, our U.S. production taxes increased approximately 300% to $2.4 million from $0.6 million 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 $0.11 per mcf of natural gas.

Lease Operating Expense

Lease operating expense for U.S. operations ("LOE") increased to $9.18 per Boe for the three months ended April 30, 2013 from $3.88 per Boe for the three months ended April 30, 2012. The increase is primarily the result of increased lease operating expenses associated with our operated properties. LOE for our operated properties was $10.09 per Boe for the three months ended April 30, 2013. This amount includes approximately $3.23 per Boe for water disposal costs and $1.35 per Boe related to well workover costs. LOE for non-operated properties also increased from $3.88 per Boe for the three months ended April 30, 2012 to $7.00 per Boe for the three months ended April 30, 2013.

Gathering, Transportation and Processing

Gathering, transportation and processing ("GTP") expenses decreased to $0.15 per Boe for the three months ended April 30, 2013 from $0.16 per Boe for the three months ended April 30, 2012. Currently, all GTP costs are associated with non-operated wells and are primarily for the gathering and transportation of oil and natural gas. Going forward we expect GTP costs to increase as natural gas gathering, transportation and processing infrastructure becomes available for operated wells during the second half of fiscal year 2014.

Depletion, Depreciation, Amortization and Accretion ("DD&A") Expense

Oil and natural gas amortization expense increased to $6.6 million for the three months ended April 30, 2013 from $2.1 million for the three months ended April 30, 2012. The increase is primarily related to a 285% increase in production in the first quarter of fiscal year 2014 compared to the first quarter of fiscal year 2013. The increase in production accounted for an additional $6.0 million in DD&A expense, which was offset by a reduction of $1.6 million due to a decreased DD&A rate.

Other

Other income (expense) of $1.1 million for the three months ended April 30, 2013 consists primarily of income from equity investment of $0.6 million and a gain on marketable securities of $0.4 million. Interest expense of $1.5 million for the three months ended April 30, 2013 is primarily related to our convertible note with NGP. A small part of the interest


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expense is interest paid on the TUSA credit facility and amortization of the capitalized loan costs related to our credit facilities and the NGP note.

General and Administrative Expenses



The following table summarizes general and administrative expenses for the
quarterly periods ended April 30, 2013 and April 30, 2012, respectively (in
thousands):



                                                                         Pressure
                                                    Exploration and       Pumping      Consolidated
                                     Corporate        Production         Services          Total
For the quarter ended April 30,
2013
Stock-based compensation            $     1,062    $             322    $       211    $       1,595
Salaries, benefits and other
general and administrative                1,466                1,464          1,979            4,909
Total                               $     2,528    $           1,786    $     2,190    $       6,504
Excluded costs*                     $       920    $           1,105    $         -    $       2,025

For the quarter ended April 30,
2012
Stock-based compensation            $       751    $             614    $         -    $       1,365
Salaries, benefits and other
general and administrative                1,136                1,191          1,598            3,925
Total                               $     1,887                1,805          1,598            5,290
Excluded costs*                     $         -    $             386    $         -    $         386


*Excluded costs are (i) those personnel costs which are capitalized under the full cost accounting method as direct internal costs of acquisition, exploration and development of oil and gas properties, (ii) costs equal to overhead reimbursements charged by TUSA as well operator to third parties participating in TUSA-operated wells, and (iii) general and administrative expenses recovered by corporate charges to related entities for various general and administrative services.

Total general and administrative expense increased $1.2 million to $6.5 million at April 30, 2013 compared to $5.3 million at April 30, 2012. The increase in corporate general and administrative is primarily a result of increased compensation and benefit costs for personnel as the corporate headcount increased due to the growth of the business. The increase in general and administrative expenses at our Pressure Pumping Services segment is primarily attributable to increased compensation and benefit costs for personnel in RockPile's headquarters and field offices as RockPile built its team and commenced operations in July 2012.

Liquidity and Capital Resources

Overview

Our liquidity is highly dependent on the commodity prices we receive for the oil and natural gas we produce. Commodity prices are market driven, and have been volatile, therefore, we cannot predict future commodity prices. Prices received for production heavily influence our revenue, cash flow, profitability, access to capital and future rate of growth.

Our primary cash requirements in our exploration and production segment are for exploration, development and acquisition of oil and natural gas properties. Based on current prices, we anticipate capital requirements for fiscal year 2014 to be approximately $245 million. These funds will be allocated primarily towards our operated drilling program. We expect to be able to fund these expenditures, as well as other commitments and working capital requirements, using existing capital, future cash flow from operations, our reserve-based lending facility (with a current borrowing base of


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$110.0 million), and through participation in joint ventures and/or asset sales. We may expand or reduce our capital expenditures depending on, among other things, the results of future wells and our available capital.

In the first quarter of fiscal year 2014, our average realized price for oil was $89.69 per barrel, an increase of 3% over the realized price for the same period of fiscal year 2013. Future prices for oil will likely continue to fluctuate due to supply and demand factors, seasonality and other geopolitical and economic factors.

We manage volatility in commodity prices by maintaining flexibility in our capital investment program. In addition, we periodically hedge a portion of our oil production to mitigate our potential exposure to price declines and the corresponding negative impact on cash flow available for investment.

As of April 30, 2013, we had cash of approximately $54.4 million consisting primarily of cash held in bank accounts, as compared to approximately $33.1 million at January 31, 2013. Working capital was approximately $31.6 million as of April 30, 2013, as compared to approximately $3.3 million at January 31, 2013. Debt outstanding at April 30, 2013 was $201.7 million. See Note 8 - Notes Payable and Credit Facilities in the accompanying Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for further discussion of debt outstanding.

Analysis of Changes in Cash Flows

Net Cash Provided by Operating Activities

Cash flows provided by operating activities was $8.3 million for the three months ended April 30, 2013. Cash flows used in operating activities was $2.5 million for the three months ended April 30, 2012. The increase in operating cash flows was primarily due to increased revenue at RockPile driven by increased third party pressure pumping business and higher oil revenues driven by higher sales volumes, partially offset by increases in production expenses, production taxes, general and administrative expenses, and other expenses associated with the growth of our operations during the year.

Net Cash Used in Investing Activities

In the three months ended April 30, 2013, investing activities used $93.1 million in cash compared to $33.6 million in the three months ended April 30, 2012. The increase in cash flows used in investing activities in the first . . .

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