| Summary Of Significant Accounting Policies | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Description of Business . Triangle Petroleum Corporation (“Triangle,” the “Company,” “we,” “us,” “our,” or “ours”) is an independent energy company with a strategic focus in the Williston Basin.
Our wholly-owned subsidiary, Triangle USA Petroleum Corporation (“TUSA”), holds leasehold interests and conducts exploration and production operations in the Williston Basin of North Dakota and Montana, with its core focus area predominantly located in McKenzie and Williams Counties, North Dakota, and eastern Roosevelt and Sheridan Counties, Montana. See below for information regarding TUSA’s voluntary petition for bankruptcy relief under Chapter 11 of Title 11 of the United States Code.
RockPile Energy Services, LLC (“RockPile”), a wholly-owned subsidiary, provides oilfield and complementary well completion services to oil and natural gas exploration and production companies predominantly in the Williston and Permian Basins. On September 8, 2016, we entered into an agreement to sell substantially all of RockPile’s assets and related liabilities (the “RockPile Sale”) for a base purchase price of $58.0 million in cash, which was used to settle RockPile’s debt obligations. RockPile’s results of operations have been aggregated in “Income (loss) from discontinued operations” in our condensed consolidated statements of operations for all periods presented. See Note 3 - Discontinued Operations for additional information.
Caliber Midstream Partners, L.P. (“Caliber”), an unconsolidated joint venture with First Reserve Energy Infrastructure Fund, provides oil, natural gas and water transportation and related services to oil and natural gas exploration and production companies in the Williston Basin.
Ranger Fabrication, LLC (“Ranger”) is a wholly-owned subsidiary of Triangle that previously fabricated certain well equipment. Ranger’s activities, which were immaterial, were mostly with Caliber and TUSA, and all intercompany transactions were eliminated in consolidation. Ranger ceased operations on January 31, 2016.
Unless otherwise noted, amounts and disclosures throughout these notes to condensed consolidated financial statements relate to our continuing operations.
Liquidity and Ability to Continue as a Going Concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business. As such, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. The Chapter 11 Filings and the RockPile Sale discussed in Note 2 and Note 3, respectively, raise substantial doubt about the Company’s ability to continue as a going concern.
Triangle has engaged certain professional advisors to assist it in the process of analyzing various strategic alternatives to address our liquidity and capital structure, including: (i) obtaining additional sources of capital from asset sales, issuances of debt or equity securities, debt for equity swaps, or any combination thereof; and (ii) pursuing in- and out-of-court restructuring transactions. In connection with a debt restructuring or refinancing, we may seek to convert a significant portion of our outstanding debt to equity. In addition, we may seek to reduce our cash interest cost and extend debt maturity dates by negotiating the exchange of outstanding debt for new debt with modified terms or other measures. While we anticipate engaging in active dialogue with our creditors, at this time we are unable to predict the outcome of such discussions, the outcome of any strategic transactions that we may pursue or whether any such efforts will be successful.
As a result of the above, substantial doubt exists regarding the ability of Triangle to continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business.
Basis of Presentation. These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and are expressed in U.S. dollars. Preparation in accordance with GAAP requires us to (i) adopt accounting policies within accounting rules set by the Financial Accounting Standards Board (“FASB”) and by the Securities and Exchange Commission (“SEC”), and (ii) make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and other disclosed amounts.
Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. We believe the disclosures made are adequate to make the information not misleading. We recommend that these unaudited condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016, as filed with the SEC (“Fiscal 2016 Form 10-K”). In the opinion of management, all material adjustments considered necessary for a fair presentation of the Company’s interim results have been reflected. All such adjustments are considered to be of a normal recurring nature. The results for interim periods are not necessarily indicative of annual results.
No condensed consolidated statement of comprehensive income (loss) is presented because the Company had no comprehensive income or loss activity in the periods presented .
Use of Estimates. In the course of preparing its condensed consolidated financial statements, management makes various assumptions, judgments, and estimates to determine the reported amount of assets, liabilities, revenue, and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts initially established. Significant areas requiring the use of assumptions, judgments and estimates include (i) oil and natural gas reserves; (ii) cash flow estimates used in ceiling tests of oil and natural gas properties; (iii) depreciation and amortization; (iv) impairment of unproved properties, investment in equity method investees and other assets; (v) assigning fair value and allocating purchase price in connection with business combinations; (vi) accrued revenue and related receivables; (vii) valuation of commodity derivative instruments and equity derivative instruments; (viii) accrued expenses and related liabilities; (ix) valuation of share-based payments and (x) income taxes. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company has evaluated subsequent events and transactions for matters that may require recognition or disclosure in these condensed consolidated financial statements.
Principles of Consolidation. The accounts of Triangle and its wholly-owned subsidiaries are presented in the accompanying condensed consolidated financial statements. All significant intercompany transactions and balances are eliminated in consolidation. Triangle generally uses the equity method of accounting for investments in entities in which Triangle has an ownership between 20% and 50% and exercises significant influence. The investment in Caliber is accounted for utilizing the equity method of accounting. Triangle deconsolidated TUSA as of June, 29, 2016 with the commencement of TUSA’s Chapter 11 bankruptcy filing and will account for its investment in TUSA under the cost method of accounting.
Oil and Natural Gas Properties. We use the full cost method of accounting, which involves capitalizing all acquisition, exploration, exploitation and development costs of oil and natural gas properties. Once we incur costs, they are recorded in the amortizable pool of proved properties or in unproved properties, collectively, the full cost pool. We review our unproved oil and natural gas property costs on a quarterly basis to assess for impairment or the need to transfer unproved costs to proved properties as a result of extensions or discoveries from drilling operations.
At the end of each quarterly period, we must compute a limitation on capitalized costs, which is equal to the sum of the present value of estimated future net revenues from our proved reserves by applying the average price as prescribed by the SEC (unweighted arithmetic average of commodity prices in effect on the first day of each of the previous twelve months), less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects. We then conduct a “ceiling test” that compares the net book value of the full cost pool, after taxes, to the full cost ceiling limitation. In the event the full cost ceiling limitation is less than the full cost pool, we are required to record an impairment of our oil and natural gas properties.
Prior to our deconsolidation of TUSA, we recognized impairments to our proved oil and natural gas properties of $104.0 million for the nine month period ended October 31, 2016, primarily due to the decline in oil, natural gas and natural gas liquids prices. Impairment charges do not affect cash flow from operating activities but do adversely affect our net income and stockholders’ equity. Any recorded impairment of oil and natural gas properties is not reversible at a later date.
Other Property and Equipment . Other property and equipment consisted of the following as of:
(in thousands)
January 31, 2016
October 31, 2016
Land
$
$
Building and leasehold improvements
Vehicles
Software, computers and office equipment
Capital leases
—
Total other property and equipment
Accumulated depreciation
Total other property and equipment, net
$
$
Impairment of Long-Lived Assets . Long‑lived assets such as property and equipment and identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long‑lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long‑lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values, and third‑party independent appraisals, as considered necessary. An impairment loss of $2.7 million was recorded in the second quarter of fiscal year 2017 related to the potential sale of RockPile.
Income Taxes. The Company computes its quarterly tax provision using the effective tax rate method based on applying the anticipated annual effective rate to its year-to-date income or loss, except for discrete items. Income tax on discrete items is computed and recorded in the period in which the specific transaction occurs.
The carrying value of our oil and natural gas properties exceeded the calculated value of the ceiling limitation resulting in an impairment of $779.0 million for fiscal year 2016. This impairment resulted in Triangle having three years of cumulative historical pre-tax losses and a net deferred tax asset position. Triangle also had net operating loss carryovers (“NOLs”) for federal income tax purposes of $286.0 million at January 31, 2016. These losses and expected future losses resulting from the current low commodity price environment were a key consideration that led Triangle to provide a valuation allowance against its net deferred tax assets as of October 31, 2016, since it cannot conclude that it is more likely than not that its net deferred tax assets will be fully realized in future periods.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, management considers the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment. Future events or new evidence which may lead the Company to conclude that it is more likely than not that its net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained or continued improvements in oil prices, and taxable events that could result from one or more transactions. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods.
In the first quarter of fiscal year 2016 the Company recorded the benefit of reversing its net deferred tax liability. As long as the Company concludes that it will continue to have a need for a valuation allowance against its net deferred tax assets, the Company likely will not have any additional income tax expense or benefit other than for federal alternative minimum tax expense or for state income taxes.
As of October 31, 2016, the Company had no unrecognized tax benefits. The Company’s management does not believe that there are any new items or changes in facts or judgments that should impact the Company’s position during the first nine months of fiscal year 2017.
Earnings per Share. Basic earnings per common share is computed by dividing net income (loss) attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share reflects increases in average shares outstanding from the potential dilution, under the treasury stock method, that could occur upon (i) exercise of stock options, (ii) vesting of restricted stock units, and (iii) conversion of convertible debt. The treasury stock method assumes exercise, vesting or conversion at the beginning of a period for securities outstanding at the end of a period. Also, the treasury stock method for calculating dilution assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company at the quarter’s average stock price using assumed proceeds from (a) the exercise cost of the options and (b) the foregone future compensation expense of hypothetical early vesting of the outstanding restricted stock units. The assumed proceeds are adjusted for income tax effects. In the event of a net loss, no potential common shares are included in the calculation of shares outstanding, as their inclusion would be anti-dilutive.
The following table details the weighted average dilutive and anti-dilutive securities, which consist of options and unvested restricted stock, for the periods presented :
For the Three Months
For the Nine Months
Ended October 31,
Ended October 31,
(in thousands)
2015
2016
2015
2016
Dilutive
—
—
Anti-dilutive shares
The table below sets forth the computations of net income (loss) per common share (basic and diluted) for the periods presented:
For the Three Months
For the Nine Months
Ended October 31,
Ended October 31,
(in thousands, except per share data)
2015
2016
2015
2016
Net income (loss) from continuing operations
$
$
$
$
Net income (loss) from discontinued operations
Net income (loss) attributable to common stockholders
$
$
$
$
Basic weighted average common shares outstanding
Effect of dilutive securities
—
—
Diluted weighted average common shares outstanding
Basic net earnings (loss) per common share outstanding:
Earnings (loss) from continuing operations
$
$
$
$
Earnings (loss) from discontinued operations
Net earnings (loss)
$
$
$
$
Diluted net earnings (loss) per share:
Earnings (loss) from continuing operations
$
$
$
$
Earnings (loss) from discontinued operations
Net earnings (loss)
$
$
$
$
Adopted and Recently Issued Accounting Pronouncements. In May 2014, the FASB issued Accounting Standards Update No. 2014-0 9, Revenue from Contracts with Customers (“ ASU 2014‑09”). The objective of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, in August 2015, the FASB issued Accounting Standards Update No. 2015-14 , Revenue from Contracts with Customers: Deferral of the Effective Date (“ ASU 2015-14”), which deferred the effective date of ASU 2014‑09 for one year. ASU 2015-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The standards permit retrospective application using either of the following methodologies: (i) restatement of each prior reporting period presented or (ii) recognition of a cumulative-effect adjustment as of the date of initial application. The Company is currently evaluating the impact of adopting ASU 2014‑09 and ASU 2015-14, including the transition method to be applied, however the standards are not expected to have a significant effect on its condensed consolidated financial statements .
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). The guidance requires that lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier application permitted. The Company is still evaluating the impact of ASU 2016-02 on its financial position and results of operations .
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 , Improvements To Employee Share-Based Payment Accounting (“ASU 2016-09”). The objective of ASU 2016-09 is to simplify several aspects of accounting for employee share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities and the classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Certain parts of ASU 2016-09 must be applied prospectively, while other portions may be applied either prospectively or retrospectively. Early adoption is permitted. The Company is still evaluating the impact of ASU 2016‑09 on its financial and results of operations.
Reclassifications . Certain prior period balances in the unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations have been reclassified to conform to the current period presentation, including the presentation of RockPile as discontinued operations. Such reclassifications had no impact on net income, cash flows or shareholders’ equity previously reporte d. |
