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Triangle (NYSEMKT:TPLM) had an excellent Q2, as it continued to do a good job of controlling costs.

In September of last year, I had reported what looked to be a turnaround for Triangle. By starting oil service and midstream companies it has developed synergies improving the bottom line. Because of this I made it one of my top 2013 stock picks. Triangle's top line number was $50.39 million, beating by $180,000. The bottom line was much better at $0.19/share versus the Street's $0.15/share. The growth numbers have been excellent. Year over year quarterly sales volumes increased 277%. For the same time frame, consolidated sales were up 391%. E&P revenues increased 64% quarter over quarter and 358% year over year. Rockpile revenues were up 65% from Q1 and 445% year over year. Caliber's sequential growth was 21%. During the quarter, 58% of operated producers were hooked up to gas. This compares to 0% in Q1. By Q4, it plans to monetize the gas on all operated wells. This will provide a 15% to 20% increase to the top line. It drilled 5.2 net operated wells and has three rigs running. 1.4 net non-operated wells were also completed in Q2. Rockpile completed 8 Triangle wells and 10 third-party wells for a total of 57 stages. It has a backlog of 14 wells, with 8 being Triangle wells. Caliber delivered fresh water to all 8 fracs this past quarter. This will decrease costs significantly. Rockpile provided a $10.2 million reduction in expenditures for the quarter. Caliber reduced expenditures by $1.3 million.

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Triangle seems to be far ahead of estimates in 2013. Current production is approximately 6500 barrels a day for the past 21 days. This has ramped up quickly, with production at 5600 barrels just a month earlier. This outperformance is due to a slower depletion rate than anticipated. Triangle's acquired wells are also doing better. It seems focused on the details and this continues to drive numbers.

Spud to spud cycle times are improving as are completion techniques. Rockpile has expanded into the pump rental business, which offers pressure pumping services, pressure testing services, and cased-hole wireline services. Rockpile may be the most exciting part of the Triangle business. Its innovations continue to provide Triangle with top notch well results. When we take into consideration these results versus how long it has been in business, I believe there is still significant upside in the short term. Caliber continues to deliver fresh water for Triangle frac jobs. In forming this midstream business, it helps to curb one of the biggest costs in the Bakken. Water delivery costs whether fresh or produced can hit Bakken operators hard. It continues to hook Triangle wells to crude and gas lines. All of this is important, and I cannot stress enough that this business model works. Keep in mind, Triangle costs are much lower due to both businesses. This allows it to not only get jobs done on time, but use high end well designs without the burden of some of those costs. This is why Triangle is on track to meet full year guidance and budget. It is also the reason it produced $0.43/share in cash flow for the quarter.

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Going forward Triangle's integrated model will continue to benefit the company, but there is possible upside. It does have the option to spin off these businesses, but keep in mind that would be a ways down the road. In the mean time Rockpile and Caliber are saving Triangle 13% to 15%. It sees these savings increasing up to 20% in the future. Spud to spud times are 15% to 20% better year over year as well. Triangle also continues to outperform with respect to production. Its wells have been coming in ahead of schedule, and is currently testing 46 stage laterals. This is important, as these are some of the tightest stages in the Bakken.

EOG Resources (NYSE:EOG) is another operator experimenting with stages much shorter than the 300-foot average. It has found this to produce very well, but other operators have stayed away given the well costs involved. EOG has managed costs through several ways including self-sourced sand. Even with these completion improvements, it has AFEs of $10.5 million currently, with a $10 million target before the benefit of Rockpile and Caliber. Triangle is able to save 15% per well through its integrated model. This allows it to use a better well design without breaking the bank in the process. This increased production has it running ahead of its full year production guidance. So while EURs are increasing, well costs are heading lower. It currently has 30 days of production on its first 46 stage hybrid. Triangle does not have enough data to model this completion design. Also, its 600 foot downspacing tests of the middle Bakken have shown no communication, even with its complex frac jobs. At 600 foot spacing, Triangle is able to do 8.8 wells per section.

We haven't seen very many operators drilling this tight, but there is a very good reason why it's possible. I have mentioned the lower Bakken silt in earlier articles. This was first mentioned by Whiting (NYSE:WLL) earlier this year. This is a 25 foot thick interval that is very difficult to drill. Operators have begun drilling extra middle Bakken wells lower in the middle Bakken and fracking into the lower silt. It is very possible this interval will allow for an additional 4 middle Bakken wells per unit. The recent major acquisitions around Triangle's acreage are due to this interval. If the middle Bakken alone can provide 8 locations per section, the acreage is worth significantly more. This number quickly increases if the upper Three Forks can also provide 8. If the second and third bench provide another 4 wells apiece, the wells will be on 220-foot spacing. Triangle refers to this as the lower Bakken dolomite.

Looking forward, Triangle has 7 gross wells to be completed in the next 45 days. Two of these wells are located on one of Triangle's best units. Triangle has finally began to talk about developing its Station Prospect in Montana. Next year it plans to drill vertical wells focusing on deeper formations. It didn't specifically mention the Red River, but there is a good chance this will be the initial target. When it drills these vertical wells, it plans to core the Bakken and Three Forks. Triangle plans to spend $10 million of its 2014 budget on Montana verticals.

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Well performance has been a key for Triangle. While other operators have had excellent results from slickwater fracs, Triangle continues to use a standard well design. Below is a list of all Triangle wells to date.

WellFieldStagesWaterProppant

IP 30

IP 90IP 180
23775Ragged Butte31719743561229515407
23777Ragged Butte31742753826324497421
23432Antelope Creek25510263108051334260206
23812Antelope Creek31684303854806593406321
22625Antelope Creek31831964209224517376302
22627Antelope Creek31818354164503416317
24027Antelope Creek31770023253844376319
24664Antelope Creek31730283892538534
24665Antelope Creek31769083942852476
22297Otter28690623569288231188170
22296Otter31632344093148370244238
23114Buffalo Wallow31796443863719479338261
22096Ellsworth31773283903588347239194
22097Ellsworth31783263923541491356279
21632Ellsworth31766013731458665437354
21452Pronghorn31709823272518430364275
21825Rawson31676403956579349279273
21827Rawson31644433605222395334312
23160Rosebud31627393787154579391302
22558Rosebud31637533803450560415342
Average 30.6715713761652458338274

The above wells were all drilled and operated by Triangle Petroleum. It currently owns two other wells, but those were completed by Tri-C Resources and Zenergy. Those were not included in the above table. All of the above fields except for Otter and Rosebud are located in McKenzie County. Currently, it is believed the lower Bakken silt is located only in its McKenzie County acreage. This should mean more locations in McKenzie, but I am uncertain as to how this will affect recoveries per location. It is difficult to know exactly how good these results are without a comparison. Below I have compiled data from the fields Triangle operates. I am limiting the results to those completed in 2012 and 2013, as this is when Triangle has completed all of its wells. I am starting with Ragged Butte Field. Keep in mind, Triangle operates in other fields, but those wells are still in confidential status.

WellOperatorStagesWaterProppantIP 30IP 90IP 180
21105(NYSE:STO)33786313669780653415333
21106STO35754774325662718465354
22511TFSTO38957223298464298149
22512TFSTO32975293826754244
21876STO40824674082170562
21875STO39787813810822674
22585TFSTO31829532719106329252
22586STO40874443618340859624459
22587STO39924893883780813472
23775STO31719743561229515407
23777STO31742753826324497421
21431STO39840923776960658388303

The above wells are excellent and provides significant upside for Triangle. Statoil has drilled significantly more wells, and as a general rule has been ahead of the curve with respect to well design. Keep in mind, Statoil uses a low resistive choke. So this does inflate IP rates, and it is difficult to know how much. Conservative estimates place a leveling of production at 90 days, but from what I have seen it could be closer to six months. Statoil does not cut corners. It uses tight stages, and believes 40 stages to a 10000 foot lateral is optimal. It also uses large volumes of water and proppant. Although Antelope Creek has been a good field for Triangle, there is little development by other operators. Hess (NYSE:HES) has operated wells in this field from its Tracker acquisition.

WellOperatorStagesWaterProppantIP 30IP 90IP 180
20461HES381113335337464674424304
20312HES38745403323820605321253

The Hess wells are very good as well. When these two wells are compared, a 17% production increase was seen from a 37% to 38% increase in water and proppant. In Otter Field, Halcon (NYSE:HK) owns several wells from its Petro-Hunt acreage acquisition.

WellOperatorStagesWater Bbls.Proppant Lbs.IP 30IP 90IP 180
21870HK25689492859275203158125
21703HK28747002745574205243184
21207HK27673852696290202179146
20992HK25663892463358235167153
22589HK25730252943902252182141
20065HK2699886N/A370272217

The above wells were all drilled and completed by Petro-Hunt. It had poor results which is probably the reason it sold this leasehold. Halcon has made several improvements and is seeing much better returns since acquiring Petro-Hunt's acreage. Ellsworth Field has had significant development outside of Triangle's recent completions. Both Hess and Whiting are active in this area.

WellOperatorStagesWaterProppantIP 30IP 90IP 180
21737HES38628221655560619409298
22146HES34477991586928682438317
21738HES34532801604520482338242
22389HES30328881347858538342
22159HES34604761915855666428248
22425WLL39386533066900608379286
22947WLL27334112323460583405301
20654WLL30293022139520437350265
22405WLL29397661424270531
21722HES30388201336287372
21723HES21258751288999418
21167HES38916933125260688484365
21260WLL24369312297330489350260
22116WLL30323861812800177125105

These are very good, consistent results in Ellsworth Field. This is important as these wells use lower volumes of water and proppant. Even with an inadequate design, production is still quite good.

Pronghorn Field has had a recent new entry. Liberty was purchased by Kodiak (NYSE:KOG), and it has drilled and completed several 2012 and 2013 wells. Every one of these wells are slickwater fracs. This is becoming more popular, as this area has produced better with this design. More importantly, slickwater fracs tend to have lower depletion rates. Those results are listed below.

WellOperatorStagesWaterProppantIP 30IP 90IP 180
23651KOG302187693392938603425
23535KOG252546713983121685524
23534KOG352546354050833661426
21680KOG352527883906420666626402
21421KOG352263703382989545427323

Triangle is the only non-private name working Rawson but Rosebud has a few different operators with recent completions. Statoil currently has four wells here on confidential status.

WellOperatorStagesWaterProppantIP 30IP 90IP 180
23422 471109579554750614464
23728(NYSE:CLR)14209631210780157
21498STO38814243933476544352256

EOG Resources' well uses its new completion design. This is a fantastic result, given the well is in Williams County. After 90 days of production, well 23422 had produced over 100 barrels of oil than the Statoil well. The Continental well result is a little misleading as it looks like there were completion problems.

Triangle's Montana acreage could be more important to its results than in North Dakota. This does not mean I believe the Station Prospect is better acreage, but there is more upside.

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The above map, shows several different operators targeting around Station Prospect. There have been little by the way of good results, but there has been a lot of interest. The area is prospective to the Bakken/Three Forks, but the Red River is probably a better interval.

In summary, Triangle is now firing on all cylinders. Its integrated model is proving successful and should continue to improve the bottom line going forward. All three segments of the business are growing fast. Triangle's well design continues to improve and at the end of Q3 we should know more about the performance of its hybrid designs. These wells should be much better than those listed here, as it is more complex than other operators have drilled and completed. I would also expect further downspacing to the middle Bakken in McKenzie County. I think we will continue to see this acreage increase in value throughout 2013. With the recent jump in stock price, I think Triangle may be a little ahead of itself. I recently took some profits, but think Triangle will continue to outperform in the longer term.

Source: Bakken Update: Triangle Beats On Better Well Performance And Its Integrated Model

Additional disclosure: This is not a buy recommendation. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results, do not take into consideration commissions, margin interest and other costs, and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market or financial product does not guarantee future results or returns. For more articles like this check out our website at shaleexperts.com. Fracwater Solutions L.L.C. engages in industrial water solutions for oil and gas companies in North Dakota. This includes constructing water depots, pipelines and disposal wells. It also provides contracting services for all types of construction at well sites. Other services include soil remediation. Please contact me via email if you are interested in working with us. For more of my articles and other pertinent information on the oil and gas sector, go to shaleexperts.com.