Trinidad Drilling Updates Budget, Trims Q1 Dividend
Trinidad Drilling has updated its capital expenditure budget for 2009. The revised budget lowers Trinidad's capital expenditure expectations for 2009, reflecting the Corporation's prudent capital management planning and strong customer relationships. The reduced budget includes changes to Trinidad's previously announced rig construction program, most notably: a 12-month delay in the delivery of six new drilling rigs (out of a total 16 rig construction program) and the cancellation of four new service rigs. In addition, Trinidad's Board of Directors has declared the dividend for the first quarter of 2009 at the reduced level of $0.05 cents per share.
"Trinidad's decision to adjust its capital spending budget demonstrates our ongoing focus on a balanced approach towards capital management," said Lyle Whitmarsh, Trinidad's President and Chief Executive Officer. "Given the uncertain economic environment, we believe that a reduction in capital spending and lower expected debt levels for 2009 is the prudent direction to take. The decision to delay the construction of six drilling rigs was reached in conjunction with our customers, reflecting the strength of our relationships and their ongoing need for our equipment."
Updated 2009 Capital Expenditure Budget
Trinidad anticipates spending approximately $165 million, including the expenditures associated with its rig build program, in capital expenditures in 2009, a reduction of $165 million from its initial expectations of $330 million. This reduction includes a combination of capital for delayed drilling rigs and cancelled service rigs estimated to total $90 million. In addition, Trinidad has removed $75 million in optional planned capital expenditures aimed at improving and enhancing its existing fleet. In light of the current financial markets, Trinidad has delayed these capital expenditures until more robust market conditions return.
"Given the uncertain economic environment, we are managing Trinidad's capital base to preserve balance sheet strength. In 2009, growth for us will come in the form of redeploying assets to other markets where we can achieve better utilization and returns with very limited capital investment," said Brent Conway, Trinidad's Executive Vice President & Chief Financial Officer.
The six delayed drilling rigs remain under long-term, take-or-pay contracts with the original customer and are expected to be completed in 2010, assuming improved market conditions. A portion of the capital costs associated with these rigs has been incurred due to the long-lead times on receiving some items of equipment. The customer for the rigs is anticpated to pay Trinidad interest on the capital it has spent to date until the rigs are completed.
Total capital costs incurred to date on these rigs total approximately $37 million. In 2008, Trinidad completed and delivered on schedule the first three drilling rigs in the construction program, the first rig was built at the Corporation's in-house manufacturing facility and the remaining two were built by an independent rig builder. As well, two service rigs were completed in the second half of 2008. Capital expenditures incurred on the total rig construction program were $130 million at the end of 2008. In addition, as part of the previously announced Victory Rig Equipment acquisition, Trinidad added an additional 2,800 metre service rig to its fleet.
The remaining seven drilling rigs in the construction program are expected to be delivered by the end of the third quarter of 2009. The
customers for these rigs have confirmed their commitment and the associated long-term, take-or-pay contracts are unchanged.
Trinidad recently announced the renewal of its existing revolving credit facility for Canadian $225 million. At December 31, 2008, Trinidad had drawn $65 million on this facility leaving $160 million or 71 percent available. With the reduction in the expected capital expenditures in 2009, and barring unforseen circumstances, Trinidad does not anticipate utilizing the full capacity of its revolving credit facility and expects to remain well within all debt covenants.
Based upon a consensus (the average of thirteen research analysts) estimated cash flow for 2009 of approximately $175 million, the revised capital expenditures budget of $165 million and the dividend reduction of a further approximately $40 million dollars we would expect the revolving debt facility (net of cash) to peak at approximately $125 million and be approximately $60 million by the end of the year. In total Trinidad has redeployed $205 million of capital from its capital budget and dividends towards reducing otherwise anticipated debt levels. The change in the 2009 capital program is expected to allow Trinidad to fund its anticipated capital expenditure and dividend requirements from internally generated cash flow.
With the changes to the rig construction program, Trinidad has 45 percent of its fleet under long-term, take-or-pay contracts. Our customers continue to stand by their contracts, providing Trinidad a high level of visibility around a significant portion of its revenue stream.