UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): September 11, 2014 (June 30, 2014)

 

TRIANGLE PETROLEUM CORPORATION

(Exact name of registrant as specified in charter)

 

 

1200 17th Street, Suite 2600, Denver, CO 80202

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (303) 260-7125

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Explanatory Note

 

On July 2, 2014, Triangle Petroleum Corporation (the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) to report the completion of the acquisition of certain oil and gas properties (the “Acquired Properties”) by the Company’s wholly-owned subsidiary, Triangle USA Petroleum Corporation, from Marathon Oil Company (“Seller”). We are filing this Amendment No. 1 to amend Item 9.01 to provide certain financial statements and pro forma financial information with respect to the Acquired Properties. The remaining exhibits included in the Initial Form 8-K have not been changed and are incorporated herein by reference.  No other modifications to the Initial Form 8-K are being made by this Form 8-K/A.

 

Item 9.01              Financial Statements and Exhibits.

 

(a) Financial statements of businesses acquired.

 

The statement of revenues and direct operating expenses of properties acquired by Triangle USA Petroleum Corporation for the year ended January 31, 2014 and for the six-month periods ended July 31, 2014 and 2013 are attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

(b) Pro forma financial information.

 

The Company’s unaudited pro forma consolidated statement of operations and comprehensive income for the fiscal year ended January 31, 2014 and for the six months ended July 31, 2014 are attached hereto as Exhibit 99.2 and incorporated herein by reference.

 

These unaudited pro forma consolidated financial statements are not necessarily indicative of the results of operations and comprehensive income that would have occurred had the acquisition of the Acquired Properties been effected on the assumed dates. Additionally, future results may vary significantly from the results reflected in the unaudited pro forma consolidated statement of operations and comprehensive income due to normal production declines, changes in prices, future transactions, the exclusion of various operating expenses and other factors.

 

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(d) Exhibits.

 

Exhibit 10.1		Second Lien Credit Agreement, dated June 27, 2014, among Triangle USA Petroleum Corporation, as Borrower, Wells Fargo Energy Capital, Inc., as Administrative Agent, and the Lenders Named Herein, as Lenders, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2014 and incorporated herein by reference.
Exhibit 23.1		Consent of KPMG LLP.
Exhibit 99.1		Statement of revenues and direct operating expenses of the properties acquired by Triangle USA Petroleum Corporation for the year ended January 31, 2014 and for the six-month periods ended July 31, 2014 and 2013.
Exhibit 99.2		Unaudited pro forma consolidated statement of operations and comprehensive income for the fiscal year ended January 31, 2014 and for the six months ended July 31, 2014.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: September 11, 2014	TRIANGLE PETROLEUM CORPORATION
	By:	/s/ Justin Bliffen
		Justin Bliffen
		Chief Financial Officer

 

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Index to Exhibits

 

Exhibit  Number		Description
Exhibit 10.1		Second Lien Credit Agreement, dated June 27, 2014, among Triangle USA Petroleum Corporation, as Borrower, Wells Fargo Energy Capital, Inc., as Administrative Agent, and the Lenders Named Herein, as Lenders, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2014 and incorporated herein by reference.
Exhibit 23.1*		Consent of KPMG LLP.
Exhibit 99.1*		Statement of revenues and direct operating expenses of the properties acquired by Triangle USA Petroleum Corporation for the year ended January 31, 2014 and for the six-month periods ended July 31, 2014 and 2013.
Exhibit 99.2*		Unaudited pro forma consolidated statement of operations and comprehensive income for the fiscal year ended January 31, 2014 and for the six months ended July 31, 2014.

 

* Filed herewith.

 

5

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

The Board of Directors

Triangle Petroleum Corporation:

 

We consent to the incorporation by reference in the registration statements (Nos. 333-194861, 333-188354, 333-184519, 333-173357, and 333-171958) on Form S-3 and (Nos. 333-198175, 333-198174, 333-188353, 333-175740, and 333-171959) on Form S-8, of Triangle Petroleum Corporation of our report dated September 11, 2014, with respect to the statement of revenues and direct operating expenses of the properties acquired by Triangle USA Petroleum Corporation from Marathon Oil Company for the year ended January 31, 2014.

 

	/s/ KPMG LLP
Denver, Colorado
September 11, 2014

 

Exhibit 99.1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors
Triangle Petroleum Corporation:

 

We have audited the accompanying statement of revenues and direct operating expenses (the Statement) of properties acquired by Triangle USA Petroleum Corporation from Marathon Oil Company as described in note 1, for the year ended January 31, 2014, and the related notes to the Statement.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of this Statement in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Statement that is free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on the Statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Statement.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses, of the properties acquired by Triangle USA Petroleum Corporation from Marathon Oil Company for the year ended January 31, 2014, in conformity with U.S. generally accepted accounting principles.

 

Basis of Accounting

 

We draw attention to note 1 of the Statement, which describes the basis of accounting. The Statement is prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in note 1 and is not intended to be a complete financial presentation of the properties acquired by Triangle USA Petroleum Corporation.

 

Other Matter

 

U.S. generally accepted accounting principles require that the Oil and Gas information contained in note 6 be presented to supplement the Statement. Such information, although not a part of the Statement, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the Statement in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the Statement, and other knowledge we obtained during our audit of the Statement. We do not express an opinion of provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

 

 

/s/ KPMG LLP
Denver, Colorado
September 11, 2014

 

 

STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF

PROPERTIES ACQUIRED BY TRIANGLE USA PETROLEUM CORPORATION

 

					For the Six Months Ended
		For the Year Ended			July 31,
		January 31, 2014			2014			2013
					(unaudited)
		(in thousands)
OPERATING REVENUES:
Oil, natural gas and natural gas liquids sales		$	39,359		$	13,453		$	21,469
Total revenues		39,359			13,453			21,469
DIRECT OPERATING EXPENSES:
Production taxes		3,456			1,259			1,805
Lease operating expense		9,495			3,258			5,010
Gathering, transportation and processing		600			331			138
Total direct operating expenses		13,551			4,848			6,953
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES		$	25,808		$	8,605		$	14,516

 

See accompanying notes to the Statement of Revenues and Direct Operating Expenses of Properties Acquired by Triangle USA Petroleum Corporation.

 

2

 

NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF
PROPERTIES ACQUIRED BY TRIANGLE USA PETROLEUM CORPORATION

 

1.                                BASIS OF PRESENTATION

 

On June 30, 2014, Triangle USA Petroleum Corporation, a wholly-owned subsidiary of Triangle Petroleum Corporation, (collectively referred to herein as “Triangle” or the “Company”), acquired from Marathon Oil Company (“MRO”) certain oil and gas leaseholds and related producing properties located in Williams County, North Dakota, Sheridan County, Montana, and Roosevelt County, Montana comprising approximately 41,100 net acres and various other related rights, permits, contracts, equipment and other assets (the “Acquisition” of the “Acquired Properties”) for approximately $90.4 million in cash, which included a net downward adjustment of $9.6 million for certain pre-closing adjustments.  Additional post-closing adjustments may be required.  The effective date for the Acquisition was January 1, 2014.

 

The accompanying Statement of Revenues and Direct Operating Expenses of the Properties acquired by Triangle USA Petroleum Corporation (the “Statement”) was based on carved-out financial information and data from MRO’s historical accounting records.  Because the Acquired Properties are not separate legal entities, the accompanying Statement varies from a complete income statement in accordance with accounting principles generally accepted in the United States of America in that it does not reflect certain expenses that were incurred in connection with the ownership and operation of the Acquired Properties including, but not limited to, general and administrative expenses, interest expense, and other indirect expenses.  These costs were not separately allocated to the Acquired Properties in the accounting records of MRO.  In addition, these allocations, if made using historical general and administrative structures, would not produce allocations that would be indicative of the historical performance of the Acquired Properties had they been Triangle’s properties due to the differing size, structure, operations and accounting policies of MRO and Triangle.  The accompanying Statement also does not include provisions for depreciation, depletion, amortization and accretion, as such amounts would not be indicative of the costs which Triangle will incur upon the allocation of the purchase price paid for the Acquired Properties.  For these reasons, the Statement is not indicative of the results of operations of the Acquired Properties on a going forward basis due to changes in the business and the omission of various operating expenses.  Furthermore, no balance sheet has been presented for the Acquired Properties because not all of the historical cost and related working capital balances are segregated or easily obtainable, nor has information about the Acquired Properties’ operating, investing and financing cash flows been provided for similar reasons.  Accordingly, the accompanying Statement is presented in lieu of the financial statements required under Rule 3-05 of Securities and Exchange Commission (“SEC”) Regulation S-X.

 

The financial information for the six months ended July 31, 2014 and 2013 is unaudited.  In the opinion of management, this information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair statement of the revenues and direct operating expenses for the periods presented in accordance with the indicated basis of presentation.  The revenues and direct operating expenses for interim periods are not necessarily indicative of the revenues and direct operating expenses for the full fiscal year, nor are they indicative of the results of operations of the Acquired Properties on a going forward basis for the reasons previously noted.

 

2.                                      USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

 

The preparation of this Statement in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and direct operating expenses during the respective reporting periods.  Actual results may differ from the estimates and assumptions used in the preparation of the Statement.

 

3.                                      COMMITMENTS AND CONTINGENCIES

 

As represented by MRO in the Acquisition Agreement, there are no known claims, litigation or disputes pending as of the effective date of the Acquisition Agreement, or any matters arising in connection with indemnification, and neither Triangle nor MRO are aware of any legal, environmental or other commitments or contingencies that would have a material adverse effect on the Statement.

 

3

 

NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF
PROPERTIES ACQUIRED BY TRIANGLE USA PETROLEUM CORPORATION

 

4.                                      REVENUE RECOGNITION

 

Oil and gas revenue is recognized when production is sold to the purchaser at a fixed and determinable price, when delivery has occurred and title has transferred and the collectability of the revenue is probable.  Oil and gas revenue is recorded using the sales method.  There were no gas imbalances at July 31, 2014.

 

5.                                      DIRECT OPERATING EXPENSES

 

Direct operating expenses are recorded when the related liability is incurred.  Direct operating expenses include lease and gathering operating expenses, ad valorem taxes and production taxes.  Certain costs such as depletion, depreciation and amortization, accretion of asset retirement obligations, general and administrative expenses and interest expense were not allocated to the Acquired Properties.

 

6.                                      SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (unaudited):

 

Estimated quantities of proved oil and gas reserves of the Acquired Properties were derived from reserve estimates prepared by Triangle as of January 31, 2014 and January 31, 2013.  Estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors.  All of the Acquired Properties’ proved reserves are located in the continental United States.

 

Guidelines prescribed in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 932, Extractive Industries — Oil and Gas, have been followed for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves.  Future cash inflows and future production and development costs are determined by applying prices and costs, including transportation, quality, and basis differentials, to the year-end estimated quantities of oil and gas to be produced in the future.  The resulting future net cash flows are reduced to present value amounts by applying a ten percent annual discount factor.  Future operating costs are determined based on estimates of expenditures to be incurred in producing the proved oil and gas reserves in place at the end of the period using year-end costs and assuming continuation of existing economic conditions, plus overhead incurred.  Future development costs are determined based on estimates of capital expenditures to be incurred in developing proved oil and gas reserves.

 

The assumptions used to compute the standardized measure are those prescribed by the FASB and the SEC.  These assumptions do not necessarily reflect Triangle’s expectations of actual revenues to be derived from those reserves, nor their fair value.  The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these reserve quantity estimates are the basis for the valuation process. Triangle emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties.  Accordingly, these estimates are expected to change as future information becomes available.  The standardized measure excludes income taxes as the tax basis for the Acquired Properties could not be determined or reasonably estimated for the periods presented.  In addition, the tax basis of the Acquired Properties acquired by Triangle will differ from that of MRO so any tax provision is not relevant.

 

4

 

NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF
PROPERTIES ACQUIRED BY TRIANGLE USA PETROLEUM CORPORATION

 

The following information has been derived from the Acquired Properties’ historical production and January 31, 2014, reserve report prepared by the Company’s reserve engineers.  Production for the Acquired Properties have been added back to derive the prior year amounts.  There were no extensions or discoveries.

 

The following table sets forth information for the year ended January 31, 2014, with respect to changes in the Acquired Properties’ proved reserves:

 

		Crude Oil		Natural Gas
		(Mbbl)		(MMcf)
January 31, 2013		2,442		2,296
Revisions of previous estimates		84		(73	)
Production		(417	)	(242	)
January 31, 2014		2,109		1,981
Proved developed reserves, included above:
January 31, 2013		2,442		2,296
January 31, 2014		2,109		1,981

 

The following values for the crude oil and natural gas reserves at January 31, 2014, are based on prices of $90.07 per bbl and $6.33 per MMBtu.  These prices were based on the 12-month arithmetic average of the first-day-of-the-month prices February 1, 2013 through January 31, 2014.  The crude oil pricing was based off the West Texas Intermediate price and natural gas pricing was based off the average prices in the Bakken.  All prices have been adjusted for transportation, quality and basis differentials.

 

The following summary sets forth the Acquired Properties’ future net cash flows relating to proved oil and gas reserves based on the standardized measure prescribed in ASC Topic 932:

 

		January 31,
		2014
		(in thousands)
Future cash inflows		$	202,452
Future production costs		(118,894		)
Future net cash flows		83,558
10% discount factor		(26,970		)
Standardized measure of discounted future net cash flows relating to proved reserves		$	56,588

 

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NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES OF
PROPERTIES ACQUIRED BY TRIANGLE USA PETROLEUM CORPORATION

 

The principal sources of changes in the standardized measure of discounted future net cash flows are:

 

		For the Year Ended
		January 31, 2014
		(in thousands)
Standardized measure, beginning of period		$	67,166
Sales, net of production costs		(25,816		)
Net change in prices, net of production costs		5,799
Accretion of discount		9,439
Standardized measure, end of period		$	56,588

 

7.             SUBSEQUENT EVENTS

 

We have evaluated subsequent events through September 11, 2014 and are not aware of any significant events that occurred subsequent to January 31, 2014 that would have a material impact on the statement of revenues and direct operating expenses of properties acquired by Triangle USA Petroleum Corporation.

 

6

Exhibit 99.2

 

Triangle Petroleum Corporation

Pro Forma Consolidated Statement of Operations and Comprehensive Income (Loss)

For the Fiscal Year Ended January 31, 2014

(In thousands, except share data - Unaudited)

 

		Triangle			Acquired			Pro Forma			Triangle
		Historical			Properties			Adjustments			Pro Forma
					(a)
REVENUES:
Oil and natural gas sales		$	160,548		$	39,359		$	—		$	199,907
Oilfield services		98,199			—			—			98,199
Total revenues		258,747			39,359			—			298,106
EXPENSES:
Production taxes		18,006			3,456			—			21,462
Lease operating expenses		14,454			9,495			—			23,949
Gathering, transportation and processing		4,302			600			—			4,902
Depreciation and amortization		57,048			—			3,783		(b)	60,831
Accretion and other asset retirement obligation expenses		1,018			—			36		(b)	1,054
Oilfield services		82,327			—			—			82,327
General and administrative:											—
Stock-based compensation		7,830			—			—			7,830
Salaries and benefits		17,299			—			—			17,299
Other general and administrative		9,797			—			—			9,797
Total operating expenses		212,081			13,551			3,819			229,451
INCOME (LOSS) FROM OPERATIONS		46,666			25,808			(3,819		)	68,655
OTHER INCOME (EXPENSE):
Gain on equity investment derivative		39,785			—			—			39,785
Gain (loss) from derivative activities		1,082			—			—			1,082
Interest expense		(7,686		)	—			(3,444		)(c)	(11,130		)
Interest income		200			—			—			200
Other income (expense)		1,374			—			—			1,374
Total other income (expense)		34,755			—			(3,444		)	31,311
NET INCOME (LOSS) BEFORE INCOME TAXES		81,421			25,808			(7,263		)	99,966
Income tax provision		(7,941		)	—			(7,633		)(d)	(15,574		)
NET INCOME (LOSS)		$	73,480		$	25,808		$	(14,896	)	$	84,392
Net income per common share outstanding:
Basic		$	1.07								$	1.23
Diluted		$	0.91								$	1.04
Weighted average common shares outstanding:
Basic		68,579									68,579
Diluted		84,558									84,558
COMPREHENSIVE INCOME (LOSS):
Net income (loss)		$	73,480		$	25,808		$	(14,896	)	$	84,392
Other comprehensive income (loss)		—			—			—			—
Total comprehensive income (loss)		$	73,480		$	25,808		$	(14,896	)	$	84,392

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

1

 

Triangle Petroleum Corporation

Pro Forma Consolidated Statement of Operations and Comprehensive Income

For the Six Months Ended July 31, 2014

(In thousands, except share data - Unaudited)

 

		Triangle			Acquired			Pro Forma			Triangle
		Historical			Properties			Adjustments			Pro Forma
					(a)
REVENUES:
Oil, natural gas and natural gas liquids sales		$	141,340		$	11,435		$	—		$	152,775
Oilfield services		100,431			—			—			100,431
Total revenues		241,771			11,435			—			253,206
EXPENSES:
Production taxes		15,025			1,027			—			16,052
Lease operating expenses		11,424			2,938			—			14,362
Gathering, transportation and processing		7,535			331			—			7,866
Depreciation and amortization		47,884			—			2,239		(b)	50,123
Accretion of asset retirement obligations		175			—			18		(b)	193
Oilfield services		71,264			—			—			71,264
General and administrative:
Stock-based compensation		3,815			—			—			3,815
Salaries and benefits		12,794			—			—			12,794
Other general and administrative		10,883			—			—			10,883
Total operating expenses		180,799			4,296			2,257			187,352
INCOME (LOSS) FROM OPERATIONS		60,972			7,139			(2,257		)	65,854
OTHER INCOME (EXPENSE):
Gain on equity investment derivatives		2,920			—			—			2,920
Loss from commodity derivative activities		(6,377		)	—			—			(6,377		)
Interest expense		(8,249		)	—			(1,435		)(c)	(9,684		)
Loss from equity investment		64			—			—			64
Interest income		107			—			—			107
Other income		7			—			—			7
Total other income (expense)		(11,528		)	—			(1,435		)	(12,963		)
NET INCOME (LOSS) BEFORE INCOME TAXES		49,444			7,139			(3,692		)	52,891
Income tax provision		(20,350		)	—			(1,419		)(d)	(21,769		)
NET INCOME (LOSS)		$	29,094		$	7,139		$	(5,111	)	$	31,122
Net income per common share outstanding:
Basic		$	0.34								$	0.36
Diluted		$	0.30								$	0.32
Weighted average common shares outstanding:
Basic		86,064									86,064
Diluted		103,511									103,511
COMPREHENSIVE INCOME:
Net income (loss)		$	29,094		$	7,139		$	(5,111	)	$	31,122
Other comprehensive income (loss)		—			—			—			—
Total comprehensive income (loss)		$	29,094		$	7,139		$	(5,111	)	$	31,122

 

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

2

 

Triangle Petroleum Corporation

Note to the Pro Forma Consolidated Financial Statements

(Unaudited)

 

1.                                      BASIS OF PRESENTATION

 

On June 30, 2014, Triangle USA Petroleum Corporation, a wholly-owned subsidiary of Triangle Petroleum Corporation, (collectively referred to herein as “Triangle” or the “Company”), acquired from Marathon Oil Company (“MRO”) certain oil and gas leaseholds and related producing properties located in Williams County, North Dakota, Sheridan County, Montana, and Roosevelt County, Montana comprising approximately 41,100 net acres and various other related rights, permits, contracts, equipment and other assets (the “Acquisition” of the “Acquired Properties”) for approximately $90.4 million in cash, which included a net downward adjustment of $9.6 million for certain pre-closing adjustments.  Additional post-closing adjustments may be required.  The effective date for the Acquisition was January 1, 2014.

 

We have not included an unaudited pro forma consolidated balance sheet herein as the Acquisition was fully reflected in the Company’s unaudited condensed consolidated balance sheet as of July 31, 2014, included in the Company’s Form 10-Q filed with the Securities and Exchange Commission on September 8, 2014.  The unaudited pro forma consolidated statements of operations present the Acquisition as if it had occurred as of February 1, 2013.  These unaudited pro forma consolidated statements of operations are not necessarily indicative of the results of operations that would have occurred had the Acquisition been effective on February 1, 2013.  Additionally, future results may vary significantly from the results reflected in the unaudited pro forma consolidated statements of operations due to normal production declines, changes in prices, future transactions, and other factors.  The Triangle historical results presented in the unaudited pro forma consolidated statement of operations for the six months ended July 31, 2014, include the results from the Acquired Properties for the month of July 31, 2014.  Therefore, the adjustments presented for the Acquired Properties only reflect the activity for the five-month period from February 1, 2014 through June 30, 2014.

 

These unaudited pro forma consolidated statements of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended January 31, 2014, our Quarterly Report on Form 10-Q for the three months ended July 31, 2014, and the Statements of Operating Revenues and Direct Operating Expenses for the properties acquired by Triangle USA Petroleum Corporation for the year ended January 31, 2014, and for the six months ended July 31, 2014 (unaudited).

 

2.                                      PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED STATEMENT OF OPERATIONS

 

(a)                   Operating revenues and direct operating expenses of the Acquired Properties.

 

(b)                   Represents the increase in depreciation and amortization and accretion expense computed on a unit of production basis following the fair value allocation of the purchase price to proved and unproved oil and gas properties, as if the Acquisition was consummated on February 1, 2013.

 

(c)                    Represents the increase in interest expense resulting from additional borrowings on the Company’s credit facilities, net of incremental amounts of interest which would have been capitalized.

 

(d)                   Assumes an effective tax rate of approximately 41% on the incremental income before income taxes for the year ended January 31, 2014, and for the six months ended July 31, 2014.  This reflects both the federal and state statutory income tax rates which were in effect during each of the periods presented.

 

3.                                      PRO FORMA SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES

 

The following pro forma standardized measure of the discounted net future cash flows and changes applicable to the Company’s proved reserves reflect the effect of the Acquisition on the Company’s standardized measure, as if the Acquisition was consummated on February 1, 2013.  The future cash flows are discounted at 10% per year and assume continuation of existing economic conditions.

 

The standardized measure of discounted future net cash flows, in management’s opinion, should be examined with caution. The basis for this table is the reserve studies prepared by the Company’s reserve engineer, which contains imprecise estimates of quantities and rates of production of reserves.  Revisions of previous year estimates can have a significant impact on these results.  Also, exploration costs in one year may lead to significant discoveries in later years and may significantly change previous estimates of proved reserves and

 

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their valuation.  Therefore, the standardized measure of discounted future net cash flow is not necessarily indicative of the fair value of the Company’s proved oil and natural gas properties.

 

The data presented should not be viewed as representing the expected cash flow from or current value of, existing proved reserves since the computations are based on a large number of estimates and arbitrary assumptions.  Reserve quantities cannot be measured with precision and their estimation requires many judgmental determinations and frequent revisions.  Actual future prices and costs are likely to be substantially different from the prices and costs utilized in the computation of reported amounts.

 

The following table provides a pro forma rollforward of the total proved reserves for the year ended January 31, 2014, as well as pro forma proved developed and proved undeveloped reserves at the beginning and end of the year, as if the Acquisition reflected occurred on February 1, 2013:

 

		Triangle Historical						Marathon Acquisition				Pro Forma
		Crude Oil		Natural Gas		NGL		Crude Oil		Natural Gas		Crude Oil		Natural Gas		NGL
		(Mbbls)		(MMcf)		(Mbbls)		(Mbbls)		(MMcf)		(Mbbls)		(MMcf)		(Mbbls)
Total proved reserves at January 31, 2013		12,539		12,585		—		—		—		12,539		12,585		—
Revisions of previous estimates		2,727		(859	)	1,762		84		(73	)	2,811		(932	)	1,762
Purchase of reserves		6,836		4,714		690		2,442		2,296		9,278		7,010		690
Extensions, discoveries and other additions		12,059		11,064		1,599		—		—		12,059		11,064		1,599
Sale of reserves		(491	)	(374	)	—		—		—		(491	)	(374	)	—
Production		(1,754	)	(626	)	(70	)	(417	)	(242	)	(2,171	)	(868	)	(70	)
Total proved reserves at January 31, 2014		31,916		26,504		3,981		2,109		1,981		34,025		28,485		3,981
Proved developed reserves:
Beginning of year		4,985		5,906		—		—		—		4,985		5,906		—
End of year		13,734		10,930		1,440		2,109		1,981		15,843		12,911		1,440
Proved undeveloped reserves:
Beginning of year		7,555		6,679		—		—		—		7,555		6,679		—
End of year		18,182		15,574		2,541		—		—		18,182		15,574		2,541

 

The pro forma standardized measure of discounted estimated future net cash flows was as follows as of January 31, 2014 (in thousands):

 

		Triangle			Marathon			Income Tax
		Historical			Acquisition			Adjustment			Pro Forma
Future cash inflows		$	3,252,079		$	202,452		$	—		$	3,454,531
Future costs:
Production		(1,118,508		)	(118,894		)	—			(1,237,402		)
Development		(505,432		)	—			—			(505,432		)
Future income tax expense		(364,340		)	—			(5,150		)	(369,490		)
Future net cash flows
10% discount factor		(690,564		)	(26,970		)	2,814			(714,720		)
Standardized measure of discounted future net cash flows relating to proved reserves		$	573,235		$	56,588		$	(2,336	)	$	627,487

 

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The changes in the pro forma standardized measure of discounted estimated future net cash flows were as follows for the Company’s 2014 fiscal year (in thousands):

 

		Triangle			Marathon
		Historical			Acquisition			Adjustment			Pro Forma
Standardized measure, beginning of period		$	211,352		$	—		$	—		$	211,352
Extensions and discoveries, net of future production and development costs		333,140			—			—			333,140
Sales, net of production costs		(123,786		)	(25,816		)	—			(149,602		)
Previously estimated development costs incurred during the period		66,724			—			—			66,724
Revision of quantity estimates		73,598			—			—			73,598
Net change in prices, net of production costs		19,173			5,799			—			24,972
Acquisition of reserves		99,683			67,166			—			166,849
Divestiture of reserves		(7,341		)	—			—			(7,341		)
Accretion of discount		22,486			9,439			—			31,925
Changes in future development costs		7,699			—			—			7,699
Change in income taxes		(91,161		)	—			(2,336		)	(93,497		)
Change in production rates, timing and other		(38,332		)	—			—			(38,332		)
Standardized measure, end of period		$	573,235		$	56,588		$	(2,336	)	$	627,487

 

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