News Releases

CALGARY, Nov. 9, 2011 /CNW/ - Trinidad Drilling Ltd. reported third quarter and year to date 2011 results which reflected the strong industry conditions that have been present throughout the first nine months of the year. High activity levels across the Company's operations and increasing dayrates led to higher revenue, Adjusted EBITDA ⁽¹⁾ and net earnings for the quarter and year to date compared to the same periods last year.

"Industry conditions have been strong and customer demand for modern, technically advanced equipment such as ours has remained high to date in 2011. I am very pleased with our performance over the past nine months and particularly in our ability to capture these changes in the industry and turn them into improved profitability," said Lyle Whitmarsh, Trinidad's President and Chief Executive Officer. "Our customers continue to show commitment to our equipment and their drilling programs through increasing dayrates, extended contracts and by signing multi-year contracts for new equipment. Our results to date in 2011 have exceeded our expectations and I expect that this level of performance will continue for the final quarter of 2011 and into 2012."

(1) Please see the Non-GAAP Measures Definitions section of this document for further details.

OVERVIEW

Trinidad was able to take advantage of the strong industry conditions present in the third quarter and first nine months of 2011 and recorded improvements in both operating and financial metrics compared to last year.

Higher activity levels across the Company's divisions combined with increasing dayrates led to growing revenue levels and improved gross margins in the third quarter and year to date in 2011. The positive impacts on operating performance, in the third quarter and year to date 2011 versus the same periods of 2010, were partially offset by a weakening of the US dollar relative to the Canadian dollar. The Company's strong performance in the quarter and year to date flowed through to higher Adjusted EBITDA ⁽¹⁾ levels compared to the prior year.  Net earnings in the quarter and year to date also increased compared to the same periods last year.

Industry conditions throughout North America continued to strengthen in the third quarter of 2011. The average US active rig count increased to 2,113 rigs in the quarter, adding 328 more rigs than the same quarter last year and 128 from the previous quarter. In Canada, activity levels recovered strongly in the third quarter after being hampered by wet weather earlier in the year. Industry utilization averaged 54.0% in the quarter up significantly from the 39.0% utilization level recorded in the same quarter last year and 23.0% in the previous quarter. On both sides of the border, modern, top performing rigs were in high demand and Trinidad was able to get a large proportion of its fleet out working at growing dayrates.  As the industry active rig count increases, the labour market becomes tighter, making it more challenging to find experienced and qualified crews. Trinidad's more consistent utilization levels and modern equipment give it an advantage in attracting and retaining some of the best people in the industry. To date in 2011, the Company has successfully been able to crew rigs as needed despite its industry-leading activity levels.

Instability and uncertainty in the global markets intensified during the third quarter as concerns grew over the European debt situation and the speed of the US and global economies recovery. These concerns put downward pressure on crude oil prices as investors worried that future demand for oil-related products may not reach the levels earlier anticipated. In the third quarter, West Texas Intermediate crude oil prices averaged US$89.74 per barrel, up 17.8% from the same quarter last year but down 12.5% from the previous quarter. Year to date, crude oil prices have averaged US$95.48 per barrel, up 23.0% from the same time last year. Despite investors' concerns, crude oil prices remained at levels that have provided acceptable returns for oil and gas producers and activity levels were strong in the quarter.

Natural gas prices continued their relative weakness in the quarter and year to date, largely as a result of high storage levels and weak economic demand. During the third quarter, Henry Hub natural gas prices averaged US$4.12 per mmBtu and $4.22 per mmBtu for the first nine months of the year, down 3.8% and 7.5% from last year, respectively.

The relative strength in crude oil prices has continued to encourage oil and gas companies to switch away from natural gas drilling in favour of developing crude oil and natural gas liquids rich plays. According to Baker Hughes, 54.0% of wells drilled in the US in the third quarter of 2011 were targeting oil, compared to 39.0% in the same quarter last year, a trend the industry has seen develop in both Canada and the US over the last two years.

Over the past year, Trinidad has been able to crystalize the positive trends in dayrates by re-signing contracts on rigs as they expire, resulting in escalating dayrates and longer terms. These changes, along with improved rates on the spot market, have led to increased average dayrates in the third quarter and year to date. In addition to higher dayrates and increased activity levels, gross margin levels have benefited from a levelling off of repairs and maintenance costs to more normalized levels, following a strong ramp up in activity and the associated rig reactivation costs. The Company's overall performance has improved significantly from last year and conditions remain favourable heading into the last quarter of 2011 and into 2012. 

Third quarter 2011 and year- to-date highlights

• Trinidad generated revenue of $190.8 million for the third quarter and $549.9 million year to date in 2011, up 17.8% and 19.4% from the same periods of 2010.  Revenue grew in the quarter and year to date as a result of increased operating days and higher dayrates, reflecting stronger industry conditions. The impact of the improved market conditions were partially offset by the weakening of the US dollar in relation to the Canadian dollar during the year.
• Gross margin ⁽¹⁾ grew to $81.5 million in the third quarter and $218.9 million year to date, an increase of 30.4% and 22.3%, respectively from the prior comparative periods due to higher revenue generation and lower relative operating costs.  Gross margin percentage ⁽¹⁾ was 42.7% in the quarter and 39.8% year to date, up from 38.6% and 38.8% respectively in 2010, for the reasons mentioned above.
• Adjusted EBITDA ⁽¹⁾ was $69.4 million ($0.57 per share (diluted)) in the third quarter and $178.1 million year to date ($1.47 per share (diluted)), up by 39.0% and 29.0%, respectively from 2010, primarily due to higher gross margin levels.
• Net earnings ⁽¹⁾ were $30.2 million ($0.25 per share (diluted)) for the quarter and $51.2 million ($0.42 per share (diluted)) year to date in 2011, compared to $0.8 million ($0.01 per share (diluted)) and $9.7 million ($0.08 per share (diluted)), respectively in 2010. This increase was due to higher Adjusted EBITDA ⁽¹⁾, lower financing costs, and a foreign exchange gain which was partially offset by increased year to date depreciation costs, reflecting the Company's increased activity levels.
• Net debt at the end of the quarter decreased to $450.9 million, a reduction of $28.4 million from the end of 2010. Trinidad is committed to lowering its overall level of indebtedness and has demonstrated its commitment to this goal throughout the past few years with ongoing debt reduction.

(1) Please see the Non-GAAP Measures Definitions section of this document for further details.

RESULTS FROM OPERATIONS

Canadian Drilling Operations

Canadian drilling operations performed strongly in the third quarter and first nine months of 2011 with higher activity levels, growing dayrates, and increasing gross margins compared to the same periods last year.

A prolonged and wet spring break-up in the second quarter of 2011 led to high demand in the third quarter, as customers attempted to catch up on delayed drilling programs in the Western Canadian Sedimentary Basin. During the quarter, Trinidad averaged utilization levels of 69.0%, achieving the divisions highest third quarter utilization level since 2005, and well above the industry average of 54.0%. Utilization levels for the first nine months of the year were also higher than the same period of 2010, reflecting the improved industry conditions. Despite the transfer of one rig to the Company's US operations earlier in the year, operating days in the quarter and year to date were positively impacted by the high level of demand for drilling equipment, and increased substantially over the prior comparative periods.

As demand for equipment grew in the quarter and year to date in 2011, dayrates increased compared to the same periods last year. The increased dayrates combined with higher operating days resulted in strong revenue growth in the quarter and for the first nine months of the year.  Dayrates in the third quarter lowered from the levels recorded in the second quarter, reflecting the seasonal aspect of the Canadian drilling industry. This trend is typically felt in the third quarter, as shallower capacity rigs are reactivated following spring break-up, altering the active rig mix.

Gross margin increased in the quarter and year to date by 28.5% compared to the same periods last year, as dayrate increases outpaced operating cost increases in the quarter. Gross margin percentage also reflected these changes, increasing strongly in the quarter and year to date compared to the same periods of 2010.  The Canadian drilling operating segments revenue and operating costs were reduced slightly in the third quarter compared to prior periods due to the sale of the Company's well-servicing division. The well-servicing division was sold in the second quarter of 2011.

Trinidad's coring rigs were largely inactive during the quarter due to the seasonality that is typically associated with these assets.  Commitments are firming up for the coming winter drilling season and the Company expects that activity levels will begin to improve towards the end of 2011 and into the first quarter of 2012.

United States and International Drilling Operations

In the third quarter and year to date 2011, strong industry conditions drove improved results in the Company's US and international drilling operations.  Demand for Trinidad's modern fleet remained robust and utilization levels improved sharply from the same periods last year.  In addition, the number of operating days achieved in the quarter continued to reach new highs, a trend the division has maintained for nine consecutive quarters.  During the third quarter, Trinidad added one rig to its US fleet with the delivery of a newly constructed rig to its Eagle Ford operations in Texas.

The strong demand for drilling equipment flowed through to dayrates, resulting in higher dayrates in the current quarter and year to date versus the same periods of 2010.  While a significant portion of Trindiad's rigs are under long-term contracts, year to date Trinidad has re-signed rigs as the existing contracts expired, providing additional term and locking in higher dayrates.  Furthermore, rigs not currently under contract, working on the spot market have also been able to earn higher dayrates than those received 12 months ago.

Increased operating days and higher dayrates led to an increase of approximately 17% in revenue generation in both the third quarter and year to date in 2011 compared to the same periods last year. The impact of these positive drivers was partially offset by a weakening of the US dollar against the Canadian dollar versus the same periods of 2010.

Gross margin and gross margin percent improved in the third quarter and year to date, reflecting the higher revenue, as well as benefiting from lower relative operating costs. This impact was felt more strongly in the third quarter of 2011 when repairs and maintenance costs associated with reactivating equipment were not incurred as they had been in prior periods.

Conditions in the barge drilling industry have been showing slower improvement than the land drilling business; however, improvements in activity levels and utilization have been visible for a number of quarters now, and as such dayrates have begun to increase. As with the land drilling sector, Trinidad's barge rigs are predominantly drilling crude oil and natural gas liquids rich targets. Given the shortage of available, high quality equipment in this sector, Trinidad expects that these trends will continue for the remainder of 2011 and into 2012.

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 for internal purposes only.

In the current quarter the construction operations delivered one new build to the US drilling operations and continued construction on two additional new builds with anticipated delivery dates during the fourth quarter of 2011.  In the same period of 2010, the construction operations delivered one new build to the US drilling operations, as well as continued construction on its new build program.

In the nine months ended September 30, 2011, the construction operations delivered three new builds to the US drilling operations.  In the same period of 2010, the construction operations segment delivered three new builds to the US drilling operations, and delivered one new build to the Canadian drilling operations.

The small gross margin loss in the third quarter and year to date of 2011 is the result of the winding down of the third party services work in the construction segment. Trinidad does not expect any further third party work, and as such Trinidad anticipates that the construction operations should have no margin going forward as all internal work performed will be billed at cost to Trinidad's other operating segments.

QUARTERLY ANALYSIS
FINANCIAL HIGHLIGHTS - QUARTERLY ANALYSIS

(1)     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

OPERATING HIGHLIGHTS - QUARTERLY ANALYSIS

At September 30, 2011, working capital increased from December 31, 2010 due to the seasonality of the Canadian drilling operations, which resulted in an increase in accounts receivable, offset by an increase in accounts payable and accrued liabilities.  In addition, an $11.2 million increase in assets held for sale, as well as a higher cash balance also attributed to the improvement in working capital.

Trinidad's total debt declined by $2.9 million year to date 2011, due to the repayment on the Canadian and US revolving credit facility of $27.2 million, however this reduction in debt was partially offset by an increase in the fair value of the Senior Notes of US$450.0 million, as a result of the higher US to Canadian dollar foreign exchange rate at September 30, 2011. The Senior Notes are translated at each quarter end, as such their value will fluctuate quarterly with variations in exchange rates.  The Senior Notes are due January 2019 and interest is payable semi-annually in arrears on January 15 and July 15.  The first payment was due on July 15, 2011.

Trinidad's net debt declined by $28.4 million year to date 2011, due a slightly lower debt balance combined with a significantly higher working capital, versus December 31, 2011.  The higher working capital was due to the reclassification of property plant and equipment to assets held for sale, as well as a higher cash balance in the current year.

During the first nine months of 2011, and pursuant to the Company's strategy to reduce overall indebtedness combined with strong operating conditions, Trinidad reduced the balances on its revolving credit facility by $27.2 million. At September 30, 2011, Trinidad had CDN$97.0 million outstanding on its Canadian revolving credit facility and US$43.0 million on its US revolving credit facility, leaving CDN$103.0 million and US$57.0 million unutilized in the facility, respectively.

The new Canadian and US revolving facility requires 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 Consolidated EBITDA ratio (see table below). This facility matures December 16, 2014, and is subject to annual extensions of an additional year on each anniversary. 

A total of $43.9 million and $116.0 million of capital expenditures were invested during the three and nine months ended September 30, 2011, compared to $36.0 million and $107.7 million for the same periods last year.  Capital expenditures year to date were substantially related to the Company's rig build program, the purchase of four land rigs from a third party 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:

Readers are cautioned that the ratios noted above do not have standardized meanings prescribed in IFRS or previous GAAP.

OUTLOOK
Trinidad is encouraged by the strong industry conditions present to date in 2011. Demand remains high for the Company's modern, high performing equipment and despite market volatility and uncertainty; commodity prices remain at a level that generates high activity, particularly in crude oil and natural gas liquids rich development. Trinidad's customers have clearly demonstrated their intention to continue drilling by extending existing contracts and signing new multi-year drilling commitments, substantially all at higher dayrates. To this point, Trinidad recently agreed to build two new technically advanced rigs for delivery to its Canadian operations in 2012 under five-year, take-or pay-contracts. In addition, the Company has re-contracted a significant number of rigs throughout the year and expects the full benefit of these improved terms to be realized in the coming year. Including the rigs under construction, Trinidad has approximately 60.0% of its fleet under long-term contract with an average remaining term of approximately two years.

Despite the strength that Trinidad sees in the current industry conditions, the Company is aware of the market uncertainty and understands the inherently cyclical nature of the drilling industry. In light of these conditions, Trinidad has followed a measured growth program while also lowering its debt levels over the past few years. Trinidad believes that by locking in improved pricing and terms during a period of market strength through long-term, take-or-pay contracts with financially solid customers, maintaining a construction program that is funded by internally generated cash flow and by improving its financial flexibility, it can position itself to perform well at all times during the cycle.

In 2011, the Company plans to add five new rigs to its fleet, the final two rigs from its 2010 rig construction program and three new rigs to be constructed this year. To date, three of these five rigs have been delivered into operation. As well, the Company will be constructing an additional five new rigs in 2012. All rigs are high-performance, high-mobility rigs with three to five year, long-term, take-or-pay contracts.  In addition, Trinidad purchased four existing rigs which it is currently upgrading; these rigs are expected to be delivered into operation in the fourth quarter of 2011. In total, Trinidad expects it will invest capital, net of dispositions, for these additions and upgrades to existing equipment of approximately $100 million to $110 million in 2011 and $80 million in 2012.

Trinidad's fleet of modern, technically advanced equipment has proven its ability to continually meet its customers' evolving needs with its industry-leading utilization and contract extensions. Ongoing customer demand and high activity levels have provided the Company with a strong operating environment which it has been able to capture through increasing dayrates and growing gross margins.  Current indications for future dayrates and activity levels remain positive and together with the Company's expanded contract coverage, it believes it is positioned to perform well in the final quarter of 2011 and into 2012.

CONFERENCE CALL

A conference call and webcast to discuss the results will be held for the investment community on Thursday November 10^th, 2011 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 November 10^th, 2011 until midnight November 17^th, 2011 by dialing (855) 859 2056 or (416) 849-0833 and entering replay access code 15151226.

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 third quarter and year to date 2011 report including Management's Discussion and Analysis, Consolidated Financial Statements and Notes to the Consolidated Financial Statements can be found on the Investor Relations page of Trinidad's website or at www.sedar.com

TRINIDAD DRILLING LTD.

Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions operate in the drilling, 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.

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, Adjusted net earnings before refinancing costs, 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 third 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 and defined as follows under IFRS:

"Gross margin" is used by management and investors to analyze overall and segmented operating performance.  Gross margin is not intended to represent operating income nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with IFRS.  Gross margin 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 and is defined as revenue less operating expenses.

"Gross margin percentage" is used by management and investors to analyze overall and segmented operating performance.  Gross margin percentage is calculated from the consolidated statements of operations and comprehensive income (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 (gain) loss and stock-based compensation, and is 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 prior to the effect of foreign exchange (gain) loss, stock-based compensation charges and impairment charges and is not intended to represent net earnings as calculated in accordance with IFRS.

Adjusted net earnings before refinancing costs" is used by management to analyze adjusted net earnings prior to the effects of refinancing costs 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, Adjusted net earnings before refinancing costs, net debt and working capital throughout this document have the meanings set out above.

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.