Market Overview

Trinidad Drilling Reports Second Quarter 2017 Results; Improving Industry Conditions Drive Increased Year-Over-Year Activity

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CALGARY, Alberta, Aug. 01, 2017 (GLOBE NEWSWIRE) -- Trinidad Drilling Ltd. (TSX:TDG) (Trinidad) announced its second quarter and year-to-date 2017 results today.

OVERVIEW

In the first half of 2017, improving industry conditions and growing customer demand drove increased activity levels in Canada and the US. In response to these conditions, Trinidad re-activated rigs and prepared its remaining fleet to meet growing demand.

"Industry conditions continued to improve through the first half of 2017 and despite some recent weakness in commodity prices, we continue to see strong customer demand, particularly in our US operations," said Brent Conway, Trinidad's President and Chief Executive Officer. "In the first half of 2017, operating days in our Canadian and US and international divisions were up 50% and 105%, respectively from the same period last year. As activity improved and the market for high performance rigs tightened, we have started to see increased dayrates. In fact, underlying dayrates in the US reached an inflection point in the second quarter, where the impact of rigs starting up on new contracts more than offset the impact of rigs rolling off legacy contracts."

"In order to meet the growing demand from our customers, we completed necessary maintenance and re-certification work and made steady progress on our customer-backed upgrade program during the second quarter. We also took advantage of the relative strength in the US market and moved a second rig from our Canadian operations to the Permian Basin in the US, under contract. While these activities required us to incur costs and, combined with lower early termination and standby revenue, drove lower results quarter over quarter, they point to improving underlying industry conditions and ongoing strength in future customer demand. Given current market conditions and the majority of this work completed, we expect to see a continued improvement through the second half of the year."

For the three and six months ended June 30, 2017, Trinidad recorded Adjusted EBITDA1 of $14.7 million and $65.9 million, respectively, down 74.3% and 34.9% from the same periods last year as the impact of higher activity levels was offset by less early termination and standby revenue received in the current periods. Revenue increased by 7.1% and 15.7% during the three and six months ended June 30, 2017, even though early termination and standby revenue decreased by 93.4% and 73.8% for the three and six months ended June 30, 2017. Adjusted EBITDA also lowered in the second quarter and first half of 2017 due to costs incurred to re-activate and prepare rigs for upcoming work. In addition, year-to-date 2017 Adjusted EBITDA was impacted by one-time, bad debt and severance costs of $7.1 million recorded in the first quarter of 2017.

Net income2 was a loss of $5.6 million or $(0.02) per share in the second quarter of 2017 compared to a net loss of $16.3 million or $(0.07) per share in the same quarter of 2016. Net income improved in the quarter largely as a result of a gain from investments in joint ventures, driven by a fair value adjustment, combined with lower finance and transaction costs and a larger deferred tax recovery. The impact of these factors was partly offset by lower Adjusted EBITDA, higher depreciation and amortization expense and a fair value adjustment to the Company's non-controlling interests in the current quarter. Year to date in 2017, Trinidad recorded net loss of $17.5 million or $(0.07) per share, compared to a net loss of $5.0 million or $(0.02) per share in the same period last year. In addition to the factors impacting the current quarter, net income lowered year to date due to a foreign exchange loss in the current period, compared to a gain in the prior comparable period. Earnings per share was impacted by an increase in the number of shares outstanding due to the issuance of 47.5 million shares during the first quarter of 2017.

(1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this document for further details.
(2) Net income is net income attributable to shareholders of Trinidad.

SECOND QUARTER 2017 HIGHLIGHTS

  • Revenue increased by $6.7 million in the second quarter of 2017 compared to the same period in 2016, despite a $46.2 million decrease in early termination and standby revenue in the three months ended June 30, 2017, compared to 2016. Revenue increased as a result of higher activity levels in both Canada and the US, partly offset by lower dayrates in the current period. In Canada, dayrates were lower than 2016 due to a higher proportion of smaller rigs operating, and in both Canada and the US and international drilling operations, dayrates lowered due to the number of rigs working under spot market pricing.
     
  • Operating days during the second quarter of 2017 increased by 156.7% in the Canadian and US and international drilling operations compared to the same quarter last year, as industry conditions continued to improve throughout the second quarter of 2017.
     
  • Operating income of $23.7 million during the second quarter of 2017, decreased by $38.0 million due to increased operating costs in both the Canadian and US and international drilling operations. Higher operating costs were the result of higher activity levels and seasonal repairs and maintenance costs in anticipation of activity in the second half of 2017, and approximately $3.0 million of rig reactivation and transportation costs of rigs in the US. 
     
  • Adjusted EBITDA was $14.7 million in the second quarter, a decrease of $42.4 million from 2016, primarily as a result of less early termination and standby revenue in 2017 compared to the second quarter of 2016.
     
  • Net loss was $5.6 million in the second quarter of 2017 compared to a net loss of $16.3 million in the same quarter of 2016. Net loss improved as a result of a gain from investments in joint ventures, driven by a fair value adjustment, combined with lower finance and transaction costs and a larger deferred tax recovery. The impact of these factors was partly offset by increased operating costs, higher depreciation and amortization expense and a fair value adjustment to the Company's non-controlling interests in the current quarter.
     
  • During the quarter, Trinidad continued its previously announced capital upgrade program and invested $35.4 million, which included $26.0 million in capital upgrades and enhancements to meet growing demand for high performance rigs.
     
  • During the second quarter of 2017, Trinidad received a US$30.0 million distribution from our joint venture with Halliburton, Trinidad Drilling International (TDI).
     
  • During the quarter ended June 30, 2017, Trinidad maintained its strong financial position as a result of the refinancing completed in the first quarter of 2017 where the Company redeemed its outstanding US$450 million of 7.875% senior unsecured notes due in 2019 (2019 Senior Notes) and issued US$350 million of 6.625% senior unsecured notes which mature in 2025 (2025 Senior Notes), collectively the Senior Notes.

HIGHLIGHTS

  Three months ended June 30, Six months ended June 30,
($ thousands except share and per share data) 2017   2016   % Change 2017   2016   % Change
FINANCIAL HIGHLIGHTS            
Revenue 101,166   94,476   7.1   233,903   202,126   15.7  
Operating income (1) 23,726   61,679   (61.5 ) 72,364   108,358   (33.2 )
Operating income - net percentage (1) 24.9 % 66.8 % (62.7 ) 32.8 % 55.5 % (40.9 )
Adjusted EBITDA (1) 14,655   57,035   (74.3 ) 65,914   101,243   (34.9 )
  Per share (diluted) (2) 0.05   0.26   (80.8 ) 0.25   0.46   (45.7 )
Funds flow (1) 10,517   46,898   (77.6 ) 10,754   55,598   (80.7 )
  Per share (basic / diluted) (2) 0.04   0.21   (81.0 ) 0.04   0.25   (84.0 )
Net (loss) (3) (5,583 ) (16,256 ) 65.7   (17,519 ) (4,953 ) (253.7 )
  Per share (basic / diluted) (2)(3) (0.02 ) (0.07 ) 71.4   (0.07 ) (0.02 ) (250.0 )
Capital expenditures 35,386   4,499   686.5   58,558   24,663   137.4  
Shares outstanding - diluted            
  (weighted average) (2) 269,932,262   222,506,645   21.3   260,515,345   222,087,270   17.3  
OPERATING HIGHLIGHTS            
Operating days (1)            
  Canada 1,099   665   65.3   3,987   2,666   49.5  
  United States and International 2,957   915   223.2   5,422   2,648   104.8  
  TDI Joint Venture (4) 339   461   (26.5 ) 693   1,151   (39.8 )
Rate per operating day (1)            
  Canada (CDN$) 19,842   31,138   (36.3 ) 22,104   26,258   (15.8 )
  United States and International (US$) 18,249   59,070   (69.1 ) 18,066   33,839   (46.6 )
  TDI Joint Venture (US$) (4) 50,744   55,962   (9.3 ) 79,509   50,397   57.8  
Utilization rate - operating day (1)            
  Canada 21 % 10 % 110.0   34 % 20 % 70.0  
  United States and International 48 % 15 % 220.0   44 % 22 % 100.0  
  TDI Joint Venture (4) 47 % 63 % (25.4
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