Attached files

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EX-32.1 - EX-32.1 - Triangle Petroleum Corptpc-20160731ex321983df2.htm
EX-31.2 - EX-31.2 - Triangle Petroleum Corptpc-20160731ex312c14a8a.htm
EX-31.1 - EX-31.1 - Triangle Petroleum Corptpc-20160731ex31119deaf.htm
EX-10.9 - EX-10.9 - Triangle Petroleum Corptpc-20160731ex109103af1.htm
EX-10.8 - EX-10.8 - Triangle Petroleum Corptpc-20160731ex108495b79.htm
EX-10.7 - EX-10.7 - Triangle Petroleum Corptpc-20160731ex107158df2.htm
EX-10.5 - EX-10.5 - Triangle Petroleum Corptpc-20160731ex1055215c1.htm
EX-10.4 - EX-10.4 - Triangle Petroleum Corptpc-20160731ex1048916d0.htm
EX-10.10 - EX-10.10 - Triangle Petroleum Corptpc-20160731ex10106c54f.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

 

For the quarterly period ended July 31, 2016

 

☐ 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 001-34945

 

TRIANGLE PETROLEUM CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

Delaware

   

 

98-0430762

(State or Other Jurisdiction of

Incorporation or Organization)

   

 

(I.R.S. Employer

Identification No.)

 

 

1200 17th Street, Suite 2500

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 ☒  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 smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 Large accelerated filer

 Accelerated filer ☒

 Non-accelerated filer

 Smaller reporting company

(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 ☒

 

As of September 6, 2016, there were 76,463,881 shares of the registrant’s common stock outstanding.

 

 

 

 


 

TRIANGLE PETROLEUM CORPORATION AND SUBSIDIARIES

 

INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 31, 2016

 

April

 

 

 

   

   

   

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

 

 

 

 

PART I.  FINANCIAL INFORMATION 

 

 

 

 

   

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

   

   

   

 

   

   

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

   

   

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   

   

   

 

   

   

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

   

   

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

   

   

   

 

   

   

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   

   

   

   

   

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

27 

 

 

 

 

   

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

37 

   

   

   

 

   

ITEM 4.

CONTROLS AND PROCEDURES

37 

   

   

   

 

PART II.  OTHER INFORMATION 

38 

   

   

   

 

   

ITEM 1.

LEGAL PROCEEDINGS

38 

 

 

 

 

   

ITEM 1A.

RISK FACTORS

38 

 

 

 

 

   

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

39 

 

 

 

 

   

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

39 

 

 

 

 

   

ITEM 4.

MINE SAFETY DISCLOSURES 

39 

 

 

 

 

   

ITEM 5.

OTHER INFORMATION

39 

 

 

 

 

   

ITEM 6.

EXHIBITS

41 

   

   

   

 

SIGNATURES 

43 

 

 

 

 

i


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this report and other materials we file with the U.S. Securities and Exchange Commission (“SEC”), or in other written or oral statements made or to be made by us, other than statements of historical fact, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current expectations or forecasts of future events. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “likely,” “should,” and the negative of these terms or other comparable terminology, often identify forward-looking statements. Statements in this quarterly report that are not statements of historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”).

 

These forward-looking statements include, but are not limited to, statements about:

 

·

future capital expenditures and performance;

·

future operating results;

·

future commodity prices;

·

future ability to borrow or repay indebtedness;

·

results of evaluation and implementation of strategic alternatives;

·

anticipated drilling and development;

·

drilling results;

·

results of acquisitions;

·

relationships with partners; and

·

plans for our subsidiaries.

 

Actual results or developments may be different than we anticipate or may have unanticipated consequences to, or effects on, us or our business or operations. All of the forward-looking statements made in this report are qualified by the discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016, in our subsequent Quarterly Reports on Form 10-Q, and in our other public filings with the SEC. Although the expectations reflected in the forward-looking statements are based on our current beliefs and expectations, undue reliance should not be placed on any such forward-looking statements due to the risks and uncertainties noted above and because such statements speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this report and in our future reports filed with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur.

 

 

 

1


 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED).

 

Triangle Petroleum Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

January 31, 2016

    

July 31, 2016

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

115,769

 

$

30,296

Accounts receivable

 

 

53,267

 

 

12,164

Accounts receivable - related parties

 

 

35

 

 

1,569

Commodity derivatives

 

 

12,370

 

 

 —

Other current assets

 

 

10,046

 

 

11,279

Total current assets

 

 

191,487

 

 

55,308

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, AT COST

 

 

 

 

 

 

Oil and natural gas properties, full cost method of accounting

 

 

 

 

 

 

Proved properties

 

 

1,372,480

 

 

 —

Unproved properties and properties under development, not being amortized

 

 

78,367

 

 

 —

Total oil and natural gas properties

 

 

1,450,847

 

 

 —

Accumulated amortization

 

 

(1,044,307)

 

 

 —

Net oil and natural gas properties

 

 

406,540

 

 

 —

Oilfield services equipment, net

 

 

48,445

 

 

39,661

Other property and equipment, net

 

 

42,874

 

 

28,234

Net property, plant and equipment

 

 

497,859

 

 

67,895

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

Unconsolidated investments

 

 

45,600

 

 

25,200

Commodity derivatives

 

 

9,012

 

 

 —

Debt issuance costs

 

 

3,877

 

 

1,127

Other

 

 

5,313

 

 

5,032

Total other assets

 

 

63,802

 

 

31,359

 

 

 

 

 

 

 

Total assets

 

$

753,148

 

$

154,562

 

See notes to condensed consolidated financial statements.

 

2


 

Triangle Petroleum Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

January 31, 2016

    

July 31, 2016

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued capital expenditures

 

$

67,339

 

$

7,170

Other accrued liabilities

 

 

34,065

 

 

11,793

Current portion of long-term debt

 

 

114,088

 

 

114,453

Interest payable

 

 

1,700

 

 

480

Total current liabilities

 

 

217,192

 

 

133,896

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Long-term debt

 

 

789,043

 

 

156,604

Other

 

 

11,495

 

 

1,248

Total liabilities

 

 

1,017,730

 

 

291,748

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

Common stock, $0.00001 par value, 140,000,000 shares authorized; 75,807,111 and 76,456,477 shares issued and outstanding at January 31, 2016 and July 31, 2016, respectively

 

 

1

 

 

1

Additional paid-in capital

 

 

557,757

 

 

562,253

Accumulated deficit

 

 

(822,340)

 

 

(699,440)

Total stockholders' equity (deficit)

 

 

(264,582)

 

 

(137,186)

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity (deficit)

 

$

753,148

 

$

154,562

 

See notes to condensed consolidated financial statements.

 

 

3


 

Triangle Petroleum Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 31,

 

July 31,

 

 

2015

 

2016

 

2015

 

2016

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

55,263

 

$

24,091

 

$

103,041

 

$

48,943

Oilfield services

 

 

54,470

 

 

25,441

 

 

124,980

 

 

44,961

Total revenues

 

 

109,733

 

 

49,532

 

 

228,021

 

 

93,904

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

11,355

 

 

6,970

 

 

22,278

 

 

15,572

Gathering, transportation and processing

 

 

6,641

 

 

3,637

 

 

12,989

 

 

9,245

Production taxes

 

 

5,449

 

 

2,124

 

 

10,236

 

 

4,203

Depreciation, amortization and accretion

 

 

32,348

 

 

10,654

 

 

70,197

 

 

25,665

Impairment of oil and natural gas properties

 

 

206,000

 

 

25,000

 

 

398,000

 

 

104,000

Impairment of long lived assets

 

 

 —

 

 

2,657

 

 

 —

 

 

2,657

Oilfield services

 

 

47,957

 

 

22,693

 

 

112,183

 

 

39,364

General and administrative, net of amounts capitalized

 

 

14,589

 

 

22,064

 

 

29,448

 

 

33,387

Total operating expenses

 

 

324,339

 

 

95,799

 

 

655,331

 

 

234,093

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

 

(214,606)

 

 

(46,267)

 

 

(427,310)

 

 

(140,189)

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(9,866)

 

 

(8,378)

 

 

(18,972)

 

 

(19,170)

Amortization of debt issuance costs

 

 

(731)

 

 

(457)

 

 

(1,347)

 

 

(1,414)

Gain (loss) on extinguishment of debt

 

 

1,156

 

 

 —

 

 

1,156

 

 

21,180

Realized commodity derivative gains (losses)

 

 

17,016

 

 

4,485

 

 

36,484

 

 

6,589

Unrealized commodity derivative gains (losses)

 

 

8,033

 

 

(7,747)

 

 

(25,409)

 

 

(19,532)

Gain on deconsolidation of subsidiaries

 

 

 —

 

 

299,675

 

 

 —

 

 

299,675

Earnings (losses) from unconsolidated investments

 

 

1,210

 

 

70

 

 

1,398

 

 

22

Impairment of investment in Caliber

 

 

 —

 

 

(21,170)

 

 

 —

 

 

(21,170)

Gain on Caliber capital transaction

 

 

 —

 

 

 —

 

 

2,880

 

 

 —

Gain (loss) on equity investment derivatives

 

 

4,516

 

 

(3,300)

 

 

4,516

 

 

(3,300)

Other income (expense), net

 

 

(74)

 

 

96

 

 

(382)

 

 

209

Total other income (expense)

 

 

21,260

 

 

263,274

 

 

324

 

 

263,089

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(193,346)

 

 

217,007

 

 

(426,986)

 

 

122,900

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION (BENEFIT)

 

 

 —

 

 

 —

 

 

(53,441)

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(193,346)

 

$

217,007

 

$

(373,545)

 

$

122,900

   

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.56)

 

$

2.84

 

$

(4.96)

 

$

1.61

Diluted

 

$

(2.56)

 

$

2.84

 

$

(4.96)

 

$

1.61

   

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

75,410

 

 

76,334

 

 

75,334

 

 

76,214

Diluted

 

 

75,410

 

 

76,460

 

 

75,334

 

 

76,346

 

See notes to condensed consolidated financial statements.

 

 

4


 

Triangle Petroleum Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31,

 

 

 

2015

    

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

(373,545)

 

$

122,900

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, amortization and accretion

 

 

70,197

 

 

25,665

Impairments

 

 

398,000

 

 

106,657

Share-based compensation

 

 

6,134

 

 

4,586

Interest expense paid-in-kind on 5% convertible note

 

 

3,418

 

 

3,593

Amortization of debt issuance costs

 

 

1,347

 

 

1,414

Gain on extinguishment of debt

 

 

(1,156)

 

 

(21,180)

Unrealized commodity derivative (gains) losses

 

 

25,409

 

 

19,532

Gain on deconsolidation of subsidiaries

 

 

 —

 

 

(299,675)

(Earnings) losses from unconsolidated investments

 

 

(1,398)

 

 

(22)

Impairment of investment in Caliber

 

 

 —

 

 

21,170

Gain on Caliber capital transaction

 

 

(2,880)

 

 

 —

(Gain) loss on equity investment derivatives

 

 

(4,516)

 

 

3,300

Deferred income taxes

 

 

(53,441)

 

 

 —

Other

 

 

 —

 

 

(82)

Changes in related current assets and current liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

55,752

 

 

5,945

Other current assets

 

 

6,005

 

 

(10,330)

Accounts payable and accrued liabilities

 

 

(48,345)

 

 

(9,326)

Asset retirement expenditures

 

 

(377)

 

 

(4,550)

Other

 

 

(559)

 

 

(686)

Cash provided by (used in) operating activities

 

 

80,045

 

 

(31,089)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Oil and natural gas property expenditures

 

 

(128,734)

 

 

(19,413)

Acquisitions of oil and natural gas properties

 

 

(243)

 

 

(157)

Purchases of oilfield services equipment

 

 

(8,657)

 

 

(449)

Purchases of other property and equipment

 

 

(4,208)

 

 

(269)

Sale of oil and natural gas properties

 

 

6,000

 

 

408

Proceeds from sale of equipment

 

 

15

 

 

1,174

Deconsolidation of subsidiaries

 

 

 —

 

 

(91,751)

Cash used in investing activities

 

 

(135,827)

 

 

(110,457)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from credit facilities

 

 

110,810

 

 

103,700

Repayments of credit facilities

 

 

(75,777)

 

 

(41,836)

Proceeds from notes payable

 

 

3,035

 

 

 —

Repayments of other notes and mortgages payable

 

 

(298)

 

 

(825)

Early extinguishment of repurchased debt

 

 

(2,455)

 

 

(4,639)

Debt issuance costs

 

 

(910)

 

 

(59)

Payments to settle tax on vested restricted stock units

 

 

(624)

 

 

(193)

Distributions to RockPile B Unit holders

 

 

 —

 

 

(75)

Cash provided by financing activities

 

 

33,781

 

 

56,073

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(22,001)

 

 

(85,473)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

67,871

 

 

115,769

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

45,870

 

$

30,296

 

See notes to condensed consolidated financial statements.

 

 

5


 

Triangle Petroleum Corporation

Condensed Consolidated Statement of Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Shares of

 

Common

 

Additional

 

 

 

Stockholders'

 

 

Common

 

Stock at

 

Paid-in

 

Accumulated

 

Equity

 

    

Stock

    

Par Value

    

Capital

    

Deficit

    

(Deficit)

Balance - January 31, 2016

 

75,807,111

 

$

1

 

$

557,757

 

$

(822,340)

 

$

(264,582)

Vesting of restricted stock units (net of shares surrendered for taxes)

 

649,366

 

 

 —

 

 

(193)

 

 

 —

 

 

(193)

Share-based compensation

 

 —

 

 

 —

 

 

4,764

 

 

 —

 

 

4,764

Distributions to RockPile B Unit holders

 

 —

 

 

 —

 

 

(75)

 

 

 —

 

 

(75)

Net income

 

 —

 

 

 —

 

 

 —

 

 

122,900

 

 

122,900

Balance - July 31, 2016

 

76,456,477

 

$

1

 

$

562,253

 

$

(699,440)

 

$

(137,186)

 

See notes to condensed consolidated financial statements.

 

 

6


 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

 

Description of Business. Triangle Petroleum Corporation (“Triangle,” the “Company,” “we,” “us,” “our,” or “ours”) is an independent energy company with a strategic focus on the Bakken Shale and Three Forks formations in the Williston Basin.

 

We hold leasehold interests and conduct our operations in the Williston Basin of North Dakota and Montana. Our core focus area is predominantly located in McKenzie and Williams Counties, North Dakota, and eastern Roosevelt and Sheridan Counties, Montana. We conduct our exploration and production operations through our wholly-owned subsidiary, Triangle USA Petroleum Corporation (“TUSA”). See below for information regarding TUSA’s voluntary petition for relief under Chapter 11 of Title 11 of the United States Code.

 

RockPile Energy Services, LLC (“RockPile”), a wholly-owned subsidiary, provides oilfield and complementary well completion services to oil and natural gas exploration and production companies predominantly in the Williston and Permian Basins.

 

Caliber Midstream Partners, L.P. (“Caliber”), an unconsolidated joint venture with First Reserve Energy Infrastructure Fund, provides oil, natural gas and water transportation and related services to oil and natural gas exploration and production companies in the Williston Basin.

 

Ranger Fabrication, LLC (“Ranger”) is a wholly-owned subsidiary of Triangle that previously fabricated certain well equipment. Ranger’s activities, which were immaterial, were mostly with Caliber and TUSA, and all intercompany transactions were eliminated in consolidation. Ranger ceased operations on January 31, 2016. 

 

Chapter 11 Filing by Certain Subsidiaries. On June 29, 2016, TUSA and Ranger, each a wholly-owned subsidiary of Triangle, and TUSA’s and Ranger’s respective wholly-owned subsidiaries (TUSA and Ranger, together with their wholly-owned subsidiaries, collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court,” and the cases commenced thereby, the “Chapter 11 Filings” or the “Chapter 11 Cases”). The Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re Triangle USA Petroleum Corporation et al., Case No. 16-11566.  The Debtors have remained in possession of their property and continue to operate their businesses as "debtors—in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The normal day-to-day operations of TUSA have continued without material interruption. Triangle and its subsidiaries, other than the Debtors, did not file voluntary petitions for relief and are not debtors under Chapter 11 of the Bankruptcy Code and, consequently, continue to operate their business in the ordinary course.

 

The Chapter 11 Filings constituted an event of default that accelerated the obligations under TUSA’s credit facility and TUSA’s 6.75% Senior Notes due 2022 (the “TUSA 6.75% Notes”) (collectively, the “TUSA Debt Documents”). Any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement in respect of the TUSA Debt Documents are subject to the applicable provisions of the Bankruptcy Code. Triangle has not guaranteed TUSA’s obligations under the TUSA credit facility or the TUSA 6.75% Notes.

 

On June 29, 2016, the Debtors and certain holders representing approximately 73% (the “Participating Noteholders”) of the outstanding principal amount of the TUSA 6.75% Notes entered into a Plan Support Agreement (the “Plan”). The Participating Noteholders’ obligations under the Plan and the effectiveness of the Plan contemplated thereby are subject to various terms and conditions, including the entry of an order authorizing the Debtors to “assume” the Plan. Caliber objected to the Debtors’ request for authorization to assume the Plan. On August 1, 2016, the Bankruptcy Court granted Caliber’s objection and denied the Debtors’ request to assume the Plan. The Bankruptcy Court’s failure to enter an order authorizing the assumption of the Plan rendered it ineffective.

 

Notwithstanding the Bankruptcy Court’s denial of the Debtors’ request to assume to the Plan, the Debtors continue to pursue, and negotiate with the Participating Noteholders and other creditor groups, a Chapter 11 plan substantially comparable to that described in the Plan, including (a) the payment in full in cash of the revolving credit facility, (b) the conversion of the TUSA 6.75% Notes into 100% of the equity of reorganized TUSA, subject to dilution as described

7


 

above, and (c) obtaining new capital in the form of a new revolving credit facility and a new money rights offering. There is no guarantee, however, that the Debtors will be successful in negotiating and consummating any such transactions or otherwise predict with certainty the outcome of the Chapter 11 Cases and the treatment of creditors and interest holders therein.

 

Accounting Impact.  In conjunction with the commencement of the Chapter 11 Cases, we evaluated whether we should continue to consolidate TUSA and its wholly-owned subsidiaries. We concluded that, as a result of the commencement of the Chapter 11 Cases, under applicable accounting standards, we no longer have a controlling financial interest in TUSA and its wholly-owned subsidiaries, and therefore, TUSA and its consolidated subsidiaries should no longer be consolidated in our condensed consolidated financial statements as of June 29, 2016.

 

In performing this analysis, we concluded that the activities that most significantly impact TUSA's economic performance are (i) the financing and restructuring of the pre-petition obligations of the Debtors and (ii) the management of TUSA’s exploration and production operations. The activities associated with the financing and restructuring of TUSA's pre-petition obligations are ultimately subject to confirmation of the Plan by the Bankruptcy Court. Furthermore, while we continue to manage the ordinary course exploration and production operations of TUSA, the Bankruptcy Court would generally have to approve decisions that are outside the normal course of business.

 

Therefore, despite our continued 100% ownership of TUSA, we concluded, under the applicable accounting guidance, that as a result of the Chapter 11 Filings we do not have the ability to make decisions that most significantly impact the economic performance of TUSA. As such, based on the applicable accounting guidance, we no longer have a controlling financial interest in TUSA as of June 29, 2016. Accordingly, we have deconsolidated TUSA and Ranger and their consolidated subsidiaries from our consolidated financial statements as of the date of the filing of the Chapter 11 Cases.

 

In order to deconsolidate TUSA and its consolidated subsidiaries, the carrying values of the assets and liabilities of TUSA and its consolidated subsidiaries were removed from our consolidated balance sheets as of June 29, 2016. Accordingly, we recorded our investment in TUSA at its estimated fair value of $3.9 million as of June 29, 2016. We determined the fair value of our investment, which includes certain TUSA 6.75% Notes held by Triangle, using assumptions that reflect our best estimate of market participants' considerations based on the facts and circumstances relevant to our investment at that time. Such valuation was determined as of June 29, 2016 and should not be relied on for a determination of value at any other period in time given, among other things, significant variability in commodity prices underlying the valuation analysis.

 

Our estimate of the fair value of TPC’s equity in TUSA was determined using an income approach and a market approach. The income approach estimates the value of an asset or business by calculating the present value of expected future cash flows using a market participant's expected weighted average cost of capital (discount rate). TUSA’s estimated future operating results were based on the risk-adjusted estimated net cash flows resulting from TUSA’s proven, probable and possible oil and natural gas reserves. The market approach estimates the value of an asset or business corroborated by market information from comparable public companies. To complete the fair value of TPC's equity in TUSA, we then subtracted the net debt (debt less cash on hand) of TUSA from the value of the business.  

 

After considering the estimated fair values of TUSA’s future cash flows and debt, there was not sufficient value to repay TUSA's outstanding unsecured debt obligations as they become due, therefore, we believe that it is a reasonable assumption that a market participant would not assign any residual value to the equity of TUSA, particularly considering the inherent uncertainty in value resulting from the Chapter 11 Cases. Accordingly, we have reflected our investment in TUSA at its estimated fair value of $3.9 million as of June 29, 2016 and recorded a gain on deconsolidation of $299.7 million, which reflects the difference between (i) the estimated fair value of our retained 100% non-controlling investment in TUSA at the date of deconsolidation, (ii) the estimated fair value of the expected equity interest resulting from the TUSA 6.75% Notes held by Triangle with a par value of $8.2 million, and (iii) the carrying amount of TUSA's consolidated assets and liabilities.  

 

Subsequent to the deconsolidation of TUSA, we are accounting for our investment in TUSA using the cost method of accounting because Triangle does not exercise significant influence over the operations of TUSA due to the Chapter 11 Filings.  

 

8


 

Liquidity and Ability to Continue as a Going Concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business. As such, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. The Chapter 11 Filings and RockPile covenant compliance issues discussed below raise substantial doubt about the Company’s ability to continue as a going concern.

 

RockPile Liquidity and Covenants. On April 13, 2016, RockPile entered into Amendment No. 2 to Credit Agreement (the “RockPile Waiver Amendment”), which waived any default or event of default in connection with the financial covenants of RockPile’s credit facility that occurred as of January 31, 2016 and July 31, 2016. Following the execution of the RockPile Waiver Amendment, RockPile is precluded from drawing additional funds under its credit facility. Beginning with the second quarter and for the remainder of fiscal year 2017, RockPile does not expect to comply with all of the financial covenants contained in its credit facility unless those requirements are also waived or amended or unless RockPile can obtain new capital or equity cure financing as discussed further in Note 3. RockPile remains in discussions regarding strategic alternatives and is nearing the end of a robust sale process that must be approved by its lenders.  If RockPile is unable to reach agreement with its lenders, obtain waivers, find acceptable alternative financing or obtain equity cure contributions, RockPile’s credit facility lenders could elect to declare some or all of the amounts outstanding under the facility to be immediately due and payable. If this happens, the Company does not currently have sufficient liquidity to make the equity cure and RockPile does not have sufficient cash on hand to repay this outstanding debt. Therefore, the condensed consolidated balance sheet reflects all of the amounts outstanding under the RockPile credit facility as current liabilities as of July 31, 2016. If a sale of RockPile is consummated, or if RockPile is required to pursue an in-court restructuring transaction, Triangle would lose control of RockPile.

 

Triangle has not guaranteed RockPile’s obligations under the credit facility, and there are no cross-default provisions in Triangle’s other debt agreements that could cause the acceleration of such indebtedness as a result of the RockPile credit facility default.

 

Triangle Liquidity. Triangle has engaged certain professional advisors to assist it in the process of analyzing various strategic alternatives to address our liquidity and capital structure, including: (i) a potential sale of RockPile; (ii) obtaining additional sources of capital from asset sales, issuances of debt or equity securities, debt for equity swaps, or any combination thereof; and (iii) pursuing in- and out-of-court restructuring transactions. In connection with a debt restructuring or refinancing, we may seek to convert a significant portion of our outstanding debt to equity. In addition, we may seek to reduce our cash interest cost and extend debt maturity dates by negotiating the exchange of outstanding debt for new debt with modified terms or other measures. While we anticipate engaging in active dialogue with our creditors, at this time we are unable to predict the outcome of such discussions, the outcome of any strategic transactions that we may pursue or whether any such efforts will be successful.

 

As a result of the above, substantial doubt exists regarding the ability of Triangle to continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business.

 

Basis of Presentation. These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and are expressed in U.S. dollars. Preparation in accordance with GAAP requires us to (i) adopt accounting policies within accounting rules set by the Financial Accounting Standards Board (“FASB”) and by the Securities and Exchange Commission (“SEC”), and (ii) make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and other disclosed amounts.

 

Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. We believe the disclosures made are adequate to make the information not misleading. We recommend that these unaudited condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016, as filed with the SEC (“Fiscal 2016 Form 10-K”). In the opinion of management, all material adjustments considered necessary for a fair presentation of the Company’s interim results have been reflected. All such adjustments are considered to be of a normal recurring nature. The results for interim periods are not necessarily indicative of annual results.

9


 

 

No condensed consolidated statement of comprehensive income (loss) is presented because the Company had no comprehensive income or loss activity in the periods presented.

 

Use of Estimates. In the course of preparing its condensed consolidated financial statements, management makes various assumptions, judgments, and estimates to determine the reported amount of assets, liabilities, revenue, and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established. Significant areas requiring the use of assumptions, judgments and estimates include (i) oil and natural gas reserves; (ii) cash flow estimates used in ceiling tests of oil and natural gas properties; (iii) depreciation and amortization; (iv) impairment of unproved properties, investment in equity method investees and other assets; (v) assigning fair value and allocating purchase price in connection with business combinations; (vi) accrued revenue and related receivables; (vii) valuation of commodity derivative instruments and equity derivative instruments; (viii) accrued expenses and related liabilities; (ix) valuation of share-based payments and (x) income taxes. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company has evaluated subsequent events and transactions for matters that may require recognition or disclosure in these condensed consolidated financial statements.

 

Principles of Consolidation. The accounts of Triangle and its wholly-owned subsidiaries are presented in the accompanying condensed consolidated financial statements. All significant intercompany transactions and balances are eliminated in consolidation. Triangle generally uses the equity method of accounting for investments in entities in which Triangle has an ownership between 20% and 50% and exercises significant influence. The investment in Caliber is accounted for utilizing the equity method of accounting. Triangle deconsolidated TUSA as of June, 29, 2016 with the commencement of TUSA’s Chapter 11 bankruptcy filing and will account for its investment in TUSA under the cost method of accounting.

 

Oil and Natural Gas Properties. We use the full cost method of accounting, which involves capitalizing all acquisition, exploration, exploitation and development costs of oil and natural gas properties. Once we incur costs, they are recorded in the amortizable pool of proved properties or in unproved properties, collectively, the full cost pool. We review our unproved oil and natural gas property costs on a quarterly basis to assess for impairment or the need to transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations.

 

At the end of each quarterly period, we must compute a limitation on capitalized costs, which is equal to the sum of the present value of estimated future net revenues from our proved reserves by applying the average price as prescribed by the SEC (unweighted arithmetic average of commodity prices in effect on the first day of each of the previous twelve months), less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects. We then conduct a “ceiling test” that compares the net book value of the full cost pool, after taxes, to the full cost ceiling limitation. In the event the full cost ceiling limitation is less than the full cost pool, we are required to record an impairment of our oil and natural gas properties.

 

The ceiling test for each period presented was based on the following average spot prices, in each case adjusted for quality factors and regional differentials to derive estimated future net revenues. Prices presented in the table below are the trailing 12 month simple average spot prices at the first of the month for natural gas at Henry Hub (“HH”) and West Texas Intermediate (“WTI”) crude oil at Cushing, Oklahoma. The fluctuations demonstrate the volatility in oil and natural gas prices between each of the periods and have a significant impact on our ceiling test limitation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2016

 

April 30, 2016

 

June 29, 2016

Oil (per Bbl)

$

48.93

 

$

45.16

 

$

43.03

Natural gas (per MMbtu)

$

2.53

 

$

2.33

 

$

2.24

Natural gas liquids (per Bbl)

$

24.97

 

$

23.10

 

$

22.76

 

Prior to our deconsolidation of TUSA, we recognized impairments to our proved oil and natural gas properties of $25.0 million and $104.0 million, respectively, for the three and six months periods ended July 31, 2016, primarily due to the decline in oil, natural gas and natural gas liquids prices. Impairment charges do not affect cash flow from operating activities but do adversely affect our net income and stockholders’ equity. Any recorded impairment of oil and natural gas properties is not reversible at a later date.

 

10


 

The evaluation of impairment of our oil and natural gas properties includes estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revisions of such estimate. Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered.

 

Oilfield Services Equipment and Other Property and Equipment. Oilfield services equipment and other property and equipment consisted of the following as of:

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

January 31, 2016

    

July 31, 2016

Oilfield services equipment

 

$

110,992

 

$

111,920

Accumulated depreciation

 

 

(63,367)

 

 

(72,600)

Depreciable assets, net

 

 

47,625

 

 

39,320

Assets not placed in service

 

 

820

 

 

341

Total oilfield services equipment, net

 

$

48,445

 

$

39,661

 

 

 

 

 

 

 

Land

 

$

6,838

 

$

5,286

Building and leasehold improvements

 

 

37,149

 

 

29,608

Vehicles

 

 

5,036

 

 

4,918

Software, computers and office equipment

 

 

7,451

 

 

6,067

Capital leases

 

 

944

 

 

 —

Accumulated depreciation

 

 

(14,939)

 

 

(17,961)

Depreciable assets, net

 

 

42,479

 

 

27,918

Assets not placed in service

 

 

395

 

 

316

Total other property and equipment, net

 

$

42,874

 

$

28,234

 

Impairment of Long-Lived Assets. Long‑lived assets such as property and equipment and identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long‑lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long‑lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, and third‑party independent appraisals, as considered necessary. An impairment loss of $2.7 million, primarily related to other property and equipment, was recorded in the second quarter of fiscal year 2017 related to the potential sale of RockPile.

 

Income Taxes. The Company computes its quarterly tax provision using the effective tax rate method based on applying the anticipated annual effective rate to its year-to-date income or loss, except for discrete items. Income tax on discrete items is computed and recorded in the period in which the specific transaction occurs.

 

The carrying value of our oil and natural gas properties exceeded the calculated value of the ceiling limitation resulting in an impairment of $779.0 million for fiscal year 2016. This impairment resulted in Triangle having three years of cumulative historical pre-tax losses and a net deferred tax asset position. Triangle also had net operating loss carryovers (“NOLs”) for federal income tax purposes of $286.0 million at January 31, 2016. These losses and expected future losses resulting from the current low commodity price environment were a key consideration that led Triangle to provide a valuation allowance against its net deferred tax assets as of July 31, 2016, since it cannot conclude that it is more likely than not that its net deferred tax assets will be fully realized in future periods.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, management considers the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment. Future events or new evidence which may lead the Company to conclude that it is more likely than not that its net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained or continued improvements in oil prices, and taxable events that could result from one or more transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.

11


 

 

In the first quarter of fiscal year 2016 the Company recorded the benefit of reversing its net deferred tax liability. As long as the Company concludes that it will continue to have a need for a valuation allowance against its net deferred tax assets, the Company likely will not have any additional income tax expense or benefit other than for federal alternative minimum tax expense or for state income taxes.

 

As of July 31, 2016, the Company had no unrecognized tax benefits. The Company’s management does not believe that there are any new items or changes in facts or judgments that should impact the Company’s position during the first six months of fiscal year 2017. Given the substantial net operating loss carryforwards at both the federal and state levels, neither significant interest expense nor penalties charged for any examining agents’ tax adjustments of income tax returns are anticipated, as any such adjustments would very likely only adjust net operating loss carryforwards.

 

Earnings per Share. Basic earnings per common share is computed by dividing net income (loss) attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share reflects increases in average shares outstanding from the potential dilution, under the treasury stock method, that could occur upon (i) exercise of stock options, (ii) vesting of restricted stock units, and (iii) conversion of convertible debt. The treasury stock method assumes exercise, vesting or conversion at the beginning of a period for securities outstanding at the end of a period. Also, the treasury stock method for calculating dilution assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company at the quarter’s average stock price using assumed proceeds from (a) the exercise cost of the options and (b) the foregone future compensation expense of hypothetical early vesting of the outstanding restricted stock units. The assumed proceeds are adjusted for income tax effects. In the event of a net loss, no potential common shares are included in the calculation of shares outstanding, as their inclusion would be anti-dilutive.

 

The following table details the weighted average dilutive and anti-dilutive securities, which consist of options and unvested restricted stock, for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31,

 

For the Six Months Ended July 31,

(in thousands)

 

2015

    

2016

    

2015

    

 

2016

Dilutive

 

 

 —

 

 

126

 

 

 —

 

 

132

Anti-dilutive shares

 

 

10,889

 

 

8,274

 

 

10,889

 

 

8,274

 

The table below sets forth the computations of net income (loss) per common share (basic and diluted) for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31,

 

For the Six Months Ended July 31,

(in thousands, except per share data)

    

2015

    

2016

    

2015

    

2016

Net income (loss) attributable to common stockholders

 

$

(193,346)

 

$

217,007

 

$

(373,545)

 

$

122,900

Effect of 5% convertible note conversion

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net income (loss) attributable to common stockholders after effect of 5% convertible note conversion

 

$

(193,346)

 

$

217,007

 

$

(373,545)

 

$

122,900

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

75,410

 

 

76,334

 

 

75,334

 

 

76,214

Effect of dilutive securities

 

 

 —

 

 

126

 

 

 —

 

 

132

Diluted weighted average common shares outstanding

 

 

75,410

 

 

76,460

 

 

75,334

 

 

76,346

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

$

(2.56)

 

$

2.84

 

$

(4.96)

 

$

1.61

Diluted net income (loss) per share

 

$

(2.56)

 

$

2.84

 

$

(4.96)

 

$

1.61

 

Adopted and Recently Issued Accounting Pronouncements. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014‑09”). The objective of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, in August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date (“ASU 2015-14”), which deferred the effective date of ASU 2014‑09 for one year. ASU 2015-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The standards permit retrospective application using either of the following

12


 

methodologies: (i) restatement of each prior reporting period presented or (ii) recognition of a cumulative-effect adjustment as of the date of initial application. The Company is currently evaluating the impact of adopting ASU 2014‑09 and ASU 2015-14, including the transition method to be applied, however the standards are not expected to have a significant effect on its condensed consolidated financial statements.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). The guidance requires that lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier application permitted. The Company is still evaluating the impact of ASU 2016-02 on its financial position and results of operations.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09Improvements To Employee Share-Based Payment Accounting (“ASU 2016-09”).  The objective of ASU 2016-09 is to simplify several aspects of accounting for employee share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities and the classification in the statement of cash flows.  ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.  Certain parts of ASU 2016-09 must be applied prospectively, while other portions may be applied either prospectively or retrospectively.  Early adoption is permitted.  The Company is still evaluating the impact of ASU 2016‑09 on its financial and results of operations.

 

Reclassifications. Certain prior period balances in the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations have been reclassified to conform to the current year presentation. Such reclassifications had no impact on net income, cash flows or shareholders’ equity previously reported.

 

13


 

2.  SEGMENT REPORTING.

 

We conduct our operations within two reportable operating segments. We identified each segment based on management’s responsibility and the nature of their products, services, and costs. There are no major distinctions in geographical areas served as nearly all operations are in the Williston Basin of the United States. The Exploration and Production operating segment, consisting of TUSA and several insignificant oil and natural gas subsidiaries, is responsible for finding and producing oil and natural gas. TUSA was deconsolidated as of June 29, 2016 and its operating results are only included through that date. The Oilfield Services segment, consisting of RockPile and its subsidiaries, is responsible for a variety of oilfield and well completion services for both TUSA-operated wells and wells operated by third-parties. Corporate and Other includes our corporate office and several subsidiaries that management does not consider to be part of the Exploration and Production or Oilfield Services segments. Also included in Corporate and Other are our results from our investment in Caliber, including any changes in the fair value of our equity investment derivatives. 

 

Management evaluates the performance of our segments based upon net income (loss) before income taxes. The following tables present selected financial information for our operating segments for the three months and six months ended July 31, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2016

 

 

Exploration

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

and

 

Oilfield

 

and

 

 

 

 

Consolidated

(in thousands)

 

Production (1)

    

Services

    

Other (2)

    

Eliminations

    

Total

Revenues:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

24,091

 

$

 —

 

$

 —

 

$

 —

 

$

24,091

Oilfield services for third parties

 

 

 —

 

 

25,458

 

 

 —

 

 

(17)

 

 

25,441

Intersegment revenues

 

 

 —

 

 

143

 

 

 —

 

 

(143)

 

 

 —

Total revenues

 

 

24,091

 

 

25,601

 

 

 —

 

 

(160)

 

 

49,532

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating and production taxes

 

 

9,094

 

 

 —

 

 

 —

 

 

 —

 

 

9,094

Gathering, transportation and processing

 

 

3,637

 

 

 —

 

 

 —

 

 

 —

 

 

3,637

Depreciation, amortization and accretion

 

 

5,237

 

 

5,180

 

 

347

 

 

(110)

 

 

10,654

Impairments

 

 

25,000

 

 

 —

 

 

2,657

 

 

 —

 

 

27,657

Oilfield services

 

 

 —

 

 

22,811

 

 

 —

 

 

(118)

 

 

22,693

General and administrative, net of amounts capitalized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,076

 

 

3,015

 

 

2,358

 

 

 —

 

 

6,449

Share-based compensation

 

 

459

 

 

167

 

 

2,148

 

 

 —

 

 

2,774

Other general and administrative

 

 

5,292

 

 

3,849

 

 

3,700

 

 

 —

 

 

12,841

Total operating expenses

 

 

49,795

 

 

35,022

 

 

11,210

 

 

(228)

 

 

95,799

Income (loss) from operations

 

 

(25,704)

 

 

(9,421)

 

 

(11,210)

 

 

68

 

 

(46,267)

Other income (expense)

 

 

(15,731)

 

 

(1,126)

 

 

280,132

 

 

(1)

 

 

263,274

Income (loss) before income taxes

 

$

(41,435)

 

$

(10,547)

 

$

268,922

 

$

67

 

$

217,007

(1)Triangle deconsolidated TUSA as of June 29, 2016 with the commencement of TUSA’s Chapter 11 filing, and TUSA’s results are only included through that date.

 

(2)Triangle deconsolidated Ranger as of June 29, 2016 with the commencement of Ranger’s Chapter 11 filing, and Ranger’s results are only included through that date.

 

14


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2015

 

 

Exploration

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

and

 

Oilfield

 

and

 

 

 

 

Consolidated

(in thousands)

 

Production

    

Services

    

Other

    

Eliminations

    

Total

Revenues:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

55,263

 

$

 —

 

$

 —

 

$

 —

 

$

55,263

Oilfield services for third parties

 

 

 —

 

 

54,830

 

 

 —

 

 

(360)

 

 

54,470

Intersegment revenues

 

 

 —

 

 

14,601

 

 

 —

 

 

(14,601)

 

 

 —

Total revenues

 

 

55,263

 

 

69,431

 

 

 —

 

 

(14,961)

 

 

109,733

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating and production taxes

 

 

16,804

 

 

 —

 

 

 —

 

 

 —

 

 

16,804

Gathering, transportation and processing

 

 

6,641

 

 

 —

 

 

 —

 

 

 —

 

 

6,641

Depreciation, amortization and accretion

 

 

24,631

 

 

8,718

 

 

407

 

 

(1,408)

 

 

32,348

Impairments

 

 

206,000

 

 

 —

 

 

 —

 

 

 —

 

 

206,000

Oilfield services

 

 

 —

 

 

56,353

 

 

 —

 

 

(8,396)

 

 

47,957

General and administrative, net of amounts capitalized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

584

 

 

3,940

 

 

3,045

 

 

 —

 

 

7,569

Share-based compensation

 

 

375

 

 

84

 

 

3,167

 

 

 —

 

 

3,626

Other general and administrative

 

 

349

 

 

1,034

 

 

2,011

 

 

 —

 

 

3,394

Total operating expenses

 

 

255,384

 

 

70,129

 

 

8,630

 

 

(9,804)

 

 

324,339

Income (loss) from operations

 

 

(200,121)

 

 

(698)

 

 

(8,630)

 

 

(5,157)

 

 

(214,606)

Other income (expense)

 

 

18,290

 

 

(845)

 

 

4,354

 

 

(539)

 

 

21,260

Income (loss) before income taxes

 

$

(181,831)

 

$

(1,543)

 

$

(4,276)

 

$

(5,696)

 

$

(193,346)

 

15


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31, 2016

 

 

Exploration

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

and

 

Oilfield

 

and

 

 

 

 

Consolidated

(in thousands)

    

Production (1)

    

Services

    

Other (2)

    

Eliminations

    

Total

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

48,943

 

$

 —

 

$

 —

 

$

 —

 

$

48,943

Oilfield services for third parties

 

 

 —

 

 

45,078

 

 

 —

 

 

(117)

 

 

44,961

Intersegment revenues

 

 

 —

 

 

5,839

 

 

 —

 

 

(5,839)

 

 

 —

Total revenues

 

 

48,943

 

 

50,917

 

 

 —

 

 

(5,956)

 

 

93,904

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating and production taxes

 

 

19,775

 

 

 —

 

 

 —

 

 

 —

 

 

19,775

Gathering, transportation and processing

 

 

9,245

 

 

 —

 

 

 —

 

 

 —

 

 

9,245

Depreciation, amortization and accretion

 

 

14,965

 

 

10,870

 

 

712

 

 

(882)

 

 

25,665

Impairments

 

 

104,000

 

 

 —

 

 

2,657

 

 

 —

 

 

106,657

Oilfield services

 

 

 —

 

 

43,192

 

 

 —

 

 

(3,828)

 

 

39,364

General and administrative, net of amounts capitalized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,725

 

 

6,303

 

 

3,297

 

 

 —

 

 

12,325

Share-based compensation

 

 

1,236

 

 

335

 

 

3,015

 

 

 —

 

 

4,586

Other general and administrative

 

 

5,680

 

 

5,056

 

 

5,740

 

 

 —

 

 

16,476

Total operating expenses

 

 

157,626

 

 

65,756

 

 

15,421

 

 

(4,710)

 

 

234,093

Income (loss) from operations

 

 

(108,683)

 

 

(14,839)

 

 

(15,421)

 

 

(1,246)

 

 

(140,189)

Other income (expense)

 

 

(12,823)

 

 

(2,376)

 

 

278,451

 

 

(163)

 

 

263,089

Income (loss) before income taxes

 

$

(121,506)

 

$

(17,215)

 

$

263,030

 

$

(1,409)

 

$

122,900

As of July 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

171

 

$

17,456

 

$

12,669

 

$

 —

 

$

30,296

Net oil and natural gas properties

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Oilfield services equipment, net

 

$

 —

 

$

39,661

 

$

 —

 

$

 —

 

$

39,661

Other property and equipment, net

 

$

 —

 

$

16,318

 

$

11,916

 

$

 —

 

$

28,234

Total assets

 

$

1,599

 

$

97,031

 

$

55,932

 

$

 —

 

$

154,562

Total liabilities

 

$

8

 

$

134,042

 

$

157,698

 

$

 —

 

$

291,748

(1)Triangle deconsolidated TUSA as of June 29, 2016 with the commencement of TUSA’s Chapter 11 filing, and TUSA’s results are only included through that date.

 

(2)Triangle deconsolidated Ranger as of June 29, 2016 with the commencement of Ranger’s Chapter 11 filing, and Ranger’s results are only included through that date.

 

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31, 2015

 

 

Exploration

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

and

 

Oilfield

 

and

 

 

 

 

Consolidated

(in thousands)

 

Production

    

Services

    

Other

    

Eliminations

    

Total

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids sales

 

$

103,041

 

$

 —

 

$

 —

 

$

 

 

$

103,041

Oilfield services for third parties

 

 

 —

 

 

125,920

 

 

 —

 

 

(940)

 

 

124,980

Intersegment revenues

 

 

 —

 

 

24,105

 

 

 —

 

 

(24,105)

 

 

 —

Total revenues

 

 

103,041

 

 

150,025

 

 

 —

 

 

(25,045)

 

 

228,021

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating and production taxes

 

 

32,514

 

 

 —

 

 

 —

 

 

 —

 

 

32,514

Gathering, transportation and processing

 

 

12,989

 

 

 —

 

 

 —

 

 

 —

 

 

12,989

Depreciation, amortization and accretion

 

 

53,973

 

 

18,207

 

 

732

 

 

(2,715)

 

 

70,197

Impairments

 

 

398,000

 

 

 —

 

 

 —

 

 

 —

 

 

398,000

Oilfield services

 

 

 —

 

 

126,939

 

 

 —

 

 

(14,756)

 

 

112,183

General and administrative, net of amounts capitalized:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

925

 

 

8,769

 

 

6,298

 

 

 —

 

 

15,992

Share-based compensation

 

 

696

 

 

135

 

 

5,303

 

 

 —

 

 

6,134

Other general and administrative

 

 

756

 

 

2,831

 

 

3,735

 

 

 —

 

 

7,322

Total operating expenses

 

 

499,853

 

 

156,881

 

 

16,068

 

 

(17,471)

 

 

655,331

Income (loss) from operations

 

 

(396,812)

 

 

(6,856)

 

 

(16,068)

 

 

(7,574)

 

 

(427,310)

Other income (expense)

 

 

(2,712)

 

 

(1,720)

 

 

5,802

 

 

(1,046)

 

 

324

Income (loss) before income taxes

 

$

(399,524)

 

$

(8,576)

 

$

(10,266)

 

$

(8,620)

 

$

(426,986)

 

Eliminations and Other. For consolidation, intercompany revenues and expenses are eliminated with a corresponding reduction in Triangle’s capitalized well costs.

 

Under the full cost method of accounting, we defer recognition of oilfield services income (intersegment revenues less cost of oilfield services and related depreciation) for wells that we operate and this deferred income is credited to proved oil and natural gas properties. In addition, we eliminate our non-operating partners’ share of oilfield services income for well completion activities on properties we operate. We also defer Caliber gross profit from our share of its income associated with services it provided that were capitalized by TUSA, by charging such gross profit against income from equity investment and crediting proved oil and natural gas properties.

 

These differences, as well as differing amounts for impairments, result in basis differences between the net oil and gas property amounts presented in Triangle’s financial statements compared to those presented in TUSA’s standalone financial statements.

 

17


 

3.  LONG-TERM DEBT.

 

The Company’s long-term debt consisted of the following as of January 31, 2016 and July 31, 2016:

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

January 31, 2016

    

July 31, 2016

TUSA credit facility due October 2018 (1)

 

$

243,772

 

$

 —

RockPile credit facility due March 2019

 

 

112,000

 

 

111,821

TUSA 6.75% notes due July 2022 (1)

 

 

398,419

 

 

 —

5% convertible note

 

 

142,799

 

 

146,392

Other notes and mortgages payable

 

 

14,065

 

 

13,278

Total principal

 

 

911,055

 

 

271,491

Debt issuance costs

 

 

(7,924)

 

 

(434)

Total debt

 

 

903,131

 

 

271,057

Less current portion of debt:

 

 

 

 

 

 

RockPile credit facility

 

 

(112,000)

 

 

(111,821)

Other notes and mortgages payable

 

 

(2,088)

 

 

(2,632)

Total current portion of long-term debt

 

 

(114,088)

 

 

(114,453)

Total long-term debt

 

$

789,043

 

$

156,604

(1)Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing.

 

RockPile Credit Facility.  On March 25, 2014, RockPile entered into a Credit Agreement to provide a $100.0 million senior secured revolving credit facility. On November 13, 2014, RockPile entered into Amendment No. 1 to Credit Agreement and Incremental Commitment Agreement, which amended the credit facility to increase the borrowing capacity under the facility from $100.0 million to $150.0 million. The RockPile credit facility has a maturity date of March 25, 2019.

 

Borrowings under the RockPile credit facility bear interest, at RockPile’s option, at either (i) the alternative base rate (the highest of (a) the administrative agent’s prime rate, (b) the federal funds rate plus 0.5%, or (c) the one-month adjusted Eurodollar rate (as defined in the agreement) plus 1.0%), plus an applicable margin that ranges between 1.5% and 2.25%, depending on RockPile’s leverage ratio as of the last day of RockPile’s most recently completed fiscal quarter, or (ii) the Eurodollar rate plus an applicable margin that ranges between 2.50% and 3.25%, depending on RockPile’s leverage ratio as of the last day of RockPile’s most recently completed fiscal quarter.

 

RockPile pays a commitment fee that ranges between 0.375% and 0.50% per annum on the unused availability under the RockPile credit facility. RockPile also pays a per annum fee on all letters of credit issued under the RockPile credit facility, which will equal the applicable margin for loans accruing interest based on the Eurodollar rate and a fronting fee to the issuing lender equal to 0.125% of the letter of credit amount. The obligations under the RockPile credit facility are guaranteed by RockPile’s subsidiaries, but Triangle is not a guarantor.  

 

The RockPile credit facility contains financial covenants requiring RockPile to maintain specified ratios of consolidated debt to EBITDA and Adjusted EBITDA to Fixed Charges. RockPile has a cure right to obtain a cash capital contribution from Triangle or another investor approved by Triangle on or before ten days following the date that its compliance certificates are due (45 days after quarter ends and 120 days after its fiscal year end) to cure such a breach (an equity cure). The cure amount is defined as the amount which, if added to EBITDA for the test period in which a default of the financial covenant occurred, would cause the financial covenant for such test period to be satisfied. RockPile may exercise this cure right in no more than two of any four consecutive fiscal quarters and no more than five times during the term of the credit facility. To date, RockPile has not exercised an equity cure right.

 

On April 13, 2016, RockPile entered into the RockPile Waiver Amendment, which waived any default or event of default in connection with the financial covenants that occurred as of January 31, 2016 and July 31, 2016. The waivers are conditioned on RockPile agreeing to certain informational and process requirements and deadlines. Following the execution of the RockPile Waiver Amendment, RockPile is precluded from drawing additional funds under its credit facility.

 

18


 

Beginning with the second quarter and for the remainder of fiscal year 2017, RockPile does not expect to comply with all of the financial covenants contained in its credit facility unless those requirements are also waived or amended or unless RockPile can obtain new capital or equity cure financing. RockPile remains in discussions regarding strategic alternatives and is nearing the end of a robust sale process that must be approved by its lenders. If RockPile is unable to reach agreement with its lenders, obtain waivers, find acceptable alternative financing or obtain equity cure contributions, RockPile’s credit facility lenders could elect to declare some or all of the amounts outstanding under the facility to be immediately due and payable. If this happens, the Company does not currently have sufficient liquidity to make the RockPile equity cure and RockPile does not have sufficient cash on hand to repay this outstanding debt. Therefore, the condensed consolidated balance sheets reflect all of the amounts outstanding under the RockPile credit facility as current liabilities as of January 31, 2016 and July 31, 2016. Triangle has not guaranteed RockPile’s obligations under the credit facility, and there are no cross-default provisions in Triangle’s or TUSA’s other debt agreements that could cause the acceleration of such indebtedness as a result of the RockPile credit facility default.

 

Convertible Note. On July 31, 2012, the Company sold to NGP Triangle Holdings, LLC a 5% convertible note with an initial principal amount of $120.0 million (the “Convertible Note”) that became convertible after November 16, 2012, in whole or in part, into the Company’s common stock at a conversion rate of one share per $8.00 of outstanding balance.

 

The Convertible Note accrues interest at a rate of 5.0% per annum, compounded quarterly, on each December 31, March 31, June 30 and September 30, and on the date of any redemption, conversion or exchange of the Convertible Note. Such interest is paid-in-kind by adding to the principal balance of the Convertible Note, provided that, after September 30, 2017, the Company has the option to make such interest payments in cash. As of July 31, 2016, $26.4 million of accrued interest has been added to the principal balance of the Convertible Note.

 

The Convertible Note does not have a stated maturity. Following July 31, 2017, if the trading price of the Company’s common stock exceeds $11.00 per share for 20 consecutive trading days and certain trading volume requirements are met, the Company can elect to redeem all (but not less than all) of the Convertible Note at a price equal to the outstanding principal amount plus accrued and unpaid interest, payable, at the Company’s option, in cash or common stock. Following July 31, 2020, the Company can elect to redeem all (but not less than all) of the Convertible Note at a price equal to the outstanding principal amount plus accrued and unpaid interest, payable in cash. Further, following July 31, 2022, a change of control of the Company, or certain other fundamental changes (as defined in the indenture), the holder of the Convertible Note will have the right to require the Company to redeem the Convertible Note at a price equal to the outstanding principal amount plus accrued and unpaid interest, with an additional make-whole payment for scheduled interest payments remaining if such right is exercised prior to July 31, 2017.

 

If any creditor exercises their right to demand payment, it may reduce the amortization period of related unamortized debt issuance costs.

 

 

4.  HEDGING AND COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS.

 

Through TUSA, the Company has entered into commodity derivative instruments utilizing costless collars and swaps to reduce the effect of price changes on a portion of our future oil production. A collar requires us to pay the counterparty if the settlement price is above the ceiling price, and requires the counterparty to pay us if the settlement price is below the floor price. The objective of TUSA’s use of derivative financial instruments is to achieve more predictable cash flows in an environment of volatile oil and natural gas prices and to manage its exposure to commodity price risk. While the use of these derivative instruments limits the downside risk of adverse price movements, such use may also limit TUSA’s ability to benefit from favorable price movements. TUSA may, from time to time, add incremental derivatives to hedge additional production, restructure or reduce existing derivative contracts, or enter into new transactions to modify the terms of current contracts in order to realize the current value of TUSA’s existing positions. TUSA does not enter into derivative contracts for speculative purposes.

 

The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. TUSA’s derivative contracts are currently with six counterparties. TUSA has netting arrangements with each counterparty that provide for the offset of payables against receivables from separate derivative arrangements with the same underlier with the counterparty in the event of contract termination. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

 

19


 

TUSA’s commodity derivative instruments are measured at fair value. TUSA has not designated any of its derivative contracts as fair value or cash flow hedges. Therefore, the Company does not apply hedge accounting to its commodity derivative instruments. Net gains and losses on derivative activities are recorded based on the changes in the fair values of the derivative instruments. TUSA’s cash flows are only impacted when the actual settlements under the commodity derivative contracts result in a payment to or from the counterparty. These settlements under the commodity derivative contracts are reflected as operating activities in the Company’s condensed consolidated statements of cash flows. 

 

The components of commodity derivative gains (losses) in the condensed consolidated statements of operations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31,

 

For the Six Months Ended July 31,

(in thousands)

 

2015

 

2016

 

2015

 

2016

Realized commodity derivative gains (losses)

 

$

17,016

 

$

4,485

 

$

36,484

 

$

6,589

Unrealized commodity derivative gains (losses)

 

 

8,033

 

 

(7,747)

 

 

(25,409)

 

 

(19,532)

Commodity derivative gains (losses), net

 

$

25,049

 

$

(3,262)

 

$

11,075

 

$

(12,943)

 

The estimated fair values of commodity derivatives included in the condensed consolidated balance sheets at January 31, 2016 and July 31, 2016 are summarized below. TUSA does not offset asset and liability positions with the same counterparties within the condensed consolidated financial statements; rather, all contracts are presented at their gross estimated fair value.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

January 31, 2016

 

July 31, 2016

Current Assets:

 

 

 

 

 

 

Crude oil derivative contracts (1)

 

$

12,370

 

$

 —

Other Long-Term Assets:

 

 

 

 

 

 

Crude oil derivative contracts (1)

 

 

9,012

 

 

 —

Total derivative asset

 

$

21,382

 

$

 —


(1)Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing.

 

 

5.  ASSET RETIREMENT OBLIGATIONS

 

The Company’s asset retirement obligations (“ARO”) represent the estimated present value of the amounts expected to be incurred to plug, abandon, and remediate producing and shut-in properties at the end of their productive lives in accordance with applicable state and federal laws. The Company determines the estimated fair value of its ARO when incurred by calculating the present value of estimated cash flows related to plugging and abandonment liabilities. The significant inputs used to calculate such liabilities include estimates of costs to be incurred, the Company’s credit adjusted discount rates, inflation rates and estimated dates of abandonment. The asset retirement liability is accreted to its present value each period and the capitalized asset retirement cost is depleted as a component of the full cost pool using the units-of-production method.

 

The following table reflects the change in ARO for the six months ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

(in thousands)

 

July 31, 2016

Balance at the beginning of the period

 

$

10,073

Liabilities incurred

 

 

 —

Revision of estimates

 

 

(451)

Sale of assets

 

 

 —

Liabilities settled

 

 

(4,550)

Accretion

 

 

204

Deconsolidation of TUSA

 

 

(5,276)

Balance at the end of the period

 

$

 —

 

The current portion of ARO is classified with other accrued liabilities and the long-term ARO is classified in other long-term liabilities in the accompanying condensed consolidated balance sheets.

 

20


 

At January 31, 2016, $4.9 million of our ARO balance related to the reclamation of man-made ponds holding produced formation water and the plugging and abandonment of well bores in the Maritimes Basin of Canada. These obligations were settled for $4.6 million during the six months ended July 31, 2016. Additionally, TUSA was deconsolidated as of June 29, 2016, which resulted in the removal of $5.3 million of ARO from our condensed consolidated balance sheet as of that date.

 

6.  UNCONSOLIDATED INVESTMENTS AND EQUITY INVESTMENT DERIVATIVES.

 

Caliber Investment. The following summarizes the activities related to the Company’s equity method investment in Caliber for the six months ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31,

(in thousands)

 

2016

Balance at beginning of period

 

$

45,600

Capital contributions

 

 

 —

Distributions

 

 

 —

Equity investment share of net income before intra-company profit eliminations

 

 

170

Change in fair value of warrants

 

 

(3,300)

Other than temporary impairment

 

 

(21,170)

Balance at end of period

 

$

21,300

Fair value of trigger unit warrants and warrants at July 31, 2016

 

$

300

 

We evaluate our equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. In TUSA’s Chapter 11 filing, TUSA is seeking a final judgment or order authorizing TUSA to reject certain midstream services agreements with Caliber. Although the matter has yet to be resolved, it has adversely impacted the fair value of our investment in Caliber resulting in the carrying value of our investment in Caliber exceeding its fair value at July 31, 2016. Since we deemed this decline in fair value to be other than temporary, we recorded an impairment of $21.2 million in the six months ended July 31, 2016.

 

Caliber Equity Investment Derivatives. At January 31, 2016 and July 31, 2016, the Company held Class A (Series 1 through Series 4 and Series 6) Warrants to acquire additional ownership in Caliber. These instruments are considered to be equity investment derivatives and are valued at each reporting period using valuation techniques for which the inputs are generally less observable than from objective sources.

 

TUSA. Effective June 29, 2016, as a result of the commencement of the Chapter 11 Cases, we deconsolidated our investment in TUSA, a wholly-owned subsidiary, and commenced accounting for our investment in TUSA using the cost method of accounting. See Note 1—Chapter 11 Filing by Certain Subsidiaries— which describes the basis for valuing Triangle’s investment in TUSA at $3.9 million.

 

7.  CAPITAL STOCK.

 

At July 31, 2016, the Company had 106.7 million shares of common stock issued or reserved for issuance, comprised of 76.5 million shares of common stock issued and outstanding, 0.8 million shares of common stock reserved for issuance pursuant to outstanding awards under its 2011 Omnibus Incentive Plan, 6.0 million shares of common stock reserved for issuance under its CEO Stand-Alone Stock Option Agreement, 1.4 million shares of common stock reserved for issuance pursuant to outstanding awards under its 2014 Equity Incentive Plan (the “2014 Plan”), 3.7 million shares of reserved common stock that remained available for issuance under the 2014 Plan, and 18.3 million shares of common stock reserved for issuance pursuant to the Convertible Note.

 

The Company’s Board of Directors (the “Board”) approved a program authorizing the repurchase of outstanding shares of the Company’s common stock in amounts equal to the aggregate of (i) $25.0 million of the Company’s common stock (“Tranche 1”), (ii) up to the number of shares of common stock authorized for issuance under the Company’s 2014 Equity Incentive Plan and its CEO Stand-Alone Stock Option Agreement (“Tranche 2”), and (iii) up to the number of shares of common stock potentially issuable, at any given time, pursuant to the paid-in-kind interest accrued on the Convertible Note (“Tranche 3”). The program stipulates that shares of common stock may be repurchased from time to time, in amounts and at prices that the Company deems appropriate, subject to market and business conditions and other considerations. The repurchase program has no expiration date and may be suspended or discontinued at any time without prior notice. There were no common stock repurchases for the three and six months ended July 31, 2016. As of July 31,

21


 

2016, the number of shares of common stock remaining available for repurchase under the Board approved program was 6,258,265 shares.

 

8.  SHARE-BASED COMPENSATION.

 

The Company has granted equity awards to officers, directors, and certain employees of the Company including restricted stock units and stock options. In addition, RockPile has granted Series B Units which represent interests in future RockPile profits. The Company measures its awards based on the award’s grant date fair value which is recognized on a straight-line basis over the applicable vesting period.

 

For the three and six months ended July 31, 2015 and 2016, the Company recorded share-based compensation as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31,

 

For the Six Months Ended July 31,

(in thousands)

    

2015

    

2016

    

2015

 

2016

Restricted stock units

 

$

2,584

 

$

1,294

 

$

4,663

 

$

2,124

Stock options

 

 

1,347

 

 

1,459

 

 

2,045

 

 

2,493

RockPile Series B Units

 

 

84

 

 

167

 

 

135

 

 

335

 

 

 

4,015

 

 

2,920

 

 

6,843

 

 

4,952

Less amounts capitalized to oil and natural gas properties

 

 

(389)

 

 

(146)

 

 

(709)

 

 

(366)

Compensation expense

 

$

3,626

 

$

2,774

 

$

6,134

 

$

4,586

 

Restricted Stock Units. As of July 31, 2016 there was approximately $8.4 million of total unrecognized compensation expense related to unvested restricted stock units. This compensation expense is expected to be recognized over the remaining vesting period of the related awards of approximately 1.8 years on a weighted average basis. When restricted stock units vest, the holder has the right to receive one share of the Company’s common stock per vesting unit.  

 

The following table summarizes the activity for our restricted stock units during the six months ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of

 

Award Date

 

 

    

Shares

    

Fair Value

Restricted stock units outstanding - January 31, 2016

 

 

3,455,845

 

$

6.35

Units granted

 

 

 —

 

$

 —

Units forfeited

 

 

(517,387)

 

$

8.37

Units vested

 

 

(897,312)

 

$

5.29

Restricted stock units outstanding - July 31, 2016

 

 

2,041,146

 

$

6.31

 

Stock Options. The following table summarizes the activity for our stock options during the six months ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted 

 

 

Number of

 

Average

 

    

Shares

    

Exercise Price

Options outstanding - January 31, 2016 (1,433,334 exercisable)

 

6,700,000

 

$

11.54

Options forfeited

 

(466,666)

 

$

14.00

Options exercised

 

 —

 

$

 —

Options granted

 

 —

 

$

 —

Options outstanding - July 31, 2016 (4,433,334 exercisable)

 

6,233,334

 

$

11.35

 

22


 

The following table summarizes the stock options outstanding at July 31, 2016:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

Exercise Price

 

Contractual Life

 

Number of Shares

per Share

    

(years)

    

Outstanding

    

Exercisable

$

7.50

 

6.93

 

 

750,000

 

 

525,000

$

8.50

 

6.93

 

 

750,000

 

 

525,000

$

10.00

 

6.93

 

 

1,500,000

 

 

1,050,000

$

12.00

 

6.93

 

 

1,500,000

 

 

1,050,000

$

15.00

 

6.93

 

 

1,500,000

 

 

1,050,000

$

12.00

 

5.11

 

 

77,778

 

 

77,778

$

14.00

 

5.11

 

 

77,778

 

 

77,778

$

16.00

 

8.12

 

 

77,778

 

 

77,778

 

 

 

 

 

 

6,233,334

 

 

4,433,334

 

 

 

 

 

 

 

 

 

 

Weighted average exercise price per share

$

11.35

 

$

11.39

 

 

 

 

 

 

 

 

 

 

Weighted average remaining contractual life (years)

 

6.90

 

 

6.89

 

As of July 31, 2016 there was approximately $6.6 million of total unrecognized compensation expense related to stock options. This compensation expense is expected to be recognized over the remaining vesting period of the related awards of approximately 1.9 years.

 

RockPile Share-Based Compensation. RockPile currently has two classes of equity; Series A Units, which are voting units with an 8% preference, and Series B Units, which are non-voting equity awards that generally vest over a requisite service period of 3 to 5 years. RockPile approved a plan that includes provisions allowing RockPile to make equity grants in the form of restricted units (“Series B Units”) pursuant to Restricted Unit Agreements. The plan authorizes RockPile to issue an aggregate of up to 6.0 million Series B Units in multiple series designated by a sequential number with the right to reissue forfeited or redeemed Series B Units.

 

The following table summarizes the activity for RockPile’s Series B Units for the six months ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

Series

 

Series

 

Series

 

Series

 

Series

 

 

 

    

B-1 units

    

B-2 units

    

B-3 units

    

B-4 units

    

B-5 units

    

B-6 units

    

Total

Units outstanding - January 31, 2016

 

2,920,000

 

60,000

 

814,000

 

1,321,200

 

397,500

 

217,500

 

5,730,200

Units redeemed

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Units granted

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Units forfeited

 

 —

 

 —

 

(24,000)

 

(3,000)

 

(60,000)

 

(8,500)

 

(95,500)

Units outstanding - July 31, 2016

 

2,920,000

 

60,000

 

790,000

 

1,318,200

 

337,500

 

209,000

 

5,634,700

Vested

 

2,920,000

 

60,000

 

546,000

 

231,000

 

75,500

 

43,000

 

3,875,500

Unvested

 

 —

 

 —

 

244,000

 

1,087,200

 

262,000

 

166,000

 

1,759,200

 

Compensation costs are determined using a Black-Scholes option pricing model based upon the grant date calculated fair market value of the award and is recognized ratably over the applicable vesting period. As of July 31, 2016, there was approximately $1.5 million of unrecognized compensation expense related to unvested Series B Units. We expect to recognize such expense on a pro-rata basis on the Series B Units’ over the remaining vesting period of the related awards of 2.5 years.

 

23


 

9.  FAIR VALUE MEASUREMENTS.

 

The FASB’s ASC 820, Fair Value Measurement and Disclosure, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

·

Level 1: Quoted prices are available in active markets for identical assets or liabilities;

·

Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; and

·

Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flows models or valuations.

 

The financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.  

 

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of January 31, 2016 and July 31, 2016, by level within the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 31, 2016

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative assets

 

$

 —

 

$

21,382

 

$

 —

 

$

21,382

Equity investment derivative assets

 

$

 —

 

$

 —

 

$

3,600

 

$

3,600

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative liabilities

 

$

 —

 

$

 —

 

$

 —

 

$

 —

RockPile earn-out liability

 

$

 —

 

$

(1,265)

 

$

 —

 

$

(1,265)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of July 31, 2016

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Equity investment derivative assets

 

$

 —

 

$

 —

 

$

300

 

$

300

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

RockPile earn-out liability

 

$

 —

 

$

(593)

 

$

 —

 

$

(593)

 

Commodity Derivative Instruments. The Company determines its estimate of the fair value of commodity derivative instruments using a market approach based on several factors, including quoted market prices in active markets, quotes from third-parties, the credit rating of each counterparty, and the Company’s own credit rating. In considering counterparty credit risk, the Company assessed the possibility of whether the counterparty to the derivative would default by failing to make any contractually required payments. The Company believes that each of its counterparties is creditworthy and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions. The Company’s commodity derivative instruments are valued using public indices and are traded with third-party counterparties, but are not openly traded on an exchange. As such, the Company has classified these commodity derivative instruments as Level 2. Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing.

 

Nonrecurring Fair Value Measurements. For certain situations, the Company is also required to make fair value measurements for assets and liabilities in the consolidated balance sheet after their initial recognition. At January 31, 2016 and July 31, 2016, the Company was required to make fair value measurements for comparisons to the carrying values of long-lived assets and its investments in unconsolidated subsidiaries to assess whether any impairments were required.

24


 

 

The Company determined its estimate of the fair value of long-lived assets, primarily oilfield services equipment, using discounted cash flow models, replacement cost estimates from a major third-party vendor, and a market approach based on estimates from an independent, third party appraiser. At July 31, 2016, the Company determined its estimate of the fair value of long-lived assets, primarily real estate, using a market approach based on estimates from an independent, third party appraiser. Key inputs into these valuation approaches are generally less observable than those from objective sources. Therefore, the Company considers the related long-lived assets as Level 3.

 

As described above, the Company uses an income approach and a market approach to value its investments in unconsolidated subsidiaries. The MCS model that is used by the Company to determine the fair value of the Caliber Class A Warrants is also used by the Company to determine the fair value of the Company’s investment in Caliber Class A Units in its other than temporary impairment evaluation. Therefore, the Company considers its investments in unconsolidated subsidiaries as Level 3.

 

Caliber Class A Warrants (Series 1 through Series 4 and Series 6). The Company determines its estimate of the fair value of Caliber Class A Warrants using a Monte Carlo Simulation (“MCS”) model. For each MCS, the values of the Class A Units and Class A Warrants were forecasted at the end of each quarter based on a predetermined yield, and the strike price for the warrant is adjusted accordingly. At July 31, 2016, the fair values of the underlying Class A Units and Class A Warrants were estimated employing an income approach using a MCS model and discounted cash flows, and a market approach based on observed valuation multiples for comparable public companies. Key inputs into these valuation approaches are generally less observable than those from objective sources. Therefore, the Company has classified these instruments as Level 3.

 

Earn-out Liability. The Company determined the estimated fair value of the earn-out liability relating to RockPile’s acquisition of Team Well Service, Inc. using a market approach based on information derived from an analysis performed for RockPile by an independent third-party. This analysis used publicly available information from market participants in the same industry, generally accepted methods for estimating an investor’s return requirements, and quoted market prices in active markets. As such, the earn-out liability has been classified as Level 2.

 

Fair Value of Financial Instruments.  The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable and payable, derivatives and Caliber Class A Warrants (discussed above), and long-term debt. The carrying values of cash equivalents and accounts receivable and payable are representative of their fair values due to their short-term maturities. The carrying amount of the Company’s revolving credit facilities approximated fair value because the interest rate of the facilities is variable. The fair values of the other notes and mortgages payable is not significantly different than their carrying values. The fair value of the TUSA 6.75% Notes is derived from quoted market prices (Level 1). The Convertible Note’s estimated fair value is based on quoted market prices for similar debt instruments and option pricing (Level 3). This disclosure does not impact our financial position, results of operations or cash flows.

 

The carrying values and fair values of the Company’s debt instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2016

 

July 31, 2016

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

(in thousands)

    

Value

    

Fair Value

    

Value

    

Fair Value

TUSA credit facility

 

$

243,772

 

$

243,772

 

$

 —

 

$

(1)

RockPile credit facility

 

 

112,000

 

 

(2)

 

 

111,821

 

 

(2)

TUSA 6.75% notes

 

 

398,419

 

 

71,051

 

 

 —

 

 

(1)

5% convertible note

 

 

142,799

 

 

22,564

 

 

146,392

 

 

(2)

Other notes and mortgages payable

 

 

14,065

 

 

14,065

 

 

13,278

 

 

13,278

(1)Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing.

 

(2)The Company is unable to reasonably determine the fair value for these financial instruments due to a lack of actively quoted market prices and uncertainties related to its restructuring activities.

 

25


 

10.   RELATED PARTY TRANSACTIONS

 

The accounts receivable – related parties balance of $1.6 million at July 31, 2016 primarily represents amounts due from TUSA for management fees due to Triangle and amounts due from TUSA to RockPile for oilfield services.

 

11.  CONTINGENCIES.

 

On May 26, 2016, the Company received a demand for arbitration in connection with an exploration and development agreement entered into in August 2011 with a third party operator. The demand alleges damages in connection with non-payment of a promote fee established under the agreement for 10% of the cost of drilling wells in which the Company participated that were drilled in an area of mutual interest. The Company is assessing the merits of the claim but does not anticipate that it will have a material effect on its consolidated financial position, results of operations or liquidity.

 

In addition, the Company is a party from time to time to other claims and legal actions that arise in the ordinary course of business. The Company believes that the ultimate impact, if any, of these other claims and legal actions will not have a material effect on its consolidated financial position, results of operations or liquidity.

 

12.  SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31,

(in thousands)

 

 

2015

    

2016

Cash paid during the period for:

 

 

 

 

 

 

Interest expense

 

$

16,078

 

$

4,665

Income taxes

 

$

 —

 

$

 —

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

Additions (reductions) to oil and natural gas properties through:

 

 

 

 

 

 

Increase (decrease) in accounts payable and accrued liabilities

 

$

(15,770)

 

$

(2,914)

Capitalized stock based compensation

 

$

709

 

$

366

Change in asset retirement obligations

 

$

425

 

$

80

 

26


 

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

 

Overview

 

We are an independent energy company with a strategic focus on the Bakken Shale and Three Forks formations in the Williston Basin.

 

Chapter 11 Filing by Certain Subsidiaries. On June 29, 2016, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases are expected to be jointly administered under the caption In re Triangle USA Petroleum Corporation et al., Case No. 16-11566. The Debtors intend to continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. Triangle and its subsidiaries, other than the Debtors, did not file voluntary petitions for relief and are not debtors under Chapter 11 of the Bankruptcy Code and, consequently, continue to operate their business in the ordinary course.

 

We deconsolidated TUSA and its subsidiaries on June 29, 2016 as we concluded that, under applicable accounting standards, we no longer have a controlling financial interest in TUSA and its wholly-owned subsidiaries. Our financial statements presented after June 29, 2016 reflect our investment in and results of operations of TUSA under the cost method of accounting.

 

Summary of results for six months ended July 31, 2016

 

·

Average daily production volumes were 10,740 Boe/day for the six months ended July 31, 2016, compared to 13,646 Boe/day for the six months ended July 31, 2015, a decrease of 21%.

·

Lower average realized prices of $30.38 per Boe for the six months ended July 31, 2016, versus $41.72 per Boe for the six months ended July 31, 2015, resulted in oil, natural gas and natural gas liquids sales for the six months ended July 31, 2016 of $48.9 million compared to $103.0 million for the six months ended July 31, 2015.

·

TUSA drilled four wells during the six months ended July 31, 2016.

·

RockPile completed 5 TUSA operated wells and 62 third-party wells in the six months ended July 31, 2016, compared to 14 TUSA operated wells and 89 third-party wells in the six months July 31, 2015.

·

Oilfield services revenue for the six months ended July 31, 2016 was $45.0 million compared to $125.0 million for the six months ended July 31, 2015.

·

The competitive oilfield services pricing environment resulted in a negative gross profit of $4.3 million for the six months ended July 31, 2016, compared to a negative gross profit of $3.3 million for the six months ended July 31, 2015 after eliminations of intercompany gross profit.

·

The carrying value of our oil and natural gas properties exceeded the calculated value of the ceiling limitation at June 29, 2016, resulting in an impairment of $104.0 million for the six months ended July 31, 2016.

·

Cash flows used in operating activities were $31.1 million for the six months ended July 31, 2016, compared to cash flows provided by operating activities of $80.0 million for the six months ended July 31, 2015.

 

Liquidity and Ability to Continue as a Going Concern

 

Our unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business. As such, the accompanying unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. See Item 1. Financial Statements (Unaudited) – Note 1 for further discussion.

 

27


 

Summary of Operating Results

 

The following table reflects the components of our production volumes, average realized prices, oil, natural gas and natural gas liquids revenues, and operating expenses for the periods indicated. Fiscal year 2017 includes TUSA and its wholly owned subsidiaries through June 29, 2016, the date that it was deconsolidated. Additionally, no pro forma adjustments have been made for the acquisitions and divestitures of oil and natural gas properties, which will affect the comparability of the data below. The information set forth below is not indicative of future results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

July 31,

 

July 31,

Oil and Natural Gas Operations

    

2015

    

2016

 

2015

 

2016

Production volumes:

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil (Mbbls)

 

 

1,015

 

 

497

 

 

2,040

 

 

1,210

Natural gas (MMcf)

 

 

751

 

 

530

 

 

1,491

 

 

1,324

Natural gas liquids (Mbbls)

 

 

102

 

 

82

 

 

181

 

 

180

Total barrels of oil equivalent (Mboe)

 

 

1,242

 

 

667

 

 

2,470

 

 

1,611

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily production volumes (Boe/d) (1)

 

 

13,500

 

 

11,117

 

 

13,646

 

 

10,740

 

 

 

 

 

 

 

 

 

 

 

 

 

Average realized prices:

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil ($ per Bbl)

 

$

51.71

 

$

44.85

 

$

47.52

 

$

37.41

Natural gas ($ per Mcf)

 

$

2.56

 

$

1.88

 

$

2.89

 

$

1.94

Natural gas liquids ($ per Bbl)

 

$

8.36

 

$

9.78

 

$

9.96

 

$

6.19

Total average realized price ($ per Boe)

 

$

44.50

 

$

36.12

 

$

41.72

 

$

30.38

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids revenues (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil

 

$

52,490

 

$

22,290

 

$

96,932

 

$

45,263

Natural gas

 

 

1,920

 

 

999

 

 

4,306

 

 

2,565

Natural gas liquids

 

 

853

 

 

802

 

 

1,803

 

 

1,115

Total oil, natural gas and natural gas liquids revenues

 

$

55,263

 

$

24,091

 

$

103,041

 

$

48,943

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

$

11,355

 

$

6,970

 

$

22,278

 

$

15,572

Gathering, transportation and processing

 

 

6,641

 

 

3,637

 

 

12,989

 

 

9,245

Production taxes

 

 

5,449

 

 

2,124

 

 

10,236

 

 

4,203

Oil and natural gas amortization expense

 

 

24,227

 

 

5,124

 

 

52,906

 

 

14,579

Impairment of oil and natural gas properties

 

 

206,000

 

 

25,000

 

 

398,000

 

 

104,000

Accretion of asset retirement obligations

 

 

90

 

 

81

 

 

147

 

 

204

Total operating expenses

 

$

253,762

 

$

42,936

 

$

496,556

 

$

147,803

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses per Boe:

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

$

9.14

 

$

10.45

 

$

9.02

 

$

9.67

Gathering, transportation and processing

 

$

5.35

 

$

5.45

 

$

5.26

 

$

5.74

Production taxes

 

$

4.39

 

$

3.18

 

$

4.14

 

$

2.61

Oil and natural gas amortization expense

 

$

19.51

 

$

7.68

 

$

21.42

 

$

9.05

(1)  Computed based on 60 and 150 production days, respectively, for the three and six month periods ended July 31, 2016 due to the deconsolidation of TUSA on June, 29, 2016.

 

Comparison of the Quarter Ended July 31, 2016 to the Quarter Ended July 31, 2015

 

Oil, Natural Gas and Natural Gas Liquids Revenues. Revenues from oil, natural gas and natural gas liquids for the three months ended July 31, 2016 decreased 56% to $24.1 million from $55.3 million for the three months ended July 31, 2015. Total production decreased 46% due to the deconsolidation of TUSA on June 29, 2016, the suspension of our drilling program, wells shut-in for workovers, and natural production declines. This decrease in production was accompanied by

28


 

a 19% decrease in weighted average realized prices from $44.50 per Boe for the three months ended July 31, 2015 to $36.12 per Boe for the three months ended July 31, 2016.  

 

Lease Operating Expenses. Lease operating expenses increased $1.31 per Boe to $10.45 per Boe for the three months ended July 31, 2016 from $9.14 per Boe for the three months ended July 31, 2015. The increase is primarily due to a number of expensed workovers performed during the three months ended July 31, 2016 combined with lower production.

 

Gathering, Transportation and Processing.  Gathering, transportation and processing expenses of $5.45 per Boe for the three months ended July 31, 2016 were comparable to $5.35 per Boe for the three months ended July 31, 2015.

 

Production Taxes. Production taxes decreased 61% in the second quarter of fiscal year 2017 to $2.1 million from $5.4 million for the second quarter of fiscal year 2016. The 56% decrease in oil, natural gas and natural gas liquids revenues for the three months ended July 31, 2016 versus the three months ended July 31, 2015 is the primary reason for the decrease.

 

Oil and Natural Gas Amortization. Oil and natural gas amortization expense decreased 79% to $5.1 million for the three months ended July 31, 2016 from $24.2 million for the three months ended July 31, 2015. On a per Boe basis, our oil and natural gas amortization expense decreased by $11.83 from $19.51 for the three months ended July 31, 2015 to $7.68 for the three months ended July 31, 2016 primarily due to the impairments recorded in fiscal year 2016 and the first quarter of fiscal year 2017.

 

Impairment of Oil and Natural Gas Properties. During the second quarters of fiscal years 2016 and 2017, we recorded non-cash impairments of $206.0 million and $25.0 million, respectively, to the carrying value of our proved oil and natural gas properties as a result of the effects of significant declines in oil, natural gas and natural gas liquids prices on the ceiling test limitation.

 

Oilfield Services Gross Profit. RockPile’s results of operations are affected by a number of variables including drilling and stimulation activity, pricing environment, service performance, equipment utilization, and the ability to secure and retain third-party customers. Pressure pumping direct costs include the cost of chemicals and proppant, labor (wages and benefits), logistics expenses, insurance, repairs and maintenance, and safety costs. Cost of goods sold as a percentage of revenue will vary based upon the pricing environment, completion design and equipment utilization.

 

The table below summarizes the RockPile contribution to our consolidated results for the three months ended July 31, 2015 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2015

 

For the Three Months Ended July 31, 2016

(in thousands)

    

Oilfield Services

    

Eliminations

    

Consolidated

 

Oilfield Services

    

Eliminations

    

Consolidated

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oilfield services

 

$

69,431

 

$

(14,961)

 

$

54,470

 

$

25,601

 

$

(160)

 

$

25,441

Total revenues

 

 

69,431

 

 

(14,961)

 

 

54,470

 

 

25,601

 

 

(160)

 

 

25,441

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oilfield services

 

 

56,353

 

 

(8,396)

 

 

47,957

 

 

22,811

 

 

(118)

 

 

22,693

Depreciation

 

 

8,718

 

 

(1,236)

 

 

7,482

 

 

5,180

 

 

(177)

 

 

5,003

Total cost of sales

 

 

65,071

 

 

(9,632)

 

 

55,439

 

 

27,991

 

 

(295)

 

 

27,696

Gross profit

 

$

4,360

 

$

(5,329)

 

$

(969)

 

$

(2,390)

 

$

135

 

$

(2,255)

 

For the three months ended July 31, 2016, RockPile performed hydraulic fracturing, cased-hole wireline, pressure pumping and workover services for TUSA and 18 third-party customers. RockPile has increased its base of third-party customers; however, the competitive oilfield services pricing environment resulted in a 53% decrease in consolidated oilfield services revenues from $54.5 million for the three months ended July 31, 2015 to $25.4 million for the three months ended July 31, 2016. Hydraulic fracturing services resulted in 39 total well completions (1 for TUSA and 38 for third-parties) for the three months ended July 31, 2016, compared to 48 well completions (9 for TUSA and 39 for third parties) for the three months ended July 31, 2015.

 

The current competitive oilfield services pricing environment resulted in a negative gross profit of $1.0 million for the three months ended July 31, 2015 compared to a negative gross profit of $2.3 million for the three months ended July 31, 2016, after eliminations. We expect that the oilfield services pricing environment will continue to be very challenging as long as oil and natural gas prices remain near current levels, resulting in continued compressed profit levels.

 

29


 

General and Administrative Expenses. The following table summarizes general and administrative expenses for the three months ended July 31, 2015 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended July 31, 2015

 

For the Three Months Ended July 31, 2016

 

 

Exploration

 

 

 

 

 

 

 

 

Exploration

 

 

 

 

 

 

 

 

 

and

 

Oilfield

 

 

 

 

Consolidated

 

and

 

Oilfield 

 

 

 

 

Consolidated

(in thousands)

    

Production

    

Services

    

Corporate

    

Total

    

Production

    

Services

    

Corporate

    

Total

Salaries and benefits

 

$

584

 

$

3,940

 

$

3,045

 

$

7,569

 

$

1,076

 

$

3,015

 

$

2,358

 

$

6,449

Share-based compensation

 

 

375

 

 

84

 

 

3,167

 

 

3,626

 

 

459

 

 

167

 

 

2,148

 

 

2,774

Other general and administrative

 

 

349

 

 

1,034

 

 

2,011

 

 

3,394

 

 

5,292

 

 

3,849

 

 

3,700

 

 

12,841

Total

 

$

1,308

 

$

5,058

 

$

8,223

 

$

14,589

 

$

6,827

 

$

7,031

 

$

8,206

 

$

22,064

 

Total general and administrative expenses increased $7.5 million to $22.1 million for the three months ended July 31, 2016, compared to $14.6 million for the three months ended July 31, 2015. Total other general and administrative expenses increased from $3.4 million for the three months ended July 31, 2015 to $12.8 million for the three months ended July 31, 2016. Restructuring advisory fees of $7.2 million were incurred during the three months ended July 31, 2016 and are included in other general administrative expenses above. Except for restructuring related expenses and retention compensation, we expect that our fiscal year 2017 general and administrative expenses will continue to be less than fiscal year 2016 due to the reductions in force and other cost reduction measures made in fiscal year 2016 and also due to the deconsolidation of TUSA on June 29, 2016.  

 

Commodity Derivatives. We have entered into commodity derivative instruments, primarily costless collars and swaps, to reduce the effect of price changes on a portion of our future oil production. Our commodity derivative instruments are measured at fair value and are included in the accompanying condensed consolidated balance sheets as derivative assets and liabilities. During the three months ended July 31, 2015 and 2016, we recognized a gain of $25.0 million and a loss $3.3 million, respectively, on our commodity derivative positions due to changes in underlying crude oil prices. We recorded a realized commodity derivative gain of $4.5 million in the second quarter of fiscal year 2017, as compared to a realized commodity derivative gain of $17.0 million in the second quarter fiscal year 2016. Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing. Therefore, we do not expect any further commodity derivative gains or losses in fiscal year 2017.

 

Earnings (Losses) from Unconsolidated Investments. Triangle’s unconsolidated investments consist of our investment in Caliber Class A Units, which we account for using the equity method of accounting, equity derivative instruments in Caliber, and our investment in TUSA, which we account for using the cost method after the deconsolidation of TUSA on June 29, 2016. During the three months ended July 31, 2015 and 2016, the Company recognized $1.2 million and $0.1 million, for its share of Caliber’s net income for the respective periods. The Company also recognized a $4.5 million gain on its equity investment derivatives during the three months ended July 31, 2015 compared to a $3.3 million loss during the three months ended July 31, 2016.

 

We evaluate our equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. In TUSA’s Chapter 11 filing, TUSA is seeking a final judgment or order authorizing TUSA to reject certain midstream services agreements with Caliber. Although the matter has yet to be resolved, it has adversely impacted the fair value of our investment in Caliber resulting in the carrying value of our investment in Caliber exceeding its fair value at July 31, 2016. Since we deemed this decline in fair value to be other than temporary, we recorded an impairment of $21.2 million in the three months ended July 31, 2016.

 

Interest Expense. The $8.4 million in interest expense for the three months ended July 31, 2016 consists of (i) $1.7 million in interest related to the TUSA credit facility, (ii) $1.0 million in interest expense associated with RockPile’s credit facility and notes payable, (iii) $4.2 million in interest related to the TUSA 6.75% Notes, (iv) $1.8 million in accrued interest related to the Convertible Note, and (v) $0.1 million in interest expense related to our other debt, all net of $0.4 million of capitalized interest which generally relates to the carrying costs on our unproved properties. We paid $2.8 million of interest expense and capitalized interest in cash.

 

The $9.9 million in interest expense for the three months ended July 31, 2015 consists of (i) $1.1 million in interest related to the TUSA credit facility, (ii) $0.8 million in interest expense associated with RockPile’s credit facility and notes

30


 

payable, (iii) $7.2 million in interest related to the TUSA 6.75% Notes, (iv) $1.7 million in accrued interest related to our Convertible Note, and (v) $0.1 million in interest expense related to our other debt, all net of $1.0 million of capitalized interest. We paid $16.6 million of interest expense and capitalized interest in cash.

 

Income Taxes. We recognized no income tax benefit or expense in the second quarters of fiscal years 2016 and 2017.

 

The carrying value of our oil and natural gas properties exceeded the calculated value of the ceiling limitation resulting in impairments of $779.0 million for the year ended January 31, 2016. These impairments resulted in Triangle having three years of cumulative historical pre-tax losses and a net deferred tax asset position. Triangle also had net operating loss carryovers (“NOLs”) for federal income tax purposes of $286.0 million at January 31, 2016. These losses and expected future losses were a key consideration that led Triangle to provide a valuation allowance against its net deferred tax assets since it cannot conclude that it is more likely than not that its net deferred tax assets will be fully realized in future periods.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, management considers the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment. Future events or new evidence which may lead the Company to conclude that it is more likely than not that its net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained or continued improvements in oil prices, and taxable events that could result from one or more transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.

 

As long as the Company concludes that it will continue to have a need for a valuation allowance against its net deferred tax assets, the Company likely will not have any additional income tax expense or benefit other than for federal alternative minimum tax expense or for state income taxes.

 

Comparison of the Six Months Ended July 31, 2016 to the Six Months Ended July 31, 2015

 

Oil, Natural Gas and Natural Gas Liquids Revenues. Revenues from oil, natural gas and natural gas liquids for the six months ended July 31, 2016 decreased 53% to $48.9 million from $103.0 million for the six months ended July 31, 2015. Total production decreased 35% due to the deconsolidation of TUSA on June 29, 2016, the suspension of our drilling program, wells shut-in for workovers, and natural production declines. This decrease in production was accompanied by a 27% decrease in weighted average realized prices from $41.72 per Boe for the six months ended July 31, 2015 to $30.38 per Boe for the six months ended July 31, 2016.  

 

Lease Operating Expenses. Lease operating expenses of $9.67 per Boe for the six months ended July 31, 2016 were comparable to $9.02 per Boe for the six months ended July 31, 2015.

 

Gathering, Transportation and Processing.  Gathering, transportation and processing expenses of $5.74 per Boe for the six months ended July 31, 2016 were comparable to $5.26 per Boe for the six months ended July 31, 2015.

 

Production Taxes. Production taxes decreased 59% in the first six months of fiscal year 2017 to $4.2 million from $10.2 million for the first six months of fiscal year 2016. The 53% decrease in oil, natural gas and natural gas liquids revenues for the six months ended July 31, 2016 versus the six months ended July 31, 2015 is the primary reason for the decrease.

 

Oil and Natural Gas Amortization. Oil and natural gas amortization expense decreased 72% to $14.6 million for the six months ended July 31, 2016 from $52.9 million for the six months ended July 31, 2015. On a per Boe basis, our oil and natural gas amortization expense decreased by $12.37 from $21.42 for the six months ended July 31, 2015 to $9.05 for the six months ended July 31, 2016 primarily due to the impairments recorded in fiscal year 2016 and the first three months of fiscal year 2017.

 

Impairment of Oil and Natural Gas Properties. During the first six months of fiscal years 2016 and 2017, we recorded non-cash impairments of $398.0 million and $104.0 million, respectively, to the carrying value of our proved oil and natural gas properties as a result of the effects of significant declines in oil, natural gas and natural gas liquids prices on the ceiling test limitation.

31


 

 

Oilfield Services Gross Profit. The table below summarizes the RockPile contribution to our consolidated results for the six months ended July 31, 2015 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31, 2015

 

For the Six Months Ended July 31, 2016

(in thousands)

    

Oilfield Services

    

Eliminations

    

Consolidated

 

Oilfield Services

    

Eliminations

    

Consolidated

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oilfield services

 

$

150,025

 

$

(25,045)

 

$

124,980

 

$

50,917

 

$

(5,956)

 

$

44,961

Total revenues

 

 

150,025

 

 

(25,045)

 

 

124,980

 

 

50,917

 

 

(5,956)

 

 

44,961

Cost of sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oilfield services

 

 

126,939

 

 

(14,756)

 

 

112,183

 

 

43,192

 

 

(3,828)

 

 

39,364

Depreciation

 

 

18,207

 

 

(2,066)

 

 

16,141

 

 

10,870

 

 

(949)

 

 

9,921

Total cost of sales

 

 

145,146

 

 

(16,822)

 

 

128,324

 

 

54,062

 

 

(4,777)

 

 

49,285

Gross profit

 

$

4,879

 

$

(8,223)

 

$

(3,344)

 

$

(3,145)

 

$

(1,179)

 

$

(4,324)

 

For the six months ended July 31, 2016, RockPile performed hydraulic fracturing, cased-hole wireline, pressure pumping and workover services for TUSA and 22 third-party customers. RockPile has increased its base of third-party customers; however, the competitive oilfield services pricing environment resulted in a 64% decrease in consolidated oilfield services revenues from $125.0 million for the six months ended July 31, 2015 to $45.0 million for the six months ended July 31, 2016. Hydraulic fracturing services resulted in 67 total well completions (5 for TUSA and 62 for third-parties) for the six months ended July 31, 2016, compared to 103 well completions (14 for TUSA and 89 for third parties) for the six months ended July 31, 2015.

 

The current competitive oilfield services pricing environment resulted in a negative gross profit of $3.3 million for the six months ended July 31, 2015, compared to a negative gross profit of $4.3 million for the six months ended July 31, 2016, after eliminations of $8.2 million and $1.2 million of intercompany gross profit, respectively. We expect that the oilfield services pricing environment will continue to be very challenging as long as oil and natural gas prices remain near current levels, resulting in continued compressed profit levels.

 

General and Administrative Expenses. The following table summarizes general and administrative expenses for the six months ended July 31, 2015 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31, 2015

 

For the Six Months Ended July 31, 2016

 

 

Exploration

 

 

 

 

 

 

 

 

Exploration

 

 

 

 

 

 

 

 

 

and

 

Oilfield

 

 

 

 

Consolidated

 

and

 

Oilfield 

 

 

 

 

Consolidated

(in thousands)

    

Production

    

Services

    

Corporate

    

Total

    

Production

    

Services

    

Corporate

    

Total

Salaries and benefits

 

$

925

 

$

8,769

 

$

6,298

 

$

15,992

 

$

2,725

 

$

6,303

 

$

3,297

 

$

12,325

Share-based compensation

 

 

696

 

 

135

 

 

5,303

 

 

6,134

 

 

1,236

 

 

335

 

 

3,015

 

 

4,586

Other general and administrative

 

 

756

 

 

2,831

 

 

3,735

 

 

7,322

 

 

5,680

 

 

5,056

 

 

5,740

 

 

16,476

Total

 

$

2,377

 

$

11,735

 

$

15,336

 

$

29,448

 

$

9,641

 

$

11,694

 

$

12,052

 

$

33,387

 

Total general and administrative expenses increased $4.0 million to $33.4 million for the six months ended July 31, 2016, compared to $29.4 million for the six months ended July 31, 2015. Total other general and administrative expenses increased from $7.3 million for the six months ended July 31, 2015 to $16.5 million for the six months ended July 31, 2016. Restructuring advisory fees incurred of $9.3 million during the six months ended July 31, 2016 were partly offset by a benefit of $1.8 million related to the settlement of contracts.

 

Commodity Derivatives. We have entered into commodity derivative instruments, primarily costless collars and swaps, to reduce the effect of price changes on a portion of our future oil production. Our commodity derivative instruments are measured at fair value and are included in the accompanying condensed consolidated balance sheets as derivative assets and liabilities. During the six months ended July 31, 2015 and 2016, we recognized a gain of $11.1 million and a loss of $12.9 million, respectively, on our commodity derivative positions due to changes in underlying crude oil prices. We recorded a realized commodity derivative gain of $6.6 million in the first six months of fiscal year 2017, as compared to a realized commodity derivative gain of $36.5 million in the first six months of fiscal year 2016. Triangle deconsolidated

32


 

TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing. Therefore, we do not expect any further commodity derivative gains or losses in fiscal year 2017.

 

Earnings (Losses) from Unconsolidated Investments. Triangle’s unconsolidated investments consist of our investment in Caliber Class A Units, which we account for using the equity method of accounting, equity derivative instruments in Caliber, and our investment in TUSA, which we account for using the cost method after the deconsolidation of TUSA on June 29, 2016. During the six months ended July 31, 2015 and 2016, the Company recognized $1.4 million and $0.1 million, for its share of Caliber’s net income for the respective periods. The Company also recognized a $4.5 million gain on its equity investment derivatives during the six months ended July 31, 2015 compared to a $3.3 million loss during the six months ended July 31, 2016. In addition, Triangle recognized a gain of $2.9 million during the six months ended July 31, 2015 related to the issuance of Class A Units.

 

We evaluate our equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline. In TUSA’s Chapter 11 filing, TUSA is seeking a final judgment or order authorizing TUSA to reject certain midstream services agreements with Caliber. This has adversely impacted the fair value of our investment in Caliber resulting in the carrying value of our investment in Caliber exceeding its fair value at July 31, 2016. Since we deemed this decline in fair value to be other than temporary, we recorded an impairment of $21.2 million in the six months ended July 31, 2016.

 

Interest Expense. The $19.2 million in interest expense for the six months ended July 31, 2016 consists of (i) $3.6 million in interest related to the TUSA credit facility, (ii) $2.2 million in interest expense associated with RockPile’s credit facility and notes payable, (iii) $10.7 million in interest related to the TUSA 6.75% Notes, (iv) $3.6 million in accrued interest related to the Convertible Note, and (v) $0.2 million in interest expense related to our other debt, all net of $1.1 million of capitalized interest which generally relates to the carrying costs on our unproved properties. We paid $5.8 million of interest expense and capitalized interest in cash.

 

The $19.0 million in interest expense for the six months ended July 31, 2015 consists of (i) $2.0 million in interest related to the TUSA credit facility, (ii) $1.6 million in interest expense associated with RockPile’s credit facility and notes payable (iii) $14.5 million in interest related to the TUSA 6.75% Notes, (iv) $3.4 million in accrued interest related to our Convertible Note, and (v) $0.2 million in interest expense related to our other debt, all net of $2.7 million of capitalized interest. We paid $18.8 million of interest expense and capitalized interest in cash.

 

Income Taxes. We recorded a full valuation allowance against our net deferred tax assets and we recognized a benefit of $53.4 million in the first six months of fiscal year 2016, compared to no benefit or expense for the first six months of fiscal year 2017.

 

Liquidity and Capital Resources

 

As of July 31, 2016, we had approximately $271.5 million of debt outstanding, consisting of $111.8 million for the RockPile credit facility, $146.4 million for the Convertible Note, and $13.3 million for other notes and mortgages.

 

As of July 31, 2016, we had cash of $30.3 million consisting primarily of cash held in bank accounts, as compared to $115.8 million at January 31, 2016. At July 31, 2016, we had no available borrowing capacity under the RockPile credit facility.

 

Cash Flows

 

The following is a summary of our changes in cash and cash equivalents for the six months ended July 31, 2015 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended July 31,

(in thousands)

    

2015

    

2016

Net cash provided by (used in) operating activities

 

$

80,045

 

$

(31,089)

Net cash used in investing activities

 

 

(135,827)

 

 

(110,457)

Net cash provided by financing activities

 

 

33,781

 

 

56,073

Net increase (decrease) in cash and equivalents

 

$

(22,001)

 

$

(85,473)

 

33


 

Net Cash Provided by (Used in) Operating Activities. Cash flows provided by operating activities were $80.0 million for the six months ended July 31, 2015, compared to cash flows used in operating activities of $31.1 million for the six months ended July 31, 2016. Cash flows from operating activities were unfavorably impacted in the six months ended July 31, 2016 by lower realized oil prices and the competitive oilfield services pricing environment compared to the six months ended July 31, 2015.

 

Net Cash Used in Investing Activities. During the six months ended July 31, 2015, we used $135.8 million of cash in investing activities compared to $110.5 million during the six months ended July 31, 2016. During the six months ended July 31, 2015 and 2016, we used $128.7 million and $19.4 million, respectively, on oil and natural gas property expenditures. During the six months ended July 31, 2015 and 2016, we also spent $8.7 million and $0.4 million, respectively, on purchases of oilfield services equipment and $4.2 million and $0.3 million, respectively, on other property and equipment, primarily consisting of facility construction and improvements. During the six months ended July 31, 2015, we received net proceeds of $6.0 million from the sale of a salt water disposal well. In addition, the deconsolidation of TUSA as of June 29, 2016 resulted in the use of $91.8 million in cash.

 

Net Cash Provided by Financing Activities. Cash flows provided by financing activities for the six months ended July 31, 2015 totaled $33.8 million, as compared to $56.1 million for the six months ended July 31, 2016. Our primary financing activities consisted of net borrowings from our credit facilities of $35.0 million during the six months ended July 31, 2015 and $61.9 million during the six months ended July 31, 2016. In the first six months of fiscal year 2017, we used cash of $4.6 million to repurchase TUSA 6.75% Notes with a face value of $25.8 million.

 

Capital Requirements Outlook

 

Our cash flows from operations for fiscal year 2016 and the first six months of fiscal year 2017 were insufficient to cover our capital requirements, and we continued to rely on external financing activities. We expect that current depressed oil and natural gas prices will continue to limit our cash flows from operations in upcoming quarters.

 

In response to the current oil and natural gas pricing environment, we have significantly reduced capital expenditures and implemented reductions in force across our businesses, and we may further adjust such expenditures as market dynamics warrant. We will be primarily dependent on cash on hand as we currently have no further availability under our TUSA and RockPile credit facilities. Any additional liquidity shortfall may be financed through additional debt or equity instruments, if we are able to access the capital markets on acceptable terms, which is highly uncertain. There can be no assurance, however, that we will achieve our anticipated future cash flows from operations, that credit will be available when needed, or that we would be able to complete alternative transactions in the capital markets if needed.

 

If our existing and potential sources of liquidity are not sufficient to allow us to satisfy our commitments and to undertake our planned expenditures, particularly if commodity prices remain depressed for an extended period of time, we have the flexibility to divest assets. We are evaluating a variety of strategic alternatives, and we may be required to pursue alternative measures, such as selling material assets or business segments; seeking additional financing; or refinancing, recapitalizing, or restructuring all or a portion of our existing debt. As discussed in Part II, Item 1A – Risk Factors, we cannot assure you that any of the measures would be successful or sufficient.

 

Sources of Capital

 

Cash flows from operations. Cash flows from our oilfield services segment decreased significantly in fiscal year 2016 primarily due to efforts to remain competitive in the current oil and natural gas pricing environment by significantly reducing fees that RockPile charges to its customers. As a result of the margin compression on fees charged for services, as well as the likelihood for lower utilization of RockPile services by customers slowing the pace of their development operations, we anticipate that RockPile’s cash flows from operations in fiscal year 2017 may be substantially lower than in fiscal year 2016. We also receive quarterly cash payments from TUSA pursuant to the terms of a Management Agreement, which payments are permitted by the Bankruptcy Court.

 

Credit facility. On April 13, 2016, RockPile entered into the RockPile Waiver Amendment, which waived any default or event of default in connection with the financial covenants that occurred as of January 31, 2016 and as of July 31, 2016. The waivers are conditioned on RockPile agreeing to certain informational and process requirements and deadlines. Following the execution of the RockPile Waiver Amendment, RockPile is precluded from drawing additional funds under its credit facility.

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Securities Offerings. Historically, we have financed our operations, property acquisitions and other capital investments in part from the proceeds of public and private offerings of our equity and debt securities. We may from time to time offer debt securities, common stock, preferred stock, warrants and other securities, or any combination of such securities, in amounts, at prices and on terms announced when and if the securities are offered. The specifics of any future public offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus or a prospectus supplement at the time of such offering.

 

Asset Sales. In the current depressed commodity pricing environment, we are strategically reviewing our assets to consider monetizing those that may garner attractive prices. Such assets include, but are not limited to, equity investments, equipment, and other real property interests.

 

Liquidity

 

As noted above, the Debtors commenced the Chapter 11 Cases on June 29, 2016. The commencement of the Chapter 11 Cases constitutes an additional event of default under the TUSA credit facility and is also an event of default under TUSA 6.75% Notes. However, any efforts to enforce such payments are automatically stayed as a result of the Chapter 11 Filings, and the holders’ rights of enforcement in respect of the TUSA Debt Documents are subject to the applicable provisions of the Bankruptcy Code. Triangle has not guaranteed TUSA’s obligations under the TUSA credit facility or the TUSA 6.75% Notes.

 

As a result of the commencement of the Chapter 11 Cases and the other events of default under the TUSA credit facility, TUSA has no further ability to borrow under such credit facility. Under the Bankruptcy Code, TUSA may use cash on hand that constitutes “cash collateral” of the secured parties under the TUSA credit facility with the consent of such parties or authorization from the Bankruptcy Court. The secured parties have consented to TUSA’s use of cash collateral, subject to the terms and conditions of an agreed order entered by the Bankruptcy Court on June 30, 2016, on an interim basis. The Debtors are currently negotiating with the secured parties concerning continued consensual use of cash collateral on a final basis, but have not yet reached an agreement. There is no guarantee that these negotiations will be successful or that the Bankruptcy Court will authorize the Debtors to use cash collateral over the objection of the secured parties in the event a consensual resolution concerning final use of cash collateral is not reached.

 

RockPile Liquidity and Covenants.  On April 13, 2016, RockPile entered into the RockPile Waiver Amendment, which waived any default or event of default in connection with the financial covenants that occurred as of January 31, 2016 and July 31, 2016. RockPile does not expect to comply with all of the financial covenants contained in its credit facility throughout fiscal year 2017 unless those requirements are also waived or amended or unless RockPile can obtain new capital or cure financing. RockPile remains in discussions regarding strategic alternatives and is nearing the end of a robust sale process that must be approved by its lenders. If RockPile is unable to reach agreement with its lenders, obtain waivers, find acceptable alternative financing or obtain equity cure contributions, RockPile’s credit facility lenders could elect to declare some or all of the amounts outstanding under the facility to be immediately due and payable. If this happens, the Company does not currently have sufficient liquidity to make the RockPile equity cure and RockPile does not have sufficient cash on hand to repay this outstanding debt. Therefore, the condensed consolidated balance sheet reflects all of the amounts outstanding under the RockPile credit facility as current liabilities as of January 31, 2016 and July 31, 2016. If a sale of RockPile is consummated, or if RockPile is required to pursue an in-court restructuring transaction, Triangle would lose control of RockPile.

 

Triangle Liquidity. Triangle has engaged certain professional advisors to assist it in the process of analyzing various strategic alternatives to address our liquidity and capital structure, including: (i) a potential sale of RockPile; (ii) obtaining additional sources of capital from asset sales, issuances of debt or equity securities, debt for equity swaps, or any combination thereof; and (iii) pursuing in- and out-of-court restructuring transactions. In connection with a debt restructuring or refinancing, we may seek to convert a significant portion of our outstanding debt to equity. In addition, we may seek to reduce our cash interest cost and extend debt maturity dates by negotiating the exchange of outstanding debt for new debt with modified terms or other measures. While we anticipate engaging in active dialogue with our creditors, at this time we are unable to predict the outcome of such discussions, the outcome of any strategic transactions that we may pursue or whether any such efforts will be successful.

 

35


 

As a result of the above, substantial doubt exists regarding the ability of Triangle to continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business.

 

Commodity Derivative Instruments

 

Triangle deconsolidated TUSA as of June 29, 2016 in connection with the commencement of TUSA’s Chapter 11 filing. Therefore, we do not expect any further commodity derivative activity for the remainder of fiscal year 2017.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  

36


 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Interest Rate Risk. At July 31, 2016, RockPile had borrowed the maximum amounts available under its credit facility. The RockPile credit facility balance at July 31, 2016 was $111.8 million. The credit facility bears interest at variable rates. A 1.0% increase in interest rates would result in additional annualized interest expense of $1.1 million.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Our management, with the participation of Jonathan Samuels, our President and Chief Executive Officer, and Douglas Griggs, our Chief Accounting Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2016. Based on the evaluation, those officers believe that:

 

·

our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and

 

·

our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 was accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There has not been any change in our internal control over financial reporting that occurred during the quarterly period ended July 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

37


 

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. 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 legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

Item 1A.  Risk Factors.

 

There have been no material changes to the risk factors set forth in our Fiscal 2016 Form 10-K. Those risks, in addition to the other information set forth in this Quarterly Report on Form 10-Q and in our other filings with the SEC, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.

 

We are evaluating a variety of strategic alternatives for Triangle’s business going forward, but there is no guarantee that any such alternatives can be effectuated on acceptable terms or at all.

 

We are evaluating a number of measures to enhance our liquidity and improve our balance sheet and Triangle’s business going forward. On March 24, 2016, we announced our retention of financial and legal advisors to assist us in evaluating our strategic alternatives. On May 12, 2016, RockPile also announced that it has retained financial and legal advisors to assist it in its ongoing strategic review process. On June 29, 2016, TUSA and certain of our other subsidiaries filed voluntary petitions for relief under the Bankruptcy Code, and are continuing to operate their businesses as “debtors-in-possession” under the applicable provisions of the Bankruptcy Code. On June 30, 2016, we announced that the Board formed a Special Committee that is charged with maximizing value for the Company, its shareholders and other relevant stakeholders as the Company continues its ongoing evaluation of strategic alternatives. RockPile remains in discussions regarding strategic alternatives and is nearing the end of a robust sale process. The strategies we are evaluating include modifying our operations; selling material assets or business segments; seeking additional financing; or refinancing, recapitalizing, or restructuring all or a portion of our existing debt. We have engaged in discussions with certain of our stakeholders with respect to a potential consensual restructuring or recapitalization of the Company and/or certain of its subsidiaries, and to date, such discussions have not resulted in any definitive agreements relating thereto.

 

These alternative measures may not be available on commercially reasonable terms or at all, may not be successful, and may not permit us to meet our scheduled debt service and other obligations. To the extent inadequate cash flows from operations and other available capital resources require us to dispose of material assets or operations to meet our debt service and other obligations, we may not be able to consummate these dispositions for fair market value, in a timely manner, or at all. Furthermore, any proceeds that we could realize from any dispositions may not be adequate to meet our debt service or other obligations then due. To the extent inadequate liquidity or other considerations require us to seek to restructure or refinance our debt, our ability to do so will depend on numerous factors, including many beyond our control, such as the condition of the capital markets and our financial condition at such time. Any refinancing or restructuring of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

 

Moreover, we cannot guarantee that any particular refinancing or restructuring alternatives, such as refinancing our existing indebtedness, extending the maturity dates of such indebtedness, or otherwise amending the terms thereof, would be sufficient or could be effectuated at all. If we are unable to service our debt and other obligations through cash flows from operations and are unable to effectuate one or more of the alternative measures and transactions we currently are evaluating, we may be required to reorganize the Company in its entirety and therefore cannot assure you that the Company will continue in its current state or that your investment in the Company will retain any value.

 

38


 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

The following table summarizes our purchases of shares of our common stock during the fiscal quarter ended July 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum number

 

 

 

 

 

 

 

 

Total number of

 

of shares that may

 

 

 

Total Number

 

Average

 

shares purchased

 

yet be purchased

 

 

    

of Shares

    

Price Paid

    

as part of publicly

    

under the plans

 

 

 

Purchased

 

Per Share

 

announced plans (2)

 

at month end

 

May 1, 2016 to May 31, 2016

 

2,893

 

$

0.34

 

 —

 

6,033,290

(3)  

June 1, 2016 to June 30, 2016

 

69

 

 

0.36

 

 —

 

6,258,265

(4)  

July 1, 2016 to July 31, 2016

 

29,575

 

 

0.24

 

 —

 

6,258,265

 

 

 

32,537

(1)  

$

0.25

 

 —

 

 

 


(1)

Shares of common stock surrendered by certain employees to the Company in satisfaction of their tax liability upon the vesting of their restricted stock units. The number of shares of common stock actually issued to such employees upon the vesting of their restricted stock units was net of the shares surrendered in satisfaction of their tax liability. The withheld shares are not issued or considered common stock repurchased under the repurchase program described below.

 

(2)

As reported in Current Reports on Form 8-K filed with the SEC on September 11, 2014 and October 17, 2014, the Company’s Board of Directors approved a program authorizing the repurchase of outstanding shares of the Company’s common stock in amounts equal to the aggregate of (i) $25.0 million of the Company’s common stock (“Tranche 1”), (ii) up to the number of shares of common stock authorized for issuance under the Company’s 2014 Equity Incentive Plan and its CEO Stand-Alone Stock Option Agreement (“Tranche 2”), and (iii) up to the number of shares of common stock potentially issuable, at any given time, pursuant to the paid-in-kind interest accrued on the Convertible Note (“Tranche 3”). Shares of common stock repurchased under the program may be repurchased from time to time, in amounts and at prices that the Company deems appropriate, subject to market and business conditions and other considerations. The repurchase program may be executed using open market purchases pursuant to Rule 10b-18 under the Exchange Act, pursuant to a Rule 10b5-1 plan, in privately negotiated agreements, or other transactions. The repurchase program has no expiration date and may be suspended or discontinued at any time without prior notice. As of July 31,  2016, an aggregate of 11,431,744 shares of the Company’s common stock have been repurchased under the program.

 

(3)

Includes the number of shares of common stock remaining available for repurchase pursuant to Tranche 2, plus the number of shares of common stock available for repurchase pursuant to Tranche 3 based on the paid-in-kind interest accrued on the Convertible Note as of December 31, 2015. All shares of common stock authorized for repurchase under Tranche 1 have been exhausted.

 

(4)

Includes an additional 224,975 shares of common stock potentially issuable pursuant to the paid-in-kind interest added to the principal balance of the Convertible Note on June 30, 2016.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not Applicable.

 

Item 5.  Other Information.

 

On September 7, 2016, RockPile entered into an Amendment No. 6 to Credit Agreement (“Amendment No. 6”) with Citibank, N.A., as administrative agent and collateral agent, and the banks and other financial institutions party thereto. Amendment No. 6 amends that certain Credit Agreement, dated March 25, 2014, as reported in a Current Report on Form 8-K filed with the SEC on March 31, 2014, as amended on November 13, 2014, as reported in a Current Report on Form

39


 

8-K filed with the SEC on November 19, 2014, as further amended on April 13, 2016, as reported in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2016 and in the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 8, 2016, as further amended on July 29, 2016, as reported in a Current Report on Form 8-K filed with the SEC on August 4, 2016, as further amended on August 19, 2016, as reported in a Current Report on Form 8-K filed with the SEC on August 24, 2016, as further amended on August 31, 2016, as reported in a Current Report on Form 8-K filed with the SEC on September 6, 2016 (collectively, the “Credit Agreement”). Amendment No. 6 amends certain provisions in the Credit Agreement relating to informational and process requirements and deadlines.

 

The foregoing description of Amendment No. 6 is not complete and is qualified in its entirety by reference to the text of Amendment No. 6, which is filed as Exhibit 10.10 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

 

40


 

ITEM 6.  EXHIBITS.

 

 

 

 

 

 

 

Exhibit No.

 

Description

 

 

 

3.1

 

Certificate of Incorporation of Triangle Petroleum Corporation, filed as Exhibit 3.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2014 and incorporated herein by reference.

 

 

 

3.2

 

Certificate of Amendment to the Certificate of Incorporation of Triangle Petroleum Corporation, filed as Exhibit 3.2 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2014 and incorporated herein by reference.

 

 

 

3.3

 

Amended and Restated Bylaws of Triangle Petroleum Corporation, effective December 2, 2015, filed as Exhibit 3.3 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 8, 2015 and incorporated herein by reference.

 

 

 

3.4

 

Form of Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of Triangle Petroleum Corporation, filed as Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2016 and incorporated herein by reference.

 

 

 

4.1

 

Tax Benefits Preservation Plan, dated as of June 28, 2016, between Triangle Petroleum Corporation and Continental Stock Transfer and Trust Company, as Interests Agent, filed as Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2016 and incorporated herein by reference.

 

 

 

10.1

 

Fourth Amended and Restated Employment Agreement, dated May 4, 2016, between Triangle Petroleum Corporation and Jonathan Samuels, filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2016 and incorporated herein by reference.

 

 

 

10.2

 

Special Compensation Agreement, dated May 4, 2016, between Triangle Petroleum Corporation and Dominic Spencer, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2016 and incorporated herein by reference.

 

 

 

10.3

 

Special Compensation Agreement, dated May 4, 2016, between Triangle Petroleum Corporation and Douglas Griggs, filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2016 and incorporated herein by reference.

 

 

 

10.4*

 

Special Compensation Agreement, dated May 4, 2016, between Triangle Petroleum Corporation and Ryan McGee.

 

 

 

10.5*

 

RockPile Senior Management Retention Plan Letter, dated June 23, 2016, between RockPile Energy Services, LLC and R. Curt Dacar.

 

 

 

10.6

 

Plan Support Agreement, dated as of June 29, 2016, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 30, 2016 and incorporated herein by reference.

 

 

 

10.7*

 

Amendment No. 3 to Credit Agreement, dates July 29, 2016, between RockPile Energy Services, LLC, as Borrower, Citibank, N.A., as Administrative Agent and Collateral Agent, and the banks and other financial institutions signatories thereto.

 

 

 

10.8*

 

Amendment No. 4 to Credit Agreement, dated August 19, 2016, between RockPile Energy Services, LLC, as Borrower, Citibank, N.A., as Administrative Agent and Collateral Agent, and the banks and other financial institutions signatories thereto.

 

 

 

41


 

Exhibit No.

 

Description

 

 

 

10.9*

 

Amendment No. 5 to Credit Agreement, dated August 31, 2016, between RockPile Energy Services, LLC, as Borrower, Citibank, N.A., as Administrative Agent and Collateral Agent, and the banks and other financial institutions signatories thereto.

 

 

 

10.10*

 

Amendment No. 6 to Credit Agreement, dated September 7, 2016, between RockPile Energy Services, LLC, as Borrower, Citibank, N.A., as Administrative Agent and Collateral Agent, and the banks and other financial institutions signatories thereto.

 

 

 

31.1*

 

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.

 

 

 

31.2*

 

Certification of Chief Accounting Officer (principal 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.

 

 

 

32.1*

 

Certifications of Chief Executive Officer and Chief Accounting Officer (principal financial officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 


* Filed herewith.

 

42


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

TRIANGLE PETROLEUM CORPORATION

 

 

 

Date:  September 8, 2016

 

By: 

 

/s/ JONATHAN SAMUELS

 

Jonathan Samuels

 

President and Chief Executive Officer

 

 

USTIN, 2015

 

 

 

 

 

 

Date:  September 8, 2016

 

By: 

 

/s/ DOUGLAS GRIGGS

 

Douglas Griggs

 

Chief Accounting Officer (principal financial officer)

 

 

 

 

43