Triangle Petroleum (NYSEMKT:TPLM) put together a very good quarter, but didn't get rewarded as its stock traded up early, but pulled back on Thursday. This stock has had a very nice move since dropping below $5/share in late June. Triangle beat on the top and bottom lines, which shows us this company is well run for its size. Yesterday was better as an upgrade pushed Triangle's stock up and finished at $7.33.
There were several big issues going into the second quarter earnings announcement. Triangle had missed EPS estimates for four quarters in a row. These were large misses in three of those quarters. This had created some downside pressure on Triangle's stock price and created negative sentiment. Beating estimates in the second quarter could go a long way to remedying this. Production numbers and Rockpile Energy Services helped to increase revenues even with oil prices down in the quarter. Production for the second quarter was 103000 barrels of oil equivalent. This was 400 Boe/d more than expectations. Rockpile accounted for more than one fourth of total company revenues. Rockpile isn't the only story as Triangle is an integrated company, as it also formed Caliber Midstream. By forming both Rockpile and Caliber, it doesn't need to wait on pressure pumping, or the building of pipelines. It also aids in setting costs, as it knows what charges will be for these services. Those services will also be completed in a timely manner, which gives shareholders more certainty of when wells will be completed and pipelines built. It is strange for a company this size to be this well managed and for its parts to work this well in concert.
The most recent catalyst to Triangle's stock price was its financing by Natural Gas Partners. This was $120 million in convertible notes. These notes have a 5% interest rate. This deal is good for Triangle in several ways. The most obvious is the cash to speed up the development of its Bakken program. It also provides a partner that could continue to help fund further development or increase acreage. Currently, Triangle is looking for a partner of its Caliber Midstream business. It believes this will be done in the third quarter of this year.
Triangle's well costs are not bad considering how early in development it is. Wells completed with ceramics on average cost $1 million more. Depending on the depth of the play, total well costs will run from $9 to $11 million. A savings of $400,000 to $500,000 could be realized using lighter weight ceramics, and Triangle is testing this estimate. I expect these numbers will improve significantly as Rockpile has only completed two wells to date, and really had only worked one month out of the quarter. Also, Caliber will help to improve costs as well. Water costs are significant in the Williston Basin, as trucking has gotten cheaper, but is still much more expensive than pipe.
If I were to have a concern, it would be longer-term production numbers for Triangle's wells. We have seen very good results in a good area of the play. Also remember it has published 24 hour max IP rates and not actual rates. Of its five first wells (all in McKenzie County), Triangle has produced these results.
|Well||IP Rate (BOE/D)||Pressure||Proppant||Stages|
|Dwyer 1H||1429||1401||25% Ceramic||31|
|Larson 1H||2265||1665||100% Ceramic||31|
|Fred James 1H||1541||1125||100% Ceramic||31|
|Gull Trust 1H||1381||1327||25% Ceramic||31|
|Gull Trust 3H||1714||1462||100% Ceramic||31|
The Dwyer well is the only one with published IP numbers. This well's 61 day IP rate is 364 barrels of oil per day. The IP rate in barrels of oil was 1045. I am guessing Triangle is using roughly the same completion design now as it did with the Dwyer well. This used a 28/64 choke, approximately 80,000 barrels of water and 3,782,514 pounds of proppant. Its 100% ceramic wells should have better IP rates with decreased depletion, but we will not know for sure until those results are published. Triangle also commented on well costs in Williams County being much better given the pay zones are shallow in comparison. Both areas are economic, and I am pleased with the results to date, but again depletion in this area will be very important. Comparing these wells with others in the area, Hess's (NYSE:HES) BW-Edwin Stenseth-149-100-2833H-1 had an IP rate of 629 Bo/d. When compared to Kodiak's (NYSE:KOG) Smokey wells to the southeast, Triangle's have been competitive. Smokey Kenny 16-20-17-2H3 had an IP rate of 1213 Bo/d. Smokey 16-20-32-15H had an IP rate of 1638 Bo/d. Kodiak's EURs in the Smokey prospect are 750 MBoe. Given Triangle's completion design, I would guess it would have comparable EURs.
What may be the most important variable for Triangle is its acreage in Station Prospect. Triangle grabbed this acreage for very little and recently sold a few thousand acres for $750/acre. Most look at this acreage as a play on the middle Bakken. It is very possible this is the main target, as it is not as deep and should have lower well costs. The Red River pay zone may be more lucrative. Whiting (NYSE:WLL) recently commented its Starbuck prospect is much like the Big Island play. Whiting has had success in Big Island's conventional Red River zone. If it is correct about Starbuck, Triangle could have significant upside to its 50,000 acres. Not far from the Station prospect, Apache (NYSE:APA) has 300,000 acres in Daniels County. Apache is planning middle Bakken and upper Three Forks wells here, but is shooting 3-D seismic to better understand the geology.
In summary, it was a blowout quarter for Triangle. Although oil prices were down, it managed to beat production estimates while keeping costs in check. Costs should continue to improve as Triangle is an integrated company. Its ability to get pipe in should keep water costs to a minimum. If Triangle continues to lower costs and increase production, it could be one of the best Bakken players through the end of next year.
Additional disclosure: This is not a buy recommendation.