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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