Triangle Petroleum reported financial and operational results for its fourth fiscal quarter and full fiscal year ended January 31, 2009. Unless otherwise noted, all references to "$" are to U.S. dollars. All references to "Cdn$" are to Canadian dollars (Cdn$1.00 equals US$0.81 at closing April 7, 2009).
At January 31, 2009, cash and cash equivalents totaled $8.4 million, working capital was $7.6 million, and the Company had no debt outstanding following the settlement in full of the principal ($10 million) and interest ($2.2 million) of its remaining convertible debentures in December 2008 when it agreed to pay $6.5 million in cash and to issue 2.5 million common shares. This is a significant strengthening in the balance sheet compared to January 31, 2008 when cash was $4.6 million, working capital was a deficit of $7.7 million and the face value of long term debt was $10 million.
In the fourth quarter of fiscal 2009, the Company spent $1.2 million on investing activities mainly related to shale gas exploration in the Windsor Block of Eastern Canada of which $0.4 million was used for the completion of the N-14-A well and the remaining $0.8 million was used to pay down payables from the prior quarter related to the E-38-A well drilling costs. For the full fiscal year ended January 31, 2009, the Company spent $6.1 million on net oil and gas investing additions: $1.3 million to complete and test the two Kennetcook wells drilled in the prior year as part of the first phase of the Windsor Block exploration program; $2.8 million to drill three vertical wells and complete one of these wells related to the second phase of the Windsor Block exploration program; and $1.9 million to pay prior year payables related to the two test wells drilled in and completed in 2007. Also during the full fiscal year ended January 31, 2009, the Company received $4.2 million in cash related to dispositions of oil and gas properties: $3.0 million for the recovery from a partner of 2007 Windsor Block exploration expenditures related to the Kennetcook #2 well and seismic acquisition; $0.8 million for the sale of its non-core U.S. Rocky Mountain program Montana land; $0.3 million for the sale of 240 net acres of non-core Fayetteville program Arkoma Basin land; and $0.2 million for the sale of a non-core Barnett shale well.
The Company reported net income of $2.4 million ($0.03 net income per diluted share) for the fourth quarter of fiscal 2009 compared to a net loss of $14.3 million ($0.32 net loss per diluted share) for the fourth quarter of fiscal 2008. Results for the fourth quarter of fiscal 2009 benefited primarily from a non-cash $4.1 million gain on the extinguishment of debt and a $10.8 million decline in impairments of unproven oil and gas properties, as well as a $1.9 million decline in accretion of discounts on convertible debentures as compared to the same quarter a year ago. Revenue for the fourth quarter of fiscal 2009 totaled $0.04 million compared with $0.07 million in the fourth quarter of fiscal 2008. The decline in revenue resulted from lower prices and lower production due to the Company selling its interest in a Barnett shale well in the second quarter of fiscal 2009.
For the full fiscal year ended January 31, 2009, the Company incurred a net loss of $13.8 million ($0.23 per diluted share) compared with a net loss of $29.6 million ($0.80 per diluted share) for the full fiscal year ended January 31, 2008. The decrease in the loss for fiscal year 2009 was mainly due to a $3.9 million gain on debt extinguishment combined with an $11.3 million decrease in non-cash costs associated with impairments of unproven oil and gas properties, a $5.6 million decrease in non-cash accretion of discounts on convertible debentures, a $1.8 million decrease in general and administrative expenses and a $0.5 million decrease in interest expense as compared to a year ago. These benefits were partially offset by a $5.2 million decline in non-cash unrealized gains on the fair value of derivative instruments and a $2.3 million increase in foreign exchange loss. Revenue for the twelve months ended January 31, 2009 totaled $0.4 million compared with $0.6 million in the prior fiscal year. Triangle reported net cash used in operating activities of $3.9 million in fiscal 2009 compared with $4.3 million in fiscal 2008.
Shaun Toker, Triangle's Chief Financial Officer, commented, "In this period of financial market uncertainty and commodity price weakness, we are extremely pleased to have significantly improved our balance sheet shortly before year-end. Being debt-free provides us with maximum flexibility to move forward at a measured pace as we focus our efforts on our Eastern Canadian shale gas project. We will manage our cash prudently and expect our capital investment program for fiscal 2010 will be directed almost exclusively to that area."
Operations Summary-Eastern Canada
Howard Anderson, President of Triangle summarizes, "Our project continues to provide us with both positive results and unique challenges. Certain areas of the basin appear to contain higher than expected gas in place, and we have also drilled through greater and more diverse conventional hydrocarbon potential than originally expected. On the other hand, we have not yet been able to demonstrate commercial-level gas flow rates from the three wells completed to date. We still have two wells yet to complete, and have picked several more drilling locations to further our knowledge of the basin. In order to accelerate drilling and completions, and to assist us in solving these technical issues, we are actively seeking new partners. We are pursuing several options in this regard, and have been in discussions with a number of parties, some of whom signed confidentiality agreements and others whom we've met recently through a concerted effort of exploiting personal contacts as well as attending industry events such as the North American Prospect Expo (NAPE) in February."
From May 2007 to June 2008, the Company executed the first phase of the Windsor Block exploration program, consisting of a 2D and 3D seismic program, geological studies, and drilling and completing two vertical test wells (Kennetcook #1 and Kennetcook #2), thus earning a 70% working interest in the entire block. The total cost of this phase was approximately $17.5 million (net $14.2 million).
In May 2008, Triangle entered into a Joint Venture Agreement with Zodiac Exploration Corp. ("Zodiac") to drill additional wells on the Windsor Block in the second phase of its Windsor Block exploration program. The joint venture provided for an initial commitment by Zodiac to pay 50% of drilling costs, up to Cdn$7.5 million (Cdn$15 million gross), to earn a 12.5% working interest in the entire Windsor Block. To date, Zodiac has earned an approximate 13% working interest. Triangle retains a 57% working interest.
From July 2008 to March 2009, the Company executed the second phase of the Windsor Block shale gas exploration program to test the gas content and productivity of the Horton Bluff shales in various locations across the Windsor Block, and also to evaluate potential overlying conventional oil and gas reservoirs. The program consisted of drilling three vertical exploration wells and completing one of these wells, which cost approximately $15.3 million (net $3.1 million).
N-14-A Vertical Exploration Well:
The first vertical exploration well in this program, N-14-A, spud in mid July 2008 and cased in August 2008. N-14-A is located approximately eight kilometers (five miles) north of the two 2007 vertical test wells. N-14-A was drilled to a depth of 2,600 meters (8,500 feet). Log, core, and lab analysis indicates a potential gas-bearing Horton Bluff shale and sand interval, approximately 1,000 meters (3,300 feet) thick.
Completion operations commenced on the N-14-A well at the end of October 2008, with a four-stage perforation and fracture treatment taking place in early December 2008. The completion consisted of a four-stage, 200 tonne (440,000 pounds) fracture treatment within a 120 meter (400 foot) interval at an approximate depth of 1,800 meters (5,900 feet). After recovering about 15% of the injected frac fluid and CO2, but measuring negligible burnable gas, frac flowback operations were suspended. The well is now shut in for a pressure build-up. The Company is also evaluating completion options in other intervals within this well.
Geomechanical work has indicated that, at the depth evaluated in N-14-A, due to prevailing insitu stress, the fracture treatment has likely propagated horizontally rather than in the preferred vertical orientation. This may explain the poor flowback results from this completion, despite the apparent large gas-in-place resource. The Company is now undertaking a basin analysis study that incorporates the new data with the goal being to further identify optimal stress regimes.
O-61-C Vertical Exploration Well:
The second vertical exploration well, O-61-C, spud in August 2008, and was cased in October 2008. This well is located approximately 22 kilometers (14 miles) west of N-14-A, in a separate fault block. Total depth drilled was 2,960 meters (9,700 feet). In this well, the Company encountered a 300 meter (1,000 foot) Horton Bluff shale interval, as well as multiple potential tight gas sands, conventional carbonates, sandstones and shallow gas intervals.
Completion operations at this well commenced in February 2009, starting with a perforation and test program on the potential hydrocarbon zone of interest at the bottom of the well. Once weather conditions improve, this program will continue up the wellbore, testing specific zones of interest. Additional testing and possible fracture treatments will depend on the results obtained from each interval.
E-38-A Vertical Exploration Well:
The third vertical exploration well, E-38-A, spud in late October 2008, and was cased in November 2008. The well is located in the Kennetcook area near N-14-A, but in a separate fault block. Total depth drilled was 1,700 meters (5,600 feet), and casing was run to 1,500 meters (4,900 feet). A shale section of approximately 1,000 meters (3,300 feet) is being evaluated for completion. A preliminary completion program is being designed to incorporate all the latest available technical information.
Over the last year, the Company has also been working to convert the Windsor Block Exploration Agreement to a Production Lease. In December 2008, Triangle received approval in principle from the Nova Scotia government for a 10-year production lease in the Windsor Block. The Company has been in discussions with Energy Department officials to finalize the terms of this lease. Triangle expects that it will be required to drill at least seven more wells in the Windsor Block over the next three to five years in order to retain rights over the entire Windsor Block. Areas of the Windsor Block that are not adequately evaluated over that time may be subject to relinquishment. A revised work program and budget will be prepared, which will be based on the specific work commitments once they are confirmed.
Beech Hill Block:
In May 2007, the Company entered into the Beech Hill farm-in agreement in the Moncton Sub-Basin of the Maritimes Basin located in the Province of New Brunswick, Canada. Triangle was entitled to earn a 70% working interest in the block subsequent to the acquisition and evaluation of a minimum Cdn$250,000 seismic program and then electing no later than December 31, 2008 to drill a test well by mid-2009. During June and July 2008, approximately $345,000 gross ($95,000 net) expenditures were incurred to complete the acquisition phase of approximately 30 kilometers (19 miles) of 2D seismic on the Beech Hill Block and another $33,000 gross ($33,000 net) was spent to interpret the seismic. In December 2008, the Company elected to not drill the test well, thus forfeiting its right to earn in the Beech Hill Block.
The Company has established the following objectives for the third stage of exploration of the Windsor Block:
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