Here is the update and latest news : CALGARY, Aug. 1, 2018 /CNW/ - Trinidad Drilling Ltd. (TSX: TDG) ("Trinidad" or "the Company") is announcing the conclusion of its previously disclosed strategic review. Trinidad also announces the addition of John R. Blocker, Jr. to its Board of Directors (Board).
Since beginning the strategic review on February 20, 2018, Trinidad and its financial advisor have evaluated a number of alternatives and their potential to enhance shareholder value, including a sale of select assets and a corporate transaction. The Company continues to review certain non-core asset sale opportunities, but has decided to conclude the formal strategic review process.
After a comprehensive public process, the proposals that Trinidad received did not fully reflect the value of the Company. The Board has determined that the best alternative to improve shareholder value is to pursue Trinidad'srevised five-year strategic plan, capitalizing on the Company's operational excellence, strong customer base, geographic diversity and solid financial position. A number of strategic changes made over the past year are now beginning to be reflected in Trinidad's financial results.
"Trinidad has a strong asset base, an improved cost structure and a solid financial position," said Brent Conway, Trinidad's President and CEO. "We are confident that we can create value for shareholders with our commitment to improved financial discipline, ongoing focus on driving better efficiency and financial performance, and further aligning management and the Board with the interests of shareholders."
STRATEGIC REVIEW DEVELOPMENTS
As an outcome of the strategic review and in its drive to become a leader in the North American oilfield services business, Trinidad has clearly defined its five-year strategic plan. The plan is founded on the four key initiatives listed below.
- Strengthen its commitment to financial discipline, free cash flow and improve its debt metrics
- Leverage its high-quality asset base to drive profitable growth and strong returns
- Promote a culture of high performance, with improved shareholder alignment
- Expand the Trinidad technology platform
Trinidad expects that strong performance in these key initiatives will build shareholder confidence and value. In addition, improved world oil prices are allowing Trinidad to negotiate longer-term, higher-margin drilling contracts. The combination of these factors is expected to drive improved financial performance and returns.
A further discussion of these initiatives follows:
1. Commitment to Financial Discipline and Generating Free Cash Flow
Trinidad is focused on improving its financial discipline, streamlining its business, and is committed to generating free cash flow to reduce indebtedness or buy back shares.
As previously announced, Trinidad has executed on certain asset sales, including the sale of three Saudi Arabian rigs and the anticipated sale of surplus facilities, with expected gross proceeds of approximately $88 million. Trinidadcontinues to focus on improving its cost structure efficiencies for both operating costs and G&A expenses. In 2018, Trinidad expects to deliver a reduction of more than 25% in G&A expenses, compared with 2017, excluding one-time costs associated with the restructuring and strategic review.
Next steps:
Trinidad has set specific, measurable long-term targets to drive improved financial discipline and allow for clearer measurement of the Company's performance. These targets are set based on the assumption of a continuation of current industry conditions and are expected to be met by the end of 2021 or earlier, unless otherwise noted. The metrics include:
- A commitment to use a minimum of 15% of free cash flow1 for debt repayment or share buy-back initiatives in 2018; followed by an annual minimum of 20% thereafter
- A target return on capital employed1 (three-year average) of more than 10%
- A target net debt to adjusted EBITDA1 of 1.5 times within the next five years
- A target annual adjusted EBITDA margin1 of more than 30%
- An annual target of G&A costs as a percentage of revenue1 of 7-8%
In addition, Trinidad will continue to evaluate further opportunities to leverage its current asset base through strategic mergers or acquisitions. The Company will also continue to evaluate underperforming assets for divestiture and will streamline its business by eliminating non-core business structures, such as small joint ventures or partnerships.
1. See Non GAAP Measures definitions
2. Leverage its High-Quality Asset Base to Drive Growth and Strong Returns
Trinidad continues to demonstrate operational excellence driven by the Company's in-demand, high-quality asset base and strong customer relationships. As previously announced, the Company is completing a selective rig upgrade program which is targeted toward high-specification rigs and strategically focused in key US and international plays. Trinidad's fleet is well positioned to meet the demands of customers and is seeing the benefits of improved market conditions through higher dayrates, increased utilization and strong margins.
In addition, Trinidad has been able to improve the visibility and stability of its international operations by adding several new contracts for its joint venture rigs.
Next steps:
Trinidad's fleet has shown its adaptability through its ability to move to new regions to achieve higher returns and to meet customers' changing needs. The Company will continue to evaluate further opportunities to relocate equipment to higher margin areas where customer demand is strong.
In addition, Trinidad will continue to evaluate fleet upgrades that meet the Company's target full-cycle return metrics of 20% or more. Trinidad will evaluate these opportunities in conjunction with its free cash flow commitments and return targets, while also ensuring they provide the Company with higher contract visibility.
Trinidad will also leverage its existing customer base and high-quality fleet to increase the exposure of its technology platform and generate strong financial returns with minimal capital investment.
3. Culture of High Performance and Shareholder Alignment
As part of the strategic review process, Trinidad's Board and management have engaged with major shareholders to obtain their perspective on Trinidad's strategy and performance. This feedback, along with Trinidad's ongoing corporate governance program, have driven changes to the Company's compensation program to improve shareholder alignment. These changes include clearer performance metrics for short and long-term incentive plans, a capped bonus pool, and the addition of a clawback policy.
In addition, changes made to Trinidad's board composition, including appointing a new chairman and adding a new independent director, have reduced the average tenure of the board and added complementary skills. The Company's executive team has also increased its share ownership levels. A significant portion of the directors' remuneration is composed of deferred share units, which mirror Trinidad shares and which must be held until retirement from the Board.
Next steps:
Trinidad's Board and management will continue to engage with shareholders, providing clear communication of the Company's objectives and strategies with well-defined and measurable goals. In addition, Trinidad is currently implementing increased share ownership requirements for its senior management team, to drive further shareholder alignment. The Company also expects the share ownership levels of the Board to increase.
Finally, the Board is actively considering additional directors to further complement the skill set of the current directors and provide ongoing renewal of the Board.
4. Expand Trinidad's Technology Platform
Trinidad has a successful history of developing rig technology, and the Company is continuing to build on that track record with the implementation and expansion of its technology platform. The platform includes CriterionTM(directional optimization software), GMXSteeringTM (completion optimization software), downhole tool supply, electronic data recorders and Trinidad's internally-developed technologies. The technology platform provides a competitive advantage with enhanced margin opportunities for Trinidad and its shareholders.
Next steps:
Trinidad is currently building customer awareness of its technology platform by partnering with key high-quality customers, conducting pilot projects, and rolling out equipment to its existing fleet. Growing customer understanding of the technology platform's benefits and its value proposition is expected to drive increased deployment through the remainder of 2018 and beyond.
As Trinidad's technology platform grows and becomes more material, the Company expects to provide additional financial and operating metrics to assist investors in measuring its contribution and performance.
OPERATIONAL UPDATE
Activity levels in Trinidad's US and Canadian operations increased in the second quarter of 2018 over the levels recorded in 2017, as a result of improving commodity prices and strong customer demand. In the US, Trinidad's activity levels continued to grow, up 24% over the second quarter of 2017, despite concerns regarding weakening demand in the key Permian play. In Canada, activity increased 24% over the same time last year as activity rebounded quickly following spring break up.
Trinidad is well positioned for ongoing success in the Permian. The Company's Permian customer base is largely made up of oil and gas producers that have secured firm transportation commitments for their production and are continuing with their development plans. Trinidad has not incurred material reductions to its customers' plans in the Permian, and while the Company continues to monitor the transportation bottlenecks in the area, it is confident that its Permian operations will continue to perform strongly.
APPOINTMENT OF NEW DIRECTOR
Trinidad is pleased to announce the appointment of John R. Blocker, Jr., of Houston, Texas, to its Board of Directors, effective August 15, 2018. Mr. Blocker, Jr. adds extensive US and international operational experience and expands the Board to six independent directors.
Mr. Blocker, Jr. has over 40 years of diverse experience in E&P and contract drilling services, in both the domestic and international markets. He spent over 13 years with Pride International, Inc. (NYSE: PDE), starting as in-country manager in Argentina before being promoted to Vice President – Latin American Operations and Senior Vice President – Worldwide Operations, and was Chief Operating Officer until his retirement in 2006. From 1986 to 1993, Mr. Blocker worked as a consultant and also founded a small drilling company and a downhole tool company. From 1975 to 1986, Mr. Blocker worked at Blocker Energy, Inc. where he started as a floorhand and subsequently served as Chief Operating Officer and a Board member. He currently manages private oil and gas investments via Blocker Energy, Inc., and serves as President & CEO of Maxxen Energy and Business Development Advisor for Wild Well Control, Inc. in Latin America.
CONFERENCE CALL
Following the release of its second quarter and year-to-date 2018 results, after market close on August 7, 2018, Trinidad will be hosting a conference call on August 8, 2018. The Company will also address the conclusion of the strategic review and the details of the initiatives underpinning its five-year strategic plan during this call.
Wednesday, August 8, 2018
8:00 am MT (10:00 am ET)
888-390-0546 (toll-free in North America) or 416-764-8688 approximately ten minutes prior to the conference call
Conference ID: 91287157