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News Releases
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TSX SYMBOL: TDG
CALGARY, May 31 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the "Company") reported strong first quarter 2011 operating and financial results reflecting increased activity levels and high demand for top quality drilling equipment. Industry conditions began to strengthen in the second half of 2010 and continued to gain momentum in the first quarter of 2011. Trinidad's results showed strong improvements compared to the same quarter last year and the fourth quarter of 2010, including increased revenue, Adjusted EBITDA(1) and net earnings.
"Industry conditions have been steadily improving for the last six to nine months and we are now beginning to see that impact flow through to increased profitability for Trinidad," said Lyle Whitmarsh, Trinidad's President and Chief Executive Officer. "Activity levels are high both in Canada and the US, and demand for modern, high performing equipment like ours is strong. We are now seeing the benefit of these conditions flow through to higher dayrates across all areas of our operations. Our customers are eager to get back to their development plans in Canada after break up finishes and to continue drilling in the US and early indications for the remainder of 2011 are looking very promising."
FIRST QUARTER 2011 HIGHLIGHTS
- Revenue for the first quarter of 2011 was $216.1 million, up
$46.0 million or 27.0% from the same quarter of 2010, as a result of
increased operating days across the Company and higher day rates in
the Canadian drilling segment, reflecting stronger industry
conditions. The impact of the improved market conditions were
slightly offset by a change in the active rig mix, and the
strengthening of the Canadian dollar versus the US dollar.
- Trinidad's first quarter 2011 drilling utilization rate increased
strongly to 80.0% in Canada, up 23.1% from the previous quarter and
19.4% from the same quarter last year. Trinidad continued to achieve
industry-leading utilization levels in the quarter, recording a level
14 percentage points above the Canadian drilling industry average of
66.0%. Additionally, activity levels in the US and international
drilling operations segment continued to show improvement, increasing
to 80.0% in the first quarter of 2011 compared to 73% in the previous
quarter and 63% in the same quarter last year.
- Gross margin(1) increased to $63.8 million in the first quarter of
2011, up 23.5% from the same quarter last year, due largely to a
23.2% increase in operating days. Gross margin(1) as a percentage of
revenue was 39.2% in the quarter, down slightly from 40.4% in the
same period of 2010, as a result of a change in active rig mix.
- Adjusted EBITDA(1) was $69.6 million ($0.58 per share (diluted)) in
the first quarter of 2011, up by $16.2 million or 30.3% from the
prior comparative quarter, primarily due to higher revenue levels
reflecting the improved industry conditions.
- Trinidad recorded Adjusted net earnings(1) in the first quarter of
2011 of $21.8 million ($0.18 per share (diluted)), compared to
Adjusted net earnings(1) of $8.2 million ($0.07 per share (diluted))
in the same quarter of 2010. This increase was due to higher revenue
and gross margin(1) levels, partly offset by increased depreciation
costs, reflecting the Company's increased activity levels.
(1) Please see the Non-GAAP Measures Definitions section of this document
for further details.
All amounts are denominated in Canadian dollars (CDN$) unless otherwise
identified. All amounts are stated in thousands unless otherwise
identified.
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FINANCIAL HIGHLIGHTS
Three months ended March 31, 2011 2010 % Change
($ thousands except share and
per share data)
-------------------------------------------------------------------------
Revenue 216,060 170,073 27.0
Gross margin(1) 84,729 68,625 23.5
Gross margin percentage(1) 39.2% 40.4% (3.0)
EBITDA(1) 63,813 44,180 44.4
Per share (diluted)(2) 0.53 0.37 43.2
Adjusted EBITDA(1) 69,623 53,417 30.3
Per share (diluted)(2) 0.58 0.44 31.8
Cash flow from operations 24,260 28,202 (14.0)
Per share (diluted)(2) 0.20 0.23 (13.0)
Cash flow from operations before
change in non-cash working
capital(1) 55,176 41,178 34.0
Per share (diluted)(2) 0.46 0.34 35.3
Net earnings (loss) 15,989 (1,039) 1,638.9
Per share (diluted)(2) 0.13 (0.01) 1,400.0
Adjusted net earnings(1) 21,799 8,198 165.9
Per share (diluted)(2) 0.18 0.07 157.1
Capital expenditures 24,552 35,466 (30.8)
Net debt(1) 446,090 462,982 (3.6)
Shares outstanding - basic
(weighted average)(2) 120,843,839 120,840,962 -
Shares outstanding - diluted
(weighted average)(2) 121,071,858 120,840,962 0.2
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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, Adjusted net earnings, and net debt and the
related per share information do not have standardized meanings
prescribed by IFRS - see "Non-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 deemed conversion of convertible debentures
and the number of shares issuable pursuant to the Incentive Option
Plan.
-------------------------------------------------------------------------
OPERATING HIGHLIGHTS
Three months ended March 31, 2011 2010 % Change
-------------------------------------------------------------------------
Land Drilling Market
Operating days - drilling
Canada 4,008 3,170 26.4
United States and International(1) 4,539 3,769 20.4
Rate per drilling day
Canada (CDN$) 25,053 21,868 14.6
United States and International
(CDN$)(1) 19,996 21,206 (5.7)
United States and International
(US$)(1) 20,067 20,157 (0.4)
Utilization rate - drilling
Canada 80% 67% 19.4
United States and International(1) 80% 63% 27.0
CAODC industry average 66% 52% 26.9
Number of drilling rigs at quarter
end
Canada 55 53 3.8
United States and International(1) 63 66 (4.5)
Utilization rate for service rigs 66% 54% 22.2
Number of service rigs at quarter
end 22 22 -
Number of coring and surface
casing rigs at quarter end 20 20 -
Barge Drilling Market
Operating days 445 334 33.2
Rate per drilling day (CDN$) 22,002 23,732 (7.3)
Rate per drilling day (US$) 22,081 22,559 (2.1)
Utilization rate 99% 93% 6.5
Number of barge drilling rigs at
quarter end 2 1 100.0
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. Effective April 6, 2010, the rig located in Chile was sold to a
third party. In the third and fourth quarter of 2010, four Mexico
rigs were redeployed: one to the US division of this segment and
three to the Canadian operations segment.
OVERVIEW
Industry activity levels in the first quarter of 2011 continued to demonstrate the strong demand for drilling equipment in North America that had been evident towards the end of 2010. Oil-directed drilling remained an area of significant focus, accounting for approximately half of the overall North American activity due to the relative strength of crude oil prices. Unconventional shale gas development also continued to be an area of ongoing drilling activity on both sides of the border. Industry utilization in Canada averaged 66.0%, 14.0 percentage points higher than the first quarter of 2010 and the US active rig count increased 38.0%, reaching 1,851 rigs, over the same time period. Strong demand has led to increasing pricing power for the drilling contractors and Trinidad experienced improving dayrates, particularly in Canada, compared to the previous quarter. A change in the active rig mix muted the increasing dayrates as a growing number of the Company's shallower or conventional style rigs were reactivated during the quarter. Overall the increasing activity levels led to higher revenue and increased profitability in the first quarter of 2011.
Trinidad's revenue for the quarter was $216.1 million, up 27.0% from $170.1 million in the same quarter of 2010. Higher revenue in the first three months of 2011 was largely driven by increased operating days and higher utilization levels across the Company and higher average dayrates in the Canadian drilling segment. This impact was partially muted by the strengthening of the Canadian dollar versus the US dollar during the quarter.
Gross margin (as defined in the Non-GAAP measures section) as a percentage of revenue decreased in the first quarter of 2011 to 39.2% compared to 40.3% in the same quarter last year. Gross margin percentage contracted slightly in the quarter largely due to a change in the active rig mix. As Trinidad's activity levels increased in the first quarter of 2011, 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.
Adjusted EBITDA (as defined in the Non-GAAP measures section) was $69.6 million in the first quarter, up 30.3% from the same quarter last year largely due to the factors mentioned above.
Net earnings increased to $16.0 million or $0.13 per share (diluted) for the first quarter of 2011, compared to a loss of $1.0 million or ($0.01) per share (diluted) in the same quarter last year. In addition to the items mentioned above, net earnings in the quarter were positively impacted by a decline in foreign exchange losses. These factors were partly offset by higher depreciation costs reflecting the increased activity levels, increased stock-based compensation expenses and higher income taxes.
Adjusted net earnings (as defined in the Non-GAAP measures section) were $21.8 million or $0.18 per share (diluted) for the first quarter of 2011, in comparison to Adjusted net earnings of $8.2 million or $0.07 per share (diluted) in 2010.
Commodity prices for crude oil increased in the first quarter of 2011 compared to the same period last year. West Texas Intermediate crude oil averaged US$94.13 per barrel in the quarter, a 19.6% increase from the same period of 2010. Crude oil prices have increased steadily over the past 12 months, a trend that has led to a growing focus by producers on oil or natural-gas-liquids rich plays. In contrast, natural gas prices decreased quarter over quarter. Henry Hub natural gas spot prices averaged US$4.18 per mmBtu in the first three months of 2011, down 17.9% from the same period of 2010. North American storage levels for natural gas remain high and economic demand is relatively low, both factors continue to place downward pressure on natural gas prices. Trinidad, like the industry as a whole, has been successful in switching a large portion of its fleet towards oil or natural-gas-liquids rich targets. The flexibility of the Company's equipment has allowed it to adapt easily to different commodities and to perform well in a number of different plays. Trinidad currently has approximately 55.0% of its fleet drilling for these commodity targets, up significantly over the last 12 months.
RESULTS FROM OPERATIONS
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United
States/
Three months Inter- Con- Corpor-
ended Canadian national struc- Inter- ate/
March 31, Drilling Drilling tion segment Un-
2011 Oper- Oper- Oper- Elimin- allo-
($ thousands) ations ations ations ations cated Total
-------------------------------------------------------------------------
Revenue 119,371 95,568 780 - - 215,719
Other revenue 61 136 144 - - 341
Inter-segment
revenue - - 15,816 (15,816) - -
----------------------------------------------------------
119,432 95,704 16,740 (15,816) - 216,060
Operating
expense 71,853 58,683 16,611 (15,816) - 131,331
----------------------------------------------------------
47,579 37,021 129 - - 84,729
Finance costs 12,371 8 2 - - 12,381
Depreciation
and
amortization 10,747 18,344 484 - - 29,575
Loss (gain) on
sale of assets 44 (59) 4 - - (11)
----------------------------------------------------------
23,162 18,293 490 - - 41,945
----------------------------------------------------------
Segmented
income (loss) 24,417 18,728 (361) - - 42,784
General and
administrative - - - - 19,159 19,159
Foreign
exchange - - - - 1,757 1,757
Income taxes - - - - 5,879 5,879
----------------------------------------------------------
Net earnings
(loss) 24,417 18,728 (361) - (26,795) 15,989
Capital
expenditures 3,814 20,323 415 - - 24,552
-------------------------------------------------------------------------
-------------------------------------------------------------------------
United
States/
Three months Inter- Con- Corpor-
ended Canadian national struc- Inter- ate/
March 31, Drilling Drilling tion segment Un-
2010 Oper- Oper- Oper- Elimin- allo-
($ thousands) ations ations ations ations cated Total
-------------------------------------------------------------------------
Revenue 84,492 85,191 234 - - 169,917
Other revenue 33 95 28 - - 156
Inter-segment
revenue - - 14,635 (14,635) - -
----------------------------------------------------------
84,525 85,286 14,897 (14,635) - 170,073
Operating
expense 53,912 48,860 13,311 (14,635) - 101,448
----------------------------------------------------------
30,613 36,426 1,586 - - 68,625
Finance costs 12,032 1,740 14 - - 13,786
Depreciation
and
amortization 9,583 16,562 547 - - 26,692
Loss (gain) on
sale of assets 11 (1) 46 - - 56
----------------------------------------------------------
21,626 18,301 607 - - 40,534
----------------------------------------------------------
Segmented
income (loss) 8,987 18,125 979 - - 28,091
General and
administrative - - - - 16,971 16,971
Foreign exchange - - - - 7,474 7,474
Income taxes - - - - 4,685 4,685
----------------------------------------------------------
Net earnings
(loss) 8,987 18,125 979 - (29,130) (1,039)
Capital
expenditures 13,092 22,140 234 - - 35,466
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Canadian Drilling Operations
During the first quarter of 2011, the Canadian drilling operations segment revenue increased by 41.3% to $119.4 million, and gross operating margin increased by 55.4% to $47.6 million compared to the same period in 2010. The quarterly increases were driven by improved market fundamentals which enabled stronger pricing and higher utilization within the existing rig fleet. Additionally, the revenue increase was further complemented by a higher rig count, combined with a delayed spring breakup, versus the same period in 2010. Overall, gross margin improvements were slightly tempered by the change in active rig mix.
Trinidad's focus on a modern, deep capacity, technologically advanced rig fleet has it well positioned to capitalize on the natural-gas-liquids rich and oil-focused drilling market. During the first quarter of 2011, according to Canadian Association of Oilwell Drilling Contractors (CAODC) the number of wells drilled in western Canada during the quarter increased to 4,276 wells, up 36.5% from the number of wells completed in the first quarter of 2010. Of these wells, 51.0% were oil-directed in the first three months of 2010, a 19.0% increase from the first three months of 2010. Horizontal and directional wells accounted for 70.0% of wells drilled in Canada over the first quarter of 2011 compared to 62.3% in the prior year's first quarter.
As a result, Trinidad's drilling rig utilization increased by 19.4%, reaching 80.0% utilization in the first quarter, versus the same period in 2010. Furthermore, Trinidad's commitment to have the right equipment and people for the market has enabled it to exceed the industry utilization rate of 66.0% by 14 percentage points, during the first quarter of 2011. The higher rig activity experienced in the first quarter combined with the increased rig count, allowed Trinidad to increase operating days by 26.4%, to 4,008 operating days versus the same period of 2010.
Drilling day rates increased by 14.6% to $25,053 per operating day versus the same period of 2010, which was a direct result of the improving market fundamentals. The majority of the rate increase was the result of better pricing, resulting in improved gross margins. Additionally, the day rates were impacted by a crew wage increase, which occurred in the latter half of 2010, as well as higher fuel costs, both of which are passed through to the customer.
The Canadian drilling operations rig fleet increased by two rigs compared to the same period in 2010. Three rigs were redeployed from the Company's Mexican operations back to Canada, while one Canadian rig was retired in the latter half of 2010.
Gross margin percentage improved compared to the prior comparative quarter due to better pricing and higher rig activity. Gross margins were slightly tempered by the change in active rig mix; as activity levels grew the Company had more conventional and shallow rigs contributing a larger portion of the operating days. On a positive note, the addition of these lower margin rigs was more than offset by the higher utilization and improved pricing, which drove higher overall gross margins.
Trinidad's well service division saw similar market conditions to the land drilling division, with a 22.2% increase in rig activity versus the same period of 2010. The pricing environment in this division has remained competitive and the day rates in the first quarter were relatively unchanged compared to the same period of 2010. Oil sands activity has shown improvement in the past 12 months; however, a combination of changing customer plans and challenges finding experienced crews, caused by the high industry activity levels, resulted in lower activity levels for the Company's coring rigs than had originally been expected in the quarter.
United States and International Drilling Operations
During the first quarter of 2011, the United States and international drilling operations segment revenue increased by 12.2% to $95.7 million, and gross margin increased by 1.6% to $37.0 million, versus the same period of 2010. The year-over-year increases were driven by improved market fundamentals that enabled higher utilization within the existing rig fleet. These improvements were slightly offset by a lower rig count, strengthening of the Canadian dollar against the US dollar, as well as changes in the active rig mix versus the same period of 2010.
The average day rate for the land drilling rigs on a US dollar denominated basis were in line with the same period of 2010; however, due to the strengthening of the Canadian dollar versus the US dollar, Canadian dollar equivalent rates declined by 5.7%, versus the same period of 2010. Drilling rig utilization increased by 27.0% in the first quarter, reaching 80.0% utilization, versus the same period in 2010. The increased utilization drove a similar 20.4% increase in operating days to 4,539 operating days in the first quarter of 2011, compared to the same period of 2010.
On a rig by rig basis, dayrates have significantly improved versus the same period in 2010, but the increase was muted by the change in active rig mix, as well as rig redeployments. The improvements in utilization did not translate directly into increased operating days, as there were three fewer rigs in the current quarter. In late 2010, four rigs were redeployed from the Mexico division; one to the US division of this operating segment, and three to the Canadian segment. Additionally, the US division completed and put into service five new rigs (four in the latter half of 2010, and one in the first quarter of 2011). Furthermore, four US land rigs were decommissioned in the last half of 2010, and the Chile division disposed of one land rig in the second quarter of 2010. While the rig redeployments impacted this operating segment, on an overall corporate basis, the lower rig count had minimal impact as the redeployed rigs were active in other markets. Additionally, the new builds more than compensated for the decommissioned and disposed assets.
A change in the active rig mix partially offset the impact of higher activity levels on the segment's revenue and gross margin in the quarter. With the increased activity levels, more conventional, smaller capacity rigs contributed a larger portion of the operating days, reducing gross margins. Furthermore, the repair and maintenance costs temporary increased, as costs were incurred to return some of the conventional equipment back to work after a prolonged break.
In the Company's barge drilling operations dayrates for the individual barge rigs increased versus the same period of 2010. The US dollar denominated dayrate has shown a decline of 2.1% versus the same period of 2010 as a result of lower move-related revenue and third-party billings, combined with the addition of a lower capacity rig being added to the fleet. These factors muted the actual improvements in operating dayrates in the quarter when compared to the same period last year.
Construction Operations
In December 2010, the Company made the decision to narrow the focus of its rig construction operations to the rig design, commissioning and development of new technology. In the future, the operations will be limited to these areas and focus on constructing rigs for internal purposes.
Revenue from the construction operations segment increased to $16.7 million in the first quarter of 2011 from $14.9 million in the first quarter of 2010, due to an increase of inter-segment revenues of $1.2 million. The increase in inter-segment revenues was related to additional work on the final two rigs of the Company's 2010 internal rig build program. Revenue for the three months ended March 31, 2011 included $15.8 million of inter-segment construction work, compared to $14.8 million in the same period in 2010. Revenue in 2011 was largely comprised of income related to the ongoing rig construction program, including work completed on one rig that was delivered in the US drilling operations segment during the first quarter of 2011. The slight increase in third party work in 2011 resulted in a greater disposition of inventory parts and materials during the quarter.
Operating expenses also increased from $13.3 million for the three months ended March 31, 2010 to $16.6 million for the three months ended March 31, 2011. These changes affected the segment's gross margin and gross margin percentage, which decreased from 10.6% in 2010 to 0.8% in the first quarter of 2011. The segment's gross margin is approximately nil as a result of a large portion of the internal work performed which is billed at cost to Trinidad's other operating segments.
FINANCIAL HIGHLIGHTS QUARTERLY ANALYSIS
$ millions except per share data 2011 2010(3)
and operating data) Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue(1) 216.1 185.9 161.9 128.8 170.1
Gross margin 84.7 76.7 62.5 47.9 68.6
Gross margin percentage 39.2 41.3 38.6 37.2 40.3
Net earnings (loss)(2) 16.0 (84.7) 0.7 10.0 (1.0)
Effective interest on financing
costs 0.5 10.8 1.7 1.6 1.6
Accretion on senior notes 0.1 - - - -
Accretion on convertible
debentures - 11.6 1.5 1.4 1.4
Fair value of interest rate swaps (1.2) 0.4 - - -
Stock-based compensation 4.0 1.8 0.8 (0.3) 1.8
Unrealized foreign exchange
loss (gain) 1.0 2.0 4.9 (5.8) 6.4
Depreciation and amortization 29.6 27.7 28.6 23.9 26.7
Loss (gain) on sale of assets - 0.4 - (4.0) -
Impairment of property and
equipment - 24.9 - - -
Impairment of intangible asset
and goodwill - 59.1 0.3 - -
Deferred income taxes 5.2 (0.1) (1.0) (6.3) 4.3
-------------------------------------------------------------------------
Cash flow from operations before
change in non-cash working capital 55.2 53.9 37.5 20.5 41.2
Net earnings (loss) per share
(diluted) 0.13 (0.70) 0.01 0.08 (0.01)
Cash flow from operations before
change in non-cash working
capital per share (diluted) 0.46 0.45 0.31 0.17 0.34
-------------------------------------------------------------------------
$ millions except per share data 2009(3)
and operating data) Q4 Q3 Q2
---------------------------------------------------------
Revenue(1) 148.2 126.1 116.7
Gross margin 59.7 53.0 52.5
Gross margin percentage 40.3 42.0 45.0
Net earnings (loss)(2) 3.9 (12.1) (8.6)
Effective interest on financing
costs 1.6 1.6 1.6
Accretion on senior notes - - -
Accretion on convertible
debentures 1.5 1.3 1.3
Fair value of interest rate swaps - - -
Stock-based compensation (0.1) 2.1 1.7
Unrealized foreign exchange
loss (gain) 6.5 11.4 9.9
Depreciation and amortization 23.3 20.6 19.1
Loss (gain) on sale of assets 0.6 0.3 5.6
Impairment of property and
equipment - - -
Impairment of intangible asset
and goodwill - - -
Deferred income taxes 1.1 1.7 (2.9)
---------------------------------------------------------
Cash flow from operations before
change in non-cash working capital 38.4 26.9 27.7
Net earnings (loss) per share
(diluted) 0.03 (0.10) (0.09)
Cash flow from operations before
change in non-cash working
capital per share (diluted) 0.32 0.22 0.29
---------------------------------------------------------
(1) The second quarter of 2010 includes a reduction in
the previously reported revenue and operating costs of
$8.8 million to properly reflect the characterization
of certain activities as inter-segment. There were no
changes to the previously reported gross margin, net
earnings (loss) and other related amounts.
(2) The fourth quarter of 2010 includes impairment of
capital assets charge of $23.9 million, impairment
of intangible assets charge of $0.9 million and
impairment of goodwill charge of $58.5 million.
(3) The periods of 2010 have been restated under IFRS,
while the prior periods of 2009 have been reported
under previous GAAP
NON-GAAP MEASURES HIGHLIGHTS QUARTERLY ANALYSIS
2011 2010(3)
($ millions except per
share data and
operating data) Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
EBITDA (1) 63.8 61.5 44.1 40.9 44.2
Per share (diluted)(2) 0.53 0.51 0.37 0.34 0.37
Adjusted EBITDA(1) 69.6 63.7 49.9 34.7 53.4
Per share (diluted)(2) 0.58 0.53 0.41 0.29 0.44
Adjusted net earnings(1) 21.8 1.5 6.9 3.8 8.2
Per share (diluted)(2) 0.18 0.01 0.06 0.03 0.07
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2009(3)
($ millions except per
share data and
operating data) Q4 Q3 Q2
-----------------------------------------------------
EBITDA (1) 38.9 27.3 29.0
Per share (diluted)(2) 0.32 0.23 0.31
Adjusted EBITDA(1) 47.4 40.8 40.2
Per share (diluted)(2) 0.39 0.34 0.42
Adjusted net earnings(1) 12.5 1.4 2.6
Per share (diluted)(2) 0.10 0.01 0.03
-----------------------------------------------------
(1) Please see the Non-GAAP Measures Definitions section of this document
for further details.
(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.
(3) The periods of 2010 have been restated under IFRS, while the prior
periods of 2009 has been reported under previous GAAP
OPERATING HIGHLIGHTS QUARTERLY ANALYSIS
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2011 2010
($ millions except per
share data and
operating data) Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Land Drilling Market
Operating days - drilling
Canada 4,008 3,270 2,786 1,616 3,170
United States and
International(1) 4,539 4,430 4,424 3,958 3,769
Rate per drilling day
Canada (CDN$) 25,053 24,086 21,477 23,590 21,868
United States and
International
(CDN$)(1) 19,996 20,384 19,910 18,504 21,206
United States and
International
(US$)(1) 20,067 19,955 19,117 18,092 20,157
Utilization rate -
drilling
Canada 80% 65% 56% 34% 67%
United States and
International(1) 80% 73% 72% 66% 63%
CAODC industry average 66% 49% 39% 20% 52%
Number of drilling rigs
at quarter end
Canada 55 55 55 53 53
United States and
International(1) 63 62 66 67 66
Utilization rate for
service rigs 66% 57% 41% 37% 54%
Number of service rigs
at quarter end 22 22 22 22 22
Number of coring and
surface casing rigs at
quarter end 20 20 20 20 20
Barge Drilling Market
Operating days 445 456 367 283 334
Rate per drilling day
(CDN$)(2) 22,002 24,402 24,738 25,013 23,732
Rate per drilling day
(US$)(2) 22,081 23,878 23,757 24,406 22,559
Utilization rate 99% 99% 88% 78% 93%
Number of barge
drilling rigs at
quarter end 2 2 2 1 1
Number of barge
drilling rigs under
Bareboat Charter at
quarter end 3 3 3 3 3
-------------------------------------------------------------------------
2009
($ millions except per
share data and
operating data) Q4 Q3 Q2
-----------------------------------------------------
Land Drilling Market
Operating days - drilling
Canada 2,090 1,739 695
United States and
International(1) 3,994 3,419 3,233
Rate per drilling day
Canada (CDN$) 22,543 21,486 23,564
United States and
International
(CDN$)(1) 21,887 21,819 23,747
United States and
International
(US$)(1) 20,355 19,632 19,554
Utilization rate -
drilling
Canada 44% 36% 14%
United States and
International(1) 63% 61% 61%
CAODC industry average 32% 21% 11%
Number of drilling rigs
at quarter end
Canada 52 53 53
United States and
International(1) 66 66 64
Utilization rate for
service rigs 32% 27% 19%
Number of service rigs
at quarter end 22 23 23
Number of coring and
surface casing rigs at
quarter end 20 20 20
Barge Drilling Market
Operating days 274 266 351
Rate per drilling day
(CDN$)(2) 20,275 28,805 30,250
Rate per drilling day
(US$)(2) 19,482 25,736 24,906
Utilization rate 75% 72% 96%
Number of barge
drilling rigs at
quarter end 1 1 1
Number of barge
drilling rigs under
Bareboat Charter at
quarter end 3 3 3
-----------------------------------------------------
(1) Trinidad commenced its operations in Mexico effective November 2008
and expanded its international operations into Chile effective August
2009. Effective April 6, 2010, the rig located in Chile was sold to a
third party. In the third and fourth quarter of 2010, four Mexico
rigs were redeployed: one to the US division of this segment and
three to the Canadian operations segment.
(2) In the second quarter of 2010, other revenue associated with
equipment repairs was removed from the dayrate calculation to comply
with corporate dayrate calculation practices.
FINANCIAL SUMMARY
As at
March 31, December 31, January 1,
2011 2010 2010
($ thousands except percentage
data)
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Working capital(1) 147,587 126,811 90,673
Current portion of long-term debt 592 546 14,146
Long-term debt(2) 593,677 606,154 216,273
Convertible debentures - - 331,249
Total debt 594,269 606,700 561,668
Total debt as a percentage of assets 38.6% 39.6% 34.8%
Net debt(1) 446,090 479,343 456,849
Net debt as a percentage of assets 29.0% 31.3% 28.3%
Total assets 1,539,200 1,531,325 1,615,193
Total long-term liabilities 667,616 676,712 625,441
Total long-term liabilities as a
percentage of assets 43.4% 44.2% 38.7%
Shareholders' equity 785,233 783,638 910,771
Total debt to shareholders' equity 75.7% 77.4% 61.7%
Net debt to shareholders' equity 56.8% 61.2% 50.2%
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Working capital increased by $20.8 million to $147.6 million at March 31, 2011 compared to $126.8 million as at December 31, 2010 as a result of increased activity levels in the first quarter of 2011.
Trinidad's total debt declined by $12.4 million during the first quarter of 2011 due to the retranslation of the senior unsecured notes (Senior Notes) of US$450.0 million, as a result of the decline in the US to Canadian foreign exchange rate. The Senior Notes are due January 2019 and interest is payable semi-annually in arrears on January 15 and July 15. The first payment is due on July 15, 2011.
Although there were some movements during the quarter on the credit facility, the ending balances in the revolving credit facility have not changed from December 31, 2010; Trinidad had CDN$120.0 million outstanding on its Canadian revolving credit facility and US$50.0 million on its US revolving credit facility, leaving CDN$80.0 million and US$50 million unutilized in the facility, respectively. The new Canadian and US revolving facility requires quarterly interest payments that are based on LIBOR and Bankers Acceptance (BA) rates and incorporate a tiered interest rate, which varies depending on the results of the Consolidated Total Debt to Consolidated EBITDA ratio. This facility matures December 16, 2014, and is subject to annual extensions of an additional year on each anniversary.
A total of $24.6 million of capital expenditures were incurred during the three months ended March 31, 2011 compared to $35.5 million for the three months ended March 31, 2010. Capital expenditures in the quarter were substantially related to the Company's rig build program and a number of capital upgrades made to Trinidad's rig fleet to improve the equipment's marketability.
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.
Current financial performance is well in excess of the financial ratio covenants under the revolving credit facility as reflected in the table below under IFRS:
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March 31, December 31,
RATIO 2011 2010 THRESHOLD
-------------------------------------------------------------------------
Consolidated Senior Debt
to Consolidated EBITDA(1) 0.81:1 0.94:1 3.00:1 maximum
Consolidated Total Debt
to Consolidated EBITDA(2) 2.83:1 3.18:1 4.00:1 maximum
Consolidated EBITDA to
Consolidated Cash Interest
Expense(3) 4.22:1 4.12:1 2.75:1 minimum
(1) Maximum Consolidated Senior Debt to Consolidated EBITDA means the
consolidated balance of the revolving facility and other debt secured
by a lien at quarter end to consolidated EBITDA for the trailing
twelve months (TTM)
(2) Maximum Consolidated Total Debt to Consolidated EBITDA means the
consolidated balance of long-term debt, which includes the Senior
Debt, and dividends payable at quarter end, plus the current-portion
of long-term debt, to consolidated EBITDA for the TTM.
(3) Minimum Consolidated EBITDA to Consolidated Cash Interest Expense
means the consolidated EBITDA for TTM to the cash interest expense on
all debt balances for TTM.
Readers are cautioned that the ratios noted above do not have
standardized meanings prescribed in IFRS or previous GAAP.
OUTLOOK
Trinidad's results for the first quarter of 2011 demonstrated a continuation of the improving industry conditions evident in the last half of 2010; strong demand for drilling equipment led to high activity levels and increasing dayrates. To date, these conditions are continuing into the second quarter and the outlook for the remainder of 2011 and into 2012 is expected to be promising.
Robust crude oil prices have fuelled strong demand for drilling equipment to develop oil and natural-gas-liquids rich targets. Both Trinidad, and the industry as a whole, have responded well to these changes, with approximately 50.0% of wells drilled in North America are now targeting oil, a sharp increase from historic averages. Oil prices appear likely to remain at a level that continues to drive a high level of activity in the near term and the increasing activity levels are providing upward momentum for dayrates and gross margins moving forward.
As high quality equipment becomes more challenging to secure for oil and gas producers, they are willing to lock up rigs under long-term contracts. In recent weeks, Trinidad announced the extension of contract terms on 24 existing rigs. These rigs were largely built in the past five years and their contracts were due to expire in the coming months. The Company's ability to re-contract its rigs at higher dayrates demonstrates the strong demand for its modern, technically advanced equipment and the top performance it has been able to provide for its customers over the past few years.
In addition to re-contracting existing rigs, Trinidad has agreed to build three new rigs under long-term, take-or-pay contracts in 2011, and another three rigs under similar contracts in 2012. The Company is continuing to examine additional opportunities for new builds with new and existing customers and may add to its rig build program for 2011 or 2012, assuming acceptable contract terms can be reached. While a number of growth opportunities exist, Trinidad continues to monitor its debt levels and expects to maintain a capital expenditure program that allows for measured growth and conservative leverage ratios in 2011 and beyond.
Trinidad has assembled a fleet of equipment that is well suited for today's drilling industry. The Company's modern, technically advanced equipment has proven its ability to continually meet its customers' evolving needs with its industry-leading utilization and contract extensions. The strengthening industry conditions are expected to continue and to lead to further improvements in dayrates, activity levels and future growth possibilities for the Company. Trinidad has a positive outlook for the coming months and believes that its track record of high performance, the adaptability of its fleet and its growing financial flexibility position it well to take advantage of the strong market conditions that are anticipated for the remainder of 2011 and into 2012.
CONFERENCE CALL
A conference call and webcast to discuss the results will be held for the investment community on Wednesday June 1st 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 June 1st until midnight June 8th by dialing (800) 642-1687 or (416) 849-0833 and entering replay access code 67887541.
A live audio webcast of the conference call will also be available via the Investor Relations page of Trinidad's website.
A full copy of Trinidad's first quarter report including Management's Discussion and Analysis, IFRS reconciliations and relevant information, 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 symbol TDG. Trinidad's divisions operate in the drilling, well-servicing, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States 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.
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CONSOLIDATED BALANCE SHEETS
As at March 31, December 31, January 1,
2011 2010 2010
($ thousands - Unaudited)
-------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents 5,150 7,905 4,198
Accounts receivable 200,739 159,866 139,418
Inventory 24,005 25,448 20,378
Prepaid expenses 4,044 4,567 5,660
--------------------------------------
233,938 197,786 169,654
Property and equipment 1,220,794 1,246,867 1,293,771
Intangible assets and goodwill 84,468 86,672 151,768
--------------------------------------
1,539,200 1,531,325 1,615,193
--------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued
liabilities 78,887 62,291 51,055
Dividends payable 6,043 6,042 6,042
Deferred revenue 16 105 1,965
Current portion of long-term
debt 592 546 14,146
Current portion of fair value
of interest rate swaps 813 1,991 5,773
--------------------------------------
86,351 70,975 78,981
Long-term debt 593,677 606,154 216,273
Convertible debentures - - 331,249
Fair value of interest rate swaps - - 1,886
Deferred income taxes 73,939 70,558 76,033
--------------------------------------
753,967 747,687 704,422
Shareholders' Equity
Common shares 952,026 951,863 951,863
Convertible debentures - - 20,838
Contributed surplus 49,297 49,016 27,832
Accumulated other comprehensive
income (loss) (38,825) (30,030) (4,068)
Retained earnings (deficit) (177,265) (187,211) (88,031)
--------------------------------------
Equity attributable to shareholders 785,233 783,638 908,434
Non-controlling interest - - 2,337
--------------------------------------
785,233 783,638 910,771
--------------------------------------
1,539,200 1,531,325 1,615,193
--------------------------------------
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, 2011 2010
($ thousands except per share data - Unaudited)
-------------------------------------------------------------------------
Revenue
Oilfield service revenue 215,719 169,917
Other revenue 341 156
-----------------------
216,060 170,073
Expenses
Operating expense 131,331 101,448
General and administrative 19,159 16,971
Depreciation and amortization 29,575 26,692
Foreign exchange (gain) loss 1,757 7,474
(Gain) loss on sale of assets (11) 56
-----------------------
181,811 152,641
Finance costs 12,381 13,786
-----------------------
Earnings (loss) before income taxes 21,868 3,646
Income taxes
Current 725 412
Deferred 5,154 4,273
-----------------------
5,879 4,685
-----------------------
Net earnings (loss) 15,989 (1,039)
Other comprehensive income
Change in fair value of derivatives designated
as cash flow hedges, net of income tax - 537
Foreign currency translation adjustment, net
of income tax (8,795) (21,979)
-----------------------
(8,795) (21,442)
Total comprehensive income (loss) 7,194 (22,481)
-----------------------
Earnings (loss) per share
Basic 0.13 (0.01)
Diluted 0.13 (0.01)
-----------------------
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the three months ended March 31, 2011 and 2010
Accumu-
lated
other
Conver- compre-
tible Contrib- hensive
Common deben- uted income
($ thousands - Unaudited shares tures surplus (loss)(1)
-------------------------------------------------------------------------
Balance at December 31, 2010 951,863 - 49,016 (30,030)
Exercise of stock options 163 - (44) -
Stock-based compensation - - 325 -
Total comprehensive income (loss) - - - (8,795)
Dividends - - - -
---------------------------------------
Balance at March 31, 2011 952,026 - 49,297 (38,825)
---------------------------------------
Balance at January 1, 2010 951,863 20,838 27,832 (4,068)
Stock-based compensation - - 195 -
Total comprehensive income (loss) - - - (21,442)
Reduction of non-controlling
interest - - - -
Dividends - - - -
---------------------------------------
Balance at March 31, 2010 951,863 20,838 28,027 (25,510)
---------------------------------------
Equity
attri-
Retained butable Non-con-
earnings to share- trolling Total
($ thousands) (deficit) holders interest equity
-------------------------------------------------------------------------
Balance at December 31, 2010 (187,211) 783,638 - 783,638
Exercise of stock options - 119 - 119
Stock-based compensation - 325 - 325
Total comprehensive income (loss) 15,989 7,194 - 7,194
Dividends (6,043) (6,043) - (6,043)
---------------------------------------
Balance at March 31, 2011 (177,265) 785,233 - 785,233
---------------------------------------
Balance at January 1, 2010 (88,031) 908,434 2,337 910,771
Stock-based compensation - 195 - 195
Total comprehensive income (loss) (1,039) (22,481) - (22,481)
Reduction of non-controlling
interest - - (1,207) (1,207)
Dividends (6,042) (6,042) - (6,042)
---------------------------------------
Balance at March 31, 2010 (95,112) 880,106 1,130 881,236
---------------------------------------
(1) Accumulated other comprehensive income (loss) as at and for the three
months ended March 31, 2011 consists entirely of foreign currency
translation. The balance at January 1, 2010 consists entirely of the
change in the fair value of derivatives designated as cash flow
hedges, net of income taxes. Other comprehensive income (loss) for
the three months ended March 31, 2010 consists of $22.0 million in
foreign currency translation and $0.5 million in the change in fair
value of derivatives designed as cash flow hedges, net of income
taxes.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31 2011 2010
($ thousands - Unaudited)
-------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net earnings (loss) for the period 15,989 (1,039)
Items not affecting cash
Stock-based compensation 4,053 1,763
Depreciation and amortization 29,575 26,692
Unrealized foreign exchange loss (gain) 958 6,446
(Gain) loss on sale of assets (11) 56
Effective interest on financing costs 544 1,580
Accretion on senior notes 75 -
Accretion on convertible debentures - 1,407
Fair value of interest rate swaps (1,161) -
Deferred income taxes 5,154 4,273
-----------------------
55,176 41,178
Change in non-cash operating working capital (30,916) (12,976)
-----------------------
24,260 28,202
-----------------------
Investing activities
Purchase of property and equipment (24,552) (35,466)
Proceeds from disposition of capital assets 282 94
Change in non-cash working capital 4,241 (989)
-----------------------
(20,029) (36,361)
-----------------------
Financing activities
Increase in long-term debt, net 16,000 17,298
Decrease in long-term debt, net (16,141) -
Proceed from exercise of options 119 -
Dividends paid (6,042) (6,042)
Deferred financing costs (1,178) -
-----------------------
(7,242) 11,256
-----------------------
Cash flow from operating, investing and
financing activities (3,011) 3,097
Effect of translation of foreign currency cash 256 467
-----------------------
(Decrease) increase in cash for the period (2,755) 3,564
Cash and cash equivalents - beginning of period 7,905 4,198
-----------------------
Cash and cash equivalents - end of period 5,150 7,762
-----------------------
Interest paid 3,072 4,084
Interest received 41 4
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 previous 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, Adjusted net earnings, net debt and working capital.
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 2011 report which is available on Trinidad's website at www.trinidaddrilling.com or from SEDAR at www.sedar.com
These non-GAAP measures are identified as follows under IFRS:
"Gross margin" is used by management 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 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 and stock-based compensation, and are not intended to represent net earnings as calculated in accordance with IFRS.
"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.
"Adjusted net earnings" is used by management and the investment community to analyze net earnings (loss) prior to the effect of foreign exchange loss, stock-based compensation charges and impairment charges and is not intended to represent net earnings as calculated in accordance with IFRS.
"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, Adjusted net earnings, net debt and working capital throughout this document have the meanings set out above.
Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions operate in the drilling, well-servicing, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States 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.
FORWARD-LOOKING STATEMENTS
The 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 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.