News Releases

/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES./

CALGARY, Aug. 7, 2018 /CNW/ - Trinidad Drilling Ltd. (TSX: TDG) (Trinidad) announced its second quarter and year-to-date 2018 results today.

In the three and six months ended June 30, 2018, industry conditions significantly improved compared to the prior year, driving higher operating days, higher dayrates and stronger operating income from the same periods last year. For the three and six months ended June 30, 2018, activity increased by 18.6% and 14.9%, respectively, and operating income increased by 73.6% and 28.2%, respectively, compared to 2017.

Improving dayrates in both Canada and the US in 2018, combined with the Company's ongoing focus on operational efficiency, also resulted in higher adjusted EBITDA¹ in the current year. Adjusted EBITDA was up 125.0% in the quarter and 7.5% year to date, compared to the same periods last year. Lastly, higher adjusted EBITDA and lower interest paid resulted in higher funds flow in the current year, up 192.5% in the quarter and 392.0% year to date, compared to the same periods in 2017.

During the second quarter of 2018, the outlook for Trinidad's international joint venture (TDI) also improved with the activation of one rig in Bahrain, and a contract awarded to redeploy two idle rigs to Kuwait for operations beginning in 2019.

"While Trinidad has benefited from improving industry conditions in the first half of the year, we have also made changes within the Company that are beginning to show positive results," said Brent Conway, Trinidad's President and Chief Executive Officer. "We have improved operational efficiency through better supply chain and project management, we have reduced overhead costs and sold non-core or idle assets. In addition, we have positioned our fleet to capture market share and higher margins by moving rigs to areas of higher demand and upgrading select rigs to meet customer requirements."

SECOND QUARTER AND YEAR-TO-DATE 2018 HIGHLIGHTS

• For the three and six months ended June 30, 2018, revenue increased by 28.1% and 20.9%, respectively, compared to the comparable periods in 2017 due to higher base dayrates and higher activity levels in both of Trinidad's US and Canadian drilling divisions; partly offset by lower early termination and standby revenue recorded in 2018.
  
  
• Trinidad's US and international operations recorded higher operating revenue and a stronger operating income - net percentage for the three and six months ended June 30, 2018, compared to the prior year. Increased activity combined with consistent operating expense per day in the current year drove improved profitability in the US drilling division in 2018.
  
  
• In the second quarter and year to date, Trinidad's Canadian operations increased activity by 24.4% and 6.4%, respectively, compared to 2017. Improving market conditions and strong customer demand drove increased activity and contracted dayrates in the current year. On a year-to-date basis, operating income and operating income - net percentage were negatively impacted by lower early termination and standby revenue recorded in 2018. As early termination and standby revenue is recorded with minimal associated costs, it positively impacts operating income - net percentage. Adjusted for these balances, operating income and operating income - net percentage increased for both the three and six months ended June 30, 2018.
  
  
• Trinidad's joint venture operations recorded lower revenue and lower operating income compared to the prior year. Although Bahrain commenced activity in the second quarter of 2018 and Trinidad began mobilizing rigs to Kuwait, lower operating days in Saudi Arabia and Mexico, combined with higher operating expenses related to mobilization and shut down costs on a year-to-date basis, negatively impacted 2018 results.
  
  
• For the three and six months ended June 30, 2018, Trinidad recorded adjusted EBITDA of $33.0 million and $70.8 million, respectively, an increase of 125.0% and 7.5%, respectively, compared to the prior year. Increased activity and improving market dayrates recorded in each of Trinidad's Canadian and US drilling divisions in the current year improved operating income compared to the prior year. Additionally, Trinidad recorded lower G&A expenses in 2018, when compared to the prior year, as a result of lower salary and rent expenses in 2018. Rent expense decreased due to a $2.8 million one-time lease incentive credit adjustment recorded in the second quarter of 2018. This was slightly offset by $9.3 million lower early termination and standby revenue recorded in 2018 on a year-to-date basis and a lower contribution from the Company's TDI joint venture operations in 2018.
   
  
• Net (loss) increased in the second quarter of 2018 mainly due to higher depreciation and amortization expense due to a change in the useful life estimates in the third quarter of 2017 and a lower gain from investments in joint ventures recorded in the current year. This was offset by higher operating income due to higher activity in 2018, lower G&A expenses and lower finance costs on a year-to-date basis.
  
  
• For the three and six months ended June 30, 2018, funds flow increased compared to 2017 due to increased activity in the current year resulting in higher operating income, combined with lower interest paid in 2018.
  
  
• Trinidad's total long-term debt balance decreased by $36.6 million in the six months ended June 30, 2018. The reduction in long-term debt was mainly due to a reduction of the outstanding credit facility balance of $59.5 million, offset slightly by an increase in the Senior Notes which was due entirely to foreign currency fluctuations in the period. Higher activity in 2018 combined with a distribution of $48.9 million received in the second quarter of 2018 from Trinidad's TDI joint venture, allowed the Company to pay down long-term debt in the current year.
  
  
• In 2018, Trinidad spent $23.2 million on capital expenditures, compared to $58.6 million in 2017. Capital spend in the current period mainly related to upgrades and enhancements on rigs moving to Trinidad's US drilling division, as well as maintenance across Trinidad's entire rig fleet. The Company continues to recognize cost savings in 2018 related to the Company's focus on supply chain management.

HIGHLIGHTS

A copy of Trinidad's second quarter 2018 Management's Discussion and Analysis and the Financial Statements can be found at www.sedar.com and Trinidad's website at www.trinidaddrilling.com/investorrelations/reports.aspx

OUTLOOK

To date in the third quarter of 2018, conditions in US have remained strong. Customer demand for high specification equipment is firm and dayrates continue to increase slowly. Trinidad currently has 42 rigs operating in its US operations and anticipates reaching 45 active rigs by the end of 2018.

Trinidad continues to maintain strong market presence in the Permian Basin and is well positioned with the right clients. Trinidad's Permian customer base is largely made up of oil and gas producers that have secured firm transportation commitments for their production and are continuing with their development plans. Trinidad has not incurred material reductions to its customers' plans in the Permian, and while the Company continues to monitor the transportation bottlenecks in the area, it is confident that its Permian operations will continue to perform strongly.

To date, industry conditions in Canada have improved in the third quarter, driving higher activity levels and dayrates than initially expected. Trinidad currently has 32 rigs operating in Canada, 7% higher than this time last year. Discussions with customers for the upcoming winter drilling season are currently ongoing and Trinidad anticipates seeing continued year-over-year improvements in the performance of its Canadian operations.

Activity levels in TDI's operations are improving from earlier in 2018, with one rig operating in Mexico and one rig operating in Bahrain. In addition, two rigs have begun the process of moving to Kuwait and being upgraded to meet the specifications needed for their recently awarded contracts. These rigs are expected to begin operating by late in the first quarter or early in the second quarter of 2019. International bid activity has improved in the past year and Trinidad is actively marketing the remaining TDI and international rigs.

Currently, Trinidad has 35 rigs, or 25% of its fleet under long-term contracts, with an average term remaining of approximately 1.0 year; 11 contracts have expiration dates during the remainder of 2018. To date in 2018, Trinidad has been able to successfully re-sign rigs to contracts, typically at higher dayrates. In addition, customers are beginning to consider extended contract duration.

Trinidad continues to roll out its technology platform and is currently building customer awareness by partnering with key high-quality customers and conducting pilot projects. The Company recently added to its technology platform with the acquisition of GMXSteering^TM; adding software that uses surface measurements recorded while drilling to assess rock properties and position the well bore for optimal frac stimulation and production. Trinidad's technology platform continues to focus on enhancing revenue generation by improving predictability and performance for its clients.

Trinidad's upgrade program is proceeding as expected and the Company's 2018 capital budget, including its portion of TDI capital and net of proceeds from expected asset sales, remains at $81.6 million. Trinidad expects to fund its capital program through cash flow generated from operations and proceeds from the sale of assets. Of the eight rigs being upgraded as part of the 2018 capital program, seven are now contracted and Trinidad anticipates that the remaining rig will be contracted by the end of the third quarter.

Trinidad remains committed to its low cost structure and expects G&A costs² to be approximately $40 million in 2018, representing a reduction of approximately $18 million, or 31% from 2017.

Conclusion of strategic review

In the third quarter of 2018, after a comprehensive public process, Trinidad's board of directors announced the conclusion of the Company's strategic review. The board of directors determined that the best alternative to improve shareholder value was to pursue Trinidad's revised five-year strategic plan, capitalizing on the Company's operational excellence, strong customer base, geographic diversity and solid financial position.

As an outcome of the strategic review and in its drive to become a leader in the North American oilfield services business, Trinidad has clearly defined its five-year strategic plan. The plan is founded on the four key initiatives listed below.

1. Strengthen its commitment to financial discipline, free cash flow and improve its debt metrics;
2. Leverage its high-quality asset base to drive profitable growth and strong returns;
3. Promote a culture of high performance, with improved shareholder alignment; and
4. Expand the Trinidad technology platform.

Trinidad expects that strong performance in these key initiatives will build shareholder confidence and value. In addition, improved world oil prices are allowing Trinidad to negotiate longer-term, higher-margin drilling contracts. The combination of these factors is expected to drive improved financial performance and returns.

As part of the Company's commitment to improved performance and financial discipline, it has set targets for several key metrics. Trinidad's performance in these metrics in 2017, year-to-date 2018 and targets for 18-months (2019 target) and three years (2021 target) are laid out below:

Performance metrics and targets

RESULTS FROM OPERATIONS

United States and International Operations

Higher activity, stronger dayrates and increased cost control all contributed to improved profitability in the US and international operations in the current year. For the three months ended June 30, 2018, Trinidad recorded operating revenue and operating income of $91.0 million and $30.6 million, respectively, an increase of 25.2% and 56.7% compared to the second quarter of 2017. For the six months ended June 30, 2018, Trinidad recorded operating revenue and operating income of $171.7 million and $60.4 million, respectively, an increase of 31.3% and 60.0%, respectively, compared to the first six months of 2017.

During the three and six months ended June 30, 2018, Trinidad recorded 3,672 and 7,111 operating days, respectively, up 24.2% and 31.2%, respectively, from the comparable periods in 2017. Activity increased due to improving commodity prices and growing customer demand.

In the three and six months ended June 30, 2018, Trinidad recorded average dayrates of US$19,297 per day and US$18,966 per day, respectively, an increase of US$1,048 per day and US$900 per day, respectively, from the comparable periods of 2017. Dayrates increased in the current year due to improving pricing as a result of strengthening market conditions combined with continued strong execution on performance-based contracts.

In the three and six months ended June 30, 2018, operating expense per day was US$12,825 per day and US$12,315 per day, respectively, a decrease of 3.9% and 2.7%, respectively, compared to the prior year. Cost control measures and lower rig reactivation costs in the current year have allowed Trinidad to record lower per-day metrics and improve profitability.

Increased activity levels at higher dayrates have improved Trinidad's operating income and operating income - net percentage in 2018 compared to the prior year. Trinidad recorded operating income - net percentage of 33.6% in the second quarter of 2018, compared to 26.9% in the same period of 2017, and 35.1% in the first six months of 2018, compared to 28.8% in the comparable period of 2017.

Trinidad's US and international rig count totaled 66 rigs at June 30, 2018 compared to 69 at June 30, 2017. Two rigs in the first quarter of 2018 were transferred from the Canadian operations to meet strong demand in the Permian basin, offset by five low-specification rigs being redeployed to inventory in the current year.

Second Quarter of 2018 versus First Quarter of 2018

Strong market conditions continued to improve activity and dayrates in the second quarter of 2018 when compared to the first quarter. In the second quarter of 2018, operating revenue and operating income increased by $10.4 million and $0.8 million, respectively, compared to the first quarter of 2018.

Operating days for the second quarter 2018 were 233 days higher than the first quarter of 2018.

Dayrates increased by US$684 per day in the second quarter of 2018 compared to the first quarter of 2018, largely due to strong customer demand, as well as wage increases in the US operations that were passed on to customers. This was slightly offset by a change in rig mix whereby the Company recorded higher activity on heavy doubles in the second quarter, compared to the first quarter.

Operating income increased as a result of higher activity levels and dayrates in the second quarter, compared to the first quarter, offset by higher labour costs due to wage increases, higher repair and maintenance and other one-time costs. Repair and maintenance costs were slightly higher in the second quarter, compared to the first quarter of 2018, due to higher recertification and equipment costs in the current period. Operating income - net percentage in the current quarter was 3.3 percentage points lower than the first quarter of 2018, consistent with higher operating costs in the current period.

Canadian Operations

Improving industry conditions in the current year resulted in higher activity, higher dayrates and improved profitability in 2018 compared to the prior year. For the three months ended June 30, 2018, Trinidad recorded operating revenue and operating income of $31.8 million and $10.2 million, respectively, an increase of 46.0% and 149.4%, respectively, from the comparable period in 2017. For the six months ended June 30, 2018 Trinidad recorded operating revenue and operating income of $91.2 million and $31.8 million, respectively, an increase of 3.5% and a decrease of 7.4%, respectively, compared to the same period in the prior year.

For the three and six months ended June 30, 2018, activity increased by 24.4% compared to the prior year, with 1,367 operating days recorded, compared to 1,099 in the second quarter of 2017. For the six months ended June 30, 2018, operating activity was 6.4% higher with 4,241 operating days in 2018, compared to 3,987 operating days in the prior year. In each of the three and six months ended June 30, 2018, Trinidad outperformed the industry recording higher average utilization than the industry average.

In the three months ended June 30, 2018, average dayrates were 17.4% higher than the second quarter of 2017, reflecting a change in rig mix in the current period combined with increased base dayrates due to stronger industry conditions. For the six months ended June 30, 2018, dayrates are 2.7% lower than the same period for 2017, driven by lower early termination and standby revenue in the current period. Year to date in 2018, Trinidad recorded $4.9 million related to shortfall amounts for contracted days not worked on one rig in the period, whereas in 2017, the Company recorded $13.5 million related to shortfall amounts collected on six rigs. Excluding early termination and standby revenue, dayrates for the six months ended June 30, 2018 were $20,333 per day, an increase of $1,610 per day from the adjusted dayrate of $18,723 per day in 2017.

For the three months ended June 30, 2018, operating income - net percentage was 31.8% compared to 18.5% in 2017. Higher dayrates, due to a change in rig mix and upward pricing momentum, combined with lower operating expense per day allowed for the 13.3 percentage point increase in operating income - net percentage. For the six months ended June 30, 2018, operating income - net percentage was 34.7%, compared to 38.6% in the prior year. Operating income - net percentage decreased in the current year mainly due lower early termination and standby revenue recorded in 2018. Adjusted for early termination and standby revenue, operating income - net percentage totaled 31.2% in the first half of 2018, compared to 27.9% in the first half of 2017, mainly as a result of higher dayrates and slightly higher operating expenses per day year over year.

Trinidad's Canadian rig count totaled 68 rigs at June 30, 2018, compared to 70 rigs at June 30, 2017. The Company transferred two rigs to its US drilling division in the first quarter of 2018 to meet strong US customer demand.

Second Quarter of 2018 versus First Quarter of 2018

The Canadian drilling industry is typically the busiest during the first quarter, with the second quarter impacted by spring break-up. Weather conditions and road bans restrict the movement of the rigs. As a result of this seasonality, in the second quarter of 2018, operating revenue and operating income decreased by $27.5 million and $11.5 million, respectively, compared to the first quarter of 2018. As well, activity decreased by 1,507 operating days in the second quarter of 2018 compared to the first quarter of 2018.

Lower activity was slightly offset by improving dayrates in the current quarter. Dayrates increased in the second quarter to $23,295 per day compared to $20,644 for the first quarter of 2018. Dayrates increased largely due to a change in rig mix, combined with a general strengthening of commodity prices.

Joint Venture Operations

Trinidad Drilling International (TDI):
Amounts below are presented at 100% of the value included in the statement of operations and comprehensive (loss) income for Trinidad Drilling International (TDI); Trinidad owns 60% of the shares of TDI and each of the parties has equal voting rights. Trinidad considers the investment to be a financial asset at fair value through profit or loss and recognizes changes in fair value of the investment in the statement of operations and comprehensive (loss) as a loss (gain) from investments in joint ventures.

Lower activity and less early termination and standby revenue negatively impacted profitability in the TDI joint venture operations for the three and six months ended June 30, 2018. Operating revenue and operating income decreased in 2018 due to lower activity and lower early termination in both the Saudi Arabian and Mexican divisions, offset slightly by revenue generated by one rig drilling in Bahrain in the second quarter of 2018 and additional mobilization revenue.

During the three months and six months ended June 30, 2018, TDI recorded lower operating days than the comparative periods in 2017. In the current quarter, lower activity was largely due to no active rigs in Saudi Arabia in the quarter compared to three active rigs in 2017, partly offset by the Bahrain division commencing operations in the second quarter of 2018. On a year-to-date basis, TDI had one active rig during the year in Saudi, compared to three active rigs in the prior year, and more days recorded on one rig in Mexico versus the current year.

Operating revenue in the three and six months ended June 30, 2018 decreased by 51.0% and 74.1%, respectively, compared to the same period in 2017 due to lower activity, combined with less early termination and standby revenue. In the first half of 2017, TDI received US$23.8 million in early term and standby revenue mainly related to the termination of two rigs in the Mexico operations, compared to US$0.2 million received in the first half of 2018.

For the three months ended June 30, 2018, dayrates increased by US$957 per day compared to second quarter of 2017, as a result of mobilization revenue related to the Kuwait project. Adjusted for Kuwait mobilization and early termination and standby revenue, TDI recorded dayrates of US$42,058 per day in the second quarter of 2018 compared to US$43,732 per day in 2017, a decrease of US$1,674 per day, mainly due to lower contracted rates in the current period.

For the six months ended June 30, 2018, dayrates were lower in the current period by US$21,092 per day due to lower early termination and standby revenue recorded in 2018 compared to the prior year, offset slightly by mobilization revenue recorded in 2018 related to the Kuwait project. Normalizing for start up mobilization and early termination and standby revenue, TDI recorded dayrates of US$44,461 per day for the first six months of 2018, compared to US$45,117 per day in the comparable period of 2017, mainly due to lower contracted dayrates in the current year.

Operating income and operating income - net percentage decreased in the three and six months ended June 30, 2018, compared to the same period in 2017 due mainly to lower activity and lower early termination and standby revenue in 2018. As well, TDI recorded higher operating expenses in the current year due to one-time shut down costs related to TDI's Saudi Arabian division and start-up costs related to Bahrain.

Second Quarter of 2018 versus First Quarter of 2018

In the second quarter of 2018, operating revenue and operating income increased by $3.9 million and $3.5 million, respectively, compared to the first quarter of 2018. Operating revenue and operating income increased in the second quarter mainly due to increased activity and lower operating expenses compared to the first quarter of 2018.

In the first quarter of 2018, TDI recorded higher per-day operating expenses due to the shut down of the Saudi Arabian operations and start-up costs related to Bahrain. In the second quarter of 2018, the Bahrain rig was operating and shut down costs for Saudi Arabia decreased. As well, TDI began mobilization activities to move two rigs into Kuwait. Higher activity and lower per-day operating expenses improved profitability in the TDI joint venture operations in the second quarter of 2018.

FINANCIAL SUMMARY

Trinidad's total long-term debt balance at June 30, 2018 decreased by $36.6 million compared to December 31, 2017 due to lower amounts outstanding on the credit facilities offset by an increase in the Senior Notes at June 30, 2018. The decrease in the credit facility was due to payments made during the year as activity and Adjusted EBITDA increased. The increase in the Senior Notes was entirely due to a strengthening of the US dollar compared to the Canadian dollar at June 30, 2018 versus December 31, 2017. As these notes are held in US funds, the Senior Notes are translated at each period end, and as such, their aggregate value fluctuates with the US to Canadian exchange rates.

Credit Facility and Debt Covenants

Trinidad's credit facility includes a Canadian revolving facility of $100.0 million and a US revolving facility of $100.0 million. Included in the facility are a $10.0 million Canadian dollar bank overdraft and a $10.0 million US dollar bank overdraft. The facility requires quarterly interest payments based on Bankers Acceptance and LIBOR rates. The facility matures on December 12, 2020 and is subject to annual extensions of an additional year on each anniversary date upon consent of the lenders holding two-thirds of the aggregate commitments under the credit facility. The members of the syndicated groups include major Canadian, US and international financial institutions. The debt is secured by a general guarantee over the assets of Trinidad and its subsidiaries.

At June 30, 2018, Senior Debt to Bank EBITDA was 0.34 times and Bank EBITDA to Cash Interest Expense was 5.00 times. Trinidad was in compliance with all covenants at June 30, 2018.

Other covenants in effect include, but are not limited to, the following: incurring additional debt and liens on assets; investments, including advances to the TDI joint venture; asset sales; and making restricted payments. The credit facility allows Trinidad to pay dividends provided that Trinidad's Total Debt to Bank EBITDA covenant is less than five times. At June 30, 2018, Trinidad is in compliance with all covenants related to the credit facility.

Capital Expenditures

As of June 30, 2018, Trinidad spent $23.2 million on capital expenditures, compared to $58.6 million in 2017. Capital spend in 2018 related to upgrade projects in the US to move rigs into the Permian, as well as maintenance costs on rigs in the US and Canada.

In 2018, Trinidad expects to spend approximately $114.3 million in capital expenditures, with $51.0 million in maintenance capital and $63.3 million in growth capital. In addition, Trinidad expects to spend $55.3 million (Trinidad's 60% share) in capital expenditures in the joint venture mainly related to deploying two rigs to Kuwait, as well as costs incurred to move one rig into Bahrain. Trinidad expects to fund its capital program through cash flow generated from operations and approximately $88.0 million of proceeds generated from the sale of assets, for a total net capital spend in 2018 of approximately $81.6 million.

SUBSEQUENT EVENT

On August 1, 2018, Trinidad announced the conclusion of its previously announced strategic review. During the review, Trinidad and its financial advisor evaluated a number of alternatives and their potential to enhance shareholder value, including a sale of select assets and a corporate transaction. The Company continues to review certain non-core asset sale opportunities, but has decided to conclude the formal strategic review process.

CONFERENCE CALL

Wednesday, Aug 8, 2018
8:00 a.m. MT (10:00 a.m. ET)
888-390-0546 (toll-free in North America) or 416-764-8688 approximately 10 minutes prior to the conference call
Conference ID: 91287157

Archived Recording:        
888-390-0541 or 416-764-8677
Conference ID: 287157

Webcast: https://www.trinidaddrilling.com/investors/events-presentations

About Trinidad

Trinidad is an industry-leading contract driller, providing safe, 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. Trinidad provides contract drilling and related services in the US, Canada, the Middle East and Mexico.

Trinidad is headquartered in Calgary, Alberta, Canada. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol TDG. For more information, please visit www.trinidaddrilling.com.

For further information, please contact:

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Consolidated Statements of Operations and Comprehensive (Loss)

Consolidated Statement of Changes in Equity

Consolidated Statements of Cash Flows

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: adjusted EBITDA, adjusted EBITDA from investments in joint ventures, working capital, Senior Debt to Bank EBITDA, Total Debt to Bank EBITDA, Bank EBITDA to Cash Interest Expense, operating days, utilization rate - operating day, revenue - rate per operating day or dayrate, operating expense - rate per operating day or operating expense per day, Adjusted EBITDA margin percentage, Free Cash Flow, G&A as a % of revenue, Net Debt to Adjusted EBITDA, and Return on Capital Employed or ROCE. These non-GAAP measures are identified and defined as follows:

Adjusted EBITDA is used by management and investors to analyze the Company's profitability based on the Company's principal business activities prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core business alone, amounts are removed related to foreign exchange, share-based payment expense, impairment expenses, the sale of assets, and fair value adjustments on financial assets and liabilities, as the Company does not deem these to relate to the core drilling business. Adjusted EBITDA also takes into account the Company's portion of the principal activities of the joint venture arrangements by removing the loss (gain) from investments in joint ventures and including adjusted EBITDA from investments in joint ventures. Adjusted EBITDA is not intended to represent net (loss) as calculated in accordance with IFRS. Adjusted EBITDA is calculated using 100% of the related amounts from all entities controlled by Trinidad where Trinidad may not hold 100% of the outstanding shares.

Adjusted EBITDA is calculated as follows:

Adjusted EBITDA from investments in joint ventures is used by management and investors to analyze the results generated by the Company's joint venture operations prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core drilling business, amounts related to foreign exchange, dividend expense, dividend re-class, impairment adjustments to property and equipment, as well as preferred share valuation and the sale of assets are removed. Lastly, amounts recorded for the revaluation on the investment of the TDI joint venture are removed as these are non-cash items and unrelated to the operations of the business. Adjusted EBITDA from investments in joint ventures is not intended to represent net (loss) as calculated in accordance with IFRS.

Adjusted EBITDA from investments in joint ventures is calculated as follows:

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 net earnings before interest, taxes, depreciation and amortization, plus impairment expense, loss (gain) on sale of assets, loss (gain) from investments in joint ventures, share-based payment expense, fair value adjustments on financial assets and liabilities and unrealized foreign exchange. Bank EBITDA also includes all distributions received from the Company's joint ventures during the period.

Total Debt to Bank EBITDA is defined as the consolidated balance of long-term debt, which includes the revolving facility, Senior Notes and dividends payable at quarter end less unrestricted cash in excess of $10.0 million, to consolidated Bank EBITDA for the TTM. Bank EBITDA used in this financial ratio is calculated as net earnings before interest, taxes, depreciation and amortization, plus impairment expense, loss (gain) on sale of property and equipment, loss (gain) from investment in joint ventures, 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 net earnings before interest, taxes, depreciation and amortization, plus impairment expense, loss (gain) on sale of assets, loss (gain) from investments in joint ventures, share-based payment expense, fair value adjustments on financial assets and liabilities and unrealized foreign exchange. Bank EBITDA also includes all distributions received from the Company's joint ventures during the period.

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

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

Revenue - 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).

Operating expense - rate per operating day or Operating expense per day is defined as operating expense (net of third party costs) divided by operating days (drilling days plus moving days).

Adjusted EBITDA margin percentage is used by management and investors to analyze the Company's profitability relative to its revenue generation. Adjusted EBITDA margin percentage is calculated as adjusted EBITDA divided by revenue.

Free Cash Flow is used by management and investors to measure the Company's financial performance and its ability to generate excess cash from its business operations. Free cash flow is calculated as adjusted EBITDA less finance and transaction costs and current income taxes.

G&A as a % of revenue is used by management and investors to measure the level of the Company's general and administrative costs (G&A) relative to the revenue generated. G&A as a % of revenue is calculated as G&A costs, before share-based payment costs and third-party recoverable costs, divided by revenue.

Net Debt to Adjusted EBITDA is used by management and investors to analyze the level of indebtedness of the company by measuring the amount of long-term debt net of cash or cash equivalents relative to the amount of adjusted EBITDA generated. Net debt to adjusted EBITDA is calculated as long-term debt plus current portion of long-term debt less cash or cash equivalents divided by adjusted EBITDA for the trailing twelve months.

Return on Capital Employed or ROCE is used by management and investors to measure how efficiently the Company uses capital to generate profit. ROCE is calculated as adjusted EBITDA for the trailing 12 months divided by the average of total assets less current liabilities for the beginning and ending periods.

 

ADDITIONAL GAAP MEASURES DEFINITIONS

To assess performance, the Company uses certain additional GAAP financial measures within this document that are not defined terms under IFRS. 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 Operating revenue or Revenue, net of third party costs, Funds flow, Operating income, and Operating income - net percentage. These additional GAAP measures are defined as follows:

Operating revenue or Revenue, net of third party costs is defined as revenue earned for drilling activities excluding all third party revenues. Third party revenues mainly consist of rental activities and other services provided by third parties for which Trinidad does not earn a mark-up on. This metric is used by analysts and investors to assess the operations of each segment based on the core drilling business alone and more accurately reflects the health of those operations. The operating revenue for each reportable segment is disclosed in the segmented information included in the consolidated financial statements.

Funds flow 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 flows from 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) or other measures of financial performance calculated in accordance with IFRS. Operating income is calculated from the consolidated statements of operations and comprehensive (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 - 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 revenue and expenses do not have an effect on consolidated net (loss). Operating income - net percentage is calculated from the consolidated statements of operations and comprehensive (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. In particular, but without limiting the foregoing, this document may contain forward-looking information and statements pertaining to:

• the assumption that Trinidad's customers will honour their long-term contracts, and Trinidad's ability to sign future long-term contracts;
• future liquidity levels;
• 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;
• Trinidad's ability to increase dayrates;
• 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 internal capital expenditure programs and 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 future expected cash flows and potential distributions from joint venture partners including Trinidad Drilling International (TDI);
• assumptions regarding foreign currency exchange rates and interest rates;
• assumptions around future G&A cost levels;
• 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 our future banking covenants and liquidity; and
• assumptions made about future performance and operations of joint ventures and partnership arrangements.

Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. Additional information on these and other factors that could affect Trinidad's business, operations or financial results are described in reports filed with securities regulatory authorities, accessible through the SEDAR website (www.sedar.com) including but not limited to Trinidad's annual MD&A, financial statements, Annual Information Form and Management Information Circular. 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.