Triangle Petroleum Corporation, 2014 Guidance/Update Call, Feb 14, 2013

| About: Triangle Petroleum (TPLM)

Triangle Petroleum Corporation (NYSEMKT:TPLM)

February 14, 2013 10:30 am ET


Jonathan Samuels - Chief Executive Officer, President and Director

Justin J. Bliffen - Chief Financial Officer


Good day, ladies and gentlemen. Welcome to the Triangle Petroleum Corporation Interim Operational Update for Fiscal Year 2014 Production and Financial Guidance Conference Call. My name is Beverly and I'll be your operator for today. [Operator Instructions] I would now like turn the presentation over to your host for today, Mr. Jonathan Samuels, President and Chief Executive Officer. Please proceed.

Jonathan Samuels

Thank you and good morning, everyone. Glad you could join. I'm sitting in here today here today with Justin Bliffen, our new CFO; and Mike Grijalva, our VP of Capital Markets. Exciting day for us. Lots going on, lots to talk about this year. We felt this was a pretty meaty press release. We're presenting some things differently and thought it would just be a good opportunity to hop on the phone, walk through it, share our thoughts on the business, what we're seeing, where we go from here, introduce Justin to those of you who haven't met him and just, in general, give shareholders an update.

So the first point in the press release we covered were some updates to the Executive Management team, and just a couple of words on that. Peter Hill, most of you have followed Triangle for a long time, have known him and probably knew him before then. He's still very much part of our team and this program. He's a partner, he's a friend, he's a mentor. He's the Chairman and this is a role that we see him in for the long-term. He wants to be in there, we want him in there. So he's not going anywhere.

I'm not, obviously, not going anywhere. Joe Feiten, our principal accounting officer remains fully engaged, fully involved. He's been a great asset. If you guys have met Joe, you know his background is very much in the accounting space. He's literally written books, Oil and Gas Accounting 5 (sic) [Petroleum Accounting Principles, Procedures, & Issues Vol 5]. He's a co-author of it. So in a Principal Accounting Officer role, that is the right role for him, we believe.

And so the sum of all this is we think shareholder gain, Justin, who is a very capable Chief Financial Officer. He's been a big part of building this business for the last 2 years. A lot of you have met him and have the opportunity to work for him. And with the sum of these changes, we feel like we have the right senior team in place for the next 5 years and shareholders should feel very good about the people they have in place. It's stable, no one's going anywhere and we are positioned for whatever growth may come over the next couple of years. So very positive on that front.

As you all know, we had our fiscal year-end was January 31, about 2 weeks ago. The only guidance we've given and just to set the stage and remind people, we frac-ed our first operator well last April, so 9, 10 months ago, and we came out with our exit rate guidance, 2,600 to 3,200 a day, before we've even done that. So it's definitely a challenging exercise and we are pretty happy with the results. Our exit rate for the last 21 days, the last 3 weeks of January, was about 3,300 BOE a day, the sold number, less. You guys know why that is. That's gas getting flared. You also know that as a result of our partnership with First Reserve and our Caliber investment, we are busy working on a gas plant and a gas gathering system and a large part of that gap and that delta goes away. So as we run our internal model, we have a total produced volumes number, we have a total sold volumes number and that gap narrows as the year progresses. We are also looking up wells in Williams County with third-party service providers being one of them. And you're going to see the production versus sold number narrow. We think that's the right thing to do for all parties for the environment, for shareholders. Emission and regulations are coming that way anyways. So we are on pace for that. But pleased with where we've come, I mean, considering this team really just started and hasn't even had a full year on the E&P side to build the business. We're happy with where our production is and we're happy with the growth that we see this year given a 2-rig program.

A couple of words on that. We continue to pad drill and when you have a 2-rig program and you're pad drilling, that makes the completion somewhat lumpy. So that's why you see full year guidance and you don't see quarterly guidance just yet. We feel very good about our full year guidance. We feel very good about our Q4 guidance. We weren't in a place to give Q1 and Q2, and it really just comes down to the timing of completions, timing of drilling. And when you're pad drilling, wanting to do things right. You want to do things the safe way and particularly, as RockPile picks up third-party work, there's just a lot of scheduling that goes on. And it doesn't change the NAV. It doesn't change what we look like at year-end this year but some things could fall into Q1, they could fall into Q2. And that makes it a tougher guidance exercise, so we've elected not to do that at this time.

We have taken a big step for us internally, though, which is issuing full year guidance for our various businesses and with that, I'd like to pass the call over to Justin and walk you guys through the numbers.

Justin J. Bliffen

Good morning. It's a pleasure to be in the call today. We're issuing fiscal year average production and revenue guidance numbers for the first time in our company's history. I will briefly run through those forecasts by business segment. Many assumptions drive these forecast, the most important of which are $80 realized oil, at least 160 rigs operating in the Bakken and stable commodity input prices such as ore, proppant, and et cetera. Triangle USA, our E&P business, expects to produce 1.2 -- excuse me, 1.2 million to 1.35 million barrels of oil equivalent this year -- this fiscal year ending January 31, 2014. These volumes will generate fiscal year revenues of $95 million to $105 million, and EBITDA of $60 million to $70 million.

On a standalone basis, our wholly-owned completion services business, RockPile Energy Services, will generate revenues of $168 million to $185 million and EBITDA of $32 million to $39 million. Our midstream business, Caliber Midstream Partners, jointly owned by First Reserve Energy Infrastructure Fund, net to our 30% interest in the partnership will generate $5.8 million to $6.5 million revenue and approximately $4 million to $4.7 million in EBITDA to us. Thank you, very much. I'll turn the call back over to John.

Jonathan Samuels

Thank you, Justin. A couple of words on this. Why are we -- why we're presenting this differently and what are the other impacts. As we look at our business, what are we? We are an E&P company and we are vertically-integrated and our goal is to create a network effect amongst our subsidiaries in pursuit of our goal of being a low-cost producer in the basin. As we've rolled out both RockPile and Caliber, we've realized that if we created a quality solution for ourselves, that same solution appeals to third parties and you're starting to see that tick in.

So for those of you who's familiar with our accounting practices, we are required under GAAP accounting to eliminate Triangle's share of RockPile's profits. It's very simple. You open up our 10-Q, you see the intercompany elimination. Without all -- our share of profit has been deducted from the full cost pool and it's basically a reduction of CapEx. So as we looked at Q3, we're sitting there, we're saying, "Well, we're not getting credit for the cash flow of this business. And yet, we're providing the street with actual CapEx numbers, so we're not giving a reduction to CapEx either." And basically, shareholders are missing out on a big chunk of cash flow and GAAP rules are what they are. Shareholders own the bank account and when the cash is sitting there at the end of the year, that's worth something.

So you don't need to like the pressure-pumping business to like Triangle. Any company operating in the Bakken is in the pressure-pumping business. They're just outsourcing it to someone else. We choose to capture that because we believe with the team that we have in RockPile and infrastructure we've built, it gives us a cost advantage over the long run.

So I mean we think there's 2 ways that shareholders ultimately profit from our vertically integrated business. It's either an eventual spin out or sale of either or both RockPile and Caliber. And that is -- that could be 5 years from now. That could be 10 years from now. We're not trying to put any time horizon on it, and please don't take that comment as meaning we're with trying to sell the business, because we're not. And if that happens, you're talking of multiple [ph] cash flow and you need to think about the right multiples for each business as we break it down. E&P has one set of valuation metrics, that could be production numbers and reserve base. That's probably the best way. That's how we think about it. For RockPile, it's going to be a service multiple today on a EBIT to EBITDA [ph] , that might be between 3 and 6x. We are at a trough in pressure pumping but we plan to be here for the long-term.

What gets very interested from our perspective is infrastructure in the midstream business, which can trade at multiples of 10, 15, 20x cash flows and there have been several acquisitions in the Bakken in the last 3 months at premiums even higher of what I've just said now. So when you think about the CapEx we spend, shareholders get a big rebate back at the end of the year and if we are successful in growing our third-party business, we think we can ultimately achieve a multiple cash flow and an exit.

And in the meantime, over the next 5 years, we have a very nice hedged position. If commodity prices crashed and the rig count falls, RockPile's going to suffer but our D&C costs are going to come down. If oil goes to $120 and the Bakken rig count shoots to 250, and you're back to delays in services and rising cost, RockPile is going to do very well. So shareholders are in a very good position to profit really in any commodity cycle. And as we increase our hedged position and you layer in infrastructure cash flow, that infrastructure cash flow is going to come regardless of what the commodity price is. It has no exposure to that whatsoever. So we really think we've diversified our business and created a competitive advantage for ourselves as we try and execute in Williston Basin.

And it's exciting. I mean we are as excited and positive about our business right now as we have ever been. And for those of you who have been on 2 years’ worth of conference calls, you know our mantra is under promised, over deliver. We want to do things and then say we did them versus make promises that perhaps we're unable to keep and we think these numbers are real. This is not throwing something up there, hoping it sticks. And we really want to encourage people to take a fresh look at our business, look at this type of growth, look at where the valuation sits and we see a lot of potential.

In our press release, we put out what Q4 this year looks like. And the reason we did that is because there is growth. If you look at this year over last year, the growth is substantial. It's top 10 on a percentage basis in a pool of 500 E&P companies that we looked at.

But people are going to soon start to ask the question, what happens next year and how do you pay for it? And that's a very reasonable question. So we took Q4 and we just annualize it. We said even if you saw no growth next year off of Q4, which I would not suggest as a realistic assumption, you still have substantial growth baked in. And when we look at our model, we see a credit facility in E&P that is rapidly growing and we have a nice cushion between our borrowing base available and our borrowing base drawn. So we really don't see the need for additional equity to fund this growth program.

You are going to see a slight tweak in our corporate presentation. As you guys know, we owned 83% of RockPile for some time and during that, when we were only 83%, we were reporting our CapEx in RockPile solely as what is Triangle putting into that business. Now that we've bought out those minority partners and we're a 100% owner, we really need to report CapEx in terms of what they're going to spend. So the net effect of the second spread in RockPile which we've ordered is going to be about a $15 million increase in CapEx. We've put in this press release that RockPile is close to closing a $20 million credit facility. So the use of proceeds, sources and uses are there. It really should have no impact on anyone's model from our perspective.

So we're excited. We're positive. We encourage people to take a look, call us, ask us questions. Learn more about these businesses, come see us, come meet us. We want people to come to North Dakota and see our businesses because we think if you do, you will see the infrastructure, you'll see the value of it. And you'll see what this can do in terms of shareholder wealth creation over a 3-to-5-year period. We have the team in place. We have the financial support from fantastic partners and the public markets from natural gas partners, from First Reserve, and really all the key pieces are here. Now it's execution and hopefully, these numbers give some people some confidence of what this can look like if our team executes.

So we appreciate your time. We're available all day. Please give us a call, ask questions and we hope to see you and visit with you in the near future. Thank you.


Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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