Interactive Buyside Equity Research

April 24th, 2014

TRIANGLE PETROLEUM CORP
Thesis Overview
Triangle Petroleum (Triangle) is a relatively unknown mini-conglomerate in the oil & gas
sector. Its three distinct business lines include: a wholly-owned E&P operating in the Bakken
Shale (TUSA), a wholly-owned subsidiary providing pressure pumping & well completion
services (RockPile Energy Services), and a midstream JV with First Reserve that provides
gathering, transporting, and processing (Caliber Midstream).
It trades for ~5x or a ~15% discount to its Bakken peers using the midpoint of managements
guidance (and sell-side consensus) for consolidated 2014 EBITDA. However, eliminations
required under GAAP cause the true combined earnings power of Triangles three businesses
to be significantly understated so the company could unlock significant value by separating
these assets.
The CEO, Jon Samuels, recently signed a new employment agreement that (i) doesnt allow
him to sell shares for five years, (ii) compensates him primarily through options with strike
prices well above Triangles current price, and (iii) pays him 3.5% to 5% of gains realized
from the sale of the non-E&P segments so hes heavily incentivized to close this valuation
gap.


Stock Rating BUY
Catalyst Category 12 Months
Price Target $13.00

Price (4/24/14): $9.80
Upside: 33%
Ticker: TPLM
Exchange: NYSE
Industry: Energy


Trading Stats ($USD millions)
Market Cap: $845

Enterprise Value: $1,038
Dividend Yield: 0%
Price / 2015E EPS: 15.1x
Price / 2016E EPS: 12.8x
EV / 2015E EBITDA: 4.9x
EV / 2016E EBITDA: 3.5x

Source: Company filings, Wall Street Consensus

Price Performance
52 Week range:
$5.26 - $11.66



Analyst Details
IB Username: Chris Colvin
Employer: Freeman Group, LLC
Job Title: Portfolio Manager

Analyst Disclosure
TPLM Position Held: Yes












Interactive Buyside Equity Research
April 24th, 2014

Company Overview
TUSA
TUSA is Triangles wholly-owned E&P subsidiary located in the Williston Basin that generated ~$160mm of revenue and
~$110mm of EBITDA in 2013 (fiscal year 2014 because it ends January 31
st
). The Williston Basin is home of the Bakken Shale
and Three Forks formations that are estimated to have ~7.4b barrels of recoverable oil representing one of the largest oil deposits
in North America. TUSA is in the crux of the Bakken with ~45,000 acres in McKenzie and Williams counties, which are the first
and third largest producing counties in that shale. Its proved reserves and production grew threefold from 14.6mm boe and 2,700
boepd one year ago to 40.3mm boe and 8,250 boepd today with guidance to increase production by another 33% to 11,000 boepd
before year end.

(2) Triangles operatorship in North Dakota has been confirmed through title. In eastern Montana, operated assumes 30% or greater working interest.
(3) Base Case based upon 6 Bakken Shale and 2 Three Forks wells per DSU; Upside Case based upon 8 Bakken shale and 7 Lower Bakken and Three Forks wells per
DSU, supported by a recent 16-well density test in southern Williams County.
RockPile Energy Services (RockPile)
RockPile is the wholly-owned subsidiary providing hydraulic pressure pumping and ancillary services that produced ~$195mm
of revenue and ~$40mm of EBITDA last year. It began operating a second pressure pumping spread in 2H13 resulting in
~$50mm of run-rate EBITDA and recently added a third spread that should enable RockPile to produce ~$70mm of EBITDA this
year. Third-party customers now represent half of RockPiles revenue and this share is only expected to grow, which increases its
attractiveness as a stand-alone business.

Interactive Buyside Equity Research
April 24th, 2014

Caliber Midstream (Caliber)
Caliber, formed through a JV with First Reserve, provides gathering, transporting and processing services in the Williston Basin.
Its assets include 20 miles of crude gathering & transportation pipe, 29 miles of gas gathering & transportation, 19 miles of
produced water transportation, and 22 miles of freshwater delivery. Some of these systems are complete allowing Caliber to earn
~$10mm of EBITDA in 2013, while the rest will be finished by July. In 2014, management expects Caliber to produce ~$45mm
of total EBITDA but this is based solely on TUSAs production and assumes zero demand from third parties. If its sales force has
some success winning new clients, then EBITDA could be much higher considering the completed system should generate
~$100mm of EBITDA if only half of its capacity is being utilized. As Calibers profit expands, Triangle will benefit
exponentially through greater ownership because of their warrants package.


History of the Companys Transition
From 2005 until 2009, Triangle was exploring for emerging shale gas in Canada without much success considering it had less
than $200k of revenue. In December 2009, Palo Alto Investors, the largest shareholder at the time, led a large restructuring that
consisted of:
(i) adding three directors to the Board including Gardner Parker (an Ernst & Young partner that had served on the
boards of other oil & gas companies), Dr. Peter Hill (an oil & gas veteran), and Jon Samuels (an analyst at Palo Alto
covering the energy sector);
(ii) naming Mr. Parker as Chairman, Dr. Hill as CEO, and Mr. Samuels as CFO; and
(iii) shifting Triangles strategy to focus on unconventional oil plays in the U.S. Triangle entered the Bakken with the
acquisition of 4,000 acres only one month after forming this new plan.
Over the next eighteen months, it increased its acreage position with ~$200mm of funding raised through various public and
private equity offerings. Due to limited availability of pressure pumping and well completion services, particularly for a small
operator, the company started RockPile Energy Services in October 2011 to ensure capacity and to profit by also providing these
services to peers facing the same difficulties. In April 2012, after more than two years since their initial election, Mr. Samuels
replaced Dr. Hill as CEO who then replaced Mr. Parker as Chairman of the Board, which seemed to always be part of the
transitioning process. To secure takeaway capacity and fill this void for other operators, Triangle formed Caliber Midstream six
month later through a JV with First Reserve, which is a highly reputable private investment firm focused on the energy sector.
The structure enables Triangle to increase its ownership from 30% today to nearly 60% if Caliber Midstream exceeds certain
valuation thresholds. In only four years, management and the Board have done an impressive job transitioning Triangle from a
cash-burning exploration venture to an oil & gas company with three separate businesses generating a combined ~$150mm of
run-rate EBITDA (before intercompany eliminations).



Interactive Buyside Equity Research
April 24th, 2014

Valuing the Assets
TUSA
The four pure-play Bakken E&P companies, including EOX, KOG, NOG and OAS, currently trade for 5.8x 2014E EBITDA
compared to their three-year average of ~6.5x. Managements midpoint EBITDA guidance for TUSA this year is $200mm, so
$190mm after deducting for overhead. Applying 5.8x to this EBITDA results in an implied value of $1.1b or ~$11 per share.
Over the past year, there has been a lot of consolidation in the Bakken, specifically in McKenzie and Williams counties where
Triangle has most of its wells, so TUSA should be an attractive acquisition candidate. The one transaction completed for more
than $1b was executed at $33 per boe of proved reserves and ~$160k per boepd of production, which would imply a valuation of
~$1.3b for TUSA.
RockPile
Public companies providing similar services to RockPile trade for 6.7x 2014E EBITDA compared to 5.7x historically.
Management expects this business to generate ~$70mm of EBITDA this year (~$55mm after overhead). Applying a more
conservative 5.7x multiple to this EBITDA results in a pre-tax value of ~$315mm and an after-tax value of ~$210mm or ~$2 per
share.
Caliber
Midstream businesses trade for ~12x 2014E EBITDA, so applying this to Calibers EBITDA guidance of ~$45mm in 2014
equates to a business value of ~$525mm. Currently, Caliber has 22mm common units outstanding implying a value per unit of
~$24 and Triangle owns 7mm or 32% of these units. However, Triangle also has warrants with strike prices that adjust down for
distributions. Caliber plans to pay Triangle ~$1.80 in distributions in 2014. Assuming Caliber was sold for ~$525mm or ~$24 per
unit at year end, then Triangle will have 5.6mm warrants with a ~$13 strike price and 5.4mm with a ~$22 strike price that will be
in the money. Therefore, Triangle would receive net proceeds of ~$70mm from these warrants and 32% of the remaining
equity of ~$455mm resulting in pre-tax proceeds of ~$215mm. After accounting for taxes and Triangles NOL, their Caliber
interest would be worth ~$160mm or ~$1.50 per share.
Target Price
Combing the values of these three businesses and deducting for ~$1.50 per share of net debt results in a target price of ~$13 or
~35% upside.

Incentivized Leadership
In August 2013, shareholders approved an option grant for Triangles CEO, Jon Samuels, allowing him to purchase 6mm shares.
The grant has various tranches and strike prices, including 750,000 shares @ $7.50 exercise price, 750,000 shares @ $8.50,
1.5mm @ $10, 1.5mm @ $12, and 1.5mm @ $15, so 75% of the shares arent exercisable at the current price. As part of this
option grant, hes not allowed to sell any shares for five years (currently owns ~330k shares) and hes also incentivized to
eventually sell Caliber and RockPile because he receives 5% and 3.5% of the gains, respectively. Management has guided to
monetizing each once its generating ~$100mm of run-rate EBITDA, which RockPile should meet by early next year and Caliber
should reach in less than three years. Several of RockPile and Calibers public peers have less than $100mm of EBITDA, so
management could decide to sell or spin-off these assets sooner. Theyve done an impressive job growing these non-E&P
segments with run-rate EBITDA expected to nearly equal total invested capital (including CapEx) by year end, so Im confident
they can achieve their targets.

Concluding Thoughts
Triangle is expected to double its EBITDA in 2014, yet it trades for ~5x using consolidated EBITDA and ~4x when excluding
the intercompany eliminations. Its underfollowed by the investment community with zero bulge bracket sell-side firms covering
it likely because it doesnt neatly fit into a specific subsector of energy and it didnt generate meaningful revenue until last year.
Interactive Buyside Equity Research
April 24th, 2014

Those that know the company seem to be applying a substantial discount to its conglomerate structure due to the difficulty of
analyzing its GAAP financials and therefore determining its fair value. The Board recognizes this disconnect and therefore
created the CEOs compensation package to incentivize him to increase the share price & monetize the non-E&P businesses
within the next few years. Its rare to find a cheap equity with visible catalysts and motivated leadership, but Triangle seems to fit
that description.



Interactive Buyside Equity Research
April 24th, 2014

Financial Overview

Source: Company 10-K.
($ i n mi l l i ons)
Year Ended: Jan 2012 Jan 2013 Jan 2014
Revenue
E&P 40 161
Oilfield Services 57 194
Other 1 1
Eliminations (37) (96)
Total $8 $61 $259
Operating Expenses 33 69 212
EBIT ($25) ($8) $47
D&A 3 15 57
Impairments 10 0 0
Stock Comp 8 7 8
EBITDA ($4) $14 $112
Margin % NA 22.4% 43.2%