Trinidad Drilling Ltd. reports solid second quarter and year-to-date 2008 results; record revenue and EBITDA recorded



    TSX SYMBOL: TDG and TDG.DB

    CALGARY, Aug. 12 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the
"Company") reported solid operating and financial results for the second
quarter and first six months of 2008 today. Revenue, net earnings before
interest, taxes, depreciation and gain or loss on sale of long-term assets
(EBITDA) and cash flow from operations before changes in non-cash working
capital all reached record levels in both the second quarter and year-to-date,
reflecting the Company's accretive growth per share and continued focus on
adding value for its shareholders.
    "Trinidad has continued to perform strongly to date in 2008. We have
consistently recorded utilization rates in excess of the Canadian industry
average and by growing our US operations we have added a stable revenue stream
to our business," said Lyle Whitmarsh, Trinidad's President and Chief
Executive Officer. "We have strategically grown our business in areas where
demand for our deeper, more technologically advanced fleet is strong. This
value-adding strategy is paying off for Trinidad and is demonstrated in our
strong performance and record results. We are pleased with our results in the
first half of 2008 and with building momentum in the drilling industry, we are
cautiously optimistic for the remainder of 2008 and beyond," Whitmarsh said.

    
    SECOND QUARTER AND YEAR-TO-DATE HIGHLIGHTS

    (Quarter-over-quarter and year-to-date comparatives all relate to the
    comparable period in 2007)

    -   Revenue reached record levels of $141.2 million for the second
        quarter of 2008 and $360.8 million year-to-date, up 22.2% and 12.2%
        respectively, largely due to growth through acquisitions, internal
        rig construction programs, higher utilization rates and our
        successful expansion into the US.

    -   Trinidad's second quarter 2008 drilling utilization rate of 31% in
        Canada exceeded the industry average of 20%. The US drilling
        operations continued to report strong activity levels with
        utilization of 87%. Year-to-date, Trinidad's Canadian drilling
        utilization rate has been 52% compared to the industry average of 38%
        while the US operation's utilization has averaged 87%.

    -   Cash flow from operations before changes in non-cash working capital
        was $27.2 million ($0.31 per share (diluted)), in the second quarter
        of 2008 and $97.7 million ($1.14 per share (diluted)) year-to-date,
        up 16.5% and 1.6%, respectively. These record levels were achieved
        primarily through the increased rig fleet, the expanded US operations
        and a continued focus on maintaining gross margins.

    -   Net earnings in the second quarter of 2008 were $1.1 million
        ($0.01 per share (diluted)) and $40.1 million ($0.47 per share
        (diluted)) year-to-date, down 75.4% and 14.0% respectively, largely
        due to higher interest and depreciation costs.

    -   On June 10, 2008, Trinidad closed an equity financing deal where a
        total of 12,132,353 shares were issued, including a 10%
        overallotment, for gross proceeds of $165.0 million.

    -   During the second quarter of 2008, Trinidad continued its growth into
        the US drilling market with the announcement of a construction
        program for nine new drilling rigs. In July 2008, the Company
        announced an additional seven new drilling rigs also bound for the
        US. All 16 of these rigs are backed by long-term, take-or-pay
        contracts and are expected to be completed by the end of 2009. In
        addition, Trinidad plans to build six new service rigs to meet the
        growing demand in the Canadian market. In total, the rig construction
        programs are anticipated to cost $258.0 million, which is expected to
        be financed with the net proceeds from the recent equity offering
        ($158.4 million), proceeds from the sale of its newly constructed
        barge rig (US$53.5 million), cash flow from operations and funds
        available under the Company's existing credit facility.
    

    The following is management's discussion and analysis ("MD&A") concerning
the operating and financial results for the three and six months ended
June 30, 2008, and its outlook based on information available as at August 1,
2008. The MD&A is based on the Trinidad Drilling Ltd. ("Trinidad" or the
"Company") unaudited interim consolidated financial statements for the period
ended June 30, 2008, which were prepared in accordance with Canadian Generally
Accepted Accounting Principles ("GAAP"). The MD&A should be read in
conjunction with the audited consolidated financial statements of Trinidad
Energy Services Income Trust (the "Trust") for the year ended December 31,
2007. Additional information is available on Trinidad's website
(www.trinidaddrilling.com) and all previous public filings, including the most
recently filed Annual Report and Annual Information Form, are available
through SEDAR (www.sedar.com). As a result of Trinidad's conversion from an
income trust to a corporation, effective March 10, 2008, references to the
"Company", "shares", the "Incentive Options Plan" and "options" should be read
as references to the "Trust", "units", "Unit Rights Incentive Plan" and
"rights", respectively, for the periods prior to March 10, 2008.

    
    -------------------------------------------------------------------------
    FINANCIAL HIGHLIGHTS
    ($ thousands except share and per share data)

                                  Three months ended        Six months ended
                                             June 30,                June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Revenue                      141,179     115,494     360,830     321,705
    Gross margin(1)               53,765      42,539     152,193     135,556
    EBITDA(1)                     39,884      26,564     128,553     107,091
      Per share (diluted)(1)        0.45        0.31        1.50        1.26
    EBITDA before stock-based
     compensation(1)              40,017      27,235     128,855     108,537
      Per share (diluted)(1)        0.46        0.32        1.50        1.27
    Cash flow from operations     83,977      28,549     131,949      74,062
      Per share (diluted)           0.96        0.33        1.54        0.87
    Cash flow from operations
     before change in non-cash
     working capital(1)           27,202      23,353      97,712      96,163
      Per share (diluted)(1)        0.31        0.27        1.14        1.13
    Net earnings                   1,141       4,641      40,053      46,584
      Per share (basic)             0.01        0.06        0.47        0.56
      Per share (diluted)           0.01        0.05        0.47        0.55
    Net earnings before stock-
     based compensation(1)         1,274       5,312      40,355      48,030
      Per share (diluted)(1)        0.01        0.06        0.47        0.56
    Shares outstanding - basic
     (weighted average)(2)    86,750,690  83,947,198  85,347,826  83,872,182
    Shares outstanding -
     diluted (weighted
     average)(2)              87,825,214  85,711,891  85,916,240  85,294,628
    -------------------------------------------------------------------------

    (1) Readers are cautioned that gross margin, EBITDA, EBITDA before stock-
        based compensation, cash flow from operations before change in non-
        cash working capital and net earnings before stock-based compensation
        and the related per share information do not have a standardized
        meaning prescribed by GAAP - See "Non-GAAP Measures".
    (2) Basic shares include the weighted average number of shares
        outstanding over the period. Diluted shares include the weighted
        average shares outstanding over the period and the dilutive impact,
        if any, of the deemed conversion of convertible debentures and the
        shares issuable pursuant to the Incentive Option Plan. Interest
        expense incurred on the dilutive convertible debentures is added back
        to net earnings, net earnings before stock-based compensation, cash
        flow from operations and cash flow from operations before change in
        non-cash working capital for the diluted per share calculation.


    -------------------------------------------------------------------------
    OPERATING HIGHLIGHTS
                                  Three months ended        Six months ended
                                             June 30,                June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Operating days - drilling
      Canada                       1,742       1,165       5,751       4,981
      United States                3,783       2,944       7,458       5,408
    Rate per drilling day (CDN $)
      Canada                      23,219      23,527      23,711      25,470
      United States(1)            21,565      24,927      21,649      25,191
    Utilization rate - drilling
      Canada                         31%         20%         52%         44%
      United States                  87%         88%         87%         87%
    CAODC industry average           20%         17%         38%         38%
    Number of drilling rigs
      Canada                          62          64          62          64
      United States                   48          38          48          38
    Utilization rate for service
     rigs                            29%         23%         45%         47%
    Number of service rigs            20          21          20          21
    Number of coring and surface
     casing rigs                      20          17          20          17

    Barge Drilling Market(2)
    Operating days                   361           -         633           -
    Rate per drilling day (CDN$)  41,500           -      44,428           -
    Utilization rate(3)             100%           -         99%           -
    Number of barge drilling rigs      1           -           1           -
    Number of barge drilling rigs
     under Bareboat Charter
     Agreements                        3           -           3           -
    -------------------------------------------------------------------------
    (1) In US dollars, dayrates remained relatively static, declining from
        $21,966 in the second quarter of 2007 to $21,449 in the second
        quarter of 2008.
    (2) Trinidad commenced its operations in the barge drilling market with
        its acquisition of Axxis, effective July 5, 2007.
    (3) During the first quarter of 2008, Trinidad completed significant work
        to one of its barge rigs and as a result it was removed from service
        and not included in the utilization calculation. This rig was fully
        operational in the second quarter.
    

    FORWARD-LOOKING STATEMENTS

    The MD&A contains certain forward-looking statements relating to
Trinidad's plans, strategies, objectives, expectations and intentions.
Expressions such as "anticipate", "expect", "project", "believe", "estimate",
and "forecast" should be used to identify these forward-looking statements.
Trinidad believes that the expressions reflected in those forward-looking
statements are reasonable; however, such statements are subject to a number of
known and unknown risks, uncertainties and other factors that may cause actual
results to differ materially from those anticipated in our forward-looking
statements. These statements speak only as of the date of the MD&A and
Trinidad does not intend, and does not assume any obligation, to update these
forward-looking statements, subject to its obligations under appropriate
regulations.

    NON-GAAP MEASURES

    This MD&A contains references to the terms "cash flow from operations
before change in non-cash working capital" to provide information for
shareholders regarding Trinidad's liquidity and ability to generate cash to
finance operations and assists management in assessing Trinidad's ability to
finance operational and capital expenditures; "EBITDA" to refer to net
earnings before interest, taxes, depreciation and gain or loss on sale of
long-term assets; "EBITDA before stock-based compensation" to refer to EBITDA
plus stock-based compensation; "gross margin" to refer to revenue less
operating expenses; "net earnings before stock-based compensation" to refer to
net earnings plus stock-based compensation; and "net debt" to refer to
Trinidad's long-term debt less its working capital position which is
indicative of the overall indebtedness of the Company, all of which Trinidad
believes are measures followed by the investment community and therefore
provide useful information. The terms "cash flow from operations before change
in non-cash working capital", "EBITDA", "EBITDA before stock-based
compensation", "gross margin", "net earnings before stock-based compensation",
"net debt" and associated per share data are not measures recognized by GAAP
and do not have standardized meaning prescribed by GAAP and accordingly may
not be comparable to similar measures presented by other companies. However,
Trinidad computes "cash flow from operations before change in non-cash working
capital", "EBITDA", "EBITDA before stock-based compensation", "gross margin",
"net earnings before stock-based compensation" and "net debt" on a consistent
basis for each reporting period.
    The following is a reconciliation of EBITDA to net earnings:

    
                                  Three months ended        Six months ended
                                             June 30,                June 30,
    ($ thousands)                   2008        2007        2008        2007
    -------------------------------------------------------------------------
    Net Earnings                   1,141       4,641      40,053      46,584
    Plus:
      Interest on long-term debt   6,215       9,535      13,390      18,110
      Interest on convertible
       debentures                  8,685           -      17,339           -
      Income taxes                 3,558      (2,606)     13,587       9,101
      Depreciation                20,509      14,831      44,501      33,089
      (Gain) loss on sale of
       assets                       (224)        163        (317)        207
                              -----------------------------------------------
    EBITDA                        39,884      26,564     128,553     107,091
                              -----------------------------------------------
    

    OVERVIEW

    Operations in the Canadian marketplace in the second quarter have
historically been hindered by wet weather conditions and road bans that were
put in place throughout the period. This year was no exception as the Western
Canadian drilling market experienced a long spring breakup with above average
rainfall which limited activity levels. However, given the deep drilling
capacity of Trinidad's Canadian rig fleet and its long-term, take-or-pay
contracts the second quarter exceeded the comparable quarter in the prior year
as both drilling days and utilization far exceeded those seen in the industry
over the same period. As in the past, during the second quarter of 2008,
Trinidad was able to mitigate its overall exposure to both the seasonal
conditions present throughout this period and the variability of the Canadian
market in recent periods through its continued expansion into the United
States ("US") marketplace. This expansion allowed for strong
quarter-over-quarter growth for the Company in revenue, gross margin, EBITDA
and cash flow from operations. The US operations have also provided stabilized
cash flows and net earnings through the long-term, take-or-pay contracts that
the Company has executed with its valued customers in the US and the
consistency that this market has provided in recent years. The significance of
Trinidad's expansion into the US is evident given that this segment continues
to contribute significantly to the overall operations of the Company,
producing 60.9% of overall revenue and 67.9% of gross margin for the second
quarter of 2008 and 47.2% of revenue and 48.9% of gross margin on a
year-to-date basis.
    Trinidad's overall land rig count increased quarter-over-quarter, which
resulted in an increase to the number of drilling days by 34.5% in comparison
to the second quarter of 2007. The higher drilling days in the US resulted in
an increase in revenue of $25.7 million or 22.2% despite reductions in
Canadian denominated US dayrates as a result of weakening of the US dollar.
Furthermore, while the Canadian segment decreased by two drilling rigs
year-over-year, it demonstrated the inherent value of its contracts, customer
relationships and equipment versatility as both operating days and rig
utilization increased as compared to the same period of 2007. Customer pricing
in this segment was down 6.9% year-to-date and only 1.3% quarter-over-quarter
due to a more competitive bidding environment; however, dayrates appear to be
stabilizing as commodity prices increase and natural gas storage levels are
reduced.
    Net earnings for the six months ended June 30, 2008 were $40.1 million or
$0.47 per share (diluted) in comparison to $46.6 million or $0.55 per share
(diluted) in the same period of 2007. Despite the revenue increases
year-to-date in 2008, overall net earnings declined mainly as a result of
increases in interest expense, depreciation, and reorganization costs. The
increase in interest expense was due to the issuance of convertible debentures
in connection with the Axxis acquisition in the second half of 2007 and
depreciation increased as a result of the deployment of new rigs. Furthermore,
one-time reorganization costs for Trinidad's conversion from an income trust
to a corporation were incurred throughout the first six months of 2008. These
increases were offset by an unrealized foreign exchange gain of $3.5 million
on US denominated intercompany balances in comparison to the loss of
$6.9 million in the prior year.
    On June 10, 2008, Trinidad closed an equity financing deal where a total
of 12,132,353 shares were issued, including the overallotment of 1,102,941
shares, for gross proceeds of $165.0 million. Net proceeds from the equity
issuance were initially used to reduce debt, then additional funds available
under the credit facility will be used to construct nine high-horsepower
drilling rigs, all backed by long-term, take-or-pay contracts guaranteeing
utilization rates of 100% over their respective contract terms and six well
servicing rigs. The drilling rigs are currently planned to operate in Texas
and Louisiana, drilling in the Barnett Shale and the Haynesville areas, two of
the key natural gas plays in the US. The new rigs will feature
state-of-the-art technology with diesel electric drawworks and depth capacity
ratings ranging from 16,000 feet to 18,000 feet and will be delivered over a
10-month period starting in August 2008. The six service rigs will be built
using a new rig design which provides improved pressure control, better safety
features and lower anticipated operating costs and will have depth capacities
of 2,400 to 3,500 metres. The service rigs are being built to meet growing
demand in the Canadian market and are expected to remain in the Western
Canadian Sedimentary Basin. The first two rigs are expected to be completed by
the end of 2008 with the balance being delivered in the first three quarters
of 2009. In addition, on July 17, 2008, Trinidad announced the construction of
an additional seven rigs to the rig construction program previously announced
in May 2008 (see subsequent events). These rigs are also backed by long-term,
take-or-pay contracts guaranteeing utilization rates of 100% over their
respective terms. Trinidad intends to fund this rig construction program from
its operating cash flow and funds available under its existing credit
facility.
    The drilling industry found some relief in the second quarter with higher
than expected overall rig activity. Nevertheless, as reported by the Canadian
Association of Oilwell Drilling Contractors ("CAODC") well completions in the
second quarter of 2008 were down 2.6% as compared to the same period of 2007
and 36.4% as compared to 2006. For the first six months of 2008, the CAODC
reported a total of 8,134 wells drilled, an active rig count in Western Canada
that averaged 334 rigs and utilization levels of 38%, as compared to
utilization levels of 38% in 2007 and 57% in 2006. Although the industry has
experienced declines, Trinidad has been able to maintain its market share and
grow its overall utilization in Western Canada, and will continue to focus on
value added client support and above average service to ensure continued
success during these slower industry periods.

    
    QUARTERLY ANALYSIS          2008                       2007
    ($ millions except
    per share and
    operating data)          Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Financial Highlights

    Revenue               141.2    219.7    145.8    162.2    115.5    206.2
    Gross margin           53.8     98.4     58.8     70.5     42.6     93.0

    Net earnings            1.1     38.9     17.9     15.0      4.7     41.9
    Depreciation           20.5     24.0     19.0     20.2     14.8     18.3
    (Gain) loss on sale
     of assets             (0.2)    (0.1)     0.2        -      0.1      0.1
    Stock-based
     compensation           0.1      0.2      0.4      0.5      0.7      0.8
    Future income tax
     expense (recovery)     2.5      9.4     (7.8)     3.3     (3.1)    10.2
    Effective interest on
     financing costs        1.1      1.1      1.1      1.1      0.4      0.3
    Accretion on
     convertible
     debentures             1.2      1.1      1.2      1.0        -        -
    Unrealized foreign
     exchange (gain) loss   0.9     (4.1)     0.2      5.3      5.8      1.2
    Other                     -        -        -        -        -        -
                          ---------------------------------------------------
    Cash flow from
     operations before
     change in non-cash
     working capital       27.2     70.5     32.2     46.4     23.4     72.8

    Net earnings per
     share (diluted)       0.01     0.44     0.21     0.18     0.05     0.49
    Cash flow from
     operations before
     change in non-cash
     working capital per
     share (diluted)       0.31     0.75     0.38     0.55     0.27     0.86
                         ----------------------------------------------------

    Operating Highlights

    Operating days -
     drilling
      Canada              1,742    4,009    2,135    2,718    1,165    3,817
      United States       3,783    3,675    3,399    3,305    2,944    2,464
    Rate per drilling day
     (CDN $)
      Canada             23,219   24,517   23,631   21,746   23,527   26,063
      United States(1)   21,565   21,735   21,404   23,265   24,927   25,506
    Utilization rate -
     drilling
      Canada                31%      72%      37%      47%      20%      69%
      United States         87%      87%      83%      85%      88%      85%
    CAODC industry
     average                20%      56%      37%      39%      17%      59%
    Number of drilling
     rigs
      Canada                 62       62       64       64       64       63
      United States          48       48       46       43       38       37
    Utilization for
     service rigs           29%      62%      57%      46%      23%      73%
    Number of service
     rigs                    20       20       20       20       21       20
    Number of coring and
     surface casing rigs     20       20       20       20       17       17

    Barge Drilling
     Market(2)

    Operating days          361      272      352      352        -        -
    Rate per drilling
     day (CDN$)          41,500   48,128   47,536   51,904        -        -
    Utilization rate       100%    98%(3)     96%     100%        -        -
    Number of barge
     drilling rigs            1        1        1        1        -        -
    Number of barge
     drilling rigs under
     Bareboat Charter
     Agreements               3        3        3        3        -        -
    -------------------------------------------------------------------------


                                     2006
    ($ millions except
    per share and
    operating data)          Q4       Q3       Q2
    ----------------------------------------------
    Financial Highlights
    Revenue               161.9    150.6    104.5
    Gross margin           74.9     66.9     43.1

    Net earnings           31.3     31.6     20.8
    Depreciation           15.4     14.0      9.7
    (Gain) loss on sale
     of assets              0.1     (2.0)       -
    Stock-based
     compensation           1.8      0.7      0.8
    Future income tax
     expense (recovery)     6.2      4.6     (8.7)
    Effective interest on
     financing costs          -        -        -
    Accretion on
     convertible
     debentures               -        -        -
    Unrealized foreign
     exchange (gain) loss  (0.1)       -      0.2
    Other                     -      0.1     (0.3)
                          ------------------------
    Cash flow from
     operations before
     change in non-cash
     working capital       54.7     49.0     22.5

    Net earnings per
     share (diluted)       0.37     0.38     0.24
    Cash flow from
     operations before
     change in non-cash
     working capital per
     share (diluted)       0.65     0.57     0.26
                          ------------------------

    Operating Highlights

    Operating days -
     drilling
      Canada              3,163    3,358    1,826
      United States       2,105    1,891    1,603
    Rate per drilling day
     (CDN $)
      Canada             26,328   23,083   23,927
      United States(1)   24,621   24,042   24,089
    Utilization rate -
     drilling
      Canada                61%      64%      36%
      United States         85%      85%      82%
    CAODC industry
     average                47%      57%      34%
    Number of drilling
     rigs
      Canada                 60       59       57
      United States          31       26       22
    Utilization for
     service rigs           64%      68%      31%
    Number of service
     rigs                    18       18       17
    Number of coring and
     surface casing rigs     17       17       17

    Barge Drilling
     Market(2)
    Operating days            -        -        -
    Rate per drilling
     day (CDN$)               -        -        -
    Utilization rate          -        -        -
    Number of barge
     drilling rigs            -        -        -
    Number of barge
     drilling rigs under
     Bareboat Charter
     Agreements               -        -        -
    ----------------------------------------------

    (1) In US dollars, dayrates remained relatively static and declines are
        the result of reductions in US currency rates.
    (2) Trinidad commenced its operations in the barge drilling market with
        its acquisition of Axxis, effective July 5, 2007.
    (3) During the first quarter of 2008, Trinidad completed significant work
        to one of its barge rigs and as a result it was removed from service
        and not included in the utilization calculation. This rig was fully
        operational in the second quarter.
    

    Trinidad's growth has been a result of strategic acquisitions, continued
deployment of rigs under the rig construction program, expansion into the US
market and the strong market conditions that were present throughout 2006 and
early 2007 and are apparent through quarter-over-quarter revenue growth. This
continued to be evident despite the Canadian drilling industry facing
declining market conditions in the last three quarters of 2007 as a result of
lower commodity prices, concerns over high natural gas storage levels and
royalty tax changes. Declining demand over this period ultimately lowered
Canadian dayrates and utilization levels from the second quarter of 2007
onwards. However, Trinidad's expansion into the US market, where considerable
growth occurred in the fourth quarter of 2005 through the acquisition of
Cheyenne Drilling, has resulted in the US rig fleet more than doubling since
that time allowing the Company to realize revenue growth despite the
curtailing market activities in Canada. This market has consistently provided
stable utilization levels and US dollar dayrates, which offset the reduced
Canadian activity and improved the overall operations of Trinidad. The first
quarter of 2008 showed signs of improvement in Western Canada as the market
outlook recovered and dayrates and utilization levels began increasing for the
first time since the second quarter of 2007. Although the second quarter of
2008 was slowed by a long spring breakup with above average rainfall, Trinidad
continued to grow revenues as a result of its focus on the deep drilling
segment and strong commodity prices, which helped to motivate producers to
maintain their drilling programs. The first two quarters of 2008 continued to
show the strength of the US segment and, with an increased fleet and overall
strong market, it continues to play a significant role in the Company's
overall portfolio.
    Quarterly revenues continued to be impacted by the seasonal conditions
present in the Western Canadian drilling operations as a result of a
significant portion of the overall drilling fleet operating in this market.
This seasonality resulted in strong Canadian revenue in the first quarters as
oil and natural gas companies took advantage of frozen conditions, slower
second quarters due to spring break-up conditions and third and fourth
quarters which were more representative of normal operating conditions. The
expansion into the US market which has been ongoing since the end of 2005 has
partially mitigated the impact of the seasonal conditions on the overall
results of the Company.
    Net earnings and per share data were strong throughout 2006 and the first
quarter of 2007 as the market activities, noted above, allowed for the Company
to realize its growth through expansion into new markets and rig
diversification. However, the market downturn in Canadian drilling during the
second quarter of 2007, as well as unrealized foreign exchange losses
throughout the period due to declines in the US currency, caused a reduction
in net income and the related per share data to the end of 2007. Upturn in
Trinidad's Canadian operations has been evident throughout 2008 as reflected
in the growth in the Company's EBITDA; however, higher interest expense and
future income taxes have continued to negatively impact earnings.

    
    RESULTS FROM OPERATIONS

    Canadian Drilling Operations
    ($ thousands except
    percentages and
    operating data)    Three months ended June 30,  Six months ended June 30,
                           2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Revenue              44,341   31,250     41.9  176,445  166,335      6.1
    Operating expense    30,389   29,180      4.1  102,651  101,112      1.5
                        -----------------------------------------------------
    Gross margin         13,952    2,070    574.0   73,794   65,223     13.1
                        -----------------------------------------------------
    Gross margin
     percentage           31.5%     6.6%             41.8%    39.2%

    Operating days -
     drilling             1,742    1,165     49.5    5,751    4,981     15.5
    Rate per drilling
     day (CDN $)         23,219   23,527     (1.3)  23,711   25,470     (6.9)
    Utilization rate -
     drilling               31%      20%     55.0      52%      44%     18.2
    CAODC industry average  20%      17%     17.6      38%      38%        -
    Number of drilling
     rigs                    62       64     (3.1)      62       64     (3.1)

    Utilization rate -
     well servicing         29%      23%     26.1      45%      47%     (4.3)
    Number of service rigs   20       21     (4.8)      20       21     (4.8)
    Number of coring and
     surface casing rigs     20       17     17.6       20       17     17.6
    

    Throughout the second quarter of 2008, the Canadian drilling market was
impacted by the seasonal conditions typically present during the period as
road bans and wet weather conditions prohibited the movement of drilling rigs.
This resulted in overall reductions in industry utilization as rates fell from
56% in the first quarter of 2008 to 20% for the three months ended June 30,
2008 and to 38% on a year-to-date basis. Overall, market activity was
relatively static with the comparable period in 2007. However, Trinidad's
continued focus on deep drilling and long-term contracts resulted in the
Company being rewarded by the market and increasing operating days and
utilization levels by 49.5% and 55.0%, respectively, over the comparable
quarter despite the static market conditions. Furthermore, as oil and natural
gas targets have become more challenging to extract, the requirement for more
precise and advanced technology has become critical to the overall success of
producers. Unquestionably, Trinidad's Canadian rig fleet continues to benefit
from this, as many producers require increased depth capacity and see the
intrinsic benefit of the more advanced technology available on Trinidad's deep
drilling rigs. As a result, Trinidad's Canadian drilling division continued to
exceed industry utilization by 55.0% realizing utilization of 31% for the
quarter as compared to an industry utilization level of 20% and achieved
utilization rates of 52% year-to-date, an 18.2% increase from prior year.
    Slower market conditions in the quarter continued to produce intense
competition across the industry as drilling contractors competed for less
available work, which continued to place downward pressure on dayrates across
the market. This competition reduced dayrates for Trinidad by 1.3%
quarter-over-quarter and 6.9% on a year-to-date basis. Annual declines are
more prevalent given a much stronger first quarter in 2007 as the market
exited the intense drilling programs present in 2006.
    Higher operating days and rig utilization in the second quarter increased
revenue by $13.1 million or 41.9% from $31.3 million in 2007 to $44.3 million
in 2008, despite the reduction in the number of rigs available and relatively
stable dayrates. The strong second quarter also increased revenue on a
year-to-date basis by $10.1 million or 6.1%, placing Trinidad's Canadian
operations ahead of where they were at the same point last year. Furthermore,
in addition to strong revenue growth over the quarter, operating costs
remained relatively consistent with the prior year at $30.4 million in 2008 as
compared to $29.2 million in 2007, significantly increasing gross margins.
This was the result of fewer recertifications required in the second quarter
of 2008, in comparison with the same period in 2007. Slower conditions in
2007, following the extremely busy 2006 fiscal year, provided an opportunity
to complete much of the maintenance required to ensure industry standards were
achieved. However, as a result of 2007 being a much slower period,
approximately half the number of recertifications performed in the prior year
were necessary in 2008, reducing operating costs and increasing gross margins.
    The well servicing division also had a strong quarter with utilization
rates increasing to 29% from 23% in the prior year. Higher commodity prices
and increased activity in Canadian drilling facilitated stronger results in
this division; however, increased competition has also reduced rates resulting
in slight declines in revenue and margins in comparison with the prior year.
Overall, industry activity levels have remained moderately stable during the
period relative to the prior year and Trinidad remains bullish on prospects
for its well servicing division in light of increased completion, work-over
and abandonment activity expected over the next several years, coupled with
minor equipment expansion industry wide.
    Although operating activity recorded by the Canadian drilling segment in
the first six months of 2008 exceeded earlier expectations, demand for
oilfield services continue to reflect a level of uncertainty in the Canadian
market as operators weighed the impact of a strong Canadian dollar and the
sustainability of strengthening commodity prices on their project economics.
However, the fundamentals of the Canadian oilfield services market have seen
improvements during the first half of 2008 which continues to instil producer
confidence and is expected to have positive implications on drilling programs.
Despite the drilling and well servicing sector being ranked as one of the most
competitive areas of the oil and natural gas business, Trinidad has proven
itself through strong customer relations, employee expertise, equipment
quality and drilling performance and continues to differentiate itself from
its competitors and be rewarded by its customers.

    
    United States Drilling Operations

    ($ thousands except
    percentages and
    operating data)    Three months ended June 30,  Six months ended June 30,
                           2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Revenue              85,970   73,394     17.1  170,283  136,234     25.0
    Operating expense    49,439   35,200     40.5   95,881   69,361     38.2
                        -----------------------------------------------------
    Gross margin         36,531   38,194     (4.4)  74,402   66,873     11.3
                        -----------------------------------------------------
    Gross margin
     percentage           42.5%    52.0%             43.7%    49.1%

    Land Drilling Rigs

    Operating days -
     drilling             3,783    2,944     28.5    7,458    5,408     37.9
    Rate per drilling
     day (CDN $)(1)      21,565   24,927    (13.5)  21,649   25,191    (14.1)
    Utilization rate -
     drilling               87%      88%     (1.1)     87%      87%        -
    Number of drilling
     rigs                    48       38     26.3       48       38     26.3

    Barge Drilling Rigs(2)

    Operating days -
     drilling               361        -        -      633        -        -
    Rate per drilling
     day (CDN$)          41,500        -        -   44,428        -        -
    Utilization rate -
     drilling(3)           100%        -        -      99%        -        -
    Number of barge
     drilling rigs            1        -        -        1        -        -
    Number of barge
     drilling rigs
     under Bareboat
     Charter
     Agreements               3        -        -        3        -        -

    (1) In US dollars, dayrates remained relatively static, declining from
        $21,966 in the second quarter of 2007 to $21,449 in the second
        quarter of 2008.
    (2) Trinidad commenced its operations in the barge drilling market with
        its acquisition of Axxis, effective July 5, 2007.
    (3) During the first quarter of 2008, Trinidad completed significant work
        to one of its barge rigs and as a result it was removed from service
        and not included in the utilization calculation. This rig was fully
        operational in the second quarter.
    

    The US drilling market continues to show its strength as strong demand
fundamentals supported higher activity levels throughout the year. Revenue
quarter-over-quarter increased by 17.1% from $73.4 million in the second
quarter of 2007 to $86.0 million in 2008 and year-to-date increased
$34.0 million to $170.3 million in 2008. Growth in revenue resulted from the
expansion of the US fleet which contributed to an increase in the number of
operating days at relatively consistent US dollar dayrates in comparison to
the prior year. In addition, the deployment of more rigs committed under
long-term, take-or-pay contracts operating year-over-year added stability to
the overall operations. Average dayrates in Canadian dollars declined 13.5%
quarter-over-quarter and 14.1% year-to-date due entirely to foreign exchange
as a result of the declining strength of the US dollar. In US dollars, the
average dayrate for the first half of 2007 was US$21,935, in comparison with
US$21,541 in 2008, remaining relatively static year-over-year. In addition,
the barge drilling segment maintained utilization levels of 100% and with the
scheduled maintenance finalized in the latter part of the first quarter on one
of the Bareboat Charter rigs, all four rigs were working throughout the second
quarter. Dayrates declined by 13.8% as compared to the first quarter of 2008
due to some softening in the barge market over the past six months; however,
the decline in dayrates has allowed the Company to preserve market share and
maintain valuable relationships with key customers placing Trinidad in a
favourable position when market conditions improve. Despite reduced dayrates,
the barge market continues to command higher dayrates than the land drilling
market and as a result these rigs have provided exceptional dayrates of
$44,428 per day year-to-date with utilization levels of 99%. In addition, the
barge rigs have added asset and geographical diversification to Trinidad's
overall asset base, presenting significant opportunities to expand into other
jurisdictions. This coupled with the growth of the US drilling operations has
been instrumental in achieving stability of Trinidad's cash flow throughout
the year and increasing the capability of the Company to meet the needs of oil
and natural gas producers on a more comprehensive basis.
    Operating expenses for the quarter increased from $35.2 million to
$49.4 million reducing overall margins from 52.0% to 42.5% and year-to-date
grew 38.2% to $95.9 million, reducing margins to 43.7%. The growth in
operating expenses was partially attributable to the growth in revenue
throughout the quarter, but overall increases in operating costs exceeded the
growth in revenue, reducing gross margins. This was partially a result of
increased property taxes on rigs due to the growth in the US rig fleet in
comparison with the prior year. Property taxes on US-based rigs are assessed
annually on January 1, therefore any rigs deployed later in the year would not
have been subject to these taxes in 2007. As Trinidad increased its US fleet
by fifteen rigs over 2007 it resulted in higher property taxes in 2008 in
comparison to the prior year. In addition, the US segment also performed more
footage and turnkey contracts with its rigs that were not under long-term
contract. These types of contracts result in more costs being incurred by
Trinidad as opposed to being paid for or passed on to the operator. Finally,
additional expenses related to employing additional field supervisors to
manage the growing US fleet and work with field staff on overall training also
increased overall operating expenses.
    The US operations continue to provide stability to Trinidad's
consolidated results through not only its consistent year round cash flows,
but also the higher margins obtained in this segment of the business. Due to
the success that Trinidad has experienced in the US, the Company continues to
pursue additional opportunities to extend its presence in this market,
including the recently announced rig construction program to build and deploy
an additional sixteen rigs into the US. These rigs are all backed by
long-term, take-or-pay contracts with three major North American oil and
natural gas exploration and development companies, which will provide further
revenue stability and a guaranteed utilization rate of 100% over their
respective contract terms.

    
    Construction Operations

    ($ thousands except
    percentage data)   Three months ended June 30,  Six months ended June 30,
                           2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Revenue(1)           29,541   26,585     11.1   41,132   57,193    (28.1)
    Operating expense(1) 26,259   24,310      8.0   37,135   53,733    (30.9)
                        -----------------------------------------------------
    Gross margin          3,282    2,275     44.3    3,997    3,460     15.5
                        -----------------------------------------------------
    Gross margin
     percentage           11.1%     8.6%              9.7%     6.0%

    (1) Includes inter-segment revenue and operating expenses of
        $18.7 million and $15.7 million for the three months ended June 30,
        2008 and 2007, respectively and $27.0 million and $38.1 million for
        the six months ended June 30, 2008 and 2007, respectively.
    

    Revenue from construction operations increased by 11.1% from
$26.6 million in the second quarter of 2007 to $29.5 million in 2008 due to
the completion of $18.7 million of inter-segment work performed on the
construction of six of the nine rigs announced as part of the current rig
construction program, as well as the completion of another rig for an
independent third party. Inter-segment revenue increased by $3.0 million from
$15.7 million in the prior year earned on recertification and repair work
completed during the quarter when the Company's rigs were less utilized due to
spring break-up and the construction of the rigs under the previous rig
construction program. Contributing to the increase quarter-over-quarter was
the transfer of partially completed rigs maintained in inventory at the end of
the first quarter to revenue, which will be used as part of the current
construction program. Additionally, inter-segment work was performed to
complete the construction of a barge rig for the Axxis division. Gross margin
percentage increased from 8.6% last year to 11.1% for the second quarter of
2008 due to the stronger margins earned on the completion of the third party
work that was performed over the period.
    Revenue from Trinidad's construction operations over the first six months
of 2008 was $41.1 million, a 28.1% decrease from the $57.2 million generated
over the same time period of 2007. This was a result of the focus in the prior
year on the completion of the previous rig construction program, which Mastco
substantially completed in the first quarter of 2007 earning much higher
inter-segment revenue and operating costs of $38.1 million in comparison to
$27.0 million in 2008.
    When Trinidad acquired Mastco in the first quarter of 2006, the Company's
intention was to utilize this division to facilitate rig construction programs
and enhance control over the delivery of the rigs to ensure customer demands
were being met. This will continue to be the focus as work commences on the
newly announced rig construction program where Mastco will construct thirteen
of the sixteen new drilling rigs, which are all expected to be delivered
before the end of 2009.

    
    GENERAL AND ADMINISTRATIVE EXPENSE

    ($ thousands except
    percentage data)   Three months ended June 30,  Six months ended June 30,
                           2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    General and
     administrative
     expenses            12,749    9,701     31.4   24,172   20,130     20.1
    % of revenue           9.0%     8.4%              6.7%     6.3%
    

    General and administrative expenses increased 31.4% to $12.7 million in
the second quarter of 2008 from $9.7 million for the same period in 2007. The
expansion of Trinidad's business through the acquisition of Axxis in July
2007, and the higher overhead expenses in the US operations as a result of its
growth over the last year were the main reasons for the increase. As well, a
provision with respect to allowance for doubtful accounts was set up in the
quarter to ensure Trinidad had proper coverage on any potential bad debt
exposure. Despite the overall increase year-to-date in 2008 as compared to
2007, Trinidad continues to focus on maintaining conservative expenditure
levels which allowed the Company to maintain general and administrative
expenses as a percentage of revenue at relatively consistent levels with the
prior year despite the additional provision required for doubtful accounts.
Trinidad will continue to ensure growth for shareholders by creating internal
efficiencies, centralizing certain required functions and integrating its
management team.
    Effective January 1, 2008, Trinidad reclassified several costs associated
with field management, equipment insurance and property taxes on the US rigs
into operating expenses from general and administrative expenses to better
align the Company with current industry standards and allow for increased
consistency amongst Trinidad's peer group. Comparative figures for 2007 have
also been reclassified.

    
    INTEREST

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Interest on
     long-term debt       5,793    9,132    (36.6)  12,550   17,358    (27.7)
    Effective interest
     on deferred
     financing costs        422      403      4.7      840      752     11.7
                        -----------------------------------------------------
                          6,215    9,535    (34.8)  13,390   18,110    (26.1)

    Interest on
     convertible
     debentures           6,830        -        -   13,658        -        -
    Effective interest
     on deferred
     financing costs        660        -        -    1,318        -        -
    Accretion on
     convertible
     debentures           1,195        -        -    2,363        -        -
                        -----------------------------------------------------
                          8,685        -        -   17,339        -        -
    

    During the first half of 2007, Trinidad had a large portion of its debt
facility drawn to fund its rig construction program, which required intensive
capital expenditures. As a result, at the end of the second quarter of 2007,
Trinidad's long-term debt reached $486.9 million, in comparison to
$252.9 million at the end of the second quarter of 2008. This decline in
long-term debt year-over-year was the result of utilizing the net proceeds
from the Company's equity financing completed June 10, 2008 and cash flow from
operations to reduce overall indebtedness. As additional funds beyond daily
cash flow are required to finance the completion of the rig construction
program it will be drawn from the revolving credit facility. The higher debt
levels in the prior year resulted in increased interest expense over the
current quarter. In addition, reductions in the BA and LIBOR rates in 2008 as
compared to 2007 reduced the effective interest on both the Canadian and US
term facilities, which in turn had a favourable impact on interest expense.
    Effective July 5, 2007, Trinidad completed the issuance of $354.3 million
in convertible unsecured subordinated debentures in order to complete the
acquisition of Axxis. Proceeds in excess of the purchase price were used to
repay $187.8 million of the Canadian revolving facility, which further reduced
the debt drawn under the facility as at June 30, 2008. Interest on the
convertible debentures is paid semi-annually at a coupon rate of 7.75% and for
the three months ended June 30, 2008 Trinidad recorded associated interest
expense of $6.8 million. The fixed interest rate on the convertible debentures
has reduced Trinidad's exposure to interest rate fluctuations and further
enhances cash flow stability. Additionally, Trinidad has the option to redeem
the debentures in whole or in part at a redemption price of $1,000 after
December 31, 2010 and before their maturity date, but on redemption or
maturity, Trinidad may elect to satisfy its obligation to repay the principal
by issuing shares.

    
    STOCK-BASED COMPENSATION

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Stock-based
     compensation           133      671    (80.2)     302    1,446    (79.1)
    

    On March 10, 2008, Trinidad converted from a growth-oriented income trust
to a growth-oriented, dividend-paying corporation. As a result of this
arrangement, Trinidad's former Unit Rights Incentive Plan was rolled into the
Incentive Option Plan (the "Plan"), which is used to assist officers,
employees and consultants of Trinidad and its affiliates to participate in the
growth and development of the Company. Trinidad uses the fair value method to
calculate compensation expense associated with options granted under the Plan.
Compensation expense is then recognized in earnings over the vesting period of
the options granted with a corresponding increase in contributed surplus. As
of the fourth quarter of 2007, substantially all of the 2006 options had been
expensed and, as a result, stock-based compensation decreased from
$1.4 million in the first half of 2007 to $0.3 million in 2008. Total 2007
option issuances amounted to 63,486 in comparison to no issuances for the
first six months of 2008, further contributing to the decline
quarter-over-quarter.

    
    FOREIGN EXCHANGE (GAIN) LOSS

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Foreign exchange
     (gain) loss            859    5,603    (84.7)  (3,523)   6,889    151.1
    

    Trinidad's US operations have continued to grow and contributed
significantly to the overall operations of the Company. As a result, upon
consolidation Trinidad's US operations are considered to be self-sustaining
and therefore, gains and losses due to fluctuations in the foreign currency
exchange rates are recorded in Other Comprehensive Income ("OCI") on the
balance sheet as a component of equity. However, gains and losses in the
Canadian entity on US denominated intercompany balances continue to be
recognized in the statement of operations. For the first six months of 2008,
Trinidad recognized a gain of $3.5 million in comparison with a loss of
$6.9 million in 2007. Slightly higher intercompany balances, coupled with the
increases in the value of the US dollar over the first half of 2008 in
comparison with declines over the comparable period in the prior year were the
main factors for the variance quarter-over-quarter. The $3.5 million gain
corresponds to an equal and offsetting unrealized loss in the US subsidiary
included in OCI.

    
    DEPRECIATION

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Depreciation         20,509   14,831     38.3   44,501   33,089     34.5
    (Gain) loss on
     sale of assets        (224)     163    237.4     (317)     207    253.1
    

    Depreciation increased 38.3% to $20.5 million in the second quarter of
2008 from $14.8 million in the same time period of 2007, and for the six
months ended June 30, 2008 was $44.5 million, an increase of $11.4 million or
34.5% as compared to the same time period in 2007. This increase was partially
a result of fluctuations in the depreciation rate per drilling day. The
Canadian drilling segment increased depreciation per day by $268 for the six
months ended to $3,077 in 2008 from $2,809 in 2007, while rates remained
relatively static quarter-over-quarter. Concurrently, the US segment also
increased rates per drilling day by approximately US$420 on both a quarterly
and year-to-date basis from the comparative period in 2007. However, the
increase in the rate per drilling day was offset almost entirely by declining
US foreign currency rates, resulting in relatively static rates per drilling
day in Canadian dollars for both periods. Increases in the Company's
depreciation rate per day resulted primarily from changes in the composition
of Trinidad's asset base over these periods as a result of the addition of
drilling rigs with increased drilling depth and more advanced technology,
which incrementally added to the capital cost of Trinidad's asset base.
    Increases in the depreciation rate per drilling day, compounded by the
increase in drilling days over the comparable period, resulted in higher
depreciation for both the quarter and six months ended June 30, 2008 in
comparison with the same periods in 2007. For the three months ended June 30,
2008 relatively static rates per drilling day of approximately $3,900 in the
Canadian segment, coupled with an increase of 576 drilling days resulted in an
increase in Canadian depreciation expense of approximately $2.3 million.
Compounded with the US operations which had static US rates per drilling day
of $3,400 and a 28.5% increase in US drilling days from 2,944 in 2007 to 3,783
in 2008 plus the acquisition of Axxis increased US depreciation by
$3.4 million. On a year-to-date basis, higher drilling days at relatively
static dayrates also accounted for the $11.4 million increase in depreciation
from the prior year.
    The gain on sale of assets for the three and six months ended June 30,
2008 was the result of the disposition of two properties owned by the Company
that were not fully utilized, thereby allowing operations to be consolidated
into other existing facilities. These gains were offset by smaller losses on
the disposition of assets that were no longer being utilized, consistent with
the prior period.

    
    REORGANIZATION COSTS

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Reorganization costs    140        -        -    2,689        -        -
    

    On January 10, 2008, the Trust announced its intent to convert from a
growth-oriented income trust to a growth-oriented, dividend-paying
corporation, subject to unitholder and regulatory approval. On March 10, 2008,
unitholders and holders of the exchangeable shares voted, and overwhelmingly
approved, the conversion of the Trust into a public oil and natural gas
services corporation retaining the name "Trinidad Drilling Ltd.". As a result
of this reorganization Trinidad incurred one-time costs of $2.7 million
relating to this conversion which included charges for shareholder
communication, legal counsel, development and execution of fairness opinions
and charges in relation to revising and updating necessary legal documents for
Trinidad's new corporate structure. Trinidad believes it has incurred the
majority of the charges in relation to the above conversion.

    
    INCOME TAXES

                       Three months ended June 30,  Six months ended June 30,
    ($ thousands)          2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Current tax expense   1,066      511    108.6    1,697    1,984    (14.5)
    Future tax expense
     (recovery)           2,492   (3,117)   179.9   11,890    7,117     67.1
    

    Year-to-date current income tax expense of $1.7 million decreased by
14.5% from the same period in the prior year as a result of the reorganization
completed at the beginning of 2008 to amalgamate the Company's surface casing
and coring division into its drilling division. This ultimately increased the
tax shield the Company had on earnings from this smaller division allowing
higher tax pools in the Canadian drilling division to shield earnings from
drilling activity in the oil sands. As a result, no current taxes were
recorded on these earnings in 2008, in comparison to approximately
$1.3 million recorded in the same period of 2007. These savings were partially
offset by increased revenues generated by a smaller manufacturing division,
not present in 2007, whose taxable earnings surpassed the allowable deductions
creating a tax liability. There was a marginal increase in the US as a result
of Texas Margins Tax; however, a substantial part of the increase was a direct
result of withholding tax on intercompany interest expense paid from the US
operations to Canada. This current tax is used to offset the taxability of the
Canadian operations through triggering a foreign tax credit; however, due to
the loss position in the current period this deduction has created a further
loss therefore triggering a future tax recovery. The increase of 108.6% in the
current quarter over the same period in the prior year is directly
attributable to this withholding tax and current tax expense on the smaller
manufacturing division, not present in the prior year.
    Future income tax expense increased year-over-year by $4.8 million, or
67.1%, and quarter-over-quarter by $5.6 million or 179.9%. The increase in
future tax expenses is primarily as a result of the change from a income trust
structure to a corporation, which eliminated the deduction that the Company
previously had for distributions made to unitholders, subjecting the
consolidated earnings of Trinidad to greater future tax liabilities. These
increases were offset as a result of the decreasing future tax rates due to
changes in the Federal Budget between the second quarter of 2007 and the
current period.

    
    NET EARNINGS AND CASH FLOW

    ($ thousands except
    per share data)    Three months ended June 30,  Six months ended June 30,
                           2008     2007 % Change     2008     2007 % Change
    -------------------------------------------------------------------------
    Net earnings          1,141    4,641    (75.4)  40,053   46,584    (14.0)
      Per share (diluted)  0.01     0.05    (80.0)    0.47     0.55    (14.5)
    Cash flow from
     operations          83,977   28,549    194.2  131,949   74,062     78.2
      Per share
       (diluted)           0.96     0.33    190.9     1.54     0.87     77.0
    Cash flow from
     operations before
     change in non-cash
     working capital     27,202   23,353     16.5   97,712   96,163      1.6
      Per share (diluted)  0.31     0.27     14.8     1.14     1.13      0.9
    

    For the three months ended June 30, 2008, Trinidad's consolidated net
earnings were $1.1 million, representing a decline of $3.5 million or 75.4%
from $4.6 million in 2007. Net earnings declined quarter-over-quarter as a
result of higher income taxes of $3.6 million in 2008, an increase of
$6.2 million or 236.5% as compared to the same period in 2007. Lower future
taxes in the prior year were the result of lower taxable income in the
Canadian market as a result of a more predominant spring break-up in 2007 and
the additional deductions on distributions claimed due to the income trust
structure, which was eliminated in the current year. Furthermore, the interest
on the convertible debentures, which was not present in 2007, and the increase
in depreciation negatively impacted net earnings. Partially offsetting this
was the incremental revenue and associated gross margins from the Canadian and
US operations.
    Year-to-date the Company's consolidated net earnings fell $6.5 million or
14.0% from $46.6 million in 2007 to $40.1 million in the current year. These
declines were primarily the result of reduced dayrates in the Canadian
drilling segment in the first quarter of 2008 in comparison with 2007 as
dayrates in the first quarter of 2007 were a continuation of the stronger
drilling market present in 2006. Incremental interest expense on the
convertible debentures, higher depreciation and the incurrence of costs
associated with the reorganization of Trinidad into a new corporate structure
also contributed to the reduction year-over-year. However, these reductions
were partially offset through the overall growth in the Company's US
operations, as well as the unrealized foreign exchange gain due to
strengthening of the US dollar.
    Cash flow from operations for the second quarter increased by 194.2% from
$28.5 million ($0.33 per share (diluted)) in 2007 to $84.0 million ($0.96 per
share (diluted)) in 2008 and cash flow from operations before changes in
non-cash working capital for the same period increased by 16.5% from $23.4
million ($0.27 per share (diluted)) in the second quarter of 2007 to $27.2
million ($0.31 per share (diluted)) in 2008. The growth in both cash flow from
operations and cash flow from operations before change in non-cash working
capital was primarily a result of increased revenue and gross margin given the
strong quarter the Company had with increased operating days and utilization
in Canada, along with increased operating days and drilling fleet in the US.
These increases were partially offset by incremental interest paid on the
convertible debentures.
    Year-to-date cash flow from operations was $131.9 million ($1.54 per
share (diluted)), representing an increase of $57.9 million or 78.2% as
compared to $74.1 million ($0.87 per share (diluted)) for the same period of
2007. Cash flow from operations before changes in non-cash working capital
also increased by $1.5 million, or 1.6%, to $97.7 million ($1.14 per share
(diluted)) from $96.2 million ($1.13 per share (diluted)) for the same period
in 2007. This year-to-date growth was driven by stability achieved through the
strong results obtained in the US operations where higher revenues offset
slightly reduced margins.

    
    -------------------------------------------------------------------------
    LIQUIDITY AND CAPITAL RE

SOURCES June 30, December 31, ($ thousands except percentages) 2008 2007 ------------------------------------------------------------------------- Working capital 109,600 84,101 Current portion of long-term debt 1,272 1,679 Convertible debentures(1) 319,617 315,991 Long-term debt(1) 251,611 402,489 ------------------------ Total debt 572,500 720,159 ------------------------ Total debt as a percentage of assets 36.8% 48.1% Net debt 461,628 634,379 Net debt as a percentage of assets 29.7% 42.4% Total assets 1,556,592 1,497,156 Total long-term liabilities 629,527 764,102 Total long-term liabilities as a percentage of assets 40.4% 51.0% Shareholders' equity 819,448 634,502 Total debt to shareholders' equity 69.9% 113.5% Total debt to shareholders' equity - assuming debenture conversion 22.2% 42.5% Net debt to shareholders' equity 56.3% 100.0% ------------------------------------------------------------------------- (1) Convertible debentures and long-term debt are reflected net of associated transaction costs. In the current quarter, Trinidad's long-term debt decreased by $151.3 million or 37.4% from $404.2 million at year-end to $252.9 million at June 30, 2008. This reduction in debt is directly related to the closing of an equity financing completed during the second quarter of 2008 whereby 12,132,353 shares were issued, including the overallotment of 1,102,941 shares, for gross proceeds of $165.0 million. Net proceeds from the equity issuance were initially used to reduce debt and will subsequently be used to construct nine high-horsepower drilling rigs, all backed by long-term, take-or-pay contracts guaranteeing utilization of 100% over their respective contract terms and six well servicing rigs. These contracts will provide Trinidad with increased revenue stability and will feature state-of-the-art technology. As financing is required under the rig construction program the additional funds will be drawn from the current revolving credit facility. The reduction in the Company's long-term debt during the quarter also reduced net debt as a percentage of assets and long-term liabilities as a percentage of assets. In addition, during the quarter advances were made on the facility pertaining to the commencement of the drilling program and the final costs of construction of the barge rig which, together with internally generated cash flow, were used to fund capital expenditures of $27.5 million. Working capital also increased by $25.5 million or 30.3% from the end of the prior year, as a result of the Company's cash position increasing by $51.4 million due to proceeds from the equity financing portion that were not applied to debt, as well as the deposit received on the sale of the barge rig (see subsequent events). This increase was offset by lower accounts receivable balances which are typical after the completion of the slower second quarter where receivables and payables tend to decrease at the completion of spring break-up as a result of lower activity levels leading up to the end of the quarter. Finally, a current future income tax asset on losses in the manufacturing division was recorded at the end of the second quarter as a result of Trinidad's conversion to a corporate structure. In order to fund the acquisition of Axxis in the third quarter of 2007, Trinidad completed the issuance of $354.3 million convertible debentures (see below). The classification of the convertible debentures as debt on the face of the balance sheet has resulted in the Company's leverage appearing much higher than some of its peers. However, at maturity or redemption, to the extent the convertible debentures have not previously been converted by the holders, the Company may elect to satisfy its obligation to repay the principal by issuing shares at a price equal to 95.0% of the weighted average trading price of the shares. As a result, Trinidad has the ability, at its option, to eliminate any cash requirements in respect of the principal amount owing on the convertible debentures. Shareholders' equity increased by $184.9 million from the prior year due to the equity offering of $165.0 million as well as $21.4 million of net earnings generated from operations throughout the period, net of dividends declared to shareholders. Further, Trinidad distributed an additional $8.4 million to unitholders prior to the conversion to a corporation which also reduced shareholders' equity. Accumulated Other Comprehensive Income, which is comprised of gains and losses on the translation of the Company's foreign subsidiaries and the fair value of Trinidad's interest rate swaps, increased shareholders' equity by $12.3 million over the period as a result of strengthening of the US dollar and reductions in future expected interest rates, respectively. The first half of 2008 exhibited signs of strengthening in the Canadian market as demand for drilling increased utilization levels and the US operations continued to maintain high utilization rates and drilling activity. The acquisition of Axxis in the third quarter of 2007 has been positive for the Company, adding diversification to the drilling fleet and providing increased opportunities for expansion. These factors, along with the recent equity financing, have allowed Trinidad to strengthen its capital position throughout the quarter, reducing net debt levels by $172.8 million to $461.6 million at June 30, 2008, down from $604.3 million at March 31, 2008. In addition, net debt as a percentage of assets also declined to 29.7% from 42.4% at year end and total debt to shareholders' equity (assuming debenture conversion) has also declined from 42.5% at year end to 22.2% at June 30, 2008. Convertible debentures In connection with the acquisition of Axxis, Trinidad issued $354.3 million in unsecured subordinated convertible debentures, of which $325.0 million was issued through a public offering and $29.3 million was issued to the former owners of Axxis. The debentures are convertible into shares of Trinidad at the option of the holder at any time prior to maturity at a conversion price of $19.30 per share. They have a face value of $1,000, a coupon rate of 7.75%, and mature July 31, 2012, with interest being paid semi-annually on June 30 and December 31. Trinidad has the option to redeem the debentures in whole or in part at a redemption price of $1,000 after December 31, 2010 and before their maturity date. On redemption or maturity, Trinidad may elect to satisfy its obligation to repay the principal by issuing common shares. The value of the conversion feature at the time of issuance was determined using the Black-Scholes pricing model to be $28.2 million and has been recorded as equity with the remaining $326.1 million allocated to long-term debt, net of $13.6 million of transaction costs. The debentures are being accreted such that the liability at maturity will equal the face value of the debt. As at June 30, 2008, there had been a conversion of $60,000 convertible debentures which equated to 3,108 common shares of Trinidad Drilling Ltd. ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY June 30, December 31, ($ thousands) 2008 2007 ------------------------------------------------------------------------- Shareholders' equity 837,646 - Unitholders' capital - 675,728 Exchangeable shares - 2,477 ------------------------------------------------------------------------- On January 10, 2008, the Trust announced its intent to convert from a growth-oriented income trust to a growth-oriented, dividend-paying corporation. On March 10, 2008, unitholders and holders of the exchangeable shares voted, and overwhelmingly approved, the conversion of the Trust into a public oil and natural gas services corporation retaining the name "Trinidad Drilling Ltd.". As a result of this conversion unitholders and holders of the exchangeable shares received shares in the newly created corporation on a 1:1 basis, after giving effect to the exchange ratio on the exchangeable shares at the time of conversion. As a result, unitholders' capital was transferred into shareholders' equity during the first quarter of 2008. Shareholders' equity increased from $678.3 million at the time of conversion to $837.6 million as at June 30, 2008. The increase was mainly attributable to equity financing that was closed in the quarter at which time a total of 12,132,353 common shares, which included the overallotment of 1,102,941 common shares, were issued for gross proceeds of $165.0 million. This offering, in addition to the exercise of 109,763 options ($1.1 million) since the time of conversion and the conversion of convertible debentures representing 3,108 common shares ($0.1 million), resulted in the $159.3 million increase of shareholders' equity. Unitholders' capital also increased prior to the conversion to a corporation by $2.6 million as a result of the conversion of 253,430 Series A exchangeable shares ($2.0 million) to 352,328 trust units, the conversion of 47,169 Series C exchangeable shares ($0.5 million) to 59,905 trust units and 7,850 shares issued for options exercised ($0.1 million). Shareholders' equity on August 1, 2008 was $837.7 million (96,290,881 shares). SEASONALITY Trinidad operates a substantial number of rigs in Western Canada, and therefore operations are heavily dependent upon the seasons. The winter season, which incorporates the first quarter, is a busy period as oil and natural gas companies take advantage of frozen conditions to move drilling rigs into regions which might otherwise be inaccessible to heavy equipment due to swampy conditions. The second quarter normally encompasses a slow period referred to as spring break-up. During this period melting conditions result in temporary municipal road bans that effectively prohibit the movement of drilling rigs. The third and fourth quarters are usually representative of average activity levels. Trinidad's expansion to the US market has reduced its overall exposure to the seasonal factors that are present in its Canadian operations. These seasonal conditions typically limit Canadian drilling activity, whereas in the United States operators have more flexibility to work throughout the year. This increased number of operating days throughout the year has allowed Trinidad to better manage its business with more sustainable cash flow throughout the annual cycle. CRITICAL ACCOUNTING ESTIMATES The preparation of the unaudited interim consolidated financial statements requires that certain estimates and judgements be made with regard to the reported amount of revenues and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management judgement. Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the unaudited interim consolidated financial statements may change as future events unfold, additional experience is acquired or Trinidad's operating environment changes. Depreciation The accounting estimate that has the greatest impact on Trinidad's financial results is depreciation. Depreciation of Trinidad's property and equipment incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of Trinidad's capital assets. Stock-based compensation Compensation expense associated with options at grant date are estimates based on various assumptions such as volatility, annual dividend yield, risk free interest rate and expected life using the Black-Scholes methodology to produce an estimate of the fair value of such compensation. Allowance for doubtful accounts receivable Trinidad performs credit evaluations of its customers and grants credit based on past payment history, financial conditions and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based on specific situations and overall industry conditions. Trinidad's history of bad debt losses has been minimal and generally limited to specific customer circumstances; however, given the cyclical nature of the oil and natural gas industry, the credit risks can change suddenly and without notice. Goodwill In accordance with Canadian GAAP, Trinidad performs an annual goodwill impairment each fiscal year and sooner when changing circumstances indicate a possible impairment exists. In accordance with this, Trinidad performed its impairment test as at December 31, 2007, and no goodwill impairment existed. As at June 30, 2008, no changes in circumstances indicate that this assessment should be re-performed. Fair value of interest rate swaps The fair value of the interest rate swaps are estimated based on future projected interest rates and adjusted on a quarterly basis for monthly settlements and changes in projections. Trinidad receives the valuation from the contract counterparty on a quarterly basis and records the associated change in fair value at each reporting period. Future Income Taxes The recording of future income tax involves the use of various assumptions to estimate the amounts and timing of the reversals of temporary differences between assets and liabilities recognized for accounting and tax purposes. It also involves the estimation of the effective tax rates for future fiscal years. The assumptions used (which include, but are not limited to, estimated results of operations, tax pool claims and accounting deductions) are based on management's current estimates and will likely change in future periods based on actual results and accordingly so will the estimates. CHANGES IN ACCOUNTING POLICY Effective January 1, 2008, Trinidad adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA"), as described further in note 2 of the notes to the unaudited interim consolidated financial statements. Capital Disclosures CICA Section 1535 establishes both qualitative and quantitative disclosure requirements about an entity's capital and how it is managed. As a result of adopting this section, Trinidad is now required to disclose qualitative information about its objectives, policies and processes for managing capital, such that users of the financial statements will be able to evaluate the Company's management of capital. Inventories CICA Section 3031 provides guidance on the measurement of inventory, by providing several appropriate valuation techniques to be used in the determination of the cost of inventory, based on the type of inventory held. The adoption of this new standard had no impact on the measurement of inventories; however, further disclosure was required, including the carrying value of each classification of inventory, a reconciliation of the expenses related to inventory used during the period and the disclosure of the amount of any write-downs or reversals of previously written-down amounts, if any. Financial Instruments The CICA issued two new accounting standards with respect to financial instruments: Section 3862 - Financial Instruments - Disclosure and Section 3863 - Financial Instruments - Presentation. Section 3862, adopted by Trinidad in conjunction with Section 3863, emphasizes disclosures regarding the nature and extent of the risks arising from financial instruments and how those risks are managed. Following the requirements of Section 3855 - Financial Instruments - Recognition and Measurement, adopted January 1, 2007; this new section recommends additional disclosures, including qualitative analysis of the financial instrument risks faced by Trinidad, as well as a quantitative analysis of the effect of changes to these risks, based on market conditions, and their potential impact on Trinidad. Section 3863 establishes recommendations for the presentation of financial instruments and non-financial derivatives in the financial statements. There was no impact of the adoption of this section as it is substantially similar to the previously adopted Section 3861 - Financial Instruments - Disclosure and Presentation. FUTURE CHANGES IN ACCOUNTING POLICIES The CICA issued a new accounting standard, Section 3064 - Goodwill and Intangible Assets, which replaces Sections 3062 - Goodwill and Other Intangible Assets and 3450 - Research and Development Costs; and amended Section 1000 - Financial Statement Concepts. These accounting standards updates will be effective for fiscal years beginning on or after October 1, 2008 and Trinidad plans to adopt them effective January 1, 2009. Section 3064 recommends standards for the recognition, measurement and disclosure of goodwill and intangible assets, including research and development costs, and Section 1000 has been amended to clarify the criteria for recognition of an asset. Trinidad is in the process of evaluating the impact of these standards. DISCLOSURE CONTROLS & PROCEDURES Disclosure controls and procedures are designed to provide reasonable assurance that all information required to be disclosed by Trinidad is recorded, processed, summarized and reported to senior management, including the CEO and CFO, in an appropriate manner to allow timely decisions regarding required disclosure as defined under Multilateral Instrument 52-109, Certification of Disclosures in Annual and Interim Filings. Management of Trinidad has evaluated the effectiveness of the design of disclosure controls and procedures, under the supervision of the CEO and the CFO. Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. There have been no changes in the Company's internal controls over financial reporting or disclosure controls and procedures that occurred since the year ended December 31, 2007 and no material weaknesses or significant deficiencies have been identified in the design of these controls, except as noted below, that could materially affect or are reasonably likely to affect the Company's internal controls over financial reporting. Trinidad is continuing to complete an assessment of the business process controls of Mastco and Axxis and has not concluded on the design effectiveness as at June 30, 2008. As a result, Trinidad has relied on management's review procedures to assess the accuracy of the financial statements at the reporting date. SUBSEQUENT EVENTS Effective July 10, 2008, Trinidad announced the sale of its nearly constructed barge drilling rig to an international third party for US$53.5 million. Upon receipt of the signed purchase agreement, the Company received a US$5.35 million non-refundable deposit and anticipates receipt of the balance owed by the end of the third quarter. The construction of the barge rig will continue to be managed by Trinidad and is expected to be completed in the third quarter. Any modifications requested by the buyer from the current rig design will be completed, but will be subject to a handling fee and will be adjusted as part of the final purchase price. The proceeds generated will be used for future expansion as Trinidad continues to see strong opportunities in both the US land and barge drilling markets. Effective July 17, 2008, Trinidad announced the construction of an additional seven rigs to the rig construction program previously announced in May 2008. These rigs are all backed by long-term, take-or-pay contracts with two major North American oil and natural gas companies. Total costs of construction are expected to be approximately $105.0 million and Trinidad intends to fund the rig construction program from its operating cash flow and funds available under its existing credit facility. OUTLOOK Exiting the first half of 2008, significantly higher commodity prices for both oil and natural gas have signalled expectations for higher activity levels for the remainder of this year and into 2009. While commodity prices remain volatile, and the potential for softening in both oil and natural gas pricing is still present, the higher commodity price levels over the last several months, coupled with limited current supply and strengthening demand, provide a strong catalyst for increased demand for oilfield services in the coming quarters. As road bans have been lifted Trinidad's Canadian operations have ramped up to normal activity levels moving into the third quarter and we anticipate activity levels to increase moving forward as operators respond to strong commodity prices and the backlog of proposed wells to be drilled. One key issue that could still negatively impact well activity in Canada moving forward is the potential burden that Alberta's New Royalty Framework could bring in 2009. However, we are encouraged by the fact that some Canadian oil and natural gas producers have increased their capital spending budgets, with further increases looking probable and drilling continues in other jurisdictions beyond Alberta. Increased capital spending boosts producers' future production and reserve growth potential and has a positive impact on field activity and cash flow for Trinidad. The CAODC recently released a revised forecast of activity for the balance of 2008. The revision confirms some renewed optimism within the industry. In October 2007, the CAODC released a projection that identified a drastic reduction in the number of wells that would be drilled in 2008, compared with 2007 and 2006. In its revised forecast, the CAODC notes that we are beginning to see the signs of an industry that is looking forward to increasing activity based on renewed strength in commodity prices and positive drilling results. The CAODC is now projecting approximately 18,000 well completions for 2008, which represents a 28% increase from their October 2007 forecast and in terms of rig utilization, the revised CAODC forecast calls for 42% utilization in 2008 as compared to their original forecast of 34%. We continue to see strong opportunities in both the US land drilling market and the US Gulf Coast barge drilling market and expect overall rig activity to continue to rise in the US moving forward. Trinidad continues to follow an investment strategy designed to ensure growth for shareholders by way of capital appreciation through the pursuit of opportunities including the expansion into the US market as well as diversification of the overall asset base. This strategy will further the Company's revenue diversification, provide superior growth, and strengthen our overall equipment efficiency. The two recently announced rig construction programs follow this strategy as they will add to the current fleet further diversifying Trinidad's asset base to include deep drilling rigs which typically obtain higher dayrates, utilization levels and margins as compared with other rigs of shallower capabilities. Trinidad has the competitive advantage of having an established operational base in the US, complete with training programs and facilities, and will be able to quickly and efficiently integrate this new equipment into its existing operations. Trinidad's reputation for providing superior equipment and performance continues to be recognized by our customers. The newer, more efficient equipment we provide gives Trinidad a competitive advantage and is reflected in the high utilization rates and solid profit margins we consistently are able to generate and maintain. We expect the US segment to continue to deliver strong results on an on-going basis as operations in this region continue to be supported by strong customer demand. The drilling and well servicing sector of the oil and natural gas industry in North America ranks as one of the most competitive areas of business. As a service industry, its activities are directly affected by its customers' exploration and development efforts which, in turn, are dictated by world energy prices and government policies. Historically, Trinidad has generally exceeded industry average rig utilization as a result of customer relations, employee expertise, equipment quality and drilling performance. Trinidad remains well positioned to take advantage of opportunities with state-of-the-art equipment and well-trained crews for deep natural gas and oil drilling in both Canada and the US land and barge drilling markets. Trinidad Drilling Ltd. is a growth-oriented, dividend-paying oil and natural gas services provider based in Calgary, Alberta. Focusing on deep drilling, modern rig fleets, in-house design and technology-based advancement, Trinidad has positioned itself as a premium service provider. Trinidad's growth is driven by chasing and capturing new horizons - advancing technologies, offering new services, entering new markets and performing strategic acquisitions. With the completion of the current rig construction programs, the Company will have 126 land drilling rigs ranging in depth capacities from 1,000 - 6,500 metres and four barge drilling rigs operating in the Gulf of Mexico. In addition to its drilling rigs, Trinidad will have 26 well servicing rigs that have been completely retrofitted or were constructed within the past five years and 20 pre-setting and coring rigs. 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 highly capable, expertly designed, well-equipped, adaptable and competitive in the industry. "signed" Lyle C. Whitmarsh "signed" Brent J. Conway ------------------------------ ------------------------- President and Chief Executive Chief Financial Officer Officer The Toronto Stock Exchange has neither approved nor disapproved the information contained herein. Trinidad will be holding a conference call and webcast to discuss its second quarter 2008 results on August 12, 2008 beginning at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial (800) 732-6179 (toll-free in North America) or (416) 644-3417 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 11:00 a.m. MT on August 12 until midnight August 19, 2008 by dialling (877) 289-8525 or (416) 640-1917 and entering replay access code 21277788 followed by the number sign. A live audio webcast of the conference call will also be available via Trinidad's website, www.trinidaddrilling.com. ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ($ thousands - Unaudited) June 30, December 31, 2008 2007 ------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents 69,417 18,021 Accounts receivable 125,602 143,522 Inventory (note 6) 15,909 18,231 Prepaid expenses 4,156 2,879 Future income taxes 2,133 - ------------------------ 217,217 182,653 Deposit on capital assets 4,470 3,458 Capital assets 1,137,703 1,110,730 Goodwill 171,551 169,134 Other long-term assets 25,651 31,181 ------------------------ 1,556,592 1,497,156 ------------------------ Liabilities Current liabilities Accounts payable and accrued liabilities 81,730 78,649 Dividends payable 14,442 - Accrued trust distributions - 9,616 Current portion of deferred revenue 7,256 6,890 Current portion of long-term debt 1,272 1,679 Current portion of fair value of interest rate swap 2,917 1,718 ------------------------ 107,617 98,552 Deferred revenue 2,285 4,038 Long-term debt 251,611 402,489 Convertible debentures, net of transaction costs 319,617 315,991 Fair value of interest rate swaps 3,382 4,211 Future income taxes 52,632 37,373 ------------------------ 737,144 862,654 Shareholders' equity Shareholders' equity (note 7(a)) 837,646 - Unitholders' capital (note 7(b)) - 675,728 Exchangeable shares (note 8) - 2,477 Convertible debentures 28,218 28,223 Contributed surplus (note 7(c)) 13,991 13,843 Accumulated other comprehensive loss (49,473) (61,788) Retained earnings (deficit) (10,934) (23,981) ------------------------ 819,448 634,502 ------------------------ 1,556,592 1,497,156 ------------------------ (See notes to the unaudited interim consolidated financial statements) Commitments (note 12) CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS ($ thousands except share and per share data - Unaudited) Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Revenue Oilfield services 141,859 115,215 362,876 321,148 Bareboat Charter loss (note 12) (881) - (2,305) - Other 201 279 259 557 --------------------------------------------------- 141,179 115,494 360,830 321,705 --------------------------------------------------- Expenses Operating 87,414 72,955 208,637 186,149 General and administrative 12,749 9,701 24,172 20,130 Interest on long-term debt (note 11) 6,215 9,535 13,390 18,110 Interest on convertible debentures (note 11) 8,685 - 17,339 - Stock-based compensation 133 671 302 1,446 Foreign exchange (gain) loss 859 5,603 (3,523) 6,889 Depreciation 20,509 14,831 44,501 33,089 (Gain) loss on sale of assets (224) 163 (317) 207 Reorganization costs 140 - 2,689 - --------------------------------------------------- 136,480 113,459 307,190 266,020 --------------------------------------------------- Earnings before income taxes 4,699 2,035 53,640 55,685 Income taxes Current tax expense 1,066 511 1,697 1,984 Future tax expense (recovery) 2,492 (3,117) 11,890 7,117 --------------------------------------------------- 3,558 (2,606) 13,587 9,101 --------------------------------------------------- Net earnings 1,141 4,641 40,053 46,584 Dividends (14,442) - (18,644) - Trust distributions - (28,836) (8,362) (57,573) Retained earnings (deficit) - beginning of period 2,367 24,965 (23,981) 11,759 --------------------------------------------------- Retained earnings (deficit) - end of period (10,934) 770 (10,934) 770 --------------------------------------------------- Earnings per share Basic 0.01 0.06 0.47 0.56 Diluted 0.01 0.05 0.47 0.55 Weighted average number of shares Basic 86,750,690 83,947,198 85,347,826 83,872,182 Diluted 87,825,214 85,711,891 85,916,240 85,294,628 (See notes to the unaudited interim consolidated financial statements) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) ($ thousands - Unaudited) Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Net earnings 1,141 4,641 40,053 46,584 Other comprehensive income Change in fair value of derivatives designated as cash flow hedges, net of income tax (note 11) 1,340 1,678 (245) 1,738 Foreign currency translation adjustment (2,902) (23,948) 12,560 (26,686) --------------------------------------------------- Total other comprehensive income (loss) (1,562) (22,270) 12,315 (24,948) --------------------------------------------------- Comprehensive income (loss) (421) (17,629) 52,368 21,636 --------------------------------------------------- (See notes to the unaudited interim consolidated financial statements) ------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ($ thousands - Unaudited) Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Accumulated other comprehensive loss - beginning of period (47,911) (7,128) (61,788) (750) Adjust opening balance due to adoption of new accounting policies - - - (3,700) Other comprehensive income (loss) during the period (1,562) (22,270) 12,315 (24,948) --------------------------------------------------- Accumulated other comprehensive loss - end of period (49,473) (29,398) (49,473) (29,398) --------------------------------------------------- (See notes to the unaudited interim consolidated financial statements) CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands - Unaudited) Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- Cash provided by (used in) Operating activities Net earnings for the period 1,141 4,641 40,053 46,584 Items not affecting cash Depreciation 20,509 14,831 44,501 33,089 (Gain) loss on sale of assets (224) 163 (317) 207 Stock-based compensation 133 671 302 1,446 Future income taxes expense (recovery) 2,492 (3,117) 11,890 7,117 Effective interest on financing costs (note 11) 1,082 403 2,158 752 Accretion on convertible debentures (note 11) 1,195 - 2,363 - Unrealized foreign exchange loss (gain) 874 5,761 (3,238) 6,968 --------------------------------------------------- 27,202 23,353 97,712 96,163 Net change in non-cash operating working capital 56,775 5,196 34,237 (22,101) --------------------------------------------------- 83,977 28,549 131,949 74,062 --------------------------------------------------- Investing activities (Increase) decrease in deposits on capital assets (752) 8,794 (918) 36,964 Purchase of capital assets (26,740) (55,701) (56,915) (189,255) Proceeds from dispositions 519 286 3,260 489 Change in non-cash working capital 13,162 26,397 (11,483) 31,294 --------------------------------------------------- (13,811) (20,224) (66,056) (120,508) --------------------------------------------------- Financing activities Increase (decrease) in long-term debt, net (164,816) 26,229 (149,553) 112,295 Proceeds from share issuance (note 7) 158,038 - 158,038 - Proceeds from exercise of options (note 7) 1,071 1,109 1,189 2,302 Decrease in deferred revenue (200) (3,216) (1,625) 1,501 Trust unit distribution - (28,815) (17,978) (57,503) Dividends paid (4,202) - (4,202) - Debt financing costs (600) (600) (600) (600) --------------------------------------------------- (10,709) (5,293) (14,731) 57,995 --------------------------------------------------- Cash flow from operating, investing and financing activities 59,457 3,032 51,162 11,549 Effect of translation on foreign currency cash 40 (2,735) 234 (3,858) --------------------------------------------------- Increase in cash for the period 59,497 297 51,396 7,691 Cash - beginning of period 9,920 16,807 18,021 9,413 --------------------------------------------------- Cash - end of period 69,417 17,104 69,417 17,104 --------------------------------------------------- Interest paid 19,546 9,192 26,763 16,918 Taxes paid 2,052 61 2,100 147 (See notes to the unaudited interim consolidated financial statements) NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. STRUCTURE OF THE CORPORATION Organization Trinidad Drilling Ltd. ("Trinidad" or the "Company") is incorporated under the laws of the Province of Alberta. The Company was formed by way of an arrangement under the Business Corporations Act of Alberta pursuant to an arrangement agreement dated January 9, 2008 between the Company and Trinidad Energy Services Income Trust (the "Trust"). The Arrangement involved the exchange, on a one-for-one basis of trust units and exchangeable shares, after accounting for the conversion factor applicable to the exchangeable shares, for common shares of Trinidad. The effective date of the Arrangement was March 10, 2008 - see note 3. 2. ACCOUNTING POLICIES AND ESTIMATES These unaudited interim consolidated financial statements are prepared by management, in accordance with Canadian Generally Accepted Accounting Principles, and follow the same accounting policies and methods as the audited consolidated financial statements for the year ended December 31, 2007, except as noted below, and therefore do not contain all of the disclosures required for the annual financial statements. As a result, the unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Trust contained in the annual report for the year ended December 31, 2007. Adoption of New Accounting Standards Effective January 1, 2008, Trinidad adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA"): Capital Disclosures CICA Section 1535 establishes both qualitative and quantitative disclosure requirements about an entity's capital and how it is managed. As a result of adopting this section, Trinidad is now required to disclose qualitative information about its objectives, policies and processes for managing capital, such that users of the financial statements will be able to evaluate the Company's management of capital - see note 10. Inventories CICA Section 3031 provides guidance on the measurement of inventory, by providing several appropriate valuation techniques to be used in the determination of the cost of inventory, based on the type of inventory held. The adoption of this new standard had no impact on the measurement of inventories; however, further disclosure was required, including the carrying value of each classification of inventory, a reconciliation of the expenses related to inventory used during the period and the disclosure of the amount of any write-downs or reversals of previously written-down amounts, if any - see note 6. Financial Instruments The CICA issued two new accounting standards with respect to financial instruments: Section 3862 - Financial Instruments - Disclosure and Section 3863 - Financial Instruments - Presentation. Section 3862, adopted by Trinidad in conjunction with Section 3863, emphasizes disclosures regarding the nature and extent of the risks arising from financial instruments and how those risks are managed. Following the requirements of Section 3855 - Financial Instruments - Recognition and Measurement, adopted January 1, 2007; this new section recommends additional disclosures, including qualitative analysis of the financial instrument risks faced by Trinidad, as well as a quantitative analysis of the effect of changes to these risks, based on market conditions, and their potential impact on Trinidad - see note 11. Determination of Fair Market Value The fair value of Trinidad's long-term debt was determined using current market price indicators and the fair-value of the convertible debentures was calculated at the quoted market price. Section 3863 establishes recommendations for the presentation of financial instruments and non-financial derivatives in the financial statements. There was no impact of the adoption of this section as it is substantially similar to the previously adopted Section 3861 - Financial Instruments - Disclosure and Presentation. There are no other material impacts on the unaudited interim consolidated financial statements for the adoption of these new standards. FUTURE CHANGES IN ACCOUNTING POLICIES The CICA issued a new accounting standard, Section 3064 - Goodwill and Intangible Assets, which replaces Sections 3062 - Goodwill and Other Intangible Assets and 3450 - Research and Development Costs; and amended Section 1000 - Financial Statement Concepts. These accounting standards updates will be effective for fiscal years beginning on or after October 1, 2008 and Trinidad plans to adopt them effective January 1, 2009. Section 3064 recommends standards for the recognition, measurement and disclosure of goodwill and intangible assets, including research and development costs, and Section 1000 has been amended to clarify the criteria for recognition of an asset. Trinidad is in the process of evaluating the impact of these standards. 3. THE ARRANGEMENT On March 10, 2008, unitholders of the Trust and holders of the exchangeable shares (the "Securityholders") voted, and overwhelmingly approved, reorganizing the Trust, by way of a plan of arrangement under the Business Corporations Act (Alberta), into a corporation (the "Arrangement") pursuant to an arrangement agreement dated January 9, 2008 between Trinidad and the Trust. The purpose of the Arrangement was to convert the Trust back into a corporate structure that was better suited to its core business model of growth and capital appreciation for its Securityholders. Management and the Board of Directors believe that the best opportunity for creating value is by reinvesting a significant portion of overall cash flow back into the business and to focus on increasing overall per share earnings, cash flow, net asset value, as well as overall debt reduction and they believe that a corporate structure better positions Trinidad to pursue these initiatives. For financial reporting presentation purposes, these changes are being treated as if they occurred on January 1, 2008. The Arrangement resulted in: (i) unitholders receiving Trinidad shares in exchange for their trust units on a one-for-one basis; and (ii) exchangeable shareholders receiving Trinidad shares on the same basis as unitholders based on the number of trust units into which such shares were exchangeable into on the effective date of the Arrangement. Effective March 10, 2008, Trinidad established an Incentive Option Plan under which incentive options will be granted to officers, employees and consultants to provide an opportunity for these individuals to participate in the growth and development of the Company. The Incentive Option Plan was developed to replace the Unit Rights Incentive Plan of the Trust and, in accordance with the Arrangement, participants received incentive options on a one-for-one basis for the incentive rights held at the time of conversion. References to the "Incentive Options Plan" and "options" should be read as references to "Unit Rights Incentive Plan" and "rights", respectively, for periods prior to March 10, 2008. 4. SEASONALITY Trinidad operates a substantial number of rigs in Western Canada, and therefore operations are heavily dependent upon the seasons. The winter season, which incorporates the first quarter, is a busy period as oil and natural gas companies take advantage of frozen conditions to move drilling rigs into regions which might otherwise be inaccessible to heavy equipment due to swampy conditions. The second quarter normally encompasses a slow period referred to as spring break-up. During this period melting conditions result in temporary municipal road bans that effectively prohibit the movement of drilling rigs. The third and fourth quarters are usually representative of average activity levels. Trinidad's expansion to the US market has reduced its overall exposure to the seasonal factors that are present in its Canadian operations. These seasonal conditions typically limit Canadian drilling activity, whereas in the US operators have increased flexibility to work throughout the year. This increased number of operating days throughout the year has allowed Trinidad to better manage its business with more sustainable cash flows throughout the annual cycle. 5. ACQUISITION Acquisition of assets of Axxis Effective July 5, 2007, a subsidiary of Trinidad purchased substantially all of the assets of US-based Drilling Productivity Realized, L.L.C., P.C. Axxis, L.L.C., DPR International, L.L.C. and DPR Rentals, L.L.C. (collectively, "Axxis") for consideration of $148.1 million. Additionally, Trinidad acquired a commitment to construct an additional barge rig for approximately US$27.5 million, of which $5.6 million had been spent at the time of acquisition and was reimbursed to the former owners and included in the purchase price. The acquisition was funded through the issuance of $29.3 million of convertible debentures to the former shareholders of Axxis and $124.4 million in cash proceeds raised through a public issuance of 325,000 convertible debentures for gross proceeds of $325.0 million. Earnings of Axxis have been included in consolidated earnings since the closing date of July 5, 2007. The consideration paid for this acquisition has been allocated under the purchase method as follows: ($ thousands) 2007 --------------------------------------------------------------------- Purchase price allocated as follows: Capital assets 96,488 Assets under construction 5,624 Intangible assets 39,569 Goodwill 51,636 Long-term liabilities (39,569) ------------ 153,748 ------------ Financed as follows: Convertible debentures 29,337 Cash 124,411 ------------ 153,748 ------------ As a result of the acquisition of Axxis, Trinidad is obligated to pay US$12.5 million annually to the former shareholders of Axxis for the next three years following the acquisition pertaining to provisions under the Bareboat Charters, discussed further in note 12 - Commitments. The consideration will be paid annually and is contingent on the continued operation of three barge rigs currently under contract. To the extent that these contracts are terminated prior to the end of the three years no further payments will be required. The amount paid under this commitment is considered a cost of the purchase and has been included in the purchase price and will be accrued and recorded against the associated revenue earned from the rigs and reported net as Bareboat Charter income (loss). 6. INVENTORY June 30, December 31, ($ thousands) 2008 2007 --------------------------------------------------------------------- Parts and materials 8,621 8,884 Work-in-progress 7,288 9,347 ------------------------- Total inventory 15,909 18,231 ------------------------- All inventory balances are carried at the lower of cost or net realizable value. The construction operations regularly utilizes inventory in the construction and recertification of rigs and rig related equipment. For the three and six months ended June 30, 2008, there were no material write-downs or reversals of previously written-down amounts. Throughout the period the amount of inventories recognized as an expense were: Three months Six months ended June 30, ended June 30, ($ thousands) 2008 2007 2008 2007 --------------------------------------------------------------------- Raw materials and consumables purchased 17,121 22,084 27,287 48,901 Labour costs 3,991 3,938 7,308 7,064 Other costs 118 82 218 146 Net change in inventory 5,029 (1,794) 2,322 (2,378) --------------------------------------------------- Amount of inventories expensed in period 26,259 24,310 37,135 53,733 --------------------------------------------------- 7. SHAREHOLDERS' EQUITY AND CONTRIBUTED SURPLUS a) Shareholders' equity Authorized Unlimited number of common shares, voting, participating ($ thousands except share data) June 30, 2008 December 31, 2007 --------------------------------------------------------------------- Number Amount Number Amount of Shares $ of Shares $ --------------------------------------------------- Shareholders' equity - opening balance - - - - Shares issued pursuant to the Arrangement 84,035,873 678,282 - - Shares issued for cash, net of transaction costs 12,132,353 158,038 - - Shares issued on exercise of options 109,763 1,122 - - Shares issued on conversion of convertible debentures 3,108 60 - - Contributed surplus transferred on exercised options - 144 - - --------------------------------------------------- Shareholders' equity - closing balance 96,281,097 837,646 - - --------------------------------------------------- b) Unitholders' capital ($ thousands except unit data) June 30, 2008 December 31, 2007 --------------------------------------------------------------------- Number Amount Number Amount of Units $ of Units $ --------------------------------------------------- Unitholders' capital - opening balance 83,615,790 675,728 82,981,952 669,584 Trust units issued on conversion of exchangeable shares 412,233 2,477 356,404 3,300 Trust units issued on exercise of rights 7,850 67 277,434 2,515 Contributed surplus transferred on exercised rights - 10 - 329 Trust units cancelled under the Arrangement (84,035,873) (678,282) - - --------------------------------------------------- Unitholders' capital - closing balance - - 83,615,790 675,728 --------------------------------------------------- c) Contributed surplus June 30, December 31, ($ thousands) 2008 2007 --------------------------------------------------------------------- Contributed surplus - opening balance 13,843 11,722 Stock-based compensation expense 302 2,450 Contributed surplus transferred on exercise of options (154) (329) ------------------------- Contributed surplus - ending balance 13,991 13,843 ------------------------- 8. EXCHANGEABLE SHARES Trinidad has the following exchangeable shares outstanding: ($ thousands except share data) June 30, 2008 December 31, 2007 --------------------------------------------------------------------- Number Amount Number Amount of Shares $ of Shares $ --------------------------------------------------- Exchangeable shares - opening balance 300,599 2,477 611,966 5,777 Exchangeable shares exchanged, Initial Series (253,430) (1,977) - - Exchangeable shares exchanged, Series C (47,169) (500) (311,367) (3,300) --------------------------------------------------- Exchangeable shares - ending balance - - 300,599 2,477 --------------------------------------------------- Pursuant to the Arrangement all the exchangeable shares of Trinidad were converted based on the exchange ratio in effect at the time of conversion to trust units and subsequently exchanged on a one-for-one basis for common shares. The initial series exchangeable shares were exchanged at a ratio of 1.39024 providing for 352,328 trust units upon conversion. The Series C exchangeable shares were exchanged at a ratio of 1.27001 providing for 59,905 trust units upon conversion. 9. INCENTIVE OPTION PLAN On May 2, 2003, the Trust established the Unit Rights Incentive Plan and pursuant to the Arrangement on March 10, 2008, all outstanding incentive rights were exchanged, on a one-for-one basis, for incentive options under the new Incentive Option Plan. The Incentive Option Plan was created to assist directors, officers, employees and consultants of Trinidad and its affiliates to participate in the growth and development of the Company. The Incentive Option Plan is substantially identical to the Unit Rights Incentive Plan; however, does not include an exercise price reduction mechanism. The following table sets out options that are outstanding under Trinidad's Incentive Option Plan: June 30, 2008 December 31, 2007 --------------------------------------------------------------------- Weighted Weighted Average Average Number of Exercise Number of Exercise Options Price ($) Rights Price ($) --------------------------------------------------- Outstanding - opening balance 7,965,670 12.55 8,246,839 12.43 Granted during the period - - 63,486 13.44 Exercised during the period (117,613) 10.11 (277,434) 9.06 Forfeited during the period (88,555) 14.61 (67,221) 13.38 --------------------------------------------------- Outstanding - ending balance 7,759,502 12.56 7,965,670 12.55 --------------------------------------------------- Trinidad uses the Black-Scholes option-pricing model to determine the estimated fair value of options issued subsequent to January 1, 2003. The per share weighted average fair value of options granted during the period ended June 30, 2008 was nil as no options were granted over this period (2007 - $1.49). 10. CAPITAL MANAGEMENT Trinidad's capital is comprised of debt, convertible debentures and shareholders' equity, less cash and cash equivalents. Management regularly monitors total capitalization to ensure flexibility in the pursuit of ongoing initiatives, while ensuring that shareholder returns are being maximized. The overall capitalization of the Company is outlined below: June 30, December 31, ($ thousands) 2008 2007 --------------------------------------------------------------------- Long-term debt(1) 257,352 407,786 Convertible debentures(1) 330,589 328,281 ------------------------- Total debt 587,941 736,067 Shareholders' equity 819,448 634,502 Less: cash and cash equivalents (69,417) (18,021) ------------------------- Total capitalization 1,337,972 1,352,548 (1) Balance outstanding without consideration of transaction costs. Management is focused on several objectives while managing the capital structure of the Company. Specifically: i. Ensuring Trinidad has the financing capacity to continue to execute on opportunities to increase overall market share through strategic acquisitions and fleet construction programs that add value for our shareholders; ii. Maintaining a strong capital base to ensure that investor, creditor and market confidence is secured; iii. Maintaining balance sheet strength, ensuring Trinidad's strategic objectives are met, while retaining an appropriate amount of leverage; iv. Providing shareholder return through dividends to ensure that income-oriented investors are provided a cash yield; and v. Safeguarding the entity's ability to continue as a going concern, such that it continues to provide returns for shareholders and benefits for other stakeholders. Trinidad manages its capital structure based on current economic conditions, the risk characteristics of the underlying assets, and Trinidad's planned capital requirements, within guidelines approved by its Board of Directors. Total capitalization is maintained or adjusted by drawing on existing debt facilities, issuing new debt or equity securities when opportunities are identified and through the disposition of underperforming assets to reduce debt or equity when required. On March 10, 2008, Trinidad converted from a growth- oriented income trust to a growth-oriented, dividend-paying corporation. As a result of this conversion the capital focus of the Company was shifted to realign with prior objectives of aggressive growth in its business and increasing returns to shareholders. Prior to the conversion Trinidad was subject to the "Normal Growth" provisions enacted under Bill C-52, which effectively limited the growth the Company could pursue. No longer constrained by these provisions, under the new corporate structure, management will be better positioned to pursue identified growth opportunities. The Company's syndicated loan facility is subject to five financial covenants, which are reported to the bank on either a monthly or quarterly basis. These covenants are used by management to monitor capital, with increased focus on the Consolidated Leverage Ratio. This ratio is calculated as the consolidated debt balance divided by adjusted consolidated EBITDA for the rolling four quarters, and must be maintained below 2.5:1. For the rolling four quarters ending June 30, 2008, this ratio was 1.15:1 (December 31, 2007 - 1.85:1), which remains in compliance with all of the banking syndicate's financial covenants. 11. FINANCIAL INSTRUMENTS Carrying Value and Fair Value Disclosures on Financial Instruments Trinidad's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, interest rate swaps, long-term debt, and the convertible debentures. The carrying amounts of these financial instruments, reported on the Company's unaudited interim consolidated balance sheets, approximates their fair values due to their short-term nature, with the exception of the long-term debt and the convertible debentures. The carrying values of Trinidad's financial instruments are as follows: June 30, 2008 Total Held for Loans and Other Carrying ($ thousands) Trading Receivables Liabilities Value --------------------------------------------------------------------- Cash and cash equivalents 69,417 - - 69,417 Accounts receivable - 125,602 - 125,602 Accounts payable and accrued liabilities - - 81,730 81,730 Interest rate swaps - - 6,299 6,299 Long-term debt - - 227,380 227,380 Convertible debentures - - 347,835 347,835 --------------------------------------------------- December 31, 2007 Total Held for Loans and Other Carrying ($ thousands) Trading Receivables Liabilities Value --------------------------------------------------------------------- Cash and cash equivalents 18,021 - - 18,021 Accounts receivable - 143,522 - 143,522 Accounts payable and accrued liabilities - - 78,649 78,649 Interest rate swaps - - 5,929 5,929 Long-term debt - - 373,204 373,204 Convertible debentures - - 344,214 344,214 --------------------------------------------------- The fair values and carrying values of Trinidad's financial instruments are as follows: June 30, 2008 December 31, 2007 Carrying Carrying ($ thousands) Fair Value Value Fair Value Value --------------------------------------------------------------------- Interest rate swaps 6,299 6,299 5,929 5,929 Credit facilities(1) Canadian Revolving Credit Facility - - 148,744 148,000 Canadian Term Facility 99,323 97,833 99,831 98,334 US Term Facility 131,959 124,701 123,703 121,847 Convertible debentures(1) 366,181 358,807 337,506 356,504 Other debt 8,382 8,257 8,773 8,641 --------------------------------------------------- 612,144 595,897 724,486 739,255 --------------------------------------------------- (1) The convertible debentures and credit facilities are recorded at their gross amounts and do not include transaction costs incurred on their issuance and the convertible debentures carrying value includes both the debt and equity components. Trinidad has estimated the fair value amounts using appropriate valuation methodologies and information available to management as of the valuation dates. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it was practicable to estimate that value: - Cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities - The carrying amounts approximate fair value because of the short maturity of these instruments. - Interest rate swaps - The fair value of the interest rate swaps is based on the quoted market prices at the date of valuation. - Long-term debt - The fair value of the various pieces of long-term debt are based on values quoted from third-party financial institutions using current market price indicators. - Convertible debentures - The fair value is based on the closing market price on the date of valuation. Interest rate swap Trinidad entered into two cash flow hedges using interest rate swap arrangements to hedge the floating interest rate on fifty percent of the outstanding balance of the US and Canadian term debt facilities. These contracts have been recorded at their fair value on the Company's unaudited interim consolidated financial statements. During the three and six months ended June 30, 2008, Trinidad recorded a gain of $1.3 million and a loss of $0.2 million, respectively, (2007 - $1.7 million gain for the three and six months ended June 30, 2007) in Other Comprehensive Income ("OCI"), net of taxes of $1.6 million and $0.8 million for each respective period (2007 - $0.8 million for the three and six months ended June 30, 2007), due to the change in fair value of the cash flow hedge. Trinidad has assessed 100% hedge effectiveness; hence the entire change in fair value has been recorded in OCI. Financing costs The carrying value of the long-term debt and convertible debentures was recorded net of debt issuance costs. Under the effective interest rate method Trinidad recorded interest expense of $0.4 million and $0.8 million (2007 - $0.5 million and $0.8 million, respectively) for the three and six months ended June 30, 2008 relating to costs under the debt facility. In addition, Trinidad also recognized interest expense of $0.6 million and $1.3 million (2007 - nil) relating to costs associated with the convertible debentures for the same period using the effective interest method. Nature and Extent of Risks Arising from Financial Instruments Trinidad is exposed to a number of market risks arising through the use of financial instruments in the ordinary course of business. Specifically, Trinidad is subject to credit risk, currency risk, interest rate risk and liquidity risk. Credit Risk Trinidad is exposed to credit risk as a result of extending credit to customers prior to receiving payment for services to be performed, creating exposure on accounts receivable balances with trade customers. This exposure to credit risk is managed through a corporate credit policy whereby upfront evaluations are performed on all customers and credit is granted based on payment history, financial conditions and anticipated industry conditions. In the instance that a customer does not meet initial credit evaluations, work may be performed subject to a prepayment of services. Customer payments are continuously monitored to ensure the creditworthiness of all customers with outstanding balances and when collectability becomes questionable a provision for doubtful accounts has been established. The following is a reconciliation of the change in the reserve balance: Six months ended Year ended June 30, December 31, ($ thousands) 2008 2007 --------------------------------------------------------------------- Opening reserve balance 4,364 5,132 Increase in reserve recorded in the income statement in the current period 1,559 3,929 Working capital adjustments relating to acquisitions - (4,455) Write-offs charged against the reserve (1,116) (149) Recoveries of amounts previously written-off (844) (93) ------------------------- Reserve allowance at period end 3,963 4,364 ------------------------- As at June 30, 2008, Trinidad had accounts receivable of $8.8 million that were greater than 90 days for which no provision had been established, as the Company believes that these amounts will be collected. Currency Risk Trinidad's operations are affected by fluctuations in currency exchange rates due to the Company's expansion into the US marketplace and reliance on US suppliers to deliver components used by its manufacturing subsidiaries. Over the last two years, the Canadian dollar has experienced significant volatility, ranging from an exchange low of $0.84 US/Canadian to an exchange high of $1.09 US/Canadian. The exposure to realized foreign currency fluctuations from its US subsidiaries is mitigated due to the independence of the US operations from its Canadian parent company for cash flow requirements to satisfy daily operations, creating a natural hedge. However, upon consolidation, Trinidad is exposed to unrealized fluctuations in the gains and losses on consolidation and US dollar-denominated intercompany balances with the Canadian entities. As at June 30, 2008, the Company did not have any foreign currency hedges in place and does not intend to enter into any new currency hedges. The Company may, however, hedge foreign currency rates in the future, depending on the business environment and growth opportunities. As at June 30, 2008, portions of Trinidad's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities were denominated in US dollars. In addition, Trinidad's US subsidiary is subject to translation gains and losses upon consolidation. Based on these US dollar financial instrument closing balances, net income for the three and six months ended June 30, 2008, would have fluctuated by approximately $0.1 million and $0.2 million, respectively, and OCI would have fluctuated by $3.4 million for the quarter ended June 30, 2008, for every $0.01 variation in the value of the US/Canadian exchange rate. Interest Rate Risk Trinidad is subject to risk exposure related to changes in interest rates on borrowings under the credit facilities which are subject to floating interest rates. In order to hedge this overall risk exposure Trinidad entered into interest rate swaps on fifty percent of the outstanding borrowings under the US and Canadian term credit facilities, rendering them partially fixed. As at June 30, 2008, Trinidad had $222.5 million outstanding under the credit facilities. A change of one percent in the interest rates would cause a $0.6 million and a $1.3 million change in the interest expense for the three and six months ended June 30, 2008, respectively. Liquidity Risk Liquidity risk is the risk that Trinidad will not be able to meet its financial obligations as they become due. The Company actively manages its liquidity through daily, weekly and longer-term cash outlook and debt management strategies. Trinidad's policy is to ensure that sufficient resources are available either from cash balances, cash flows or undrawn committed bank facilities, to ensure all obligations are met as they fall due. To achieve this objective, the Company: - Maintains cash balances and liquid investments with highly-rated counterparties; - Limits the maturity of cash balances; and - Borrows the bulk of its debt needs under committed bank lines or other term financing. The following maturity analysis shows the remaining contractual maturities for Trinidad's financial liabilities: There As at June 30, 2008 2008 2009 2010 2011 2012 after --------------------------------------------------------------------- Accounts payable and accrued liabilities 81,730 - - - - - Interest rate swaps 1,564 2,497 1,676 563 - - Canadian term debt 500 1,000 1,000 95,333 - - US term debt 637 1,275 1,275 121,514 - - Other debt 334 486 489 6,948 - - Convertible debentures(1) - - - - - - Interest payments on contractual obligations 20,557 41,091 41,061 30,785 13,731 - ------------------------------------------------ Total 105,322 46,349 45,501 255,177 13,731 - ------------------------------------------------ (1) At maturity or redemption, the Company may elect to satisfy its obligation through the issuance of common shares and therefore no commitment has been recorded. 12. COMMITMENTS Rig Construction Program In conjunction with the acquisition of the assets of Axxis in July 2007, Trinidad assumed the remaining construction commitments of a barge rig, of which $5.6 million had been spent as at the date of the acquisition and was reimbursed to the former owners of Axxis. Total costs of construction are expected to be US$27.5 million of which US$22.9 million had been spent as of June 30, 2008. Effective July 10, 2008, Trinidad entered into an agreement to sell this rig to an international third party - see note 14. As part of the arrangement Trinidad is obligated to complete the construction of the barge rig and any further modifications required will be adjusted as part of the final purchase price. The completion and sale of the barge rig is expected in the third quarter of 2008. In May 2008, Trinidad announced its intent to further expand its existing drilling fleet through the construction of an additional nine drilling rigs expected to be deployed in the United States. These drilling rigs will have depth capacities ranging from 16,000 feet to 18,000 feet and are backed by long-term, take-or-pay contracts with three major North American oil and natural gas exploration and production companies which provides Trinidad with a guaranteed utilization rate of 100 percent on these rigs over their respective contract terms. The total construction costs for the nine rigs are expected to be approximately $135.0 million. The rigs are expected to be delivered over a 10-month period starting in August 2008. Service Rig Construction Program In conjunction with the drilling rig construction program, Trinidad announced its intent to build six new service rigs following a new rig design which provides improved pressure control, better safety features and lower operating costs. The new rigs will have depth capacities ranging from 2,400 to 3,500 metres. The capital cost of this construction program is anticipated to be approximately $18.0 million. The first two rigs are expected to be completed by the end of 2008 with the remainder being delivered in the first three quarters of 2009. Bareboat Charters As a part of the Axxis acquisition, Trinidad entered into an Assignment Agreement in which the contracts to operate three barge rigs (the "Bareboat Charters" or "Charter") were transferred to Trinidad. Under the Bareboat Charters, Trinidad is committed to operate the rigs on behalf of a third party. In turn, as the owners of the rigs, this third party is entitled to receive 25% of the net operating revenues (gross revenue minus $1,200 per day general and administrative cost) and 50% of the net margin earned under each charter. Under the original agreement any earnings in excess of this payment were to be retained as compensation for the operation of the barge rigs; however, as part of the purchase agreement Trinidad committed to pay the former owners of Axxis US$12.5 million per year for the next three consecutive years, of which one-third of the payment, or US$4.2 million, shall be attributable to each of the three Bareboat Charters. This payment is contingent on the continued operation of the rigs and to the extent that the contract is terminated by the rigs' owner, no further payments will be required. This fixed payment was structured to represent the residual earnings in excess of the payment to the third party; hence Trinidad is exposed to minimal risk and rewards of the arrangement. In the instance that dayrates or expenses fluctuate from the original provisions in the Bareboat Charters, Trinidad is exposed to the residual gain or loss; however, it was determined the impact would not be significant. Trinidad has disclosed all transactions pertaining to the Bareboat Charters on a net basis. Trinidad does not bear the significant risks and rewards of the arrangement nor does it absorb the associated credit risk or asset risk. 13. SEGMENTED INFORMATION Since Trinidad announced its intention to expand operations into the US marketplace in 2005, its operations have been diversified from its primary geographical focus in Western Canada to include various locations in the United States, such that a significant proportion of Trinidad's operations now occur in the US marketplace. The acquisitions of Cheyenne Drilling and Axxis, as well as Trinidad's rig construction programs have provided additional rigs of varying depths and capabilities for the US operations, which complemented the drilling fleet operating in the Canadian market and expanded Trinidad's overall drilling operations. Despite the similarities in the assets acquired, the increased management depth in the United States and the varying conditions between the Canadian and United States market have resulted in management evaluating Trinidad's drilling performance on a geographically segmented basis. In addition, the acquisition of Mastco in 2006 further broadened the operations of Trinidad to include the capability to design, manufacture, sell and refurbish drilling rigs and related equipment. The unique characteristics of this subsidiary, which are different from Trinidad's core drilling operations, have resulted in management's separate evaluation of its results. Transactions between the segments are recorded at cost and have been eliminated upon consolidation. --------------------------------------------------------------------- Three months United Inter- ended June 30, Canadian States Construc- segment 2008 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Revenue 44,341 85,970 29,541 (18,673) 141,179 Operating expense 30,389 49,439 26,259 (18,673) 87,414 ------------------------------------------------------- Gross margin 13,952 36,531 3,282 - 53,765 Interest on long-term debt 3,820 2,363 32 - 6,215 Interest on convertible debentures 8,685 - - - 8,685 Depreciation 6,874 13,469 166 - 20,509 (Gain) loss on sale of assets (75) (177) 28 - (224) ------------------------------------------------------- Income (loss) before corporate items (5,352) 20,876 3,056 - 18,580 General and administrative 12,749 Stock-based compensation 133 Foreign exchange (gain) loss 859 Reorganization costs 140 Income taxes 3,558 ------------------------------------------------------- Net earnings 1,141 ------------------------------------------------------- Capital expenditures (including acquisitions and deposits) 13,979 13,277 236 - 27,492 --------------------------------------------------------------------- --------------------------------------------------------------------- Three months United Inter- ended June 30, Canadian States Construc- segment 2007 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Revenue 31,250 73,394 26,585 (15,735) 115,494 Operating expense 29,180 35,200 24,310 (15,735) 72,955 ------------------------------------------------------- Gross margin 2,070 38,194 2,275 - 42,539 Interest on long-term debt 6,214 3,322 (1) - 9,535 Interest on convertible debentures - - - - - Depreciation 4,562 10,109 160 - 14,831 (Gain) loss on sale of assets 163 - - - 163 ------------------------------------------------------- Income (loss) before corporate items (8,869) 24,763 2,116 - 18,010 General and administrative 9,701 Stock-based compensation 671 Foreign exchange (gain) loss 5,603 Reorganization costs - Income taxes (2,606) ------------------------------------------------------- Net earnings 4,641 ------------------------------------------------------- Capital expenditures (including acquisitions and deposits) 29,780 16,401 726 - 46,907 --------------------------------------------------------------------- --------------------------------------------------------------------- Six months United Inter- ended June 30, Canadian States Construc- segment 2008 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Revenue 176,445 170,283 41,132 (27,030) 360,830 Operating expense 102,651 95,881 37,135 (27,030) 208,637 ------------------------------------------------------- Gross margin 73,794 74,402 3,997 - 152,193 Interest on long-term debt 8,510 4,881 (1) - 13,390 Interest on convertible debentures 17,339 - - - 17,339 Depreciation 17,693 26,474 334 - 44,501 (Gain) loss on sale of assets (60) (14) (243) - (317) ------------------------------------------------------- Income (loss) before corporate items 30,312 43,061 3,907 - 77,280 General and administrative 24,172 Stock-based compensation 302 Foreign exchange (gain) loss (3,523) Reorganization costs 2,689 Income taxes 13,587 ------------------------------------------------------- Net earnings 40,053 ------------------------------------------------------- Capital expenditures (including acquisitions and deposits) 9,790 47,789 254 - 57,833 --------------------------------------------------------------------- --------------------------------------------------------------------- Six months United Inter- ended June 30, Canadian States Construc- segment 2007 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Revenue 166,335 136,234 57,193 (38,057) 321,705 Operating expense 101,112 69,361 53,733 (38,057) 186,149 ------------------------------------------------------- Gross margin 65,223 66,873 3,460 - 135,556 Interest on long-term debt 11,508 6,576 26 - 18,110 Interest on convertible debentures - - - - - Depreciation 13,994 18,784 311 - 33,089 (Gain) loss on sale of assets 177 30 - - 207 ------------------------------------------------------- Income (loss) before corporate items 39,544 41,483 3,123 - 84,150 General and administrative 20,130 Stock-based compensation 1,446 Foreign exchange (gain) loss 6,889 Reorganization costs - Income taxes 9,101 ------------------------------------------------------- Net earnings 46,584 ------------------------------------------------------- Capital expenditures (including acquisitions and deposits) 60,378 91,871 42 - 152,291 --------------------------------------------------------------------- --------------------------------------------------------------------- United Inter- As at Canadian States Construc- segment June 30, 2008 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Total assets 685,362 847,368 23,862 - 1,556,592 Goodwill 38,154 86,777 46,620 - 171,551 Future income tax asset (liability) (3,937) (48,311) 1,749 - (50,499) --------------------------------------------------------------------- --------------------------------------------------------------------- As at United Inter- December 31, Canadian States Construc- segment 2007 Drilling Drilling tion Elimi- ($ thousands) Operations Operations Operations nations Total --------------------------------------------------------------------- Total assets 679,390 786,982 30,784 - 1,497,156 Goodwill 38,154 84,360 46,620 - 169,134 Future income tax asset (liability) (3,525) (35,324) 1,476 - (37,373) --------------------------------------------------------------------- 14. SUBSEQUENT EVENTS Effective July 10, 2008, Trinidad announced the sale of its nearly constructed barge drilling rig to an international third party for US$53.5 million. Upon receipt of the signed purchase agreement, the Company received a US$5.35 million non-refundable deposit and anticipates receipt of the balance owed by the end of the third quarter. The construction of the barge rig will continue to be managed by Trinidad and is expected to be completed in the third quarter. Any modifications requested by the buyer from the current rig design will be completed, but will be subject to a handling fee and will be adjusted as part of the final purchase price. The proceeds generated will be used for future expansion opportunities and Trinidad continues to see strong opportunities in both the US land and barge drilling markets. Effective July 17, 2008, Trinidad announced the construction of an additional seven rigs to the rig construction program previously announced in May 2008. These rigs are all backed by long-term, take- or-pay contracts with three major North American oil and natural gas companies. Total costs of construction are expected to be approximately $105.0 million and Trinidad intends to fund the rig construction program from its operating cash flow and funds available under its existing credit facility. 15. COMPARATIVE FIGURES Certain of the comparative figures have been reclassified to conform to current year's presentation. Such reclassification did not impact previously reported net earnings or retained earnings.

For further information:

For further information: Lyle Whitmarsh, President & Chief Executive
Officer or Brent Conway, Chief Financial Officer or Lisa Ciulka, Director of
Investor Relations at: Phone: (403) 265-6525, Fax: (403) 265-4168, E-mail:
lciulka@trinidaddrilling.com

Organization Profile

Trinidad Drilling Ltd.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890