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Trinidad Drilling Ltd (2)
Symbol TDG
Shares Issued 133,425,344
Close 2015-03-04 C$ 4.49
Market Cap C$ 599,079,795
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Trinidad Drilling earns $6.59-million in 2014

2015-03-04 20:40 ET - News Release

Mr. Lyle Whitmarsh reports

TRINIDAD DRILLING LTD. REPORTS FOURTH QUARTER AND FULL YEAR 2014 RESULTS; SOLID OPERATIONAL RESULTS DESPITE WEAKENING OIL PRICES

Trinidad Drilling Ltd. is releasing its fourth quarter and full-year 2014 results. Activity levels and operating income were strong in the fourth quarter, despite weakening oil prices.

"Market conditions have changed very quickly in the past few months," said Lyle Whitmarsh, Trinidad's chief executive officer. "Our operations continued to perform well in the fourth quarter; however, we began to see the impact of lower commodity prices more significantly in the first quarter of 2015. In light of these weaker market conditions, we have lowered our 2015 capital program, and reduced operating and administrative costs. We expect that our extensive contract coverage, high-quality fleet and financial flexibility will allow Trinidad to withstand the downturn and be well positioned to perform strongly as market conditions improve."

                                      FINANCIAL HIGHLIGHTS
                        (in thousands of dollars, except per-share data)

                                            Three months ended Dec. 31,      Years ended Dec. 31, 
                                                      2014        2013          2014        2013

Revenue                                         $  276,346  $  224,563    $  941,334  $  845,888
Revenue, net of third party costs                  261,875     209,961       883,522     791,251
Operating income                                    93,826      99,607       315,159     329,807
Operating income percentage                           34.0%       44.4%         33.5%       39.0%
Operating income, net percentage                      35.6%       47.0%         35.7%       41.2%
EBITDA                                              21,308      81,246       175,215     255,221
Per share (diluted)                             $     0.15  $     0.65    $     1.27  $     2.09
Adjusted EBITDA                                     77,341      83,830       252,046     270,445
Per share (diluted)                             $     0.56  $     0.67    $     1.82  $     2.21
Cash provided by operations                          5,857     102,905       156,519     299,013
Per share (basic/diluted)                       $     0.04  $     0.83    $     1.13  $     2.45
Funds provided by operations                        79,277      83,328       216,973     231,135
Per share (basic/diluted)                       $     0.58  $     0.67    $     1.57  $     1.89
Net earnings                                       (13,507)     28,690         6,596      70,952
Per share (basic/diluted)                       $    (0.10) $     0.23    $     0.05  $     0.58
Adjusted net earnings                               23,565      31,221        60,356      84,835
Per share (basic/diluted)                       $     0.17  $     0.25    $     0.44  $     0.69
Capital expenditures                                73,401      39,791       276,674      90,260
Dividends declared                                   6,758       6,907        27,486      25,036
Total assets                                     1,941,621   1,827,496     1,941,621   1,827,496
Total long-term liabilities                        628,047     564,095       628,047     564,095

                                     OPERATING HIGHLIGHTS 

                                            Three months ended Dec. 31,      Years ended Dec. 31, 
                                                      2014        2013          2014        2013

Revenue                                         $  276,346  $  224,563    $  941,334  $  845,888
Land drilling market
Operating days 
Canada                                               3,271       2,934        12,203      11,585
United States and international                      4,820       4,470        18,478      18,234
Rate per operating day 
Canada (Canadian dollars)                       $   26,624  $   25,102    $   25,638  $   24,892
U.S. and international (Canadian dollars)       $   25,150  $   27,243    $   23,873  $   23,951
U.S. and international (U.S. dollars)           $   22,476  $   26,213    $   21,749  $   23,381
Utilization rate, operating day 
Canada                                                  62%         52%           57%         53%
U.S. and international                                  97%         71%           87%         73%
Number of drilling rigs at period-end 
Canada                                                  53          61            53          61
U.S. and international                                  47          64            47          64
Coring and surface casing rigs                           -           -             -           -
Barge drilling market
Operating days                                         212         394         1,049       1,703
Rate per operating day (Canadian dollars)       $   36,616  $   34,810    $   37,655  $   32,388
Rate per operating day (U.S. dollars)           $   32,795  $   33,490    $   34,424  $   31,605
Utilization rate, operating day                         46%         86%           57%         93%
Number of barge drilling rigs at period-end              2           2             2           2
Number of barge drilling rigs under Bareboat
Charter agreements at period-end                         3           3             3           3
Joint venture operations 
Number of drilling rigs at period-end                    6           -             6           -

Overview

Trinidad recorded solid operating results in the fourth quarter and full year 2014, which were overshadowed by falling commodity prices at year-end. Activity levels in Canada and the United States were higher than the previous year, and the company's joint venture made positive contributions to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and net earnings in its first year of operations.

Adjusted EBITDA was $252.0-million in 2014, down 6.8 per cent from the previous year as a result of lower early termination and standby revenue in the current year in the U.S. operations, partly offset by stronger operating results in Canada. In addition, higher operating costs in the U.S. and international division as rigs were reactivated and a weaker contribution from the barge rigs negatively impacted adjusted EBITDA in 2014. In the fourth quarter of 2014, adjusted EBITDA was $77.3-million, down 7.8 per cent from the same quarter last year, largely as a result of lower early termination and standby revenue in the current quarter. Excluding the impact of early termination and standby revenue in both years, Trinidad's adjusted EBITDA was $18.2-million higher in the fourth quarter and $1.6-million higher for the full year of 2014, compared with the same periods of 2013, driven by higher activity and day rates year over year.

Net earnings (loss) in the fourth quarter and full year 2014 were a loss of $13.5-million and earnings of $6.6-million, respectively, down 147.0 per cent and 90.7 per cent from the respective periods in 2013. Net earnings lowered in the current periods as a result of lower adjusted EBITDA discussed above, higher depreciation and amortization expenses, an impairment of property and equipment, partly offset by lower share-based payment expenses, lower income taxes, and a gain on sale of property and equipment.

In 2014, commodity prices trended lower as the year progressed, particularly for oil. A growing supply of crude oil in North America and a continuing strong supply coming from OPEC countries resulted in significantly lower prices at the end of 2014, compared with 2013. Lower oil prices began to impact Trinidad's operations in late 2014; however, the impact was felt more fully in early 2015, as customers cut back drilling programs and activity levels lowered.

In the fourth quarter and full year 2014, Canadian industry activity levels averaged 47 per cent and 44 per cent, respectively, up from 43 per cent and 40 per cent in the same periods last year. Trinidad maintained its premium over industry activity and its Canadian utilization rate, drilling days, increased to 57 per cent in the current quarter and 52 per cent for the full year in 2014, compared with 48 per cent for both periods last year.

In the U.S., industry activity increased in the fourth quarter and full year of 2014, averaging 1,843 and 1,789 active rigs, respectively, up from 1,679 and 1,685 active rigs, respectively, for the same periods last year. Trinidad's U.S. and international division averaged approximately 52 active rigs in the fourth quarter and 50 active rigs in 2013, up from approximately 49 active rigs in the fourth quarter of 2013, and in line with the full year in 2013.

During the fourth quarter and full year 2014, the U.S. dollar was stronger against the Canadian dollar than during the same periods last year. Trinidad has a significant portion of its business that operates in U.S. dollars and the change in foreign exchange rates in the quarter had a noticeable and largely positive impact on the company's results. The stronger U.S. dollar positively impacted EBITDA generated by Trinidad's U.S. and international division but also drove increased depreciation expenses and increased the value of Trinidad's U.S.-dollar based senior note in the fourth quarter and full year 2014.

Fourth quarter 2014 highlights

Adjusted EBITDA in the fourth quarter was $77.3-million, down 7.7 per cent from the same quarter last year and up 19.7 per cent from the third quarter of 2014. Higher early termination and standby revenue received in the U.S. and international operations in the fourth quarter of 2013 increased profitability, compared with the current quarter. Excluding early termination and standby revenue, adjusted EBITDA for the fourth quarter was $71.0-million, compared with $57.2-million for the fourth quarter of 2013. Higher activity for land drilling rigs in Canada and the U.S. contributed to improved profitability. In addition, the joint venture contributed $500,000 in adjusted EBITDA, compared with negative $800,000 in the fourth quarter of 2013.

Operating income, net percentage, was 35.6 per cent in the fourth quarter of 2014, down from 47.0 per cent in the fourth quarter of 2013, and up from 34.7 per cent in the third quarter of 2013. Operating income, net percentage, decreased largely as a result of factors affecting adjusted EBITDA discussed above. Excluding early termination and standby revenue for both quarters, operating income, net percentage, was 34.2 per cent for the fourth quarter of 2014, down 5.6 per cent from the prior year.

Net loss for the fourth quarter was $13.5-million in 2014, compared with net earnings of $28.7-million in the same period in the prior year. The decrease in net earnings was largely driven by an impairment expense of $56.9-million recognized in the Canadian, U.S. and international divisions, along with higher depreciation and amortization expense. The decrease was partly offset by the net impact of the items affecting adjusting EBITDA discussed above and lower income taxes.

Adjusted net earnings in the fourth quarter was $23.6-million, down $7.7-million from the fourth quarter of 2013. The decrease was a result of factors impacting adjusted EBITDA noted above, along with increased depreciation resulting from higher activity levels.

On Dec. 12, 2014, Trinidad amended and extended its credit facility, including additional commitments under the U.S.-dollar-denominated revolving facility. The new credit facility includes a Canadian revolving facility of $200-million (Canadian) (previously $200-million (Canadian)) and a U.S. revolving facility of $200-million (U.S.) (previously $100-million (U.S.)), and matures in December, 2018. At Dec. 31, 2014, $15.0-million had been drawn on the Canadian facility and nothing drawn on the U.S. facility.

On Nov. 25, 2014, Trinidad implemented a normal course issuer bid (NCIB) that authorizes Trinidad to purchase up to 12,299,009 common shares. During the three months and year ended Dec. 31, 2014, Trinidad purchased and cancelled 3,038,060 common shares at an average price of $5.42 per share for a total consideration of $16.5-million.

Full-year 2014 highlights

Trinidad generated revenue of $941.3-million in 2014, up $95.4-million and 11.3 per cent from 2013. Revenue was positively impacted by higher activity levels in the Canadian and U.S. land drilling business, combined with day rates that were largely similar to the prior year, a positive foreign currency translation on Trinidad's U.S. division, partly offset by a weaker contribution from the barge operations. Additionally, Trinidad's manufacturing division generated higher revenue due to external new build construction in 2014, largely related to the joint venture. In addition to the items noted above, revenue was negatively impacted by the absence of the company's coring rigs, which were sold in 2013, and lower activity from the Mexican rigs.

Overall operating income, net percentage, was 35.7 per cent in 2014, compared with 41.6 per cent in 2013. Profitability lowered in the current year largely as a result of lower early termination and standby revenue received in 2014, compared with 2013, along with higher manufacturing activity. The manufacturing division typically generates lower margins than Trinidad's drilling operations as the external new builds are constructed for Trinidad's joint venture company and joint venture partner at cost plus a small margin. In addition, Trinidad received higher early termination and standby revenue in 2013; this revenue has no associated costs and increases profitability. Excluding early termination and standby revenue, overall operating income, net percentage, was 34.6 per cent in 2014, compared with 39.1 per cent in 2013. Profitability was negatively impacted by higher reactivation and rig deployment costs experienced in the second and third quarters of 2014, as Trinidad reactivated and moved rigs to meet customer demand.

Adjusted EBITDA was $252.0-million in 2014, down $18.4-million or 6.8 per cent, from the previous year. Adjusted EBITDA decreased in the current year as a result of lower operating income due to the factors discussed in the first two points above. In addition, higher general and administrative expenses (excluding share-based payment expense) associated with the joint venture expansion negatively impacted adjusted EBITDA in the current year. Excluding early termination and standby revenue, adjusted EBITDA for 2014 was $1.6-million higher than 2013.

Net earnings were $6.6-million or five cents per share (diluted), down $64.4-million compared with last year. In addition to the items impacting adjusted EBITDA discussed above, net earnings lowered as a result of an impairment expense of $77.5-million, from assets deemed no longer suitable for Trinidad's operations or held at a value higher than their recoverable amount given the change in customer demand and lower commodity prices. In addition, higher depreciation and amortization expenses, and foreign exchange, lowered net earnings in 2014. Offsetting this were lower income taxes, lower share-based payment expenses, and a gain on sale of property and equipment.

Adjusted net earnings decreased by $24.5-million, compared with the prior year, with adjusted net earnings per share (diluted) decreasing 25 cents per share, for the same reasons noted for adjusted EBITDA.

On Dec. 12, 2014, Trinidad amended and extended its credit facility, including additional commitments under the U.S.-dollar-denominated revolving facility. The new credit facility includes a Canadian revolving facility of $200-million (Canadian) (previously $200-million (Canadian)) and a U.S. revolving facility of $200-million (U.S.) (previously $100-million (U.S.)) and matures in December, 2018. At Dec. 31, 2014, $15.0-million had been drawn on the Canadian facility and nothing was drawn on the U.S. facility.

Canadian operations

Fourth quarter of 2014

During the fourth quarter of 2014, revenue in Trinidad's Canadian operations increased by $13.4-million and 18.2 per cent, compared with the same quarter of 2013.

Revenue increased in the fourth quarter largely as a result of a change in rig mix, higher activity and day rates, compared with the prior year. In the fourth quarter, day rates were $1,522 per day higher than the same quarter last year, reflecting improved industry conditions over the past year and an increase to wage rates in the third quarter of 2014.

Throughout 2014, industry conditions improved and customer demand increased. This strength continued into the fourth quarter; however, as a result of weakening commodity prices, indications of softening demand began to be felt toward the end of the quarter. Utilization in the fourth quarter of 2014 averaged 62 per cent, up from 52 per cent in the same quarter last year due to increased demand. The Canadian operations recorded an additional 336 operating days in the fourth quarter, compared with the same period last year, as rigs moved into the Canadian operations in previous quarters of 2014 were in greater demand and more than compensated for the days lost on decommissioned rigs.

Operating income in the fourth quarter increased by $6.6-million, compared with the same quarter last year, reflecting higher revenue generation in the current quarter. Operating margin, net percentage, improved in the quarter, when compared with the prior year, due to higher revenue generation and the company's continued focus on cost containment.

When compared with the third quarter of 2014, operating income increased by $3.0-million and 8.1 per cent, and operating income, net percentage, increased to 45.7 per cent, from 43.5 per cent from the third quarter. The fourth quarter is typically marked by above average utilization as customers' programs increase leading into the winter drilling season. Toward the end of the fourth quarter, Trinidad noted that demand was softening as commodity prices fell. This was reflected in lower operating days in the fourth quarter, compared with the third quarter of 2014. The impact of lower operating days was offset by an increase of $1,955 per day in day rates over the third quarter. Day rates increased in the current quarter as a result of industry wage increases, a change in rig mix with more high specification rigs working and revenue from winter drilling equipment. Operating costs were consistent with the previous quarter.

Full year 2014

Trinidad's Canadian operations demonstrated strong performance in 2014, recording higher levels of operating revenue and operating income, compared with 2013. The division's improved performance was mainly driven by higher utilization, day rates and the addition of high-specification rigs. These improvements were a reflection of strong industry conditions experienced through the year, although softening in the market was noted toward the end of the year as commodity prices declined. In the second and third quarters of 2014, Trinidad moved rigs into its Canadian operations to meet customer demand, changing the rig mix to include more high performance equipment, and increasing the profitability and utilization of the Canadian fleet.

For the year ended Dec. 31, 2014, operating revenue and operating income increased from the same period in the prior year due to higher utilization, day rates and the addition of high-specification rigs in the second half of the year. This impact was slightly offset by the absence of the preset and coring rigs, which were sold in the third quarter of 2013. These rigs generated $9.3-million in operating revenue in the first half of 2013, compared with nil in the current year. Operating days and utilization were higher than the prior year, driven by the high-graded fleet and improved industry demand.

Operating income, net percentage, increased during the year, driven by improved profitability from the high-graded fleet, partially offset by weaker customer demand in the oil sands sector in the first quarter of 2014. In addition, the company's continued focus on cost containment reduced operating costs per day.

Trinidad's Canadian rig count totalled 53 rigs at the end of 2014, eight fewer than at the end of 2013. During the year, the company reviewed its fleet and identified 13 lower specification rigs to be removed from its fleet and decommissioned. In the current market conditions, the company deemed that these rigs were no longer competitive and were not economical to upgrade. The company has recognized impairment expense of $33.8-million as a result of these reviews. Earlier in 2014, the company relocated two rigs from its U.S. operations and three rigs from its Mexican operations to its Canadian operations. The rigs from Mexico were being retrofitted with top drives and other upgrades, with one rig returning to operations in the fourth quarter of 2014, and the remaining two being available to drill in 2015.

U.S. and international operations

Fourth quarter 2014

Revenue decreased in Trinidad's U.S. and international operations in the fourth quarter of 2014, compared with the fourth quarter of 2013, by $6.7-million or 4.9 per cent. Revenue was lower in the current quarter, largely due to less early termination and standby revenue received than in the same quarter last year. For the three months ended Dec. 31, 2014, the U.S. and international division received $5.6-million (U.S.) in early termination and standby revenue, compared with $25.4-million (U.S.) in the fourth quarter of 2013. Early terminations were received late in the fourth quarter of 2014, and reflect the softening of demand in the industry toward the end of the quarter.

Day rates in the fourth quarter of 2014 were $3,737 (U.S.) per day lower than the fourth quarter of 2013, as a result of higher early termination and standby revenue in 2013. Excluding the impact of early termination and standby revenue in each quarter, day rates were $652 (U.S.) per day higher in the current quarter. Higher normalized day rates in 2014 were driven by increased customer demand reflected in the higher operating days worked by the land drilling rigs, compared with the same period in the prior year. Day rates increased in the fourth quarter of 2014, compared with the third quarter, by $1,384 (U.S.) per day. Higher early termination and standby revenue drove $1,155 (U.S.) per day of the increased day rates in the fourth quarter; however, day rates also increased by $229 (U.S.) per day as a result of increased activity and demand, particularly early in the fourth quarter. Activity levels in the fourth quarter of 2014 averaged 97 per cent, compared with 71 per cent for the same quarter last year and 96 per cent for the third quarter of 2014.

Operating days in the fourth quarter of 2014 were 350 days higher than the same period in 2013, despite having fewer rigs in the quarter. Higher activity levels year over year reflect increased customer demand, compared with the same quarter last year. However, similar to the Canadian division, there was a softening in demand toward the end of the fourth quarter, driving 86 fewer operating days in the fourth quarter compared with the third quarter.

Operating income and operating income, net percentage, decreased in the fourth quarter of 2014, compared with the fourth quarter of 2013, but increased from the third quarter of 2014, largely due to the early termination and standby revenue discussed above. Excluding early termination and standby revenue, operating income was $6.0-million higher and operating income, net percentage, was 0.9 per cent higher than the fourth quarter of 2013, as a result of the stronger demand in the base land drilling business and the impact of the stronger U.S. dollar, compared with 2013, impacting revenue and operating costs.

Day rates for the company's barge rigs decreased in the fourth quarter of 2014 by $695 (U.S.) per day, compared with the same period last year, and $2,277 per day (U.S.), compared with the third quarter of 2014. The reduction in day rates reflects the overall softening in the market with oversupply of barge rigs and the impact of lower commodity prices. Utilization also dropped to 46 per cent in the fourth quarter of 2014, compared with 86 per cent in the fourth quarter of 2013, and 73 per cent in the third quarter of 2014. Lower activity levels in the current quarter resulted in lower revenue and profitability.

Full year 2014

Operating days and utilization increased in 2014, compared with the previous year; however, lower early termination and standby revenue than received in 2013 caused operating revenue to lower year over year. Early termination and standby revenue in 2014 was $14.2-million (the majority of which was recognized in the first quarter), compared with $34.1-million in 2013 (the majority of which was recognized in the fourth quarter). Excluding the impact of early termination and standby revenue from both years, operating revenue in 2014 was $466.0-million, $9.7-million higher than in 2013. In addition, operating revenue was negatively impacted in 2014, by lower activity in the barge operations and the impact from the Mexican rigs, which were idle in 2014, but were active in the first half of 2013. This was partly offset by the favorable impact of foreign exchange.

In 2014, total operating days increased by 244 days in the U.S. and international division despite having fewer rigs in the fleet, driven by the strong demand from customers for most of the year. For the year ended Dec. 31, 2014, day rates decreased by $1,632 (U.S.) per day, compared with the prior year. The decrease reflects the lower early termination and standby revenue in the current year. Excluding the impact of early termination and standby revenue, day rates were $455 (U.S.) per day lower in 2014, than 2013. Increasing demand in the second and third quarters of 2014 in the U.S. allowed Trinidad to reactivate its lower specification rigs, changing the active rig mix and resulting in a lower average day rate compared with the previous periods. Additionally, several high day rate rigs that received termination revenue in late 2013 and early 2014 were not fully used in the first half of 2014, lowering the overall average day rate. These rigs had all returned to work in the third quarter of 2014 and continued through the fourth quarter. Softening in the market was noted toward the end of the year consistent with the decline in commodity prices.

Operating income and operating income, net percentage, declined in the year. The decline in revenue, discussed above, was further impacted by increased operating expenses. In the first half of 2014, Trinidad reactivated a number of rigs in the U.S. land drilling division, which had significant repairs and maintenance costs for the company. In addition, Trinidad incurred costs related to the redeployment of its Mexican rigs to Canada in the current year. Excluding the impact of the prior year's early termination and standby revenue, Mexican rig redeployment costs and the barge operations, operating income, net percentage, for Trinidad's underlying U.S. land drilling business was in line with the prior year.

At Dec. 31, 2014, Trinidad's U.S. and international rig count totalled 47 rigs, 17 fewer rigs than at the same time last year. During 2014, the company reviewed its fleet and identified nine rigs to be removed from the fleet and decommissioned, as it was determined that in the current market conditions these rigs were no longer competitive and were not economical to upgrade. The company recognized impairment expense of $22.9-million as a result of these reviews. In addition, the rig count also lowered during 2014, as a result of two U.S. rigs and three Mexican rigs being redeployed to the company's Canadian drilling operations. The rig count was also reduced year over year as three rigs were sold to the joint venture in the first quarter of 2014.

While Trinidad's barge drilling rigs had higher day rates in the current year, compared with last year, an increase of $2,819 per day (U.S.), an oversupply of barge rigs in the market and lower commodity prices had a significant negative impact on activity levels in the second half of the year. Lower activity levels resulted in much lower revenue generation and profitability for the year. As a result of this, the company recorded an impairment expense totalling $20.8-million for the year ended Dec. 31, 2014, relating to the barge rigs and related equipment.

Joint venture operations

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

Fourth quarter 2014

For the three months ended Dec. 31, 2014, TDI recorded operating income and operating income, net percentage, of $6.2-million and 34.6 per cent, respectively. At Dec. 31, 2014, TDI had four rigs operating in Saudi Arabia and had begun mobilizing two rigs to location in Mexico. As with any operations that are in initial start-up phase, economies of scale are gained as additional rigs are added to the operations, and more normalized revenue and costs are established. Trinidad anticipates that by the second quarter of 2015, the joint venture will have four rigs operating in Saudi Arabia and four rigs operating in Mexico, and that revenue and costs will begin to better demonstrate the future profitability of the joint venture once all rigs are operational.

During the three months ended Dec. 31, 2014, Trinidad recorded a gain from investment in joint venture of $1.4-million, reflecting Trinidad's share of TDI's net earnings during the period. The operating income of TDI noted above was partly offset by general and administration expenses, and depreciation and amortization expenses. For the three months ended Dec. 31, 2014, the adjusted EBITDA from investment in joint venture was $700,000, which is $1.6-million higher than the same period in the prior year.

Full year 2014

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

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

During the year ended Dec. 31, 2014, TDI took ownership of three upgraded rigs purchased from Trinidad's U.S. land drilling division and three new build rigs purchased from Trinidad's manufacturing division. Four of these rigs were drilling in 2014, with two rigs expected to begin operations in the first half of 2015 in Mexico.

For the year ended Dec. 31, 2014, TDI recorded operating income and operating income, net percentage, of $16.3-million and 38.4 per cent, respectively. As at Dec. 31, 2014, TDI had four rigs drilling in Saudi Arabia, with two rigs mobilizing to Mexico. Each of the rigs in Mexico will be high-performance, 3,600-horsepower, AC, walking rigs, operating under three-year, take-or-pay contracts with an optional one-year extension.

The gain from investment in joint venture reflects Trinidad's share of TDI's operating income, as noted above, less general and administrative expenses, and depreciation and amortization expenses, which largely offset the operating income for the year ended Dec. 31, 2014. For the year ended Dec. 31, 2014, the adjusted EBITDA from investment in joint venture was $1.8-million, which is $2.6-million higher than 2013.

Manufacturing operations

Fourth quarter 2014

During the fourth quarter of 2014, Trinidad's manufacturing operations mobilized two rigs to TDI for operation in Mexico. Trinidad expects delivery of the remaining two rigs to Mexico in the first half of 2015. A training rig being built for the joint venture partner is in the final stages of completion and is expected to be delivered toward the end of the first quarter of 2015.

For the fourth quarter, Trinidad recognized revenue and expenses related to the Saudi Arabian and Mexican rig builds and the training rig, compared with minimal external new build revenue or expenses recognized during the same period in the prior year.

Full year 2014

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

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

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

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

For the year ended Dec. 31, 2014, Trinidad recognized revenues and expenses related to the Saudi and Mexico rig builds and the training rig, compared with minimal external new build revenues or expenses recognized in 2013.

Trinidad's manufacturing operations delivered the new Saudi rig to the joint venture in the third quarter of 2014, and delivered two new rigs to Mexico at the end of 2014. The company expects to deliver the remaining two rigs for Mexico in the first half of 2015. The training rig is nearly completed and is expected to be delivered in the first quarter of 2015.

Trinidad also expects to complete three new rig builds under long-term, take-or-pay contracts for its U.S. operations during the first three quarters of 2015. The rigs will be high performance Candrill, 1,500-horsepower, AC rigs with walking systems and 7,500 PSI circulating systems.

Outlook

In late in 2014 and early 2015, weaker commodity prices have led to a strong pullback in activity from customers across North America. In Canada, there are 265 active rigs as of March 2, 2015, down 56 per cent from the same time last year and in the U.S. the active rig count is at 1,208 rigs, down 30 per cent from the same time last year. The impact of lower customer demand was initially felt in the conventional, mechanical style rigs; however, spot market rates and activity levels for high-performance equipment have also come under pressure in recent weeks. Trinidad expects that lower commodity prices will increase the importance of drilling efficiency and that demand for high performance equipment, such as Trinidad's, should continue to outperform older, less efficient equipment in 2015.

As a result of weaker market conditions, management has developed what it believes to be a prudent capital program of $175-million for 2015. This program includes the completion of U.S. and joint venture new builds carried over from 2014, some minor upgrades, capital inventory and maintenance capital. Trinidad is focused on managing well costs for its customers, lowering operating costs wherever possible and leveraging its high-performance fleet to gain market share based on efficiency. As part of pursuing these strategies, Trinidad has taken steps to lower its cost structure and capital spending across the company. Head count in all divisions has been reduced by a minimum of 20 per cent for salaried positions. In addition, all executives and directors have taken a 10-per-cent reduction in salaries and board fees, and a company-wide average wage rollback of 7 per cent has been implemented.

Trinidad currently has more than 45 per cent of its fleet under long-term, take-or-pay contract with an average term remaining of approximately 1.5 years, providing the company with a level of revenue stability.

The drilling industry is an inherently cyclical business and Trinidad is no stranger to the fluctuations of commodity prices. The company has worked hard over the last few years to position itself to withstand these cycles and to take advantage of the opportunities they often uncover. In the past few years, Trinidad has continued to enhance its fleet, keeping it one of the most modern and technically advanced in the industry. The company has broadened its customer base to eliminate any high levels of concentration and has added geographic diversity with its international operations. In addition and perhaps most importantly, Trinidad has paid off debt and improved its financial flexibility. At year-end 2014, Trinidad had total debt to bank EBITDA of 1.93 times and expects to remain well within its debt covenant of 4.0 times for the foreseeable future.

While Trinidad is not immune to the impacts of lower crude oil and natural gas prices, the company's strengthened balance sheet and focus on high-specification equipment increases the company's stability. Additionally, it provides the company opportunities to move rigs to areas of higher demand both in North America and internationally, and improve its ability to withstand periods of lower demand. Trinidad expects to exit this down cycle positioned to perform strongly as industry conditions improve.

Conference call

A conference call and webcast to discuss the results will be held for the investment community on Thursday, March 5, 2015, beginning at 9 a.m. MT (11 a.m. ET). To participate, please dial 888-231-8191 (toll-free in North America) or 647-427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12:30 p.m. MT on March 5, 2015, until 11:59 p.m. MT, March 12, 2015, by dialling 855-859-2056 or 416-849-0833 and entering replay access code 79726017.

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

        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
               (in thousands of dollars, except per-share amounts)

                                                       For the years ended Dec. 31,
                                                                   2014       2013  
Revenue                                                                          
Oil field service revenue                                     $ 938,083  $ 844,342
Other revenue                                                     3,251      1,546
                                                                941,334    845,888
Expenses                                                                         
Operating expense                                               626,175    516,081
General and administrative                                       65,649     71,004
Depreciation and amortization                                   125,012    117,067
Foreign exchange                                                  5,017      1,342
(Gain) loss on sale of property and equipment                    (8,238)     1,341
Impairment of property and equipment                             77,535        131
                                                                891,150    706,966
(Gain) loss from investment in joint venture                        (19)       768
Finance costs                                                    39,531     42,368
Earnings before income taxes                                     10,672     95,786
Income taxes                                                                     
Current                                                           4,557      1,077
Deferred                                                           (481)    23,757
                                                                  4,076     24,834
Net earnings                                                      6,596     70,952
Other comprehensive income                                                       
Foreign currency translation adjustment, net of income tax       58,066     38,807
                                                                 58,066     38,807
Total comprehensive income                                       64,662    109,759
Earnings per share                                                               
Net earnings                                                                     
Basic                                                         $    0.05  $    0.58
Diluted                                                       $    0.05  $    0.58

We seek Safe Harbor.

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