Trinidad Drilling Ltd. reports first quarter 2010 results; results
strengthening from previous quarter
/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
TSX SYMBOL: TDG and TDG.DB
CALGARY, May 12 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the "Company") reported first quarter 2010 operating and financial results. Industry conditions began to strengthen in the first quarter of 2010 and Trinidad showed improvements compared to the previous quarter in several areas including increased revenue, Adjusted EBITDA(1) and operating days. Although industry conditions have improved compared to the fourth quarter of last year, they remained weaker than the same quarter in 2009, and Trinidad's quarter over quarter results reflected this weakness.
"As industry conditions are improving, we are seeing an ongoing shift in focus towards unconventional shale and oil-directed drilling. The strong economics of unconventional shale plays and the relative strength in crude oil prices make these projects more attractive for our customers," said Lyle Whitmarsh, Trinidad's President and Chief Executive Officer. "Trinidad's strategy of assembling a deep, modern fleet and our reputation for strong performance has positioned us well to take advantage of these changes and we will continue to work with our customers to provide the right equipment and people to meet their needs. Increased activity levels in the industry and in Trinidad's fleet are encouraging signs; we believe that dayrates in a number of areas have reached bottom and we are cautiously optimistic for the remainder of 2010."
FIRST QUARTER 2010 HIGHLIGHTS
- Revenue for the first quarter of 2010 was $170.1 million, up
$21.9 million or 14.8% from the previous quarter, as a result of
increased operating days, particularly in the Company's Canadian
drilling segment. In comparison to the same quarter of 2009, revenue
was down 11.2%, largely due to lower dayrates reflecting weaker
industry conditions, a changing rig mix and a lower US/Canadian
dollar exchange rate.
- Trinidad's first quarter 2010 drilling utilization rate increased
strongly to 67% in Canada, up 52.3% from the previous quarter and
31.4% from the same quarter last year. Trinidad continued to achieve
industry-leading utilization levels in the quarter, achieving a level
of 15 percentage points above the Canadian drilling industry average
of 52%. Activity levels in the US and International drilling
operations segment remained relatively stable at 63% in the first
quarter of 2010 compared to 63% in the previous quarter and 64% in
the same quarter last year.
- Adjusted EBITDA(1) was $52.9 million ($0.44 per share (diluted)) in
the first quarter of 2010, up by $5.5 million or 11.6% from the
previous quarter due to improving activity levels moving into 2010.
In comparison to the first quarter of 2009, Adjusted EBITDA in the
first quarter of 2010 was down 18.7%. This decrease was primarily
caused by lower revenue and reduced gross margins. Gross margins and
dayrates were impacted by the changing rig mix and by weaker industry
conditions compared to the previous year.
- Trinidad recorded a net loss in the first quarter of 2010 of
$0.8 million (a net loss of $0.01 per share (diluted)), compared to
net earnings of $3.9 million in the previous quarter. The decrease
in net earnings was due to higher general and administrative costs,
stock based compensation and income tax expenses. The impact of
these increased expenses was partly offset by higher revenue as a
result of increased operating days. In comparison to the first
quarter of 2009, Trinidad's net loss represented a decrease of
$4.9 million or 86.0%. In addition to the factors impacting Adjusted
EBITDA, net loss decreased due to the absence of an impairment
charge recorded in the first quarter of 2009, a lower loss on sale
of assets and lower income taxes. The impact of these items was
partly offset by higher depreciation expenses reflecting increased
activity levels and foreign exchange losses. Adjusted net
earnings (1) in the quarter were $8.4 million (a net earnings of
$0.07 per share (diluted)), down 36.7% from the first quarter of
2009.
(1) Please see the Non-GAAP Measures Definitions section of this document
for further details.
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FINANCIAL HIGHLIGHTS
Three months ended March 31, 2010 2009 % Change
($ thousands except share, per
share and percentage data)
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Revenue 170,073 191,586 (11.2)
Gross margin(1) 68,125 81,504 (16.4)
Gross margin percentage(1) 40.1% 42.5% (5.6)
EBITDA(1) 43,680 69,313 (37.0)
Per share (diluted)(2) 0.36 0.73 (50.7)
Adjusted EBITDA(1) 52,917 65,107 (18.7)
Per share (diluted)(2) 0.44 0.69 (36.2)
Cash flow from operations 27,702 37,302 (25.7)
Per share (basic)(2) 0.23 0.40 (42.5)
Per share (diluted)(2) 0.23 0.40 (42.5)
Cash flow from operations
before change in non-cash
working capital(1) 40,644 51,480 (21.0)
Per share (diluted)(2) 0.34 0.55 (38.2)
Net loss (791) (5,649) (86.0)
Per share (basic)(2) (0.01) (0.06) (83.3)
Per share (diluted)(2) (0.01) (0.06) (83.3)
Net earnings (loss) before
impairment of intangible asset(1) (791) 17,540 (104.5)
Per share (basic)(2) (0.01) 0.19 (105.3)
Per share (diluted)(2) (0.01) 0.19 (105.3)
Adjusted net earnings(1) 8,446 13,334 (36.7)
Per share (diluted)(2) 0.07 0.14 (50.0)
Capital expenditures 34,966 65,992 (47.0)
Net debt(1) 462,982 586,527 (21.1)
Shares outstanding - basic
(weighted average)(2) 120,840,962 94,395,681 28.0
Shares outstanding - diluted
(weighted average)(2) 120,840,962 94,395,681 28.0
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(1) Readers are cautioned that gross margin, gross margin percentage,
EBITDA, Adjusted EBITDA, cash flow from operations before change in
non-cash working capital, net earnings before impairment of
intangible assets, Adjusted net earnings, and net debt and the
related per share information do not have standardized meanings
prescribed by GAAP - see "Non-GAAP Measures Definitions".
(2) Basic shares include the weighted average number of shares
outstanding over the period. Diluted shares include the weighted
average number of shares outstanding over the period and the dilutive
impact, if any, of the deemed conversion of convertible debentures
and the number of shares issuable pursuant to the Incentive Option
Plan.
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OPERATING HIGHLIGHTS
Three months ended March 31, 2010 2009 % Change
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Land Drilling Market
Operating days - drilling
Canada 3,170 2,545 24.6
United States and International(1) 3,769 3,243 16.2
Rate per drilling day
Canada (CDN$) 21,868 25,132 (13.0)
United States and International
(CDN$)(1) 21,206 27,124 (21.8)
United States and International
(US$)(1) 20,157 21,961 (8.2)
Utilization rate - drilling
Canada 67% 51% 31.4
United States and International(1) 63% 64% (1.6)
CAODC industry average 52% 36% 44.4
Number of drilling rigs at quarter
end
Canada 53 57 (7.0)
United States and International(1) 66 58 13.8
Utilization rate for service rigs 54% 41% 31.7
Number of service rigs at quarter
end 22 23 (4.3)
Number of coring and surface casing
rigs at quarter end 20 20 -
Barge Drilling Market
Operating days 334 245 36.3
Rate per drilling day (CDN$) 23,732 41,183 (42.4)
Rate per drilling day (US$) 22,559 33,353 (32.4)
Utilization rate 93% 68% 36.8
Number of barge drilling rigs at
quarter end 1 1 -
Number of barge drilling rigs under
Bareboat Charter at quarter end 3 3 -
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(1) Trinidad commenced its operations in Mexico effective November 2008
and expanded its international operations into Chile effective August
2009.
OVERVIEW
Industry activity levels showed improvement in Canada and the US in the first quarter of 2010. Oil-directed drilling increased as operators shifted their capital programs towards more oil-focused targets, reflecting the relative stability of crude oil prices. Unconventional shale gas development also continued to be an area of strong drilling activity on both sides of the border. Industry utilization in Canada averaged 20.0 percentage points higher than the fourth quarter of 2009 and the US active rig count increased by 231 rigs or 19.4% over the same time period. As is typical in the drilling industry, an increase in dayrates generally lags behind an improvement in activity levels and this trend was evident in the first quarter of the year as dayrates remained at relatively low levels. While Trinidad's first quarter results were weaker than the same quarter last year, the Company saw increasing utilization, stabilizing dayrates and strengthening industry conditions in a number of areas and is cautiously optimistic moving into the remainder of 2010.
Trinidad's revenue for the quarter was $170.1 million, down 11.2% from $191.6 million in the same quarter of 2009. Lower revenue in the first three months of 2010 was largely driven by lower dayrates reflecting industry conditions and a change in the mix of active rigs during the period. The impact of lower dayrates in the Canadian drilling segment was more than offset by Trinidad's strong improvement in activity levels and resulted in the Canadian drilling segment recording increased revenue compared to the first quarter of 2009. Activity remained stable in the first quarter of 2010 in the US and International drilling segment and lower dayrates combined with a weaker US dollar led to lower revenue in this segment compared to the same quarter of the previous year. Trinidad's revenue was also negatively impacted by lower third-party construction work in the first quarter of 2010 as compared to 2009.
Gross margin as a percentage of revenue decreased in the first quarter of 2010 to 40.1% compared to 42.5% in the same quarter last year. Gross margin percentage contracted in the quarter largely due to lower dayrates. In the first quarter of 2009, the industry downturn resulted in lower activity levels; however, dayrates remained relatively strong as operators completed planned drilling programs. As those programs were completed and the full impact of the industry slowdown became evident, industry dayrates lowered throughout 2009 and into 2010. As Trinidad's activity levels increased in the first quarter of 2010, particularly in Canada, a growing number of shallower, conventional-style equipment returned to work. This style of equipment generally works at lower margins and dayrates than the deeper, high-tech style equipment that the Company has been running at proportionately higher levels over the past year. In addition, the Construction division worked almost exclusively on the Company's internal rig building program and generated significantly less gross margin than in the same period last year.
Adjusted EBITDA (as defined in the Non-GAAP measures definitions section) was $52.9 million in the first quarter, down 18.7% from the same quarter last year largely due to the factors mentioned above.
Net loss decreased by 86.0% to a loss of $0.8 million or ($0.01) per share (diluted) for the first quarter of 2010, in comparison to a loss of $5.6 million or ($0.06) per share (diluted) in 2009. In addition to the items mentioned above, the decrease in net loss in the quarter was largely driven by the absence of an impairment of intangible assets of $23.2 million that was recorded in the first quarter of 2009, a lower loss on sale of assets and lower income taxes. These factors were partly offset by higher depreciation costs reflecting the increased activity levels and foreign exchange losses.
Adjusted net earnings (as defined in the Non-GAAP measures definitions section) were $8.4 million or $0.07 earnings per share (diluted) for the first quarter of 2010, in comparison to Adjusted net earnings of $13.3 million or $0.14 per share (diluted) in 2009.
Commodity prices for both crude oil and natural gas increased in the first quarter of 2010 compared to the same period last year. West Texas Intermediate crude oil averaged US$78.73 per barrel in the quarter, an 83.8% increase from US$42.84 per barrel for the same period of 2009. Crude oil prices have consistently improved over the past 12 months and their relative stability over the past six months has led to a growing focus by producers on oil or liquids-rich plays. Natural gas prices have also improved quarter over quarter but at a considerably slower rate than crude oil prices. Henry Hub natural gas spot prices averaged US$5.09 per mmBtu in the first three months of 2010, up 10.7% from US$4.60 per mmBtu in the same period of 2009. North American storage levels for natural gas remain high and continue to place downward pressure on prices. Activity levels continue to be strong in unconventional shale plays where high initial production levels make development economic at lower price levels or where lease expiries provide strategic rationales for drilling programs. Trinidad has developed a reputation for strong performance in these areas with its built-for-purpose equipment and experienced crews. In addition, the Company is working with potential and existing customers to provide equipment to work in liquids-rich and oil-focused plays such as the Cardium in Canada, the Eagle Ford shale in the US and the Bakken that straddles the border of both countries.
RESULTS FROM OPERATIONS
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United
Three months States/
ended Inter- Inter-
March 31, Canadian national Con- segment
2010 Drilling Drilling struction Elimin-
($ thousands) Operations Operations Operations ations Total
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Revenue 84,524 85,286 14,898 (14,635) 170,073
Operating expense 54,016 49,256 13,311 (14,635) 101,948
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30,508 36,030 1,587 - 68,125
Interest on
long-term debt 3,095 1,774 14 - 4,883
Interest on
convertible
debentures 8,937 - - - 8,937
Depreciation and
amortization 9,210 15,664 547 - 25,421
Loss on sale of
assets 11 (1) 46 - 56
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Income before
corporate items 9,255 18,593 980 - 28,828
General and
administrative 15,208
Stock-based
compensation 1,763
Foreign exchange
loss 7,474
Income taxes 5,174
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Net loss (791)
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Capital
expenditures 12,988 21,744 234 - 34,966
Total assets 591,094 980,920 58,873 - 1,630,887
Goodwill - 86,445 58,521 - 144,966
Net future income
tax liability (7,153) (75,125) (2,036) - (84,314)
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United
Three months States/
ended Inter- Inter-
March 31, Canadian national Con- segment
2009 Drilling Drilling struction Elimin-
($ thousands) Operations Operations Operations ations Total
-------------------------------------------------------------------------
Revenue 78,228 94,244 38,254 (19,140) 191,586
Operating expense 46,830 50,728 31,664 (19,140) 110,082
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31,398 43,516 6,590 - 81,504
Interest on
long-term debt 2,748 2,317 6 - 5,071
Interest on
convertible
debentures 8,801 - - - 8,801
Depreciation and
amortization 8,432 15,107 439 - 23,978
Loss on sale of
assets 19 4,088 - - 4,107
Impairment of
intangible assets - 23,189 - - 23,189
-------------------------------------------------------
Income before
corporate items 11,399 (1,185) 6,145 - 16,359
General and
administrative 16,397
Stock-based
compensation 691
Foreign exchange
gain (4,897)
Income taxes 9,816
-------------------------------------------------------
Net loss (5,649)
-------------------------------------------------------
Capital
expenditures (12,363) 78,116 239 - 65,992
Total assets 706,153 1,219,576 (62,267) - 1,863,462
Goodwill - 107,337 62,521 - 169,858
Net future income
tax liability (3,619) (94,036) (2,198) - (99,853)
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Canadian Drilling Operations
During the first quarter of 2010, Trinidad's Canadian drilling operating segment showed a strong improvement in activity levels over both the first and fourth quarters of 2009. Revenue levels reflected this growth in operating days compared to the first quarter in 2009. As activity levels increased, the Company's active rig mix changed, adding more conventional style rigs and additional rigs with shallower depth capacity. These rigs generally work at lower dayrates and gross margins than Trinidad's deeper, high-tech rigs and led to lower overall dayrates and gross margins for the segment in the quarter. Lower dayrates compared to the same quarter of 2009 also reflect weaker industry demand for drilling equipment over the past year. It is typical for an increase in dayrates to lag behind an improvement in industry activity levels. As activity improves across the industry, pricing power returns to the drilling contractors, particularly those with the style of equipment that is in demand and a track record of strong performance. Trinidad's ability to consistently achieve industry-leading utilization rates reflects its strong position and reputation in the industry. Trinidad is confident that once market conditions improve that it will continue to achieve strong results due to the quality of its assets.
Revenue increased to $84.5 million in the first quarter, up 8.0% from $78.2 million in 2009 due to higher rig utilization and increased operating days. Operating days increased by 24.6% to 3,170 in the first quarter compared to the same quarter last year despite the Canadian drilling segment having four fewer rigs in its fleet. The change in rig count reflects the redeployment of four Canadian rigs to Mexico in 2009, the removal of one rig from active marketing and the addition of one new rig in the first quarter of 2010. This additional rig was built to meet customer demand and is operating in the Montney, an unconventional shale play in north-east British Columbia, under a long-term, take-or-pay contract. Trinidad recorded strong utilization in the quarter of 67.0% compared to industry utilization of 52.0% and utilization of 51.0% for the same quarter last year. The impact of higher utilization was mostly offset by lower dayrates in the quarter. Dayrates in the Canadian drilling segment averaged $21,868 per day in the first three months of 2010, down 13.0% from the same period last year and down 3.0% from the previous quarter, largely due to a change in the rig mix and a delayed reaction to increasing activity levels.
The trend of drilling deeper, more technically-challenging wells continued in 2010 with horizontal and directional wells accounting for 62.3% of wells drilled in Canada in the quarter compared to 49.3% in the first quarter of 2009. Oil-directed drilling also showed a market increase quarter over quarter, increasing from 24.1% of wells drilled in the first quarter of 2009 to 39.1% in 2010. Producers have begun to apply their growing knowledge and experience in unconventional drilling to conventional targets, improving the results and economics of the projects. The increasing activity in these areas has provided additional work for some of Trinidad's mid-sized equipment which had been under utilized in the past 12 months. Trinidad's increasing activity rates reflect the Company's ability to participate in both of these industry changes.
In the first quarter, gross margin for the Canadian drilling segment was $30.5 million or 36.1% of revenue compared to $31.4 million or 40.1% of revenue in the first quarter of 2009. A combination of a changing active rig mix and weaker dayrates resulted in lower gross margin quarter over quarter.
Trinidad's well servicing division saw similar market conditions to the land drilling division, with increased activity levels but revenue per hour that was slow to respond to increasing demand. Service rig utilization rates in the quarter increased to 54.0% compared to 41.0% in the same quarter last year and also demonstrated an increasing focus towards oil-related projects. The Company's coring division remained relatively underutilized in the first quarter of 2010 as oilsands projects were slower than expected to return to work. Moving forward in 2010, this division is beginning to show signs of improvement for both oilsands-related projects and pre-setting work.
United States and International Drilling Operations
In the US, industry activity rates increased in the first quarter of 2010 resulting in an average active rig count of 1,419, up 80 rigs or 6.0% from the first quarter of 2009 and up 231 rigs or 19.4% from the previous quarter. The trends in Canada for strong activity in unconventional shale areas and oil-targeted drilling were mirrored in the US. In the first quarter of 2010, horizontal drilling accounted for 48.0% of wells drilled, up from 36.0% in the same quarter last year. The number of rigs directed towards oil targets increased by 44.1% quarter over quarter, while the remainder of the US active rig fleet increased 1.3% during the same time frame. Over the past year, Trinidad's US fleet has maintained relatively stable activity levels compared to the industry average. At the lowest industry activity level in the second quarter of 2009, the US active rig count was down 62.0% from its peak level in the fall of 2008. In contrast, over the same time frame, Trinidad's active US rig count was down only 24.0%. Trinidad's ability to maintain stability in its activity levels is a reflection of the Company's extensive long-term, take-or-pay contracts and its fleet of modern, deep capacity rigs. Including the rigs under construction in 2010, Trinidad has more than 60.0% of its US and International fleet under long-term, take-or-pay contract.
Revenue for the US and International drilling operations segment decreased by 9.5% for the quarter, to $85.3 million, from $94.2 million in 2009. Lower revenue was driven largely by reduced dayrates and a weaker US dollar in the quarter. US dollar denominated dayrates in the quarter were US$20,157 per day, down 8.2% quarter over quarter, reflecting weaker market conditions. This decrease was compounded by a weaker US dollar and once translated into Canadian dollars, dayrates averaged C$21,206 per day, down 21.8% from the first quarter of 2009. While dayrates remained at low levels in the first quarter of 2010, they appear to have stabilized and were relatively unchanged from the previous quarter. The stability in dayrates reflects growing industry activity levels and the impact of increasing demand, particularly for equipment suited for unconventional shale drilling or specific oil plays.
Operating days in the quarter increased 16.2% to 3,769 days in the first quarter of 2010 compared to the same period last year, while utilization levels remained relatively stable at 63.0% compared to 64.0% in the first three months of 2009. The increase in operating days reflects the growing US and International fleet which expanded from 58 rigs in the first quarter of 2009 to 66 rigs in 2010. Since the end of the first quarter of 2009, Trinidad redeployed four rigs from its Canadian fleet into Mexico and added four newly constructed built-for-purpose rigs into its US operations.
In the first quarter of 2010, higher utilization levels in Trinidad's US operations were offset by lower activity in the Mexican operations. In response to high declines in Mexico's existing producing fields, Petroleos Mexicanos (Pemex), Mexico's national oil company, have ramped up activity in the Chicontepec region quickly over the past 12 to 18 months. The results from these operations have been weaker than Pemex's initial expectations and in the first quarter of 2010, they reduced activity in Chicontepec as part of a reassessment of their development plans in the area. The reduction in activity left several rigs on standby rates during the quarter and resulted in lower utilization levels. Trinidad currently has seven rigs in Mexico; three rigs have been moved to Villahermosa in southeastern Mexico where they remain under contract with the original customer. Trinidad is investigating several opportunities for the four non-contracted rigs in Mexico and South America. In the event that these opportunities do not result in acceptable contract terms, the original customer is responsible for the costs of moving the rigs back to Canada or the U.S. The rigs are of a size and style that is in high demand in Canada or the U.S. and Trinidad does not anticipate a long period of inactivity for these rigs.
Gross margin percentage decreased to 42.2% in the first quarter compared to 46.2% in the same quarter last year. Gross margin percentage was negatively impacted by lower dayrates in the quarter reflecting comparatively weaker industry conditions. The impact of lower dayrates in the quarter was partly offset by lower operating costs through reduced labour expenses and an ongoing focus on cost reduction.
During the first quarter of 2010, the conditions in the barge drilling division began to show signs of improvement with dayrates and utilization increasing from the previous quarter. Dayrates remained below the levels achieved in the first quarter of 2009 but utilization was 93.0% in the first quarter of 2010 compared to 68.0% in the comparable period of 2009. US dollar denominated dayrates in the quarter were US$22,559 per day, down 32.4% from the same quarter in 2009. The weaker US dollar also impacted the barge division with Canadian dollar denominated dayrates averaging C$23,732 per day in the first quarter, down 42.4% from the first quarter of 2009.
In 2009, Trinidad moved an existing, under-utilized rig from its US operations to Chile where the rig has been drilling geothermal wells under contract for an Italian/Chilean joint venture. Subsequent to the end of the quarter, Trinidad agreed to sell this rig and the remaining term of the contract to its operating partner in Chile for US$28.0 million. Although the operations in Chile were contributing strong margins to Trinidad's international operations, the Company felt that the benefit of receiving a lump sum payment for this operation and applying the funds against its outstanding debt levels provided better value for the Company. Trinidad believes in evaluating all opportunities objectively and in making business decisions that add the most incremental value for its investors, including selling assets if the right opportunity exists.
Construction Operations
Trinidad's construction operations segment provides complete drilling solutions including equipment sales, rig design and engineering, manufacturing and after-market support services through Trinidad's subsidiary, Victory Rig Equipment Corporation (Victory). During 2010, the construction operations segment will be manufacturing six built-for-purpose rigs as part of Trinidad's internal rig build program. At the same time, Victory continues to provide service and recertification requirements for Trinidad and external third parties.
Revenue from the construction operations segment decreased to $14.9 million in the first quarter of 2010 from $38.3 million in the first quarter of 2009, due to a reduction in third-party work and lower inter-segment revenues. Reduced revenue levels were partly offset by lower operating expenses which decreased $18.4 million, from $31.7 million to $13.3 million over the same period. These changes affected the segment's gross margin and gross margin as a percentage of revenue which decreased from 17.2% in 2009 to 10.7% in the first quarter of 2010. Revenue in the three months ended March 31, 2010 included $14.6 million of inter-segment construction work performed during this period, compared to $19.1 million in the same period in 2009. This revenue related to the ongoing rig construction program, as well as delivery of one rig to the Canadian drilling operations segment during the first quarter of 2010. In the first quarter of 2009, Victory's results included significant revenues recognized on the construction of three drilling rigs for a third-party customer, with no comparable third-party work available in the first quarter of 2010. The decline in third-party revenues can be attributed to the general economic downturn over the past eighteen months. The decrease in inter-segment revenue represents a timing difference in the construction process from 2009. Although lower than the first quarter of 2009, inter-segment revenue is expected to continue at or above current levels for the remainder of 2010 as six additional rigs, all backed by long-term, take-or-pay contracts, are expected to be delivered into the Company's US operations as part of the 2010 rig construction program.
FINANCIAL SUMMARY
March 31, December 31,
($ thousands except percentage data) 2010 2009
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Working capital(1) 94,394 90,673
Current portion of long-term debt 21,183 14,146
Long-term debt(2) 224,052 216,273
Convertible debentures(3) 333,324 331,249
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Total debt 578,559 561,668
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Total debt as a percentage of assets 35.5% 34.6%
Net debt(1) 462,982 456,849
Net debt as a percentage of assets 28.4% 28.1%
Total assets 1,630,887 1,624,013
Total long-term liabilities 642,493 631,074
Total long-term liabilities as a
percentage of assets 39.4% 38.9%
Shareholders' equity 883,387 911,621
Total debt to shareholders' equity 65.5% 61.6%
Net debt to shareholders' equity 52.4% 50.1%
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(1) Readers are cautioned that working capital and net debt do not have
standardized meanings prescribed by GAAP - see "Non-GAAP Measures
Definitions".
(2) Long-term debt is reflected net of associated transaction costs.
(3) Convertible debentures are reflected net of the related equity
component and associated transaction costs.
Trinidad's total debt increased by $16.9 million during the first quarter of 2010 as a result of an $18.0 million increase in the revolving credit facility used to fund capital requirements on Trinidad's rig construction program. As at March 31, 2010, Trinidad had $73.0 million outstanding on its revolving credit facility, leaving $152.0 million unutilized.
Subsequent to quarter end, on April 6, 2010, Trinidad amended its credit facilities, including extended terms and an additional US dollar denominated revolving facility. Trinidad's amended credit facilities now include a Canadian dollar revolving facility of $150.0 million and a US based revolving facility of US$100.0 million. Additionally, the maturity dates of all revolving facilities and term debt facilities have been extended until April 1, 2012. The addition of a US dollar denominated facility better aligns the credit facilities with the Company's growing United States and international presence. In addition, the extended maturity dates give Trinidad additional flexibility to consider refinancing, redemption and other alternatives, prior to the maturity of its convertible debentures in July 2012.
A total of $35.0 million of capital expenditures were incurred during the three months ended March 31, 2010 compared to $66.0 million for the three months ended March 31, 2009. Capital expenditures in the quarter were substantially related to the Company's ongoing rig build program and a number of capital upgrades made to Trinidad's rig fleet to improve the equipment's marketability. Subsequent to the end of the first quarter, Trinidad agreed to sell its rig operating in Chile and the remaining term of the contract to its operating partner for US$28.0 million. Although the operations in Chile were contributing strong margins to Trinidad's international division, the Company felt that the benefit of receiving a lump sum payment for this operation and applying the funds against its outstanding debt levels provided better value for the Company. Trinidad believes in evaluating all opportunities objectively and in making business decisions that add the most incremental value for its investors, including selling assets if the right opportunity exists. The proceeds from this sale were used to reduce overall indebtedness.
Trinidad expects cash flow from operations and the Company's various sources of financing to be sufficient to meet its debt repayments, future obligations and to fund planned capital expenditures.
Trinidad's long-term strategy is to reduce the Company's overall debt levels. Trinidad anticipates that the additional cash flow from the rigs within the current rig construction program, which all remain under long-term, take-or-pay contracts, will add to the cash flow generated by its existing fleet and provide free cash flow and an ability to reduce indebtedness. Trinidad expects that the Company will have repaid a sufficient amount of debt to be in a position to refinance the convertible debentures before they mature in 2012.
OUTLOOK
The first quarter of 2010 has shown signs of increased activity both in Canada and the US and to date these improvements have continued into the second quarter. In Canada, producers appear to be eager to return to work following the end of spring break up, when weather and environmental regulations limit the industry's ability to move equipment and reduce activity levels. In the US, the active rig count has continued to increase although at a slower rate than over the past year. These signs are encouraging for Trinidad and the industry as a whole; however, the Company remains cautious in its outlook for the remainder of 2010 given the relatively low natural gas prices and high storage levels that persist in North America. Trinidad expects that activity levels will stabilize over the coming months and that an increase in demand for natural gas, most likely driven by an improvement in the US economy, is necessary before natural gas prices improve.
The Company anticipates that producers will continue to direct their capital development plans towards oil-focused targets and unconventional shale plays. Trinidad's fleet of modern, deep-capacity rigs is well suited to this style of drilling and the Company has approximately 50% of its fleet operating in the North American unconventional shale plays. Trinidad's foresight in building a fleet of technically-advanced rigs that are built for drilling in shale plays and the strong performance these rigs have achieved has given Trinidad a reputation as a leader in this area. Unconventional drilling has been one of the few bright spots in the drilling industry over the past 12 to 18 months and producers have been eager to gain access to this style of equipment. Including its 2010 rig construction program, Trinidad is well positioned moving forward in 2010 with more than 45% of its total land-based drilling fleet under long-term, take-or-pay contract and an average term remaining of two years.
Trinidad is completing its 2010 rig construction program and in addition to the rig added to the Canadian operations in the first quarter, the Company will have six new rigs delivered into its US operations under long-term, take-or-pay contracts throughout the remainder of the year. The Company also continues to pursue opportunities to redeploy existing equipment into other international markets. Trinidad reviews these opportunities carefully, weighing additional risk against returns, evaluating strategic benefits of particular geographic locations and looking for opportunities where equipment can be highly utilized at strong margins and with minimal capital investment.
Over the past two years Trinidad has reduced its indebtedness significantly. Net debt at the end of the first quarter of 2010 was down 27.0% from the end of 2007 and 17.2% from the end of 2008. Net debt increased slightly from the end of 2009, up 1.3% in the quarter, due to the costs involved with the Company's 2010 rig construction program; however, Trinidad intends to continue to reduce its debt levels. Following the extension of its credit facility to 2012 and its growing cash flow generation capacity, Trinidad will have additional flexibility available to repay or refinance its debt facilities, including its convertible debentures, prior to their maturity in 2012.
Trinidad has shown its ability to perform throughout the downturn; its fleet of modern equipment and extensive long-term contract coverage have provided a stable base for revenue and activity levels. Industry conditions in the first quarter of 2010, particularly in Canada, exceeded the Company's expectations and although these signs are encouraging, the Company was prepared for 2010 to be a challenging year. Trinidad will continue to watch industry indicators carefully over the coming quarters and will move forward in 2010 with cautious optimism.
CONFERENCE CALL
A conference call and webcast to discuss the results will be held for the investment community on Thursday May 13, 2010 beginning at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12:00 p.m. MT on May 13, 2010 until midnight May 20, 2010 by dialing (800) 642-1687 or (416) 849-0833 and entering replay access code 72195595.
A live audio webcast of the conference call will also be available via the Investor Relations page of Trinidad's website www.trinidaddrilling.com.
A full copy of Trinidad's first quarter report including Management's Discussion and Analysis, Consolidated Financial Statements and Notes to the Consolidated Financial Statements can be found on the Investor Relations page of Trinidad's website or at www.sedar.com.
Trinidad Drilling Ltd.
Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange (TSX) under the symbols TDG and TDG.DB. Trinidad's divisions operate in the drilling, well-servicing, coring and barge-drilling sectors of the North American oil and natural gas industry. With the completion of the rig construction program, Trinidad will have 124 land drilling rigs ranging in depths from 1,000 - 6,500 metres and operations in Canada, the United States and Mexico. In addition to its land drilling rigs, Trinidad has 22 service rigs, 20 pre-set and coring rigs and 4 barge rigs operating in the Gulf of Mexico. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad's drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry.
ADVISORY
NON-GAAP MEASURES DEFINITIONS
This document contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures presented by other companies. These financial measures are computed on a consistent basis for each reporting period and include gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, net earnings before impairment of intangible asset, Adjusted net earnings, net debt and working capital. These non-GAAP measures are identified and defined as follows:
"Gross margin" is used by management and investors to analyze overall and segmented operating performance. Gross margin is not intended to represent operating income nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. Gross margin is calculated from the consolidated statements of operations and retained earnings (deficit) and from the segmented information contained in the notes to the consolidated financial statements and is defined as revenue less operating expenses.
"Gross margin percentage" is used by management and investors to analyze overall and segmented operating performance. Gross margin percentage is calculated from the consolidated statements of operations and retained earnings (deficit) and from the segmented information in the notes to the consolidated financial statements and is defined as gross margin divided by revenue.
"EBITDA" is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, or how the results are taxed in various jurisdictions.
"Adjusted EBITDA" is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange loss (gain) and stock-based compensation and are not intended to represent net earnings as calculated in accordance with Canadian GAAP.
"Cash flow from operations before change in non-cash working capital" is used to assist management and investors in analyzing Trinidad's liquidity and ability to generate cash to finance investing and financing activities. Cash flow from operations before change in non-cash working capital is derived from the consolidated statements of cash flows and is defined as cash flow from operating activities plus or minus the change in non-cash operating working capital.
"Net earnings (loss) before impairment of intangible assets" is derived from the annual consolidated statements of operations and deficit.
"Adjusted net earnings" is used by management and the investment community to analyze net earnings (loss) prior to the effect of foreign exchange loss (gain), stock-based compensation charges and impairment charges and are not intended to represent net earnings as calculated in accordance with Canadian GAAP.
"Working capital" is used by management and the investment community to analyze the operating liquidity available to the Company.
"Net debt" is used by management and the investment community to analyze the amount of debt less the working capital of the Company.
References to gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before changes in non-cash working capital, net earnings (loss) before impairment of intangible assets, Adjusted net earnings, net debt and working capital throughout this document have the meanings set out above.
Additional information on the calculation of the above-mentioned, non-GAAP measures can be found in the Management's Discussion and Analysis section of Trinidad's first quarter 2010 report which is available on Trinidad's website at www.trinidaddrilling.com or from SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements relating to Trinidad's plans, strategies, objectives, expectations and intentions. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "confident", "might" and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this document. The forward-looking information and statements included in this document are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. In particular, but without limiting the foregoing, this document may contain forward-looking information and statements pertaining to the completion of announced rig construction programs on a timely basis and on economical terms; the assumption that Trinidad's customers will honour their take-or-pay contracts; fluctuations in the demand for Trinidad's services; the ability for Trinidad to attract and retain qualified personnel, in particular field staff to crew the Company's rigs; the existence of competitors, technological changes and developments in the oilfield services industry; the existence of operating risks inherent in the oilfield services industry; assumptions respecting capital expenditure programs and other expenditures by oil and gas exploration and production companies; assumptions regarding commodity prices, in particular oil and natural gas; assumptions respecting supply and demand for commodities, in particular oil and natural gas; assumptions regarding foreign currency exchange rates and interest rates; the existence of regulatory and legislative uncertainties; the possibility of changes in tax laws; and general economic conditions including the capital and credit markets. Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this document speak only as of the date of this news release and Trinidad assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.
For further information: Lyle Whitmarsh, President and Chief Executive Officer, Brent Conway, Executive Vice President and Chief Financial Officer, Lisa Ciulka, Director of Investor Relations, Phone: (403) 265-6525, Fax: (403) 265-4168, E-mail: [email protected]
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