Strong Customer Demand Drives Additional Contract Commitments and Increased Capital Expenditure for Trinidad Drilling in 2017, Partly Funded by JV Distribution
Trinidad Drilling Ltd. (TSX:TDG) ("Trinidad" and "the Company") announced today that it has increased its capital expenditure budget for 2017 by $80 million, in response to strong demand from customers, particularly in the Permian Basin in the US. In 2017, Trinidad expects to spend approximately $175 million in capital expenditures, with $155 million directed towards rig upgrades and $20 million towards maintenance capital.
The incremental capital of $135 million over the Company's initial $40 million capital budget is largely backed by customer commitments, including early termination provisions that covers all the committed incremental capital, with additional contracts expected to be signed. Capital associated with the contracts under negotiation will not be spent unless suitable contract terms can be agreed. Of the total 2017 upgrade capital, approximately 75% will be spent in the US and 25% will be spent in Canada, with rig upgrades expected to be completed throughout the first three quarters of 2017. Trinidad expects to recover the upgrade capital invested in 2017 through incremental Adjusted EBITDA1 (on an annualized basis) within 2.5 years.
"We have seen a strong increase in customer demand in 2017, with recent acceleration in the past two months," said Brent Conway, Trinidad's President and Chief Executive Officer. "This demand is focused on modern, high performance equipment that allows our customers to drill wells quickly and efficiently. Our already high spec fleet is able to be upgraded relatively easily to meet the changing demands of our customers, allowing us to maintain our position as a leading high performance driller and to improve the future marketability of our fleet."
Trinidad's expanded upgrade program includes increasing the pressure capacity of mud circulating systems, adding mud pumps, moving systems, additional generators and AC power conversion. Following the completion of the upgrade program, half of Trinidad's US fleet will be equipped with a moving system and just under half will have 7500 PSI, making these rigs fit the new "ultra, high-spec" category US customers are increasingly requesting.
In the US, Trinidad currently has 32 rigs or 47% of its US fleet operating, including 26 rigs operating in the Permian Basin. Another 11 rigs are expected to start up in the Permian in the coming months, giving Trinidad strong and growing market share in North America's most active play. By the end of the third quarter, Trinidad expects to have approximately 45 rigs operating in the US. In Canada, it is currently spring break-up, a time when rig activity typically lowers due to road bans and wet ground conditions.
Trinidad currently has 7 rigs or 10% of its Canadian fleet running, well ahead of the levels running at the same time in the past two years. Trinidad expects activity levels in Canada to rebound quickly once ground conditions allow rigs to return to work.
Customer demand in both Canada and the US has been growing since crude oil prices began to improve towards the end of 2016. During the early stages of the rebound, opportunities existed to upgrade rigs for customers; however, the contract terms available did not meet Trinidad's economic thresholds and the Company initially planned a low capital budget for 2017. As conditions have improved and contract terms changed to exceed Trinidad's thresholds, the Company took the opportunity to lock in increasing dayrates, termination provisions and contract upside. Several of the contracts signed include price escalation clauses tied to crude oil prices, performance incentives and contract duration. These contracts allow Trinidad to lock in a base revenue level, while allowing the Company to share in the benefits of increasing commodity prices and strong operational performance.
Since the beginning of March this year, Trinidad has added 8 new long-term contracts. Including the contracts associated with the current upgrade program, Trinidad has 31 rigs, or 21% of its fleet under long-term contracts, with an average term remaining of 1.6 years. The Company also has a significant number of rigs under contracts with term of less than one year, not included in the long-term contract base.
1. See Non-GAAP Measures Definitions section of this document for further details.
Early in the second quarter of 2017, Trinidad received a distribution from its international joint venture operations of approximately $40 million. These funds, along with cash on hand, funds generated from its operations and where necessary, the Company's revolving credit facility, will be used to fund the capital expenditure program.
Trinidad is a corporation focused on sustainable growth that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad's divisions currently operate in the drilling sector of the oil and natural gas industry, with operations in Canada, the United States and internationally. In addition, through joint venture arrangements, Trinidad operates drilling rigs in Saudi Arabia and Mexico, and is currently assessing operations in other international markets. 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.
SOURCE: Trinidad Drilling Ltd.
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