Trinidad Drilling has successfully renegotiated and extended the terms on 17 long-term, take-or-pay contracts with one of its key US customers. These changes provide ongoing stability to the Company's revenue stream during a period of considerable uncertainty.
Trinidad's ability to renegotiate and extend the terms of its contracts reflects the customer's continued demand for its high-quality,
These rigs had existing contracts that were due to expire over the next few years with an average term of approximately 1.7 years. Following their renegotiation, the average remaining term is extended to 2.7 years, giving Trinidad added visibility 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 will be considerably mitigated by specific reductions in operating costs that Trinidad has identified and is currently implementing.
Using the new dayrate and operating cost expectations, average gross margin (on a percentage basis) on the rigs involved is expected to be three to five percent lower. 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.
The terms of the new contracts came into effect on May 1, 2009. In addition, Trinidad has agreed with the customer to cancel the
This rig, a 16,000 ft Candrill 1500ac drilling rig, was originally scheduled to be delivered in the second quarter of 2009. Trinidad will keep the components of the cancelled rig in inventory and utilize them within the remaining construction program or for repairs and maintenance of existing equipment.
Following these contract changes, Trinidad will have approximately 45 percent of its fleet under long-term, take-or-pay contract, with an average term of more than 2.5 years remaining.
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