Trinidad Drilling Ltd. Reports Solid Third Quarter and Year to Date 2011 Results; High Activity Levels and Increasing Dayrates Drive Growing Profitability

CALGARY, Nov. 9, 2011 /CNW/ - Trinidad Drilling Ltd. reported third quarter and year to date 2011 results which reflected the strong industry conditions that have been present throughout the first nine months of the year. High activity levels across the Company's operations and increasing dayrates led to higher revenue, Adjusted EBITDA (1) and net earnings for the quarter and year to date compared to the same periods last year.

"Industry conditions have been strong and customer demand for modern, technically advanced equipment such as ours has remained high to date in 2011. I am very pleased with our performance over the past nine months and particularly in our ability to capture these changes in the industry and turn them into improved profitability," said Lyle Whitmarsh, Trinidad's President and Chief Executive Officer. "Our customers continue to show commitment to our equipment and their drilling programs through increasing dayrates, extended contracts and by signing multi-year contracts for new equipment. Our results to date in 2011 have exceeded our expectations and I expect that this level of performance will continue for the final quarter of 2011 and into 2012."

(1) Please see the Non-GAAP Measures Definitions section of this document for further details.

             
FINANCIAL HIGHLIGHTS            
    Three months ended September 30, Nine months ended September 30,
($ thousands except share and per share data) 2011 2010 % Change 2011 2010 % Change
Revenue 190,752 161,917 17.8 549,941 460,764 19.4
Gross margin(1) 81,486 62,474 30.4 218,853 178,995 22.3
Gross margin percentage(1) 42.7% 38.6% 10.6 39.8% 38.8% 2.6
EBITDA(1) 76,017 44,113 72.3 180,994 129,187 40.1
  Per share (diluted)(2) 0.63 0.37 70.3 1.50 1.07 40.2
Adjusted EBITDA(1) 69,383 49,923 39.0 178,075 138,041 29.0
  Per share (diluted)(2) 0.57 0.41 39.0 1.47 1.14 28.9
Cash flow from operations 33,654 33,964 (0.9) 140,234 101,828 37.7
  Per share (basic / diluted)(2) 0.28 0.28 - 1.16 0.84 38.1
Cash flow from operations before             
  change in non-cash working capital(1) 59,315 37,414 58.5 140,388 99,160 41.6
  Per share (diluted)(2) 0.49 0.31 58.1 1.16 0.82 41.5
Net earnings 30,169 768 3,828.3 51,163 9,697 427.6
  Per share (basic / diluted)(2) 0.25 0.01 2,400.0 0.42 0.08 425.0
Adjusted net earnings(1) 23,535 6,880 242.1 57,237 18,853 203.6
  Per share (diluted)(2) 0.19 0.06 216.7 0.47 0.16 193.8
Adjusted net earnings            
  before refinancing costs(1) 23,535 6,880 242.1 57,237 18,853 203.6
  Per share (diluted)(2) 0.19 0.06 216.7 0.47 0.16 193.8
Capital expenditures 43,932 36,002 22.0 116,008 107,725 7.7
Net debt(1) 450,944 472,894 (4.6) 450,944 472,894 (4.6)
Shares outstanding - basic            
  (weighted average)(2)   120,859,109   120,840,962 -   120,853,781   120,840,962 -
Shares outstanding - diluted            
  (weighted average)(2)   120,859,109   120,840,962 -   120,853,781   120,840,962 -
(1)      Readers are cautioned that gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, Adjusted net earnings, Adjusted net earnings before refinancing costs, and net debt and the related per share information do not have standardized meanings prescribed by IFRS - see "Non-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 deemed conversion of convertible debentures and the number of shares issuable pursuant to the Incentive Option Plan.

               
OPERATING HIGHLIGHTS             
    Three months ended September 30, Nine months ended September 30,
    2011 2010 % Change 2011  2010  % Change
Land Drilling Market             
Operating days - drilling             
   Canada  3,434 2,786 23.3 8,964 7,572 18.4
   United States and International(1) 4,957 4,424 12.0 14,237 12,151 17.2
Rate per drilling day             
   Canada (CDN$)  23,694 21,477 10.3 24,569 22,091 11.2
   United States and International (CDN$)(1) 20,940 19,910 5.2 20,376 19,854 2.6
   United States and International (US$)(1) 21,552 19,117 12.7 20,840 19,106 9.1
Utilization rate - drilling             
   Canada  69% 56% 23.2 59% 52% 13.5
   United States and International(1) 82% 72% 13.9 81% 67% 20.9
   CAODC industry average  54% 39% 38.5 47% 37% 27.0
Number of drilling rigs at quarter end             
   Canada  54 55 (1.8) 54 55 (1.8)
   United States and International(1) 66 66 - 66 66 -
   Utilization rate for service rigs(2) - 41% - 51% 44% 15.9
   Number of service rigs at quarter end(2) - 22 - - 22 -
   Number of coring and surface casing rigs at quarter end 20 20 - 20 20 -
               
Barge Drilling Market             
   Operating days  454 368 23.4 1,335 986 35.4
   Rate per drilling day (CDN$)(3) 24,852 24,738 0.5 23,190 24,455 (5.2)
   Rate per drilling day (US$)(3) 25,567 23,757 7.6 23,708 23,513 0.8
   Utilization rate 99% 88% 12.5 98% 86% 14.0
   Number of barge drilling rigs at quarter end  2 2 - 2 2 -
   Number of barge drilling rigs under             
     Bareboat Charter at quarter end  3 3 - 3 3 -
(1)      Trinidad commenced its operations in Mexico effective November 2008 and expanded its international operations into Chile effective August 2009.  Effective April 6, 2010, the rig located in Chile was sold to a third party.
(2)      In the second quarter of 2011, Trinidad disposed of its 22 well-servicing rigs and related equipment.
(3)      In the second and third quarters of 2010, other revenue associated with equipment repairs was removed from the dayrate calculation to comply with corporate dayrate calculation practices.

OVERVIEW

Trinidad was able to take advantage of the strong industry conditions present in the third quarter and first nine months of 2011 and recorded improvements in both operating and financial metrics compared to last year.

Higher activity levels across the Company's divisions combined with increasing dayrates led to growing revenue levels and improved gross margins in the third quarter and year to date in 2011. The positive impacts on operating performance, in the third quarter and year to date 2011 versus the same periods of 2010, were partially offset by a weakening of the US dollar relative to the Canadian dollar. The Company's strong performance in the quarter and year to date flowed through to higher Adjusted EBITDA (1) levels compared to the prior year.  Net earnings in the quarter and year to date also increased compared to the same periods last year.

Industry conditions throughout North America continued to strengthen in the third quarter of 2011. The average US active rig count increased to 2,113 rigs in the quarter, adding 328 more rigs than the same quarter last year and 128 from the previous quarter. In Canada, activity levels recovered strongly in the third quarter after being hampered by wet weather earlier in the year. Industry utilization averaged 54.0% in the quarter up significantly from the 39.0% utilization level recorded in the same quarter last year and 23.0% in the previous quarter. On both sides of the border, modern, top performing rigs were in high demand and Trinidad was able to get a large proportion of its fleet out working at growing dayrates.  As the industry active rig count increases, the labour market becomes tighter, making it more challenging to find experienced and qualified crews. Trinidad's more consistent utilization levels and modern equipment give it an advantage in attracting and retaining some of the best people in the industry. To date in 2011, the Company has successfully been able to crew rigs as needed despite its industry-leading activity levels.

Instability and uncertainty in the global markets intensified during the third quarter as concerns grew over the European debt situation and the speed of the US and global economies recovery. These concerns put downward pressure on crude oil prices as investors worried that future demand for oil-related products may not reach the levels earlier anticipated. In the third quarter, West Texas Intermediate crude oil prices averaged US$89.74 per barrel, up 17.8% from the same quarter last year but down 12.5% from the previous quarter. Year to date, crude oil prices have averaged US$95.48 per barrel, up 23.0% from the same time last year. Despite investors' concerns, crude oil prices remained at levels that have provided acceptable returns for oil and gas producers and activity levels were strong in the quarter.

Natural gas prices continued their relative weakness in the quarter and year to date, largely as a result of high storage levels and weak economic demand. During the third quarter, Henry Hub natural gas prices averaged US$4.12 per mmBtu and $4.22 per mmBtu for the first nine months of the year, down 3.8% and 7.5% from last year, respectively.

The relative strength in crude oil prices has continued to encourage oil and gas companies to switch away from natural gas drilling in favour of developing crude oil and natural gas liquids rich plays. According to Baker Hughes, 54.0% of wells drilled in the US in the third quarter of 2011 were targeting oil, compared to 39.0% in the same quarter last year, a trend the industry has seen develop in both Canada and the US over the last two years.

Over the past year, Trinidad has been able to crystalize the positive trends in dayrates by re-signing contracts on rigs as they expire, resulting in escalating dayrates and longer terms. These changes, along with improved rates on the spot market, have led to increased average dayrates in the third quarter and year to date. In addition to higher dayrates and increased activity levels, gross margin levels have benefited from a levelling off of repairs and maintenance costs to more normalized levels, following a strong ramp up in activity and the associated rig reactivation costs. The Company's overall performance has improved significantly from last year and conditions remain favourable heading into the last quarter of 2011 and into 2012. 

Third quarter 2011 and year- to-date highlights

  • Trinidad generated revenue of $190.8 million for the third quarter and $549.9 million year to date in 2011, up 17.8% and 19.4% from the same periods of 2010.  Revenue grew in the quarter and year to date as a result of increased operating days and higher dayrates, reflecting stronger industry conditions. The impact of the improved market conditions were partially offset by the weakening of the US dollar in relation to the Canadian dollar during the year.
  • Gross margin (1) grew to $81.5 million in the third quarter and $218.9 million year to date, an increase of 30.4% and 22.3%, respectively from the prior comparative periods due to higher revenue generation and lower relative operating costs.  Gross margin percentage (1) was 42.7% in the quarter and 39.8% year to date, up from 38.6% and 38.8% respectively in 2010, for the reasons mentioned above.
  • Adjusted EBITDA (1) was $69.4 million ($0.57 per share (diluted)) in the third quarter and $178.1 million year to date ($1.47 per share (diluted)), up by 39.0% and 29.0%, respectively from 2010, primarily due to higher gross margin levels.
  • Net earnings (1) were $30.2 million ($0.25 per share (diluted)) for the quarter and $51.2 million ($0.42 per share (diluted)) year to date in 2011, compared to $0.8 million ($0.01 per share (diluted)) and $9.7 million ($0.08 per share (diluted)), respectively in 2010. This increase was due to higher Adjusted EBITDA (1), lower financing costs, and a foreign exchange gain which was partially offset by increased year to date depreciation costs, reflecting the Company's increased activity levels.
  • Net debt at the end of the quarter decreased to $450.9 million, a reduction of $28.4 million from the end of 2010. Trinidad is committed to lowering its overall level of indebtedness and has demonstrated its commitment to this goal throughout the past few years with ongoing debt reduction.

(1) Please see the Non-GAAP Measures Definitions section of this document for further details.

RESULTS FROM OPERATIONS

             
 
Three months ended
September 30, 2011
($ thousands)  
 
Canadian
drilling
operations
United States/
International
drilling
operations
 

Construction 
operations
 

Inter-segment
eliminations
 

Corporate/
unallocated
 
 
 
Total
Revenue 81,220 109,387 - - - 190,607
Other revenue 95 39 11 - - 145
Inter-segment revenue - - 24,702 (24,702) - -
    81,315 109,426 24,713 (24,702) - 190,752
Operating expense 49,505 59,653 24,810 (24,702) - 109,266
    31,810 49,773 (97) - - 81,486
Finance costs 10,285 615 33 - - 10,933
Depreciation and amortization 8,630 19,560 412 - - 28,602
Gain on sale of assets 1 (72) 8 - - (63)
    18,916 20,103 453 - - 39,472
Segmented income (loss) 12,894 29,670 (550) - - 42,014
General and administrative - - - - 11,614 11,614
Foreign exchange - - - - (6,145) (6,145)
Income taxes - - - - 6,376 6,376
Net earnings (loss)  12,894 29,670 (550) - (11,845) 30,169
Capital expenditures 13,787 29,632 513 - - 43,932

 

             
   
Three months ended
September 30, 2010
($ thousands)
 
Canadian
drilling
operations
United States/
International
drilling
operations
 
 
Construction 
operations
 
 
Inter-segment
eliminations
 
 
Corporate/
unallocated

 
 
Total
Revenue 67,852 92,887 956 - - 161,695
Other revenue 33 137 52 - - 222
Inter-segment revenue - - 29,205 (29,205) - -
    67,885 93,024 30,213 (29,205) - 161,917
Operating expense 43,130 55,075 30,443 (29,205) - 99,443
    24,755 37,949 (230) - - 62,474
Finance costs 12,370 1,665 6 - - 14,041
Depreciation and amortization 8,960 19,077 605 - - 28,642
Loss (gain) on sale of assets (26) - 1 - - (25)
Impairment of intangible assets and goodwill   -   -   302   -   - 302
    21,304 20,742 914 - - 42,960
Segmented income (loss) 3,451 17,207 (1,144) - - 19,514
General and administrative - - - - 13,294 13,294
Foreign exchange - - - - 5,067 5,067
Income taxes - - - - 385 385
Net earnings (loss)  3,451 17,207 (1,144) - (18,746) 768
Capital expenditures 8,576 26,786 640 - - 36,002

 

             
   
Nine months ended
September 30, 2011
($ thousands)
 
Canadian
drilling
operations
United States/
International
drilling
operations
 

Construction 
operations
 

Inter-segment
eliminations
 

Corporate/
unallocated
 
 
 
Total
Revenue 242,482 305,355 1,072 - - 548,909
Other revenue 411 341 280 - - 1,032
Inter-segment revenue - - 58,865 (58,865) - -
    242,893 305,696 60,217 (58,865) - 549,941
Operating expense 154,560 174,983 60,410 (58,865) - 331,088
    88,333 130,713 (193) - - 218,853
Finance costs 32,954 755 57 - - 33,766
Depreciation and amortization 25,192 57,073 1,330 - - 83,595
Gain on sale of assets (3,381) (1,254) (781) - - (5,416)
Impairment of property and equipment 1,535 7,458 - - -   8,993
    56,300 64,032 606 - - 120,938
Segmented income (loss) 32,033 66,681 (799) - - 97,915
General and administrative - - - - 43,464 43,464
Foreign exchange - - - - (5,605) (5,605)
Income taxes - - - - 8,893 8,893
Net earnings (loss)  32,033 66,681 (799) - (46,752) 51,163
Capital expenditures 31,145 83,880 983 - - 116,008

 

             
   
Nine months ended
September 30, 2010
($ thousands)
 
Canadian
drilling
operations
United States/
International
drilling
operations
 
 
Construction 
operations
 
 
Inter-segment
eliminations
 
 
Corporate/
unallocated

 
 
Total
Revenue 195,164 259,793 4,765 - - 459,722
Other revenue 78 879 85 - - 1,042
Inter-segment revenue - - 68,150 (68,150) - -
    195,242 260,672 73,000 (68,150) - 460,764
Operating expense 126,658 153,429 69,832 (68,150) - 281,769
    68,584 107,243 3,168 - - 178,995
Finance costs 36,395 5,605 22 - - 42,022
Depreciation and amortization 25,399 52,115 1,672 - - 79,186
Loss (gain) on sale of assets 15 (4,007) 47 - - (3,945)
Impairment of intangible assets and goodwill   -   -   302   -   - 302
    61,809 53,713 2,043 - - 117,565
Segmented income (loss) 6,775 53,530 1,125 - - 61,430
General and administrative - - - - 43,196 43,196
Foreign exchange - - - - 6,612 6,612
Income taxes - - - - 1,925 1,925
Net earnings (loss)  6,775 53,530 1,125 - (51,733) 9,697
Capital expenditures 26,878 79,869 978 - - 107,725

 

Canadian Drilling Operations

Canadian drilling operations performed strongly in the third quarter and first nine months of 2011 with higher activity levels, growing dayrates, and increasing gross margins compared to the same periods last year.

A prolonged and wet spring break-up in the second quarter of 2011 led to high demand in the third quarter, as customers attempted to catch up on delayed drilling programs in the Western Canadian Sedimentary Basin. During the quarter, Trinidad averaged utilization levels of 69.0%, achieving the divisions highest third quarter utilization level since 2005, and well above the industry average of 54.0%. Utilization levels for the first nine months of the year were also higher than the same period of 2010, reflecting the improved industry conditions. Despite the transfer of one rig to the Company's US operations earlier in the year, operating days in the quarter and year to date were positively impacted by the high level of demand for drilling equipment, and increased substantially over the prior comparative periods.

As demand for equipment grew in the quarter and year to date in 2011, dayrates increased compared to the same periods last year. The increased dayrates combined with higher operating days resulted in strong revenue growth in the quarter and for the first nine months of the year.  Dayrates in the third quarter lowered from the levels recorded in the second quarter, reflecting the seasonal aspect of the Canadian drilling industry. This trend is typically felt in the third quarter, as shallower capacity rigs are reactivated following spring break-up, altering the active rig mix.

Gross margin increased in the quarter and year to date by 28.5% compared to the same periods last year, as dayrate increases outpaced operating cost increases in the quarter. Gross margin percentage also reflected these changes, increasing strongly in the quarter and year to date compared to the same periods of 2010.  The Canadian drilling operating segments revenue and operating costs were reduced slightly in the third quarter compared to prior periods due to the sale of the Company's well-servicing division. The well-servicing division was sold in the second quarter of 2011.

Trinidad's coring rigs were largely inactive during the quarter due to the seasonality that is typically associated with these assets.  Commitments are firming up for the coming winter drilling season and the Company expects that activity levels will begin to improve towards the end of 2011 and into the first quarter of 2012.

United States and International Drilling Operations

In the third quarter and year to date 2011, strong industry conditions drove improved results in the Company's US and international drilling operations.  Demand for Trinidad's modern fleet remained robust and utilization levels improved sharply from the same periods last year.  In addition, the number of operating days achieved in the quarter continued to reach new highs, a trend the division has maintained for nine consecutive quarters.  During the third quarter, Trinidad added one rig to its US fleet with the delivery of a newly constructed rig to its Eagle Ford operations in Texas.

The strong demand for drilling equipment flowed through to dayrates, resulting in higher dayrates in the current quarter and year to date versus the same periods of 2010.  While a significant portion of Trindiad's rigs are under long-term contracts, year to date Trinidad has re-signed rigs as the existing contracts expired, providing additional term and locking in higher dayrates.  Furthermore, rigs not currently under contract, working on the spot market have also been able to earn higher dayrates than those received 12 months ago.

Increased operating days and higher dayrates led to an increase of approximately 17% in revenue generation in both the third quarter and year to date in 2011 compared to the same periods last year. The impact of these positive drivers was partially offset by a weakening of the US dollar against the Canadian dollar versus the same periods of 2010.

Gross margin and gross margin percent improved in the third quarter and year to date, reflecting the higher revenue, as well as benefiting from lower relative operating costs. This impact was felt more strongly in the third quarter of 2011 when repairs and maintenance costs associated with reactivating equipment were not incurred as they had been in prior periods.

Conditions in the barge drilling industry have been showing slower improvement than the land drilling business; however, improvements in activity levels and utilization have been visible for a number of quarters now, and as such dayrates have begun to increase. As with the land drilling sector, Trinidad's barge rigs are predominantly drilling crude oil and natural gas liquids rich targets. Given the shortage of available, high quality equipment in this sector, Trinidad expects that these trends will continue for the remainder of 2011 and into 2012.

Construction Operations

In December 2010, the Company made the decision to narrow the focus of its rig construction operations to the rig design, commissioning, and development of new technology for internal purposes only.

In the current quarter the construction operations delivered one new build to the US drilling operations and continued construction on two additional new builds with anticipated delivery dates during the fourth quarter of 2011.  In the same period of 2010, the construction operations delivered one new build to the US drilling operations, as well as continued construction on its new build program.

In the nine months ended September 30, 2011, the construction operations delivered three new builds to the US drilling operations.  In the same period of 2010, the construction operations segment delivered three new builds to the US drilling operations, and delivered one new build to the Canadian drilling operations.

The small gross margin loss in the third quarter and year to date of 2011 is the result of the winding down of the third party services work in the construction segment. Trinidad does not expect any further third party work, and as such Trinidad anticipates that the construction operations should have no margin going forward as all internal work performed will be billed at cost to Trinidad's other operating segments.

QUARTERLY ANALYSIS
FINANCIAL HIGHLIGHTS - QUARTERLY ANALYSIS

     2011   2010 (1) 2009
($ millions except per share data and operating data) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Revenue   190.8   143.1   216.1   185.9   161.9   128.8   170.1   148.2
Gross margin 81.5 52.6 84.7 76.7 62.5 47.9 68.6 59.7
Gross margin percentage 42.7 36.8 39.2 41.3 38.6 37.2 40.3 40.3
                 
Net earnings (loss) 30.2 5.0 16.0 (84.7) 0.7 10.0 (1.0) 3.9
Effective interest on deferred financing costs 0.6 0.5 0.5 10.8 1.7 1.6 1.6 1.6
Accretion on senior notes 0.1 0.1 0.1 - - - - -
Accretion on convertible debentures - - - 11.6 1.5 1.4 1.4 1.5
Fair value of interest rate swaps (gain) loss - (0.8) (1.2) 0.4 - - - -
Stock-based compensation  (0.5) (0.9) 4.0 1.8 0.8 (0.3) 1.8 (0.1)
Unrealized foreign exchange (gain) loss (6.4) (1.3) 1.0 2.0 4.9 (5.8) 6.4 6.5
Depreciation and amortization 28.6 25.4 29.6 27.7 28.6 23.9 26.7 23.3
(Gain) loss on sale of assets (0.1) (5.3) - 0.4 - (4.0) - 0.6
Impairment of property and equipment - 9.0 - 24.9 - - - -
Impairment of intangible assets and goodwill - - - 59.1 0.3 - - -
Deferred income taxes 6.8 (5.8) 5.2 (0.1) (1.0) (6.3) 4.3 1.1
Cash flow from operations before                 
change in non-cash working capital 59.3 25.9 55.2 53.9 37.5 20.5 41.2 38.4
Net earnings (loss) per share (diluted) 0.25 0.04 0.13 (0.70) 0.01 0.08 (0.01) 0.03
Cash flow from operations before change in non-cash working capital per share (diluted)   0.49   0.21   0.46   0.45   0.31   0.17   0.34   0.32

(1)     The periods of 2010 have been restated under IFRS, while the prior periods of 2009 have been reported under previous GAAP.

NON-GAAP MEASURES HIGHLIGHTS - QUARTERLY ANALYSIS

     2011   2010 (3) 2009
($ millions except per share data and operating data)  Q3  Q2  Q1  Q4  Q3  Q2  Q1  Q4
EBITDA(1)   76.0 41.2 63.8 61.5 44.1 40.9 44.2 38.9
  Per share (diluted)(2)   0.63 0.34 0.53 0.51 0.37 0.34 0.37 0.32
Adjusted EBITDA(1)   69.4 39.1 69.6 63.7 49.9 34.7 53.4 47.4
  Per share (diluted)(2)   0.57 0.32 0.58 0.53 0.41 0.29 0.44 0.39
Adjusted net earnings(1)   23.5 11.9 21.8 1.5 6.9 3.8 8.2 12.5
  Per share (diluted)(2)   0.19 0.10 0.18 0.01 0.06 0.03 0.07 0.10
Adjusted net earnings                
  before refinancing costs(1)   23.5 11.9 21.8 21.1 6.9 3.8 8.2 12.5
  Per share (diluted)(2)   0.19 0.10 0.18 0.17 0.06 0.03 0.07 0.10
(1)      Please see the Non-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 deemed conversion of convertible debentures and the number of shares issuable pursuant to the Incentive Option Plan.
(3)      The periods of 2010 have been restated under IFRS, while the prior periods of 2009 has been reported under previous GAAP.

OPERATING HIGHLIGHTS - QUARTERLY ANALYSIS

       2011   2010 2009
     Q3   Q2   Q1   Q4   Q3   Q2   Q1   Q4 
Land Drilling Market                 
Operating days - drilling                 
   Canada  3,434 1,522 4,008 3,270 2,786 1,616 3,170 2,090
   United States and International(1) 4,957 4,741 4,539 4,430 4,424 3,958 3,769 3,994
Rate per drilling day                 
   Canada (CDN$)    23,694   25,265   25,053   24,086   21,477   23,590   21,868   22,543
   United States and International (CDN$)(1)   20,940   20,152   19,996   20,384   19,910   18,504   21,206   21,887
   United States and International (US$)(1)   21,552   20,835   20,067   19,955   19,117   18,092   20,157   20,355
Utilization rate - drilling                 
   Canada  69% 31% 80% 65% 56% 34% 67% 44%
   United States and International(1) 82% 82% 80% 73% 72% 66% 63% 63%
   CAODC industry average  54% 23% 66% 49% 39% 20% 52% 32%
Number of drilling rigs at quarter end                 
   Canada  54 54 55 55 55 53 53 52
   United States and International(1) 66 65 63 62 66 67 66 66
   Utilization rate for service rigs(2) - 34% 66% 57% 41% 37% 54% 32%
   Number of service rigs at quarter end(2) - - 22 22 22 22 22 22
   Number of coring and surface casing                
      rigs at quarter end 20 20 20 20 20 20 20 20
                   
Barge Drilling Market                 
   Operating days  454 436 445 456 368 283 334 274
   Rate per drilling day (CDN$)(3)   24,852   22,672   22,002   24,402   24,738   25,013   23,732   20,275
   Rate per drilling day (US$)(3)   25,567   23,432   22,081   23,878   23,757   24,406   22,559   19,482
   Utilization rate 99% 96% 99% 99% 88% 78% 93% 75%
   Number of barge drilling rigs at quarter end  2 2 2 2 2 1 1 1
   Number of barge drilling rigs under                 
       Bareboat Charter at quarter end  3 3 3 3 3 3 3 3
                   
(1)      Trinidad commenced its operations in Mexico effective November 2008 and expanded its international operations into Chile effective August 2009. Effective April 6, 2010, the rig located in Chile was sold to a third party.
(2)      In the second quarter of 2011, Trinidad disposed of all of its 22 well-servicing rigs and related equipment.
(3)      In the second and third quarters of 2010, other revenue associated with equipment repairs was removed from the dayrate calculation to comply with corporate dayrate calculation practices.

FINANCIAL SUMMARY    
As at September 30, December 31,
($ thousands except percentage data) 2011 2010
Working capital(1) 152,263 126,811
       
Current portion of long-term debt 560 546
Long-term debt(2) 603,207 606,154
Convertible debentures - -
Total debt 603,767 606,700
Total debt as a percentage of assets 37.6% 39.6%
       
Net debt(1) 450,944 479,343
Net debt as a percentage of assets 28.1% 31.3%
       
Total assets   1,605,030 1,531,325
Total long-term liabilities 691,745 676,712
Total long-term liabilities as a percentage of assets 43.1% 44.2%
       
Shareholders' equity 829,568 783,638
Total debt to shareholders' equity 72.8% 77.4%
Net debt to shareholders' equity 54.4% 61.2%
(1)      See Non-GAAP Measures Definition section of this document for further details.
(2)      Long-term debt is net of associated transaction costs.

At September 30, 2011, working capital increased from December 31, 2010 due to the seasonality of the Canadian drilling operations, which resulted in an increase in accounts receivable, offset by an increase in accounts payable and accrued liabilities.  In addition, an $11.2 million increase in assets held for sale, as well as a higher cash balance also attributed to the improvement in working capital.

Trinidad's total debt declined by $2.9 million year to date 2011, due to the repayment on the Canadian and US revolving credit facility of $27.2 million, however this reduction in debt was partially offset by an increase in the fair value of the Senior Notes of US$450.0 million, as a result of the higher US to Canadian dollar foreign exchange rate at September 30, 2011. The Senior Notes are translated at each quarter end, as such their value will fluctuate quarterly 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.  The first payment was due on July 15, 2011.

Trinidad's net debt declined by $28.4 million year to date 2011, due a slightly lower debt balance combined with a significantly higher working capital, versus December 31, 2011.  The higher working capital was due to the reclassification of property plant and equipment to assets held for sale, as well as a higher cash balance in the current year.

During the first nine months of 2011, and pursuant to the Company's strategy to reduce overall indebtedness combined with strong operating conditions, Trinidad reduced the balances on its revolving credit facility by $27.2 million. At September 30, 2011, Trinidad had CDN$97.0 million outstanding on its Canadian revolving credit facility and US$43.0 million on its US revolving credit facility, leaving CDN$103.0 million and US$57.0 million unutilized in the facility, respectively.

The new Canadian and US revolving facility requires 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 Consolidated EBITDA ratio (see table below). This facility matures December 16, 2014, and is subject to annual extensions of an additional year on each anniversary. 

A total of $43.9 million and $116.0 million of capital expenditures were invested during the three and nine months ended September 30, 2011, compared to $36.0 million and $107.7 million for the same periods last year.  Capital expenditures year to date were substantially related to the Company's rig build program, the purchase of four land rigs from a third party and a number of capital upgrades made to Trinidad's rig fleet to improve the equipment's marketability.

Trinidad expects cash flow from operations and the Company's various sources of financing to be sufficient to meet its debt repayments, future obligations and to fund planned capital expenditures.

Current financial performance is well in excess of the financial ratio covenants under the revolving credit facility as reflected in the table below under IFRS:

         
RATIO September 30, December 31,   THRESHOLD
  2011 2010    
           
Consolidated Senior Debt to Consolidated EBITDA(1)  0.62:1   0.94:1     3.00:1 maximum 
Consolidated Total Debt to Consolidated EBITDA(2)  2.56:1   3.18:1     4.00:1 maximum 
Consolidated EBITDA to Consolidated Cash Interest Expense(3)  4.93:1   4.12:1     2.75:1 minimum 
         
(1)      Maximum Consolidated Senior Debt to Consolidated EBITDA means the consolidated balance of the revolving facility and other debt secured by a lien at quarter end to consolidated EBITDA for the trailing twelve months (TTM).
(2)      Maximum Consolidated Total Debt to Consolidated EBITDA means the consolidated balance of long-term debt, which includes the Senior Debt, and dividends payable at quarter end, plus the current portion of long-term debt, to consolidated EBITDA for the TTM.
(3)      Minimum Consolidated EBITDA to Consolidated Cash Interest Expense means the consolidated EBITDA for TTM to the cash interest expense on all debt balances for TTM.

Readers are cautioned that the ratios noted above do not have standardized meanings prescribed in IFRS or previous GAAP.

OUTLOOK
Trinidad is encouraged by the strong industry conditions present to date in 2011. Demand remains high for the Company's modern, high performing equipment and despite market volatility and uncertainty; commodity prices remain at a level that generates high activity, particularly in crude oil and natural gas liquids rich development. Trinidad's customers have clearly demonstrated their intention to continue drilling by extending existing contracts and signing new multi-year drilling commitments, substantially all at higher dayrates. To this point, Trinidad recently agreed to build two new technically advanced rigs for delivery to its Canadian operations in 2012 under five-year, take-or pay-contracts. In addition, the Company has re-contracted a significant number of rigs throughout the year and expects the full benefit of these improved terms to be realized in the coming year. Including the rigs under construction, Trinidad has approximately 60.0% of its fleet under long-term contract with an average remaining term of approximately two years.

Despite the strength that Trinidad sees in the current industry conditions, the Company is aware of the market uncertainty and understands the inherently cyclical nature of the drilling industry. In light of these conditions, Trinidad has followed a measured growth program while also lowering its debt levels over the past few years. Trinidad believes that by locking in improved pricing and terms during a period of market strength through long-term, take-or-pay contracts with financially solid customers, maintaining a construction program that is funded by internally generated cash flow and by improving its financial flexibility, it can position itself to perform well at all times during the cycle.

In 2011, the Company plans to add five new rigs to its fleet, the final two rigs from its 2010 rig construction program and three new rigs to be constructed this year. To date, three of these five rigs have been delivered into operation. As well, the Company will be constructing an additional five new rigs in 2012. All rigs are high-performance, high-mobility rigs with three to five year, long-term, take-or-pay contracts.  In addition, Trinidad purchased four existing rigs which it is currently upgrading; these rigs are expected to be delivered into operation in the fourth quarter of 2011. In total, Trinidad expects it will invest capital, net of dispositions, for these additions and upgrades to existing equipment of approximately $100 million to $110 million in 2011 and $80 million in 2012.

Trinidad's fleet of modern, technically advanced equipment has proven its ability to continually meet its customers' evolving needs with its industry-leading utilization and contract extensions. Ongoing customer demand and high activity levels have provided the Company with a strong operating environment which it has been able to capture through increasing dayrates and growing gross margins.  Current indications for future dayrates and activity levels remain positive and together with the Company's expanded contract coverage, it believes it is positioned to perform well in the final quarter of 2011 and into 2012.

CONFERENCE CALL

A conference call and webcast to discuss the results will be held for the investment community on Thursday November 10th, 2011 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 12:00 p.m. MT on November 10th, 2011 until midnight November 17th, 2011 by dialing (855) 859 2056 or (416) 849-0833 and entering replay access code 15151226.

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

A full copy of Trinidad's third quarter and year to date 2011 report including Management's Discussion and Analysis, Consolidated Financial Statements and Notes to the Consolidated Financial Statements can be found on the Investor Relations page of Trinidad's website or at www.sedar.com

TRINIDAD DRILLING LTD.

Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions operate in the drilling, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States and Mexico. 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 BALANCE SHEETS      
As at  September 30,   December 31,
($ thousands - Unaudited) 2011   2010
       
Assets      
Current Assets      
Cash and cash equivalents 16,684   7,905
Accounts receivable  185,378   159,866
Inventory  17,363   25,448
Prepaid expenses 5,383   4,567
Assets held for sale  11,172   -
    235,980   197,786
         
Property and equipment   1,278,041   1,246,867
Intangible assets and goodwill  91,009   86,672
      1,605,030   1,531,325
         
Liabilities      
Current Liabilities      
Accounts payable and accrued liabilities  76,669   62,291
Dividends payable 6,043   6,042
Deferred revenue 445   105
Current portion of long-term debt 560   546
Current portion of fair value of interest rate swaps -   1,991
    83,717   70,975
         
Long-term debt 603,207   606,154
Deferred income taxes  88,538   70,558
    775,462   747,687
         
Shareholders' Equity      
Common shares  952,043   951,863
Contributed surplus 49,404   49,016
Accumulated other comprehensive income (loss) (17,702)   (30,030)
Retained earnings (deficit) (154,177)   (187,211)
    829,568   783,638
      1,605,030   1,531,325
         
Commitments and contingencies       

 

         
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
     Three months ended Nine months ended 
  September 30, September 30,
($ thousands except  per share data - Unaudited) 2011 2010 2011 2010
           
Revenue        
Oilfield service revenue 190,607 161,695 548,909 459,722
Other revenue 145 222 1,032 1,042
    190,752 161,917 549,941 460,764
Expenses         
Operating expense 109,266 99,443 331,088 281,769
General and administrative  11,614 13,294 43,464 43,196
Depreciation and amortization 28,602 28,642 83,595 79,186
Foreign exchange (gain) loss  (6,145) 5,067 (5,605) 6,612
Gain on sale of assets  (63) (25) (5,416) (3,945)
Impairment of property and equipment  - - 8,993 -
Impairment of intangible assets and goodwill - 302 - 302
    143,274 146,723 456,119 407,120
Finance costs 10,933 14,041 33,766 42,022
Earnings before income taxes 36,545 1,153 60,056 11,622
Income taxes         
Current (454) 1,428 2,712 5,001
Deferred  6,830 (1,043) 6,181 (3,076)
    6,376 385 8,893 1,925
Net earnings 30,169 768 51,163 9,697
         
Other comprehensive income         
Change in fair value of derivatives designated         
as cash flow hedges, net of income tax - 655 - 1,896
Foreign currency translation adjustment, net of         
income tax  27,176 (22,260) 12,328 (13,766)
  27,176 (21,605) 12,328 (11,870)
Total comprehensive income (loss) 57,345 (20,837) 63,491 (2,173)
           
Earnings per share         
Net earnings        
  Basic  0.25 0.01 0.42 0.08
  Diluted 0.25 0.01 0.42 0.08

 

                   
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the nine months ended September 30, 2011 and 2010
                   
($ thousands - Unaudited)  
 
Common
shares
 
 
Convertible
debentures
 
 
Contributed
surplus
Accumulated 
other 
comprehensive
income (loss) (1)
 
Retained
earnings
(deficit)
 
Equity
attributable
to shareholders
 
Non-
controlling
interest
 
 
Total
equity
                   
Balance at December 31, 2010   951,863 - 49,016 (30,030) (187,211) 783,638 -   783,638
Shares issued for cash    - - - - - - - -
Shares repurchased    - - - - - - - -
Exercise of stock options   180 - (48) - - 132 - 132
Stock-based compensation   - - 436 - - 436 - 436
Total comprehensive income    - - - 12,328 51,163 63,491 - 63,491
Dividends   - - - - (18,129) (18,129) - (18,129)
Balance at September 30, 2011   952,043 - 49,404 (17,702) (154,177) 829,568 -   829,568
                   
Balance at January 1, 2010    951,863 20,838 27,832 (4,068) (88,031) 908,434 2,337   910,771
Stock-based compensation   - - 327 - - 327 - 327
Total comprehensive income    - - - (11,870) 9,697 (2,173) - (2,173)
Reduction of non-controlling             -    
  interest   - - - - - - (2,337) (2,337)
Dividends   - - - - (18,126) (18,126) - (18,126)
Balance at September 30, 2010   951,863 20,838 28,159 (15,938) (96,460) 888,462 -   888,462
(1) Accumulated other comprehensive income as at September 30, 2011 consisted of $17.7 million in total foreign currency translation adjustment.
  Accumulated other comprehensive income as at September 30, 2010 consisted of $13.8 million in total foreign currency translation adjustment and $(1.9) million in total change in fair value of derivatives designed as cash flow hedges, net of income taxes.
 

 

         
CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three months ended Nine months ended 
    September 30, September 30,
($ thousands - Unaudited)   2011 2010 2011 2010
               
Cash provided by (used in)        
Operating activities        
Net earnings for the period 30,169 768 51,163 9,697
Items not affecting cash        
   Stock-based compensation  (489) 743 2,686 2,242
   Depreciation and amortization 28,602 28,642 83,595 79,186
   Unrealized foreign exchange (gain) loss  (6,392) 4,867 (6,701) 5,517
   Gain on sale of assets  (63) (25) (5,416) (3,945)
   Impairment of property and equipment  - - 8,993 -
   Impairment of intangible asset and goodwill  - 302 - 302
   Effective interest on deferred financing costs  583 1,684 1,636 4,913
   Accretion on senior notes  75 - 224 -
   Accretion on convertible debentures  - 1,476 - 4,324
   Fair value of interest rate swaps - - (1,973) -
   Deferred income taxes  6,830 (1,043) 6,181 (3,076)
    59,315 37,414 140,388 99,160
Change in non-cash operating working capital (25,661) (3,450) (154) 2,668
    33,654 33,964 140,234 101,828
Investing activities        
Purchase of property and equipment (43,932) (36,002) (116,008)   (107,725)
Proceeds from disposition of property and equipment 7,030 32 43,792 26,222
Change in non-cash working capital (4,151) 2,750 (7,924) 432
    (41,053) (33,220) (80,140) (81,071)
Financing activities        
Increase in long-term debt 34,582 - 69,738 43,000
Decrease in long-term debt (11,936) 9,973 (100,160) (26,419)
Proceeds from exercise of options 11 - 130 -
Dividends paid (6,043) (6,042) (18,128) (18,126)
Deferred financing costs - (208) (1,180) (6,626)
    16,614 3,723 (49,600) (8,171)
Cash flow from operating, investing and financing activities 9,215 4,467 10,494 12,586
Effect of translation of foreign currency cash (1,960) 83 (1,715) 77
Increase in cash for the period 7,255 4,550 8,779 12,663
           
Cash and cash equivalents - beginning of period 9,429 12,311 7,905 4,198
Cash and cash equivalents - end of period 16,684 16,861 16,684 16,861
           
Interest paid 21,438 6,637 27,806 22,246
Interest received 3 8 46 116
Taxes paid 3,009 1,948 6,114 4,856

 

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 previous GAAP 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 gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, Adjusted net earnings, Adjusted net earnings before refinancing costs, net debt and working capital.

Additional information on the calculation of the above-mentioned, non-GAAP measures can be found in the Management's Discussion and Analysis section of Trinidad's third quarter 2011 report which is available on Trinidad's website at www.trinidaddrilling.com or from SEDAR at www.sedar.com

These non-GAAP measures are identified and defined as follows under IFRS:

"Gross margin" is used by management and investors to analyze overall and segmented operating performance.  Gross margin is not intended to represent operating income nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with IFRS.  Gross margin 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 and is defined as revenue less operating expenses.

"Gross margin percentage" is used by management and investors to analyze overall and segmented operating performance.  Gross margin percentage is calculated from the consolidated statements of operations and comprehensive income (deficit) and from the segmented information in the notes to the consolidated financial statements and is defined as gross margin divided by revenue.

"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, amortized and impaired, 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 (gain) loss and stock-based compensation, and is not intended to represent net earnings as calculated in accordance with IFRS.

"Cash flow from operations before change in non-cash working capital" is used to assist management and investors in analyzing Trinidad's liquidity and ability to generate cash to finance investing and financing activities.  Cash flow from operations before change in non-cash working capital is derived from the consolidated statements of cash flows and is defined as cash flow from operating activities plus or minus the change in non-cash operating working capital.

"Adjusted net earnings" is used by management and the investment community to analyze net earnings prior to the effect of foreign exchange (gain) loss, stock-based compensation charges and impairment charges and is not intended to represent net earnings as calculated in accordance with IFRS.

Adjusted net earnings before refinancing costs" is used by management to analyze adjusted net earnings prior to the effects of refinancing costs and is not intended to represent net earnings as calculated in accordance with IFRS.

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

"Net debt" is used by management and the investment community to analyze the amount of debt less the working capital of the Company.

References to gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before changes in non-cash working capital, Adjusted net earnings, Adjusted net earnings before refinancing costs, net debt and working capital throughout this document have the meanings set out above.

FORWARD-LOOKING STATEMENTS

The 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 on 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. 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,
President and Chief Executive Officer

Brent Conway
Executive Vice President and Chief Financial Officer

Lisa Ciulka
Director of Investor Relations
Phone: (403) 265-6525   Fax: (403) 265-4168
E-mail:  lciulka@trinidaddrilling.com

Profil de l'entreprise

Trinidad Drilling Ltd.

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