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Trinidad Energy Services Acquires Axxis Drilling

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Trinidad Energy Services Income Trust, through an indirect, wholly owned subsidiary ("Trinidad AcquisitionCo") has entered into an exclusive asset purchase agreement to acquire certain assets of Drilling Productivity Realized, L.L.C., P.C. Axxis, L.L.C., DPR International, L.L.C. and DPR Rentals, L.L.C. (collectively, "Axxis"), pursuant to which Trinidad AcquisitionCo will acquire four land based drilling rigs and one barge drilling rig, together with related inventory, crewboats and spare parts (the "Axxis Acquisition"). The acquired assets are operated by Axxis in the United States under the name "Axxis Drilling". In addition to these fully operational drilling rigs, Trinidad AcquisitionCo will assume the remaining construction commitments of a second barge drilling rig currently under construction, and will reimburse Axxis for construction costs undertaken to the date of closing. The purchase price for the Axxis Acquisition is US $139,000,000 (approximately $147,300,000 CDN) plus total estimated construction commitments of US $26,000,000 (approximately $27,500,000 CDN). Trinidad intends to retain senior management and all employees of Axxis following the Axxis Acquisition. On closing, senior management of Axxis will enter into standard employment and non-compete agreements with Trinidad AcquisitionCo pursuant to which they will agree to not compete for a period of three years.

The purchase price of US $139,000,000 represents a purchase multiple of approximately 4.7 times EV/EBITDA based on normalized historical EBITDA. The Axxis Acquisition is anticipated to be accretive to the Trust given that the Trust's trust units are currently trading at an enterprise value to consensus EBITDA of multiple of 6.9x 2007 EBITDA. The Axxis Acquisition will be financed with approximately $145,300,000 CDN of cash and approximately $29,500,000 CDN of convertible debentures of the Trust to be issued to Axxis on the same terms as the Financing (as described below). Closing of the Acquisition and the Financing are conditional upon the satisfaction of various conditions typical to transactions of this nature, including the concurrent closing of the Axxis Acquisition and the Financing and the receipt of all required regulatory approvals.

Bought Deal Financing

In connection with the Axxis Acquisition, Trinidad has entered into an agreement with a syndicate of underwriters co-led by TD Securities Inc. and Raymond James Ltd., and including BMO Capital Markets, Canaccord Adams, RBC Capital Markets, Scotia Capital Inc, CIBC World Markets Inc., Blackmont Capital Inc., Wellington West Capital Markets Inc., and Haywood Securities Inc. (collectively, the "Underwriters"), to sell, on a bought deal basis, $325,000,000 aggregate principal amount of 7.75% convertible unsecured subordinated debentures. The net proceeds of the Financing will be used to fund the cash portion of the purchase price of the Axxis Acquisition, to repay outstanding debt of the Trust and its affiliates and for general working capital purposes.

The Debentures will have a face value of $1,000 per Debenture, a coupon of 7.75%, a maturity date of July 31, 2012, and will be convertible at any time prior to maturity or the date fixed for redemption at the option of the holder, into trust units of Trinidad at a price of $19.30 per trust unit. The Debentures will pay interest semi-annually on June 30 and December 31, with the initial interest payment to be made on December 31, 2007. Closing of the Debenture Offering is expected to occur on or about July 5th, 2007 and will be conditional on the contemporaneous closing of the Axxis Acquisition.

Additional Acquisition Information

The Axxis Acquisition is anticipated to:

  • be immediately accretive on an operating cash flow per trust unit basis;
  • provide increased business opportunities in the United States, while lowering the risk associated with Trinidad's current United States expansion;
  • provide product and geographical diversity through the addition of the barge rigs into Trinidad's current rig fleet;
  • add key management to Trinidad's team with extensive international experience in both the land rig and barge rig markets;
  • provide Trinidad with an entry into the barge rig market in the United States with significant opportunities to grow in other jurisdictions;
  • expand Trinidad's customer base to operators working in the inland and the shallow waters of the Gulf of Mexico; and
  • further reduce the seasonal nature of Trinidad's cash flows from Canadian operations.

Utilization and Contract Information

  • All of the land rigs being acquired from Axxis are on take-or-pay contracts until the end of December, 2008.
  • The barge rig is currently under contract until June of 2008.
  • As a result of these contracts and the quality of the operations, the Axxis rigs have achieved 100% utilization rate since January of 2004.

Rig Information

  • The land rigs being acquired are state-of-the-art and were constructed in 2006 and 2007.
  • The land rigs are 1300 horsepower with depth ratings from 13,000 ft to 15,000 ft.
  • The barge rig is less than 5 years old and is depth rated to 25,000 ft and 2,000 horsepower. The new barge rig presently being constructed is anticipated to be put into service in January 2008 and will be a 3,000 horsepower complete AC package.
  • Trinidad AcquisitionCo will manage three additional barge rigs which are owned by an independent third party for a daily fee.

Trinidad's management is excited about having the Axxis employees join Trinidad and is looking forward to making the transition for each employee as easy and as effortless as possible.

Trinidad Energy Services Income Trust is a growth oriented income trust that trades on the TSX under the symbol TDG.UN. Trinidad's divisions operate in the drilling and well servicing sectors of the North American oil and gas industry. With the completion of the current rig construction programs, the Trust will have 106 drilling rigs ranging in depths from 1,000 - 6,500 meters. In addition to its drilling rigs, Trinidad has 20 service rigs that have been completely retrofitted or are new within the past five years and 17 pre-set and coring rigs. 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 and competitive in the industry.

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