Trinidad Drilling Ltd. reports third quarter and year-to-date 2014 results; strong demand drives increased activity levels and improving dayrates

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Nov 05, 2014, 17:01 ET

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TSX SYMBOL: TDG

CALGARY, Nov. 5, 2014 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the "Company") reported third quarter and year-to-date 2014 results. Adjusted EBITDA⁽¹⁾ grew over the same quarter last year and the second quarter of 2014, driven by increased activity levels and improving dayrates.

"Activity levels across our operations were high in the third quarter, reflecting the strong demand we are seeing from our customers" said Lyle Whitmarsh, Trinidad's Chief Executive Officer. "Our Canadian operations averaged 12 percentage points above the same quarter last year and our US operations were virtually fully utilized with 96% utilization in the quarter. Our strategy to redeploy assets to higher demand areas and to high grade our fleet has improved the profitability of our underlying drilling fleet. At this point we have not seen a reduction in customer demand due to lower commodity prices; however, we will continue to watch this closely."

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

FINANCIAL HIGHLIGHTS


		Three months ended September 30,			Nine months ended September 30,
($ thousands except share and per share data)		2014	2013	% Change	2014	2013	% Change
Revenue		244,538	208,692	17.2	664,988	621,325	7.0
Revenue, net of third party costs		230,985	197,742	16.8	621,647	581,290	6.9
Operating income (1)		80,536	76,190	5.7	221,333	230,200	(3.9)
Operating income percentage (1)		32.9%	36.5%	(9.9)	33.3%	37.0%	(10.0)
Operating income - net percentage (1)		34.7%	38.5%	(9.9)	35.4%	39.6%	(10.6)
EBITDA (1)		67,207	55,635	20.8	153,907	173,975	(11.5)
	Per share (diluted) (2)	0.48	0.46	4.3	1.11	1.43	(22.4)
Adjusted EBITDA (1)		64,619	61,838	4.5	174,706	186,615	(6.4)
	Per share (diluted) (2)	0.47	0.51	(7.8)	1.26	1.54	(18.2)
Cash provided by operations		60,143	65,641	(8.4)	150,662	196,108	(23.2)
	Per share (basic / diluted) (2)	0.44	0.54	(18.5)	1.09	1.62	(32.7)
Funds provided by operations (1)		46,554	43,740	6.4	137,696	147,807	(6.8)
	Per share (basic / diluted) (2)	0.34	0.36	(5.6)	0.99	1.22	(18.9)
Net earnings		19,156	9,167	109.0	20,103	42,262	(52.4)
	Per share (basic / diluted) (2)	0.14	0.08	75.0	0.15	0.35	(57.1)
Adjusted net earnings (1)		14,602	15,406	(5.2)	36,791	54,439	(32.4)
	Per share (basic / diluted) (2)	0.11	0.13	(15.4)	0.26	0.45	(42.2)
Capital expenditures		100,453	5,037	1,894.3	203,246	50,349	303.7
Dividends declared		6,910	6,043	14.3	20,728	18,129	14.3
Shares outstanding - diluted (weighted average) (2)		138,664,015	121,495,980	14.1	138,854,145	121,373,198	14.4


As at					September 30,	December 31,
($ thousands except percentage data)					2014	2013	% Change
Total assets					1,986,076	1,827,496	8.7
Total long-term liabilities					598,545	564,095	6.1

(1)		Readers are cautioned that Operating income, Operating income percentage, Operating income - net percentage, EBITDA, Adjusted EBITDA, Funds provided by operations, Adjusted net (loss) earnings and the related per share information do not have standardized meanings prescribed by IFRS - see "Non-GAAP Measures" and "Additional GAAP Measures".
(2)		Basic shares include the weighted average number of shares outstanding over the period. Diluted shares include the weighted average number of shares outstanding over the period and the dilutive impact, if any, of the number of shares issuable pursuant to the Incentive Option Plan.

OPERATING HIGHLIGHTS


		Three months ended September 30,			Nine months ended September 30,
		2014	2013	% Change	2014	2013	% Change
Land Drilling Market
Operating days (1)
	Canada	3,424	3,018	13.4	8,932	8,650	3.3
	United States and International	4,906	4,733	3.6	13,657	13,764	(0.8)
Rate per operating day (1)
	Canada (CDN$)	24,669	23,686	4.1	25,277	24,821	1.8
	United States and International (CDN$)	22,842	23,297	(2.0)	23,422	22,882	2.4
	United States and International (US$)	21,092	22,460	(6.1)	21,492	22,461	(4.3)
Utilization rate - operating day (1)
	Canada	66%	54%	22.3	55%	53%	3.8
	United States and International	96%	76%	26.9	84%	75%	12.0
Number of drilling rigs at period end (4)
	Canada	61	61	-	61	61	-
	United States and International	54	68	(20.6)	54	68	(20.6)
	Coring and surface casing rigs (2)	-	-	-	-	-	-
Joint Venture Operations (3)
	Number of drilling rigs at period end	4	-	100.0	4	-	100.0
Barge Drilling Market
	Operating days (1)	334	449	(25.6)	837	1,309	(36.0)
	Rate per operating day (CDN$) (1)	37,967	33,962	11.8	37,918	31,659	19.8
	Rate per operating day (US$) (1)	35,072	32,740	7.1	34,836	31,037	12.2
	Utilization rate - operating day (1)	73%	97%	(25.0)	61%	96%	(36.5)
	Number of barge drilling rigs at period end	2	2	-	2	2	-
	Number of barge drilling rigs under Bareboat Charter Agreements at period end	3	3	-	3	3	-

(1)		See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(2)		In the third quarter of 2013, Trinidad disposed of its 15 remaining coring rigs and all related equipment.
(3)		Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. These rigs are owned by the joint venture.
(4)		Refer to the Results from Operations section for details on changes to the rig count.

OVERVIEW

A growing acceptance of the benefits of high performance equipment in the drilling industry has led to increasing demand for modern, efficient equipment. This trend has led to a broader customer base for Trinidad's largely high performance fleet and improving utilization levels. Trinidad is seeing strong demand for its equipment in the US and Canadian operations.

Trinidad's core land drilling business performed well in the third quarter of 2014. Activity levels in both Canada and the US increased from the same period last year and from the previous quarter reflecting the growing demand in the industry. Additional repairs and maintenance work performed in the second quarter of 2014 was rewarded in the third quarter as the Company put a large number of rigs back to work and recorded high utilization, particularly in its US fleet. The Company's US and international operations were negatively impacted by the final costs associated with moving three Mexican rigs back to Canada in the quarter. These rigs are currently being upgraded and will be put to work over the coming winter drilling season. In addition, the US and international segment's results were impacted by fewer rigs in the fleet as rigs were moved to Canada and the joint venture, and also by lower activity levels in the barge drilling business in the quarter and year to date.

Trinidad's joint venture operations progressed as expected, with three rigs contributing to the joint venture in the third quarter. These operations remain in start-up phase with five additional rigs expected to begin operations over the next few quarters.

Commodity prices were higher in the first nine months of 2014, compared to the same periods in 2013. However, increasing North American domestic supply and slower global economic growth led to a reduction in crude oil prices in the third quarter of 2014 compared to the second quarter. Natural gas prices also lowered from the previous quarter of 2014 as a result of warmer weather forecasts and growing storage levels in North America. Customer demand was not impacted by this quarterly reduction in commodity prices in the third quarter and activity levels remained strong.

In the third quarter and first nine months of 2014, Canadian industry activity levels averaged 46% and 43%, respectively, up from 37% and 38% in the same periods last year, reflecting the improving industry conditions in Canada. Trinidad's Canadian utilization rate - drilling days also increased to 61% in the current quarter and 50% year to date in 2014 compared to 50% and 49%, respectively, for the same periods last year. Trinidad's activity levels increased in the current periods as demand for drilling equipment grew, particularly for the Company's high performance rigs.

In the US, industry activity increased in the third quarter and first nine months of 2014, averaging 1,828 and 1,771 active rigs, respectively, up from 1,687 active rigs for the same periods last year. Trinidad's US and international division averaged approximately 53 active rigs in the third quarter and 50 active rigs in first nine months of 2014 up from approximately 51 and 50 active rigs during the same periods in 2013. Activity levels in the US continued to improve in the third quarter as strong demand for modern, efficient rigs in the Permian Basin absorbed a growing number of rigs. Demand also remained strong throughout most other regions in the US, allowing Trinidad to put all of its US-based rigs to work in the quarter.

During the third quarter and year-to-date 2014, the US dollar was stronger against the Canadian dollar than during the same periods last year. Trinidad has a significant portion of its business that operates in US dollars and the change in foreign exchange rates in the quarter had a noticeable, and largely positive impact on the Company's results. USD/CDN dollar exchange rates averaged 1.0892 in the current quarter compared to 1.0383 in the same quarter last year. On a year-to-date basis, US dollar exchange rates averaged 1.0945 in 2014 compared to 1.0235 for the same period last year. The stronger US dollar positively impacted EBITDA generated by Trinidad's US and international division but also drove increased depreciation expenses in the quarter and year to date.

INDUSTRY STATISTICS


	2014			Full Year	2013				Full Year	2012
	Q3	Q2	Q1	2013	Q4	Q3	Q2	Q1	2012	Q4
Commodity Prices
Aeco natural gas price (CDN$ per gigajoule)	3.82	4.45	5.34	3.01	3.33	2.32	3.36	3.03	2.26	3.03
Henry Hub natural gas price (US$ per mmBtu)	3.94	4.59	5.15	3.72	3.84	3.55	4.01	3.47	2.75	3.40
Western Canada Select crude oil price (CDN$ per barrel)	85.68	91.34	85.81	75.84	69.62	86.31	79.25	67.64	71.70	60.73
WTI crude oil price (US$ per barrel)	97.60	103.06	98.72	98.01	97.56	105.82	94.14	94.30	94.09	88.17

US Activity
Average industry active land rig count (1)	1,828	1,781	1,705	1,685	1,679	1,687	1,686	1,687	1,852	1,741
Average Trinidad active land rig count (2)	53	47	48	50	49	51	50	49	57	56

Canadian Activity
Average industry utilization (3)	46%	28%	58%	40%	43%	37%	18%	58%	39%	36%
Average Trinidad utilization (4)	61%	24%	68%	48%	48%	50%	24%	73%	52%	51%

(1)		Baker Hughes rig counts (information obtained from Tudor Pickering Holt & Company weekly rig roundup report).
(2)		Includes US and international rigs.
(3)		Canadian Association of Oilwell Drilling Contractors (CAODC) utilization.
(4)		Based on drilling days (spud to rig release dates).

THIRD QUARTER AND YEAR-TO-DATE 2014 HIGHLIGHTS

Trinidad generated revenue of $244.5 million in the third quarter and $665.0 million year to date in 2014, up 17.2% and 7.0% from the same periods last year. Revenue was positively impacted in the current quarter by higher activity levels across North America, increased Canadian dayrates as well as a positive foreign currency translation on Trinidad's US division, partly offset by a weaker contribution from the barge operations. Additionally, Trinidad's manufacturing division generated higher revenue due to external new build construction in 2014. Year to date, in addition to the items noted above, revenue was negatively impacted by the absence of the Company's coring rigs, which were sold in 2013 and lower activity from the Mexican rigs.
Overall operating income - net percentage was 34.7% in the third quarter and 35.4% year to date in 2014 compared to 38.5% and 39.6% respectively, in 2013. Profitability lowered in the quarter and year to date largely as a result of higher manufacturing activity in the current year. The manufacturing division typically generates lower margins than Trinidad's drilling operations as the external new builds are constructed for Trinidad's joint venture company and joint venture partner at cost plus a small margin. In addition, in the first half of 2014 the Company incurred significant costs to reactivate and redeploy rigs to other regions and plays which negatively impacted utilization and operating costs in the current year. Furthermore, in the third quarter of 2014, profitability lowered as a result of lower standby revenue, moving expenses related to the Company's Mexican rigs and weaker activity levels in the barge drilling division.
Adjusted EBITDA was $64.6 million in the quarter and $174.7 million year to date in 2014, up 4.5% and down 6.4%, respectively, from the same periods last year. Adjusted EBITDA increased in the quarter largely as a result of an increase in operating income due to the factors discussed in the first two points above. Adjusted EBITDA declined year to date due to lower operating income due to the factors discussed above, combined with higher general and administrative expenses associated with the joint venture expansion.
Net earnings were $19.2 million or $0.14 per share (diluted) in the quarter and of $20.1 million or $0.15 per share (diluted) year to date in 2014, up $10.0 million and down $22.2 million, respectively from the same periods last year. Net earnings increased in the quarter largely as a result of higher operating income, lower share-based payment expenses, partly offset by higher depreciation and amortization expenses. On a year-to-date basis, net earnings lowered in 2014 as a result of higher operating costs in the second quarter as the Company ramped up its US operations, an impairment of property and equipment, higher foreign exchange losses and higher depreciation and amortization expenses, partly offset by a gain on sale of property and equipment.
Adjusted net earnings decreased by $0.8 million in the quarter compared to the same quarter last year, with adjusted net earnings per share (diluted) decreasing $0.02 per share. Adjusted net earnings year to date decreased in 2014 largely due to lower adjusted EBITDA in the first half of the year.

RESULTS FROM OPERATIONS

Canadian Operations


	Three months ended September 30,			Nine months ended September 30,
($ thousands except percentage and operating data)	2014	2013 (4)	% Change	2014	2013 (4)	% Change
Operating revenue (1)	84,481	71,481	18.2	225,769	224,033	0.8
Other revenue	180	4	4,400.0	1,260	61	1,965.6
	84,661	71,485	18.4	227,029	224,094	1.3
Operating costs (1)	47,843	42,052	13.8	130,867	130,426	0.3
Operating income (3)	36,818	29,433	25.1	96,162	93,668	2.7
Operating income - net percentage (3)	43.5%	41.2%		42.4%	41.8%

Operating days (3)	3,424	3,018	13.4	8,932	8,650	3.3
Drilling days (3)	3,170	2,798	13.3	8,201	7,985	2.7
Rate per operating day (CDN$) (3)	24,669	23,686	4.1	25,277	24,821	1.8
Utilization rate - operating day (3)	66%	54%	22.3	55%	53%	3.8
Utilization rate - drilling day (3)	61%	50%	22.0	50%	49%	2.9
CAODC industry average (2)	46%	37%	24.3	43%	38%	13.2

Number of drilling rigs at period end	61	61	-	61	61	-
Number of coring and surface rigs at period end	-	-	-	-	-	-

(1)		Operating revenue and operating costs for the three months ended September 30, 2014 and 2013 exclude third party recovery and third party costs of $9.5 million and $6.0 million, respectively. Operating revenue and operating costs for the nine months ended September 30, 2014 and 2013 exclude third party recovery and third party costs of $28.9 million and $23.8 million, respectively.
(2)		CAODC industry average is based on drilling days divided by total days available.
(3)		See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(4)		During the prior year, Trinidad's Canadian operations included the Canadian manufacturing division. Effective January 1, 2014, Trinidad has re-evaluated operating segments. Management has determined that the Manufacturing operations is considered a separate operating segment. All prior period segmented information has been reclassified to conform to this new presentation.

Trinidad's Canadian operations performed well in the third quarter of 2014, recording higher levels of operating revenue and operating income when compared to the same quarter of 2013. Higher utilization, dayrates and the addition of high specification rigs were the main drivers behind the improved performance. These improvements were a reflection of strengthening industry conditions. In addition, during the past two quarters, Trinidad has moved rigs into its Canadian operations to meet growing customer demand and replace decommissioned rigs that were no longer competitive. These changes improved the profitability and utilization of the Canadian fleet.

For the nine months ended September 30, 2014, operating revenue and operating income increased from the same period in the prior year due to higher utilization, dayrates and the addition of high specification rigs in the current period. This impact was slightly offset by the absence of the preset and coring rigs, which were sold in the third quarter of 2013. These rigs generated $9.3 million in operating revenue in the first half of 2013 compared to nil in the current year.

Operating days were higher than the same quarter last year due to stronger utilization than the prior year, driven by the high grading of the fleet and improved industry demand. In addition, for the nine months ended September 30, 2014, operating days were higher than the prior year, due to the factors mentioned above, which were slightly offset by wet weather and flooding that lowered operating days in the second quarter of 2014.

Operating income - net percentage increased in the quarter driven by improved profitability from the high-graded fleet. On a year-to-date basis, operating income - net percentage increased slightly year over year as improved profitability of the high-graded fleet was partially offset by weaker customer demand in the oil sands sector in the first quarter of 2014.

Trinidad's Canadian rig count remained at 61 rigs year over year. However, during the third quarter of 2014, the Company relocated two rigs from its US operations to its Canadian operations. The first rig is a high specification rig that was relocated to meet a current customer's request. The second rig is currently being retrofitted and redeployed to the Canadian market, as the specifications of the upgraded rig are better suited to this market.

In the second quarter of 2014, as part of the Company's ongoing review of its fleet, it removed five rigs that were no longer competitive and were not economical to upgrade. In addition, during the second quarter Trinidad relocated three rigs from its Mexican operations to Canada. These rigs are currently being fitted with top drives and other upgrades and are expected to begin drilling in the fourth quarter of 2014.

Third quarter 2014 versus second quarter 2014

The third quarter is typically marked by average utilization, as activity levels improve from the second quarter as restrictions on the movement of heavy equipment from road bans is lifted, due to the end of spring break-up. This seasonality led to an increase in operating days and higher revenue and operating income in the third quarter compared to the second quarter of 2014. The impact of higher activity levels was partly offset by a decline of $1,669 per day in dayrates over the second quarter. Dayrates decreased largely as a result of rig mix; in the second quarter, a higher percentage of the active fleet was made up of high specification rigs, resulting in a higher average dayrate.

United States and International Operations


	Three months ended September 30,			Nine months ended September 30,
($ thousands except percentage and operating data)	2014	2013 (3)	% Change	2014	2013 (3)	% Change
Operating revenue (1)	124,742	124,964	(0.2)	351,643	355,373	(1.0)
Other revenue	99	27	266.7	212	73	190.4
	124,841	124,991	(0.1)	351,855	355,446	(1.0)
Operating costs (1)	82,588	78,043	5.8	230,998	218,143	5.9
Operating income (1)	42,253	46,948	(10.0)	120,857	137,303	(12.0)
Operating income - net percentage (2)	33.8%	37.6%		34.3%	38.6%

Land Drilling Rigs
Operating days (2)	4,906	4,733	3.6	13,657	13,764	(0.8)
Drilling days (2)	4,303	4,116	4.5	11,881	11,989	(0.9)
Rate per operating day (CDN$) (2)	22,842	23,297	(2.0)	23,422	22,882	2.4
Rate per operating day (US$) (2)	21,092	22,460	(6.1)	21,492	22,461	(4.3)
Utilization rate - operating day (2)	96%	76%	26.9	84%	75%	12.0
Utilization rate - drilling day (2)	85%	66%	29.2	73%	65%	13.0
Number of drilling rigs at period end	54	68	(20.6)	54	68	(20.6)

Barge Drilling Rigs
Operating days (2)	334	449	(25.6)	837	1,309	(36.0)
Rate per operating day (CDN$) (2)	37,967	33,962	11.8	37,918	31,659	19.8
Rate per operating day (US$) (2)	35,072	32,740	7.1	34,836	31,037	12.2
Utilization rate - operating day (2)	73%	97%	(25.0)	61%	96%	(36.5)
Number of barge drilling rigs at period end	2	2	-	2	2	-
Number of barge drilling rigs under Bareboat Charter Agreements at period end	3	3	-	3	3	-

(1)		Operating revenue and operating costs for the three months ended September 30, 2014 and 2013 exclude third party recovery and third party costs of $3.7 million and $5.0 million, respectively. Operating revenue and operating costs for the nine months ended September 30, 2014 and 2013 exclude third party recovery and third party costs of $13.4 million and $16.3 million, respectively.
(2)		See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(3)		During the prior year, Trinidad's US and international operations included the US manufacturing division. Effective January 1, 2014, Trinidad has re-evaluated operating segments. Management has determined that the Manufacturing operations is considered a separate operating segment. All prior period segmented information has been reclassified to conform to this new presentation.

Industry conditions in the US land drilling sector improved in the third quarter of 2014. Trinidad's core US land drilling business performed well, strong customer demand led to virtually full utilization in the quarter and increasing dayrates and profitability from the second quarter of 2014.

Compared to the same periods in 2013, operating revenue was in line with the third quarter and lower year to date in 2014. Operating revenue was stable in the quarter due to increased operating days for land rig operations despite having 14 fewer rigs in the US fleet, offset by transportation costs associated with redeploying rigs from Mexico to Canada, lower standby revenue and lower activity levels in the barge operations. Operating revenue declined year to date, due to the factors mentioned above, and due to the three rigs in Mexico that were idle in 2014 but operated in the first half of 2013. This impact was partly offset by termination revenue received in the first quarter of 2014 and a favorable foreign currency exchange year over year.

In the current quarter, operating days increased by 173 days in Trinidad's US and international division quarter over quarter, despite having 14 fewer rigs in the fleet. Higher activity levels in the quarter reflected stronger customer demand in the current period, combined with the Company's strategy of redeploying rigs to more active plays. On a year-to-date basis, operating days declined by 107 days year over year due to the impact of 14 fewer rigs in the fleet including the three Mexico rigs being idled for the current year, more than offset the increased rig utilization in the US operations.

For the three and nine months ended September 30, 2014, dayrates decreased by US$1,368 per day and US$969 per day, respectively, compared to the same periods of the prior year. Increasing demand in the second and third quarters of 2014 in the US allowed Trinidad to re-activate its lower specification rigs, changing the active rig mix and resulting in a lower average dayrate compared to the previous periods. Additionally, several high dayrate rigs that received termination revenue in late 2013 and early 2014 were not fully utilized in the first half of 2014, lowering the overall average dayrate. These rigs had all returned to work in the third quarter of 2014. Furthermore, dayrates in the prior period included US$493 per day more in standby revenue than the current quarter. This revenue largely related to three US rigs that were upgraded and sold to the Company's international joint venture in the first quarter of 2014.

Operating income and operating income - net percentage declined in each of the three and nine months ended September 30, 2014. The decline in revenue, discussed above, was further impacted by increased operating expenses. In the first half of 2014, Trinidad re-activated a number of rigs in the US land drilling division, which had significant repairs and maintenance costs for the Company. In addition, Trinidad incurred costs related to the re-deployment of its Mexican rigs to Canada in the current year. Excluding the impact of the prior year's standby revenue, Mexican rig redeployment costs and the barge operations, operating income - net percentage for Trinidad's underlying US land drilling business was in line with the prior year. In addition, when compared to the previous quarter in 2014, dayrates, activity levels and profitability all improved, providing management with an optimistic outlook going forward.

At September 30, 2014 Trinidad's US and international rig count totaled 54 rigs, 14 fewer rigs than at the same time last year. The rig count lowered in the third quarter as a result of two US rigs being redeployed to the Company's Canadian drilling operations. In the second quarter of 2014, three Mexican rigs were moved to Canada and two rigs that were no longer considered competitive removed from the marketed fleet at June 30, 2014. In addition, the rig count lowered year over year as three rigs were sold to the joint venture in the first quarter of 2014, and four lower specification rigs were decommissioned at the end of 2013.

Trinidad's barge drilling rigs continued to generate strong dayrates in the current year, showing an increase of US$2,332 per day and US$3,800, respectively, in each of the three and nine months ended September 30, 2014. However, while dayrates have showed positive momentum, an increased supply of barge rigs in the market has started to have a negative impact on activity levels in the current year. Lower activity levels in the current period and year to date, have resulted in lower revenue generation and profitability in the current period and year to date. While utilization began to pick up towards the end of the second and third quarter, the Company anticipates that the increased supply of barge rigs in the market may lead to lower dayrates in the coming periods.

Third quarter 2014 versus second quarter 2014

Revenue and operating income increased by $14.4 million and $7.5 million, respectively, in the third quarter of 2014 when compared to the second quarter of 2014. Strengthening industry conditions in the Company's land drilling division and the completion of rig reactivations and redeployments, drove higher activity levels and improved operating income in the current quarter. In addition, the land drilling division has seen positive momentum on dayrates, due to the rig redeployments and increased customer demand, which more than offset the reduction in rig count. Continued pressure in the barge drilling market partly offset the strong land drilling results in the quarter.

Joint Venture Operations

Amounts are presented at 100% of the value included in the statement of operations and comprehensive income for Trinidad Drilling International (TDI); Trinidad owns 60% of the shares of TDI


	Three months ended September 30,			Nine months ended September 30,
($ thousands except percentage and operating data)	2014	2013	% Change	2014	2013	% Change
Operating revenue	11,136	-	-	24,589	-	-
Other revenue	-	-	-	-	-	-
	11,136	-	-	24,589	-	-
Operating costs	7,161	-	-	14,483	-	-
Operating income (1)	3,975	-	-	10,106	-	-
Operating income - net percentage (1)	35.7%	-		41.1%	-

Number of drilling rigs at period end	4	-	-	4	-	-
Number of active drilling rigs at period end	3	-	-	3	-	-

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

During 2013, Trinidad signed a joint venture agreement with Halliburton with a right of first look at all drilling projects outside of Canada and the United States. The joint venture currently has operations in Saudi Arabia, with plans to deliver rigs into Mexico by the end of 2014. Additionally, the joint venture continues to look into future growth opportunities in other international markets. The joint venture conducts business under the name Trinidad Drilling International (TDI) through separately incorporated entities.

Trinidad owns 60% of the shares of TDI, and each of Trinidad and Halliburton have equal voting rights with respect to the operations of the company. TDI is accounted for using the equity method of accounting, whereby Trinidad takes 60% of the net income recorded as loss (income) from investment in joint venture.

During the nine months ended September 30, 2014, TDI took ownership of three upgraded rigs purchased from Trinidad's US land drilling division and one new build rig purchased from Trinidad's manufacturing division. Three of these rigs were drilling by the end of the third quarter of 2014, with the remaining rig expected to begin operations in the fourth quarter of 2014.

For the three months ended September 30, 2014, TDI recorded operating income and operating income - net percentage of $4.0 million and 35.7%, respectively. Additionally, for the first nine months of 2014, TDI recorded operating income and operating income - net percentage of $10.1 million and 41.1%, respectively. As at September 30, 2014, TDI had three rigs that had begun drilling operations in Saudi Arabia, with the fourth rig mobilizing to location. As with any operations that are in initial start-up phase, economies of scale are gained as additional rigs are added to the operations and more normalized revenue and costs are established. Trinidad anticipates that by the second quarter of 2015, the joint venture will have four rigs operating in Saudi Arabia and four rigs operating in Mexico, and that revenue and costs will begin to better demonstrate the future profitability of the joint venture once all rigs are operational.

Rig Purchase Commitments

During 2013, TDI agreed to purchase four rigs from Trinidad for operations in Saudi Arabia: three upgraded rigs from Trinidad's US drilling division and one new build rig constructed by Trinidad's manufacturing division. As of September 30, 2014, TDI has taken ownership of all three upgraded rigs and the new build rig.

Additionally, early in 2014, TDI agreed to purchase four rigs from Trinidad's manufacturing division for operations in Mexico. Each of these rigs will be high performance, 3,600 horsepower, AC, walking rigs, operating under three-year, take-or-pay contracts with an optional one year extension. These rigs are expected to be delivered towards the end of 2014 and early 2015.

Manufacturing Operations


	Three months ended September 30,			Nine months ended September 30,
($ thousands except percentage and operating data)	2014	2013	% Change	2014	2013	% Change
Operating revenue (1)	21,452	1,266	1,594.5	42,719	1,750	2,341.1
Other revenue	32	-	-	45	-	-
	21,484	1,266	1,597.0	42,764	1,750	2,343.7
Operating costs (1)	20,330	1,457	1,295.3	39,413	2,521	1,463.4
Operating income (2)	1,154	(191)	704.2	3,351	(771)	534.6
Operating income - net percentage (2)	5.4%	(15.1%)		7.8%	(44.1%)

(1)	For the three months ended September 30, 2014, included in operating revenue and operating costs are downstream elimination entries of $17.3 million and $16.3 million, respectively (2013, nil and nil, respectively). For the nine months ended September 30, 2014, included in operating revenue and operating costs are downstream elimination entries of $34.1 million and $31.5 million, respectively (2013, nil and nil, respectively). These entries remove Trinidad's percentage of profits related to manufacturing of rigs for the joint venture.
(2)	See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.

Effective January 1, 2014, Trinidad reviewed all existing operating segments in order to better present the Company's operations based on geographic location, services provided and any material changes to operations. In the prior year, Trinidad's manufacturing operations mainly performed work internally; therefore, the prior year operating income includes a loss based on costs incurred by the manufacturing division mainly related to raw materials consumed during construction of rigs for internal use. Towards the end of 2013 and early 2014, Trinidad's manufacturing division signed contracts to build rigs for external parties, including the Company's joint venture partner and the joint venture company.

As the manufacturing operations begins to record operating revenues and costs, management believes that presenting this division as a separate operating segment from the Company's drilling operations is more useful to users as it will provide a more accurate representation of the margins recorded on Trinidad's drilling operations. Prior period segmented information has been reclassified to conform to the current period's presentation.

The purpose of the manufacturing operations is to support rig builds, rig maintenance and re-certifications for all of Trinidad's divisions, including all associates and joint ventures. Therefore, management does not commit to building a rig with the intention to earn significant profits from this business. All contracts are based on a cost plus formula which is calculated in order for Trinidad to break even on rig builds when all costs, including general and administrative expenses, are factored in. Contracts are negotiated depending on the Company's varying involvement, which can range from full scale design and manufacturing to project management with a large degree of outsourcing.

Towards the end of 2013 and into 2014, Trinidad signed contracts for a total of five new builds; one rig for the joint venture to operate in Saudi Arabia, and four rigs for the joint venture to operate in Mexico. Additionally, Trinidad has agreed to build a training rig for its joint venture partner.

For the period ended September 30, 2014, Trinidad recognized revenues and expenses related to the Saudi and Mexico rig builds and the training rig, compared to minimal external new build revenues or expenses recognized in 2013.

During the third quarter of 2014, Trinidad's manufacturing operations delivered the new Saudi rig to the joint venture. The training rig is expected to be delivered towards the end of 2014, with the delivery of the four Mexico rigs expected towards the end of 2014 and early 2015.


FINANCIAL HIGHLIGHTS - QUARTERLY ANALYSIS
		2014			2013				2012
($ millions except per share data and operating data)		Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Revenue		244.5	168.9	251.5	224.6	208.7	165.4	247.2	209.6
Operating income (1)		80.5	45.6	95.2	99.6	76.2	55.7	98.4	77.8
Operating income percentage (1)		32.9%	27.0%	37.8%	44.4%	36.5%	33.6%	39.8%	37.1%
Operating income - net percentage (1)		34.7%	28.3%	41.1%	47.0%	38.5%	35.6%	43.3%	39.7%
Net earnings (loss)		19.2	(24.8)	25.9	28.7	9.2	0.3	32.5	(12.2)
Adjustments for:
	Depreciation and amortization	33.4	27.3	30.3	29.5	30.1	27.6	30.0	29.1
	Foreign exchange	0.5	1.5	3.1	1.0	0.4	-	0.1	(1.5)
	Loss (gain) on sale of property and equipment	0.1	(1.3)	(10.5)	0.1	(0.1)	1.3	-	(11.5)
	Impairment of property and equipment	-	20.6	-	-	-	0.1	0.1	70.0
	Loss (income) from investment in Joint Venture	1.6	(0.4)	0.1	0.8	-	-	-	-
	Finance costs	9.7	10.0	10.0	12.0	10.4	10.0	10.0	10.1
	Income taxes	4.9	(7.2)	15.3	11.1	5.9	(1.6)	9.3	(22.1)
	Interest Income	(0.1)	(0.1)	(0.2)	(0.1)	-	-	-	-
	Other	(4.0)	5.3	5.5	1.6	5.9	2.2	2.7	1.5
	Income taxes paid	(0.7)	(0.7)	(0.5)	(1.7)	-	(0.8)	(1.3)	(1.9)
	Income taxes recovered	1.3	0.2	0.3	1.5	0.4	0.7	-	0.7
	Interest paid	(19.5)	(0.5)	(18.7)	(0.9)	(18.5)	(0.7)	(18.5)	(1.2)
	Interest received	0.1	0.1	0.2	0.1	-	-	-	-
Funds provided by operations (1)		46.5	30.0	60.8	83.7	43.7	39.1	64.9	61.0
Net earnings (loss) per share (diluted)		0.14	(0.18)	0.19	0.23	0.08	-	0.27	(0.10)
Funds provided by operations per share (diluted)		0.34	0.22	0.44	0.67	0.36	0.32	0.54	0.50

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


NON-GAAP MEASURES HIGHLIGHTS - QUARTERLY ANALYSIS
		2014			2013				2012
($ thousands except per share data and operating data)		Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
EBITDA (1)		67,207	5,445	81,255	81,246	55,635	36,326	82,014	4,825
	Per share (diluted) (2)	0.48	0.04	0.58	0.65	0.46	0.30	0.68	0.04
Adjusted EBITDA (1)		64,619	30,645	79,441	83,830	61,838	39,941	84,836	63,332
	Per share (diluted) (2)	0.47	0.22	0.57	0.68	0.51	0.33	0.70	0.52
Adjusted net (loss) earnings (1)		14,602	(5,557)	27,746	31,266	15,406	3,460	35,573	23,112
	Per share (diluted) (2)	0.11	(0.04)	0.20	0.25	0.13	0.03	0.29	0.19

(1)		See the Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.
(2)		Diluted shares include the weighted average number of shares outstanding over the period and the dilutive impact, if any, of the number of shares issuable pursuant to the Incentive Option Plan.


OPERATING HIGHLIGHTS - QUARTERLY ANALYSIS
		2014			2013				2012
		Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Land Drilling Market
Operating days (1)
	Canada	3,424	1,431	4,077	2,935	3,018	1,434	4,198	2,915
	United States and International	4,906	4,441	4,311	4,470	4,733	4,578	4,453	4,789
Rate per operating day (1)
	Canada (CDN$)	24,669	26,338	25,415	25,102	23,686	25,511	25,401	26,190
	United States and International (CDN$)	22,842	22,890	24,630	27,243	23,297	22,908	22,416	22,305
	United States and International (US$)	21,092	20,819	22,641	26,213	22,460	22,436	22,487	22,589
Utilization rate - operating day (1)
	Canada	66%	26%	74%	52%	54%	26%	79%	56%
	United States and International	96%	80%	76%	71%	76%	73%	72%	77%
Number of drilling rigs at period end (3)
	Canada	61	59	61	61	61	60	60	59
	United States and International	54	56	61	64	68	68	68	68
	Coring and surface casing rigs	-	-	-	-	-	15	15	15
Barge Drilling Market
	Operating days (1)	334	259	244	394	449	445	415	386
	Rate per operating day (CDN$) (1)	37,967	37,953	37,815	34,810	33,962	31,731	29,097	29,954
	Rate per operating day (US$) (1)	35,072	34,599	34,767	33,490	32,740	31,077	29,158	30,330
	Utilization rate - operating day (1)	73%	57%	54%	86%	97%	98%	92%	84%
	Number of barge drilling rigs at period end	2	2	2	2	2	2	2	2
	Number of barge drilling rigs under Bareboat Charter at period end	3	3	3	3	3	3	3	3
Joint Venture Operations (2)
	Number of drilling rigs at period end	4	3	-	-	-	-	-	-

(1)		See Non-GAAP Measures Definition and Additional GAAP Measures Definition section of this document for further details.
(2)		Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. During the first quarter of 2014, 3 rigs were sold to the joint venture by Trinidad's US and international operations. During the second quarter of 2014, 1 rig was sold to the joint venture by Trinidad's manufacturing division. Effective June 30, 2014, these rigs are owned by the joint venture.
(3)		Refer to the Results from Operations section for details on changes to the rig count.


GENERAL AND ADMINISTRATIVE
	Three months ended September 30,			Nine months ended September 30,
($ thousands except percentage)	2014	2013	% Change	2014	2013	% Change
General and administrative (1)	15,867	14,346	10.6	46,660	43,579	7.1
% of revenue	6.5%	6.9%		7.0%	7.0%
Share-based payment expense	(5,108)	5,873	(187.0)	4,223	10,838	(61.0)
Third party recoverable costs	311	-	-	962	-	-
Total general and administrative	11,070	20,219	(45.2)	51,845	54,417	(4.7)
% of revenue	4.5%	9.7%		7.8%	8.8%

(1)		General and administrative expenses excluding share-based payment expense and third party recoverable costs. This number is discussed as "Other G&A" per the below analysis.

For the three and nine months ended September 30, 2014, total general and administrative (G&A) expenses decreased by 45.2% and 4.7%, respectively, when compared to the same periods of 2013.

For the three and nine months ended September 30, 2014, other G&A expenses increased by $1.5 million and $3.1 million, respectively, when compared to the prior year. Other G&A expenses increased in the current quarter versus the same period of the prior year due to wage increases which occurred in the fourth quarter of 2013, combined with higher costs associated with establishing the Company's joint venture operations and its subsequent international growth, which were partially offset by the collection of a previously recognized bad debt. On a year-to-date basis, other G&A expenses increased as noted above, but were slightly offset by a $1.9 million bad debt expense in the prior year.

Share-based payment expense decreased by $11.0 million and $6.6 million, respectively, in the three and nine months ended September 30, 2014. The decrease is mainly due to a lower share price in 2014, which was slightly offset by an increase in the number of Performance Share Units outstanding during the current year. In addition, in the current year the number of Deferred Share Units declined mainly due to units exercised by a retiring director. Annual grants for both Performance Share Units and Deferred Share Units generally occur in the first quarter of the current fiscal year.

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

FINANCIAL SUMMARY


As at	September 30,	December 31,
($ thousands)	2014	2013	$ Change
Working capital⁽¹⁾	215,754	303,120	(87,366)

Senior Notes	501,680	476,107	25,573
Credit facility	-	-	-
	501,680	476,107	25,573
Less: unamortized debt issue costs	(6,347)	(7,437)	1,090
Total long-term debt	495,333	468,670	26,663
Total long-term debt as a percentage of assets	24.9%	25.6%

Total assets	1,986,076	1,827,496	158,580
Total long-term liabilities	598,545	564,095	34,450
Total long-term liabilities as a percentage of assets	30.1%	30.9%

For the nine months ended September 30,	2014	2013	$ Change
Cash provided by operations	150,662	196,108	(45,446)
Cash used by investing	(262,334)	(37,811)	(224,523)
Cash used by financing	(20,132)	(84,812)	64,680

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

For the nine months ended September 30, 2014, working capital decreased by $87.4 million when compared to the prior year, due to an increase in current liabilities of $89.0 million.

Current liabilities increased in the current period mainly related to an increase in deferred revenue and customer deposits as amounts were collected related to Trinidad's external new build program, as well as an increase in accounts payable due to timing of payments made in the current period versus December of 2013.

Trinidad's total long-term debt balance increased by $26.7 million during the current year when compared to December 31, 2013. This increase was due to the increase in the Senior Notes at September 30, 2014, and is the result of the increase in the US to Canadian dollar exchange rate in 2014 versus the prior year as these notes are held in US funds. The Senior Notes are translated at each period end, as such their value will fluctuate with exchange rates. The Senior Notes are due January 2019 and interest is payable semi-annually in arrears on January 15 and July 15.

As at September 30, 2014 and December 31, 2013, Trinidad's revolving debt facilities were completely paid off, leaving $200.0 million and US$100.0 million unutilized in these facilities, respectively. The Company continues to consider future capital commitments, and as such, the unutilized facilities are expected to be used in the future course of business. The Canadian and US revolving facilities require quarterly interest payments that are based on Bankers Acceptance and LIBOR rates and incorporate a tiered interest rate, which varies depending on the results of the Consolidated Total Debt to EBITDA ratio. The facility matures on December 16, 2017, and is subject to annual extensions of an additional year on each anniversary.

Capital expenditures


For the nine months ended September 30,	2014	2013
New Builds	113,834	19,971
Capital Upgrades & Enhancements	63,647	15,301
Maintenance & Infrastructure	25,765	15,077
Total	203,246	50,349

During the nine months ended September 30, 2014, a total of $203.2 million was spent on capital expenditures, compared to $50.3 million at September 30, 2013. The year-to-date 2014 capital expenditures include new build capital associated with the Company's Canadian new build that is scheduled to begin operations later in 2014 and an existing rig purchased during the third quarter of 2014. The purchased rig has been moved to the Middle East and is currently undergoing upgrades. The rig is being evaluated for several opportunities and is expected to begin operations in 2015. In addition, costs incurred to upgrade the three US land drilling rigs that were sold to Trinidad's joint venture for operations in Saudi Arabia are included in the new build capital expenditures. Year to date in 2014, Trinidad spent $63.6 million on upgrading existing equipment including adding moving systems, top drives and mud systems, to ensure the Company's rigs remain competitive in the current market. In addition, Trinidad spent $25.8 million on maintenance and infrastructure projects to date in 2014.

In 2014, Trinidad expects to spend a total of approximately $350.0 million on capital projects. This total includes Trinidad's internal capital projects, Trinidad's portion of the joint venture capital projects, and takes into account proceeds received for the upgrades performed on the existing rigs sold into the joint venture. Trinidad's capital budget is further broken down as follows:

Completion of one new rig to be delivered to Trinidad's Canadian operations for LNG-related drilling;
Completion of one new rig and the upgrading of three existing rigs to be delivered to Saudi Arabia for the joint venture arrangement;
Construction of four new rigs to be delivered to Mexico for the joint venture arrangement in late 2014 or early 2015;
Purchase of one existing rig;
Partial construction of five new rigs to be delivered to Trinidad's US operations in the first three quarters of 2015;
Upgrades to improve the efficiency and marketability of existing rigs; and
Maintenance and infrastructure capital.

Excluding proceeds received from the sale of rigs into the joint venture, in the third quarter and year-to-date 2014, Trinidad spent $116.7 million and $234.7 million, respectively, on internal capital projects and its portion of the joint venture projects. Costs related to the joint venture rig build projects are accounted for as operating expenses in Trinidad's manufacturing operations.

As of September 30, 2014, the three upgraded rigs and the new build rig were delivered to the joint venture for operations in Saudi Arabia. All three upgraded rigs contributed to operations in the current quarter, with the new build rig expected to begin in the fourth quarter of 2014. Work also progressed in the third quarter on the four joint venture rigs Trinidad is currently constructing for operation in Mexico.

OUTLOOK

Commodity prices weakened in the first few weeks of the fourth quarter, in particular for crude oil. Concerns over slower global economic growth and an increasing supply of domestic oil in the US have driven a reduction of more than ten percent in WTI crude oil prices since the end of the third quarter.

Trinidad's customers are continuing with their capital expenditure programs. Activity levels remain high in all areas of operations for Trinidad, however, an extended period of lower oil prices could lead to reduced demand in future periods.

In Canada, activity levels are ramping up in preparation for the coming winter drilling season. Trinidad's utilization levels are currently ahead of this time last year and dayrates remain stable, particularly for the Company's higher performance equipment. Current equipment bookings indicate a solid winter drilling season.

Demand for modern, efficient equipment in the US remains strong, driven primarily by robust activity levels in the Permian basin. Early in the fourth quarter of 2014, Trinidad agreed to build five new rigs for delivery into its US operations in the first three quarters of 2015, all under multi-year, take-or-pay contracts. The Company is continuing to review additional opportunities to add new rigs into the US market, and will evaluate each opportunity on its contract terms and economic return metrics. Trinidad currently has all rigs operating in the US and is continuing to see strong industry activity levels.

Operations in the Company's international joint venture are progressing well. The joint venture has three rigs currently operating and expects the construction of its remaining five rigs to be completed by the end of 2014 or early 2015. Trinidad is continuing to evaluate additional opportunities for international growth.

During times of higher industry demand, Trinidad typically increases the number of rigs under long-term contracts in order to lock in returns and protect a portion of the Company's revenue stream from the inherent cyclicality of the drilling industry. The Company currently has approximately 50% of its fleet under long-term, take-or-pay contracts with an average term remaining of approximately 1.5 years, an increase from 45% contracted with an average term of approximately one year at this time last year.

At this point, volatile commodity prices have not led to a pull back in demand from customers; however, Trinidad will closely monitor its customer's capital programs over the coming months. Trinidad is well positioned to manage through future commodity price cycles with its high performance fleet, increased long-term contract coverage and financial flexibility.

CONFERENCE CALL

A conference call and webcast to discuss the results will be held for the investment community on Thursday, November 6^th, 2014 beginning at 9:00 a.m. MT (11:00 a.m. ET). To participate, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12:30 p.m. MT on November 6^th, 2014 until 10:00 p.m. MT November 13^th, 2014 by dialing (855) 859-2056 or (416) 849-0833 and entering replay access code 15348166.

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

TRINIDAD DRILLING LTD.

Trinidad is a corporation focused on sustainable growth that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions operate in the drilling and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada and the United States. In addition, through a joint venture, Trinidad has the opportunity to operate drilling rigs in other international markets such as Saudi Arabia and Mexico. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad's drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at	September 30,	December 31,
($ thousands) - unaudited	2014	2013

Assets
Current Assets
Cash and cash equivalents	141,668	268,160
Accounts receivable	207,261	166,557
Inventory	40,616	8,474
Prepaid expenses	62,240	5,557
Assets held for sale	2,271	3,685
	454,056	452,433

Property and equipment	1,298,318	1,275,465
Intangible assets and goodwill	96,331	91,729
Investment in joint venture	137,371	7,869
	1,986,076	1,827,496

Liabilities
Current Liabilities
Accounts payable and accrued liabilities	139,825	110,455
Dividends payable	6,910	6,906
Deferred revenue and customer deposits	91,567	31,952
	238,302	149,313

Long-term debt	495,333	468,670
Deferred income taxes	103,212	95,425
	836,847	713,408

Shareholders' Equity
Common shares	1,118,004	1,117,197
Contributed surplus	50,813	50,607
Accumulated other comprehensive income	39,157	4,404
Deficit	(58,745)	(58,120)
	1,149,229	1,114,088
	1,986,076	1,827,496

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three months ended

Nine months ended

September 30,

($ thousands) - unaudited

2014

2013

2014

2013

Revenue

Oilfield service revenue

243,916

208,661

662,509

621,191

Other revenue

622

2,479

134

244,538

208,692

664,988

621,325

Expenses

Operating expense

164,002

132,502

443,655

391,125

General and administrative

11,070

20,219

51,845

54,417

Depreciation and amortization

33,389

30,094

91,074

87,555

Foreign exchange

509

409

5,298

383

Loss (gain) on sale of property and equipment

105

(79)

(11,704)

1,288

Impairment of property and equipment

20,630

131

209,075

183,145

600,798

534,899

Loss from investment in joint venture

1,645

1,357

Finance costs

9,715

10,434

29,723

30,393

Earnings before income taxes

24,103

15,107

33,110

56,027

Income taxes

Current

(267)

703

3,628

1,966

Deferred

5,214

5,237

9,379

11,799

4,947

5,940

13,007

13,765

Net earnings

19,156

9,167

20,103

42,262

Other comprehensive income

Foreign currency translation adjustment,

net of income tax

33,497

3,826

34,753

20,531

33,497

3,826

34,753

20,531

Total comprehensive income

52,653

12,993

54,856

62,793

Earnings per share

Net earnings

Basic / Diluted

0.14

0.08

0.15

0.35


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For nine months ended September 30, 2014 and 2013
			Accumulated
			other
	Common	Contributed	comprehensive		Total
($ thousands) - unaudited	shares	surplus	income	(Deficit)	equity
Balance at December 31, 2013	1,117,197	50,607	4,404	(58,120)	1,114,088
Exercise of stock options	807	(215)	-	-	592
Share-based payment expense	-	421	-	-	421
Total comprehensive income	-	-	34,753	20,103	54,856
Dividends	-	-	-	(20,728)	(20,728)
Balance at September 30, 2014	1,118,004	50,813	39,157	(58,745)	1,149,229

Balance at December 31, 2012	952,043	50,245	(34,403)	(104,036)	863,849
Exercise of stock options	111	(26)	-	-	85
Share-based payment expense	-	337	-	-	337
Total comprehensive income	-	-	20,531	42,262	62,793
Dividends	-	-	-	(18,129)	(18,129)
Balance at September 30, 2013	952,154	50,556	(13,872)	(79,903)	908,935

CONSOLIDATED STATEMENTS OF CASH FLOWS

For nine months ended September 30,

($ thousands) - unaudited

2014

2013

Cash provided by (used in)

Operating activities

Net earnings

20,103

42,262

Adjustments for:

Depreciation and amortization

91,074

87,555

Foreign exchange

5,298

383

(Gain) loss on sale of property and equipment

(11,704)

1,288

Impairment of property and equipment

20,630

131

Loss from investment in joint venture

1,357

Finance costs

29,723

30,393

Income taxes

13,007

13,765

Interest income

(376)

(25)

Other (1)

6,819

10,838

Income taxes paid

(1,795)

(2,152)

Income taxes recovered

1,768

1,083

Interest paid

(38,584)

(37,745)

Interest received

376

Funds provided by operations

137,696

147,807

Change in non-cash operating working capital

12,966

48,301

Cash provided by operations

150,662

196,108

Investing activities

Purchase of property and equipment

(203,246)

(50,349)

Proceeds from disposition of property and equipment

132,678

13,347

Investment in joint venture

(147,396)

(12)

Change in non-cash working capital

(44,370)

(797)

Cash used by investing

(262,334)

(37,811)

Financing activities

Proceeds from long-term debt

36,257

Repayments of long-term debt

(103,025)

Proceeds from exercise of options

592

Dividends paid

(20,724)

(18,129)

Cash used by financing

(20,132)

(84,812)

Cash flow from operating, investing and financing activities

(131,804)

73,485

Effect of translation of foreign currency cash

5,312

128

(Decrease) increase in cash for the period

(126,492)

73,613

Cash and cash equivalents - beginning of period

268,160

4,933

Cash and cash equivalents - end of period

141,668

78,546

⁽¹⁾	Other includes share-based payment expense and elimination of downstream transactions in the Manufacturing Operations net earnings.

SEGMENTED INFORMATION

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

For three months ended		United States /
September 30, 2014	Canadian	International	Manufacturing	Joint Venture	Inter-segment
($ thousands)	Operations	Operations	Operations	Operations (1)	Eliminations	Corporate	Total

Operating revenue	84,481	124,742	38,779	-	-	-	248,002
Other revenue	180	99	32	-	-	-	311
Third party recovery	9,493	3,748	-	-	-	-	13,241
General and administrative - third party recovery	-	-	-	-	-	311	311
Inter-segment revenue	-	-	25,434	-	(25,434)	-	-
Elimination of downstream transactions	-	-	(17,327)	-	-	-	(17,327)
	94,154	128,589	46,918	-	(25,434)	311	244,538
Operating costs	47,843	82,588	36,586	-	-	-	167,017
Third party costs	9,493	3,748	-	-	-	-	13,241
Inter-segment operating	-	-	25,434	-	(25,434)	-	-
Elimination of downstream transactions	-	-	(16,256)	-	-	-	(16,256)
Operating income	36,818	42,253	1,154	-	-	311	80,536
Depreciation and amortization	12,321	20,684	384	-	-	-	33,389
Loss (gain) on sale of assets	(198)	303	-	-	-	-	105
Elimination of downstream transactions	-	-	-	-	-	-	-
Impairment of capital assets	-	-	-	-	-	-	-
	12,123	20,987	384	-	-	-	33,494
Segmented income (loss)	24,695	21,266	770	-	-	311	47,042
Loss from investment in joint venture	-	-	-	1,645	-	-	1,645
General and administrative	-	-	-	-	-	10,759	10,759
General and administrative - third party costs	-	-	-	-	-	311	311
Foreign exchange	-	-	-	-	-	509	509
Finance costs	-	-	-	-	-	9,715	9,715
Income taxes	-	-	-	-	-	4,947	4,947
Net earnings (loss)	24,695	21,266	770	(1,645)	-	(25,930)	19,156
Purchase of property and equipment	71,511	28,942	-	-	-	-	100,453

(1)

The joint venture is recorded using the equity method of accounting. The Company's share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position, and revenues and expenses are recognized with net earnings as income from investment in joint venture on the consolidated statements of operations and comprehensive income. The joint venture was effective September 3, 2013.

For three months ended		United States /
September 30, 2013	Canadian	International	Manufacturing	Joint Venture	Inter-segment
($ thousands)	Operations	Operations	Operations	Operations (1)	Eliminations	Corporate	Total

Operating revenue	71,481	124,964	1,266	-	-	-	197,711
Other revenue	4	27	-	-	-	-	31
Third party recovery	5,978	4,972	-	-	-	-	10,950
General and administrative - third party recovery	-	-	-	-	-	-	-
Inter-segment revenue	-	-	5,204	-	(5,204)	-	-
Elimination of downstream transactions	-	-	-	-	-	-	-
	77,463	129,963	6,470	-	(5,204)	-	208,692
Operating costs	42,052	78,043	1,457	-	-	-	121,552
Third party costs	5,978	4,972	-	-	-	-	10,950
Inter-segment operating	-	-	5,204	-	(5,204)	-	-
Elimination of downstream transactions	-	-	-	-	-	-	-
Operating income	29,433	46,948	(191)	-	-	-	76,190
Depreciation and amortization	9,677	19,966	451	-	-	-	30,094
Loss (gain) on sale of assets	72	(151)	-	-	-	-	(79)
Elimination of downstream transactions	-	-	-	-	-	-	-
Impairment of capital assets	-	-	-	-	-	-	-
	9,749	19,815	451	-	-	-	30,015
Segmented income (loss)	19,684	27,133	(642)	-	-	-	46,175
Loss from investment in joint venture	-	-	-	6	-	-	6
General and administrative	-	-	-	-	-	20,219	20,219
General and administrative - third party costs	-	-	-	-	-	-	-
Foreign exchange	-	-	-	-	-	409	409
Finance costs	-	-	-	-	-	10,434	10,434
Income taxes	-	-	-	-	-	5,940	5,940
Net earnings (loss)	19,684	27,133	(642)	(6)	-	(37,002)	9,167
Purchase of property and equipment	7,944	9,457	120	-	-	-	17,521

(1)

For nine months ended		United States /
September 30, 2014	Canadian	International	Manufacturing	Joint Venture	Inter-segment
($ thousands)	Operations	Operations	Operations	Operations (1)	Eliminations	Corporate	Total

Operating revenue	225,769	351,643	76,799	-	-	-	654,211
Other revenue	1,260	212	45	-	-	-	1,517
Third party recovery	28,945	13,433	-	-	-	-	42,378
General and administrative - third party recovery	-	-	-	-	-	962	962
Inter-segment revenue	-	-	50,518	-	(50,518)	-	-
Elimination of downstream transactions	-	-	(34,080)	-	-	-	(34,080)
	255,974	365,288	93,282	-	(50,518)	962	664,988
Operating costs	130,867	230,998	70,897	-	-	-	432,762
Third party costs	28,945	13,432	-	-	-	-	42,377
Inter-segment operating	-	-	50,518	-	(50,518)	-	-
Elimination of downstream transactions	-	-	(31,484)	-	-	-	(31,484)
Operating income	96,162	120,858	3,351	-	-	962	221,333
Depreciation and amortization	32,282	57,611	1,181	-	-	-	91,074
Gain on sale of assets	(404)	(29,426)	-	-	-	-	(29,830)
Elimination of downstream transactions	-	18,126	-	-	-	-	18,126
Impairment of capital assets	13,367	7,263	-	-	-	-	20,630
	45,245	53,574	1,181	-	-	-	100,000
Segmented income (loss)	50,917	67,284	2,170	-	-	962	121,333
Loss from investment in joint venture	-	-	-	1,357	-	-	1,357
General and administrative	-	-	-	-	-	50,883	50,883
General and administrative - third party costs	-	-	-	-	-	962	962
Foreign exchange	-	-	-	-	-	5,298	5,298
Finance costs	-	-	-	-	-	29,723	29,723
Income taxes	-	-	-	-	-	13,007	13,007
Net earnings (loss)	50,917	67,284	2,170	(1,357)	-	(98,911)	20,103

Purchase of property and equipment	104,539	98,543	164	-	-	-	203,246

(1)

For nine months ended		United States /
September 30, 2013	Canadian	International	Manufacturing	Joint Venture	Inter-segment
($ thousands)	Operations	Operations	Operations	Operations (1)	Eliminations	Corporate	Total

Operating revenue	224,033	355,373	1,750	-	-	-	581,156
Other revenue	61	73	-	-	-	-	134
Third party recovery	23,766	16,269	-	-	-	-	40,035
General and administrative - third party recovery	-	-	-	-	-	-	-
Inter-segment revenue	-	-	26,374	-	(26,374)	-	-
Elimination of downstream transactions	-	-	-	-	-	-	-
	247,860	371,715	28,124	-	(26,374)	-	621,325
Operating costs	130,426	218,143	2,521	-	-	-	351,090
Third party costs	23,766	16,269	-	-	-	-	40,035
Inter-segment operating	-	-	26,374	-	(26,374)	-	-
Elimination of downstream transactions	-	-	-	-	-	-	-
Operating income	93,668	137,303	(771)	-	-	-	230,200
Depreciation and amortization	28,820	57,286	1,449	-	-	-	87,555
Loss (gain) on sale of assets	308	985	(5)	-	-	-	1,288
Elimination of downstream transactions	-	-	-	-	-	-	-
Impairment of capital assets	131	-	-	-	-	-	131
	29,259	58,271	1,444	-	-	-	88,973
Segmented income (loss)	64,410	79,032	(2,215)	-	-	-	141,227
Loss from investment in joint venture	-	-	-	6	-	-	6
General and administrative	-	-	-	-	-	54,417	54,417
General and administrative - third party costs	-	-	-	-	-	-	-
Foreign exchange	-	-	-	-	-	383	383
Finance costs	-	-	-	-	-	30,393	30,393
Income taxes	-	-	-	-	-	13,765	13,765
Net earnings (loss)	64,410	79,032	(2,215)	(6)	-	(98,958)	42,262

Purchase of property and equipment	35,202	14,973	174	-	-	-	50,349

(1)

ADVISORY

NON-GAAP MEASURES DEFINITIONS

This document contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. These financial measures are computed on a consistent basis for each reporting period and include EBITDA, EBITDA from investment in joint venture, Adjusted EBITDA, Adjusted net (loss) earnings, working capital, Senior Debt to Bank EBITDA, Total Debt to Bank EBITDA, Bank EBITDA to Cash Interest Expense, drilling days, operating days, utilization rate - drilling day, utilization rate - operating day, and rate per operating day or dayrate. These non-GAAP measures are identified and defined as follows:

"EBITDA" is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are depreciated and amortized or how the results are taxed in various jurisdictions.

"EBITDA from investment in joint venture" provides an indication of the results generated by the Company's joint venture operations prior to how these activities are financed, assets are depreciated and amortized or how the results are taxed in various jurisdictions.

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


		Three months ended		Nine months ended
		September 30,		September 30,
($ thousands)		2014	2013	2014	2013
Loss from investment in joint venture		(1,645)	(6)	(1,357)	(6)
Plus:
	Finance costs	-	-	-	-
	Depreciation and amortization	902	-	1,244	-
	Income taxes	1,005	-	1,112	-
EBITDA from investment in joint venture		262	(6)	999	(6)

"Adjusted EBITDA" is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange, share-based payment expense, impairment expenses and the sale of assets. Adjusted EBITDA also takes into account the Company's portion of the principal activities of the joint venture arrangement by removing the loss (gain) from investment in joint venture and including Adjusted EBITDA from investment in joint venture. Adjusted EBITDA is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, the impact of foreign exchange, how the results are taxed in various jurisdictions and effects of share-based payment expense.

Adjusted EBITDA is calculated as follows:

Three months ended

Nine months ended

September 30,

($ thousands)

2014

2013

2014

2013

EBITDA

67,207

55,635

153,907

173,975

Plus:

Loss (gain) on sale of property and equipment

105

(79)

(11,704)

1,288

Impairment of property and equipment

20,630

131

Share-based payment expense

(5,108)

5,873

4,223

10,838

Foreign exchange

509

409

5,298

383

Loss from investment in joint venture

1,645

1,357

Plus:

Adjusted EBITDA from investment in joint venture

261

(6)

995

(6)

Adjusted EBITDA

64,619

61,838

174,706

186,615

"Adjusted EBITDA from investment in joint venture" is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange, share-based payment expense, impairment expense and the sale of assets. Adjusted EBITDA from investment in joint venture is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted EBITDA from investment in joint venture provides an indication of the results generated by TDI's principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, the impact of foreign exchange, how the results are taxed in various jurisdictions and effects of share-based payment expense.

Adjusted EBITDA from investment in joint venture is calculated as follows:

Three months ended

Nine months ended

September 30,

($ thousands)

2014

2013

2014

2013

EBITDA from investment in joint venture

262

(6)

999

(6)

Plus:

Foreign exchange

(1)

(4)

Adjusted EBITDA from investment in joint venture

261

(6)

995

(6)

"Adjusted net (loss) earnings" is used by management and the investment community to analyze net (loss) earnings prior to the effect of foreign exchange, share-based payment expense, any gains or losses on the sale of assets in the period and impairment charges, including taking into account the tax effects of these items. This measure is not intended to represent net (loss) earnings as calculated in accordance with IFRS. Adjusted net (loss) earnings is a useful measure because it provides an indication of results of the Company's principal business activities before consideration of fluctuations in foreign exchange gains and losses, impairment and share-based payment expenses, which are not consistently incurred period over period.

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

"Senior Debt to Bank EBITDA" is defined as the consolidated balance of the revolving facility and other debt secured by a lien at quarter end to consolidated Bank EBITDA for the trailing 12 months (TTM). Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Total Debt to Bank EBITDA" is defined as the consolidated balance of long-term debt, which includes the Senior Debt, Senior Notes Payable and dividends payable at quarter end, to consolidated Bank EBITDA for the TTM. Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Bank EBITDA to Cash Interest Expense" is defined as the consolidated Bank EBITDA for TTM to the cash interest expense on all debt balances for TTM. Bank EBITDA used in this financial ratio is calculated as EBITDA plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint venture, share-based payment expense and unrealized foreign exchange.

"Drilling days" is defined as rig days between spud to rig release.

"Operating days" is defined as moving days (move in, rig up and tear out) plus drilling days (spud to rig release).

"Utilization rate - drilling day" is defined as drilling days divided by total available rig days.

"Utilization rate - operating day" is defined as operating days divided by total available rig days.

"Rate per operating day" or "Dayrate" is defined as operating revenue (net of third party costs) divided by operating days (drilling days plus moving days).

ADDITIONAL GAAP MEASURES DEFINITIONS

The Company uses certain additional GAAP financial measures within the financial statements and this document that are not defined terms under IFRS to assess performance. Management believes that these measures provide useful supplemental information to investors, and provide the reader a more accurate reflection of our industry. These financial measures are computed on a consistent basis for each reporting period and include Funds provided by operations, Operating income, Operating income percentage and Operating income - net percentage. These additional GAAP measures are identified and defined as follows:

"Funds provided by operations" is used by management and investors to analyze the funds generated by Trinidad's principal business activities prior to consideration of working capital, which is primarily made up of highly liquid balances. This balance is reported in the Consolidated Statements of Cash Flows included in the cash provided by operating activities section.

"Operating income" is used by management and investors to analyze overall and segmented operating performance. Operating income is not intended to represent an alternative to net (loss) earnings or other measures of financial performance calculated in accordance with IFRS. Operating income is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information contained in the notes to the consolidated financial statements. Operating income is defined as revenue less operating expenses.

"Operating income percentage" is used by management and investors to analyze overall and segmented operating performance, including third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs. Operating income percentage is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income percentage is defined as operating income divided by revenue.

"Operating income - net percentage" is used by management and investors to analyze overall and segmented operating performance excluding third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs, as these revenues and expenses do not have an effect on consolidated net (loss) earnings. Operating income - net percentage is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income - net percentage is defined as operating income less third party G&A expenses divided by revenue net of operating and G&A third party costs.

FORWARD-LOOKING 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 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; assumptions made about future performance and operations of the joint venture arrangement. Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this document speak only as of the date of this document and Trinidad assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

SOURCE: Trinidad Drilling Ltd.

Lyle Whitmarsh
Chief Executive Officer

Brent Conway
President

Lisa Ottmann
Vice President, Investor Relations
(403) 294-4401
email: [email protected]

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