Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jonathan Ryan Samuels – President and Chief Executive Officer

Analysts

Ronald E. Mills – Johnson Rice & Co. LLC

Mike Kelly – Global Hunter Securities LLC

Peter F. F. Kissel – Howard Weil, Inc.

Jeffrey Hayden – KLR Group

Jason Wangler – Wunderlich Securities

Dan McSpirit – BMO Capital Markets

Triangle Petroleum Corporation (TPLM) F2Q 2013 Earnings Conference Call September 6, 2012 10:30 AM ET

Operator

Good morning ladies and gentlemen. Welcome to the Second Quarter 2013 Triangle Petroleum Corporation Earnings Conference Call. My name is Chris, and I’ll be your conference moderator for today. Presently all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

And at this time, I will now like to turn the conference over to your presenter for today Mr. Jonathan Samuels, President and CEO. Sir, you may proceed.

Jonathan Ryan Samuels

Thank you and good morning everyone. Welcome to the second quarter fiscal 2013 Triangle Petroleum earnings call. There are five topics we’d like to cover this morning and then we’re going to turn it over for Q&A. The first topic will be review of last quarter's operations and financial results. Second topic will be the recent NGP financing. Third will be a review of our balance sheet and our outlook for hedging. Fourth will be a RockPile discussion, both operations and how we account for it. And the fifth will be guidance and outlook for the third quarter.

This past quarter, our second quarter fiscal 2013 was a very good quarter for us. First cash flow from operations, positive quarter in our company's history, and really we think begins the March quarter-after-quarter growth that we’ve been preparing for and building for, for the last year. Our current production in the quarter was approximately 94,000 barrels of oil and 103,000 barrels of oil equivalent. We added approximately 2,000 net acres in the quarter, all operated – all in McKenzie County at a cost of approximately 2,000 per acre.

Total revenue in the quarter was $10.2 million, $7.5 coming from oil and gas sales, $2.6 million coming from our share of RockPile Energy Services revenue. Cash flow from operations in the quarter was approximately $6.7 million and EPS slightly negative, negative $0.02 and hopefully the last negative quarter on a go forward basis. We ended the quarter with 44.3 million shares outstanding as of July 31.

Providing some of the metrics, our average sales price per barrel was $77 that was on $93,730 barrels of oil. We produced 60 million cubic feet of gas with an average sales price of $4.20 and 37,460 gallons of NGL at a sales price of $0.97.

Obviously the big news in the last month was our financing with Natural Gas Partners, based at Irving, Texas, quick recap of the deal. It was a $120 million in convertible notes. The notes convert to $8 a share in the Triangle common stock. Notes carry a cashless coupon with a 5% annual interest rate, that interest is simply added to the principal. There is a note maintenance covenants, and we really treat this internally more or like preferred equity and long-term money.

From NGP, we added a new board member Roy Aneed, and we are very excited about this relationship. Roy has been great to work with along with the rest of the team. Besides capital, we’ve already added value in a number of ways on the financial front, on the strategic front, deal flow. And we really think it’s going to change Triangle on a go forward basis.

We’re also pleased to have sourced this capital ourselves. Thanks to our team here at Triangle. So we didn't pay any fees and we think it was the lowest cost capital available to us at the time.

As a result of the NGP financing, we are very happy with where our balance sheet sits today. We ended the quarter with $116 million of cash and an undrawn credit facility of $27 million. We are going to look to have that credit facility redetermined during the next month or two and expect that to increase. We have no debt outside of the convertible notes, which as I mentioned we consider to be more like preferred equity.

We initiated in the quarter 1,000 barrels a day of hedges for the balance of this year. So costs of color with a floor of approximately $81 and a ceiling of $102 or $103. We also put in 500 barrels a day for the balance of 2013 and 2014 with a similar band.

Regarding our philosophy on hedging on a go forward basis, we are very, very comfortable in the 80/100 range. We would like to increase our hedges and you should definitely expect more from us.

Regarding RockPile, this was RockPile’s first quarter of operations, they started up with surprisingly very, very wider, and any start-up operation you can imagine there was going to be some bumps in the road and we really avoided those and the teams did a fantastic job. We completed two wells in the quarter and are fully functional and going today they are zipper-fracking two wells for us in Williams County. We have an additional three wells in McKenzie County that are waiting on completion.

Regarding how we account for RockPile, we own 83.3% of RockPile, and we will – booked on our income statement revenue attributable to our share which excludes our working interest in wells. Sort of run through an example, if we frac a well, and that generates $1 million of revenue and we are 50% of that well from a working interest standpoint and another 50% belongs to a non-operating working interest owner. We only book $500,000 or half of that revenue.

So when we opened our income statement this quarter, we saw $2.5 million of RockPile revenue, that’s what we booked. RockPile actually generated approximately $8 million of revenue and a little over $5 million was intercompany eliminated. Well we obviously understand that the gap principals here, is the reminder that this is the money we would have spent, that is going to a company we own, so even if it doesn’t find it’s way in our income statement, this is still capital that is staying within our shareholder’s value chain.

Regarding our guidance and outlook for next quarter, we are beginning the growth mode. We have two rigs running full time right now. Our E&P team is functioning very well together. Our operations, our drill times are getting shorter, our completion times are getting shorter, our EURs and our IPs are getting better.

RockPile is filing an all cylinders. Our pipeline infrastructure personnel are in place. We’re continuing to work on adding a financial partner for Caliber, which is our midstream business. We believe there are number of private investor firms interested in putting midstream capital for work and it only takes one for us. So that’s something we would like to get done in Q3.

Q3 should be our first profitable quarter from an EPS standpoint. We are expecting E&P revenue north of $10 million, in addition to $16 million to $18 million of RockPile revenue with about half of that finding its way into our income statement.

So our outlook overall is very, very positive. We have to complete ten more wells this year. Our current production at 1,200 barrels a day. It was about where it was at our last press release that actually reflects only four wells producing, two wells were shut-in. We've had at times been producing over 2,000 barrels a day. I think many of you are familiar with the nature of Bakken wells, the steep declines and also we have a very small well base, when one, two or three gets shut-in, it really whacks your production. But with two wells, offline today and five getting fracked in September and October, we feel very, very good about where our production sits for Q3 and for the balance of the year.

And overall, we are happy with our progress. We laid down an ambitious plan year ago that involves sourcing capital, hiring people, managing a team, bringing on operations in a very constrained environment, being really integrated of our size is uncommon and overall we’re very happy at where we sit. This is was largely due to the effort of the approximately 90 people that now work at Triangle, some of those were out in the field, a number of them, a number of them were in the office and working on the scenes. It was a very much team effort that we do believe we have the people in place, the capital structure in place and the financial partners to execute our plan over the coming quarters and years.

With that, I would like to turn it over for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Ron Mills of Johnson Rice. You may proceed.

Ronald E. Mills – Johnson Rice & Co. LLC

Good morning guys.

Jonathan Ryan Samuels

Good morning Ron.

Ronald E. Mills – Johnson Rice & Co. LLC

Couple of questions for you, John. On the reserves you had pretty significant reserve growth to the six months. Can you walk through in terms of PDPs and [PUDs], how many net wells you have in each of these categories in terms of relative and that is the way the bookings have changed especially now that you have some operated wells presumably in that number?

Jonathan Ryan Samuels

Yeah. That mean the January 31 number do not include any operated wells. So really that change is the reflection of the operator program and the well performance there and our ability with an operated program to book incremental publications around, sort of breakdown on the PDP side, is that we have 7.7 net wells in there and on the PUD side it’s 10.2 net wells.

Ronald E. Mills – Johnson Rice & Co. LLC

In terms of the way the reserves were booked, some of your early wells were probably booked at lower levels, but how did the reserve engineers come in and book your latest wells that were more operated relative to your expectations?

Jonathan Ryan Samuels

Well, this latest reports are internally generated reports.

Ronald E. Mills – Johnson Rice & Co. LLC

Okay.

Jonathan Ryan Samuels

We are required to perform that and disclosed it in our 10-Q. We did not want to spend the money frankly on a third-party report. So our guys generated internally. I think our view is that it’s still a conservative rational, there is little over nothing and therefore the Three Forks. We have a Three Forks well, waiting on completion; it should be completed this month or next month. And so a very strong Q4 results in the units around us particularly well. So it was generated internally. There is not a lot of gas been sold on these wells, so certainly we see upside to it, but we would rather start, little more to lay up and start high, lot at year-end. You know what it mean.

Ronald E. Mills – Johnson Rice & Co. LLC

I understand. And then, you addressed the current production differences in terms of you, you now have four well online, the two wells that were shut in, where they shut-in to go on lift, where they just shut-in to clean something out and plan it so you can do apples-to-apples. What was the production of those wells, when they were shut in?

Jonathan Ryan Samuels

Production when they were shut in was zero. But one of those wells that were shut in, we are drilling it down spacing Bakken well right next to it. I should have done drilling, it’s going to be fracked. So that's well is shut-in, building pressure. We don't want to frac from one Bakken well, into the pressure sink in the other.

Ronald E. Mills – Johnson Rice & Co. LLC

Right.

Jonathan Ryan Samuels

That well, the shut in well, waiting for the other one to get fracked. The other well is being put on lift. We are implementing gas lift and that was getting worked over. So on any given day, you can look at the portfolio when it is – just somewhat volatile. Our August production averaged I think 1,300 barrels, 1400 barrels of oil equivalent a day and if you turn those two wells on the (inaudible), it would be meaning to higher than that where it is and three weeks from now when you have these two newly completed wells on, it will be highest. So it continues to be lumpy for us and that’s really is a function, we don't have there any wells in this production base. We have six wells producing two or more up line, that's a obviously a big percentage of total operated wells or imagine for continental, a third of their wells going down, number of wells are in place, so part of the nature of our base and as we grow that will mature and change.

Ronald E. Mills – Johnson Rice & Co. LLC

I agree. And then on the well that was completing, I think July, was the Larsen well which I presume is the sixth producing operated well. Do you have any data on that well in terms of how was it completed in terms of stages, what type of props and what some of the early production data is?

Jonathan Ryan Samuels

Yes. This Larsen well was up in Williams County and to be honest it was a good well. It’s – part of Williams County, we’re just certainly – we were worried about higher water ducts, and it turned out on a F&D basis, to be one of the better wells we’ve completed, because it cost less. So this well was 31 stages, it was completed with 25% of ceramic, 75% sand, 24 RRP was something around 1,600 and it seemed 4,000 or 5,000 barrels in the first seven days. It's been a pretty steady performer ever since, so it's a little bit lower EUR, but it’s also a meaningfully lower well cost 15%, 20%. So we actually calculated the funding and development costs on that well. We were pleasantly surprised and we care more about our F&D cost frankly than EURs, they are lot of same numerator and a denominator.

Ronald E. Mills – Johnson Rice & Co. LLC

All right. And then lastly, just on the well performance, ceramic versus the sand ceramic mix now that you have – I think you probably have 30 and 60 day rates on some of those wells. Any color in terms of the relative performance of the different types of propants used?

Jonathan Ryan Samuels

Yes, we – I think the last time we spoke probably we said we had a slight bias towards ceramic, and I would say we are moving from slight biased to strong biased for ceramic, at least the McKenzie County there will be regional variation, but we are seeing the two groups diverge in terms of their long-term performance, both long-term – 60 day performance. So we are going to continue to be fracking wells of ceramic but yes, our data set is – we’re not fracking with sand anymore and McKenzie, I can see that.

Ronald E. Mills – Johnson Rice & Co. LLC

Okay. Great. Let me allow someone else jump in. Thanks.

Jonathan Ryan Samuels

Thanks Ron.

Operator

Our next question comes from the line of Mike Kelly with Global Hunter Securities. You may proceed.

Mike Kelly – Global Hunter Securities LLC

Thanks. Good morning John.

Jonathan Ryan Samuels

Good morning.

Mike Kelly – Global Hunter Securities LLC

The credit facility, the current borrowing base 27.5 million right now, you’ve mentioned that, you’d expect that to be revised higher going forward here second half of the year, maybe just comment or if you could quantify that that would be great?

Jonathan Ryan Samuels

Yeah. That's always a tough exercise and Wells Fargo is our lender and they're going to make those decisions frankly, not us unfortunately. I tend to think about it internally as a production will drive the credit facility and I believe when we put that in place we were producing 600 barrels, 700 barrels a day. So we are producing double of that now, we had hoped to see it doubled, obviously, the doubling is coming from young wells, as well. So, I don't know what that puts out I mean, I’d be certainly happy if it ended between $40 million and $50 million, but I think it’s going to tend on when we actually send them a report on what's going on that day, but definitely going to be doubling and tripling long before we need to draw it down.

Mike Kelly – Global Hunter Securities LLC

Okay. Great. Thanks.

Jonathan Ryan Samuels

As we add hedges, that does increase our borrowing base as well, so that should be helpful.

Mike Kelly – Global Hunter Securities LLC

Got it. Switching gears to the pipeline infrastructure potential yield bringing outside capital there. Can you give some color on what you hope that structure would look like?

Jonathan Ryan Samuels

Yeah. I mean, we would like – right now if you were to go drive around McKenzie County and the Bakken you would see a lot of water trucks on the road and not enough gas and NGLs being sold. So we are looking for a comprehensive solution to that and midstream infrastructure expenses when we really don't want to dilute ourselves. So I thought it’s bringing financial partner, some sort of structure, obviously a midstream assets are highly valued when they are in a limited partnership, cash flow distribution type structure. This is obviously Greenfield opportunity, so you know it would ends up exactly, remains to be seen, I mean, (inaudible), little less with any company trying to build infrastructure for itself and as much as the entities possible while putting in mineral capitals as possible. And we just have to continue to work and see what we can do.

Much of we weren’t expecting, we had a $25 million infrastructure budget this year, about $20 million of that is going to Caliber related activities. So we would not be expecting to have any substantial revisions to our CapEx budget on – when you look at the whole thing.

Mike Kelly – Global Hunter Securities LLC

Got it. Okay. CapEx side, future allocations to RockPile, what is it that works right now?

Jonathan Ryan Samuels

That is nothing budgeted.

Mike Kelly – Global Hunter Securities LLC

Okay, great thanks.

Jonathan Ryan Samuels

Welcome.

Operator

Our next question comes from the line of Peter Kissel with Howard Weil. You may proceed.

Peter F. F. Kissel – Howard Weil, Inc.

Hi guys. Good morning. How are you?

Jonathan Ryan Samuels

Good morning Pete.

Peter F. F. Kissel – Howard Weil, Inc.

Couple of quick questions here, first of all, just following on the prior question on the borrowing base, what's your schedule for redeterminations at this point?

Jonathan Ryan Samuels

We have two more at the balance of this year, and we have a larger part which I guess just means, we can have it whenever we want. So I think we would expect to have it redone in October and then again in January, February.

Peter F. F. Kissel – Howard Weil, Inc.

Okay.

Jonathan Ryan Samuels

Certainly work the deal in the interim if we thought it was necessary since we are really dependent on our revolver, obviously creates work for us and for Wells Fargo.

Peter F. F. Kissel – Howard Weil, Inc.

Sure, sure. Maybe another just on well cost right now. I was wondering if you could outline your total well costs on the wells you drill, just looking at sand versus ceramic number one, but also maybe if you could give us fees on your usable frac wells that are utilizing RockPile?

Jonathan Ryan Samuels

Yeah, our sand versus ceramic, when we got a ceramic, we had about a million dollars of cost to those wells, that is using the highest ranked ceramic propant. And we are discussing internally, testing out some lighter weight ceramics to see how those working, that might cut that increase by 40% or 50%. Regarding (inaudible), on the first wall of the pad tends to run about $10.5 million to $11 million, that’s building up infrastructure for four wells on that pad, end fill wells are lot less. So I think, our recent Three Forks Larsen well which is waiting our completion right now, I believe, fees for that was certainly under $9 million, I think $8.8 million. And I believe fee was sent out before we made the ceramic decision, so adding ceramic we are still looking at $9 million or $11 million per wells depending on the well design in our deep – in this deep part of the basin.

Peter F. F. Kissel – Howard Weil, Inc.

Got you. Okay, then just one last question on RockPile. I know you’d planned on utilizing about half the spread and you’re going to market the rest out to third party and I was just curious to see how that process is going and what sort of interest you’ve seen to utilize that has the spread?

Jonathan Ryan Samuels

Yeah, I mean these RockPile has a great team, very experienced team, a very local team, most of them are from North Dakota and they are working out there. So they are maybe –probably had about six weeks with Triangle results, it’s actually – they don’t really market themselves and I know they’ve signed up a bunch of NSAs, they bid on some jobs that occur, the results of that I don't know whether they’ve heard the results and we’re certainly hopeful that they will get work, and I think it is more a question of when as opposed to if, but really nothing to expect on that front and really nothing modeled and are budgeted on our side and we would kind of discourage people from doing so until we are actually pumping for someone else.

Peter F. F. Kissel – Howard Weil, Inc.

Got you. Okay thanks Jon.

Jonathan Ryan Samuels

Thank you.

Operator

Our next question comes from the line of Jeff Hayden, KLR Group. You may proceed.

Jeffrey Hayden – KLR Group

Hi John. How are you doing.

Jonathan Ryan Samuels

Good morning Jeff.

Jeffrey Hayden – KLR Group

Looking at the completion, you talked about five here over the next couple of months, once when we get through that is the kind of – yet until we get to the spring or should we look in for any other completions prior to year end?

Jonathan Ryan Samuels

We think we are going to complete 16 wells this year and we have six operator completed as of today. So it should be another five in addition to the five we have right now.

Jeffrey Hayden – KLR Group

Okay. And then see here – looking at kind of the acreage split where you are, could you just kind of give us a quick breakdown as far as how much of the current acreage is in station versus Eastern Montana, McKenzie and Williams.

Jonathan Ryan Samuels

Yeah, now the acreage we added is in McKenzie and Williams, our station number is 53,000 I believe – 50,000, we sold 3,000, excuse me. So that will put the balance 35,600 in Williams, McKenzie and I think probably two thirds about as McKenzie County.

Jeffrey Hayden – KLR Group

All right. And then just on, going on to station side of things, anything you guys are seeing up there, kind of any update?

Jonathan Ryan Samuels

Number of permits, I mean Apache obviously announced their really sizable acreage position out there, Southwestern has – I believe they built the location. I don’t know if they’ve spotted that well, but literally right on, quite between Apache and us which is west of the Bakken, remember this is the western side of the play, and it’s kind of to our western hedge, southwestern (inaudible), resources that several wells haven’t. We haven’t heard anything about the results from those, but we are definitely – people are talking about area, well margin set out for sure.

Jeffrey Hayden – KLR Group

Okay. And I mean given kind of what you guys have seen from your operated wells in that play, still comfortable with that guidance, post production guidance, you guys kind of show in your presentation or any updates to that?

Jonathan Ryan Samuels

No real updates for you the year end. I mean, I think we’re – well obviously if you look at the guidance for this quarter, we are at 1,200 a day right now. We’re right on target for the high-end, if you look at the guidance for the last quarter. So we are definitely tracking ahead of guidance in terms of total barrels produced this year. We are not wanting to increase our exit rate guidance simply because of the timing around the completions in January frankly.

Jeffrey Hayden – KLR Group

Okay. That's it from me. I appreciate it John.

Jonathan Ryan Samuels

Thank you.

Operator

Our next question comes from the line of Jason Wangler with Wunderlich Securities. You may proceed.

Jason Wangler – Wunderlich Securities

Good morning guys.

Jonathan Ryan Samuels

Good morning.

Jason Wangler – Wunderlich Securities

Just two quick ones on RockPile, you walked through the revenue side and it makes a lot of sense, I assume the expense side is the same type of situation where you’ve only booked the half that would not be on your deal, I guess, if you will?

Jonathan Ryan Samuels

Yeah, it’s reduced proportionally.

Jason Wangler – Wunderlich Securities

Okay.

Jonathan Ryan Samuels

When our Q get’s filed, we’re filing that tomorrow, like we want to hit, it’s on Monday – we’re actually going to – we have a segment reporting section that’s on Page 12, I believe of our 10-Q and it lays out E&P and it’s totality, RockPile’s totality and shows the intercompany elimination in the total.

Jason Wangler – Wunderlich Securities

Okay. And then the, and I am sure that will be helpful. And then the only other question I have is just, so that ten hopeful completion this year, are you expecting these RockPile for all ten of those?

Jonathan Ryan Samuels

Absolutely.

Jason Wangler – Wunderlich Securities

Okay. I appreciate you guys.

Jonathan Ryan Samuels

Thank you.

Operator

The next question comes from the line of David Anderson with [NuWire Investors]. You may proceed.

Unidentified Analyst

Hey good morning all and congrats on a quarter with lot of firsts. Hey, Jon, my question is really about the DD&A side at RockPile. It sounds like we’ll get all that detail in the 10-Q, just real quick maybe give us an idea because as I look at the 200,000 net loss attributable to the noncontrolling interest, I’m assuming you got a 100% loss at that RockPile’s maybe $1.5 million or so, that would imply to me – maybe $750,000 in DD&A and maybe $1.6 million or so in G&A, is that kind of where do you guys hit RockPile this quarter?

Jonathan Ryan Samuels

RockPile on the quarter was $52,000 EBITDA positive, which is – we’re pretty happy with that because they were not operational for two of those three months, they only fracked two wells. The DD&A looking back into that, there G&A, we have that written down here, I am just trying to find it. That was about $2.3 million.

Unidentified Analyst

Okay. And so, that’s kind of why I was thinking in the – so was there some start up G&A on that, or do you consider that to be a run rate on a quarterly basis going forward for them?

Jonathan Ryan Samuels

Yeah, I think with RockPile, they obviously need to – they need to pre-hire all the personnel, they need to complete these well. So RockPile has today about 50 people up in North Dakota. And so all those guys had to be on the payroll and up and trained and ready to work before you can start pumping. So it really just comes down to operating leverage more than anything else, clearly what this quarters says is, we’re not going to go out with money when they pump two jobs in the quarter. We think they’re going to do very well this quarter, our internal EBITDA estimates for Q3 is something between $3 million and $4 million on a (inaudible) basis. RockPile, now assuming only the five jobs for us, obviously third-party works it is utilization game for them and adding the secondary full-time is really going to help that.

Unidentified Analyst

Yeah, that's great, very accretive for you guys. Last question then on G&A is that, you see yourself sort of flattening out on the stock-based compensation piece, it looked pretty flat relative to the first quarter and obviously pretty far down from where you guys were last, I assume so. It is lot of that stock-based compensation sort of out there now and reducing from here now?

Jonathan Ryan Samuels

I wouldn't say it is going to reduce from here now. I mean the kind of distorting think about last years stock based comp is that when we first came into Triangle in 2010 we didn't have a shareholder approved plan to issue the equity we’re issuing. And so it was really issued subject to getting shareholder approval for a new plan. And we got that in 2011, but what that meant was year and three quarters worth of stock got put on the – run through the income statement all at once. So it was heavy loaded last year, I think our stock based comp is going to be highly tied to our headcount. I wouldn’t be expecting it to go back where it was by any stretch, but flat to the OpEx we grow. I think more importantly from our standpoint is we would expect it to be a significantly decreasing percentage of our revenues on a go forward basis, which is more important.

Unidentified Analyst

Great. That's all I had. Good luck thanks.

Jonathan Ryan Samuels

Thank you.

Operator

And the next question comes from the line of Dan McSpiritwith BMO Capital. You may proceed.

Dan McSpirit – BMO Capital Markets

Thank you gentlemen, and good morning.

Jonathan Ryan Samuels

Good morning Dan.

Dan McSpirit – BMO Capital Markets

On the 10 remaining wells to be completed this year, can you give us the split on Bakken versus Three Forks?

Jonathan Ryan Samuels

We have one Three Forks right now and we’re hoping to get some results on that. We are – one of the nice things about where we are – we have some optionality pretty late in the game in your vertical relative going out at the Bakken and the Three Forks. So we’d really like to see these Three Forks results to probably drilling more.

Dan McSpirit – BMO Capital Markets

Okay. Got it. And on the credit facility here, based upon your own internal models when do you begin tapping that facility?

Jonathan Ryan Samuels

Yeah, I mean that's really largely a function of next year's CapEx budget, and we have that approved by our Board, and we’re not ready to talk about it yet, but it’s certainly not this year.

Dan McSpirit – BMO Capital Markets

Got it. Okay. And then lastly, the oilfield services business beginning to hit the P&L in a very meaningful way, can you help me out with guidance or help best to model the revenue contributions as well as the operating margin is going forward here, whether it's on a revenue per fleet basis or jobs per month or utilization rate or some other measure recognizing at it’s very early innings and that there is certainly a great deal of volatility involved.

Jonathan Ryan Samuels

Yeah, I mean, once we get up and running, with two rig program, 24 wells a year, six a quarter. This upcoming Q3 which kind of piecing all together, we say, RockPile should complete 5 wells, expecting $3 million to $4 million in cash flow and $16 million to $18 million of total top line revenue that’s not reduced for the intercompany elimination. We would expect those quarters to repeat just obvious on the Triangle work. So if you add all that up, you’d expect RockPile to be $15 million to $20 million per your EBITDA type business with upside to that from the third parties. I totally understand your question, it is something we model pretty extensively internally and frankly it’s just really hard right now because RockPile’s and we frac two jobs and they really haven’t had time to go out and see what the third-party world has to offer them.

Dan McSpirit – BMO Capital Markets

Right.

Jonathan Ryan Samuels

And if they go frac five jobs for someone else Q3 or Q4, their G&A is already covered. A lot of that falls to the bottom line and you know the pressure pumping side. And there is a huge amount of operating leverage in it. So to be honest it’s kind of tough to model right now and we've I think talked about how we think RockPile is an important component of our long-term cost structure. We hadn’t really taught at the table on how people should model because it’s frankly just a little bit early.

Dan McSpirit – BMO Capital Markets

Right, got it, okay. And then can you give us the current rates on the Fredrick James and the Gullickson Trust’s number one and number three wells.

Jonathan Ryan Samuels

Current production rates?

Dan McSpirit – BMO Capital Markets

If you have it.

Jonathan Ryan Samuels

We don't have those in front of us.

Dan McSpirit – BMO Capital Markets

Very good. Thank you.

Operator

Our next question comes from the line of (inaudible). You may proceed.

Unidentified Analyst

Good morning.

Jonathan Ryan Samuels

Good morning.

Unidentified Analyst

Most of my questions have been answered at this point, but I am a little curious about the station prospect. I know you mentioned earlier, can you provide some color on your thinking about when that 50,000 acres starts to come under the bid and maybe how industry success in that area might or might not change your thinking. And also whether or not there is any lease expiration risk in that area?

Jonathan Ryan Samuels

I'm happy to answer all those questions. I’ll take last one first, the lease expiration, we really don't have any lease expiration issues. Most of these are either five-year leases or two-year leases with two-year extension at a very low cost, $30, $40, $50 an acre. These were taken and we’re going to round March, April, May of last year. So we’re maybe 18 months and little less into this five years. Regarding our bottoming, the way we allocate capital, that’s probably our most important task here as a management team, we want to hydrate our prospects, we want to drill the lowest risk, highest return prospects first and when you look at our drilling CapEx budget this year of $98 million it’s really good test station. You’re going to have to drill three wells. They are going to probably cost a little bit more because you have nothing out there and you really shouldn't expect any support from non-operators in the units.

So you might be talking anywhere from $30 million to $35 million, so for us to go spend a third of our operated CapEx budget out there, highly risk areas is not something we will want to do. I think you hit the nail on the head, we would change that with the industry success. And we will look got and spent Cap out there an ideal world 50,000 plus acres is obviously a pretty big position. It is going to take a number of rigs to get it drilled, so we would definitely be looking for a partner to help us do that and frankly we’re looking for a partner now except we do believe in the geology out there. We know there is risk and we think that as industry de-risk, it will get a better deals.

Unidentified Analyst

Okay, thanks. That's helpful. That's all I got.

Jonathan Ryan Samuels

Thank you.

Operator

(Operator Instructions) Next question comes from Ron Mills Johnson Rice. You may proceed.

Ronald E. Mills – Johnson Rice & Co. LLC

Hey guys I missed something I think in response to Dave's question earlier, but just when we look at RockPile, just simplistically from an income statement standpoint during the second quarter, I know you had plus or minus $700,000 of margin pre-G&A, pre-DD&A margin. If you look at RockPile is – I guess, what am I trying to tell is, that’s about 25% and 30% type margin there. Is that a pretty good run rate we should go with until it get’s more up and running and it’s 100% utilized, between both yourselves and third parties are just trying to make a sense, make sure we have some sense of modeling on the cost side.

Jonathan Ryan Samuels

Yeah I am happy to talk to it. Was that a 25, 30 was that a gross margin and EBITDA margin.

Ronald E. Mills – Johnson Rice & Co. LLC

That was gross, I mean, that was just pressure pumping that was just taken your revenues and the operating expenses from RockPile off of your income statement. There wasn't an EBITDA margin, John, I’m just trying to…

Jonathan Ryan Samuels

I mean, I am with you. No, I would expect the gross margins should improve because as you – again as you think about that they obviously – there is three months in the quarter, they pumped two jobs, and they basically work for two weeks up 12 weeks. But they were paying all their personnel in the field for all 12 weeks. So we would definitely be expecting their gross margin to improve on a go forward basis. I don’t have that model in front of me. So I can’t give you guidance today. We’d be happy to sort of talk through it on…

Ronald E. Mills – Johnson Rice & Co. LLC

And I assume it will become more clear once we see the segment information tomorrow or Monday in the 10-Q’s.

Jonathan Ryan Samuels

I mean that going to help, I think when it’s really meeting it’s going to become clear as three months from now when we are reporting Q3 and then actually are operational for quarter.

Ronald E. Mills – Johnson Rice & Co. LLC

Right.

Jonathan Ryan Samuels

Because – they basically – they would start up this quarter and they worked 212 weeks.

Ronald E. Mills – Johnson Rice & Co. LLC

Okay. All right, we will just follow up offline, but thanks guys.

Jonathan Ryan Samuels

You can see why we like over $20 million investment that generates a lot of revenue and cash flow.

Ronald E. Mills – Johnson Rice & Co. LLC

So far, so good, right?

Jonathan Ryan Samuels

Yeah.

Operator

And we have no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.

Jonathan Ryan Samuels

I would like to thank everyone for joining us and look forward to chatting with you next quarter. Have a good day.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Triangle Petroleum's CEO Discusses F2Q 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts