Triangle USA Petroleum Corporation Files For Chapter 11 Bankruptcy Protection | June 30, 2016

Triangle USA Petroleum Corporation, a direct and wholly owned subsidiary of Triangle Petroleum Corporation (“TPC”), and affiliates filed for protection under Chapter 11of the United States Bankruptcy Code on June 30, 2016 in the United States Bankruptcy Court for the District of Delaware under Case No. 16-11566.

The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are Triangle USA Petroleum Corporation (0717); Foxtrot Resources LLC (6690); Leaf Minerals, LLC (9522); Ranger Fabrication, LLC (6889); Ranger Fabrication Management, LLC (1015); and Ranger Fabrication Management Holdings, LLC (0750). The address of the Debtors’ corporate headquarters is 1200 17th Street, Suite 2500, Denver, Colorado 80202.

John R. Castellano is the managing director of AP Services, LLC, the Company’s financial advisor since April 2016, was appointed as the Chief Restructuring Officer of Triangle USA Petroleum Corporation (“TUSA”) on June 28, 2016, and now discusses the filing:

Overview of Chapter 11 Filings

“On the date hereof (the “Petition Date”), each of the Debtors commenced a case by filing a petition for relief under chapter 11 of the Bankruptcy Code. The Debtors have requested that the Chapter 11 Cases be jointly administered. The Debtors continue to manage and operate their business as debtors in possession pursuant to Bankruptcy Code sections 1107 and 1108. “To date, no creditors’ committee has been appointed in the Chapter 11 Cases by the U.S. Trustee. No trustee or examiner has been appointed in the Chapter 11 Cases.”

The Debtors’ Businesses

Introduction

“TUSA and its Debtor subsidiaries (collectively, the “TUSA Debtors”) comprise an independent, growth-oriented oil and gas exploration and development company emphasizing the acquisition and development of unconventional shale oil and natural gas resources in the Williston Basin of North Dakota and Montana. TUSA’s corporate parent, TPC, is a vertically integrated, independent energy company with three lines of business. In addition to TUSA’s exploration and production (“E&P”) business, TPC’s wholly owned, non-Debtor subsidiary RockPile Energy Services, LLC and its affiliates (collectively, “RockPile”) provide oilfield services, focusing primarily on hydraulic pressure pumping and complementary services. Finally, TPC’s joint venture, Caliber Midstream Partners, L.P., and its affiliates (collectively, “Caliber”) provide crude oil, natural gas, and fresh and produced water gathering, processing, and transportation services to TUSA and other customers in the Williston Basin. In addition to its three principal business lines, Triangle formerly operated a fabrication enterprise through Debtor Ranger Fabrication, LLC (“Ranger”) and its subsidiaries (collectively, the “Ranger Debtors”). As discussed in greater detail below, Ranger ceased operations in early 2016 and has commenced Chapter 11 Cases alongside its sister companies in order to complete an orderly wind down.”

History

“TPC was founded in 2003 as Peloton Resources Inc. and has been operating as Triangle Petroleum Corporation since 2005. TUSA was incorporated in 2005. Triangle was initially headquartered in Calgary, Alberta, and concentrated on the acquisition and operation of oil and gas interests in Canada. Following a management change in late 2009, Triangle moved its corporate offices to Denver, Colorado, and recentered its business on acquiring non-operating interests in the Williston Basin.”

“In 2011, Triangle transitioned its focus from non-operating to operating interests in the Williston Basin. Triangle spud its first well in October 2011. Over the next three years, Triangle’s business expanded rapidly, bolstered by favorable commodity prices and strong operational performance. TUSA aggressively expanded its footprint by acquiring attractive leasehold interests and related producing properties from Kodiak Oil & Gas, Marathon, and others. Concurrently, Triangle undertook a number of strategic initiatives to develop a strong platform for long-term growth. Recognizing that the relative lack of established oilfield services and midstream businesses in the Williston Basin presented a significant competitive opportunity, Triangle proactively expanded its business to include complementary oilfield services and gathering business lines. Triangle’s wholly owned subsidiary, RockPile, and its joint venture, Caliber, which provide oilfield services and gathering services, respectively, commenced operations in 2012.”

TUSA’s E&P Business

The Williston Basin

“As noted, TUSA is a premier, independent E&P operator in the Williston Basin. Spanning approximately 150,000 square miles across the Dakotas, Montana, and southern Canada, the Williston Basin is among the largest shale oil reservoirs in North America. The principal geologic targets in the Williston Basin are the Bakken shale and Three Forks formations, which collectively contain an estimated 7.4 billion barrels of oil, 6.7 trillion cubic feet of natural gas, and 500 million barrels of natural gas liquids.”

“Although the first Williston Basin well was drilled in 1951, production levels remained modest until the application of horizontal drilling, hydraulic fracturing, and other unconventional techniques to the Middle Bakken shale beginning in the mid-2000s. These techniques precipitated an exponential increase in production, peaking at over 1.2 million barrels per day in 2014 and turning North Dakota into the second largest oil-producing state in the country.”

See Drilling Productivity Report, U.S. Energy Information Administration, April 2016

“As one of the largest unconventional plays in North America, the Williston Basin is highly competitive, with dozens of E&P operators—ranging from major integrated operators to small independent producers—active in the region.”

“Oil and gas production in the Williston Basin is constrained by substantial technical and economic challenges. As noted, successful exploitation of the Bakken shale and Three Forks formations depends on unconventional and capital intensive exploration and drilling technologies, including horizontal drilling and hydraulic fracturing. The Williston Basin is further constrained by limited gathering infrastructure and long-distance pipeline capacity. As a result, Williston Basin operators rely more heavily on truck and rail transportation for gathering and interstate takeaway than operators in more mature plays. Owing to these and other factors, the Williston Basin has relatively high break-even costs and differentials, making it more susceptible to commodity price fluctuations than more established plays.”

The TUSA Debtors’ Oil and Gas Assets

“The TUSA Debtors’ oil and gas interests comprise approximately 3,500 leases across approximately 230,000 gross (approximately 100,000 net) acres in the Williston Basin, containing total proved reserves of approximately 47,707 Mboe as of fiscal year end 2016. The TUSA Debtors operate 144 gross producing wells and 74 drilling-space units (“Units”), plus 10 drilled but uncompleted wells. In addition, the TUSA Debtors hold non-operating working interests in 355 Units, comprising 529 gross wells and 26 wells on a net basis.”

“The TUSA Debtors’ area of primary strategic focus encompasses approximately 78,000 net acres in McKenzie and Williams Counties, North Dakota, and eastern Roosevelt and Sheridan Counties, Montana, which the TUSA Debtors refer to as their “core acreage.” The TUSA Debtors’ core acreage has high oil saturation, is slightly over-pressured, and has the potential for multiple productive benches. The TUSA Debtors operate approximately 49,000 net acres (or 63%) of the core acreage.”

“The TUSA Debtors target the Middle Bakken formation between the Upper and Lower Bakken shales at an approximate vertical depth of 10,300 to 11,300 feet. The TUSA Debtors also target the Three Forks formation, which is present immediately below the Lower Bakken Shale. Figures showing the horizontal and vertical extent of the Bakken and Three Forks formations are set forth below.”

“The TUSA Debtors exploit these targets using a combination of advanced drilling and completion techniques, including horizontal drilling and hydraulic fracturing. The Debtors have refined these techniques over time, reducing well completion costs and increasing aggregate production per well.”

Gathering, Transportation, and Processing

“As noted, transportation of produced oil and gas poses significant challenges for Williston Basin operators. Despite the market downturn, production in the Williston Basin continues to exceed long-distance pipeline capacity, forcing some producers to ship produced hydrocarbons by rail, thereby increasing costs. The pipeline take-away deficit has narrowed substantially as production has slowed and new pipelines have come online, but pipeline capacity remains inadequate.”

“Williston Basin producers face similar logistical challenges in gathering and transporting produced hydrocarbons from the wellhead to intermediate delivery points. Because gathering infrastructure in the Williston Basin remains relatively undeveloped, Williston Basin operators have relied disproportionately on flaring natural gas and trucking crude oil and water.”

“To alleviate these challenges, in October 2012, Triangle entered into a joint venture with First Reserve Caliber Holdings LLC (“First Reserve”) to form Caliber and construct a pipeline gathering system to service Triangle and third-party wells in the Williston Basin. The Caliber system provides a suite of gathering services, including crude oil gathering, stabilization, and transportation; natural gas gathering and processing and natural gas liquids takeaway; produced water transportation and disposal; freshwater and maintenance water delivery; and measurement services, storage, and other ancillary offerings. Caliber’s infrastructure consists of over 300 miles of gathering pipeline, crude oil stabilization facilities, long-distance pipeline interconnects, natural gas refrigeration facilities, produced water disposal wells, and other facilities.”

“Caliber provides gathering services to TUSA pursuant to several long-term midstream services agreements (the “Caliber Midstream Agreements”). The two most significant of these relate to gathering and related services for crude oil and gas and water (together, the “Primary MSAs”). The Primary MSAs provide that Caliber will be the exclusive provider of the applicable midstream services for certain Units operated by TUSA. These Units, most of which are located in and around TUSA’s core acreage in McKenzie County, are referred to in the Primary MSAs as the “Dedicated Properties.” In addition to the Primary MSAs, TUSA and Caliber are parties to several ancillary agreements for measurement services, natural gas liquids handling, fresh water delivery, and produced water gathering and disposal services.”

“Finally, under a separate revenue commitment agreement, TUSA agreed to deliver specified minimum monthly revenues to Caliber, irrespective of the volumes of oil, natural gas, produced water, and fresh water actually serviced by Caliber. The cumulative minimum revenue commitment over the 15-year term of the revenue commitment agreement is $405.0 million, of which $293.7 million was outstanding as of April 30, 2016. The revenue commitment agreement permits TUSA to build credits against future monthly commitments equal to the amount by which actual monthly revenues under the Primary MSAs exceed TUSA’s minimum monthly revenue commitment. As of April 30, 2016, TUSA had accrued a cumulative credit of $41.5 million. Credits may be carried forward for a period of four years from the date of the accrual. TUSA is required to pay Caliber for any deficiency in actual monthly revenues if no credits are available.”

“As of fiscal year end 2016, 111 of the TUSA Debtors’ 144 operated wells were connected to the Caliber system. Certain of the TUSA Debtors’ wells that are not connected to the Caliber system are connected to gathering pipelines owned and operated by other midstream companies. In total, 99% of the TUSA Debtors’ operated wells are connected to gas sales; 92% of their operated wells are connected to crude oil gathering and processing systems; 82% of their operated wells are connected to produced water gathering lines; and 80% of their operated wells are connected to freshwater delivery lines.”

Oil and Gas Sales

“Produced oil and gas from the TUSA Debtors’ operated wells is sold at the wellhead, or a location nearby, under short-term agreements with various purchasers. While the pricing terms of these agreements vary by purchaser, they all reflect a price determined by the current NYMEX West Texas Intermediate contract, less a discount (also known as a “differential”) that is either calculated, fixed, or a combination of calculated and fixed. The differential reflects a number of factors, including transportation costs and the physical characteristics of the produced oil. In fiscal year 2016, the TUSA Debtors sold operated well production directly to 11 oil purchasers, two NGL purchasers, and six natural gas purchasers. For the TUSA Debtors’ economic interests in wells operated by third-parties—which include a variety of E&P companies—substantially all of their sales of crude oil and natural gas in fiscal years 2014, 2015, and 2016 was sold through arrangements made by the wells’ operators and at sales points at or close to the producing wells.”

“The TUSA Debtors’ average daily production increased from 11,441 boep/d in fiscal year 2015 to 13,416 boep/d in fiscal year 2016.  Approximately 85% of the production in fiscal year 2016 was attributable to wells operated by the TUSA Debtors. The TUSA Debtors realized approximately $181 million in revenue from oil and gas sales in fiscal year 2016, compared to approximately $284 million for fiscal year 2015.”

Hedging Arrangements

“To reduce exposure to adverse fluctuations in crude oil prices and achieve more predictable cash flow, the TUSA Debtors use commodity derivative instruments for a portion of their crude oil production. During fiscal years 2015 and 2016, the TUSA Debtors recognized gains of $64.1 million and $38.5 million, respectively, on their commodity derivative positions due to continued decreases in underlying crude oil prices. The TUSA Debtors recorded realized commodity derivative gains of $11.4 million in fiscal year 2015 and $71.9 million in fiscal year 2016. The last of the TUSA Debtors’ commodity derivative contracts entered into before the dramatic decline in oil prices beginning in the second half of fiscal year 2015, established as costless dollars, expired by December 31, 2015.”

“The TUSA Debtors are currently party to one derivative contract, which is with a bank within the syndicate of lenders for TUSA’s senior secured reserve-based credit facility. TUSA’s commodity derivative swap contract is for approximately 1,000 Bbl/d with a weighted average price of $60.03 for fiscal year 2016 (price reflects NYMEX West Texas Intermediate contracts). This swap contract was entered into during a depressed commodity pricing environment and covers only a small portion of the TUSA Debtors’ anticipated production during those future periods.”

Ranger’s Fabrication Business

“The remaining Debtors in these cases—Ranger Fabrication, LLC and its two Debtor subsidiaries—operated a fabrication business that specialized in the manufacture and sale of specialized equipment used in the E&P and midstream industries. Ranger’s customers included TUSA, Caliber, and others. Ranger ceased operations in early 2016, and its remaining assets were liquidated at auction on March 17, 2016, generating net proceeds of approximately $375,000. At the time, Ranger had secured indebtedness of approximately $1 million, all of which was held by its parent, TPC. Because the auction proceeds were insufficient to satisfy Ranger’s secured debt in full, its unsecured creditors were left unpaid. As discussed in greater detail below, the Debtors’ plan support agreement with certain holders of the TUSA Notes (as defined below) will facilitate a cash distribution to Ranger’s unsecured creditors.”

The Debtors’ Corporate and Capital Structures

An illustration of the Company’s organizational structure depicting the ownership structure of the Debtors and their Non-Debtor Affiliates is attached to this Declaration as [follows:]

“Non-Debtor TPC is the direct or indirect parent company of each of the Debtors and Non-Debtor Affiliates.  TPC, a Delaware corporation, is publicly traded on the NYSE MKT (TPLM). TPC is the direct parent of Debtor TUSA. TUSA, a Colorado corporation, is, in turn, the direct parent of Debtors Foxtrot Resources LLC (“Foxtrot”) and Leaf Minerals, LLC (“Leaf Minerals”), each of which is a Colorado limited liability company. TPC is also the direct parent of Debtor Ranger Fabrication, LLC, a Delaware limited liability company. Ranger Fabrication, LLC is, in turn, the direct parent of Debtors Ranger Fabrication Management Holdings, LLC and Ranger Fabrication Management, LLC, each of which is also a Delaware limited liability company.”

“TPC houses certain of the Company’s shared services and corporate functions. TUSA and its subsidiaries comprise the Company’s E&P business. TUSA conducts most of the Debtors’ E&P operations. Foxtrot holds oil and gas leases in Montana, and Leaf Minerals owns certain non-operating mineral interests. Ranger, previously an oilfield services fabrication business that primarily supplied to Caliber and TUSA, ceased operations in early 2016.”

“As of the Petition Date, TUSA and its subsidiaries owe or guarantee approximately $689 million in long-term debt, as detailed below:

• (a) $308 million of outstanding principal and letter of credit exposure under TUSA’s senior secured reserve-based revolving credit facility (inclusive of letter of credit exposure); and
• (b) $381 million of TUSA 6.75% senior unsecured notes due 2022.”

“TPC and RockPile also have outstanding long-term debt. Triangle’s indebtedness, however, is heavily “siloed.” TPC does not guarantee any substantial indebtedness of its subsidiaries, and Triangle’s three principal operating segments do not guarantee each other’s debt facilities, nor do such facilities “cross-default” to the debt issued by other operating segments.”

“The RBL Credit Facility. TUSA is party to a senior secured reserve-based credit facility (the “RBL Credit Facility”) under that certain Second Amended and Restated Credit Agreement (the “RBL Credit Agreement”), with Wells Fargo Bank, National Association, as administrative agent and issuing lender (in such capacity, the “RBL Agent”), and the lenders named therein (the “RBL Lenders”). TUSA’s obligations under the RBL Credit Facility are guaranteed by Foxtrot and Leaf Minerals and secured by (a) liens on and security interests in substantially all of TUSA’s proved hydrocarbon reserves, (b) liens and security interests in substantially all of the non-oil and gas assets, including cash, of TUSA, Foxtrot, and Leaf Minerals, other than certain excluded collateral, and (c) pledges in TUSA’s membership interests in Foxtrot and Leaf Minerals, certificates representing such membership interests, if any, and any of TUSA’s rights to money or property in respect of the membership interests. The RBL Credit Facility matures on October 16, 2018.”

“The RBL Credit Facility has a nominal commitment amount of $1 billion, but the maximum credit exposure at any given time is limited by the borrowing base then in effect. The borrowing base under the RBL Credit Agreement is redetermined by the RBL Agent and RBL Lenders semi-annually, on or about May 1 and November 1. The borrowing base is also subject to up to four interim, unscheduled redeterminations each calendar year—two at the election of TUSA and two at the election of the Required Lenders (as defined in the RBL Credit Agreement).”

“On April 28, 2016, the RBL Agent redetermined the borrowing base from $350 million to $225 million. The amount then outstanding on the RBL Credit Facility—approximately $350 million—exceeded the new borrowing base by approximately $125 million, resulting in a borrowing base deficiency. Pursuant to the RBL Credit Agreement, TUSA elected to pay the deficiency in three equal monthly installments of approximately $42 million, the first of which was paid on May 31, 2016. As of the Petition Date, approximately $308 million is outstanding under the RBL Credit Agreement, including outstanding letters of credit and other ancillary obligations.”

“The TUSA Notes. TUSA also has substantial funded indebtedness under its senior unsecured notes. Pursuant to that certain Indenture dated as of July 18, 2014, by and among Wilmington Trust, National Association, as Trustee, TUSA, and the subsidiary guarantors listed thereto, TUSA issued $450 million aggregate principal amount of 6.75% senior notes with a maturity date of July 15, 2022 (the “TUSA Notes”). The obligations under the TUSA Notes are guaranteed on an unsecured basis by Foxtrot and Leaf Minerals. As of the Petition Date, the TUSA Notes had an outstanding principal balance of approximately $381 million.”

“The Ranger Indebtedness. As of March 2016, when Ranger’s remaining assets were sold at auction, the Ranger Debtors had secured debt obligations of approximately $1.55 million consisting of:

• (a) Approximately $250,000 in aggregate principal pursuant to (a) that certain Combination Loan and Security Agreement dated as of November 18, 2014 between Wells Fargo Equipment Finance, Inc. (“WFEFI”) and Ranger Fabrication, LLC, (b) that certain Security Agreement dated as of May 4, 2015 between WFEFI and Ranger Fabrication, LLC, and (c) that certain Promissory Note dated as of April 24, 2015 between WFEFI and Ranger Fabrication, LLC (collectively, the “Wells Equipment Financing”); and
• (b) Approximately $50,000 in aggregate principal pursuant to that certain Secured Credit Agreement dated as of February 16, 2016 by and between Ranger Fabrication, LLC and TPC.”

“The Wells Equipment Financing was assigned to TPC in December 2014, making TPC the Ranger Debtors’ sole secured creditor. As noted above, Ranger’s remaining assets were liquidated at auction in March 2016, resulting in net proceeds insufficient to satisfy Ranger’s secured indebtedness in full. In addition to their funded debt, the Ranger Debtors have approximately $1.25 million in unsecured trade claims.”

Events Precipitating the Chapter 11 Cases

 Challenging Macroeconomic Conditions

 “The Debtors commenced these Chapter 11 Cases in the midst of a historically severe downturn in the commodity markets, with the objective of realigning their capital structure with new market realities. The Debtors intend to use the chapter 11 process to implement a balance-sheet restructuring—including the elimination of over $380 million in funded indebtedness under the TUSA Notes—and emerge from chapter 11 well positioned to weather a potentially prolonged market downturn and capture growth opportunities as conditions improve.”

“Since fall 2014, commodity prices have fallen dramatically, with crude oil and natural gas spot prices reaching lows of approximately $26/Bbl and $1.50/MMBtu, respectively, in early 2016. Numerous factors have contributed to the market downturn. Increased domestic production attributable to more efficient exploitation of unconventional plays, coupled with unconstrained production among OPEC countries, has led to a global supply glut. At the same time, aggregate demand for oil and gas has softened as economic growth in developing nations eases.”

“The commodity price downturn has had predictable consequences on the Debtors’ financial results. Excluding the effects of hedges and derivative activities, the Debtors’ weighted average sale price per barrel of oil equivalent fell from $68 in fiscal year 2015 to $37 in fiscal year 2016. As a result, the Debtors’ revenue declined over $100 million from fiscal year 2015 to fiscal year 2016, despite a 17% year-over-year increase in average daily production volumes. The same trends are evident in the Debtors’ proved reserve values, which fell from nearly $1 billion to approximately $330 million between fiscal years 2015 and 2016. Further, while the Debtors have implemented numerous initiatives to control costs and manage liquidity during the market downturn, many aspects of their cost structure—including their cost of midstream services—are relatively inelastic.”

“Future commodity prices are impossible to forecast with certainty. Unpredictable factors such as geopolitical instability, war, weather, and others significantly influence the direction of the oil and gas markets. However, as forward price curves indicate, the market does not anticipate a sharp, near-term rebound in prices. Accordingly, the Debtors’ principal strategic objective is to manage a prolonged period of depressed prices, while also positioning themselves to capture upside opportunities as market conditions improve.”

Cost and Liquidity Management

Operational Initiatives

“The Debtors responded to the fall in commodity prices with numerous efforts to proactively manage liquidity and preserve value for stakeholders, including reductions in capital expenditures, targeted sales of non-core assets, and reductions in G&A spending.”

“To more closely align capital expenditures with cash flows, the Debtors released their four active drilling rigs in fiscal year 2016, resulting in aggregate capital expenditure reductions of 74%. During fiscal year 2016, the Debtors delivered 18 gross drilled but uncompleted wells for completion as commodity prices warranted. The Debtors realized a 73% year-over-year reduction in drilling and completion costs in fiscal year 2016 and have achieved drilling and completing cost reductions of $1.6 to $1.9 million since March 2015, indicating that, to the extent the Debtors have continued to drill and complete new wells, they have done so more efficiently, and for less cost, than in the past. The Debtors’ fiscal year 2017 capital expenditure program continues to emphasize disciplined cost control and is tailored to projected cash flow, with flexibility to opportunistically expand capital expenditures as commodity prices warrant.”

“The Debtors also explored opportunities to enhance liquidity by monetizing non-core oil and gas properties and other assets as market conditions warranted. Owing to generally depressed asset sale values and other factors, the Debtors ultimately did not identify many favorable sale opportunities. Nonetheless, in February 2016, the Company sold approximately 550 acres of non-operating oil and gas leases to a counterparty for approximately $410,000.”

“Finally, the Debtors achieved significant G&A cost reductions by, among other things, implementing targeted workforce reductions in January 2016, resulting in projected annual cost savings of approximately 40%.”

Financing Activities

“In addition, the Debtors have judiciously managed their access to liquidity under the RBL Credit Facility. In April 2015, the RBL Credit Facility was amended to replace the existing total funded debt leverage ratio with a senior secured leverage ratio covenant; add an interest coverage ratio; and add an equity cure right for non-compliance with the financial covenants, giving TUSA additional “headroom” on its financial covenants. In early 2016, TUSA made two draws under the RBL Credit Facility: (a) a borrowing of approximately $30 million in January 2016 and (b) a subsequent borrowing of approximately $105 million in late March 2016, the latter representing substantially all remaining availability under the RBL Credit Facility, relative to the then-existing borrowing base.”

“As discussed above, on April 28, 2016, the RBL Agent redetermined the borrowing base under the RBL Credit Facility from $350 million to $225 million. Because the RBL Credit Facility was substantially fully drawn as of the redetermination date, the redetermination resulted in a borrowing base deficiency of approximately $125 million. Pursuant to the RBL Credit Agreement, TUSA elected to pay the deficiency in three equal monthly installments of approximately $41.7 million, the first of which was paid on May 31, 2016.”

“In connection with its first installment payment, TUSA requested that the RBL Agent and RBL Lenders waive certain potential financial covenant violations for the fiscal quarter ended April 30, 2016, or forbear from exercising remedies in connection with such potential defaults. On May 27, 2016, TUSA and the RBL Lenders agreed to a forbearance until July 8, 2016, subject to various terms and conditions.”

 Restructuring Negotiations

“Despite Triangle’s myriad of efforts to control costs and manage liquidity, Triangle recognized that a prolonged downturn in commodity prices could necessitate a more comprehensive deleveraging transaction. Accordingly, in March 2016, Triangle announced its retention of legal and financial advisors to assist in evaluating strategic alternatives. In collaboration with its restructuring advisors, Triangle carefully evaluated a range of strategic options, including selling material assets or business segments; seeking additional financing; or refinancing, recapitalizing, or restructuring all or a portion of the Company’s existing debt. Triangle carefully considered various means of effectuating one or more strategic transactions, including both in-court and out-of-court alternatives.”

“Beginning in March 2016 and continuing through the Petition Date, Triangle has engaged in intensive negotiations with its principal stakeholders, including holders of a substantial majority by value of the TUSA Notes; Caliber and First Reserve; NGP Triangle Holdings (“NGP”); and the RBL Agent and RBL Lenders.”

Triangle’s Consolidated Restructuring Efforts

“In March 2016, Triangle and one of the largest holders of the TUSA Notes entered into a non-disclosure agreement and commenced discussions regarding a consensual restructuring or recapitalization of Triangle. These discussions focused initially on a consolidated restructuring involving TPC, TUSA, and Caliber. In broad terms, the parties discussed a reconstitution of Triangle’s E&P and midstream business lines through the allocation of reorganized TPC equity among the principal stakeholders of TPC, TUSA, and Caliber. In particular, the parties discussed a potential exchange of the TUSA Notes, the TPC Convertible Note, and First Reserve’s equity interests in Caliber into equity interests of reorganized TPC, in allocations to be negotiated.”

“The Company subsequently entered into non-disclosure agreements and began discussions with First Reserve and NGP regarding a consolidated restructuring. For various reasons, however, neither party was amenable to a transaction of that nature. NGP indicated that it preferred to receive a cash recovery. Caliber likewise indicated that it would seek to enforce its existing contracts with TUSA rather than participate in a global restructuring.”

The Debtors’ “Standalone” Restructuring Efforts and Plan Support Agreement

“Given the lack of sufficient stakeholder support from NGP and First Reserve for a consolidated restructuring, the Debtors refocused their efforts on a “standalone” restructuring of TUSA. In late May and early June 2016, noteholders collectively holding over 80% in aggregate principal amount of the TUSA Notes (the “Participating Noteholders”) engaged legal and financial advisors and organized an ad hoc group (the “Ad Hoc Noteholder Group”) to negotiate a standalone TUSA restructuring.”

“On June 29, 2016, the Debtors and Participating Noteholders holding approximately 73% by amount of the TUSA Notes entered into the Plan Support Agreement (the “PSA”). The PSA outlines the terms of a consensual, prearranged chapter 11 plan that Participating Noteholders have agreed to support. Under the contemplated plan, the Debtors will pay the existing RBL Credit Facility in full in cash on the effective date and exchange the TUSA Notes for 100% of the new common stock of reorganized TUSA, subject to dilution from, among other things, other general unsecured claims and a management incentive plan.”

“The PSA further contemplates a new money rights offering (as defined in the PSA, the “New Money Rights Offering”) offered ratably to the holders of the TUSA Notes and backstopped by certain Participating Noteholders. Because reorganized TUSA’s liquidity needs will depend on various factors that cannot be forecasted at present, the amount of the New Money Rights Offering will be determined later; however, the Debtors and the Participating Noteholders preliminarily contemplate a rights offering of approximately $100 million. The other terms of the New Money Rights Offering will likewise be negotiated among the Debtors and the Participating Noteholders. Proceeds of the New Money Rights Offering will be used to repay the RBL Credit Facility and for general corporate purposes.”

“Finally, the PSA envisions a new first-priority RBL credit facility (the “New Revolving Credit Facility”), in an amount and on terms to be determined by the Debtors and the Participating Noteholders. The Debtors anticipate that the New Revolving Credit Facility will be secured by substantially all of the assets securing the RBL Credit Facility, and the proceeds thereof used to repay the RBL Credit Facility and for general corporate purposes.”

“The PSA contains numerous other customary terms and conditions, including standard representations and warranties, covenants, case “milestones,” and provisions for the payment of the reasonable and documented fees and expenses of the Ad Hoc Noteholder Group’s professionals. The PSA also contains a “fiduciary out” that allows the Debtors to evaluate and, if appropriate, enter into a superior alternative transaction without liability to the Participating Noteholders, if their fiduciary duties so require.”

Orderly Wind Down of the Ranger Debtors

“Pursuant to the PSA, the Participating Noteholders contemplate a cash distribution to general unsecured creditors of the Ranger Debtors under a chapter 11 plan. As noted above, Ranger ceased operations and liquidated its remaining assets earlier this year. The Ranger auction generated insufficient cash proceeds to fully repay Ranger’s secured debt and, as a result, no proceeds were available for distribution to Ranger’s unsecured creditors. While the Debtors believe that Ranger’s general unsecured creditors have received all to which they are legally entitled, given Ranger’s unsatisfied secured debt, certain Ranger creditors have nonetheless commenced lawsuits or issued demands against Ranger on account of their unpaid claims. To avoid the distraction of responding to such proceedings and demands in ad hoc fashion, the Debtors, with the support of the Ad Hoc Noteholder Group, believe that a chapter 11 plan of liquidation represents the fairest and most efficient way to complete Ranger’s wind down. The Debtors anticipate that a proposed cash distribution to Ranger’s unsecured creditors under such plan will result in better recoveries for such creditors than would otherwise be possible.”

“In order to implement the restructuring contemplated by the PSA, on June 29, 2016, the Debtors commenced these Chapter 11 Cases.”