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Triangle Drops Last Rig But Expects to Beat Production Guidance

Ongoing low commodity prices compelled Triangle Petroleum Corp. to release its last operated drilling rig during its most recent quarter and negatively impacted its oilfield services subsidiary, but the small vertically-integrated company focused on the Williston Basin still managed to increase production and expects to beat full-year production guidance.

On Tuesday, Denver-based Triangle said its wholly-owned exploration and production (E&P) segment, Triangle USA Petroleum (TUSA), produced 1.24 million boe (13,500 boe/d) during fiscal 2Q2016, which ended on July 31. Production for the most recent quarter was 28% above 2Q2015, which was 970 million boe (10,543 boe/d).

TUSA transitioned to a one-rig drilling program during 2Q2016 -- spudding five gross (4.1 net) and completing nine gross (6.6 net) operated wells -- before electing to drop the rig.

"This flexibility allows us to us focus our capital for the remainder of the year where it is most effective, and gives us complete control of the timing of that [switch]," TUSA President Dominic Spencer said during a conference call to discuss 2Q2016 with analysts on Wednesday.

TUSA had an inventory of 18 gross (16.4 net) operated wells awaiting completion as of July 31.

"Our backlog of uncompleted wells positions us to take advantage of any positive trends in commodity prices," Spencer said. "We can accelerate our completion program and add drilling rigs if it makes sense, or we can defer completions over the next 9-18 months in a lower-for-longer scenario."

Executives said the full-year budget for capital expenditures (capex) remained unchanged, at $150-175 million. The budget had been lowered since February, when Triangle said it planned to spend $165-195 million on capex during its 2016 fiscal year, which ends on Jan. 31, 2016 (see Shale DailyFeb. 9).

Last June, Triangle increased its production guidance for the full-year 2016 to 11,500-13,500 boe/d.

RockPile Energy Services, Triangle's oilfield services subsidiary, generated $69.4 million of stand-alone revenue during 2Q2016, a 32% decline from 2Q2015 ($102.1 million). RockPile completed 48 wells -- 39 for third parties and nine for TUSA -- during the most recent quarter.

Triangle reported a consolidated net loss of $193.3 million for 2Q2016, equating to a loss of $2.56/share. By comparison, the company reported $14.6 million in net income in 2Q2015, posting income of 15 cents/share.

In a note Wednesday, BMO Capital Markets Dan McSpirit said it "makes sense" that Triangle is trying to preserve liquidity while commodity prices remain low, and it was anybody's guess as to how long the downturn would last. But he said that raised questions about the economic limit of Triangle's holdings in the Williston Basin, which are prospective to the Middle Bakken Shale and the Three Forks formation.

"The company's own return sensitivities...confirm that higher prices are needed to justify putting capital back in the ground," McSpirit said. "You can qualify that statement as the perspective is that of a small-cap producer, one with maybe more limited means. The same rule of putting capital to work in the highest returning project still applies, however.

"The point is that the economic limit for this producer (and others) is (much) higher than where the commodity is trading."

According to Triangle reported $286.7 million in pro forma liquidity at the end of 2Q2016, including $17 million in cash available to TUSA and RockPile. No term debt matures until 2022.

Triangle holds about 79,000 net acres in the core area of the Williston Basin, mostly in North Dakota's McKenzie and Williams counties, of which 64% is operated and 89% in held by production.

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