Trinidad Energy Services Income Trust announces conversion to a growth oriented, dividend paying energy services corporation



    CALGARY, Jan. 10 /CNW/ - Trinidad Energy Services Income Trust (the
"Trust" or "Trinidad") is pleased to announce its intention to convert into a
growth oriented energy services corporation (the "Reorganization"). The
Reorganization will be undertaken pursuant to a statutory plan of arrangement
under the Business Corporations Act (Alberta). Upon completion of the
Reorganization, Trinidad intends to take its current monthly distribution to a
quarterly dividend of $0.15 per quarter ($0.60 per year). This would represent
a current yield of approximately 6.1% based on the closing price of Trinidad's
trust units ("Trust Units") on January 9, 2008.

    Conversion Rational

    The Trust has been investigating a number of restructuring alternatives
subsequent to the Federal Government's October 31, 2006 announcement on tax
policy relating to income trusts and subsequent legislation (the "Trust
Regime"). Since the date of the announcement by the Federal Government,
Trinidad's management and board of directors (the "Board") have been
continuously reviewing the Trust's strategic objectives and options available
to it in respect thereof to ensure that the Trust's capital structure is
efficient and that holders of Trust Units ("Unitholders") and holders of
exchangeable shares of Trinidad Drilling Ltd. ("Exchangeable Shareholders")
(collectively the "Securityholders") value is being maximized. In the months
immediately following the announcement of the Trust Regime, management
continued to update the Board with respect to the potential impact on
Trinidad, including the impact upon Trinidad's ability to meet its strategic
objectives with a view to maximizing Securityholder value. Through the course
of 2007, management continued to carry out a more detailed analysis concerning
the strategic direction for the Trust. As a result of this analysis, it was
determined that under the Trust Regime it would be increasingly difficult for
Trinidad to meet its strategic objectives for the following reasons:

    -   Trinidad's cost of capital has increased due to the elimination of
        tax efficiencies on distributions commencing in 2011;

    -   The ultimate demise of the Trust structure as a result of the Trust
        Regime would increasingly limit Trinidad's access to capital as we
        approach 2011;

    -   The value of Trinidad's distribution payments are not being properly
        reflected in the price of its Trust Units in comparison to its
        corporate peers; and

    -   Trinidad has restricted growth capacity based on the new "Normal
        Growth" rules provided for under the Trust Regime that could have the
        effect of limiting the ability of management to execute on growth

    In addition, over the last five years, Trinidad has completed a
significant number of asset acquisitions and new asset construction, resulting
in the accumulation of a significant dollar amount of tax pools. Trinidad
believes that it will be able to shelter the majority of its income from cash
taxes prior to and potentially beyond 2011. Due to the tax efficiencies
created by Trinidad's tax pools, the need to create tax shelter through the
Trust structure was substantially mitigated. Furthermore, under a corporate
structure wherein a larger percentage of cash flow will be reinvested in
capital assets, tax pool balances will be further enhanced, thereby providing
additional shelter against taxable income.

    Benefits of the Reorganization

    Trinidad believes that the proposed corporate structure is better suited
to Trinidad's core business model of growth and capital appreciation for
Securityholders. Trinidad has, in the past, been able to execute on several
new rig construction programs and acquisitions which provided strong returns
for its Securityholders. Given the elimination of the value enhancement
through the trust structure, management and the Board believe that the best
opportunity for creating value is to reinvest a significant portion of
Trinidad's 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. At the same time, management and the Board recognize that many
investors require or prefer an element of cash yield from their investment. By
converting to a growth oriented dividend paying corporation, management and
the Board believe that Trinidad will be in a better position to aggressively
pursue identified growth opportunities while at the same time providing income
oriented investors with a cash yield. Selected benefits to moving to a
corporate structure are expected to be as follows:

    -   Greater cash flow retention providing Trinidad increased flexibility
        in allocating cash between growth initiatives, debt repayment,
        dividend payments and share purchase programs which collectively are
        expected to maximize returns for investors;

    -   Access to a broader domestic investor base resulting in increased
        access to capital;

    -   Removal of the current foreign ownership limitations of 50% of the
        outstanding Trust Units, thereby potentially broadening Trinidad's
        investor base internationally;

    -   Removal of the "Normal Growth" limitation which currently exists
        under the Trust Regime;

    -   Provides for the ability to increase capital investment over the next
        several years with a view to providing enhanced returns to investors;

    -   Positions Trinidad's core business into a structure where the value
        of its significant tax pools and overall tax efficiency from
        reinvestment are anticipated to be recognized; and

    -   Puts Trinidad in a unique position as a dividend paying growth
        oriented corporation with a proven history of accretive growth
        providing long term returns for investors.

    Dividend Payments and Distribution Decrease

    In accordance with a resolution of the Board, the Trust is reducing its
monthly distributions to Unitholders such that Unitholders of record on
January 31, 2008 will receive a monthly cash distribution of $0.05 per Trust
Unit ($0.60 per annum), payable on February 15, 2008 and Unitholders of record
on February 29, 2008 will similarly receive a monthly cash distribution of
$0.05 per Trust Unit payable on March 15, 2008. Provided the Reorganization is
approved on or before March 31, 2008, the distribution in respect of the month
of February, 2008 is anticipated to be the last distribution paid to
Unitholders by the Trust. In the event that the Reorganization is not
approved, the Board will meet shortly thereafter to determine the next
distribution on the Trust Units which would be declared and payable thereon;
however, it is anticipated that the monthly distribution will continue as
$0.05 per Trust Unit ($0.60 per annum).
    This monthly distribution is equal to the $0.15 quarterly dividend per
common share anticipated to be paid by Trinidad after the Reorganization is
completed. Upon completion of the Reorganization, Trinidad will then begin
paying a quarterly dividend of $0.15 per common share ($0.60 per annum), the
first of which dividends will be declared for the fiscal quarter ended June
30, 2008. With respect to the quarter in which the Reorganization occurs, the
dividend will be pro-rated for the remaining number of full months in that
same calendar quarter.

    Fairness Opinion

    The Board has retained Raymond James Ltd. ("Raymond James") to address
the fairness, from a financial point of view, of the consideration to be
received by Securityholders under the Reorganization. In connection with this
mandate, Raymond James Ltd. has provided the Board with its opinion that, on
the basis of the particular assumptions and considerations summarized therein,
that the consideration under the Reorganization is fair, from a financial
point of view, to such Securityholders.

    Recommendation of the Board

    The Board has unanimously determined that the Reorganization is fair to
the Securityholders, is in the best interests of Trinidad and the
Securityholders and unanimously recommends that the Securityholders vote in
favour of the Reorganization.
    In reaching its conclusions and formulating its recommendation, the Board
has determined, based on such factors as a thorough review of the current
income trust landscape, the advice and Fairness Opinion of Raymond James and
Trinidad's business plan and strategic objectives, that:

    -   The current price of the Trust Units is not reflecting the value of
        the tax efficiencies created through the monthly cash distributions
        to Unitholders. This is evidenced by the fact that Trinidad's
        EV/EBITDA multiple is not at a premium to those of its corporate

    -   Commencing in 2011, the tax savings to the Trust from distributions
        to Unitholders will be eliminated pursuant to the impact of the Trust
        Regime, thereby removing the primary benefit of the Trust structure.
        Trinidad currently has significant tax pools to shield the majority
        of its income from cash taxes prior to and potentially beyond 2011,
        thereby mitigating the need to create tax efficiencies through the
        payment of distributions under the trust structure;

    -   As 2011 approaches the Trust Regime will increasingly limit
        Trinidad's access to capital. As a result, the Board believes the
        corporate structure will enhance Trinidad's access to larger pools of
        capital that may be required as Trinidad continues to execute on its
        growth strategy;

    -   The significant decline in trading prices for securities of income
        trusts after the announcement of the Trust Regime has made
        acquisitions on an accretive basis more difficult; and

    -   Through the elimination of the restrictions imposed under the Trust
        Regime, Trinidad will be better positioned to facilitate its future
        growth plans should the current industry environment remain

    The Reorganization will be subject to all required regulatory approvals
and to the approval of the Securityholders, to be sought at a special meeting
of such Securityholders to be held on or about March 10, 2008. Management and
directors holding 9.8% of the Trust Units outstanding intend to vote in favour
of the Reorganization.
    Pursuant to the Reorganization, it is currently contemplated that
Unitholders will receive one common share of Trinidad Drilling Ltd. (the
Trust's most material operating entity) in exchange for each Trust Unit held.
Also pursuant to the Reorganization, holders of Exchangeable Shares, which are
exchangeable into Trust Units, will receive common shares of Trinidad Drilling
Ltd. on the same basis as holders of Trust Units, based on the number of Trust
Units issuable upon exchange or conversion, of such Exchangeable Shares, on
the effective date of the Reorganization (the "Effective Date"). Following the
Effective Date of the Reorganization, holders of the Trust's 7.75% convertible
unsecured subordinated debentures (the "Debentures") will thereafter be
entitled to receive Trinidad common shares rather than Trust Units on
conversion of such Debentures on the same conversion basis as Trust Units were
previously issuable on conversion thereof.
    Trinidad Drilling Ltd. will continue as the reporting issuer and will
hold, directly or indirectly, all of the assets previously held, directly or
indirectly, by the Trust. This will result in approximately 83.6 million
common shares of Trinidad Drilling Ltd. (84.0 million common shares, including
those to be issued to the holders of the Exchangeable Shares) being issued and
outstanding immediately following the Reorganization. The information circular
in respect of the aforementioned meeting is anticipated to be mailed to
Securityholders on or before February 15, 2008.

    Management Changes
    Trinidad also announces that on January 9, 2008, Mr. Michael Heier
resigned his position as Chief Executive Officer of Trinidad. At the
recommendation of Mr. Heier and with the approval of the Board, Mr. Lyle
Whitmarsh assumed the position of Chief Executive Officer, in addition to his
current position of President. While Mr. Heier is a strong proponent of the
Reorganization and looks forward to his continuing role as Chairman of
Trinidad, he has expressed a desire to have more personal time with his family
and to create more balance between his personal and business interests. Mr.
Heier is the founder and principal shareholder of Trinidad since it was it was
originally created in 1995. The Board is grateful for Mr. Heier's significant
role in the success of Trinidad and looks forward to him continuing in his
capacity as Chairman of the Board.
    Mr. Whitmarsh has also been appointed to the Board effective January 9,
2008. Mr. Whitmarsh has previously held the position of President since
November 2002 and prior to that Vice President Operations. Mr. Whitmarsh has
been involved with the management and drilling of oil and gas wells throughout
North America for over 20 years including several years of practical hands-on
experience at the field level. Mr. Whitmarsh has been an industry leader in
the development and creation of new rig designs and investment in new rig
technologies. While at Trinidad, he has been instrumental in finding and
completing new acquisitions and in securing long term contracts for new rig
construction. Mr. Whitmarsh has also served on the Board of Directors of the
Canadian Association of Oilwell Drilling Contractors (CAODC) and is currently
the Chairman of the Board of Directors of the CAODC for 2008.
    Michael Heier stated the following;
    "Mr. Whitmarsh has been a key driving force in the growth and success
Trinidad has achieved to date. It is a logical and seamless progression for
Trinidad and for Lyle to assume the Chief Executive Officer role. I look
forward to working closely with Lyle and the rest of the Trinidad management
in continuing to add value for investors"

    This news release shall not constitute an offer to sell or the
solicitation of an offer to buy the Trust Units in any jurisdiction.

    The Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.

    This news release, including documents incorporated by reference herein,
contains certain forward-looking information and statements within the meaning
of applicable securities laws. All statements other than statements of
historical fact contained in this news release are forward-looking statements.
Readers can identify many of these statements by looking for words such as
"may", "believe", "expect", "will", "intend", "should", "plan", "predict",
"potential", "project", "anticipate", "estimate", "continue", "objective",
"ongoing", "might" or similar words or the negative thereof or other
comparable terminology. These forward-looking statements include, without
limitation, statements with respect to: the benefits hoped to be achieved by
Trinidad pursuant to the Reorganization, the future financial position,
business strategy, proposed acquisitions or dispositions, plans and objectives
of or involving the Trust and Trinidad or any of their respective affiliates;
amounts to be retained by Trinidad for growth; capital expenditures and the
timing and funding thereof; access to credit facilities, capital taxes; income
taxes; commodity prices; administration costs; components of cash flow and
earnings; the timing of the final Court approval of the Reorganization; the
effective date of the Reorganization; the plans of Trinidad on completion of
the Reorganization and the effect thereof; and the satisfaction of conditions
for listing on stock exchanges and the timing thereof. Actual events or
results may differ materially. Forward-looking statements are based on the
estimates and opinions of management at the time the statements were made. In
addition, forward-looking statements may include statements attributable to
third party industry sources. There can be no assurance that the plans,
intentions or expectations upon which these forward-looking statements are
based will occur. Forward-looking statements are subject to risks,
uncertainties and assumptions, including those discussed below and elsewhere
in this news release. Although the Trust believes that the expectations
represented in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Some of the risks
which could affect future results and could cause results to differ materially
from those expressed in the forward-looking statements contained herein
include, but are not limited to, the impact of general economic conditions,
industry conditions, governmental regulation, volatility of commodity prices,
environmental risks, the inability to meet or continue to meet listing
requirements, the inability to obtain required consents, permits or approvals,
including Trinidad securityholders of and Court approval of the
Reorganization, competition from other industry participants, the lack of
availability of qualified personnel or management, failure to realize the
anticipated benefits of the Reorganization, stock market volatility and the
inability to access sufficient capital from internal and external sources, the
inability to pay dividends, fluctuation in foreign exchange or interest rates,
and the risk that actual results will vary from the results forecasted and
such variations may be material and. Readers are cautioned that the foregoing
list is not exhaustive. The forward-looking information and statements
contained in this news release speak only as of the date of this news release,
and the Trust assumes no obligation to publicly update or revise them to
reflect new events or circumstances, except as may be required pursuant to
applicable laws.

For further information:

For further information: Lyle Whitmarsh, President and Chief Executive
Officer or Brent Conway, Chief Financial Officer, At (403) 265-6525, Fax:
(403) 294-4448, E-mail:; or Georgeson
Shareholder Communications Canada at 1-866-783-6752

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Trinidad Drilling Ltd.

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