/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES/
TSX SYMBOL: TDG and TDG.DB
CALGARY, Aug. 11 /CNW/ - Trinidad Drilling Ltd. ("Trinidad" or the
"Company") reported operating and financial results for the second quarter and
first six months of 2009 today. Despite the weak industry conditions present,
Trinidad reported strong gross margins, utilization levels above industry
average, lower debt levels and continued growth in the second quarter of 2009.
"Trinidad remained focused on its long-term strategy of value-added
growth, backed by long-term contracts while also managing the challenging
market and industry conditions during the second quarter," said Lyle
Whitmarsh, Trinidad's President and Chief Executive Officer. "We continued our
geographic expansion in two fronts in the quarter, growing our fleet in both
the US and Mexico. Our strong performance and customer-focused approach
allowed us to extend the average term on our long-term, take-or-pay contracts
during a period of historically low demand for oilfield services. In addition,
we were able to preserve our gross margins through re-aligning our cost
structure and added financial flexibility by significantly reducing the
Company's level of indebtedness during the quarter. To have achieved these
advancements in our corporate strategy during a less challenging period would
be commendable on its own but to achieve this during the current environment
shows the commitment of our team and the soundness of our business model."
SECOND QUARTER AND YEAR-TO-DATE HIGHLIGHTS
(Quarter-over-quarter and year-to-date comparatives all relate to the
comparable period in 2008)
- Trinidad recorded revenue of $125.5 million for the second quarter of
2009 and $317.1 million year-to-date, down 11.1% and 12.1%
respectively, largely due to lower utilization rates and weaker
industry conditions.
- Drilling utilization in Canada averaged 14% in the second quarter and
32% year to date, exceeding industry utilization averages by three
and nine percent, respectively, but down from the levels recorded in
2008 of 31% for the quarter and 52% for the first half of the year.
The US and Mexico drilling operations reported utilization of 61% in
the quarter and 63% year to date compared to 87% in both comparative
periods.
- Cash flow from operations before changes in non-cash working
capital (1) was $25.6 million ($0.27 per share (diluted)), in the
second quarter of 2009 and $77.1 million ($0.81 per share (diluted))
year-to-date, down 5.8% and 21.1%, respectively, compared to the same
periods last year. The lower cash flow levels reflect the reduced
revenue generated, however this impact was largely mitigated through
improved cost control in the second quarter.
- Trinidad's high level of rigs under contract, its deeper capacity
fleet and its focus on cost control allowed the Company to record a
strong gross margin(1) percentage of 42% both in the second quarter
and year to date compared to 38% and 42%, respectively, in 2008.
- Net earnings before impairment of intangible asset (1) in the
second quarter were a loss of $8.6 million ($0.09 per share
(diluted)) and earnings of $8.9 million ($0.09 per share (diluted))
year to date, compared to $1.1 million and $40.1 million,
respectively in 2008. In addition to the items above, net earnings
were impacted by a foreign exchange loss of $9.5 million and a loss
on disposal of assets of $5.6 million.
- On June 25, 2009, Trinidad closed an equity financing deal where a
total of 27,184,500 shares were issued for gross proceeds of
$140 million. The net proceeds were used to reduce the Company's
indebtedness and to provide additional financial flexibility.
- During the second quarter of 2009, Trinidad announced the expansion
of its Mexican operations, with the redeployment of four existing,
under-utilized rigs from its Canadian fleet into the Chicontepec
region under long-term, take-or-pay contracts with 100% utilization.
(1) Please see the Non-GAAP Measures Definitions section of this MD&A
(as defined herein) for further details.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis (MD&A) of the
financial condition and results of operations is intended to help the reader
understand the current and prospective financial position and operating
results of Trinidad Drilling Ltd. ("Trinidad" or the "Company"). The MD&A
discusses the operating and financial results for the three and six months
ended June 30, 2009 and is dated August 10, 2009 and takes into consideration
information available up to that date. The MD&A is based on the unaudited
consolidated financial statements of Trinidad for the three and six month
periods ended June 30, 2009, which were prepared in accordance with Canadian
Generally Accepted Accounting Principles (GAAP). The MD&A should be read in
conjunction with the annual consolidated financial statements and related
notes for the year ended December 31, 2008. Additional information is
available on Trinidad's website (www.trinidaddrilling.com) and all previous
public filings, including the most recently filed Annual Report and Annual
Information Form, are available through SEDAR (www.sedar.com).
As a result of Trinidad's conversion from an income trust to a
corporation, effective March 10, 2008, references to the "Company", "shares",
the "Incentive Options Plan", "options" and "dividends" should be read as
references to the "Trust", "units", "Unit Rights Incentive Plan", "rights" and
"distributions" respectively, for the periods prior to March 10, 2008. All
amounts are denominated in Canadian dollars (CDN$) unless otherwise
identified. All amounts are stated in thousands unless otherwise identified.
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FINANCIAL HIGHLIGHTS
($ thousands except share, per share
and percentage data)
Three months ended June 30,
2009 2008 % change
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Revenue 125,472 141,179 (11.1)
Gross margin(1) 52,461 53,765 (2.4)
Gross margin percentage(1) 41.8% 38.1% 9.7
EBITDA(1) 29,044 39,884 (27.2)
Per share (diluted)(2) 0.31 0.45 (31.1)
EBITDA before stock-based
compensation(1) 30,714 40,017 (23.2)
Per share (diluted)(2) 0.32 0.46 (30.4)
Cash flow from operations 79,234 83,777 (5.4)
Per share (diluted)(2) 0.83 0.95 (12.6)
Cash flow from operations before
change in non-cash working capital(1) 25,616 27,202 (5.8)
Per share (diluted)(2) 0.27 0.31 (12.9)
Net earnings (loss) (8,590) 1,141 (852.8)
Per share (basic)(2) (0.09) 0.01 (1,000.0)
Per share (diluted)(2) (0.09) 0.01 (1,000.0)
Net earnings (loss) before
impairment of intangible asset(1) (8,590) 1,141 (852.8)
Per share (basic)(2) (0.09) 0.01 (1,000.0)
Per share (diluted)(2) (0.09) 0.01 (1,000.0)
Net earnings (loss) before
stock-based compensation(1) (6,920) 1,274 (643.2)
Per share (diluted)(2) (0.07) 0.01 (800.0)
Capital expenditures
(including deposits) 31,061 27,492 13.0
Net debt(1) 465,519 461,628 0.8
Shares outstanding - basic
(weighted average)(2) 95,150,116 86,750,690 9.7
Shares outstanding - diluted
(weighted average)(2) 95,150,116 87,825,214 8.3
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Six months ended June 30,
2009 2008 % change
-------------------------------------------------------------------------
Revenue 317,058 360,830 (12.1)
Gross margin(1) 133,965 152,193 (12.0)
Gross margin percentage(1) 42.3% 42.2% 0.2
EBITDA(1) 98,357 128,553 (23.5)
Per share (diluted)(2) 1.04 1.50 (30.7)
EBITDA before stock-based
compensation(1) 100,718 128,855 (21.8)
Per share (diluted)(2) 1.06 1.50 (29.3)
Cash flow from operations 116,536 130,324 (10.6)
Per share (diluted)(2) 1.23 1.52 (19.1)
Cash flow from operations before
change in non-cash working capital(1) 77,096 97,712 (21.1)
Per share (diluted)(2) 0.81 1.14 (28.9)
Net earnings (loss) (14,239) 40,053 (135.6)
Per share (basic)(2) (0.15) 0.47 (131.9)
Per share (diluted)(2) (0.15) 0.47 (131.9)
Net earnings (loss) before
impairment of intangible asset(1) 8,950 40,053 (77.7)
Per share (basic)(2) 0.09 0.47 (80.9)
Per share (diluted)(2) 0.09 0.47 (80.9)
Net earnings (loss) before
stock-based compensation(1) (11,878) 40,355 (129.4)
Per share (diluted)(2) (0.13) 0.47 (127.7)
Capital expenditures
(including deposits) 91,398 57,833 58.0
Net debt(1) 465,519 461,628 0.8
Shares outstanding - basic
(weighted average)(2) 94,774,982 85,347,826 11.0
Shares outstanding - diluted
(weighted average)(2) 94,774,982 85,916,240 10.3
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(1) Readers are cautioned that gross margin, gross margin percentage,
EBITDA, EBITDA before stock-based compensation, cash flow from
operations before change in non-cash working capital, net earnings
(loss) before impairment of intangible asset, net earnings (loss)
before stock-based compensation and net debt and the related per
share information do not have standardized meanings prescribed by
GAAP - see "Non-GAAP Measures".
(2) Basic shares include the weighted average number of shares
outstanding over the period. Diluted shares include the weighted
average number of shares outstanding over the period and the dilutive
impact, if any, of the deemed conversion of convertible debentures
and the number of shares issuable pursuant to the Incentive Option
Plan.
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OPERATING HIGHLIGHTS
Three months ended June 30, Six months ended June 30,
2009 2008 % change 2009 2008 % change
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Land Drilling Market
Operating days -
drilling
Canada 692 1,742 (60.3) 3,237 5,751 (43.7)
United States
and Mexico(1) 3,233 3,783 (14.5) 6,476 7,458 (13.2)
Rate per drilling day
Canada (CDN$) 23,564 23,219 1.5 24,796 23,711 4.6
United States and
Mexico (CDN$)(1) 23,747 21,565 10.1 25,438 21,649 17.5
United States and
Mexico (US$)(1) 19,554 21,449 (8.8) 20,759 21,541 (3.6)
Utilization rate
- drilling
Canada 14% 31% (54.8) 32% 52% (38.5)
United States 61% 87% (29.9) 63% 87% (27.6)
CAODC industry
average 11% 20% (45.0) 23% 38% (39.5)
Number of drilling
rigs at quarter end
Canada 53 62 (14.5) 53 62 (14.5)
United States and
Mexico(1) 64 48 33.3 64 48 33.3
Utilization rate
for service rigs 19% 29% (34.5) 30% 45% (33.3)
Number of service
rigs at quarter end 23 20 15.0 23 20 15.0
Number of coring and
surface casing rigs
at quarter end 20 20 0.0 20 20 0.0
Barge Drilling Market
Operating days 351 361 (2.8) 596 633 (5.8)
Rate per drilling
day (CDN$) 30,250 41,500 (27.1) 34,750 44,428 (21.8)
Rate per drilling
day (US$) 24,906 41,268 (39.6) 28,383 44,202 (35.8)
Utilization rate 96% 100% (4.0) 82% 99%(2) (17.2)
Number of barge
drilling rigs 1 1 0.0 1 1 0.0
Number of barge
drilling rigs under
Bareboat Charter
Agreements 3 3 0.0 3 3 0.0
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(1) Trinidad commenced its operations in Mexico effective November 2008.
(2) During the first quarter of 2008, Trinidad completed significant work
to one of its barge rigs and as a result it was removed from service
and not included in the utilization calculation.
FORWARD-LOOKING STATEMENTS
The MD&A contains certain forward-looking statements relating to
Trinidad's plans, strategies, objectives, expectations and intentions. The use
of any of the words "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "may", "will", "project", "should", "believe",
"plans", "intends", "confident", "might" and similar expressions are intended
to identify forward-looking information or statements. Various assumptions
were used in drawing the conclusions or making the projections contained in
the forward-looking statements throughout this MD&A. The forward-looking
information and statements included in this MD&A are not guarantees of future
performance and should not be unduly relied upon. Forward-looking statements
are based on current expectations, estimates and projections that involve a
number of risks and uncertainties, which could cause actual results to differ
materially from those anticipated and described in the forward-looking
statements. Such information and statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking information
or statements. In particular, but without limiting the foregoing, this MD&A
may contain forward-looking information and statements pertaining to the
completion of announced rig construction programs on a timely basis and on
economical terms; the assumption that Trinidad's customers will honour their
take-or-pay contracts; fluctuations in the demand for Trinidad's services; the
ability for Trinidad to attract and retain qualified personnel, in particular
field staff to crew the Company's rigs; the existence of competitors,
technological changes and developments in the oilfield services industry; the
existence of operating risks inherent in the oilfield services industry;
assumptions respecting capital expenditure programs and other expenditures by
oil and gas exploration and production companies; assumptions regarding
commodity prices, in particular oil and natural gas; assumptions respecting
supply and demand for commodities, in particular oil and natural gas;
assumptions regarding foreign currency exchange rates and interest rates; the
existence of regulatory and legislative uncertainties; the possibility of
changes in tax laws; and general economic conditions including the capital and
credit markets. Trinidad cautions that the foregoing list of assumptions,
risks and uncertainties is not exhaustive. The forward-looking information and
statements contained in this MD&A speak only as of the date of this MD&A and
Trinidad assumes no obligation to publicly update or revise them to reflect
new events or circumstances, except as may be required pursuant to applicable
securities laws.
NON-GAAP MEASURES
This MD&A contains references to certain financial measures and
associated per share data that do not have any standardized meaning prescribed
by Canadian GAAP and may not be comparable to similar measures presented by
other companies. These financial measures are computed on a consistent basis
for each reporting period and include gross margin, gross margin percentage,
EBITDA (as defined in Non-GAAP measures section), EBITDA before stock-based
compensation, cash flow from operations before change in non-cash working
capital, net earnings (loss) before impairment of intangible asset, net
earnings (loss) before stock-based compensation, net debt and working capital.
Please see the Non-GAAP Measures Definitions section of this MD&A for details
with respect to definitions of these non-GAAP measures.
RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS
Management is responsible for the information disclosed in this MD&A and
the accompanying consolidated financial statements, and has in place
appropriate information systems, procedures and controls to ensure that
information used internally by management and disclosed externally is
materially complete and reliable. In addition, Trinidad's Audit Committee, on
behalf of the Board of Directors, provides an oversight role with respect to
all public financial disclosures made by the Company, and has reviewed and
approved this MD&A and the accompanying consolidated financial statements.
PROFILE
Trinidad is a growth-oriented corporation that trades on the Toronto
Stock Exchange (TSX) under the symbols TDG and TDG.DB. Trinidad's divisions
operate in the drilling, well-servicing, coring and barge-drilling sectors of
the North American oil and natural gas industry. With the completion of the
2009 rig construction program, Trinidad will have 119 land drilling rigs
ranging in depths from 1,000 - 6,500 metres and operations in Canada, the
United States and Mexico. In addition to its land drilling rigs, Trinidad has
23 service rigs, 20 pre-set and coring rigs and four barge rigs currently
operating in the Gulf of 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.
OVERVIEW
Trinidad's second quarter and year-to-date 2009 results were impacted by
the weak economic and industry conditions. This challenging period, however,
has provided Trinidad with an opportunity to demonstrate the benefits of its
deep-drilling focus, its geographical redeployment, the strength of its
contracts and its flexible cost structure.
Lower utilization rates and dayrates in both Canada and the US led to a
reduced revenue level of $125.5 million in the second quarter of 2009 compared
to $141.2 million in the previous comparative quarter, a reduction of 11%. For
the first half of 2009, Trinidad recorded revenue of $317.1 million, a 12%
decrease from the same period in 2008. Although overall revenue levels were
lower, Trinidad's focus on cost control and deeper-capacity rig mix allowed
the Company to record a strong gross margin percentage in the quarter. As a
percentage of revenue, gross margin was 42.3% in both the second quarter and
the first six months of 2009, up from 38.1% in the same quarter last year and
consistent with the first half of 2008. Gross margin in the quarter was also
positively impacted by early termination revenue in its coring and pre-setting
division.
EBITDA (as defined in Non-GAAP measures section) was $29.0 million and
$98.4 million, respectively, for the three and six month periods ending June
30, 2009, a decrease of $10.8 and $30.2 million, respectively, as compared to
2008. EBITDA in the second quarter of 2009 was negatively impacted by the
lower revenue levels generated in the period. EBITDA also decreased due to a
$9.5 million foreign exchange loss recorded in the quarter, reflecting the
impact of the weakening of the US dollar relative to the Canadian dollar.
Trinidad reported a net loss of $8.6 million or $0.09 per share diluted
for the quarter ended June 30, 2009, a decrease of $9.7 million or $0.10 per
share diluted compared to the second quarter of 2008. For the first half of
2009, Trinidad reported a net loss of $14.2 million or $0.15 per share
diluted, down $54.3 million or $0.62 per share diluted year over year. In
addition to the items mentioned above, net earnings in the second quarter of
2009 were negatively impacted by a $5.6 million loss on disposal of assets
that was recorded in the quarter. Net earnings per share diluted for the
second quarter also reflect a 1.6% increase in the weighted-average diluted
shares outstanding following Trinidad's equity offering in June 2009.
As a result of the lower activity levels and increased pricing pressure
experienced in the first half of 2009 relative to the third and fourth
quarters of 2008, management took steps to align the Company's cost structure.
The cost cutting initiatives implemented included staff reductions, wage
rollbacks and the reduction of discretionary spending. These changes were made
during the second quarter and are expected to continue to provide support to
the Company's gross margins and result in lower general and administrative
expenditure levels during the ongoing weak industry conditions.
Overall, industry activity levels continue to be negatively impacted by
global economic and financial market challenges and significant volatility in
commodity markets. Despite this, Trinidad's financial condition remains
strong. During the second quarter of 2009, Trinidad issued approximately 27.2
million shares through a bought deal equity financing for net proceeds of
$133.8 million which were used to reduce the Company's indebtedness. This
increased financial flexibility will allow Trinidad to evaluate, and if
appropriate, capitalize on value creating opportunities in potential new and
existing markets. Trinidad reduced its net debt (as defined in Non-GAAP
measures section) in the quarter by $121.0 million or 21% to $465.5 million
and had $205.0 million available on its revolving credit facility at June 30,
2009.
Trinidad's business model is based on providing modern, deep-drilling
capacity rigs targeted towards the unconventional shale plays which are in
demand even in tough industry conditions and on securing a substantial portion
of its revenue with long-term, take-or-pay contracts. In line with this
strategy, Trinidad renegotiated the terms with a key US customer on 17
existing contracts, extending the average term by one year. In addition, the
customer agreed to cancel the construction of one of the rigs included in the
2009 rig build program. Trinidad now has approximately 50% of its fleet under
long-term, take-or-pay contracts with an average term remaining of 2.5 years.
In the second quarter of 2009, Trinidad continued its strategy of
diversifying its operations geographically with two new rigs built under the
2009 rig build program being deployed to the US and four existing rigs being
removed from the Canadian fleet to be upgraded and prepared for drilling in
Mexico. All six of these rigs have long-term, take-or-pay contracts associated
with the work they will be providing. Trinidad will continue to be
opportunistic in deploying rigs to international markets with minimal new
capital investment requirements and contracts that reward high-value, high-
performance drilling rigs.
Trinidad's earnings are highly dependent upon crude oil and natural gas
commodity prices which drive its customers' cash flow levels and, in turn,
demand for its oilfield services. The Company's strong base of long-term,
take-or-pay contracts and its extensive exposure to the unconventional shale
plays throughout North America have helped mitigate the impact of the reduced
activity levels; however, the non-contracted portion of the fleet remains
vulnerable to these market conditions.
The sharp decline in the global economy which began in the latter half of
2008 and the ongoing recessionary conditions present in the first half of 2009
continued to keep pressure on crude oil and natural gas commodity prices. In
the second quarter of 2009, oil prices West Texas Instrument (WTI) moved up
45% on average from the first quarter on expectations that global economies
have potentially troughed. Meanwhile, Henry Hub natural gas moved down 22%
from the first quarter of 2009 and down 68% from the same time period of 2008,
as the market remained oversupplied with continued reductions in demand.
Natural gas prices have plunged by close to 70% from summer 2008 highs amidst
robust production from US onshore natural gas fields and slumping demand.
Large industrial consumers have scaled back natural gas use to cut costs
during the recession. In response to falling gas prices, producers have
reduced their development plans due to contracting economics, thus curbing the
flow of new natural gas supplies into the market.
Trinidad believes that the sharp reduction in natural gas drilling
activity, together with declining existing production levels, will bring
supply back in line with demand and help bolster natural gas prices. Trinidad
has positioned itself with the right style of equipment, in the right
geographic and resource-based locations and with the necessary financial
flexibility to perform strongly once more robust natural gas pricing returns.
QUARTERLY ANALYSIS 2009 2008
($ millions except per
share and operating data) Q2 Q1 Q4 Q3 Q2 Q1
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Financial Highlights
Revenue 125.5 191.6 205.3 191.7 141.2 219.7
Gross margin 52.5 81.5 84.2 73.1 53.8 98.4
Net earnings (loss) (8.6) (5.6)(1) 21.8(2) 20.4 1.1 38.9
Depreciation and
amortization 19.1 24.0 25.8 24.0 20.5 24.0
Loss (gain) on disposal
or sale of assets 5.6 4.1 (29.0) - (0.2) (0.1)
Stock-based compensation 1.7 0.7 0.9 1.2 0.1 0.2
Future income tax
(recovery) expense (2.9) 7.8 19.8 10.3 2.5 9.4
Effective interest on
financing costs 1.6 1.1 1.1 1.1 1.1 0.4
Accretion on convertible
debentures 1.3 1.2 1.2 1.2 1.2 1.8
Unrealized foreign
exchange loss (gain) 7.8 (5.0) (22.0) (6.6) 0.9 (4.1)
Impairment of intangible
asset or goodwill - 23.2 38.2 - - -
----------------------------------------------
Cash flow from operations
before change in non-cash
working capital 25.6 51.5 57.8 51.6 27.2 70.5
Net earnings (loss) per
share (diluted) (0.09) (0.06) 0.23 0.21 0.01 0.44
Cash flow from operations
before change in non-cash
working capital per
share (diluted) 0.27 0.55 0.60 0.53 0.31 0.75
QUARTERLY ANALYSIS 2007
($ millions except per
share and operating data) Q4 Q3 Q2
-------------------------------------------------
Financial Highlights
Revenue 145.8 162.2 115.5
Gross margin 58.8 70.5 42.6
Net earnings (loss) 17.9 15.0 4.7
Depreciation and
amortization 19.0 20.2 14.8
Loss (gain) on disposal
or sale of assets 0.2 - 0.1
Stock-based compensation 0.4 0.5 0.7
Future income tax
(recovery) expense (7.8) 3.3 (3.1)
Effective interest on
financing costs 1.1 1.1 0.4
Accretion on convertible
debentures 1.2 1.0 -
Unrealized foreign
exchange loss (gain) 0.2 5.3 5.8
Impairment of intangible
asset or goodwill - - -
----------------------
Cash flow from operations
before change in non-cash
working capital 32.2 46.4 23.4
Net earnings (loss) per
share (diluted) 0.21 0.18 0.05
Cash flow from operations
before change in non-cash
working capital per
share (diluted) 0.38 0.55 0.27
(1) Includes impairment of intangible asset charge of $23.2 million.
(2) Includes impairment of goodwill charge of $38.2 million.
QUARTERLY ANALYSIS 2009 2008
Q2 Q1 Q4 Q3 Q2 Q1
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Operating Highlights
Land Drilling Market
Operating days - drilling
Canada 692 2,545 3,034 3,411 1,742 4,009
United States and
Mexico(1) 3,233 3,243 3,757 3,861 3,783 3,675
Rate per drilling day
Canada (CDN$) 23,564 25,132 26,358 21,772 23,219 24,517
United States and
Mexico (CDN$)(1) 23,747 27,124 26,418 22,668 21,565 21,735
United States and
Mexico (US$)(1) 19,554 21,961 22,882 22,049 21,449 21,636
Utilization rate
- drilling
Canada 14% 51% 61% 63% 31% 72%
United States and
Mexico(1) 61% 64% 80% 85% 87% 87%
CAODC industry average 11% 36% 43% 48% 20% 56%
Number of drilling rigs
at quarter end
Canada 53 57 57 60 62 62
United States and
Mexico(1) 64 58 56 50 48 48
Utilization for service
rigs 19% 41% 45% 49% 29% 62%
Number of service rigs
at quarter end 23 23 23 20 20 20
Number of coring and
surface casing rigs at
quarter end 20 20 20 20 20 20
Barge Drilling Market(2)
Operating days 351 245 347 305 361 272
Rate per drilling
day (CDN$) 30,250 41,183 47,583 40,678 41,500 48,128
Rate per drilling
day (US$) 24,906 33,353 41,401 39,620 41,268 47,910
Utilization rate 96% 68% 94% 83% 100% 98%(3)
Number of drilling rigs
at quarter end 1 1 1 1 1 1
Number of drilling rigs
under Bareboat Charter
Agreements at quarter end 3 3 3 3 3 3
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QUARTERLY ANALYSIS 2007
Q4 Q3 Q2
-------------------------------------------------
Operating Highlights
Land Drilling Market
Operating days - drilling
Canada 2,135 2,718 1,165
United States and
Mexico(1) 3,399 3,305 2,944
Rate per drilling day
Canada (CDN$) 23,631 21,746 23,527
United States and
Mexico (CDN$)(1) 21,404 23,265 24,927
United States and
Mexico (US$)(1) 21,650 21,978 21,996
Utilization rate
- drilling
Canada 37% 47% 20%
United States and
Mexico(1) 83% 85% 88%
CAODC industry average 37% 39% 17%
Number of drilling rigs
at quarter end
Canada 64 64 64
United States and
Mexico(1) 46 43 38
Utilization for service
rigs 57% 46% 23%
Number of service rigs
at quarter end 20 20 21
Number of coring and
surface casing rigs at
quarter end 20 20 17
Barge Drilling Market(2)
Operating days 352 352 -
Rate per drilling
day (CDN$) 47,536 51,904 -
Rate per drilling
day (US$) 47,991 49,050 -
Utilization rate 96% 100% -
Number of drilling rigs
at quarter end 1 1 -
Number of drilling rigs
under Bareboat Charter
Agreements at quarter end 3 3 -
-------------------------------------------------
(1) Trinidad commenced its operations in Mexico effective November 2008.
(2) Trinidad commenced its operations in the barge drilling market with
its acquisition of Axxis effective July 2007.
(3) During the first quarter of 2008, Trinidad completed significant work
to one of its barge rigs and, as a result, it was removed from
service and not included in the utilization calculation.
An assessment or comparison of Trinidad's quarterly results, at any given
time, requires consideration of crude oil and natural gas commodity prices and
seasonality. Commodity prices ultimately drive the level of exploration and
development activities carried out by the Company's customers and the
associated demand for the oilfield services provided by Trinidad. Generally
speaking, North American markets have greater exposure to natural gas prices
while international markets are more heavily weighted to crude oil projects.
From a seasonality perspective, Trinidad operates a substantial number of rigs
in western Canada and therefore operations are impacted by weather and
seasonal factors. The winter season, which incorporates the first quarter, is
generally a busy period in western Canada as oil and gas companies take
advantage of frozen conditions to move drilling rigs into regions which might
otherwise be inaccessible to heavy equipment due to swampy conditions. The
second quarter normally encompasses a slow period referred to as spring break-
up. During this period, melting conditions result in temporary municipal road
bans that effectively prohibit the movement of drilling rigs. The third and
fourth quarters in western Canada are usually representative of average
activity levels.
Trinidad's continued expansion into the US and Mexican markets has
reduced the Company's overall exposure to the seasonal factors that are
present in its Canadian operations. Operators in the US and Mexico have more
flexibility to work throughout the year. This increased number of available
operating days has allowed Trinidad to better manage its business with more
sustainable cash flow throughout the annual cycle. This was evident throughout
2007 and 2008 as Trinidad expanded its operations in the US land and barge rig
markets and in the fourth quarter of 2008 into Mexico.
Throughout 2007, Canadian drilling operations faced declining market
conditions as a result of lower commodity prices and high natural gas storage
levels. Canadian dayrates decreased due to these conditions and the industry
experienced lower utilization levels from the second quarter of 2007 onwards,
in comparison to the same period in the prior year. The fourth quarter of 2007
was particularly impacted in western Canada as the Alberta Government
announced a new royalty regime which resulted in many of Trinidad's key
customers reducing their spending levels.
Overall, in 2008 Trinidad performed strongly in both the western Canadian
and US drilling markets, as dayrates and utilization levels generally
improved. The Company's revenue also continued to grow as a result of
acquisitions, redeployment of existing under-utilized assets into regions with
higher activity levels, the continued deployment of rigs under previous rig
construction programs and an improvement in market conditions. Upward momentum
in Trinidad's operations was evident throughout 2008 as reflected in the
growth in the Company's revenue, gross margin and EBITDA. However, a goodwill
impairment charge, higher interest, depreciation expense, increased income
taxes and reorganization costs from conversion back to a corporation
downwardly impacted net earnings during the year.
Trinidad's financial and operating results for the first six months of
2009 have been impacted by the global economic recession. These downward
financial and operational trends in 2009 are directly tied to the global
recession, tight capital markets, and sustained lows for energy commodity
prices, particularly natural gas. Drilling activity levels have not been this
low since 1999, particularly in Alberta, which is seeing the largest portion
of the decrease. Overall demand is down, commodity prices are low, and access
to capital is limited, which in addition to other factors, has caused
exploration and production companies to significantly reduce their spending.
In response to the lower activity levels and reduced margins, Trinidad
significantly reduced its capital expenditure plans, lowered its dividend and
undertook a number of cost reduction measures over the first six months of
2009, including staffing reductions, wage rollbacks, reductions in support
costs and the reduction of discretionary spending.
RESULTS FROM OPERATIONS
Canadian Drilling Operations
($ thousands
except
percentages and Three months ended June 30, Six months ended June 30,
operating data) 2009 2008 % change 2009 2008 % change
-------------------------------------------------------------------------
Revenue 23,766 44,341 (46.4) 101,994 176,445 (42.2)
Operating expense 14,465 30,389 (52.4) 61,295 102,651 (40.3)
-----------------------------------------------------
Gross margin 9,301 13,952 (33.3) 40,699 73,794 (44.8)
-----------------------------------------------------
Gross margin
percentage 39.1% 31.5% 39.9% 41.8%
Operating days -
drilling 692 1,742 (60.3) 3,237 5,751 (43.7)
Rate per drilling
day (CDN$) 23,564 23,219 1.5 24,796 23,711 4.6
Utilization rate -
drilling 14% 31% (54.8) 32% 52% (38.5)
CAODC industry
average 11% 20% (45.0) 23% 38% (39.5)
Number of drilling
rigs at quarter end 53 62 (14.5) 53 62 (14.5)
Utilization rate
for service rigs 19% 29% (34.5) 30% 45% (33.3)
Number of service
rigs at quarter end 23 20 15.0 23 20 15.0
Number of coring and
surface casing rigs
at quarter end 20 20 - 20 20 -
-------------------------------------------------------------------------
The oilfield services industry in Canada continued to experience a slow
down in the second quarter of 2009. Throughout the quarter, the Canadian
drilling market was also impacted by the seasonal conditions typically present
during the period as road bans and wet weather conditions prohibited the
movement of drilling rigs. The challenges present in the Canadian oilfield
services market, which include an oversupply of equipment in the mature and
high-cost Western Canadian Sedimentary Basin (WCSB), continued to be further
exacerbated by depressed commodity prices and declining economic conditions.
These factors resulted in reductions in industry utilization over the first
six months of 2009 to 23% compared to 38% for the same time period of 2008.
However, Trinidad's continued focus on deep drilling and long-term contracts
resulted in the Company generating utilization levels of 14% for the second
quarter and 32% year to date. Trinidad's average second quarter utilization
was three percentage points higher than the industry. This margin expanded to
nine percentage points higher for the six months ended June 30, 2009. For a
large part of this quarter most of the industry was completely shut down due
to spring break-up and significantly reduced capital spending as a result of
global recessionary conditions.
Coming into 2009, a good portion of Trinidad's customers had announced
reduced drilling budgets, and as a result of this reduced activity, the
Company has seen year-over-year declines in both operating and financial
results. Although the Montney, Bakken and Horn River resource plays in Canada
remain attractive and a focus for several of Trinidad's customers, development
in those areas has also been tempered pending any meaningful, sustainable
increase in natural gas and crude oil commodity prices. Canadian drilling
activity has been deteriorating not only due to the recessionary impact on oil
and gas demand, but also due to weak producers' cash flows and restricted
access to investment capital to help fund new exploration and development
programs. The number of wells rig released in the quarter declined by 52%,
from 1,621 wells to 784 wells year over year. On a year-to-date basis the
decline in wells being rig released reflects the strong impact the current
economic situation is having on drilling activity with 3,754 wells rig
released over the first six months of 2009 as compared to 6,761 wells in 2008,
representing a 44% decline. An industry trend that continues to benefit
Trinidad is the shift towards deeper, more complex drilling and away from
conventional drilling. Directional and horizontal wells increased to 65% of
the total wells drilled in the second quarter compared to 51% in 2008. These
statistics demonstrate the increasing proportion of capital being deployed by
producers towards the unconventional resource plays in the WCSB. Trinidad
anticipates this trend to continue over the long-term as more robust economics
on the deeper plays are driving more activity than the shallower plays, even
in today's challenging environment. Trinidad's rigs are purpose built for
these deeper, more technically-challenging resource plays and this shift in
focus by exploration and production companies continues to differentiate
Trinidad from its competitors. The Company's Canadian drilling segment
experienced a sharp decline in operating days during the second quarter of
2009, with 692 operating days, representing a 60.3% decline year over year for
the quarter. Year to date in 2009, operating days declined by 43.7%, from
5,751 days to 3,237 days year over year due to lower utilization levels, as
well as strategic rig deployments. Although operating days declined, the
Company has been able to maintain relatively stable dayrates year over year.
This was a result of the deeper-capacity drilling rig mix operating in 2009 as
compared to 2008. Trinidad's ability to maintain relatively stable dayrates in
a highly competitive environment reflects the strength of the Company's long-
term, take-or-pay contracts and the high quality of its equipment.
Revenue decreased by $20.6 million or 46.4% from $44.3 million in the
second quarter of 2008 to $23.8 million for the three months ended June 30,
2009. On a year-to-date basis Trinidad's revenue was $102.0 million, down
$74.5 million or 42.2% as compared to the same time period of 2008. These
declines were due to lower rig utilization, lower operating days and rig
redeployments. The Canadian Drilling segment had nine less rigs in its
fleet(1) on June 30, 2009, as compared to 2008, as a result of redeployments
to the Company's US and Mexico operations. Operating costs as a percentage of
revenue decreased from 68.5% in the second quarter of 2008 to 60.9% in 2009,
thus increasing Trinidad's Canadian drilling segment's gross margin percentage
to 39.1% for the quarter compared to 31.5% in 2008. A driver behind this
increase in gross margin percentage was early termination revenue of
approximately $5.0 million related to the coring and pre-setting division.
Gross margin for the first half of 2009, for the Canadian Drilling segment,
was $40.7 million or 39.9% of revenue compared to $73.8 million or 41.8% of
revenue in the first six months of 2008. Gross margin as a percentage of
revenue on a year-to-date basis has been in line with management's
expectations given Trinidad's strategy towards deeper- capacity rigs with
longer-term contract commitments at stable dayrates.
(1) As of June 30, 2009, of these nine rigs, seven rigs were redeployed
to Mexico and the remaining two rigs were in the US.
In response to weak industry conditions, Trinidad undertook a number of
cost reduction measures over the first six months of 2009, including staffing
reductions, wage rollbacks, reductions in support costs and lower
discretionary spending. In addition, the Canadian Association of Oilwell
Drilling Contractors (CAODC) voted to reduce field wages by approximately ten
percent, effective May 1, 2009. While the field staff wage reductions have
lowered operating costs, these cost savings have been passed on to the
customer in the form of reduced rates per drilling day. The Company continues
to take steps to streamline its operations, reduce costs and pursue
opportunities to maximize utilization across the Canadian fleet.
Utilization for the Company's service rigs was 19% for the quarter and
30% for the six months ended June 30, 2009. These represent declines of 34.5%
and 33.3%, respectively, as compared to the same time periods of 2008. Lower
well servicing activity levels reflect the fewer wells that require completion
work and decreased spending on production maintenance of existing wells. New
well completions continue to account for a good portion of Trinidad's service
rig operating hours, and the associated decline in well completions continues
to impact the Company's service rig results. Trinidad's coring and surface
casing rigs were negatively impacted in the quarter by large cutbacks in oil
sands projects as compared to the first half of 2008. The drastic drop in oil
prices year over year resulted in the reduction of capital spending by oil
sand producers, which has had a significant impact on this division's
financial and operating results in the first six months of 2009.
United States and Mexico Drilling Operations
($ thousands
except
percentages and Three months ended June 30, Six months ended June 30,
operating data) 2009 2008 % change 2009 2008 % change
-------------------------------------------------------------------------
Revenue 87,979 85,970 2.3 182,223 170,283 7.0
Operating expense 45,536 49,439 (7.9) 96,264 95,881 0.4
-----------------------------------------------------
Gross margin 42,443 36,531 16.2 85,959 74,402 15.5
-----------------------------------------------------
Gross margin
percentage 48.2% 42.5% 47.2% 43.7%
Land Drilling Rigs
Operating days -
drilling 3,233 3,783 (14.5) 6,476 7,458 (13.2)
Rate per drilling
day (CDN$) 23,747 21,565 10.1 25,438 21,649 17.5
Rate per drilling
day (US$) 19,554 21,449 (8.8) 20,759 21,541 (3.6)
Utilization rate -
drilling 61% 87% (29.9) 63% 87% (27.6)
Number of drilling
rigs at quarter end 64 48 33.3 64 48 33.3
Barge Drilling Rigs
Operating days -
drilling 351 361 (2.8) 596 633 (5.8)
Rate per drilling
day (CDN$) 30,250 41,500 (27.1) 34,750 44,428 (21.8)
Rate per drilling
day (US$) 24,906 41,268 (39.6) 28,383 44,202 (35.8)
Utilization rate -
drilling 96% 100% (4.0) 82% 99%(1) (17.2)
Number of barge
drilling rigs at
quarter end 1 1 - 1 1 -
Number of barge
drilling rigs
under Bareboat
Charter Agreements
at quarter end 3 3 - 3 3 -
(1) During the first quarter of 2008, Trinidad completed significant work
to one of its barge rigs and as a result it was removed from service
and not included in the utilization calculation.
The impact of declining economic conditions and depressed commodity
prices has continued to be reflected in Trinidad's US and Mexico drilling
operations segment, most notably in the US during the first six months of
2009. Baker Hughes drilling utilization statistics report that industry
activity levels in the US have declined steeply over the past six months. The
average active land rig count for the second quarter of 2009 was 879 active
rigs, which was down 50% from the same time period of 2008 with 1,772 active
rigs. Over the first six months of 2009 there were on average 1,080 active
rigs, representing a 38% drop from the levels seen in the first half of 2008.
Trinidad's average utilization for the US and Mexico land drilling segment in
the second quarter of 2009 was 61%, representing a 29.9% decline from levels
achieved in 2008. On a year-to-date basis, Trinidad's land drilling rig
utilization was 63%, down 27.6% from the levels achieved over the first six
months of 2008. Trinidad's decline in utilization is largely a reflection of
the change in market fundamentals over the latter part of 2008 and early 2009
on the Company's non-contracted rigs.
While signs of a slow-down in US activity were evident in the latter
stages of 2008 and well into the first half of 2009, industry sources are
currently beginning to show an upward trend in the number of active rigs in
the US. The Company's long-term contracts and built-for-purpose style fleet
has protected it from the full impact of the downturn, however, as
demonstrated by the lower utilization levels, Trinidad has not been completely
immune to the sharp declines in industry activity. Total land drilling
operating days declined 14.5% in the second quarter and 13.2% year-to-date
compared to 2008. US denominated dayrates were also impacted over the second
quarter falling 8.8% and year-to-date declining 3.6% as compared to the same
time periods of 2008.
The US and Mexico segment generated revenue of $88.0 million in the
second quarter of 2009 compared with revenue of $86.0 million recorded in the
comparable quarter of 2008, an increase of 2.3%. This growth was driven by the
Company's expansion into Mexico and an increased rig fleet year-over-year, in
addition to a stronger US dollar relative to the same time period last year.
The average Canadian/US dollar foreign exchange rate was 15.6% higher in the
second quarter of 2009 compared with the same time period of 2008. Trinidad
had three rigs in Mexico during the quarter compared to no rigs drilling
during the same three month period of 2008. As well, during the quarter two
new rigs were delivered into US operations as part of the 2009 rig
construction program, bringing the total rig count at quarter end to 64 land
drilling rigs, up 16 rigs as compared to the same time period of 2008.
Furthermore, the active land drilling rig mix changed significantly year-over-
year, with the majority of revenue being driven from the segment's deeper rigs
under long-term contracts. The higher proportion of long-term contracts has
positively impacted dayrates and utilization; however, these gains have been
partially offset by significantly reduced revenue and drilling rig utilization
in the non-contracted rig fleet both on a quarterly basis and year to date due
to depressed industry conditions in the US. Another factor which negatively
impacted revenue in the segment during the quarter and year to date compared
to last year has been a significant reduction in dayrates.
Operating expenses for the quarter decreased by 7.9% from $49.4 million
in 2008 to $45.5 million in 2009, causing the gross margin percentage to
increase from 42.5% to 48.2%. For the six month period ended June 30, 2009,
gross margin increased 15.5% or $11.6 million from $74.4 million to $86.0
million. These increases were in connection with the increased drilling fleet,
favourable foreign exchange impacts and increased dayrates with the majority
of revenue now being driven from the segment's deeper rigs under long-term
contracts. The Company's gross margins have also been positively impacted by
reduced operating expenses as a result of wage rollbacks, reduced
discretionary spending and cost reduction initiatives. Offsetting some of the
gross margin increase are additional expenses related to start up costs,
improved safety requirements and staffing additional field supervisors to
manage the growing US fleet.
The 2009 rig build program continues to progress as planned. During the
second quarter of 2009, two new rigs were delivered into operations and an
additional two rigs are under construction with anticipated delivery dates by
the end of the third quarter of 2009. The new builds will operate in the
Haynesville shale under long-term, take-or-pay contracts which will provide a
measure of stability to the Company's cash flows. Following the completion of
its rig build program, including delayed rigs, the Company will have
approximately 65% of its drilling rigs committed under long-term, take-or-pay
contracts in the US and Mexico.
During the second quarter, Trinidad announced the renegotiation and
extension of long-term, take-or-pay contracts with a key US customer. The
announcement entailed the successful renegotiation and extension of the terms
on 17 long-term, take-or-pay contracts. These rigs had existing contracts that
were due to expire over the next few years, following this renegotiation, the
average remaining term was extended by approximately one year, giving Trinidad
added stability over a substantial portion of its revenue stream. In addition
to changes in term, dayrates on the contracts were adjusted to more accurately
reflect the current operating environment. The impact of somewhat lower
dayrates is expected to be considerably mitigated by specific reductions in
operating costs that Trinidad has identified and continues to implement.
Trinidad believes that the benefit of guaranteed work over the contracted
period more than outweighs the slightly lower gross margins the rigs are
anticipated to achieve. In addition, Trinidad has agreed with the customer to
cancel the construction of one of the rigs included in the 2009 rig
construction program.
During the first six months of 2009, dayrates for Trinidad's barge
drilling rigs were lower than the first six months of 2008. Although the
Company's utilization was lower in the first quarter of 2009 in comparison to
the first quarter for 2008, the utilization for the barge drilling rigs
returned to levels in the second quarter for 2009 consistent to the second
quarter of 2008. The declines in barge dayrates were a direct result of the
weakening US economy, which in turn suppressed commodity prices, reducing
overall demand for barge drilling activity. During the second quarter of 2009,
Trinidad was able to increase the Company's barge drilling rig utilization
from 68% in the first quarter to 96% for the three-month period ended June 30,
2009. With the softening in the marketplace, the US dollar rate per drilling
day decreased significantly from the first to the second quarter of 2009,
dropping 25.3% from $33,353 to $24,906. Trinidad continued during the quarter
to proactively manage costs, implementing crew wage reductions to partially
offset dayrate reductions. At the end of June 2009, the barge drilling rig
industry utilization in the Gulf of Mexico was approximately 31% (source:
Delta Towing, L.L.C.). Given Trinidad's strong track record for superior
performance and quality customer relationships, the Company was able to
generate utilization of 96% for the quarter, and 82% year-to-date, both well
above industry levels. Moving forward, Trinidad expects the barge rig segment
to continue to be an important component of the Company's business. This
segment continues to add both asset and geographical diversification to
Trinidad and presents a potential opportunity to expand into other
jurisdictions following the return of more robust market conditions.
The first half of 2009 was very successful for Trinidad in Mexico. The
three land drilling rigs working in Mexico performed extremely well and
exceeded operating and financial performance targets. While onshore drilling
in the US and Canada is down significantly year over year, the average number
of active drilling rigs in Mexico's onshore fields is up close to 70% during
the first six months of 2009 as compared to the same time period of 2008
(source: Baker Hughes). Trinidad's expansion into Mexico is in response to
this growth in drilling programs and the strong demand for quality drilling
equipment. It also allows Trinidad to strategically redeploy rigs from areas
which are subject to the impacts of seasonality or where assets are under
utilized. During the quarter Trinidad announced that it had agreed to move an
additional four existing, under-utilized rigs from its Canadian operations
into Mexico under long-term, take-or-pay contracts. The rigs are contracted to
work at a utilization rate of 100% for an initial term of 18 months, with a
further 18- month extension option. Trinidad's ability to expand its
operations in Mexico is a direct reflection of the superior performance the
Company has shown to date. The rigs selected for redeployment are part of
Trinidad's existing Canadian fleet and are not currently under contract or
working. Minor enhancements will be made to the rigs in order to prepare them
for the Mexican climate and the specific work conditions in which they will be
operating. The rigs are anticipated to be operational in Mexico commencing in
the third quarter of 2009, with all four rigs drilling in Mexico by the end of
the year.
Construction Operations
($ thousands
except Three months ended June 30, Six months ended June 30,
percentage data) 2009 2008 % Change 2009 2008 % Change
-------------------------------------------------------------------------
Revenue(1) 32,106 29,541 8.7 70,360 41,132 71.1
Operating
expense(1) 31,389 26,259 19.5 63,053 37,135 69.8
-----------------------------------------------------
Gross margin 717 3,282 (78.2) 7,307 3,997 82.8
-----------------------------------------------------
Gross margin
percentage 2.2% 11.1% 10.4% 9.7%
(1) Includes inter-segment revenue and operating expenses of $18.4
million and $18.7 million for the three months ended June 30, 2009
and 2008, respectively and $37.5 million and $27.0 million for the
six months ended June 30, 2009 and 2008, respectively.
Revenue from construction operations for the second quarter of 2009
increased by 8.7% or $2.6 million from $29.5 million in 2008 to $32.1 million
in 2009, while on a year-to-date basis revenue improved by 71.1% or $29.2
million from $41.1 million to $70.4 million. Gross margin as a percentage of
revenue decreased from 11.1% for the second quarter of 2008 to 2.2% for the
same time period of 2009. Gross margin for the quarter was also impacted by
continued costs on design and engineering related to the ongoing development
of Trinidad's industry-leading rig technology. For the six month period ended
June 30, 2009, gross margin grew by 82.8 % and as a percentage of revenue was
10.4%, which represented a relatively stable margin year-over-year as compared
to 9.7% for the same time period of 2008.
Results for the construction division continue to be driven by Trinidad's
2009 rig construction program, with revenue including $37.5 million of inter-
segment construction work performed during the first six months of 2009 in
comparison with $27.0 million in the same period of 2008. On a year-to-date
basis, this impacted gross margin slightly in comparison to 2008, given that a
larger portion of the revenue generated thus far in 2009 was intercompany
related as compared to more profitable third party work. Overall increased
gross margin dollars in the manufacturing division was mostly due to the
construction of three drilling rigs for a third party customer. Two of the
three drilling rigs have been delivered as of the end of the second quarter of
2009, with the third rig expected to be delivered early in the third quarter.
The total build costs for these rigs was lower than originally anticipated and
the revision in cost estimates positively impacted profitability for the
segment in the first half of 2009. Trinidad's Construction segment is
manufacturing six of the nine rigs under its current 2008/2009 rig build
program. The segment completed the construction and delivery of two drilling
rigs to the US in the second quarter of 2009, with four completed now in
total, and the remaining two rigs expected to be deployed by the end of the
third quarter of this year.
GENERAL AND ADMINISTRATIVE EXPENSES
($ thousands
except Three months ended June 30, Six months ended June 30,
percentage data) 2009 2008 % Change 2009 2008 % Change
-------------------------------------------------------------------------
General and
administrative
expenses 12,266 12,749 (3.8) 28,663 24,172 18.6
% of revenue 9.8% 9.0% 9.0% 6.7%
General and administrative (G&A) expenses decreased 3.8% to $12.3 million
in the second quarter of 2009 from $12.7 million for the same period in 2008.
The decline is the result of the numerous cost reduction measures implemented
in the second quarter. Similar to reductions introduced in operating expenses
during the quarter, these include administrative and office staff reductions,
wage rollbacks and further reductions in support costs. Partly offsetting
these reductions were the incremental G&A expenses from the acquisition of
Victory Rig Equipment Corporation and the Company's expansion into Mexico.
The increase of 18.6% on a year-to-date basis is attributable to the
acquisition of Victory and the expansion into Mexico, neither of which were
factors during the first half of 2008, as well as an increase in allowance for
doubtful accounts of $2.7 million set up during the first quarter.
INTEREST
Three months ended June 30, Six months ended June 30,
($ thousands) 2009 2008 % Change 2009 2008 % Change
-------------------------------------------------------------------------
Interest on
long-term debt 4,919 5,793 (15.1) 9,551 12,550 (23.9)
Effective interest
on deferred
financing costs 933 422 121.1 1,372 840 63.3
-----------------------------------------------------
5,852 6,215 (5.8) 10,923 13,390 (18.4)
Interest on
convertible
debentures 6,862 6,830 0.5 13,723 13,658 0.5
Effective interest
on deferred
financing costs 665 660 0.8 1,329 1,318 0.8
Accretion on
convertible
debentures 1,308 1,195 9.5 2,584 2,363 9.4
-----------------------------------------------------
8,835 8,685 1.7 17,636 17,339 1.7
Interest on long-term debt decreased by $0.9 million in the quarter and
by $3.0 million for the year-to-date period as compared to the same periods in
the prior year.
