Triangle Petroleum, First Reserve form Williston Basin midstream JV

Triangle Petroleum

Triangle Petroleum Corp. has formed Caliber Midstream Partners LP, a joint venture with First Reserve Corp.’s Energy Infrastructure Fund (FREIF). First Reserve Corp. is a global energy-focused private equity and infrastructure investment firm. Caliber will be a midstream provider offering a full service pipeline solution to producers for oil, natural gas, flow back and produced water, and freshwater in the Williston Basin of North Dakota and Montana.  

About Caliber Midstream Partners LP

  • Caliber is a newly-formed, Denver-based limited partnership which will focus on midstream and infrastructure opportunities in the Williston Basin of North Dakota and Montana
  • Caliber will initially be capitalized with a total of $180mm of equity commitments ($150mm from FREIF, $30mm from Triangle)
  • Caliber will focus its efforts on designing safe and reliable pipeline solutions for the water, oil and gas transportation and processing needs of its customers
  • Construction is underway on a Phase 1 pipeline system in McKenzie County which will serve the needs of Triangle and other Caliber customers by reducing the cost of oil and gas drilling and completion operations as well as the environmental impact associated with those operations
  • Caliber plans to expand its Phase 1 system in McKenzie County and to build new infrastructure in other counties of North Dakota and Montana as needed by its customers
  • Caliber plans to begin transportation and processing operations in November 2012, with all business lines expected to be in service by August 2013
  • At inception, Caliber will provide services to Triangle under a 15-year volume-based contract, and will also seek to add future third party volumes to its system

 Anticipated benefits of the Caliber System

  • Caliber anticipates it will provide the following benefits to the customers of its system:

―     Integrated solution to water, oil and gas transportation and processing needs from one provider

―     Reduce the cost and environmental impact of trucking

―     Reduce or eliminate the emissions generated by the flaring of produced gas

―     Improve the efficiency of and reduce the cost of winter and spring operations

 Governance and economic structure of Caliber Midstream LP

  • Caliber will be managed and governed by its General Partner, Caliber Midstream GP, LLC (Caliber GP)
  • Both Triangle and FREIF will own a 50% non-economic stake in Caliber GP and will share governance equally

Neither Triangle nor FREIF can have its governance rights reduced based on future capital contributions to the partnership

  • The Caliber GP Board has approved a $100mm Phase 1 cap-ex program. Future cap-ex subject to Board approval
  • Caliber will initially issue 10,000,000 Class A units at a price of $10.00 per unit

Triangle has committed $30mm and will receive 3,000,000 units

―     FREIF has committed $150mm and will receive 7,000,000 units for its first $70mm of contributed capital

Subsequent capital contributions by FREIF will result in new Class A units being issued at $10.00 per unit; once FREIF has contributed $150mm, it will hold 15,000,000 Class A units

―     Triangle has the right but not the obligation to participate in up to 50% of new Class A issuances at $10.00 per unit

  • Upside to Triangle

―     In addition to receiving 3,000,000 Class A units, Triangle will receive the following securities in exchange for its $30mm commitment:

4,000,000 Class A Trigger units convertible into Class A units subject to certain business performance metrics

4,000,000 warrants with an exercise price of $14.69. The warrants have a 12-year life, contain a cashless exercise feature and standard provisions whereby the strike price is reduced by the amount of any per unit Class A distributions, subject to a $5.00 floor

2,400,000 warrants with a strike price of $24.00 (and feature the same provisions of the $14.69 warrants)

1,600,000 Trigger warrants which become warrants with a $14.69 strike price as described above, subject to the certain business performance metrics associated with the Class A Trigger units

―     The total upside package will allow Triangle shareholders to own up to 15,000,000 units subject to the performance of the business, giving it a total potential ownership stake of 50% with no required capital contributions beyond the initial $30mm

Impact to Triangle Budget

  • The Caliber commitment does not have an impact on Triangle’s FY 2013 budget. The current budget for the period ended January 31, 2013 (FY 2013) provides for $25mm of total infrastructure spend, with $20mm reserved for Caliber. Triangle will need to allocate a minimum of $10mm in its FY 2014 budget to meet its obligations, based on the committed drawdown schedule. The committed drawdown schedule provides management with the discretion to decrease infrastructure spend in FY 2014 by up to 60%, while simultaneously lowering completion and LOE costs, increasing efficiency and maintaining the upside of the Caliber system

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