Triangle Petroleum (NYSEMKT:TPLM) is a small capitalization, independent energy company based in Denver, CO. They operate mainly in the Bakken Shale and Three Forks formations in North Dakota. As a whole, Triangle has reported increases in oil production and reserves of 295% and 179% respectively, year over year according to a presentation released in May. The release also reported segmental results for all three of Triangle's businesses: TUSA, RockPile Energy Services, and Caliber Midstream Partners. After reporting results, both RockPile Energy Services and Caliber Midstream Partners were given standalone valuations by management suggesting that the parts of Triangle Petroleum may be worth significantly more than the whole.
Sum Of The Parts Analysis
In order to analyze Triangle's businesses as stand-alone entities, I will be using the enterprise value to EBITDA metric. The EV/EBITDA metric will create a more accurate representation of the company's true value than a traditional price to earnings multiple. This is due to the high level of debt and other liabilities on the company's balance sheet. Also, I am more comfortable using the fiscal year 2015 guidance for each of these businesses shown below because I feel as though it depicts a more conservative and realistic look at what the company is worth.
It is important to note that the annualized second half 2015 guidance is used in the company's May presentation, which will explain any discrepancies between my valuation and the one presented within the Triangle's presentation.
Beginning with RockPile Energy Services, Triangle's management team is expecting FY 2015 EBITDA to be reported between $63-75 million. According to the presentation, comparable businesses are valued at 6.6x EBITDA. Using the midpoint of Triangles guidance; $69mm, the company should have an enterprise value of $455.4mm. Dividing RockPile's estimated EV by the number of basic Triangle shares outstanding, gives RPES a stand-alone value of $5.30 per share.
Moving on to Caliber Midstream Partners, the segment is expected to produce stand-alone EBITDA between $13-15mm in FY 2015. Again using the metric that Triangle's management has presented for comparable companies in the presentation of 14.1x EBITDA, Caliber should be worth $197.4mm. With 85.9mm shares outstanding, CLBR represents a stand-alone share value of $2.30.
In terms of TUSA, the calculations are a little more complex. This is because the Triangle has a large amount of debt and other liabilities on its balance sheet ($603.97mm). However, continuing with the calculations, I have found that many comparable companies maintain enterprise values of ~5x 2015 EBITDA. Placing a multiple of five on TUSA's FY 2015 EBITDA guidance midpoint of $215mm, would yield an enterprise value of $1.075B. Subtracting the company's debt from its EV leaves a market capitalization of $471.03mm, or $5.48 a share.
According to a Bloomberg piece released on August 4th, Triangle's management team had begun to move foreword with the process of breaking up the company by interviewing investment bankers about the possible spinnoff of RockPile Energy Services. An anonymous source also stated that they believed Triangle was also considering either selling or spinning off its stake in Caliber Midstream Partners. If CEO John Samuels follows through with the breakup, then I believe the total value of the company, as shown in my sum of the parts analysis above, would equate to $13.08 a share. That is roughly 18% higher than Friday's closing price of $11.06. I will be watching for shares of Triangle Petroleum to advance as the company nears a breakup.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in TPLM over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.