Triangle Petroleum (TPLM) will release 4Q11 numbers on Monday morning (April 16th), hold a conference call and then speak at IPAA in the afternoon. While we expect continued production and EBITDA growth from its non-operated program, that is not the story and we thought it was a good time for a list of things to expect them to talk about as the company makes not one but several key transitions this year.
First, they make the move from being a non-operated "Bakken Player" with all the discounts that implies to market participants to one of operator which in the eyes of the market puts them more in charge of their destiny. Second, they will vertically integrate adding their own in house frac spread around mid year. Finally, look for them to start talking more about the other side of the balance sheet ... weighted average cost of capital is a good thing for companies to explore. This is all part of the process of going from Williston Basin toddler to teenager and is being delivered on time and in line with expectations. So here's what we expect as far as quarterly color goes.
Operated Drilling Program. They should be drilling their fourth operated well in Mckenzie county but may be on their fifth now. They've contracted Schlumberger (SLB) to frac the first four wells in sequence. Previously TPLM had centered expectations on four wells on July frac dates but an accelerated plan emerged after the Weil conference that would see the first well fracked beginning around tax day (each should take about a week).
We would expect the cost on the first two wells to be a little higher due to a little extra monitoring science and use of 100% ceramic as they are in the deepest part of the Basin here. Recall these early wells are in the Tobacco Garden area where Newfield (NFX) and Brigham (now part of (STO)) drilled 3,000-plus BOEpd IP type middle Bakken wells. Completed well costs should begin falling gradually with lessons learned form the first wells in wells three and beyond, with less science and perhaps a little less ceramic in the mix.
- Proppant Sidebar - Just a thought for Carbo Ceramics (CRR) and others but we are hearing Chinese proppant quality has been improving in recent months.
I would expect them to take their time in reporting the results as the company is not all hype and would rather give investors an idea of 30 day rates or maybe seven day averages instead of the sometimes misleading (but occasionally stock price gratifying) open flow 24 hour max potential rates that some of their peers press release from time to time. Don't get me wrong, I like high IPs as much as the next guy but they are misleading unless we've got more data than your average press release is going to go into and I much prefer to see 30 day rates that walk higher over time in subsequent wells as the operator hones their drilling and completion methodologies. My guess is we see some production rates later in May or at the latest by June.
Other things to look for:
Look for them to reconfirm their prior 2012 exit rate guidance. These operated wells are high working interest wells in good Williston real estate and at this juncture the 2,600 to 3,200 BOEpd range they have espoused in the past should be completely doable.
Their non-operated program should still be producing good results and they should be able to mention at least one (OAS) operated well (in which TPLM has a relatively high working interest) that recently came off confidential status in McKenzie county near OAS' very strong Angell 5200 well spud way back in 2009.
Rockpile, its in-house frac spread, is training (many former SLB guys) with new equipment that was delivered in March. Expect TPLM to transition to using Rockpile for completions in 2H12 and to bid for other Basin business to stay busy in between company jobs. We should see nice EBITDA margins on non company wells, either on away business or on TPLM non-operated wells. Right now the completion side of a well is probably $5 mm of the well cost in the Williston Basin on average so this will represent a meaningful add to the TPLM story that I can't see as being reflected in stock valuation. Rockpile should be up and running in July, and can do up to four wells a month once running smoothly, so a big revenue and EBITDA generator and a nice savings for them when it comes to the operated program.
Finally, I think they will have their initial credit facility in place in the not too distant future. They are growing to a size where having a facility makes sense and I would suggest that this facility would start small and then grow, perhaps rapidly as the operated program kicks into high gear. I'd suggest that they do a mid year reserve update since the facility and reserve report for last year won't take into account the new operated wells.
All in all, the progress of this management team continues to mimic that of other Bakken success stories like KOG and OAS if you just turn the clock back by about 18 months. I think the move to vertically integrate will prove to be quite smart.