Triangle Petroleum Corp. recorded the first profitable quarter in its history, is on track to meet its oil production goal for the year and is excited about its new joint venture (JV) in the Bakken Shale, even as it keeps at the ready plans to drop a drilling rig should policymakers in Washington, DC, fail to reach a compromise over the fiscal cliff.
“The turnaround of Triangle is complete and the startup nature of our operations is a thing largely of the past,” CEO Jonathan Samuels said during the company’s 3Q2012 earnings call on Monday. “We can focus on margins [and] making this as profitable a business as possible, which just wasn’t something we were able to focus on this year when you’re trying to drill and complete your first well, get your integrated service business up and running and get your midstream entity fully funded.”
Denver-based Triangle generated earnings before interest, taxes, depreciation and amortization of $6.8 million during the third quarter, which ended on Oct. 31. Total revenues were $23.1 million, operating expenses were $21.9 million and net income was $1.2 million.
This fall, oil-focused Triangle formed Caliber Midstream Partners LP, a JV with First Reserve Corp.’s Energy Infrastructure Fund (see Shale Daily, Oct. 2). The JV plans to invest $180 million on midstream and infrastructure in the Williston Basin areas of North Dakota and Montana.
“We view the Bakken primarily as a cost play,” Samuels said. “We see vertical integration as the path to being a low cost producer in the basin. What it also means is that Triangle shareholders will get growth in three different fully funded engines, setting the stage for years of growth and revenue and cash flow on a per-share basis.”
According to Samuels, Triangle is excited about the geology and reservoir quality of its holdings in the Williston Basin. “We think we’re ultimately going to get a lot more wells per 1,280 [acres] than other folks are going to get in other parts of the basin,” he said. “We continue to study our down spacing and what the appropriate well spacing is, but as of today with wells spaced just as little as 600 feet apart, we see no communication between these well bores.”
Samuels said production during 3Q2012 averaged about 1,400 boe/d. While that was a 20% increase over 2Q2012, well downtime hampered production, he said.
“Multi-well pads drive operational and cost efficiencies in the drilling and completion side of bringing wells online, [but] it also results in higher downtime in the early days of a well’s life,” he said. “We have two or three wells on a pad, like we do on our Larson pad in McKenzie County, ND. Whenever you conduct any sort of operation on one of those wells…safety pretty much depends that you shut in all wells on that pattern.
“So while [well downtime] does not impact total [estimated ultimate recovery] or the total production that well will have in the first 90 days when it is online, it does affect the current period and you see that reflected in these production numbers.”
Samuels added that drilling costs in McKenzie County, while declining, were still high because wells drilled there were targeting the deepest and hardest part of the Williston Basin. Other downsides for the quarter, according to Samuels, included high general and administrative costs and lease operating expenses as a percentage of revenue, and the company’s experience with natural gas lift.
“Given the reservoir characteristics in McKenzie County, and given the infrastructure in the area, rod pump remains a better choice for us,” Samuels said. “That’s what we’re going to be doing on a go-forward basis, as well as converting some of our wells that are currently on gas lift to rod pump. We see that again as something that solves itself in [the fourth quarter], and we see our total productive capacity today as meeting or exceeding our guidance as laid out for year-end.”
Triangle’s production forecast is to exit January between 2,600 and 3,200 boe/d. “We are on track to meet or exceed that target,” Samuels said.
In an earnings disclosure on Monday, Triangle said its capital expenditure (capex) for fiscal 2014 would total $190 million, most of which ($128 million) would be devoted toward a two-rig drilling program. But during the conference call, Samuels said the board had approved a revised capex budget of $130 million and it was dropping one rig in the spring “if macro or fiscal cliff issues warrant it…
“We want to continue to maintain the integrity of our balance sheet,” Samuels said. “We really want to drive the message home that liquidity management and balance sheet integrity are very important to us, and we’ll respond to macro conditions as they evolve.”
Asked if there was a chance Triangle could expand to a three-rig program, he said he didn’t think so. “Unfortunately we’ve spent most of our time in the past couple of months worried about the downside scenario of what happens [with the fiscal cliff]. Our business sort of takes care of itself from the upside case, so no — we haven’t really given a lot of thought to increasing our rig count next year at this time.”
Next year Triangle also plans to “keep an eye” on its Station Prospect, about 42,000 net acres in Montana prospective for both the Middle Bakken and Three Forks formations that it acquired in 2011 (see Shale Daily, May 25, 2011).
“This is part of our portfolio that gets very little attention, very little value accredited to it,” Samuels said. “But we’re monitoring activity in the area. There are some big boys out there sniffing around — Apache, Southwestern, Whiting, Samson Resources — all drilling wells, leasing acres. Definitely we want to continue to de-risk Three Forks in our area, and in the same vein flesh out exactly what wall spacing should look like in our current area of operations. We continue to believe there’s a lot more recoverable oil out of this play than people give it credit for.”
Triangle holds about 86,000 net acres in the Williston Basin and operates about 60% of its acreage. Its latest internal reserve assessment indicates 8.279 million boe of proved reserves, 86% weighted to crude oil.
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