Trinidad Drilling announces cuts in 2015 capital guidance and operational update (PR Newswire)

CALGARY, Feb. 17, 2015 /CNW/ – Trinidad Drilling Ltd. (“Trinidad” or “the Company”) announced today that it expects to spend approximately $175 million in capital expenditures in 2015. This includes capital for the completion of previously-announced new builds carried over from 2014, capital inventory, some minor upgrades to existing equipment and maintenance capital.
“Given the weakness in commodity prices, we lowered our original capital expenditures planned for 2015 from $350 million to $175 million,” said Lyle Whitmarsh, Trinidad’s Chief Executive Officer. “We feel that a prudent approach to the coming year is important and have chosen to lower our capital expenditure level from 2014. We have postponed some rig upgrades until demand increases and have worked with our customers to meet our commitments while also conserving cash generated from our operations.”
In 2014, Trinidad spent approximately $335 million, net of proceeds from the joint venture, in capital expenditures. This includes capital projects for Trinidad’s own operations and for its joint venture, and is lower than the $350 million initially expected. Lower capital expenditures in 2014 allowed Trinidad to preserve cash balances and Trinidad ended the year with approximately $55 million of net cash on hand.
The 2015 capital budget includes the completion of three US new builds for Trinidad’s fleet and three Mexican new builds for the joint venture. Certain capital items purchased for new builds and upgrades no longer required will be put into capital inventory for use on Trinidad’s existing fleet. In order to reduce capital outlays, Trinidad and its customer have agreed to fulfill two US new build commitments with rigs from Trinidad’s existing fleet. In addition, the Company has chosen to postpone upgrades previously scheduled for existing rigs and will review this decision as market conditions change throughout the year.
The 2015 capital budget is split as follows:

Growth capital (Trinidad owned equipment)          

$  90 million

Capital inventory                                               

$  35 million

Maintenance and infrastructure capital                

$  10 million

Total Trinidad-owned capital                               

$135 million

Joint venture capital (1)                                        

$   40 million

Total 2015 capital budget                                   

$ 175 million


This figure represents Trinidad’s 60% interest in joint venture capital expenditures.

Weak commodity prices and lower customer demand have led to a pullback in activity levels across North America. Industry utilization in Canada is currently approximately 45%, down 43% from the same period last year. Trinidad is maintaining its typical premium over industry activity levels and currently has approximately 55% of its Canadian fleet active. In the US, the industry active rig count has dropped to 1,392 active rigs, down 18% from the same time last year. Trinidad currently has 32 of its 54 rigs active.
International markets have also been impacted by the weaker commodity prices; however, the impact has been more muted and slower to take effect. Trinidad’s international joint venture operations are progressing as expected with all four rigs now operating in Saudi Arabia, and two of the four Mexican rigs now in country. As opportunities arise, Trinidad may consider relocating idle North American rigs to meet demand from its joint venture.
Trinidad has positioned itself well to withstand this downturn. The Company has strong financial flexibility with no debt maturities until 2018 and credit facilities of C$200 million and US$200 million that remain largely undrawn. Trinidad has a high performance fleet that delivers improved drilling efficiency at a time when this is crucial to customers.  In addition, approximately 50% of the Company’s fleet remains under long-term, take-or-pay contract with an average term remaining of 1.5 years, providing a significant level of revenue stability.
In light of current market conditions, 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. Headcount in all divisions has been reduced by a minimum of 20% for salaried positions. In addition, all executives and directors have taken a 10% reduction in salaries and board fees and a company-wide average wage roll back of 7% has been implemented.
While Trinidad is not immune to the impacts of the downturn, the Company is taking the necessary steps to lower its cost structure, limit capital expenditures and with its high performance fleet, the Company expects to be well positioned to take advantage of opportunities that arise once stronger market conditions return.
Trinidad is a corporation focused on sustainable growth that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad’s divisions operate in the drilling and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada and the United States. In addition, through a joint venture, Trinidad has the opportunity to operate drilling rigs in other international markets such as Saudi Arabia and Mexico. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad’s drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry.
This press release contains forward-looking statements and forward-looking information (collectively, “forward-looking information”) within the meaning of applicable Canadian securities laws.  The use of any of the words “expect”, “anticipate”, “will”, “future” and similar expressions are intended to identify forward-looking information.  In particular, this press release contains forward-looking information pertaining to Trinidad’s plans, strategies, objectives, expectations and intentions including, without limitation: the manufacturing and upgrading of drilling rigs; the timing of the delivery of the rigs into operation; Trinidad’s and the joint venture’s growth opportunities; Trinidad’s 2014 and 2015 capital expenditure programs; Trinidad’s expectation that it will fund the building and upgrading of rigs through cash flow from operations; the potential success of the joint venture; Trinidad’s ability to lower its cost structure and its ability to move rigs to the joint venture and enter new international markets.
The forward-looking information included in this press release reflects several factors, expectations and assumptions including, without limitation: oil and gas industry conditions and oil and gas production levels; commodity prices; supply and demand for commodities; scheduling and timing of certain projects and Trinidad’s and the joint venture’s strategy for growth; capital expenditure programs, cost structure and other expenditures by oil and gas exploration and production companies; Trinidad’s and the joint venture’s future operating and financial results; that Trinidad will continue to conduct its operations, including with respect to rig design and manufacturing, in a manner consistent with its past performance.
The forward-looking information included in this press release is not a guarantee of future performance and should not be unduly relied upon.  Forward-looking information is 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 information including, without limitation: volatility in market prices for oil, natural gas and LNG; liabilities inherent in the drilling and manufacturing industries, including technical problems; competition for skilled personnel; changes in general economic, market and business conditions; actions by governmental or regulatory authorities including changes to tax or environmental laws; the ability of Trinidad’s customers to raise capital and to continue with their drilling programs; increases and overruns in construction costs; supply and demand for commodities; and the risks inherent in Trinidad’s ability to generate sufficient cash flow from operations to meet its current and future obligations. Should any one of a number of issues arise, Trinidad may find it necessary to alter its current business strategy and/or capital expenditure program. Additional risks that could impact the business and operations of Trinidad are detailed under the heading “Risk Factors” in Trinidad’s annual information form for the year ended December 31, 2013. Trinidad cautions that the foregoing list of risks and uncertainties is not exhaustive.  The forward-looking information contained in this press release speaks only as of the date of this press release and Trinidad assumes no obligation to publicly update or revise such forward-looking information to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.
This news release shall not constitute an offer to sell or the solicitation of an offer to buy the shares in any jurisdiction.  The shares offered will not be and have not been registered under the United States Securities Act of 1933 and may not be offered or sold in the United States or to a United States person, absent registration, or an applicable exemption therefrom.
SOURCE Trinidad Drilling Ltd.