Attached files
file | filename |
---|---|
EX-31.01 - Triangle Petroleum Corp | v204979_ex31-01.htm |
EX-32.01 - Triangle Petroleum Corp | v204979_ex32-01.htm |
EX-31.02 - Triangle Petroleum Corp | v204979_ex31-02.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the Quarterly Period Ended October 31, 2010
¨ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the Transition Period from _________ to _________
Commission
file number: 000-51321
TRIANGLE
PETROLEUM CORPORATION
(Exact
name of registrant as specified in its charter)
Nevada
|
98-0430762
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
1625
Broadway, Suite 780
Denver,
CO 80202
(Address
of Principal Executive Offices)
(303)
260-7125
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). ¨
Yes ¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
December 7, 2010, there
were 22,525,584 shares of registrant’s common stock
outstanding.
TRIANGLE
PETROLEUM CORPORATION AND SUBSIDIARIES
INDEX
PART
I.
|
FINANCIAL
INFORMATION
|
||
ITEM
1.
|
Financial
Statements
|
3
|
|
Consolidated
balance sheets at October 31, 2010 and January 31, 2010
(unaudited)
|
3
|
||
Consolidated
statements of operations for the three and nine months ended October 31,
2010 and 2009 (unaudited)
|
4
|
||
Consolidated
statements of cash flows for the three and nine months ended October 31,
2010 and 2009 (unaudited)
|
5
|
||
Consolidated
statements of stockholders’ equity for the three and nine months ended
October 31, 2010 and 2009 (unaudited)
|
6
|
||
Notes
to unaudited consolidated financial statements
|
7 –
11
|
||
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
– 19
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
|
ITEM
4T.
|
Controls
and Procedures
|
20-21
|
|
PART
II.
|
OTHER
INFORMATION
|
||
ITEM
1
|
Legal
proceedings
|
22
|
|
ITEM
1A
|
Risk
factors
|
22
|
|
ITEM
2
|
Unregistered
sales of equity securities and use of proceeds
|
22
|
|
ITEM
3
|
Defaults
upon senior securities
|
22
|
|
ITEM
4
|
Submission
of matters to a vote of security holders
|
22
|
|
ITEM
5
|
Other
information
|
22
|
|
ITEM
6
|
Exhibits
|
22
|
|
SIGNATURES
|
23
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Triangle
Petroleum Corporation
Consolidated
Balance Sheets
(Expressed
in U.S. dollars)
(Unaudited)
October 31,
2010
$
|
January 31,
2010
$
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
1,158,430 | 4,878,601 | ||||||
Prepaid
expenses
|
933,682 | 342,635 | ||||||
Other
receivables
|
162,740 | 313,785 | ||||||
Total
Current Assets
|
2,254,852 | 5,535,021 | ||||||
Property
and Equipment
|
20,144 | 39,296 | ||||||
Oil
and Gas Properties (Note 3)
|
31,322,133 | 18,783,375 | ||||||
Total
Assets
|
33,597,129 | 24,357,692 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
698,159 | 574,723 | ||||||
Accrued
liabilities
|
539,758 | 119,224 | ||||||
Total
Current Liabilities
|
1,237,917 | 693,947 | ||||||
Asset
Retirement Obligations (Note 4)
|
1,364,978 | 1,180,515 | ||||||
Total
Liabilities
|
2,602,895 | 1,874,462 | ||||||
Subsequent
Events (Note 8)
|
||||||||
Stockholders’
Equity
|
||||||||
Common
Stock (Note 2(b))
|
||||||||
Authorized:
70,000,000 shares, par value $0.00001
|
||||||||
Issued:
10,105,584 shares
|
||||||||
(January
31, 2010 – 6,992,604 shares)
|
101 | 70 | ||||||
Additional
Paid-In Capital
|
96,491,505 | 81,950,705 | ||||||
Warrants
(Note 5)
|
- | 4,237,100 | ||||||
Deficit
|
(65,497,372 | ) | (63,704,645 | ) | ||||
Total
Stockholders’ Equity
|
30,994,234 | 22,483,230 | ||||||
Total
Liabilities and Stockholders’ Equity
|
33,597,129 | 24,357,692 |
The
accompanying notes are an integral part of these consolidated financial
statements.
3
Triangle
Petroleum Corporation
Consolidated
Statements of Operations
(Expressed
in U.S. dollars)
(Unaudited)
Three
Months
Ended
October
31,
|
Three
Months
Ended
October
31,
|
Nine
Months
Ended
October
31,
|
Nine
Months
Ended
October
31,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Revenue,
net of royalties
|
100,444 | 29,345 | 142,166 | 92,432 | ||||||||||||
Operating
Expenses
|
||||||||||||||||
Oil
and gas production
|
23,911 | 20,893 | 37,406 | 73,469 | ||||||||||||
Depletion
and accretion (Notes 3 and 4)
|
100,503 | 54,470 | 232,298 | 145,947 | ||||||||||||
Depreciation
– property and equipment
|
5,288 | 7,272 | 19,152 | 18,946 | ||||||||||||
General
and administrative
|
741,165 | 486,451 | 1,912,485 | 1,891,136 | ||||||||||||
Stock-based
compensation (Notes 6 and 7)
|
264,902 | 131,763 | 748,707 | 402,226 | ||||||||||||
Gain
on sale of assets
|
- | (783,612 | ) | (976,900 | ) | (908,233 | ) | |||||||||
Foreign
exchange loss (gain)
|
(7,638 | ) | 31,000 | (37,779 | ) | (676,654 | ) | |||||||||
1,128,131 | (51,763 | ) | 1,935,369 | 946,837 | ||||||||||||
Earnings
(loss) from Operations
|
(1,027,687 | ) | 81,108 | (1,793,203 | ) | (854,405 | ) | |||||||||
Interest
income
|
103 | 47 | 476 | 6,260 | ||||||||||||
Earnings
(loss) for the Period
|
(1,027,584 | ) | 81,155 | (1,792,727 | ) | (848,145 | ) | |||||||||
Earnings
(loss) Per Share – Basic and Diluted
|
(0.10 | ) | 0.01 | (0.19 | ) | (0.12 | ) | |||||||||
Weighted
Average Number of Shares Outstanding –
Basic
and Diluted (Note 2(b))
|
10,085,586 | 6,992,600 | 9,470,979 | 6,992,600 |
The
accompanying notes are an integral part of these consolidated financial
statements.
4
Triangle
Petroleum Corporation
Consolidated
Statements of Cash Flows
(Expressed
in U.S. dollars)
(Unaudited)
Three
Months
Ended
October
31,
2010
|
Three
Months
Ended
October
31,
2009
|
Nine
Months
Ended
October
31,
2010
|
Nine
Months
Ended
October
31,
2009
|
|||||||||||||
$
|
$
|
$
|
$
|
|||||||||||||
Operating
Activities
|
||||||||||||||||
Earnings
(loss) for the period
|
(1,027,584 | ) | 81,155 | (1,792,727 | ) | (848,145 | ) | |||||||||
Adjustments
to reconcile earnings (loss) for the period to net cash used in operating
activities:
|
||||||||||||||||
Depletion
and accretion (Notes 3 and 4)
|
100,503 | 54,470 | 232,298 | 145,947 | ||||||||||||
Depreciation
– property and equipment
|
5,288 | 7,272 | 19,152 | 18,946 | ||||||||||||
Stock-based
compensation (Notes 6 and 7)
|
264,902 | 131,763 | 748,707 | 402,226 | ||||||||||||
Gain
on sale of assets
|
- | (783,612 | ) | (976,900 | ) | (908,233 | ) | |||||||||
Foreign
exchange
|
(9,464 | ) | 29,466 | (22,579 | ) | (680,346 | ) | |||||||||
Asset
retirement costs (Note 4)
|
- | (17,447 | ) | - | (23,956 | ) | ||||||||||
Changes
in operating working capital
|
||||||||||||||||
Foreign
exchange
|
483 | (860 | ) | 1,739 | (5,354 | ) | ||||||||||
Prepaid
expenses
|
(150,087 | ) | 22,840 | (318,786 | ) | (781 | ) | |||||||||
Other
receivables
|
(70,523 | ) | 22,860 | (28,556 | ) | 706,104 | ||||||||||
Accounts
payable
|
231,716 | 574 | (150,201 | ) | (153,828 | ) | ||||||||||
Accrued
liabilities
|
(21,951 | ) | 3,622 | (29,473 | ) | 9,361 | ||||||||||
Cash
Used in Operating Activities
|
(676,717 | ) | (447,897 | ) | (2,317,326 | ) | (1,338,059 | ) | ||||||||
Financing
Activities
|
||||||||||||||||
Proceeds
from issuance of common stock
|
878,999 | - | 10,351,956 | - | ||||||||||||
Share
issuance costs
|
(23,401 | ) | - | (796,932 | ) | - | ||||||||||
Cash
Provided by Financing Activities
|
855,598 | - | 9,555,024 | - | ||||||||||||
Investing
Activities
|
||||||||||||||||
Purchase
of property and equipment
|
- | (2,222 | ) | - | (25,729 | ) | ||||||||||
Oil
and gas property expenditures (Note 3)
|
(1,079,792 | ) | (273,586 | ) | (11,955,610 | ) | (2,418,364 | ) | ||||||||
Cash
advances from partners
|
- | - | - | (677,843 | ) | |||||||||||
Proceeds
received from the sale of oil and gas properties
|
- | 744,408 | 976,900 | 877,733 | ||||||||||||
Cash
Used by Investing Activities
|
(1,079,792 | ) | 468,600 | (10,978,710 | ) | (2,244,203 | ) | |||||||||
Foreign
exchange change on cash and cash equivalents
|
8,984 | (30,616 | ) | 20,841 | 642,908 | |||||||||||
Change
in Cash and Cash Equivalents
|
(891,927 | ) | (9,913 | ) | (3,720,171 | ) | (2,939,354 | ) | ||||||||
Cash
and Cash Equivalents – Beginning of Period
|
2,050,357 | 5,520,030 | 4,878,601 | 8,449,471 | ||||||||||||
Cash
and Cash Equivalents – End of Period
|
1,158,430 | 5,510,117 | 1,158,430 | 5,510,117 |
The
accompanying notes are an integral part of these consolidated financial
statements.
5
Triangle
Petroleum Corporation
Statement
of Stockholders’ Equity
Nine
Months Ended October 31, 2010
(Expressed
in U.S. dollars)
(Unaudited)
Additional
|
||||||||||||||||||||||||
Common
Stock
|
Paid-in
|
|||||||||||||||||||||||
Shares
#
|
Amount
|
Capital
|
Warrants
|
Deficit
|
Total
|
|||||||||||||||||||
(Note 2(b))
|
$
|
$
|
$
|
$
|
$
|
|||||||||||||||||||
Balance
– January 31, 2010
|
6,992,604 | 70 | 81,950,705 | 4,237,100 | (63,704,645 | ) | 22,483,230 | |||||||||||||||||
Stock
options exercised
|
79,167 | 1 | 234,956 | - | - | 234,957 | ||||||||||||||||||
Common
shares issued (net of costs of $773,531) at a price of $3.30 per
share
|
2,799,394 | 28 | 8,464,441 | - | - | 8,464,469 | ||||||||||||||||||
Common
shares issued (net of costs of $23,401) at a price of $4.30 per
share
|
204,419 | 2 | 855,596 | - | - | 855,598 | ||||||||||||||||||
Common
shares issued pursuant to termination agreements at a deemed price of
$6.00 per share (Note 6)
|
30,000 | - | 180,000 | - | - | 180,000 | ||||||||||||||||||
Expired
warrants (Note 5)
|
- | - | 4,237,100 | (4,237,100 | ) | - | - | |||||||||||||||||
Stock-based
compensation (Notes 6 and 7)
|
- | - | 568,707 | - | - | 568,707 | ||||||||||||||||||
Net
loss for the period
|
- | - | - | - | (1,792,727 | ) | (1,792,727 | ) | ||||||||||||||||
Balance
– October 31, 2010
|
10,105,584 | 101 | 96,491,505 | - | (65,497,372 | ) | 30,994,234 |
Triangle
Petroleum Corporation
Statement
of Stockholders’ Equity
Nine
Months Ended October 31, 2009
(Expressed
in U.S. dollars)
(Unaudited)
Additional
|
||||||||||||||||||||||||
Common
Stock
|
Paid-in
|
|||||||||||||||||||||||
Shares
#
|
Amount
|
Capital
|
Warrants
|
Deficit
|
Total
|
|||||||||||||||||||
(Note 2(b))
|
$
|
$
|
$
|
$
|
$
|
|||||||||||||||||||
Balance
– January 31, 2009
|
6,992,604 | 70 | 81,156,344 | 4,237,100 | (61,564,544 | ) | 23,828,970 | |||||||||||||||||
Stock-based
compensation (Notes 6 and 7)
|
- | - | 402,226 | - | - | 402,226 | ||||||||||||||||||
Net
loss for the period
|
- | - | - | - | (848,145 | ) | (848,145 | ) | ||||||||||||||||
Balance
– October 31, 2009
|
6,992,604 | 70 | 81,558,570 | 4,237,100 | (62,412,689 | ) | 23,383,051 |
The
accompanying notes are an integral part of these consolidated financial
statements.
6
Triangle
Petroleum Corporation
Notes to
the Consolidated Financial Statements
(Expressed
in U.S. dollars, except as noted)
(Unaudited)
Triangle
Petroleum Corporation, together with its consolidated subsidiaries (“Triangle”
or the “Company”), is an independent oil and gas company focused primarily on
the acquisition, exploration and development of resource
properties. The Company’s primary exploration and development acreage
is located in the Williston Basin of North Dakota and the Horton Bluff formation
of the Maritimes Basin of Eastern Canada. The Company also has minor producing
properties in the Fort Worth Basin.
1.
Nature of Operations
|
The
Company is primarily engaged in the acquisition, exploration and development of
oil and gas resource properties and has a limited number of producing wells that
generate cash flows from operations. The Company has not generated significant
revenues from operations. The Company expects that significant additional
exploration and development activities will be necessary to establish proved
reserves and to commercialize the oil and gas properties.
The
Company believes that it has sufficient funds, including those raised in
November 2010 (Note 8), to maintain its interest in the existing properties and
to maintain core operating, exploration and development activities through to
October 31, 2011. The Company monitors its expenditure budgets and adjusts its
expenditure plans to conform to available funding. The Company plans to fund
exploration and development activities through existing cash resources and in
the future by offering debt or equity securities, farm-out arrangements or other
means as required.
2.
Accounting Policies
|
(a) Basis
of Presentation
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States, and are expressed
in U.S. dollars. These consolidated financial statements include the accounts of
the Company and its two wholly-owned subsidiaries, Elmworth Energy Corporation,
incorporated in the Province of Alberta, Canada, and Triangle USA Petroleum
Corporation, incorporated in the State of Colorado, USA. All significant
intercompany balances and transactions have been eliminated. The Company’s
fiscal year-end is January 31.
In the
opinion of management, the accompanying financial statements reflect all
adjustments necessary to present fairly the Company’s financial position at
October 31, 2010 and its operations and cash flows for the three and nine month
periods ended October 31, 2010 and 2009. In preparing the accompanying financial
statements, management has made certain estimates and assumptions that affect
reported amounts in the financial statements and disclosures of contingencies.
Actual results may differ from those estimates. The results for interim periods
are not necessarily indicative of annual results.
Certain
disclosures have been condensed or omitted from these financial statements.
Accordingly, they should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended January 31, 2010.
The
Company’s oil and gas operations are generally conducted jointly with others
and, as such, these financial statements reflect the Company’s proportionate
share of these operations.
7
Triangle
Petroleum Corporation
Notes to
the Consolidated Financial Statements
(Expressed
in U.S. dollars, except as noted)
(Unaudited)
(b) Share
Consolidation
Effective
November 5, 2010, the Company completed a 1-for-10 reverse stock split and
amended its articles of incorporation to decrease the number authorized common
stock from 150 million shares to 70 million shares. The October 31, 2010 interim
financial statements have been adjusted to reflect the 1-for-10 reverse stock
split. Information with respect to common shares, stock based compensation
arrangements and loss/earnings per share have been adjusted in the current and
comparative periods to reflect the 1-for-10 reverse stock split. In addition,
the par value of common stock has been adjusted for the 1-for-10 reverse stock
split with a corresponding adjustment to additional paid-in capital for all
periods/transactions presented in the October 31, 2010 interim financial
statements.
3.
|
Oil
and Gas Properties
|
Nine
months ended October 31, 2010:
Costs
|
Depletion
|
Net
Carrying
|
||||||||||||||||||||||||||
Opening
|
Additions
|
Closing
|
Opening
|
Additions
|
Closing
|
Value
|
||||||||||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||||||||||
Proved
Properties
|
- | 805,251 | 805,251 | - | 35,844 | 35,844 | 769,407 | |||||||||||||||||||||
Unproven
Properties
|
36,660,276 | 11,769,351 | 48,429,627 | 17,876,901 | - | 17,876,901 | 30,552,726 | |||||||||||||||||||||
Total
|
36,660,276 | 12,574,602 | 49,234,878 | 17,876,901 | 35,844 | 17,912,745 | 31,322,133 |
For the
nine month period ended October 31, 2010, the Company’s net cash outflow for oil
and gas additions was $11,955,610, including cash additions of $12,586,593 less
$630,983 of changes in investing working capital during the first three quarters
of fiscal 2011. Net non-cash additions of ($11,991) included ($29,394) of ARO
dispositions and $17,403 of ARO additions.
Proved
Properties
At
October 31, 2010, the net carrying value of proved properties was $769,407
(January 31, 2010 – nil), comprised of assets in the Williston Basin (North
Dakota).
Unproven
Properties
All of
the Company’s unproven properties are not subject to depletion. The Company's
unproven acquisition and exploration costs were distributed in the following
geographic areas:
October 31, 2010
$
|
January 31, 2010
$
|
|||||||
Windsor
Block of Maritimes Basin (Nova Scotia)
|
18,881,330 | 18,783,375 | ||||||
Williston
Basin (North Dakota)
|
11,671,396 | - | ||||||
Total
unproven acquisition and exploration costs
|
30,552,726 | 18,783,375 |
The
Company has 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 (the “Windsor Block”) and serve as operator. Effective April 15,
2009, the Nova Scotia government issued a 10 year production lease covering the
lands.
8
Triangle
Petroleum Corporation
Notes to
the Consolidated Financial Statements
(Expressed
in U.S. dollars, except as noted)
(Unaudited)
The
production lease and work program for the Windsor Block will be due for review
in April 2014 with the Province of Nova Scotia. The Company is currently
soliciting interest from industry parties to participate in the drilling of a
test well to evaluate an identified seismic structure and to participate in a
joint venture to further evaluate the potential on the Windsor
Block.
During
the first three quarters of fiscal 2011, the Company acquired undeveloped land
for a cost of $8,490,243 and incurred drilling and completion costs of
$3,169,000 in the Williston Basin of North Dakota.
4.
|
Asset
Retirement Obligations
|
Nine Months
October 31, 2010
$
|
Nine Months
October 31, 2009
$
|
|||||||
Balance,
beginning of period
|
1,180,515 | 727,862 | ||||||
Liabilities
incurred
|
17,403 | 375,254 | ||||||
Liabilities
settled as part of disposition
|
(29,394 | ) | (39,375 | ) | ||||
Liabilities
settled in cash
|
- | (23,956 | ) | |||||
Accretion
|
196,454 | 107,166 | ||||||
Balance,
end of period
|
1,364,978 | 1,146,951 |
5.
|
Warrants
|
As at
January 31, 2010, the Company had 9,128,750 warrants outstanding that were
exercisable into 9,128,750 shares of common stock at a price of $2.25 per share.
No warrants were exercised and all warrants expired on June 3,
2010.
6.
|
Stock
Options
|
During
the three and nine month periods ended October 31, 2010, the Company recorded
stock-based compensation expense for stock options, Deferred Share Unit (see
Note 7) and termination agreements of $264,902 and $748,707 (2009 – $131,763 and
$402,226). In the second quarter of fiscal 2011, the Company issued 30,000
common shares to former employees pursuant to various termination agreements at
a deemed price of $6.00 per share for consideration of $180,000. A summary of
the outstanding stock options is as follows:
Options
#
|
Weighted
Average
Exercise
Price
$
|
Aggregate
Intrinsic
Value
$
|
||||||||||
Outstanding,
January 31, 2010
|
570,000 | 5.20 | - | |||||||||
Exercised
|
(79,167 | ) | 2.40 | - | ||||||||
Cancelled
|
(85,000 | ) | 24.70 | - | ||||||||
Forfeited
|
(65,833 | ) | 2.40 | - | ||||||||
Outstanding
October 31,2010
|
340,000 | 1.50 | 1,513,960 | |||||||||
Exercisable,
October 31, 2010
|
20,000 | 2.50 | 61,320 |
9
Triangle
Petroleum Corporation
Notes to
the Consolidated Financial Statements
(Expressed
in U.S. dollars, except as noted)
(Unaudited)
The
weighted average remaining contractual life of stock options outstanding as at
October 31, 2010 was 3.9 years. As at
October 31, 2010, there was $242,141 of total unrecognized stock-based
compensation costs related to non-vested share-based compensation arrangements
which are expected to be recognized over a weighted-average period of 24
months.
A summary
of the status of the Company’s non-vested share options as of October 31, 2010,
and changes during the nine month period ended October 31, 2010, is as
follows:
Options
#
|
Weighted
Average
Grant-Date
Fair Value
$
|
|||||||
Non-vested
at January 31, 2010
|
386,333 | 1.20 | ||||||
Cancelled
|
(3,000 | ) | 7.80 | |||||
Forfeited
|
(55,000 | ) | 1.20 | |||||
Vested
|
(8,333 | ) | 2.10 | |||||
Non-vested
at October 31, 2010
|
320,000 | 1.10 |
7. Deferred
Share Units
|
Effective
February 2, 2010, the Company implemented a Deferred Share Unit (“DSU”)
pursuant to the existing Stock Option Plan (2009). A DSU vests and will be
automatically exchanged on a one-for-one basis for common shares issued
from treasury equal to the number of DSU’s
granted.
|
Deferred
Share Units
#
|
Aggregate
Intrinsic Value
$
|
|||||||
Outstanding,
January 31, 2010
|
- | - | ||||||
Granted
- one year vesting
|
215,000 | 1,260,000 | ||||||
Granted
- three year vesting
|
86,000 | 516,000 | ||||||
Outstanding
October 31, 2010
|
301,000 | 1,806,000 | ||||||
Exercisable,
October 31, 2010
|
- | - |
The
stock-based compensation associated with the DSU’s was based on the number of
DSU’s granted multiplied by the trading price of the common shares on the grant
date. The forfeiture rate applied to the one year vesting DSU’s is 0% and to the
three year vesting DSU’s is 10%. The estimated cost of the DSU’s is being
expensed over one year or three year vesting period, as applicable. As at
October 31, 2010, there was $626,519 of total unrecognized stock-based
compensation costs related to DSU’s which are expected to be recognized over a
weighted-average period of 12 months.
10
Triangle
Petroleum Corporation
Notes to
the Consolidated Financial Statements
(Expressed
in U.S. dollars, except as noted)
(Unaudited)
8.
|
Subsequent
Events
|
On
November 5, 2010, the Company’s common stock began trading on the NYSE Amex
under the symbol "TPLM." In connection with its listing on the NYSE Amex, the
Company's common stock ceased trading on the OTC Bulletin Board and continued
trading on the TSX Venture Exchange under the new symbol "TPO." The Company's
1-for-10 reverse stock became effective for trading purposes as of November 5,
2010.
In
November 2010, Triangle completed the offering of 12,420,000 common shares
(adjusted for the 1 for 10 reverse stock split) at a price of $5.50 per share
for gross proceeds of $68.3 million. The net proceeds to the Company of this
offering, after deducting underwriting discounts and commissions and other
estimated offering expenses, is expected to be approximately $62.6
million.
On
October 25, 2010, Triangle announced the acquisition of substantially all the
assets of Williston Exploration LLC, a private company, for consideration of up
to $2.2 million of cash and up to 433,500 common shares. The closing, which is
subject to various conditions, is scheduled to occur in two parts in December
2010 and February 2011.
On
December 2, 2010, the Board of Directors of the Company granted senior
executives 183,636 shares of restricted stock that will not become effective
until approval by the stockholders of the Company of a new equity incentive plan
in 2011. Once approved the restricted stock will vest in full on January 31,
2012 subject to the continued service of the executives.
11
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis
of Financial Condition and Results of Operations includes a number of
forward-looking statements that reflect our 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 and statements 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
our
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
oil and natural gas exploration company currently focused on the acquisition and
development of unconventional shale oil resources. In late 2009, we adopted a
new investment strategy shifting our area of focus from the Maritimes Basin in
the Province of Nova Scotia to the Bakken Shale and Three Forks formations in
the Williston Basin of North Dakota and Montana. To date, we have
acquired over 11,300 net acres primarily in McKenzie and Williams Counties of
North Dakota. Having identified an area of focus in the Bakken Shale that we
believe will generate attractive returns on invested capital; we are continuing
to explore further opportunities in the region with a goal of reaching 30,000
net acres by the end of 2011.
In the
Maritimes Basin, we hold over 400,000 net acres with numerous conventional and
unconventional objectives, including the Windsor and Horton Shales. As a result
of the processing and interpretation of our proprietary 2D seismic data, we have
identified a conventional exploration opportunity that we believe could hold
significant natural gas reserves. We are currently marketing the prospect to
industry partners as a farm-out opportunity and propose to enter into an
agreement whereby we would maintain a working interest position and potential
partners would agree to cover 100% of the capital costs of an initial
exploration well.
Properties
All of
our oil and gas properties are located in the United States and
Canada.
Plan
of Operations
Williston Basin –
We have non-operated leasehold positions in the Williston
Basin. The operations of our non-operated leasehold positions are
conducted primarily through agreements with Slawson Exploration Company, Inc.
(“Slawson”) and Kodiak Oil and Gas Corp. (“Kodiak”). Both companies
are experienced operators focused on the development of the Bakken Shale and
Three Forks formations. We are seeking to acquire additional acreage
outside of these agreements.
12
During
the first three quarters of fiscal 2011, the Company spent $8,490,243 to acquire
approximately 11,300 net acres in the Williston basin in North Dakota as
part of the ongoing leasehold acquisitions pursuant to the Slawson Agreement and
as joint venture partner with Kodiak in the Grizzly
area.
We have
entered into a joint participation agreement, effective January 15, 2010 (the
“Slawson Agreement”) with Slawson to acquire and develop acreage in known areas
of production from the Bakken Shale and Three Forks formations. The Slawson Agreement is
confined to an agreed upon area of mutual interest (“AMI”) within the Rough
Rider area of McKenzie and Williams Counties in North Dakota. We have
acquired approximately 5,200 net acres to date under the Slawson Agreement and
have identified numerous drilling locations with plans to spud our first well
between late 2010 and early 2011. Under the terms of the Slawson Agreement, we
agree to pay 33% of the gross well costs and between a 20% and 60% premium of
our pro rata share of leasehold acquisition costs to earn a 30% working interest
in all wells drilled within the AMI through January 15, 2012. We believe the
terms of the Slawson Agreement are consistent with industry practice and will
result in net costs to us that are substantially lower than we could achieve on
our own.
The first
well of our joint venture with Slawson has spud on October 30, 2010. The
well, Bonanza #1-21-16H, is located in the Rough Rider area in McKenzie County.
We currently anticipate that Slawson will drill an additional nine wells in the
Rough Rider area during the remainder of 2010 and 2011.
In May
2010, we entered into an agreement with Kodiak pursuant to which we have the
opportunity to acquire approximately 2,600 net acres in the Grizzly area. Under
the terms of the agreement, we agreed to pay $3.2 million to Kodiak in the form
of future drilling carry for a 30% working interest in the Grizzly area. After
the $3.2 million has been expended, we will have earned our 2,600 net acres,
with all future wells to be drilled according to our working interest position.
As described below, we have drilled three gross wells in the Grizzly area, two
of which are awaiting completion and one of which has been production tested and
is being prepared for production. We anticipate drilling one additional well by
fiscal year-end.
Using
industry-accepted well-spacing parameters and a combination of short and long
laterals, we believe that there could be over 100 unrisked drilling locations
for the Bakken Shale and Three Forks formations on our acreage in the Williston
Basin. Based on current industry expectations, we believe we can drill up to
eight 9,500 foot lateral wells on 1,280 acre spacing units within our acreage.
Consistent with leading field operators, we plan to perform multi-stage fracs
with 25 to 30 stages on each lateral well. We also plan to drill shorter
laterals on smaller units as dictated by our leasehold position.
In May
2010, we announced our plans to participate in the Roedeske Federal #12-21H well
in McKenzie County with an approximate 15% working interest. The 9,000 foot
lateral well was drilled on a 1,280 acre spacing unit and is awaiting completion
with a 22-stage frac job. The well is operated by XTO Energy Inc. This well was
spud in the third quarter of fiscal 2011.
In June
2010, we commenced a two well drilling program in the Grizzly area with Kodiak
as operator. The first well, the Grizzly #13-6H, is a 4,000 foot lateral
re-entry of an existing wellbore. The estimated gross costs are $3.2 million and
we have an approximate 26% working interest in this well. We anticipate that
this well will be completed in the fourth quarter of fiscal 2011. The second
well, the Grizzly #1-27H, is a 9,000 foot lateral well was being drilled on a
1,280 acre spacing unit. This well experienced mechanical difficulties during
completion resulting in only 10 of 24 initially planned stages being completed,
reducing the estimated cost of the well. The well produced 507 Boe during its
initial 24 hour test and is currently being prepared for production. The gross
estimated costs are $5.7 million and we have an approximate 26% working interest
in this well. The Company also acquired an approximate 26% working interest in
one oil well in the Grizzly area for a cost of $0.8 million. This oil well has
an estimated production capability of 55 Boepd (15 Boepd net).
13
Effective
October 22, 2010 Triangle announced a joint venture with Oppenheimer Global
Resource Private Equity Fund I and a related co-investment fund ("OGR"), each a
New York based investment fund managed by an affiliate of Oppenheimer & Co,
Inc. OGR has made a $25 million capital commitment to co-invest with Triangle in
its future acquisition and development of assets in the North Dakota Bakken
Shale play. $10 million of OGR's initial capital, which OGR has the right to
increase up to $19 million, is allocated for leasehold acquisition with the
remainder available for well development. Under the agreement, OGR has the right
to participate in up to 25% of future Triangle activity in the Williston Basin.
OGR will pay its share of leasehold costs in all leases in which it
participates, plus a premium to Triangle equal to an additional percentage of
lease acquisition costs which is designed to remunerate Triangle for its
services in sourcing and managing the acreage activity in the Williston Basin.
The acreage premium varies depending upon the level of lease acquisition costs.
OGR will also bear 25% of all of Triangle's brokerage costs in the region. In
addition, OGR will pay its proportional share of all drilling & completion
costs, plus a 10% premium thereof to Triangle for its services associated with
well development. Triangle will also earn an annual management fee as G&A
reimbursement. Future leasehold acquisition pursuant to Triangle's joint venture
with Slawson Exploration is excluded from the OGR agreement.
Triangle
also announced the acquisition of substantially all the assets of Williston
Exploration LLC ("Williston"), a privately held Texas based company. The assets,
approximately 1,732 net undeveloped acres in Williams County, North Dakota, are
in contiguous blocks in 3 separate 1,280 acre drilling units and will provide
Triangle's first operated drilling locations. Total consideration will be up to
$2.2 million of cash and up to 433,500 shares of Triangle stock. The closing,
which is subject to typical conditions and financing, is scheduled to occur in
two parts in December 2010 and February 2011.
Beginning
in the fourth quarter of 2010, we believe we will participate in the drilling of
up to 20 gross (5.3 net) wells by the end of 2011. We anticipate participating
in two gross (1.25 net) wells in the acreage being acquired from Williston, 10
gross (2.0 net) wells on our Slawson AMI, two to four gross (0.7 to 1.40 net)
wells in the Grizzly area and up to four gross (0.6 net) wells in our other
non-operated areas. With an average drilling and completion cost of $7.0 million
per well, we have budgeted a range of anticipated drilling capital costs of $30
million to $40 million over this period.
On Shore
Exploration Program –Nova Scotia – We have an 87% working
interest in approximately 474,625 gross acres (approximately 412,924 net acres)
in the Windsor Sub-Basin of the Maritimes Basin located in the Province of Nova
Scotia, Canada (the “Windsor Block”) and serve as operator of the Windsor Block.
In October 2009, we completed an approximately 30 square kilometer 2D seismic
program on the Windsor Block. This data was processed and interpreted in the
fiscal quarter ending January 31, 2010. We believe that this seismic program,
combined with the three completion operations on previously drilled vertical
exploration wells, satisfied the first-year requirements of our 10-year
production lease.
We are
continuing to evaluate the anticipated performance and viability of our working
interest in the Windsor Block. In the course of such evaluations, we intend to
consider a range of options available under our existing production lease,
including potential farm-outs or divestitures of some or all of our
leaseholdings. We do not currently plan on devoting any of our 2010 capital
budget to our Maritimes Basin operations.
Based on
the interpretation of the seismic data, a conventional closed structure has been
identified on the Windsor Block. We are currently soliciting interest from
industry parties to participate in the drilling of a test well to evaluate the
newly identified seismic structure and to participate in a joint venture to
further evaluate the potential on the Windsor Block.
Other
Properties
Non-Core
Producing Properties – We were producing from one well in the Alberta
Deep Basin of Canada, which was sold in May 2010 along with the associated
undeveloped acreage for approximately $977,000 in cash. The Company also has
production from three low working interest shale gas wells in the Barnett Shale
trend of the Fort Worth Basin of Texas, although we consider the production
volumes to be immaterial.
14
Non-Core
Undeveloped Properties
– We have 4,427 non-operated net acres
in the U.S. Rocky Mountains and 3,024 net acres in the Alberta Deep Basin of
Canada. In fiscal 2010, there was no exploration activity on these undeveloped
land positions and there continues to be no exploration activity planned for
these projects in fiscal 2011.
Results
of operations for the three and nine months ended October 31, 2010 compared to
the three and nine months ended October 31, 2009
Daily Sales Volumes, Working
Interest before royalties
Three Months
Ended
October 31,
2010
|
Three Months
Ended
October 31,
2009
|
Nine Months
Ended
October 31,
2010
|
Nine Months
Ended
October 31,
2009
|
|||||||||||||||
Natural
gas production
|
||||||||||||||||||
Barnett
Shale in Texas, USA
|
Mcf/day
|
49 | 35 | 54 | 49 | |||||||||||||
Deep
Basin in Alberta, Canada
|
Mcf/day
|
- | 56 | 4 | 54 | |||||||||||||
Williston
Basin in North Dakota
|
Mcf/day
|
23 | - | 8 | - | |||||||||||||
Total
Company-natural gas
|
Mcf/day
|
71 | 91 | 66 | 103 | |||||||||||||
Total
Company-natural gas
|
Boe/day*
|
12 | 15 | 11 | 17 | |||||||||||||
Oil/NGL
production
|
||||||||||||||||||
Williston
Basin in North Dakota
|
Boe/day
|
16 | - | 5 | - | |||||||||||||
Deep
Basin in Alberta, Canada
|
Boe/day
|
- | 2 | 1 | 2 | |||||||||||||
Total
Company-oil/ngl
|
Oil/day
|
16 | 2 | 6 | 2 | |||||||||||||
Total
Company-boe
|
Boe/day*
|
28 | 17 | 17 | 19 |
*
Thousand Cubic Feet (“Mcf”) converted into Barrel of Oil Equivalent (“Boe”) on a
basis of 6:1
Net Operating
Results
Three Months
Ended
October 31,
2010
|
Three Months
Ended
October 31,
2009
|
Nine Months
Ended
October 31,
2010
|
Nine Months
Ended
October 31,
2009
|
|||||||||||||||
Natural
gas volumes
|
Mcf
|
6,536 | 8,434 | 17,910 | 28,167 | |||||||||||||
Price
|
$/Mcf
|
3.40 | 3.27 | 4.33 | 3.27 | |||||||||||||
Oil
and ngl volumes
|
Bbl
|
1,435 | 178 | 1,532 | 580 | |||||||||||||
Price
|
$/Bbl
|
65.03 | 33.88 | 64.83 | 29.94 | |||||||||||||
Revenue
|
$ | 115,585 | $ | 33,622 | $ | 176,946 | $ | 109,606 | ||||||||||
Royalties
|
15,141 | 4,277 | 34,780 | 17,174 | ||||||||||||||
Revenue,
net of royalties
|
100,444 | 29,345 | 142,166 | 92,432 | ||||||||||||||
Production
expenses
|
23,911 | 20,893 | 37,406 | 73,469 | ||||||||||||||
Net
|
$ | 76,533 | $ | 8,452 | $ | 104,760 | $ | 18,963 |
15
For the
three and nine month periods ended October 31, 2010, we realized $115,585 and
$176,946, respectively, in revenue from sales of natural gas and natural gas
liquids, as compared to $33,622 and $109,606 in the same periods of the prior
year. Revenue increased mainly due to the acquisition of the Grizzly 4-11
producing well. Royalties as a percent of revenue were 13% and 20% for the three
and nine month periods ended October 31, 2010, respectively, compared with 13%
and 16% in the same periods of the prior year. Production expenses related to
this revenue were $9.47/Boe and $8.28/Boe for the three and nine month periods
ended October 31, 2010, respectively, compared to $13.20/Boe and $13.93/Boe in
the same periods of the prior year. The decrease in the per Boe rate in the
three and nine month period ended October 31, 2010 was mainly due to the lower
maintenance costs of wells and positive adjustments to miscellaneous operating
cost from our partner operated wells.
Depletion, Depreciation and Accretion
Three Months
Ended
October 31,
2010
|
Three Months
Ended
October 31,
2009
|
Nine Months
Ended
October 31,
2010
|
Nine Months
Ended
October 31,
2009
|
|||||||||||||
Depletion
– oil and gas properties
|
$ | 35,844 | $ | 8,434 | $ | 35,844 | $ | 38,781 | ||||||||
Accretion
|
64,659 | 46,036 | 196,454 | 107,166 | ||||||||||||
Depletion
and Accretion
|
100,503 | 54,470 | 232,298 | 145,947 | ||||||||||||
Depreciation
– property and equipment
|
5,288 | 7,272 | 19,152 | 18,946 | ||||||||||||
Total
|
$ | 105,791 | $ | 61,742 | $ | 251,450 | $ | 164,893 |
Unproven
property costs of $30,552,726 (January 31, 2010 – $18,783,375) were excluded
from costs subject to depletion at October 31, 2010.
General and Administrative
(“G&A”)
Three Months
Ended
October 31,
2010
|
Three Months
Ended
October 31,
2009
|
Nine Months
Ended
October 31,
2010
|
Nine Months
Ended
October 31,
2009
|
|||||||||||||
Salaries,
benefits and consulting fees
|
$ | 358,744 | $ | 288,339 | 911,120 | $ | 1,053,322 | |||||||||
Office
costs
|
215,847 | 124,943 | 524,422 | 428,070 | ||||||||||||
Professional
fees
|
80,542 | 25,975 | 273,033 | 209,823 | ||||||||||||
Public
company costs
|
86,132 | 57,130 | 204,134 | 242,185 | ||||||||||||
Operating
overhead recoveries
|
(100 | ) | (9,936 | ) | (224 | ) | (42,264 | ) | ||||||||
Total
G&A
|
$ | 741,165 | $ | 486,451 | $ | 1,912,485 | $ | 1,891,136 |
G&A
expenses increased in the three and nine month periods ended October 31, 2010
compared to the same periods of the prior year primarily due to the
following:
|
·
|
Salaries,
benefits and consulting fees increased by $70,405 in the three month
period ended October 31, 2010 as compared to the three months ended
October 31, 2009, as the Company added staff to begin implementing the
corporate strategy and decreased by $142,202 in nine month periods ended
October 31, 2010, mainly due to reduced consulting fees as compared to the
nine month period ended October 31, 2009;
and
|
|
·
|
Office
costs increased by $90,904 and $96,352 the three and nine month periods
ending October 31, 2010 respectively, mainly due to the Company opening an
office in Denver, Colorado.
|
16
Oil and Natural Gas
Properties
Net Book Value
January 31,
2010
|
Additions
|
Depletion and
Impairment
|
Dispositions
|
Gain
(Loss)
|
Net Book
Value
October 31,
2010
|
|||||||||||||||||||
Unproven
|
||||||||||||||||||||||||
Windsor
Block Maritimes Shale – Nova Scotia, Canada
|
$ | 18,783,375 | $ | 97,955 | $ | - | $ | - | $ | - | $ | 18,881,330 | ||||||||||||
Williston
Basin – North Dakota
|
- | 11,671,396 | - | - | - | 11,671,396 | ||||||||||||||||||
Western
Canadian Shale – Alberta and B.C., Canada
|
- | - | - | (976,900 | ) | 976,900 | - | |||||||||||||||||
Proved
|
||||||||||||||||||||||||
Williston
Basin – North Dakota
|
- | 805,251 | (35,844 | ) | - | - | 769,407 | |||||||||||||||||
Total
Proved and Unproven
|
$ | 18,783,375 | $ | 12,574,602 | $ | (35,844 | ) | $ | (976,900 | ) | $ | 976,900 | $ | 31,322,133 |
During
the nine month period ended October 31, 2010, we focused on land acquisitions
and drilling programs in the Williston Basin and spent $12.5 million primarily
for:
|
·
|
acquiring
approximately 11,300 net acres for a cost of $8.5
million,
|
|
·
|
drilling
the Grizzly 13-6H-T147N-R104W horizontal well for a net cost of $1.0
million,
|
|
·
|
drilling
the Grizzly 1-27H-T148N-R105W horizontal well for a net cost of $2.0
million
|
|
·
|
drilling
the XTO Roedeske 12-21 horizontal well for a net cost of $0.2 million
and
|
|
·
|
acquiring
the Grizzly 4-11-T147N-R104W oil well for $0.8
million.
|
Net Cash Oil and Natural Gas
Additions:
Nine Months
Ended
October 31,
2010
|
Nine Months
Ended
October 31,
2009
|
|||||||
Net
additions, per above table
|
$ | 12,574,602 | $ | 2,029,220 | ||||
Non-cash
ARO additions
|
(17,403 | ) | (375,254 | ) | ||||
Non-cash
ARO dispositions
|
29,394 | 39,375 | ||||||
Changes
in investing working capital
|
(630,983 | ) | 725,023 | |||||
Net
oil and gas additions, per Statements of Cash Flows
|
$ | 11,955,610 | $ | 2,418,364 |
Liquidity
and Capital Resources
As of
October 31, 2010, we had working capital of $1,016,935, resulting primarily from
cash of $1,158,430, prepaid expenses of $933,682 and other receivables of
$162,740, offset by payables and accrued liabilities of $1,237,917.
For the
nine month period ended October 31, 2010, we had net cash outflow from operating
activities before changes in working capital of $1,792,049, mainly related to
$1,912,485 of cash G & A expenses. For the nine month period ended October
31, 2010, we had net cash inflow from financing activities of $9,555,024 from
the issuance of 3,003,813 common shares for net proceeds of $9,320,067 and
$234,957 of proceeds from 79,167 stock options that were exercised (both
adjusted for the 1 for 10 reverse stock split). For the nine month period ended
October 31, 2010, we had net cash outflow from investing activities of
$10,978,710 which includes (i) $8,490,243 for the acquisition of approximately
11,300 net acres in the Williston Basin, (ii) $3,169,000 for the costs of
drilling and completing 3.0 gross (0.7 net) wells and (iii) $0.8 million for the
acquisition of the Grizzly #4-11 oil well. Net cash outflows for Nova Scotia
were $127,350. Changes to investing working capital accounted for ($630,983),
primarily due to accounts payable in connection with the drilling of our three
wells in the Williston area. During the nine month period ended October 31,
2010, we received proceeds from the sale of the Wapiti property of
$976,900.
17
Beginning
in the fourth quarter of 2010, we believe we will participate in the drilling of
up to 20 gross (5.3 net) wells by the end of 2011. We anticipate participating
in two gross (1.25 net) wells in the acreage being acquired from Williston
Exploration LLC, 10 gross (2.0 net) wells on our Slawson AMI, two to four gross
(0.7 to 1.40 net) wells in the Grizzly Project and up to four gross (0.6 net)
wells in our other non-operated areas. With an average drilling and completion
cost of $7.0 million per well, we have budgeted a range of anticipated drilling
capital costs of $30 million to $40 million over this period.
We are
currently soliciting interest from industry parties to participate in the
drilling of a test well to evaluate the recently identified seismic structure
and to participate in a joint venture to further evaluate the potential on the
Windsor Block. There is a risk we may not secure a new joint operating partner
in the Windsor Block, which could result in a slowdown or suspension of
exploration on the Windsor Block. There are no significant capital expenditures
planned for the Windsor Block in fiscal 2011.
On
November 5, 2010, the Company’s common stock began trading on the NYSE Amex
under the symbol "TPLM." In connection with its listing on the NYSE Amex, the
Company's common stock ceased trading on the OTC Bulletin Board and continued
trading on the TSX Venture Exchange under the new symbol "TPO." The Company's
1-for-10 reverse stock became effective for trading purposes as of November 5,
2010.
In
November 2010, Triangle completed the offering of 12,420,000 common shares
(adjusted for the 1 for 10 reverse stock split) at a price of $5.50 per share
for gross proceeds of $68.3 million. The net proceeds to the Company of this
offering, after deducting underwriting discounts and commissions and other
estimated offering expenses, is expected to be approximately $62.6
million.
18
Critical
Accounting Policies
Use of
Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. We base our estimates and assumptions on
current facts, historical experience and various other factors that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by us may differ materially and adversely from
our estimates. To the extent there are material differences between the
estimates and the actual results, future results of operations will be
affected.
Investment in Oil and Gas
Properties
We
utilize the full cost method to account for our investment in oil and gas
properties. Accordingly, all costs associated with acquisition and exploration
of oil and gas reserves, including such costs as leasehold acquisition costs,
interest costs relating to unproven properties, geological expenditures and
direct internal costs are capitalized into the full cost pool. Investments in
unproven properties and major development projects including capitalized
interest, if any, are not amortized until proved reserves associated with the
projects can be determined. If the future exploration of unproven properties is
determined uneconomical, the amounts of such properties are added to the
capitalized cost to be amortized. The capitalized costs included in the full
cost pool are subject to a ceiling test.
Asset Retirement
Obligations
We
recognize a liability for future retirement obligations associated with our oil
and gas properties. The estimated fair value of the asset retirement obligations
is based on the current estimated cost escalated at an inflation rate and
discounted at a credit adjusted risk-free rate. This liability is capitalized as
part of the cost of the related asset and amortized over its useful life. The
liability accretes until we settle the obligation. The costs are estimated by
management based on its knowledge of industry practices, current laws and past
experiences. The costs could increase significantly from management’s current
estimate.
Stock-Based
Compensation
We record
compensation expense in the consolidated financial statements for stock options
and deferred share units granted to employees, consultants and directors using
the fair value method. Fair values are determined using the Black Scholes option
pricing model, which is sensitive to the estimate of the Company’s stock price
volatility and the options expected life. Compensation costs are recognized over
the vesting period.
19
ITEM
3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
4T - CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as
of October 31, 2010. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their
costs.
Based
on our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as a result of the material weaknesses described below, our
disclosure controls and procedures are not designed at a reasonable assurance
level and are ineffective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and that such
information is not accumulated nor communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. The material weakness, which
relate to internal control over financial reporting, that was related to
segregation of duties is:
|
a)
|
We
did not have sufficient personnel in our accounting and financial
reporting functions. As a result, we were not able to achieve
adequate segregation of duties and were not able to provide for adequate
reviewing of the financial statements. This control deficiency, which is
pervasive in nature, results in a reasonable possibility that material
misstatements of the financial statements will not be prevented or
detected on a timely basis; and
|
As a
result of the existence of this material weakness as of October 31, 2010,
management has concluded that we did not maintain effective internal control
over financial reporting as of October 31, 2010, based on the criteria set forth
by COSO in Internal
Control-Integrated Framework.
The
Quarterly Report does not include an attestation report of the Company’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to the rules of the Securities and Exchange
Commission.
Management
will continue to monitor and evaluate the effectiveness of our disclosure
controls and procedures and our internal controls over financial reporting on an
ongoing basis and are committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow. As
part of this commitment, we will continue to assess our current personnel
resources. As our activities levels increase, we will look to increase our
personnel resources to increase segregation of duties. When funds are available
to us and as operations increase, we will hire additional knowledgeable
personnel to further support our current accounting personnel, which management
estimates could cost in excess of $100,000 per annum.
20
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
21
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
Item
1A. Risk Factors.
Not
required under Regulation S-K for “smaller reporting companies.”
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits
31.01
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31.02
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32.01
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
22
SIGNATURES
In
accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TRIANGLE
PETROLEUM CORPORATION
|
||
Date: December
7, 2010
|
By:
|
/s/ PETER HILL
|
Peter
Hill
|
||
Chief
Executive Officer (Principal Executive Officer)
|
||
Date: December
7, 2010
|
By:
|
/s/ JON SAMUELS
|
Jon
Samuels
|
||
Chief
Financial Officer (Principal Financial Officer and
Principal
Accounting Officer)
|
23