Trinidad Drilling Ltd. reports fourth quarter and full year 2014 results; Solid operational results despite weakening oil prices

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

TSX SYMBOL:  TDG

CALGARY, March 4, 2015 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the "Company") reported fourth quarter and full year 2014 results. Activity levels and operating income (1) were strong in the fourth quarter, despite weakening oil prices.

"Market conditions have changed very quickly in the past few months," said Lyle Whitmarsh, Trinidad's Chief Executive Officer. "Our operations continued to perform well in the fourth quarter; however, we began to see the impact of lower commodity prices more significantly in the first quarter of 2015. In light of these weaker market condition, we have lowered our 2015 capital program and reduced operating and administrative costs. We expect that our extensive contract coverage, high quality fleet and financial flexibility will allow Trinidad to withstand the downturn and be well positioned to perform strongly as market conditions improve. "

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

FINANCIAL HIGHLIGHTS

                       
    Three months ended December 31,   For the years ended December 31,
($ thousands except share and per share data) 2014   2013   % Change   2014   2013   % Change
Revenue  276,346   224,563   23.1   941,334   845,888   11.3
Revenue, net of third party costs 261,875   209,961   24.7   883,522   791,251   11.7
Operating income (1) 93,826   99,607   (5.8)   315,159   329,807   (4.4)
Operating income percentage (1) 34.0%   44.4%   (23.4)   33.5%   39.0%   (14.2)
Operating income - net percentage (1) 35.6%   47.0%   (24.3)   35.7%   41.2%   (14.9)
EBITDA (1) 21,308   81,246   (73.8)   175,215   255,221   (31.3)
  Per share (diluted) (2) 0.15   0.65   (76.9)   1.27   2.09   (39.2)
Adjusted EBITDA (1) 77,341   83,830   (7.7)   252,046   270,445   (6.8)
  Per share (diluted) (2) 0.56   0.67   (16.4)   1.82   2.21   (18.0)
Cash provided by operations 5,857   102,905   (94.3)   156,519   299,013   (47.7)
  Per share (basic / diluted) (2) 0.04   0.83   (95.2)   1.13   2.45   (53.9)
Funds provided by operations (1) 79,277   83,328   (4.9)   216,973   231,135   (6.1)
  Per share (basic / diluted) (2) 0.58   0.67   (13.4)   1.57   1.89   (16.9)
Net earnings (13,507)   28,690   (147.1)   6,596   70,952   (90.7)
  Per share (basic / diluted) (2) (0.10)   0.23   (143.5)   0.05   0.58   (91.4)
Adjusted net earnings (1) 23,565   31,221   (24.5)   60,356   84,835   (28.9)
  Per share (basic / diluted) (2) 0.17   0.25   (32.0)   0.44   0.69   (36.2)
Capital expenditures  73,401   39,791   84.5   276,674   90,260   206.5
Dividends declared 6,758   6,907   (2.2)   27,486   25,036   9.8
Shares outstanding - basic                       
  (weighted average) (2)   137,634,403   123,870,307   11.1     138,033,887   121,619,238   13.5
Shares outstanding - diluted                      
  (weighted average) (2)   137,634,403   124,688,504   10.4     138,419,754   122,092,835   13.4
Total assets 1,941,621   1,827,496   6.2    1,941,621   1,827,496   6.2
Total long-term liabilities 628,047   564,095   11.3    628,047   564,095   11.3

(1) Readers are cautioned that Operating income, Operating income percentage, Operating income - net percentage, EBITDA, Adjusted EBITDA, Funds provided by operations, Adjusted net earnings and the related per share information do not have standardized meanings prescribed by IFRS - see "Non-GAAP Measures Definitions" and "Additional GAAP Measures Definitions".
(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 December 31,   For the years ended December 31,
    2014 2013 % Change   2014 2013 % Change
Land Drilling Market               
Operating days (1)              
   Canada  3,271 2,934 11.5   12,203 11,585 5.3
   United States and International 4,820 4,470 7.8   18,478 18,234 1.3
Rate per operating day (1)              
   Canada (CDN$) 26,624 25,102 6.1   25,638 24,892 3.0
   United States and International (CDN$) 25,150 27,243 (7.7)   23,873 23,951 (0.3)
   United States and International (US$) 22,476 26,213 (14.3)   21,749 23,381 (7.0)
Utilization rate - operating day (1)              
   Canada  62% 52% 18.6   57% 53% 8.5
   United States and International 97% 71% 35.8   87% 73% 18.4
Number of drilling rigs at period end (4)              
   Canada  53 61 (13.1)   53 61 (13.1)
   United States and International 47 64 (26.6)   47 64 (26.6)
   Coring and surface casing rigs (2) - - -   - - -
Barge Drilling Market               
   Operating days (1) 212 394 (46.2)   1,049 1,703 (38.4)
   Rate per operating day (CDN$) (1) 36,616 34,810 5.2   37,655 32,388 16.3
   Rate per operating day (US$) (1) 32,795 33,490 (2.1)   34,424 31,605 8.9
   Utilization rate - operating day (1) 46% 86% (46.3)   57% 93% (38.9)
   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 -
Joint Venture Operations (3)              
  Number of drilling rigs at period end 6 - 100.0   6 - 100.0

(1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions 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

Trinidad recorded solid operating results in the fourth quarter and full year 2014, which were overshadowed by falling commodity prices at year end. Activity levels in Canada and the US were higher than the previous year, and the Company's joint venture made positive contributions to adjusted EBITDA and net earnings in its first year of operations.

Adjusted EBITDA was $252.0 million in 2014, down 6.8% from the previous year as a result of lower early termination and standby revenue in the current year in the US operations, partly offset by stronger operating results in Canada. In addition, higher operating costs in the US and international division as rigs were reactivated and a weaker contribution from the barge rigs negatively impacted adjusted EBITDA in 2014. In the fourth quarter of 2014, adjusted EBITDA was $77.3 million, down 7.8% from the same quarter last year, largely as a result of lower early termination and standby revenue in the current quarter. Excluding the impact of early termination and standby revenue in both years, Trinidad's adjusted EBITDA was $18.2 million higher in the fourth quarter and $1.6 million higher for the full year of 2014, compared to the same periods of 2013, driven by higher activity and dayrates year over year.

Net earnings (loss) in the fourth quarter and full year 2014 were a loss of $13.5 million and earnings of $6.6 million, respectively, down 147.0% and 90.7% from the respective periods in 2013. Net earnings lowered in the current periods as a result of lower adjusted EBITDA discussed above, higher depreciation and amortization expenses, an impairment of property and equipment, partly offset by lower share-based payment expenses, lower income taxes and a gain on sale of property and equipment.

In 2014, commodity prices trended lower as the year progressed, particularly for oil.  A growing supply of crude oil in North America and a continuing strong supply coming from OPEC countries resulted in significantly lower prices at the end of 2014 compared to 2013. Lower oil prices began to impact Trinidad's operations in late 2014; however, the impact was felt more fully in early 2015 as customers cut back drilling programs and activity levels lowered.

In the fourth quarter and full year 2014, Canadian industry activity levels averaged 47% and 44%, respectively, up from 43% and 40% in the same periods last year. Trinidad maintained its premium over industry activity and its Canadian utilization rate - drilling days increased to 57% in the current quarter and 52% for the full year in 2014, compared to 48% for both periods last year.

In the US, industry activity increased in the fourth quarter and full year of 2014, averaging 1,843 and 1,789 active rigs, respectively, up from 1,679 and 1,685 active rigs, respectively for the same periods last year. Trinidad's US and international division averaged approximately 52 active rigs in the fourth quarter and 50 active rigs in 2013, up from approximately 49 active rigs in the fourth quarter of 2013 and in line with the full year in 2013.

During the fourth quarter and full year 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. The stronger US dollar positively impacted EBITDA generated by Trinidad's US and international division but also drove increased depreciation expenses and increased the value of Trinidad's US dollar based senior note in the fourth quarter and full year 2014.

INDUSTRY STATISTICS

                                       
      Full Year   2014   Full Year   2013   Full Year   2012
      2014   Q4   Q3   Q2   Q1   2013   Q4   Q3   Q2   Q1   2012   Q4   Q3   Q2   Q1
Commodity Prices                                                                
Aeco natural gas price (CDN$ per gigajoule)     4.28   3.44   3.82   4.45   5.34   3.01   3.33   2.32   3.36   3.03   2.26   3.03   2.18   1.81   2.01
Henry Hub natural gas price (US$ per mmBtu)     4.36   3.76   3.94   4.59   5.15   3.72   3.84   3.55   4.01   3.47   2.75   3.40   2.88   2.29   2.43
Western Canada Select crude oil price                                                            
   (CDN$ per barrel)     82.00   65.42   85.68   91.34   85.81   75.84   69.62   86.31   79.25   67.64   71.70   60.73   76.29   74.10   75.91
WTI crude oil price (US$ per barrel)     93.06   73.21   97.60   103.06   98.72   98.01   97.56   105.82   94.14   94.30   94.09   88.17   92.15   93.30   102.99
                                                               
US Activity                                                              
Average industry active land rig count (1)     1,789   1,843   1,828   1,781   1,705   1,685   1,679   1,687   1,686   1,687   1,852   1,741   1,837   1,902   1,929
Average Trinidad active land rig count (2)     50   52   53   47   48   50   49   51   50   49   57   56   55   58   58
                                                               
Canadian Activity                                                              
Average industry utilization (3)     44%   45%   46%   28%   58%   40%   43%   37%   18%   58%   39%   36%   42%   18%   65%
Average Trinidad utilization (4)     52%   57%   61%   24%   68%   48%   48%   50%   24%   73%   52%   51%   58%   24%   77%

(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).

 

FOURTH QUARTER 2014 HIGHLIGHTS

  • Adjusted EBITDA in the fourth quarter was $77.3 million, down 7.7% from the same quarter last year and up 19.7% from the third quarter of 2014. Higher early termination and standby revenue received in the US and international operations in the fourth quarter of 2013 increased profitability compared to the current quarter. Excluding early termination and standby revenue, adjusted EBITDA for the fourth quarter was $71.0 million, compared to $57.2 million for the fourth quarter of 2013.  Higher activity for land drilling rigs in Canada and the US contributed to improved profitability. In addition, the joint venture contributed $0.5 million in adjusted EBITDA compared to $(0.8) million in the fourth quarter of 2013.

  • Operating income - net percentage was 35.6% in the fourth quarter of 2014, down from 47.0% in the fourth quarter of 2013 and up from 34.7% in the third quarter of 2013. Operating income - net percentage decreased largely as a result of factors affecting adjusted EBITDA discussed above.  Excluding early termination and standby revenue for both quarters, operating income - net percentage was 34.2% for the fourth quarter of 2014, down 5.6% from the prior year.

  • Net loss for the fourth quarter was $13.5 million in 2014 compared to net earnings of $28.7 million in the same period in the prior year.  The decrease in net earnings was largely driven by an impairment expense of $56.9 million recognized in the Canadian and US and international divisions, along with higher depreciation and amortization expense.  The decrease was partly offset by the net impact of the items affecting adjusting EBITDA discussed above and lower income taxes.

  • Adjusted net earnings in the fourth quarter was $23.6 million, down $7.7 million from the fourth quarter of 2013. The decrease was a result of factors impacting adjusted EBITDA noted above along with increased depreciation resulting from higher activity levels.

  • On December 12, 2014, Trinidad amended and extended its credit facility, including additional commitments under the US dollar denominated revolving facility. The new credit facility includes a Canadian revolving facility of C$200 million (previously C$200 million) and a US revolving facility of US$200 million (previously US$100 million) and matures in December 2018.  At December 31, 2014, $15.0 million had been drawn on the Canadian facility and nothing drawn on the US facility.

  • On November 25, 2014 Trinidad implemented a normal course issuer bid (NCIB) that authorizes Trinidad to purchase up to 12,299,009 common shares. During the three months and year ended December 31, 2014, Trinidad purchased and cancelled 3,038,060 common shares at an average price of $5.42 per share for a total consideration of $16.5 million.

FULL YEAR 2014 HIGHLIGHTS

  • Trinidad generated revenue of $941.3 million in 2014, up $95.4 million and 11.3% from 2013. Revenue was positively impacted by higher activity levels in the Canadian and US land drilling business combined with dayrates that were largely similar to the prior year, a positive foreign currency translation on Trinidad's US division, partly offset by a weaker contribution from the barge operations. Additionally, Trinidad's manufacturing division generated higher revenue due to external new build construction in 2014, largely related to the joint venture. In addition to the items noted above, revenue was negatively impacted by the absence of the Company's coring rigs, which were sold in 2013 and lower activity from the Mexican rigs.

  • Overall operating income - net percentage was 35.7% in 2014 compared to 41.6% in 2013. Profitability lowered in the current year largely as a result of lower early termination and standby revenue received in 2014 compared to 2013, along with higher manufacturing activity. 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, Trinidad received higher early termination and standby revenue in 2013; this revenue has no associated costs and increases profitability.  Excluding early termination and standby revenue, overall operating income - net percentage was 34.6% in 2014, compared to 39.1% in 2013. Profitability was negatively impacted by higher reactivation and rig deployment costs experienced in the second and third quarters of 2014, as Trinidad reactivated and moved rigs to meet customer demand.

  • Adjusted EBITDA was $252.0 million in 2014, down $18.4 million or 6.8%, from the previous year. Adjusted EBITDA decreased in the current year as a result of lower operating income due to the factors discussed in the first two points above. In addition, higher general and administrative expenses (excluding share-based payment expense) associated with the joint venture expansion negatively impacted adjusted EBITDA in the current year. Excluding early termination and standby revenue, adjusted EBITDA for 2014 was $1.6 million higher than 2013.

  • Net earnings were $6.6 million or $0.05 per share (diluted), down $64.4 million compared to last year. In addition to the items impacting adjusted EBITDA discussed above, net earnings lowered as a result of an impairment expense of $77.5 million, from assets deemed no longer suitable for Trinidad's operations or held at a value higher than their recoverable amount given the change in customer demand and lower commodity prices. In addition, higher depreciation and amortization expenses and foreign exchange lowered net earnings in 2014.  Offsetting this were lower income taxes, lower share-based payment expenses, and a gain on sale of property and equipment.

  • Adjusted net earnings decreased by $24.5 million compared to the prior year, with adjusted net earnings per share (diluted) decreasing $0.25 per share, for the same reasons noted for adjusted EBITDA.

  • On December 12, 2014, Trinidad amended and extended its credit facility, including additional commitments under the US dollar denominated revolving facility. The new credit facility includes a Canadian revolving facility of C$200 million (previously C$200 million) and a US revolving facility of US$200 million (previously US$100 million) and matures in December 2018.  At December 31, 2014, $15.0 million had been drawn on the Canadian facility and nothing was drawn on the US facility.

Canadian Operations

               
  Three months ended December 31,   For the years ended December 31,
($ thousands except percentage and operating data) 2014 2013 (4) % Change   2014 2013 (4) % Change
Operating revenue (1) 87,102 73,663 18.2   312,871 297,696 5.1
Other revenue 35 64 (45.3)   1,295 125 936.0
  87,137 73,727 18.2   314,166 297,821 5.5
Operating costs (1) 47,342 40,508 16.9   178,209 170,934 4.3
Operating income (3) 39,795 33,219 19.8   135,957 126,887 7.1
Operating income - net percentage (3) 45.7% 45.1%     43.3% 42.6%  
               
Operating days (3) 3,271 2,935 11.5   12,203 11,585 5.3
Drilling days (3) 3,003 2,674 12.3   11,204 10,659 5.1
Rate per operating day (CDN$) (3) 26,624 25,102 6.1   25,638 24,892 3.0
Utilization rate - operating day (3) 62% 52% 18.6   57% 53% 8.5
Utilization rate - drilling day (3) 57% 48% 19.6   52% 48% 7.6
CAODC industry average (2) 45% 43% 4.7   44% 40% 10.0
               
Number of drilling rigs at period end 53 61 (13.1)   53 61 (13.1)
Number of coring and surface rigs              
  at period end  - - -   - - -
(1) Operating revenue and operating costs for the three months ended December 31, 2014 and 2013 exclude third party recovery and third party costs of $10.8 million and $8.5 million, respectively.
(2) CAODC industry average is based on drilling days divided by total days available.
(3) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions 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.

Fourth Quarter 2014

During the fourth quarter of 2014, revenue in Trinidad's Canadian operations increased by $13.4 million and 18.2% compared to the same quarter of 2013.

Revenue increased in the fourth quarter largely as a result of a change in rig mix, higher activity and dayrates compared to the prior year. In the fourth quarter, dayrates were $1,522 per day higher than the same quarter last year, reflecting improved industry conditions over the past year and an increase to wage rates in the third quarter of 2014.

Throughout 2014 industry conditions improved and customer demand increased.  This strength continued into the fourth quarter; however, as a result of weakening commodity prices, indications of softening demand began to be felt towards the end of the quarter. Utilization in the fourth quarter of 2014 averaged 62%, up from 52% in the same quarter last year due to increased demand. The Canadian operations recorded an additional 336 operating days in the fourth quarter compared to the same period last year, as rigs moved into the Canadian operations in previous quarters of 2014 were in greater demand, and more than compensated for the days lost on decommissioned rigs.

Operating income in the fourth quarter increased by $6.6 million compared to the same quarter last year reflecting higher revenue generation in the current quarter.  Operating margin - net percentage improved in the quarter, when compared to the prior year, due to higher revenue generation and the Company's continued focus on cost containment.

When compared to the third quarter of 2014, operating income increased by $3.0 million and 8.1%, and operating income - net percentage increased to 45.7% from 43.5% from the third quarter. The fourth quarter is typically marked by above average utilization as customers' programs increase leading into the winter drilling season.  Towards the end of the fourth quarter, Trinidad noted that demand was softening as commodity prices fell.  This was reflected in lower operating days in the fourth quarter compared to the third quarter of 2014.  The impact of lower operating days was offset by an increase of $1,955 per day in dayrates over the third quarter.  Dayrates increased in the current quarter as a result of industry wage increases, a change in rig mix with more high specification rigs working and revenue from winter drilling equipment. Operating costs were consistent with the previous quarter.

Full Year 2014

Trinidad's Canadian operations demonstrated strong performance in 2014, recording higher levels of operating revenue and operating income compared to 2013. The division's improved performance was mainly driven by higher utilization, dayrates and the addition of high specification rigs. These improvements were a reflection of strong industry conditions experienced through the year; although softening in the market was noted towards the end of the year as commodity prices declined. In the second and third quarters of 2014, Trinidad moved rigs into its Canadian operations to meet customer demand, changing the rig mix to include more high performance equipment and increasing the profitability and utilization of the Canadian fleet.

For the year ended December 31, 2014, operating revenue and operating income increased from the same period in the prior year due to higher utilization, dayrates and the addition of high specification rigs in the second half of the year. This impact was slightly offset by 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 and utilization were higher than the prior year, driven by the high-graded fleet and improved industry demand.

Operating income - net percentage increased during the year driven by improved profitability from the high-graded fleet, partially offset by weaker customer demand in the oil sands sector in the first quarter of 2014.  In addition, the Company's continued focus on cost containment reduced operating costs per day.

Trinidad's Canadian rig count totaled 53 rigs at the end of 2014, eight fewer than at the end of 2013.  During the year, the Company reviewed its fleet and identified 13 lower specification rigs to be removed from its fleet and decommissioned. In the current market conditions, the Company deemed that these rigs were no longer competitive, and were not economical to upgrade.  The Company has recognized impairment expense of $33.8 million as a result of these reviews. Earlier in 2014, the Company relocated two rigs from its US operations and three rigs from its Mexican operations to its Canadian operations. The rigs from Mexico were being retrofitted with top drives and other upgrades, with one rig returning to operations in the fourth quarter of 2014 and the remaining two being available to drill in 2015.

United States and International Operations

               
  Three months ended December 31,   For the years ended December 31,
($ thousands except percentage and operating data) 2014 2013 (3) % Change   2014 2013 (3) % Change
Operating revenue (1) 128,597 135,002 (4.7)   480,240 490,375 (2.1)
Other revenue 239 521 (54.1)   451 594 (24.1)
  128,836 135,523 (4.9)   480,691 490,969 (2.1)
Operating costs (1) 77,535 69,942 10.9   308,533 288,085 7.1
Operating income (1) 51,301 65,581 (21.8)   172,158 202,884 (15.1)
Operating income - net percentage (2) 39.8% 48.4%     35.8% 41.3%  
               
 Land Drilling Rigs               
Operating days (2) 4,820 4,470 7.8   18,478 18,234 1.3
Drilling days (2) 4,157 3,852 7.9   16,038 15,841 1.2
Rate per operating day (CDN$) (2) 25,150 27,243 (7.7)   23,873 23,951 (0.3)
Rate per operating day (US$) (2) 22,476 26,213 (14.3)   21,749 23,381 (7.0)
Utilization rate - operating day (2) 97% 71% 35.8   87% 73% 18.4
Utilization rate - drilling day (2) 84% 62% 36.4   75% 64% 17.5
Number of drilling rigs at period end 47 64 (26.6)   47 64 (26.6)
               
 Barge Drilling Rigs               
Operating days (2) 212 394 (46.2)   1,049 1,703 (38.4)
Rate per operating day (CDN$) (2) 36,616 34,810 5.2   37,655 32,388 16.3
Rate per operating day (US$) (2) 32,795 33,490 (2.1)   34,424 31,605 8.9
Utilization rate - operating day (2) 46% 86% (46.3)   57% 93% (38.9)
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) (1) Operating revenue and operating costs for the three months ended December 31, 2014 and 2013 exclude third party recovery and third party costs of $3.1 million and $5.3 million, respectively.
(2)  See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions 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.

Fourth Quarter 2014

Revenue decreased in Trinidad's US and international operations in the fourth quarter of 2014 compared to the fourth quarter of 2013 by $6.7 million or 4.9%. Revenue was lower in the current quarter largely due to less early termination and standby revenue received than in the same quarter last year. For the three months ended December 31, 2014, the US and international division received US$5.6 million in early termination and standby revenue compared to US$25.4 million in the fourth quarter of 2013.  Early terminations were received late in the fourth quarter of 2014 and reflect the softening of demand in the industry towards the end of the quarter.

Dayrates in the fourth quarter of 2014 were US$3,737 per day lower than the fourth quarter of 2013 as a result of higher early termination and standby revenue in 2013. Excluding the impact of early termination and standby revenue in each quarter, dayrates were US$652 per day higher in the current quarter. Higher normalized dayrates in 2014 were driven by increased customer demand reflected in the higher operating days worked by the land drilling rigs compared to the same period in the prior year. Dayrates increased in the fourth quarter of 2014 compared to the third quarter by US$1,384 per day. Higher early termination and standby revenue drove US$1,155 per day of the increased dayrates in the fourth quarter; however, dayrates also increased by US$229 per day as a result of increased activity and demand, particularly early in the fourth quarter. Activity levels in the fourth quarter of 2014 averaged 97% compared to 71% for the same quarter last year and 96% for the third quarter of 2014.

Operating days in the fourth quarter of 2014 were 350 days higher than the same period in 2013 despite having fewer rigs in the quarter.  Higher activity levels year over year reflect increased customer demand compared to the same quarter last year. However, similar to the Canadian division, there was a softening in demand towards the end of the fourth quarter driving 86 fewer operating days in the fourth quarter compared to the third quarter.

Operating income and operating income - net percentage decreased in the fourth quarter 2014 compared to the fourth quarter of 2013, but increased from the third quarter of 2014, largely due to the early termination and standby revenue discussed above.  Excluding early termination and standby revenue, operating income was $6.0 million higher and operating income - net percentage was 0.9% higher than the fourth quarter of 2013 as a result of the stronger demand in the base land drilling business and the impact of the stronger US dollar compared to 2013 impacting revenue and operating costs.

Dayrates for the Company's barge rigs decreased in the fourth quarter of 2014 by US$695 per day compared to the same period last year and US$2,277 per day compared to the third quarter of 2014.  The reduction in dayrates reflects the overall softening in the market with oversupply of barge rigs and the impact of lower commodity prices.  Utilization also dropped to 46% in the fourth quarter of 2014 compared to 86% in the fourth quarter of 2013 and 73% in the third quarter of 2014. Lower activity levels in the current quarter resulted in lower revenue and profitability.

Full Year 2014

Operating days and utilization increased in 2014 compared to the previous year; however, lower early termination and standby revenue than received in 2013 caused operating revenue to lower year over year. Early termination and standby revenue in 2014 was $14.2 million (the majority of which was recognized in the first quarter) compared to $34.1 million in 2013 (the majority of which was recognized in the fourth quarter). Excluding the impact of early termination and standby revenue from both years, operating revenue in 2014 was $466.0 million, $9.7 million higher than in 2013. In addition, operating revenue was negatively impacted in 2014 by lower activity in the barge operations and the impact from the Mexican rigs which were idle in 2014 but were active in the first half of 2013. This was partly offset by the favorable impact of foreign exchange.

In 2014, total operating days increased by 244 days in the US and international division despite having fewer rigs in the fleet, driven by the strong demand from customers for most of the year. For the year ended December 31, 2014, dayrates decreased by US$1,632 per day compared to the prior year. The decrease reflects the lower early termination and standby revenue in the current year.  Excluding the impact of early termination and standby revenue, dayrates were US$455 per day lower in 2014 than 2013.  Increasing demand in the second and third quarters of 2014 in the US allowed Trinidad to re-activate its lower specification rigs, changing the active rig mix and resulting in a lower average dayrate compared to the previous periods. Additionally, several high dayrate rigs that received termination revenue in late 2013 and early 2014 were not fully utilized in the first half of 2014, lowering the overall average dayrate. These rigs had all returned to work in the third quarter of 2014 and continued through the fourth quarter. Softening in the market was noted towards the end of the year consistent with the decline in commodity prices.

Operating income and operating income - net percentage declined in the year. The decline in revenue, discussed above, was further impacted by increased operating expenses. In the first half of 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 year. Excluding the impact of the prior year's early termination and standby revenue, Mexican rig redeployment costs and the barge operations, operating income - net percentage for Trinidad's underlying US land drilling business was in line with the prior year.

At December 31, 2014, Trinidad's US and international rig count totaled 47 rigs, 17 fewer rigs than at the same time last year. During 2014, the Company reviewed its fleet and identified nine rigs to be removed from the fleet and decommissioned, as it was determined that in the current market conditions these rigs were no longer competitive and were not economical to upgrade.  The Company recognized impairment expense of $22.9 million as a result of these reviews. In addition, the rig count also lowered during 2014 as a result of two US rigs and three Mexican rigs being redeployed to the Company's Canadian drilling operations. The rig count was also reduced year over year as three rigs were sold to the joint venture in the first quarter of 2014.

While Trinidad's barge drilling rigs had higher dayrates in the current year compared to last year, an increase of US$2,819 per day, an oversupply of barge rigs in the market and lower commodity prices had a significant negative impact on activity levels in the second half of the year.  Lower activity levels resulted in much lower revenue generation and profitability for the year. As a result of this, the Company recorded an impairment expense totaling $20.8 million for the year ended December 31, 2014 relating to the barge rigs and related equipment.

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 December 31,   For the years ended December 31,
($ thousands except percentage and operating data) 2014 2013 % Change   2014 2013 % Change
Operating revenue  17,839 - -   42,428 - -
Other revenue - - -   - - -
  17,839 - -   42,428 - -
Operating costs  11,666 - -   26,149 46 N/A
Operating income (1) 6,173 - -   16,279 (46) N/A
Operating income - net percentage (1) 34.6% -     38.4% -  
               
Number of drilling rigs at period end 6 - 100.0   6 - 100.0
Number of active drilling rigs at period end 4 - 100.0   4 - 100.0
(1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.

Fourth Quarter 2014

For the three months ended December 31, 2014, TDI recorded operating income and operating income - net percentage of $6.2 million and 34.6%, respectively. At December 31, 2014, TDI had four rigs operating in Saudi Arabia and had begun mobilizing two rigs to location in Mexico. As with any operations that are in initial start-up phase, economies of scale are gained as additional rigs are added to the operations and more normalized revenue and costs are established. Trinidad anticipates that by the second quarter of 2015, the joint venture will have four rigs operating in Saudi Arabia and four rigs operating in Mexico, and that revenue and costs will begin to better demonstrate the future profitability of the joint venture once all rigs are operational.

During the three months ended December 31, 2014, Trinidad recorded a gain from investment in joint venture of $1.4 million, reflecting Trinidad's share of TDI's net earnings during the period.  The operating income of TDI noted above was partly offset by general and administration and depreciation and amortization expenses. For the three months ended December 31, 2014, the adjusted EBITDA from investment in joint venture was $0.7 million, which is $1.6 million higher than the same period in the prior year.

Full Year 2014

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 and Mexico. 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 (gain) loss from investment in joint venture.

During the year ended December 31, 2014, TDI took ownership of three upgraded rigs purchased from Trinidad's US land drilling division and three new build rigs purchased from Trinidad's manufacturing division. Four of these rigs were drilling in 2014, with two rigs expected to begin operations in the first half of 2015 in Mexico.

For the year ended December 31, 2014, TDI recorded operating income and operating income - net percentage of $16.3 million and 38.4%, respectively. As at December 31, 2014, TDI had four rigs drilling in Saudi Arabia, with two rigs mobilizing to Mexico. Each of the rigs in Mexico will be high performance, 3,600 horsepower, AC, walking rigs, operating under three-year, take-or-pay contracts with an optional one year extension.

The gain from investment in joint venture reflects Trinidad's share of TDI's operating income, as noted above, less general and administrative and depreciation and amortization expenses that largely offset the operating income for the year ended December 31, 2014.  For the year ended December 31, 2014, the adjusted EBITDA from investment in joint venture was $1.8 million, which is $2.6 million higher than 2013.

Manufacturing Operations

               
  Three months ended December 31,   For the years ended December 31,
($ thousands except percentage and operating data) 2014 2013 % Change   2014 2013 % Change
Operating revenue (1) 45,896 711 6,355.1   88,614 2,461 3,500.7
Other revenue 5 - -   51 - -
  45,901 711 6,355.8   88,665 2,461 3,502.8
Operating costs (1) 43,662 731 5,872.9   83,075 3,252 2,454.6
Operating income (2) 2,239 (20) 11,295.0   5,590 (791) 806.7
Operating income - net percentage (2) 4.9% (2.8%)     6.3% (32.1%)  
(1) For the three months ended December 31, 2014, excluded from operating revenue and operating costs are downstream elimination entries of $62.1 million and $58.2 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 Definitions and Additional GAAP Measures Definitions section of this document for further details.

Fourth Quarter 2014

During the fourth quarter of 2014, Trinidad's manufacturing operations mobilized two rigs to TDI for operation in MexicoTrinidad expects delivery of the remaining two rigs to Mexico in the first half of 2015. A training rig being built for the joint venture partner is in the final stages of completion and is expected to be delivered towards the end of the first quarter of 2015.

For the fourth quarter, Trinidad recognized revenue and expenses related to the Saudi Arabian and Mexican rig builds and the training rig, compared to minimal external new build revenue or expenses recognized during the same period in the prior year.

Full Year 2014

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 records operating revenue and costs, management believes that presenting this division as a separate operating segment from the Company's drilling operations is more useful to users as it provides 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 contracts for a total of five new builds; one rig for the joint venture to operate in Saudi Arabia, and four rigs for the joint venture to operate in Mexico. Additionally, Trinidad had agreed to build a training rig for its joint venture partner.

For the year ended December 31, 2014, Trinidad recognized revenues and expenses related to the Saudi and Mexico rig builds and the training rig, compared to minimal external new build revenues or expenses recognized in 2013.

Trinidad's manufacturing operations delivered the new Saudi rig to the joint venture in the third quarter of 2014 and delivered two new rigs to Mexico at the end of 2014. The Company expects to deliver the remaining two rigs for Mexico in the first half of 2015. The training rig is nearly completed and is expected to be delivered in the first quarter of 2015.

Trinidad also expects to complete three new rig builds under long-term, take-or-pay contracts for its US operations during the first three quarters of 2015. The rigs will be high performance Candrill, 1,500 horsepower, AC rigs with walking systems and 7,500 PSI circulating systems.

FINANCIAL HIGHLIGHTS - QUARTERLY ANALYSIS

                 
   2014 2013
($ millions except per share data and operating data)  Q4  Q3   Q2   Q1   Q4   Q3   Q2   Q1 
Revenue 276.4 244.5 168.9 251.5 224.6 208.7 165.4 247.2
Operating income (1) 93.9 80.5 45.6 95.2 99.6 76.2 55.7 98.4
Operating income percentage (1) 34.0% 32.9% 27.0% 37.8% 44.4% 36.5% 33.6% 39.8%
Operating income - net percentage (1) 35.6% 34.7% 28.3% 41.1% 47.0% 38.5% 35.6% 43.3%
Net (loss) earnings (13.5) 19.2 (24.8) 25.9 28.8 9.2 0.3 32.7
Adjustments for:                
  Depreciation and amortization  34.0 33.4 27.3 30.3 29.5 30.1 27.6 29.9
  Foreign exchange  (0.1) 0.5 1.5 3.1 0.9 0.4 - -
  Loss (gain) on sale of property and equipment  3.5 0.1 (1.3) (10.5) 0.1 (0.1) 1.3 -
  Impairment of property and equipment  56.9 - 20.6 - - - 0.1 -
  (Income) loss from investment in Joint Venture  (1.3) 1.6 (0.4) 0.1 0.8 - - -
  Finance costs  9.8 9.7 10.0 10.0 12.0 10.4 10.0 10.0
  Income taxes  (8.9) 4.9 (7.2) 15.3 11.1 5.9 (1.6) 9.4
  Interest Income  - (0.1) (0.1) (0.2) (0.1) - - -
  Other expense  0.6 (4.0) 5.3 5.5 1.5 5.9 2.2 2.8
  Income taxes paid  (0.3) (0.7) (0.7) (0.5) (1.8) - (0.8) (1.3)
  Income taxes recovered  0.4 1.3 0.2 0.3 1.5 0.4 0.7 -
  Interest paid  (1.4) (19.5) (0.5) (18.7) (1.1) (18.4) (0.7) (18.6)
  Interest received  - 0.1 0.1 0.2 0.1 - - -
Funds provided by operations (1) 79.7 46.5 30.0 60.7 83.3 43.8 39.1 64.9
Net (loss) earnings per share (diluted) (0.10) 0.14 (0.18) 0.19 0.23 0.08 - 0.27
Funds provided by operations per share (diluted)(1) 0.58 0.34 0.22 0.44 0.67 0.36 0.32 0.54

 

(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 
($ thousands except per share data and operating data)   Q4   Q3   Q2   Q1   Q4   Q3   Q2   Q1 
EBITDA (1) 21,308 67,207 5,445 81,255 81,246 55,635 36,326 82,014
  Per share (diluted) (2) 0.15 0.48 0.04 0.58 0.65 0.46 0.30 0.68
Adjusted EBITDA (1) 77,341 64,619 30,645 79,441 83,830 61,838 39,941 84,836
  Per share (diluted) (2) 0.56 0.47 0.22 0.57 0.68 0.51 0.33 0.70
Adjusted net (loss) earnings (1) 23,565 14,602 (5,557) 27,746 31,221 15,449 2,631 35,534
  Per share (diluted) (2) 0.17 0.11 (0.04) 0.20 0.25 0.13 0.02 0.29
(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 
     Q4  Q3   Q2   Q1   Q4   Q3   Q2   Q1 
Land Drilling Market                 
Operating days (1)                
  Canada  3,271 3,424 1,431 4,077 2,935 3,018 1,434 4,198
  United States and International 4,820 4,906 4,441 4,311 4,470 4,733 4,578 4,453
Rate per operating day (1)                
  Canada (CDN$) 26,624 24,669 26,338 25,415 25,102 23,686 25,511 25,401
  United States and International (CDN$) 25,150 22,842 22,890 24,630 27,243 23,297 22,908 22,416
  United States and International (US$) 22,476 21,092 20,819 22,641 26,213 22,460 22,436 22,487
Utilization rate - operating day (1)                
  Canada  62% 66% 26% 74% 52% 54% 26% 79%
  United States and International 97% 96% 80% 76% 71% 76% 73% 72%
Number of drilling rigs at period end (3)                
  Canada  53 61 59 61 61 61 60 60
  United States and International 47 54 56 61 64 68 68 68
  Coring and surface casing rigs - - - - - - 15 15  
Barge Drilling Market                 
  Operating days (1) 212 334 259 244 394 449 445 415
  Rate per operating day (CDN$) (1) 36,616 37,967 37,953 37,815 34,810 33,962 31,731 29,097
  Rate per operating day (US$) (1) 32,795 35,072 34,599 34,767 33,490 32,740 31,077 29,158
  Utilization rate - operating day (1) 46% 73% 57% 54% 86% 97% 98% 92%
  Number of barge drilling rigs at period end  2 2 2 2 2 2 2 2
  Number of barge drilling rigs under
  Bareboat Charter Agreements at period end 
3 3 3 3 3 3 3 3
Joint Venture Operations (2)                
  Number of drilling rigs at period end 6 4 3 - - - - -

(1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.
(2) Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. The rigs are owned by the joint venture.
(3) Refer to the Results from Operations section for details on changes to the rig count.

GENERAL AND ADMINISTRATIVE

               
  Three months ended December 31,   For the years ended December 31,
($ thousands except percentage) 2014 2013 % Change   2014 2013 % Change
General and administrative (1) 16,770 14,188 18.2   63,430 57,767 9.8
  % of revenue  6.1% 6.3%     6.7% 6.8%  
  Share-based payment expense  (3,458) 1,572 (320.0)   765 12,410 (93.8)
  Third party recoverable costs  492 827 (40.5)   1,454 827 75.8
  Total general and administrative  13,804 16,587 (16.8)   65,649 71,004 (7.5)
  % of revenue  5.0% 7.4%     7.0% 8.4%  
(1) General and administrative expenses excluding share-based payment expense and third party recoverable costs. This number is discussed as "Other G&A" per the below analysis.

For the year ended December 31, 2014, total general and administrative (G&A) expenses decreased by $5.4 million or 7.5%, compared to 2013.

For the year ended December 31, 2014, other G&A expenses increased by $5.7 million compared to the prior year as a result of costs associated with establishing the Company's joint venture and subsequent international growth.  Costs related to professional fees, administration salary expenses, office expenses, and travel expenses have increased, as a result of the international expansion.  This was partly offset by a $1.9 million bad debt expense in the prior year compared to nil in the current year.

Share-based payment expense decreased by $11.6 million year over year. The decrease was mainly due to a lower share price at the end of 2014 which was slightly offset by an increase in the number of Performance Share Units outstanding during the current year. In addition, in the current year the number of Deferred Share Units declined mainly due to units exercised by a retiring director. Annual grants for both Performance Share Units and Deferred Share Units generally occur in the first quarter of the current fiscal year.

Third party recoverable costs relate to costs incurred by Trinidad on behalf of the joint venture. As these costs are fully recoverable, Trinidad records a related revenue entry for this same amount, causing no net income effect.

FINANCIAL SUMMARY

                 
As at   December 31,     December 31,      
($ thousands)   2014     2013      $ Change 
Working capital (1)   166,502     303,120     (136,618)
                   
Senior Notes   519,759     476,107     43,652
Credit facility   15,000     -     15,000
      534,759     476,107     58,652
Less: unamortized debt issue costs   (6,951)     (7,437)     486
Total long-term debt   527,808     468,670     59,138
Total long-term debt as a percentage of assets   27.2%     25.6%      
                   
                   
Total assets   1,941,621     1,827,496     114,125
Total long-term liabilities   628,047     564,095     63,952
Total long-term liabilities as a percentage of assets   32.3%     30.9%      
                   
For the year ended December 31,    2014      2013       $ Change 
Cash provided by operations   156,519     299,013     (142,494)
Cash used by investing   (331,421)     (103,789)     (227,632)
Cash (used) provided by financing   (29,484)     64,507     (93,991)
(1) See Non-GAAP Measures Definitions section of this document for further details.

For the year ended December 31, 2014, working capital decreased by $136.6 million when compared to the prior year, due to a decrease in current assets of $108.2 million and an increase in current liabilities of $28.4 million.

Current assets decreased during the year as cash balances received in the prior year from a share issuance and customer deposits were used for purchases of property and equipment, manufacturing of external rig builds and to fund Trinidad's investment in TDI.  Offsetting this are increased accounts receivable from the increased activity in the land drilling and manufacturing operations, inventory relating to progress on external rig builds, and prepaid expenses for the long lead items needed for rig builds.

Current liabilities increased in the current period mainly related to an increase in accounts payable related to higher activity at year end for the land drilling operations in Canada and the US, combined with activity on external rig builds.  Deferred revenue was reduced as the manufacturing division moved closer to completing its external rig builds and recognized revenue for amounts collected in advance.

Trinidad's total long-term debt balance increased by $59.1 million compared to the prior year. This increase was largely due to the increase in the Senior Notes at December 31, 2014, as 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 exchange rates. The Senior Notes are due January 15, 2019 and interest is payable semi-annually in arrears on January 15 and July 15.  In addition, $15.0 million was drawn on Trinidad's Canadian dollar revolving credit facility.  No amounts were drawn at December 31, 2013.

On December 12, 2014, Trinidad amended and extended its credit facility, including additional commitments under the US dollar denominated revolving facility. The new credit facility includes a Canadian revolving facility of C$200 million (previously C$200 million) and a US revolving facility of US$200 million (previously US$100 million) and matures on December 16, 2018 and is subject to annual extensions of an additional year on each anniversary.

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.

Capital expenditures

               
For the years ended December 31,        2014     2013
New builds       154,754     26,944
Capital upgrades and enhancements       76,831     48,272
Maintenance and infrastructure       45,062     15,044
Total       276,647     90,260

 

During the year ended December 31, 2014, a total of $276.6 million was spent on capital expenditures, compared to $90.3 million in the prior year. The 2014 capital expenditures included new build capital associated with the Company's Canadian new build that mobilized in the beginning of 2015 and an existing rig purchased during the third quarter of 2014. The purchased rig was moved to the Middle East and is currently undergoing upgrades. The rig is being evaluated for several opportunities and is expected to begin operations in 2015. In addition, costs incurred to upgrade the three US land drilling rigs that were sold to Trinidad's joint venture for operations in Saudi Arabia are included in the new build capital expenditures. For 2014, Trinidad spent $76.8 million on upgrading existing equipment including adding moving systems, top drives and mud systems, to ensure the Company's rigs remain competitive in the current market.  In addition, Trinidad spent $45.1 million on maintenance and infrastructure projects in 2014.

Trinidad spent $334.6 million, net of proceeds received from the sale of rigs into the joint venture, 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 December 31, 2014, three upgraded rigs and one new build rig were delivered to the joint venture for operations in Saudi Arabia. All four rigs contributed to operations in the current quarter. Work also progressed in the fourth quarter on the four joint venture rigs Trinidad is constructing for operation in Mexico, with two being delivered at the end of the fourth quarter.

In 2015, Trinidad expects to spend a total of approximately $175.0 million on capital projects. This total includes the completion of three US new builds for Trinidad's fleet and two Mexican new builds for the joint venture.  Certain items purchased for new builds and upgrades no longer required will be put into capital inventory for use in Trinidad's existing fleet.  In order to reduce capital outlays, Trinidad and its customer have agreed to fulfill two US new build commitments with rigs from Trinidad's existing fleet.  In addition, the Company has chosen to postpone upgrades previously scheduled for existing rigs and will review this decision as market conditions change throughout the upcoming year.

The 2015 capital budget is broken down as follows:

       
2015 Capital Budget ($ millions)     2015
Growth Capital (Trinidad owned equipment)       90
Capital Inventory       35
Maintenance and infrastructure capital       10
        135
Joint venture capital (Trinidad's 60% share)       40
Total 2015 capital budget       175

 

Trinidad expects cash provided by 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 within the financial ratio covenants under the revolving credit facility as reflected in the table below under IFRS:

                 
RATIO   December 31,     December 31,     THRESHOLD
      2014     2013      
                   
Consolidated Senior Debt to Consolidated Bank EBITDA (1)    (0.18):1      0.00:1      3.00:1 maximum
Consolidated Total Debt to Consolidated Bank EBITDA (1) (2)    1.93:1      1.80:1      4.00:1 maximum
Consolidated Bank EBITDA to Consolidated Cash Interest Expense (1)    6.20:1      6.90:1      2.75:1 minimum
(1) Please see the Non-GAAP Measures Definitions section of this document for further details.
(2) The 2013 ratio would have been 0.84:1 if it had been calculated in accordance with the updated covenant calculation per the 2014 amended and extended credit facility.

 

At year end, Total Debt to Bank EBITDA was 1.93 times, compared to 1.80 times at December 31, 2013. Total Debt to Bank EBITDA increased due to lower adjusted EBITDA in the year ended December 31, 2014, compared to the prior year and a higher debt balance at December 31, 2014, largely due to a stronger US dollar translation.

Readers are cautioned that the ratios noted above do not have standardized meanings as calculated under IFRS.

OUTLOOK

In late in 2014 and early 2015, weaker commodity prices have led to a strong pull back in activity from customers across North America. In Canada, there are 265 active rigs as of March 2, 2015, down 56% from the same time last year and in the US the active rig count is at 1,208 rigs, down 30% from the same time last year. The impact of lower customer demand was initially felt in the conventional, mechanical style rigs; however, spot market rates and activity levels for high performance equipment have also come under pressure in recent weeks. Trinidad expects that lower commodity prices will increase the importance of drilling efficiency and that demand for high performance equipment, such as Trinidad's, should continue to outperform older, less efficient equipment in 2015.

As a result of weaker market conditions, management has developed what it believes to be a prudent capital program of $175 million for 2015. This program includes the completion of US and joint venture new builds carried over from 2014, some minor upgrades, capital inventory and maintenance capital. Trinidad is focused on managing well costs for its customers, lowering operating costs wherever possible, and leveraging its high performance fleet to gain market share based on efficiency. As part of pursuing these strategies, Trinidad has taken steps to lower its cost structure and capital spending across the Company. Headcount in all divisions has been reduced by a minimum of 20% for salaried positions. In addition, all executives and directors have taken a 10% reduction in salaries and board fees, and a company-wide average wage roll back of 7% has been implemented.

Trinidad currently has more than 45% of its fleet under long-term, take-or-pay contract with an average term remaining of approximately 1.5 years, providing the Company with a level of revenue stability.

The drilling industry is an inherently cyclical business, and Trinidad is no stranger to the fluctuations of commodity prices. The Company has worked hard over the last few years to position itself to withstand these cycles and to take advantage of the opportunities they often uncover. In the past few years, Trinidad has continued to enhance its fleet, keeping it one of the most modern and technically advanced in the industry. The Company has broadened its customer base to eliminate any high levels of concentration and has added geographic diversity with its international operations. In addition and perhaps most importantly, Trinidad has paid off debt and improved its financial flexibility. At year end 2014, Trinidad had Total Debt to Bank EBITDA of 1.93 times and expects to remain well within its debt covenant of 4.00 times for the foreseeable future.

While Trinidad is not immune to the impacts of lower crude oil and natural gas prices, the Company's strengthened balance sheet and focus on high specification equipment increases the Company's stability. Additionally, it provides the Company opportunities to move rigs to areas of higher demand both in North America and internationally and improve its ability to withstand periods of lower demand. Trinidad expects to exit this down cycle positioned to perform strongly as industry conditions improve.

CONFERENCE CALL

A conference call and webcast to discuss the results will be held for the investment community on Thursday, March 5th, 2015 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 March 5th, 2015 until 11:59 p.m. MT March 12th, 2015 by dialing (855) 859-2056 or (416) 849-0833 and entering replay access code 79726017.

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, Trinidad has the opportunity to operate drilling rigs in other international markets such as Saudi Arabia 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 STATEMENTS OF FINANCIAL POSITION            
             
As at      December 31,      December 31, 
($ thousands)     2014      2013 
             
Assets            
Current Assets            
Cash and cash equivalents     71,062     268,160
Accounts receivable      223,750     166,557
Inventory     29,618     8,474
Prepaid expenses     19,755     5,557
Assets held for sale     -     3,685
      344,185     452,433
             
Property and equipment     1,325,730     1,275,465
Intangible assets and goodwill     99,678     91,729
Deferred income taxes     8,070     -
Investment in joint venture     163,958     7,869
      1,941,621     1,827,496
             
Liabilities            
Current Liabilities            
Accounts payable and accrued liabilities      156,003     110,455
Dividends payable     6,758     6,906
Deferred revenue and customer deposits     14,922     31,952
      177,683     149,313
             
Long-term debt     527,808     468,670
Deferred income taxes     100,239     95,425
      805,730     713,408
             
Shareholders' Equity            
Common shares     1,093,426     1,117,197
Contributed surplus     59,005     50,607
Accumulated other comprehensive income     62,470     4,404
Deficit     (79,010)     (58,120)
      1,135,891     1,114,088
      1,941,621     1,827,496
             
Commitments and contingencies            

 

             
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME             
             
For the years ended December 31,            
($ thousands)   2014       2013
             
Revenue            
Oilfield service revenue   938,083       844,342
Other revenue   3,251       1,546
    941,334       845,888
             
Expenses             
Operating expense   626,175       516,081
General and administrative   65,649       71,004
Depreciation and amortization   125,012       117,067
Foreign exchange    5,017       1,342
(Gain) loss on sale of property and equipment   (8,238)       1,341
Impairment of property and equipment   77,535       131
    891,150       706,966
             
(Gain) loss from investment in joint venture   (19)       768
Finance costs   39,531       42,368
Earnings before income taxes   10,672       95,786
             
Income taxes             
Current   4,557       1,077
Deferred    (481)       23,757
    4,076       24,834
Net earnings   6,596       70,952
             
Other comprehensive income             
Foreign currency translation adjustment, net of income tax   58,066       38,807
    58,066       38,807
Total comprehensive income   64,662       109,759
Earnings per share            
Net earnings            
Basic     0.05       0.58
Diluted     0.05       0.58

 

                     
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                    
For the years ended December 31,                    
            Accumulated        
            other        
     Common    Contributed    comprehensive       Total
($ thousands)    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
 Shares repurchased through normal course issuer bid    (24,578)   8,090   -   -   (16,488)
 Share-based payment expense    -   523   -   -   523
 Total comprehensive income   -   -   58,066   6,596   64,662
 Dividends    -   -   -   (27,486)   (27,486)
 Balance at December 31, 2014    1,093,426   59,005   62,470   (79,010)   1,135,891
                     
 Balance at December 31, 2012    952,043   50,245   (34,403)   (104,036)   863,849
 Exercise of stock options    142   (32)   -   -   110
 Share-based payment expense    -   394   -   -   394
 Total comprehensive income   -   -   38,807   70,952   109,759
 Dividends    -   -   -   (25,036)   (25,036)
 Share issuance proceeds    172,500   -   -   -   172,500
 Share issuance costs    (7,488)   -   -   -   (7,488)
 Balance at December 31, 2013    1,117,197   50,607   4,404   (58,120)   1,114,088

(1) Accumulated other comprehensive income 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 the years ended December 31,      
($ thousands)     2014       2013
                 
Cash provided by (used in)              
Operating activities              
Net earnings     6,596       70,952
Adjustments for:              
  Depreciation and amortization     125,012       117,067
  Foreign exchange     5,017       1,342
  (Gain) loss on sale of property and equipment     (8,238)       1,341
  Impairment of property and equipment     77,535       131
  (Gain) loss from investment in joint venture     (19)       768
  Finance costs     39,531       42,368
  Income taxes     4,076       24,834
  Interest income     (412)       (100)
  Other (1)     7,358       12,410
  Income taxes paid     (2,171)       (3,873)
  Income taxes recovered     2,254       2,556
  Interest paid     (39,978)       (38,761)
  Interest received     412       100
Funds provided by operations     216,973       231,135
Change in non-cash operating working capital     (60,454)       67,878
Cash provided by operations     156,519       299,013
                 
Investing activities              
Purchase of property and equipment     (276,647)       (90,260)
Proceeds from disposition of property and equipment     137,170       13,467
Investment in joint venture     (170,427)       (8,529)
Change in non-cash working capital     (21,517)       (18,467)
Cash used by investing     (331,421)       (103,789)
                 
Financing activities              
Proceeds from long-term debt     15,000       39,257
Repayments of long-term debt     -       (115,241)
Repurchase of shares     (16,488)       -
Proceeds from exercise of options     592       110
Dividends paid     (27,634)       (24,172)
Gross proceeds from share issuance     -       172,500
Share issuance costs     -       (7,488)
Finance costs     (954)       (459)
Cash (used) provided by financing     (29,484)       64,507
                 
Cash flow from operating, investing and financing activities     (204,386)       259,731
Effect of translation of foreign currency cash     7,288       3,496
(Decrease) increase in cash for the year     (197,098)       263,227
                 
Cash and cash equivalents - beginning of year     268,160       4,933
Cash and cash equivalents - end of year     71,062       268,160
(1) Other includes share-based payment expense and elimination of downstream transactions in the Manufacturing operations net earnings.

SEGMENTED INFORMATION

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

                             
For three months ended        United States /                    
December 31, 2014   Canadian   International   Manufacturing   Joint Venture   Inter-segment        
($ thousands)   Operations   Operations   Operations   Operations (1)   Eliminations   Corporate   Total
                             
Operating revenue   87,102   128,597   108,018   -   -   -   323,717
Other revenue   35   263   5   -   -   -   303
Third party recovery   10,839   3,141   -   -   -   -   13,980
General and administrative - third party recovery   -   -   -   -   -   492   492
Inter-segment revenue   -   -   52,352   -   (52,352)   -   -
Elimination of downstream transactions   -   (24)   (62,122)   -   -   -   (62,146)
    97,976   131,977   98,253   -   (52,352)   492   276,346
Operating costs   47,342   77,535   101,812   -   -   -   226,689
Third party costs   10,839   3,141   -   -   -   -   13,980
Inter-segment operating   -   -   52,352   -   (52,352)   -   -
Elimination of downstream transactions   -   -   (58,150)   -   -   -   (58,150)
Operating income   39,795   51,301   2,239   -   -   492   93,827
Depreciation and amortization   12,321   21,209   407   -   -   -   33,937
Loss (gain) on sale of assets   2,333   1,157   (23)   -   -   -   3,467
Elimination of downstream transactions   -   -   -   -   -   -   -
Impairment of capital assets   20,502   36,403   -   -   -   -   56,905
Impairment of intangible assets and goodwill   -   -   -   -   -   -   -
    35,156   58,769   384   -   -   -   94,309
Segmented income (loss)   4,639   (7,468)   1,855   -   -   492   (482)
Gain from investment in joint venture   -   -   -   (1,376)   -   -   (1,376)
General and administrative   -   -   -   -   -   13,312   13,312
General and administrative - third party costs   -   -   -   -   -   492   492
Foreign exchange   -   -   -   -   -   (280)   (280)
Finance costs   -   -   -   -   -   9,808   9,808
Income taxes   -   -   -   -   -   (8,931)   (8,931)
Net earnings (loss)   4,639   (7,468)   1,855   1,376   -   (13,909)   (13,507)
                               
Purchase of property and equipment   30,404   42,997   -   -   -   -   73,401
(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 revenue 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 three months ended        United States /                    
December 31, 2013   Canadian   International   Manufacturing   Joint Venture   Inter-segment        
($ thousands)   Operations   Operations   Operations   Operations (1)   Eliminations   Corporate   Total
                             
Operating revenue    73,663   135,002   711   -   -   -   209,376
Other revenue    64   521   -   -   -   -   585
Third party recovery    8,480   5,295   -   -   -   -   13,775
General and administrative - third party recovery    -   -   -   -   -   827   827
Inter-segment revenue    -   -   6,640   -   (6,640)   -   -
Elimination of downstream transactions    -   -   -   -   -   -   -
    82,207   140,818   7,351   -   (6,640)   827   224,563
Operating costs    40,508   69,942   731   -   -   -   111,181
Third party costs    8,480   5,295   -   -   -   -   13,775
Inter-segment operating    -   -   6,640   -   (6,640)   -   -
Elimination of downstream transactions    -   -   -   -   -   -   -
Operating income (loss)   33,219   65,581   (20)   -   -   827   99,607
Depreciation and amortization    10,676   18,418   418   -   -   -   29,512
Loss (gain) on sale of assets    104   (49)   (2)   -   -   -   53
Elimination of downstream transactions    -   -   -   -   -   -   -
Impairment of capital assets    -   -   -   -   -   -   -
Impairment of intangible assets and goodwill    -   -   -   -   -   -   -
    10,780   18,369   416   -   -   -   29,565
Segmented income (loss)    22,439   47,212   (436)   -   -   827   70,042
Loss from investment in joint venture    -   -   -   762   -   -   762
General and administrative    -   -   -   -   -   15,760   15,760
General and administrative - third party costs    -   -   -   -   -   827   827
Foreign exchange    -   -   -   -   -   959   959
Finance costs    -   -   -   -   -   11,975   11,975
Income taxes    -   -   -   -   -   11,069   11,069
Net earnings (loss)    22,439   47,214   (436)   (762)   -   (39,763)   28,690
 
Purchase of property and equipment    3,151   35,037   1,723   -   -   -   39,911
(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 revenue 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 the year ended       United States /                    
December 31, 2014   Canadian   International   Manufacturing   Joint Venture   Inter-segment        
($ thousands)   Operations   Operations   Operations   Operations (1)   Eliminations   Corporate   Total
                             
Operating revenue   312,871   480,240   184,817   -   -   -   977,928
Other revenue   1,295   475   51   -   -   -   1,821
Third party recovery   39,784   16,574   -   -   -   -   56,358
General and administrative - third party recovery   -   -   -   -   -   1,454   1,454
Inter-segment revenue   -   -   102,870   -   (102,870)   -   -
Elimination of downstream transactions   -   (24)   (96,203)   -   -   -   (96,227)
    353,950   497,265   191,535   -   (102,870)   1,454   941,334
Operating costs   178,209   308,533   172,710   -   -   -   659,452
Third party costs   39,784   16,574   -   -   -   -   56,358
Inter-segment operating   -   -   102,870   -   (102,870)   -   -
Elimination of downstream transactions   -   -   (89,635)   -   -   -   (89,635)
Operating income   135,957   172,158   5,590   -   -   1,454   315,159
Depreciation and amortization   44,603   78,820   1,589   -   -   -   125,012
Loss (gain) on sale of assets   1,928   (28,269)   (23)   -   -   -   (26,364)
Elimination of downstream transactions   -   18,126   -   -   -   -   18,126
Impairment of capital assets   33,869   43,666   -   -   -   -   77,535
    80,400   112,343   1,566   -   -   -   194,309
Segmented income   55,557   59,815   4,024   -   -   1,454   120,850
Gain from investment in joint venture   -   -   -   (19)   -   -   (19)
General and administrative   -   -   -   -   -   64,195   64,195
General and administrative - third party costs   -   -   -   -   -   1,454   1,454
Foreign exchange   -   -   -   -   -   5,017   5,017
Finance costs   -   -   -   -   -   39,531   39,531
Income taxes   -   -   -   -   -   4,076   4,076
Net earnings (loss)   55,557   59,815   4,024   19   -   (112,819)   6,596
                             
Purchase of property and equipment   134,943   141,540   164   -   -   -   276,647

 

(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 revenue 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 the year ended       United States /                    
December 31, 2013   Canadian   International   Manufacturing   Joint Venture   Inter-segment        
($ thousands)   Operations   Operations   Operations   Operations (1)   Eliminations   Corporate   Total
                             
Operating revenue   297,696   490,375   2,461   -   -   -   790,532
Other revenue   125   594   -   -   -   -   719
Third party recovery   32,246   21,564   -   -   -   -   53,810
General and administrative - third party recovery   -   -   -   -   -   827   827
Inter-segment revenue   -   -   33,014   -   (33,014)   -   -
Elimination of downstream transactions   -   -   -   -   -   -   -
    330,067   512,533   35,475   -   (33,014)   827   845,888
Operating costs   170,934   288,085   3,252   -   -   -   462,271
Third party costs   32,246   21,564   -   -   -   -   53,810
Inter-segment operating   -   -   33,014   -   (33,014)   -   -
Elimination of downstream transactions   -   -   -   -   -   -   -
Operating income (loss)   126,887   202,884   (791)   -   -   827   329,807
Depreciation and amortization   39,496   75,704   1,867   -   -   -   117,067
Loss (gain) on sale of assets   412   936   (7)   -   -   -   1,341
Elimination of downstream transactions   -   -   -   -   -   -   -
Impairment of capital assets   131   -   -   -   -   -   131
    40,039   76,640   1,860   -   -   -   118,539
Segmented income (loss)   86,848   126,244   (2,651)   -   -   827   211,268
Loss from investment in joint venture   -   -   -   768   -   -   768
General and administrative   -   -   -   -   -   70,177   70,177
General and administrative - third party costs   -   -   -   -   -   827   827
Foreign exchange   -   -   -   -   -   1,342   1,342
Finance costs   -   -   -   -   -   42,368   42,368
Income taxes   -   -   -   -   -   24,834   24,834
Net earnings (loss)   86,848   126,244   (2,651)   (768)   -   (138,721)   70,952
                             
Purchase of property and equipment   38,353   50,010   1,897   -   -   -   90,260

(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 revenue 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 is derived from the consolidated statements of operations and comprehensive income and is calculated as follows:

             
     Three months ended    For the years ended
    December 31,   December 31,
($ thousands) 2014 2013   2014 2013
 Net (loss) earnings  (13,507) 28,690   6,596 70,952
 Plus:           
   Finance costs  9,808 11,975   39,531 42,368
   Depreciation and amortization  33,938 29,513   125,012 117,067
   Income taxes  (8,931) 11,068   4,076 24,834
 EBITDA  21,308 81,246   175,215 255,221

 

"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.

EBITDA from investment in joint venture is derived from the consolidated statements of operations and comprehensive income of the Trinidad Drilling International (TDI) and is calculated as follows:

           
     Three months ended     For the years ended 
    December 31,   December 31,
($ thousands) 2014 2013   2014 2013
 Gain (loss) from investment in joint venture  1,376 (762)   19 (768)
 Plus:         
   Finance costs  34 -   34 -
   Depreciation and amortization  1,672 -   2,916 -
   Income taxes  (2,562) -   (1,449) -
 EBITDA from investment in joint venture  520 (762)   1,520 (768)

 

"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 expenses 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.

           
     Three months ended     For the years ended 
    December 31,   December 31,
($ thousands) 2014 2013   2014 2013
 EBITDA  21,308 81,246   175,215 255,221
 Plus:           
   Loss (gain) on sale of property and equipment  3,466 53   (8,238) 1,341
   Impairment of property and equipment  56,905 -   77,535 131
   Share-based payment expense  (3,458) 1,572   765 12,410
   Foreign exchange  (281) 959   5,017 1,342
   (Gain) loss from investment in joint venture  (1,376) 762   (19) 768
 Plus:           
   Adjusted EBITDA from investment in joint venture  771 (762)   1,771 (768)
 Adjusted EBITDA  77,341 83,830   252,046 270,445

 

"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     For the years ended 
    December 31,   December 31,
($ thousands) 2014 2013   2014 2013
 EBITDA from investment in joint venture  520 (762)   1,520 (768)
 Plus:           
   Foreign exchange  257   251 -
 Adjusted EBITDA from investment in joint venture  771 (762)   1,771 (768)

 

"Adjusted net earnings" is used by management and the investment community to analyze net 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 earnings as calculated in accordance with IFRS. Adjusted net 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 expenses, which are not consistently incurred period over period.

Adjusted net earnings is calculated as follows:

           
     Three months ended    For the years ended 
    December 31,   December 31,
($ thousands) 2014 2013   2014 2013
 Net (loss) earnings  (13,507) 28,690   6,596 70,952
 Plus:           
   Share-based payment expense  (3,458) 1,572   765 12,410
   Foreign exchange  (281) 959   5,017 1,342
   Impairment of property and equipment  56,905 -   77,535 131
   (Gain) loss on sale of property and equipment  3,466 -   (8,238)
  Tax adjustment (19,560) -   (21,319) -
 Adjusted net earnings  23,565 31,221   60,356 84,835

 

"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 less unrestricted cash in excess of $10.0 million, 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 MD&A that are not defined terms under IFRS to assess performance. Management believes that these measures provide useful supplemental information to investors, and provide the reader a more accurate reflection of our industry. 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 INFORMATION

This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking information") within the meaning of applicable Canadian securities laws.  The use of any of the words "expect", "anticipate", "will", "future" and similar expressions are intended to identify forward-looking information.  In particular, this press release contains forward-looking information pertaining to Trinidad's plans, strategies, objectives, expectations and intentions including, without limitation: the manufacturing and upgrading of drilling rigs; the timing of the delivery of the rigs into operation; Trinidad's and the joint venture's growth opportunities; Trinidad's 2015 capital expenditure program; Trinidad's expectation that it will fund the building and upgrading of rigs through cash flow from operations; the potential success of the joint venture; Trinidad's ability to lower its cost structure and its ability to move rigs to the joint venture and enter new international markets.

The forward-looking information included in this press release reflects several factors, expectations and assumptions including, without limitation: oil and gas industry conditions and oil and gas production levels; commodity prices; supply and demand for commodities; scheduling and timing of certain projects and Trinidad's and the joint venture's strategy for growth; capital expenditure programs, cost structure and other expenditures by oil and gas exploration and production companies; Trinidad's and the joint venture's future operating and financial results; that Trinidad will continue to conduct its operations, including with respect to rig design and manufacturing, in a manner consistent with its past performance.

The forward-looking information included in this press release is not a guarantee of future performance and should not be unduly relied upon.  Forward-looking information is 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 information including, without limitation: volatility in market prices for oil, natural gas and LNG; liabilities inherent in the drilling and manufacturing industries, including technical problems; competition for skilled personnel; changes in general economic, market and business conditions; actions by governmental or regulatory authorities including changes to tax or environmental laws; the ability of Trinidad's customers to raise capital and to continue with their drilling programs; increases and overruns in construction costs; supply and demand for commodities; and the risks inherent in Trinidad's ability to generate sufficient cash flow from operations to meet its current and future obligations. Should any one of a number of issues arise, Trinidad may find it necessary to alter its current business strategy and/or capital expenditure program. Additional risks that could impact the business and operations of Trinidad are detailed under the heading "Risk Factors" in Trinidad's annual information form for the year ended December 31, 2013. Trinidad cautions that the foregoing list of risks and uncertainties is not exhaustive.  The forward-looking information contained in this press release speaks only as of the date of this press release and Trinidad assumes no obligation to publicly update or revise such forward-looking information to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy the shares in any jurisdiction.  The shares offered will not be and have not been registered under the United States Securities Act of 1933 and may not be offered or sold in the United States or to a United States person, absent registration, or an applicable exemption therefrom.

 

 

 

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:  investors@trinidaddrilling.com

Organization Profile

Trinidad Drilling Ltd.

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