Triangle Petroleum issues going-concern warning, explores alternatives

By Angela McDaniels

Tacoma, Wash., April 20 – Triangle Petroleum Corp. is working with advisers to analyze strategic alternatives and has received a going-concern warning in its audited financial statements for the fiscal year ended Jan. 31.

“Significant decreases in oil and natural gas commodity prices have resulted in losses from subsidiary operations. Such losses have resulted in current and projected subsidiary debt covenant violations, including current violations at RockPile Energy Services, LLC, rendering the outstanding balance of its credit facility to be classified as a current liability,” KPMG LLP said in the company’s latest 10-K filing with the Securities and Exchange Commission.

“The company does not have sufficient liquidity to meet this obligation, if called by the lenders. These conditions raise substantial doubt about the company’s ability to continue as a going concern.”

The company said it is working to minimize its capital expenditures, reduce costs and maximize cash flows from operations and has hired advisers to help it analyze strategic alternatives to address its liquidity and capital structure, including the following:

• Obtaining waivers or amendments from RockPile’s and Triangle USA Petroleum Corp.’s lenders;

• Obtaining additional sources of capital from asset sales, issuances of debt or equity securities, debt for equity swaps or any combination thereof; and

• Pursuing in- and out-of-court restructuring transactions.

In connection with a debt restructuring or refinancing, the company may seek to negotiate the exchange of outstanding debt for new debt with modified terms.

The company said that it believes its existing capital resources, including cash flow from Triangle USA’s operations and cash on hand at Triangle USA and Triangle, are enough to conduct operations through fiscal year 2017 and into fiscal year 2018 but that there are risks arising from depressed oil and natural gas prices and declines in production volumes that could impact its liquidity and ability to meet debt covenants in future periods.

RockPile liquidity, covenants

On April 13, subsidiary RockPile entered into an amendment to its credit agreement that waived any default or event of default in connection with the financial covenants that occurred as of Jan. 31 or may occur as of April 30, according to the 10-K.

Following the execution of the amendment, RockPile cannot draw additional funds without further amendment of the facility.

Beginning with the second quarter and for the remainder of fiscal year 2017, RockPile does not expect to comply with all of the credit facility’s financial covenants unless those requirements are also waived or amended or unless it can obtain new capital or equity cure financing.

RockPile remains in discussions with its bank syndicate and providers of external capital to refinance the existing debt.

If RockPile is unable to reach agreement with its lenders, obtain waivers, find acceptable alternative financing or obtain equity cure contributions, its credit facility lenders could elect to accelerate the amounts outstanding under the facility.

Triangle warned that if this happens, it does not have enough liquidity to make the equity cure and RockPile does not have enough cash on hand to repay this outstanding debt. Therefore, the consolidated balance sheet reflects all of the amounts outstanding under the RockPile credit facility as current liabilities as of Jan. 31.

RockPile could then be required to pursue in- and out-of-court restructuring transactions and Triangle could lose control of RockPile, the company noted in the filling.

“As a result, substantial doubt exists regarding the ability of RockPile, our oilfield services subsidiary, to continue as a going concern,” Triangle said.

Triangle has not guaranteed RockPile’s obligations under the credit facility, and there are no cross-default provisions in Triangle’s or Triangle USA’s other debt agreements that could cause the acceleration of such debt as a result of the RockPile credit facility default, the company noted.

Triangle USA liquidity

As of Jan. 31, Triangle USA was in compliance with all financial covenants under its $350 million credit facility. However, Triangle USA anticipates that it could breach its ratio of consolidated debt to EBITDA or its interest coverage ratio covenants in fiscal year 2017 if commodity prices do not recover or it is unable to obtain cure financing or a waiver or amendment from its lenders, with whom it is in ongoing discussions.

Also, the current ratio covenant could be adversely impacted if a redetermination significantly lowers the borrowing base.

If Triangle USA were to breach a covenant, it would have a cure right to obtain a cash capital contribution from Triangle or another investor.

Triangle USA believes that it will be able to reach an agreement with its banks, find acceptable alternative financing or obtain equity cure contributions to prevent or cure an event of default under its credit facility. However, it did not provide assurances that these plans can be achieved.

If an event of default were to occur, there are cross-default provisions in the indenture of Triangle USA’s 6¾% notes due 2022 that could enable holders to accelerate the notes.

As of March 31, Triangle USA had no availability under the credit facility.

Triangle is an energy company based in Denver.

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