Trinidad Drilling Ltd. reports second quarter and year-to-date 2014 results; transitional second quarter as activity levels and dayrates trend up in second half of 2014

/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

TSX SYMBOL:  TDG

CALGARY, Aug. 6, 2014 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the "Company") reported second quarter and year to date 2014 results. The Company's results were impacted as rigs were re-activated to meet increasing demand, incurring additional costs and leading to lower adjusted EBITDA (1) in the current quarter.

"The second quarter was a transitional quarter for Trinidad," said Lyle Whitmarsh, Trinidad's Chief Executive Officer. "We are seeing growing demand across all areas of our operations and incurred higher costs in the quarter as we prepared the fleet for these improved industry conditions. During the quarter, our US and international division moved rigs to new customers and locations, and had higher than usual repairs and maintenance costs as rigs were re-activated. Although these costs negatively affected the second quarter, we are already seeing the benefit as all of our US rigs are currently operating. We anticipate that Trinidad will perform well in the second half of 2014 as customers increasingly lock up existing rigs and demand for new equipment grows."

(1)    See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.

FINANCIAL HIGHLIGHTS

                                     
      Three months ended June 30,     Six months ended June 30,
($ thousands except share and per share data)     2014   2013       % Change     2014   2013       % Change
Revenue      168,945   165,447       2.1     420,450   412,633       1.9
Revenue, net of third party costs     159,644   156,171       2.2     390,662   383,548       1.9
Operating income (1)     45,605   55,651       (18.1)     140,797   154,010       (8.6)
Operating income percentage (1)     27.0%   33.6%       (19.6)     33.5%   37.3%       (10.2)
Operating income - net percentage (1)     28.3%   35.6%       (20.5)     35.9%   40.2%       (10.7)
EBITDA (1)     5,445   36,326       (85.0)     86,700   118,340       (26.7)
  Per share (diluted) (2)     0.04   0.30       (86.7)     0.62   0.98       (36.7)
Adjusted EBITDA (1)     30,644   39,941       (23.3)     110,086   124,777       (11.8)
  Per share (diluted) (2)     0.22   0.33       (33.3)     0.79   1.03       (23.3)
Cash provided by operations     71,086   89,852       (20.9)     90,519   130,347       (30.6)
  Per share (basic / diluted) (2)     0.51   0.74       (31.1)     0.65   1.08       (39.8)
Funds provided by operations (1)     30,285   39,124       (22.6)     91,142   104,067       (12.4)
  Per share (basic / diluted) (2)     0.22   0.32       (31.3)     0.66   0.86       (23.3)
Net (loss) earnings     (24,815)   347       (7,251.3)     947   33,095       (97.1)
  Per share (basic / diluted) (2)     (0.18)   0.00       -     0.01   0.27       (96.3)
Adjusted net (loss) earnings (1)     (5,557)   3,460       (260.6)     22,189   39,033       (43.2)
  Per share (basic / diluted) (2)     (0.04)   0.03       (233.3)     0.16   0.32       (50.0)
Capital expenditures      71,587   15,089       374.4     102,793   32,828       213.1
Dividends declared     6,910   6,043       14.3     13,818   12,086       14.3
Shares outstanding - diluted                                    
  (weighted average) (2)     138,873,120   120,859,476       14.9     138,848,922   120,859,476       14.9
                                     
As at                       June 30,   December 31,        
($ thousands except percentage data)                       2014   2013       % Change
Total assets                       1,876,403   1,827,496       2.7
Total long-term liabilities                       570,449   564,095       1.1

(1)      Readers are cautioned that Operating income, Operating income percentage, Operating income - net percentage, EBITDA, Adjusted
EBITDA, Funds provided by operations, Adjusted net (loss) earnings and the related per share information do not have standardized
meanings prescribed by IFRS - see "Non-GAAP Measures" and "Additional GAAP Measures".
(2)      Basic shares include the weighted average number of shares outstanding over the period. Diluted shares include the weighted
average number of shares outstanding over the period and the dilutive impact, if any, of the number of shares issuable pursuant
to the Incentive Option Plan.

OPERATING HIGHLIGHTS

                                                       
            Three months ended June 30,         Six months ended June 30,
              2014         2013     % Change         2014         2013     % Change
Land Drilling Market                                                       
Operating days (1)                                                      
  Canada            1,430         1,434     (0.3)         5,507         5,632     (2.2)
  United States and International           4,441         4,578     (3.0)         8,752         9,031     (3.1)
Rate per operating day (1)                                                      
  Canada (CDN$)           26,338         25,511     3.2         25,655         25,429     0.9
  United States and International (CDN$)           22,890         22,908     (0.1)         23,747         22,665     4.8
  United States and International (US$)           20,819         22,436     (7.2)         21,716         22,461     (3.3)
Utilization rate - operating day (1)                                                      
  Canada            26%         26%     -         50%         52%     (3.8)
  United States and International           80%         73%     9.6         78%         73%     6.8
Number of drilling rigs at period end (4)                                                      
  Canada            59         60     (1.7)         59         60     (1.7)
  United States and International           56         68     (17.6)         56         68     (17.6)
  Coring and surface casing rigs (2)           -         15     (100.0)         -         15     (100.0)
Joint Venture Operations (3)                                                      
  Number of drilling rigs at period end           4         -     100.0         4         -     100.0
Barge Drilling Market                                                       
  Operating days (1)           259         445     (41.8)         503         860     (41.5)
  Rate per operating day (CDN$) (1)           37,953         31,731     19.6         37,886         30,460     24.4
  Rate per operating day (US$) (1)           34,599         31,077     11.3         34,680         30,151     15.0
  Utilization rate - operating day (1)           57%         98%     (41.8)         56%         95%     (41.1)
  Number of barge drilling rigs at period end           2         2     -         2         2     -
  Number of barge drilling rigs under Bareboat                                                      
    Charter Agreements at period end           3         3     -         3         3     -
(1)      See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(2)      In the third quarter of 2013, Trinidad disposed of its 15 remaining coring rigs and all related equipment.
(3)      Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. These rigs are owned by the joint venture.
(4)      Refer to the Results from Operations section for details on changes to the rig count.

OVERVIEW

The second quarter of 2014 was a transitional period for Trinidad. Each of the following factors had a significant impact on the Company:

  • Increased demand in the US operations caused the Company to re-activate existing rigs, incurring increased costs, changing rig mix and lowering overall margins in this segment;
  • The Company continued to gear up for international growth with the joint venture. With this growth period, Trinidad incurred additional general and administrative expenses;
  • Trinidad transitioned their three rigs out of Mexico and moved them to Canada where their specifications are more in demand. The Company expects to recommence operations in Mexico through the joint venture with four rigs by the end of 2014 and early 2015.

As Trinidad transitioned to meet the growing demand in the US, the Company incurred higher repairs and maintenance and rig moving expenses as the Company readied equipment to go back to work. In addition, a number of lower specification rigs were reactivated in the current quarter due to improving customer demand for this type of equipment. Trinidad typically times larger repairs and maintenance costs with increasing market demand. This was combined with the temporary impact of lower utilization on several high performance rigs that received early termination revenue in previous quarters, causing a decline in profitability in the US and international segment when compared to the same quarter last year. As at June 30, 2014, Trinidad also reviewed its rig fleet based on the marketability of existing assets, resulting in a number of rigs being decommissioned and an impairment expense of $20.6 million recorded in the period.

Trinidad is currently seeing improved industry conditions across all of its operations. The Company anticipates that the factors negatively impacting the results in the second quarter are due to reactivating previously idle rigs, which will not persist into the second half of 2014. As Trinidad continues to review its rig fleet and ensure all assets remain highly competitive, the retrofit and redeployment of current higher specification rigs will continue into the second half of 2014.

During the second quarter and first six months of 2014, commodity prices increased from the same periods in 2013. Crude oil prices improved for both the US-based WTI benchmark and the Western Canadian Select benchmark prices, driving an ongoing focus towards crude oil and natural gas liquids targets. Oil prices continued to strengthen and increased in the current quarter from the first quarter of 2014 mostly due to increased geopolitical unrest in the Middle East and Eastern Europe and lowering US storage levels. Natural gas prices were also higher in the current periods compared to the same periods last year, but lowered in the second quarter from the first quarter of 2014. Growing storage levels in North America were the main driver behind lowering natural gas prices in the current quarter.

In the second quarter and first six months of 2014, Canadian industry activity levels averaged 28% and 42%, respectively, up from 18% and 38% in the same periods last year, reflecting the improving industry conditions in Canada. Trinidad's Canadian utilization rate - drilling days remained stable at 24% quarter over quarter and at 46% year to date in 2014 compared to 48% for the same period last year. Trinidad's activity levels in the current quarter were impacted by the timing of rig re-certifications and customer specific delays and year to date from weaker demand in oil sands related drilling.

In the US, industry activity increased in the second quarter and first six months of 2014, averaging 1,781 and 1,743 active rigs, respectively, up from 1,686 active rigs for the same periods last year. Trinidad's US and international division  averaged approximately 47 active rigs in the second quarter and first six months of 2014 down slightly from approximately 49 active rigs during the same periods in 2013. Trinidad's lower active rig count was driven by three Mexican rigs that were idled after the second quarter of 2013, due to the completion of their contracts.

During the second quarter and year-to-date 2014, the US dollar was stronger against the Canadian dollar than during the same periods last year. Trinidad has a significant portion of its business that operates in US dollars and the change in foreign exchange rates in the quarter had a noticeable, and largely positive impact on the Company's results. USD/CDN dollar exchange rates averaged 1.0997 in the current quarter compared to 1.0211 in the same quarter last year. On a year to date basis, US dollar exchange rates averaged 1.0940 in 2014 compared to 1.0091 for the same period last year. The stronger US dollar positively impacted EBITDA generated by Trinidad's US and international division but also drove increased depreciation and interest expenses in the quarter and year to date.

INDUSTRY STATISTICS

                                                       
        2014   Full Year   2013   Full Year   2012
        Q2     Q1   2013   Q4     Q3     Q2     Q1   2012   Q4     Q3
Commodity Prices                                                      
Aeco natural gas price (CDN$ per gigajoule)       4.45     5.34   3.01   3.33     2.32     3.36     3.03   2.26   3.03     2.18
Henry Hub natural gas price (US$ per mmBtu)       4.59     5.15   3.72   3.84     3.55     4.01     3.47   2.75   3.40     2.88
Western Canada Select crude oil price                                                      
  (CDN$ per barrel)       91.34     85.81   75.84   69.62     86.31     79.25     67.64   71.70   60.73     76.29
WTI crude oil price (US$ per barrel)       103.06     98.72   98.01   97.56     105.82     94.14     94.30   94.09   88.17     92.15
                                                       
US Activity                                                      
Average industry active land rig count (1)       1,781     1,705   1,685   1,679     1,687     1,686     1,687   1,852   1,741     1,837
Average Trinidad active land rig count (2)       47     48   50   49     51     50     49   57   56     55
                                                       
Canadian Activity                                                      
Average industry utilization (3)       28%     58%   40%   43%     37%     18%     58%   39%   36%     42%
Average Trinidad utilization (4)       24%     68%   48%   48%     50%     24%     73%   52%   51%     58%

(1)      Baker Hughes rig counts (information obtained from Tudor Pickering Holt & Company weekly rig roundup report).
(2)      Includes US and international rigs.
(3)      Canadian Association of Oilwell Drilling Contractors (CAODC) utilization.
(4)      Based on drilling days (spud to rig release dates).

SECOND QUARTER AND YEAR-TO-DATE 2014 HIGHLIGHTS

  • Trinidad generated revenue of $168.9 million in the second quarter and $420.5 million year to date in 2014, up 2.1% and 1.9% from the same periods last year. Revenue was positively impacted in 2014 by increased dayrates in the Company's Canadian operations, as well as a positive foreign currency translation on Trinidad's US division. Revenue was negatively impacted in the current periods by the absence of the Company's coring rigs, which were sold in 2013, lower activity from the Mexican rigs and a weaker contribution from the barge operations. Additionally, Trinidad's manufacturing division had increased revenues due to external new build revenue in 2014.

  • Overall operating income - net percentage was 28.3% in the second quarter and 35.9% year to date in 2014 compared to 35.6% and 40.2% respectively, in 2013. Profitability lowered in the quarter and year to date largely as a result of higher manufacturing activity in the current year. The manufacturing division typically generates lower margins than Trinidad's drilling operations as the external new builds are constructed for Trinidad's joint venture company and joint venture partner at cost plus a small margin. In addition in the second quarter of 2014, increased operating costs and lower dayrates, mainly due to rig re-activations of lower specification rigs, led to lower profitability in the US and international division. This was partially offset by a favorable foreign exchange translation on Trinidad's US and international operations in 2014 as the US dollar exchange rate averaged above the Canadian dollar in the current year.

  • Adjusted EBITDA was $30.6 million in the quarter and $110.1 million year to date in 2014, down 23.3% and 11.8% from the same periods last year. Adjusted EBITDA decreased in the quarter and year to date largely as a result of a decrease in operating income due to the factors discussed above.

  • Net (loss) earnings were a loss of $24.8 million or $0.18 per share (diluted) in the quarter and earnings of $0.9 million or $0.01 per share (diluted) year to date in 2014, down $25.2 million and $32.1 million, respectively from the same periods last year. Net (loss) earnings decreased largely as a result of lower operating income, higher share-based payment expenses, a foreign exchange loss and an impairment of property and equipment recorded in the second quarter. This was offset by lower income taxes in the current period and a gain on the sale of property in both the second quarter and year to date 2014.

  • Adjusted net (loss) earnings decreased by $9.0 million in the quarter compared to the same quarter last year, with adjusted net (loss) earnings per share (diluted) decreasing $0.07 per share. Adjusted net (loss) earnings decreased in the current year due to lower adjusted EBITDA in the current period.

RESULTS FROM OPERATIONS

Canadian Operations

                                                 
            Three months ended June 30,       Six months ended June 30,
($ thousands except percentage and operating data)           2014       2013 (4)     % Change       2014       2013 (4)     % Change
Operating revenue (1)           37,681       37,110     1.5       141,288       152,552     (7.4)
Other revenue           358       13     2,653.8       1,080       57     1,794.7
            38,039       37,123     2.5       142,368       152,609     (6.7)
Operating costs (1)           28,724       28,783     (0.2)       83,024       88,374     (6.1)
Operating income (3)           9,315       8,340     11.7       59,344       64,235     (7.6)
Operating income - net percentage (3)           24.5%       22.5%             41.7%       42.1%      
                                                 
Operating days (3)           1,430       1,434     (0.3)       5,507       5,632     (2.2)
Drilling days (3)           1,318       1,323     (0.4)       5,031       5,187     (3.0)
Rate per operating day (CDN$) (3)           26,338       25,511     3.2       25,655       25,429     0.9
Utilization rate - operating day (3)           26%       26%     -       50%       52%     (3.8)
Utilization rate - drilling day (3)           24%       24%     -       46%       48%     (4.2)
CAODC industry average (2)           28%       18%     55.6       42%       38%     10.5
                                                 
Number of drilling rigs at period end           59       60     (1.7)       59       60     (1.7)
 Number of coring and surface rigs                                                
  at period end            -       15     (100.0)       -       15     (100.0)

(1)      Operating revenue and operating costs for the three months ended June 30, 2014 and 2013 exclude third party recovery and
third party costs of $4.9 million and $4.1 million, respectively. Operating revenue and operating costs for the six months ended
June 30, 2014 and 2013 exclude third party recovery and third party costs of $19.5 million and $17.8 million, respectively.
(2)      CAODC industry average is based on drilling days divided by total days available.
(3)      See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(4)      During the prior year, Trinidad's Canadian operations included the Canadian manufacturing division. Effective January 1, 2014,
Trinidad has re-evaluated operating segments. Management has determined that the Manufacturing operations is considered
a separate operating segment. All prior period segmented information has been reclassified to conform to this new presentation.

Trinidad's Canadian operations performed well in the second quarter of 2014, recording higher levels of operating revenue and operating income when compared to the same quarter of 2013. Higher dayrates were the main driver behind the improved performance, reflecting strengthening industry conditions in the Canadian market.

For the six months ended June 30, 2014, operating revenue and operating income lowered from the same period in the prior year due to the absence of the preset and coring rigs, which were sold in the third quarter of 2013. These rigs generated $9.3 million in operating revenue in the first half of 2013 compared to nil in the current year.

Operating days were in line with the same quarter last year despite wet weather and flooding towards the end of the second quarter that impacted a number of Trinidad's rigs operating in Manitoba. For the six months ended June 30, 2014, operating days lowered slightly year over year mainly driven by weaker customer demand in the oilsands sector in the first quarter of 2014.

Operating income - net percentage increased in the quarter reflecting improved dayrates in the Canadian drilling division. This was slightly offset by an increase in repairs and maintenance costs in 2014 due to re-certifications performed on rigs in the current year. However, the increase in costs in the drilling operations was offset by a reduction of costs due to the absence of the preset and coring rigs in 2014. On a year-to-date basis, operating income - net percentage declined slightly year over year mainly due to weaker customer demand in the oil sands sector in the first quarter of 2014.

As part of the Company's ongoing review of its fleet, Trinidad identified five rigs that it deemed were no longer competitive and were not economical to upgrade. Therefore, these rigs were removed from Trinidad's rig fleet at the end of the second quarter. In addition, during the quarter Trinidad relocated three rigs from its Mexican operations to Canada. These rigs are currently being upgraded with top drives and other upgrades and are expected to begin drilling in the second half of 2014.

As of June 30, 2014, Trinidad's active rig fleet decreased by net one rig when compared to June 30, 2013. The change in the rig count reflects the five rigs removed from the fleet in the current quarter, offset by three rigs added from Mexico in the current quarter and one new build delivered to the Canadian operations in the third quarter of 2013. The Mexico rigs were moved to Canada as the size and specifications of these rigs no longer met requirements in the Mexican market.

Second quarter 2014 versus first quarter 2014

The second quarter is typically affected by spring break-up, as weather conditions and road bans restrict the movement of heavy equipment, resulting in lower activity. This seasonality led to a reduction in operating days and lower revenue and operating income in the second quarter compared to the first quarter of 2014. The impact of lower activity levels was partly offset by an increase of $923 per day in dayrates over the first quarter. Dayrates increased largely as a result of rig mix; in the second quarter, a higher percentage of the active fleet is made up of high specification rigs, resulting in a higher average dayrate.

United States and International Operations

                                                 
            Three months ended June 30,       Six months ended June 30,
($ thousands except percentage and operating data)           2014       2013 (3)     % Change       2014       2013 (3)     % Change
Operating revenue (1)           110,414       118,834     (7.1)       225,195       230,409     (2.3)
Other revenue           67       24     179.2       113       46     145.7
            110,481       118,858     (7.0)       225,308       230,455     (2.2)
Operating costs (1)           75,732       71,086     6.5       146,704       140,100     4.7
Operating income (1)           34,749       47,772     (27.3)       78,604       90,355     (13.0)
Operating income - net percentage (2)           31.5%       40.2%             34.9%       39.2%      
                                                 
 Land Drilling Rigs                                                 
Operating days (2)           4,441       4,578     (3.0)       8,752       9,031     (3.1)
Drilling days (2)           3,851       4,050     (4.9)       7,578       7,873     (3.7)
Rate per operating day (CDN$) (2)           22,890       22,908     (0.1)       23,747       22,665     4.8
Rate per operating day (US$) (2)           20,819       22,436     (7.2)       21,716       22,461     (3.3)
Utilization rate - operating day (2)           80%       73%     9.6       78%       73%     6.8
Utilization rate - drilling day (2)           70%       65%     7.7       68%       64%     6.3
Number of drilling rigs at period end           56       68     (17.6)       56       68     (17.6)
                                                 
 Barge Drilling Rigs                                                 
Operating days (2)           259       445     (41.8)       503       860     (41.5)
 Rate per operating day (CDN$) (2)           37,953       31,731     19.6       37,886       30,460     24.4
 Rate per operating day (US$) (2)           34,599       31,077     11.3       34,680       30,151     15.0
Utilization rate - operating day (2)           57%       98%     (41.8)       56%       95%     (41.1)
 Number of barge drilling rigs at period end            2       2     -       2       2     -
 Number of barge drilling rigs under                                                 
  Bareboat Charter Agreements at period end            3       3     -       3       3     -
                                                 

(1)    Operating revenue and operating costs for the three months ended June 30, 2014 and 2013 exclude third party recovery and third
party costs of $4.0 million and $5.2 million, respectively. Operating revenue and operating costs for the six months ended June 30,
2014 and 2013 exclude third party recovery and third party costs of $9.7 million and $11.3 million, respectively.
(2)     See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(3)     During the prior year, Trinidad's US and international operations included the US manufacturing division. Effective January 1, 2014,
Trinidad has re-evaluated operating segments. Management has determined that the Manufacturing operations is considered a
separate operating segment. All prior period segmented information has been reclassified to conform to this new presentation.

Demand for drilling equipment in the US land drilling market increased in the quarter allowing Trinidad to re-activate a number of existing rigs. While this reflected the improving industry conditions in the US, the Company incurred higher repairs and maintenance costs and moving costs as rigs were mobilized to new locations. In addition, several lower specification rigs were re-activated during the quarter, lowering the average dayrate when compared to the previous periods. As well, this segment was negatively impacted by Trinidad's three Mexico rigs which remained idle during the first six months of 2014, lowering operating days and operating revenue for this segment on a total basis. Effective June 30, 2014, the three Mexico rigs were moved to the Canadian drilling division.

Operating revenue decreased in the second quarter and year to date in 2014 by $8.4 million and $5.2 million, respectively when compared to the same periods last year. Lower activity levels in the barge operations, three idle rigs in Mexico and lower average dayrates all contributed to lower revenue in the current periods. This impact was partly offset by termination revenue received in the first quarter of 2014 and a favorable foreign currency exchange year over year.

Operating days decreased by 137 days quarter over quarter and 279 days on a year-to-date basis in Trinidad's US and international land drilling division. The decrease in operating days was entirely a result of Trinidad's three Mexican rigs being idle for the first six months of 2014. Effective June 30, 2014, these rigs have been moved to Canada. Excluding the impact of these rigs, the US land drilling division recorded an increase in operating days in each of the three and six months ended June 30, 2014, despite having fewer rigs.

For the three and six months ended June 30, 2014, dayrates decreased by US$1,617 per day and US$745 per day, respectively, compared to the same periods of the prior year. Trinidad's US dollar dayrates lowered in 2014, mainly due to a change in the active rig mix as increasing demand for Trinidad's lower specification rigs allowed the company to re-activate this equipment. Additionally, several high dayrate rigs that received termination revenue in late 2013 and early 2014 were not fully utilized, lowering the overall average dayrate. On a year-to-date basis, this was slightly offset by early termination revenues received for two rigs in the first quarter of 2014.

Operating income and operating income - net percentage declined in each of the three and six months ended June 30, 2014. The decline in revenue, discussed above, was further impacted by increased operating expenses in each period. During 2014, Trinidad re-activated a number of rigs in the US land drilling division, which had significant repairs and maintenance costs for the Company. In addition, Trinidad incurred costs related to the re-deployment of its Mexican rigs to Canada in the current period. Trinidad expects that operating income - net percentage will improve over the coming quarters as re-activation costs lower and the impact of rig mix is offset by improving industry conditions and increasing dayrates.

At June 30, 2014 Trinidad's US and international rig count totaled 56 rigs, twelve fewer than at the same time last year. The rig count lowered in the second quarter as a result of three Mexican rigs moved to the Company's Canadian drilling operations and two rigs that were no longer considered competitive removed from the marketed fleet at June 30, 2014. In addition, the rig count lowered year over year as three rigs were sold to the joint venture in the first quarter of 2014, and four lower specification rigs were decommissioned at the end of 2013.

Trinidad's barge drilling rigs continued to generate strong dayrates in the current year, showing an increase of US$3,522 per day and US$4,529, respectively, in each of the three and six months ended June 30, 2014. However, a decline in operating days in the current periods caused overall revenue generation and profitability to decline. Drilling projects that were expected to take place in the first half of 2014 were pushed back to later periods due to customer and permit delays, causing downtime on these rigs in 2014. Utilization began to pick up towards the end of the second quarter, and Trinidad anticipates that activity levels will improve in the coming periods.

Second quarter 2014 versus first quarter 2014

Revenue and operating income decreased by $4.3 million and $9.1 million, respectively, in the second quarter of 2014 when compared to the first quarter of 2014. Strengthening industry conditions in the current quarter led to an increase in operating days; however, this was offset by lower dayrates.  Lower early termination revenues and a change in the active rig mix in the current quarter were the main factors causing lower dayrates quarter over quarter. In addition, higher operating costs as a result of the re-activation and moving of rigs in the current quarter led to higher operating expenses and lower operating income - net percentage.

Joint Venture Operations

Amounts are presented at 100% of the value included in the statement of operations and comprehensive income for Trinidad Drilling International (TDI); Trinidad owns 60% of the shares of TDI:

                                                     
            Three months ended June 30,       Six months ended June 30,
($ thousands except percentage and operating data)           2014         2013     % Change       2014         2013     % Change
Operating revenue            10,137         -     -       13,453         -     -
Other revenue           -         -     -       -         -     -
            10,137         -     -       13,453         -     -
Operating costs            5,248         -     -       7,322         -     -
Operating income (1)           4,889         -     -       6,131         -     -
Operating income - net percentage (1)           48.2%         -             45.6%         -      
                                                     
Number of drilling rigs at period end           4         -     -       4         -     -
Number of active drilling rigs at period end           2         -     -       2         -     -

(1)     See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.

During 2013, Trinidad signed a joint venture agreement with Halliburton with a right of first look at all drilling projects outside of Canada and the United States. The joint venture currently has operations in Saudi Arabia, with plans to expand to Mexico by the end of 2014. Additionally, the joint venture continues to look into future growth opportunities in other international markets. The joint venture conducts business under the name Trinidad Drilling International (TDI) through separately incorporated entities.

Trinidad owns 60% of the shares of TDI, and each of Trinidad and Halliburton have equal voting rights with respect to the operations of the company. TDI is accounted for using the equity method of accounting, whereby Trinidad takes 60% of the net income recorded as loss (income) from investment in joint venture.

During the six months ended June 30, 2014, TDI took ownership of three upgraded rigs purchased from Trinidad's US land drilling division and one new build rig purchased from Trinidad's manufacturing division. Two of these rigs were drilling by the end of the period, with the remaining two rigs expected to begin working in the second half of 2014.

For the three months ended June 30, 2014, TDI recorded operating income and operating income - net percentage of $4.9 million and 48.2%, respectively. Additionally, for the first six months of 2014, TDI recorded operating income and operating income - net percentage of $6.1 million and 45.6%, respectively. In the second quarter of 2014, TDI began drilling operations with two rigs recording operating days in the quarter and also collected standby revenue.

Rig Purchase Commitments

During 2013, TDI agreed to purchase four rigs from Trinidad for operations in Saudi Arabia, three upgraded rigs from Trinidad's US drilling division and one new build rig constructed by Trinidad's manufacturing division. As of June 30, 2014, TDI has taken ownership of all three upgraded rigs and the new build rig.

Additionally, early in 2014, TDI agreed to purchase four rigs from Trinidad's manufacturing division for operations in Mexico. Each of these rigs will be high performance, 3,600 horsepower, AC, walking rigs, operating under three-year, take-or-pay contracts with an optional one year extension. These rigs are expected to be delivered towards the end of 2014 and early 2015.

Manufacturing Operations

                                             
            Three months ended June 30,       Six months ended June 30,
($ thousands except percentage and operating data)           2014     2013     % Change       2014     2013     % Change
Operating revenue (1)           11,119     190     5,752.1       22,973     484     4,646.5
Other revenue           5     -     -       13     -     -
            11,124     190     5,754.7       22,986     484     4,649.2
Operating costs (1)           9,952     651     1,428.7       20,788     1,064     1,853.8
Operating income (2)           1,172     (461)     354.2       2,198     (580)     479.0
Operating income - net percentage (2)           10.5%     (242.6%)             9.6%     (119.8%)      
                                             

(1)     For the three months ended June 30, 2014, included in operating revenue and operating costs are downstream elimination
entries of $9.1 million and $8.3 million, respectively (2013, nil and nil, respectively). For the six months ended June 30, 2014,
included in operating revenue and operating costs are downstream elimination entries of $16.8 million and $15.2 million,
respectively (2013, nil and nil, respectively). These entries remove Trinidad's percentage of profits related to manufacturing
of rigs for the joint venture.
(2)     See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details

Effective January 1, 2014, Trinidad reviewed all existing operating segments in order to better present the Company's operations based on geographic location, services provided and any material changes to operations. In the prior year, Trinidad's manufacturing operations mainly performed work internally; therefore, the prior year operating income includes a loss based on costs incurred by the manufacturing division mainly related to raw materials consumed during construction of rigs for internal use. Towards the end of 2013 and early 2014, Trinidad's manufacturing division signed contracts to build rigs for external parties, including the Company's joint venture partner and the joint venture company.

As the manufacturing operations begins to record operating revenues and costs, management believes that presenting this division as a separate operating segment from the Company's drilling operations is more useful to users of the financial statements, as it will provide a more accurate representation of the margins recorded on Trinidad's drilling operations. Prior period segmented information has been reclassified to conform to the current period's presentation.

The purpose of the manufacturing operations is to support rig builds, rig maintenance and re-certifications for all of Trinidad's divisions, including all associates and joint ventures. Therefore, management does not commit to building a rig with the intention to earn significant profits from this business. All contracts are based on a cost plus formula which is calculated in order for Trinidad to break even on rig builds when all costs, including general and administrative expenses, are factored in. Contracts are negotiated depending on the Company's varying involvement, which can range from full scale design and manufacturing to project management with a large degree of outsourcing.

Towards the end of 2013 and into 2014, Trinidad signed five new build contracts; one rig for the joint venture to operate in Saudi Arabia and four rigs for the joint venture to operate in Mexico. Additionally, Trinidad has agreed to build a training rig for its joint venture partner. For the period ended June 30, 2014, Trinidad recognized revenues and expenses related to the Saudi rig build and the training rig, compared to no external new build revenues or expenses recognized in 2013.

Additionally, as of June 30, 2014, Trinidad is still early in the construction phase of the four Mexico rigs. Long-lead items have been ordered and some inventory has arrived, but assembly has not occurred as yet. Therefore, there is no related revenue or expenses included in Trinidad's operating income related to the construction of these rigs.

During the second quarter of 2014, Trinidad's manufacturing operations delivered the new Saudi rig to the joint venture. The training rig is expected to be delivered towards the end of 2014 and delivery of the four Mexico rigs are expected towards the end of 2014 and early 2015.

FINANCIAL HIGHLIGHTS - QUARTERLY ANALYSIS

                                                     
          2014     2013     2012
($ millions except per share data and operating data)          Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3
Revenue         168.9     251.5     224.6     208.7     165.4     247.2     209.6     215.1
Operating income (1)         45.6     95.2     99.6     76.2     55.7     98.4     77.8     80.6
Operating income percentage (1)         27.0%     37.8%     44.4%     36.5%     33.6%     39.8%     37.1%     37.5%
Operating income - net percentage (1)         28.3%     41.1%     47.0%     38.5%     35.6%     43.3%     39.7%     40.0%
Net (loss) earnings         (24.8)     25.8     28.8     9.2     0.3     32.7     (12.4)     20.0
Adjustments for:                                                    
 Depreciation and amortization          27.4     30.2     29.5     30.1     27.6     29.9     29.2     30.4
 Foreign exchange          1.6     3.1     0.9     0.4     -     -     (1.4)     0.8
 (Gain) loss on sale of property and equipment          (1.3)     (10.5)     0.1     (0.1)     1.3     -     (11.5)     -
 Impairment of property and equipment          20.6     -     -     -     0.1     -     70.1     1.3
 (Income) loss from investment in Joint Venture          (0.4)     0.1     0.8     -     -     -     -     -
 Finance costs          10.0     10.0     12.0     10.4     10.0     10.0     10.1     10.3
 Income taxes          (7.2)     15.3     11.1     5.9     (1.6)     9.4     (22.2)     2.7
 Interest Income          (0.1)     (0.2)     (0.1)     -     -     -     -     -
 Other          5.3     5.6     1.5     5.9     2.2     2.8     1.4     2.9
 Income taxes paid          (0.7)     (0.4)     (1.8)     -     (0.8)     (1.3)     (2.0)     (1.1)
 Income taxes recovered          0.2     0.3     1.5     0.4     0.7     -     0.7     3.9
 Interest paid          (0.5)     (18.6)     (1.1)     (18.4)     (0.7)     (18.6)     (1.1)     (19.5)
 Interest received          0.1     0.2     0.1     -     -     -     -     -
Funds provided by operations (1)         30.2     60.9     83.3     43.8     39.1     64.9     60.9     51.7
Net (loss) earnings per share (diluted)         (0.18)     0.19     0.23     0.08     0.00     0.27     (0.10)     0.17
Funds provided by operations per share (diluted)         0.22     0.44     0.67     0.36     0.32     0.54     0.50     0.43

(1)      See the Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.

NON-GAAP MEASURES HIGHLIGHTS - QUARTERLY ANALYSIS

                                                     
          2014     2013     2012 
($ thousands except per share data and operating data)          Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3
EBITDA (1)         5,445     81,255     81,246     55,635     36,326     82,014     4,825     63,398
   Per share (diluted) (2)         0.04     0.58     0.65     0.46     0.30     0.68     0.04     0.52
Adjusted EBITDA (1)         30,644     79,441     83,830     61,838     39,941     84,836     63,332     68,387
   Per share (diluted) (2)         0.22     0.57     0.68     0.51     0.33     0.70     0.52     0.57
Adjusted net (loss) earnings (1)         (5,557)     27,746     31,266     15,406     3,460     35,573     23,112     24,626
   Per share (diluted) (2)         (0.04)     0.20     0.25     0.13     0.03     0.29     0.19     0.20

(1)     See the Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.
(2)     Diluted shares include the weighted average number of shares outstanding over the period and the dilutive impact, if any, of the number
of shares issuable pursuant to the Incentive Option Plan.

OPERATING HIGHLIGHTS - QUARTERLY ANALYSIS

                                                   
        2014     2013     2012
           Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3
Land Drilling Market                                                   
Operating days (1)                                                  
  Canada        1,430     4,077     2,935     3,018     1,434     4,198     2,915     3,233
  United States and International       4,441     4,311     4,470     4,733     4,578     4,453     4,789     5,038
Rate per operating day (1)                                                  
  Canada (CDN$)       26,338     25,415     25,102     23,686     25,511     25,401     26,190     23,501
  United States and International (CDN$)       22,890     24,630     27,243     23,297     22,908     22,416     22,305     22,518
  United States and International (US$)       20,819     22,641     26,213     22,460     22,436     22,487     22,589     22,263
Utilization rate - operating day (1)                                                  
  Canada        26%     74%     52%     54%     26%     79%     56%     62%
  United States and International       80%     76%     71%     76%     73%     72%     77%     81%
Number of drilling rigs at period end (3)                                                  
  Canada        59     61     61     61     60     60     59     57
  United States and International       56     61     64     68     68     68     68     68
  Coring and surface casing rigs       -     -     -     -     15     15     15     20
Joint Venture Operations (2)                                                    
  Number of drilling rigs at period end       4     3     -     -     -     -     -     -
Barge Drilling Market                                                   
  Operating days (1)       259     244     394     449     445     415     386     376
  Rate per operating day (CDN$) (1)       37,953     37,815     34,810     33,962     31,731     29,097     29,954     30,008
  Rate per operating day (US$) (1)       34,599     34,767     33,490     32,740     31,077     29,158     30,330     29,583
  Utilization rate - operating day (1)       57%     54%     86%     97%     98%     92%     84%     82%
  Number of barge drilling rigs at period end        2     2     2     2     2     2     2     2
  Number of barge drilling rigs under                                                   
   Bareboat Charter at period end        3     3     3     3     3     3     3     3
                                                   

(1)     See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details
(2)     Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. During the first quarter of 2014, 3 rigs were
sold to the joint venture by Trinidad's US and international operations. During the second quarter of 2014, 1 rig was sold to
the joint venture by Trinidad's manufacturing division. Effective June 30, 2014, these rigs are owned by the joint venture.
(3)     Refer to the Results from Operations section for details on changes to the rig count.

FINANCIAL SUMMARY

Trinidad's total long-term debt balance increased by $2.5 million during the current year when compared to December 31, 2013. This slight increase was due to the increase in the Senior Notes at June 30, 2014, and is entirely a result of the increase in the US to Canadian dollar exchange rate in 2014 versus the prior year as these notes are held in US funds. The Senior Notes are translated at each period end, as such their value will fluctuate with variations in exchange rates. The Senior Notes are due January 2019 and interest is payable semi-annually in arrears on January 15 and July 15.

As at June 30, 2014 and December 31, 2013, Trinidad's revolving debt facilities were completely paid off, leaving $200.0 million and US$100.0 million unutilized in these facilities, respectively. The Company continues to consider future capital commitments, and as such, the unutilized facilities are expected to be used in the future course of business. The Canadian and US revolving facilities require quarterly interest payments that are based on Bankers Acceptance and LIBOR rates and incorporate a tiered interest rate, which varies depending on the results of the Consolidated Total Debt to EBITDA ratio. The facility matures on December 16, 2017, and is subject to annual extensions of an additional year on each anniversary.

Capital expenditures

                               
For the six months ended June 30,                     2014       2013
New Builds                     55,988       16,890
Capital Upgrades & Enhancements                     24,397       8,569
Maintenance & Infrastructure                     22,408       7,369
Total                     102,793       32,828

During the six months ended June 30, 2014, a total of $102.8 million was spent on capital expenditures, compared to $32.8 million at June 30, 2013. These capital expenditures were substantially related to work on upgrading existing equipment including moving systems, top drives and mud systems, to ensure the Company's rigs remain competitive in the current market. Additionally, these costs would include work performed to upgrade the three US land drilling rigs that were sold to Trinidad's joint venture for operations in Saudi Arabia. Lastly, costs were incurred as progress was made on the Company's internal rig build to be delivered to the Canadian operations.

In 2014, Trinidad expects to spend a total of approximately $315.0 million on capital projects. This total includes Trinidad's internal capital projects, Trinidad's portion of the joint venture capital projects, and takes into account proceeds received for existing rigs sold into the joint venture. Trinidad's capital budget is further broken down as follows:


  • Completion of one new rig to be delivered to Trinidad's Canadian operations for LNG-related drilling;
  • Completion of  one new rig and the upgrading of three existing rigs to be delivered to Saudi Arabia for the joint venture arrangement;
  • Construction of four new rigs to be delivered to Mexico for the joint venture arrangement in late 2014 or early 2015;
  • Upgrades to improve the efficiency and marketability of more than 30 existing rigs; and
  • Maintenance and infrastructure capital.


Excluding proceeds received from the sale of rigs into the joint venture, in the second quarter and year-to-date 2014, Trinidad spent $79.9 million and $118.0 million, respectively, on internal capital projects and its portion of the joint venture projects. Costs related to the joint venture rig build projects are accounted for as operating expenses in Trinidad's manufacturing operations.

As of June 30, 2014, the three upgraded rigs and the new build rig were delivered to the joint venture for operations in Saudi Arabia. Two of the upgraded rigs began operations in the current quarter, with the remaining upgraded rig and new build rig expected to begin in the second half of 2014.

OUTLOOK

Conditions in the North American drilling industry have been steadily improving throughout 2014. Stable commodity prices have led to strong demand with activity continuing to be largely focused on oil or liquids-rich targets. Increasing demand for high performance equipment, such as Trinidad's, is driving higher activity levels and improved dayrates for this style of rig.

Industry activity levels have increased over the previous year in both the Canadian and US markets and Trinidad anticipates that these conditions will continue through the remainder of 2014 and into 2015. The number of rigs under long-term, take-or-pay contracts has increased to represent approximately 45.0% of the Company's fleet with an average term remaining of approximately 1.6 years.

Operations in the Company's international joint venture are progressing as expected, with all eight rigs expected to be operational in late 2014 or early 2015. Halliburton continues to present opportunities to the joint venture as they arise and Trinidad anticipates growing its international presence in the coming quarters.

Trinidad's capital program for 2014 remains at $315.0 million, including the Company's portion of capital for the joint venture. Increasing demand for high performance equipment, particularly in the US and international markets, is driving a growing number of requests for additional equipment from Trinidad's customers. The Company is reviewing these growth opportunities, carefully evaluating contract terms, capital returns, cash flow requirements and areas of strategic growth before selecting those, if any, to pursue.

The Company expects that re-activation costs are largely complete in the US division. Although Trinidad will continue to review its active rig fleet and upgrade rigs to remain competitive, strong industry conditions across its operations should continue throughout 2014, and Trinidad expects to perform well for the remainder of the year.

CONFERENCE CALL

A conference call and webcast to discuss the results will be held for the investment community on Thursday August 7th, 2014 beginning at 9:00 a.m. MT (11:00 a.m. ET).  To participate, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12:30 p.m. MT on August 7th, 2014 until 10:00 p.m. MT August 14th, 2014 by dialing (855) 859-2056 or (416) 849-0833 and entering replay access code 70477681.

A live audio webcast of the conference call will also be available via the Investor Relations page of Trinidad's website.

TRINIDAD DRILLING LTD.

Trinidad is a corporation focused on sustainable growth that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions operate in the drilling and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada and the United States. In addition, through a joint venture agreement signed in the previous year, Trinidad began operating drilling rigs in Saudi Arabia, expects to begin operations in Mexico by the end of 2014, and is currently looking into operations in other international markets. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad's drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry.

                   
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                  
                   
As at            June 30,     December 31,
($ thousands) - unaudited           2014      2013
                   
Assets                  
Current Assets                  
Cash and cash equivalents           263,952     268,160
Accounts receivable            144,558     166,557
Inventory           37,251     8,474
Prepaid expenses           30,893     5,557
Assets held for sale           5,870     3,685
            482,524     452,433
                   
Property and equipment           1,196,860     1,275,465
Intangible assets and goodwill           91,887     91,729
Investment in joint venture           105,132     7,869
            1,876,403     1,827,496
                   
Liabilities                  
Current Liabilities                  
Accounts payable and accrued liabilities            121,424     110,455
Dividends payable           6,910     6,906
Deferred revenue and customer deposits           74,254     31,952
            202,588     149,313
                   
Long-term debt           471,123     468,670
Deferred income taxes           99,326     95,425
            773,037     713,408
                   
Shareholders' Equity                  
Common shares           1,118,004     1,117,197
Contributed surplus           50,693     50,607
Accumulated other comprehensive income           5,660     4,404
Deficit           (70,991)     (58,120)
            1,103,366     1,114,088
            1,876,403     1,827,496
                   
                   

                                     
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
            Three months ended       Six months ended 
            June 30,       June 30, 
($ thousands) - unaudited            2014        2013         2014        2013 
                                     
Revenue                                    
Oilfield service revenue           168,146       165,410       418,593       412,530
Other revenue           799       37       1,857       103
            168,945       165,447       420,450       412,633
                                     
Expenses                                     
Operating expense           123,340       109,796       279,653       258,623
General and administrative           19,584       17,884       40,775       34,198
Depreciation and amortization           27,430       27,602       57,685       57,461
Foreign exchange            1,635       (21)       4,789       (26)
(Gain) loss on sale of property and equipment           (1,270)       1,331       (11,809)       1,367
Impairment of property and equipment           20,630       131       20,630       131
            191,349       156,723       391,723       351,754
                                     
Income from investment in joint venture           (419)       -       (288)       -
Finance costs           10,049       9,989       20,008       19,959
Earnings before income taxes           (32,034)       (1,265)       9,007       40,920
                                     
Income taxes                                     
Current           3,605       192       3,895       1,263
Deferred            (10,824)       (1,804)       4,165       6,562
            (7,219)       (1,612)       8,060       7,825
Net (loss) earnings           (24,815)       347       947       33,095
                                     
Other comprehensive income                                     
Foreign currency translation adjustment,                                    
  net of income tax           (23,587)       10,022       1,256       16,705
            (23,587)       10,022       1,256       16,705
Total comprehensive (loss) income           (48,402)       10,369       2,203       49,800
Earnings per share                                    
Net (loss) earnings                                    
  Basic / Diluted           (0.18)       0.00       0.01       0.27
                                     

                               
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For six months ended June 30, 2014 and 2013                              
                  Accumulated            
                  other            
       Common     Contributed     comprehensive           Total
($ thousands) - unaudited      shares     surplus     income (1)     (Deficit)     equity
 Balance at December 31, 2013      1,117,197     50,607     4,404     (58,120)     1,114,088
 Exercise of stock options      807     (215)     -     -     592
 Share-based payment expense      -     301     -     -     301
 Total comprehensive income     -     -     1,256     947     2,203
 Dividends      -     -     -     (13,818)     (13,818)
 Balance at June 30, 2014      1,118,004     50,693     5,660     (70,991)     1,103,366
                               
 Balance at December 31, 2012      952,043     50,245     (34,403)     (104,036)     863,849
 Share-based payment expense      -     259     -     -     259
 Total comprehensive income     -     -     16,705     33,095     49,800
 Dividends      -     -     -     (12,086)     (12,086)
 Balance at June 30, 2013      952,043     50,504     (17,698)     (83,027)     901,822

(1) Accumulated other comprehensive income (loss) consisted of the foreign currency translation adjustment.
  All amounts will be reclassified to profit or loss when specific conditions are met.

                           
CONSOLIDATED STATEMENTS OF CASH FLOWS                          
                             
For six months ended June 30,                          
($ thousands) - unaudited                 2014        2013
                             
Cash provided by (used in)                          
Operating activities                          
Net earnings                 947       33,095
Adjustments for:                          
  Depreciation and amortization                 57,685       57,461
  Foreign exchange                 4,789       (26)
  (Gain) loss on sale of property and equipment                 (11,809)       1,367
  Impairment of property and equipment                 20,630       131
  Income from investment in joint venture                 (288)       -
  Finance costs                 20,008       19,959
  Income taxes                 8,060       7,825
  Interest income                 (326)       (19)
  Other (1)                 10,854       4,965
  Income taxes paid                 (1,105)       (2,121)
  Income taxes recovered                 490       663
  Interest paid                 (19,119)       (19,252)
  Interest received                 326       19
Funds provided by operations                 91,142       104,067
Change in non-cash operating working capital                 (623)       26,280
Cash provided by operations                 90,519       130,347
                             
Investing activities                          
Purchase of property and equipment                 (102,793)       (32,828)
Proceeds from disposition of property and equipment                 128,782       863
Investment in joint venture                 (119,691)       -
Change in non-cash working capital                 13,473       5,432
Cash used by investing                 (80,229)       (26,533)
                             
Financing activities                          
Proceeds from long-term debt                 -       26,257
Repayments of long-term debt                 -       (96,870)
Proceeds from exercise of options                 592       -
Dividends paid                 (13,814)       (12,086)
Cash used by financing                 (13,222)       (82,699)
                             
Cash flow from operating, investing and financing activities                 (2,932)       21,115
Effect of translation of foreign currency cash                 (1,276)       1,109
(Decrease) increase in cash for the period                 (4,208)       22,224
                             
Cash and cash equivalents - beginning of period                 268,160       4,933
Cash and cash equivalents - end of period                 263,952       27,157

(1) Other includes share-based payment expense and the elimination of downstream
transactions included in net earnings in the Manufacturing Operations.

SEGMENTED INFORMATION

The following presents the result of Trinidad's operating segments:

For three months ended              United States /                              
June 30, 2014       Canadian     International     Manufacturing     Joint Venture     Inter-segment            
($ thousands)       Operations     Operations     Operations     Operations (1)     Eliminations     Corporate     Total
                                             
Operating revenue       37,681     110,414     20,248     -     -     -     168,343
Other revenue       358     67     5     -     -     -     430
Third party recovery       4,930     4,002     -     -     -     -     8,932
General and administrative - third party recovery       -     -     -     -     -     369     369
Inter-segment revenue       -     -     11,759     -     (11,759)     -     -
Elimination of downstream transactions       -     -     (9,129)     -     -     -     (9,129)
        42,969     114,483     22,883     -     (11,759)     369     168,945
Operating costs       28,724     75,732     18,252     -     -     -     122,708
Third party costs       4,930     4,002     -     -     -     -     8,932
Inter-segment operating       -     -     11,759     -     (11,759)     -     -
Elimination of downstream transactions       -     -     (8,300)     -     -     -     (8,300)
Operating income       9,315     34,749     1,172     -     -     369     45,605
Depreciation and amortization       8,101     18,947     382     -     -     -     27,430
Loss (gain) on sale of assets       55     (4,073)     -     -     -     -     (4,018)
Elimination of downstream transactions       -     2,748     -     -     -     -     2,748
Impairment of capital assets       13,367     7,263     -     -     -     -     20,630
        21,523     24,885     382     -     -     -     46,790
Segmented income (loss)       (12,208)     9,864     790     -     -     369     (1,185)
Income from investment in joint venture       -     -     -     (419)     -     -     (419)
General and administrative       -     -     -     -     -     19,215     19,215
General and administrative - third party costs       -     -     -     -     -     369     369
Foreign exchange       -     -     -     -     -     1,635     1,635
Finance costs       -     -     -     -     -     10,049     10,049
Income taxes       -     -     -     -     -     (7,219)     (7,219)
Net earnings (loss)       (12,208)     9,864     790     419     -     (23,680)     (24,815)
Purchase of property and equipment       19,992     51,496     100     -     -     -     71,588
                                             

For three months ended              United States /                              
June 30, 2013       Canadian     International     Manufacturing     Joint Venture     Inter-segment            
($ thousands)       Operations     Operations     Operations     Operations (1)     Eliminations     Corporate     Total
                                             
 Operating revenue        37,110     118,834     190     -     -     -     156,134
 Other revenue        13     24     -     -     -     -     37
 Third party recovery        4,087     5,189     -     -     -     -     9,276
 General and administrative - third party recovery        -     -     -     -     -     -     -
 Inter-segment revenue        -     -     9,012     -     (9,012)     -     -
 Elimination of downstream transactions        -     -     -     -     -     -     -
        41,210     124,047     9,202     -     (9,012)     -     165,447
 Operating costs       28,783     71,086     651     -     -     -     100,520
 Third party costs        4,087     5,189     -     -     -     -     9,276
 Inter-segment operating        -     -     (9,012)     -     9,012     -     -
 Elimination of downstream transactions        -     -     -     -     -     -     -
 Operating income        8,340     47,772     (461)     -     -     -     55,651
 Depreciation and amortization        7,710     19,405     487     -     -     -     27,602
 Loss (gain) on sale of assets        94     1,241     (4)     -     -     -     1,331
 Elimination of downstream transactions        -     -     -     -     -     -     -
 Impairment of capital assets        131     -     -     -     -     -     131
        7,935     20,646     483     -     -     -     29,064
 Segmented income (loss)        405     27,126     (944)     -     -     -     26,587
Income from investment in joint venture       -     -     -     -     -     -     -
 General and administrative        -     -     -     -     -     17,884     17,884
 General and administrative - third party costs        -     -     -     -     -     -     -
 Foreign exchange        -     -     -     -     -     (21)     (21)
 Finance costs        -     -     -     -     -     9,989     9,989
 Income taxes        -     -     -     -     -     (1,612)     (1,612)
 Net earnings (loss)        405     27,126     (944)     -     -     (26,240)     347
 Purchase of property and equipment        10,209     5,152     130     -     -     -     15,491
(1) The joint venture is recorded using the equity method of accounting. The Company's share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position, and revenues and expenses are recognized with net earnings as income from investment in joint venture on the consolidated statements of operations and comprehensive income. The joint venture was effective September 3, 2013.

                                             
                                             
For six months ended             United States /                              
June 30, 2014       Canadian     International     Manufacturing     Joint Venture     Inter-segment            
($ thousands)       Operations     Operations     Operations     Operations (1)     Eliminations     Corporate     Total
                                             
Operating revenue       141,288     225,195     39,726     -     -     -     406,209
Other revenue       1,080     113     13     -     -     -     1,206
Third party recovery       19,452     9,685     -     -     -     -     29,137
General and administrative - third party recovery       -     -     -     -     -     651     651
Inter-segment revenue       -     -     21,672     -     (21,672)     -     -
Elimination of downstream transactions       -     -     (16,753)     -     -     -     (16,753)
        161,820     234,993     44,658     -     (21,672)     651     420,450
Operating costs       83,024     146,704     36,018     -     -     -     265,746
Third party costs       19,452     9,685     -     -     -     -     29,137
Inter-segment operating       -     -     21,672     -     (21,672)     -     -
Elimination of downstream transactions       -     -     (15,230)     -     -     -     (15,230)
Operating income       59,344     78,604     2,198     -     -     651     140,797
Depreciation and amortization       19,961     36,927     797     -     -     -     57,685
Gain on sale of assets       (206)     (29,729)     -     -     -     -     (29,935)
Elimination of downstream transactions       -     18,126     -     -     -     -     18,126
Impairment of capital assets       13,367     7,263     -     -     -     -     20,630
        33,122     32,587     797     -     -     -     66,506
Segmented income (loss)       26,222     46,017     1,401     -     -     651     74,291
Income from investment in joint venture       -     -     -     (288)     -     -     (288)
General and administrative       -     -     -     -     -     40,124     40,124
General and administrative - third party costs       -     -     -     -     -     651     651
Foreign exchange       -     -     -     -     -     4,789     4,789
Finance costs       -     -     -     -     -     20,008     20,008
Income taxes       -     -     -     -     -     8,060     8,060
Net earnings (loss)       26,222     46,017     1,401     288     -     (72,981)     947
                                             
Purchase of property and equipment       33,029     69,601     163     -     -     -     102,793

                                             
For six months ended             United States /                              
June 30, 2013       Canadian     International     Manufacturing     Joint Venture     Inter-segment            
($ thousands)       Operations     Operations     Operations     Operations (1)     Eliminations     Corporate     Total
                                             
Operating revenue       152,552     230,409     484     -     -     -     383,445
Other revenue       57     46     -     -     -     -     103
Third party recovery       17,788     11,297     -     -     -     -     29,085
General and administrative - third party recovery       -     -     -     -     -     -     -
Inter-segment revenue       -     -     21,170     -     (21,170)     -     -
Elimination of downstream transactions       -     -     -     -     -     -     -
        170,397     241,752     21,654     -     (21,170)     -     412,633
Operating costs       88,374     140,100     1,064     -     -     -     229,538
Third party costs       17,788     11,297     -     -     -     -     29,085
Inter-segment operating       -     -     21,170     -     (21,170)     -     -
Elimination of downstream transactions       -     -     -     -     -     -     -
Operating income       64,235     90,355     (580)     -     -     -     154,010
Depreciation and amortization       19,143     37,320     998     -     -     -     57,461
Loss (gain) on sale of assets       235     1,136     (4)     -     -     -     1,367
Elimination of downstream transactions       -     -     -     -     -     -     -
Impairment of capital assets       131     -     -     -     -     -     131
        19,509     38,456     994     -     -     -     58,959
Segmented income (loss)       44,726     51,899     (1,574)     -     -     -     95,051
Income from investment in joint venture      -     -     -     -     -     -     -
General and administrative       -     -     -     -     -     34,198     34,198
General and administrative - third party costs       -     -     -     -     -     -     -
Foreign exchange       -     -     -     -     -     (26)     (26)
Finance costs       -     -     -     -     -     19,959     19,959
Income taxes       -     -     -     -     -     7,825     7,825
Net earnings (loss)       44,726     51,899     (1,574)     -     -     (61,956)     33,095
                                             
Purchase of property and equipment       27,119     5,515     194     -     -     -     32,828
(1) The joint venture is recorded using the equity method of accounting. The Company's share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position, and revenues and expenses are recognized with net earnings as income from investment in joint venture on the consolidated statements of operations and comprehensive income. The joint venture was effective September 3, 2013.

ADVISORY

NON-GAAP MEASURES DEFINITIONS

This document contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.  These financial measures are computed on a consistent basis for each reporting period and include EBITDA, EBITDA from investment in joint venture, Adjusted EBITDA, Adjusted net (loss) earnings, working capital, Senior Debt to Bank EBITDA, Total Debt to Bank EBITDA, Bank EBITDA to Cash Interest Expense, drilling days, operating days, utilization rate - drilling day, utilization rate - operating day, and rate per operating day or dayrate.  These non-GAAP measures are identified and defined as follows:

"EBITDA" is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are depreciated and amortized or how the results are taxed in various jurisdictions.

"EBITDA from investment in joint venture" provides an indication of the results generated by the Company's joint venture operations prior to how these activities are financed, assets are depreciated and amortized or how the results are taxed in various jurisdictions.

"Adjusted EBITDA" is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange, share-based payment expense, impairment expense and the sale of assets. Adjusted EBITDA also takes into account the Company's portion of the principal activities of the joint venture arrangement by removing the loss (gain) from investment in joint venture and including Adjusted EBITDA from investment in joint venture. Adjusted EBITDA is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, the impact of foreign exchange, how the results are taxed in various jurisdictions and effects of share-based payment expense.

Adjusted EBITDA is calculated as follows:

                       
             Three months ended      Six months ended
            June 30,     June 30,
($ thousands)         2014 2013     2014 2013
 EBITDA          5,445 36,326     86,700 118,340
 Plus:                     
   (Gain) loss on sale of property and equipment          (1,270) 1,331     (11,809) 1,367
   Impairment of property and equipment          20,630 131     20,630 131
   Share-based payment expense          3,756 2,174     9,331 4,965
   Foreign exchange          1,635 (21)     4,789 (26)
   (Income) from investment in joint venture          (419) -     (288) -
 Plus:                     
   Adjusted EBITDA from investment in joint venture          867 -     733 -
 Adjusted EBITDA          30,644 39,941     110,086 124,777

 

"Adjusted EBITDA from investment in joint venture" is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange, share-based payment expense, impairment expense and the sale of assets. Adjusted EBITDA from investment in joint venture is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted EBITDA from investment in joint venture provides an indication of the results generated by TDI's principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, the impact of foreign exchange, how the results are taxed in various jurisdictions and effects of share-based payment expense.

Adjusted EBITDA from investment in joint venture is calculated as follows:

                       
             Three months ended       Six months ended 
            June 30,     June 30,
($ thousands)         2014 2013     2014 2013
 EBITDA from investment in joint venture          867 -     737 -
 Plus:                     
   Foreign exchange          - -     (4) -
 Adjusted EBITDA from investment in joint venture          867 -     733 -

 

"Adjusted net (loss) earnings" is used by management and the investment community to analyze net (loss) earnings prior to the effect of foreign exchange, share-based payment expense, any gains or losses on the sale of assets in the period and impairment charges, including taking into account the tax effects of these items. This measure is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted net (loss) earnings is a useful measure because it provides an indication of results of the Company's principal business activities before consideration of fluctuations in foreign exchange gains and losses, impairment and share-based payment expense, which are not consistently incurred period over period.

"Working capital" is used by management and the investment community to analyze the operating liquidity available to the Company.

"Senior Debt to Bank EBITDA" is defined as the consolidated balance of the revolving facility and other debt secured by a lien at quarter end to consolidated Bank EBITDA for the trailing 12 months (TTM).  Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Total Debt to Bank EBITDA" is defined as the consolidated balance of long-term debt, which includes the Senior Debt, Senior Notes Payable and dividends payable at quarter end, to consolidated Bank EBITDA for the TTM.  Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Bank EBITDA to Cash Interest Expense" is defined as the consolidated Bank EBITDA for TTM to the cash interest expense on all debt balances for TTM.  Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Drilling days" is defined as rig days between spud to rig release.

"Operating days" is defined as moving days (move in, rig up and tear out) plus drilling days (spud to rig release).

"Utilization rate - drilling day" is defined as drilling days divided by total available rig days.

"Utilization rate - operating day" is defined as operating days divided by total available rig days.

"Rate per operating day" or "Dayrate" is defined as operating revenue (net of third party costs) divided by operating days (drilling days plus moving days).

ADDITIONAL GAAP MEASURES DEFINITIONS

The Company uses certain additional GAAP financial measures within the financial statements and document that are not defined terms under IFRS to assess performance. Management believes that these measures provide useful supplemental information to investors. These financial measures are computed on a consistent basis for each reporting period and include Funds provided by operations, Operating income, Operating income percentage and Operating income - net percentage. These additional GAAP measures are identified and defined as follows:

"Funds provided by operations" is used by management and investors to analyze the funds generated by Trinidad's principal business activities prior to consideration of working capital, which is primarily made up of highly liquid balances. This balance is reported in the Consolidated Statements of Cash Flows included in the cash provided by operating activities section.

"Operating income" is used by management and investors to analyze overall and segmented operating performance.  Operating income is not intended to represent an alternative to net (loss) earnings or other measures of financial performance calculated in accordance with IFRS.  Operating income is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information contained in the notes to the consolidated financial statements. Operating income is defined as revenue less operating expenses.

"Operating income percentage" is used by management and investors to analyze overall and segmented operating performance, including third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs. Operating income percentage is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income percentage is defined as operating income divided by revenue.

"Operating income - net percentage" is used by management and investors to analyze overall and segmented operating performance excluding third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs, as these revenues and expenses do not have an effect on consolidated net (loss) earnings. Operating income - net percentage is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income - net percentage is defined as operating income less third party G&A expenses divided by revenue net of operating and G&A third party costs.

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements relating to Trinidad's plans, strategies, objectives, expectations and intentions.  The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "confident", "might" and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this document. The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon.  Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. In particular, but without limiting the foregoing, this document may contain forward-looking information and statements pertaining to the completion of announced rig construction programs on a timely basis and economical terms; the assumption that Trinidad's customers will honour their take-or-pay contracts; fluctuations in the demand for Trinidad's services; the ability for Trinidad to attract and retain qualified personnel, in particular field staff to crew the Company's rigs; the existence of competitors, technological changes and developments in the oilfield services industry; the existence of operating risks inherent in the oilfield services industry; assumptions respecting capital expenditure programs and other expenditures by oil and gas exploration and production companies; assumptions regarding commodity prices, in particular oil and natural gas; assumptions respecting supply and demand for commodities, in particular oil and natural gas; assumptions regarding foreign currency exchange rates and interest rates; the existence of regulatory and legislative uncertainties; the possibility of changes in tax laws; and general economic conditions including the capital and credit markets; assumptions made about future performance and operations of the joint venture arrangement. Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this document speak only as of the date of this document and Trinidad assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

 

 

 

 

 

SOURCE Trinidad Drilling Ltd.

For further information:

Lyle Whitmarsh,
Chief Executive Officer

Brent Conway,
President

Lisa Ottmann
Vice President, Investor Relations
(403) 294-4401
email: lottmann@trinidaddrilling.com