Trinidad Drilling cuts dividend as losses mount
Calgary- based Trinidad Drilling Ltd. reported a dividend cut, more job reductions, lower activity and big writeoffs as the North American drilling slump continues to batter employees and investors alike.
In its first results since taking over rival CanElson Drilling Inc. in a cash and shares deal in August, Trinidad chopped its quarterly dividend to a penny per share from five cents, a move expected to save $ 36 million annually.
On a conference call Wednesday, president and chief executive Lyle Whitmarsh said the company now expects general and administrative expenses in 2016 of $ 50 million to $ 55 million, $ 30 million less than expected a year ago for CanElson and Trinidad combined, thanks to cost- cutting, wage reductions and job cuts that have reduced the overall combined head count to 2,000 from 4,000 at the end of 2014.
When the takeover was proposed, Trinidad estimated the combined companies would realize cost efficiencies of $ 10 million per year.
“We expect the integration to be mostly complete by the end of this year,” Whitmarsh said. “With the current weakness in the market, we chose to accelerate the timing of the initial integration plan ... We’ve also been resizing and centralizing the overall company to operate more efficiently in what we expect to be a weak environment for some time to come.”
Trinidad said it “significantly reduced” staff at its manufacturing site in Nisku, just south of Edmonton, in the third quarter as part of a plan to use more third- party suppliers for basic equipment. It also cut staff associated with its two U. S. Gulf of Mexico shallow drilling barges — parked for much of this year. A charter deal for three other barges expired last spring.
The company reported a net loss of $ 87 million in the third quarter ended Sept. 30, compared with a profit of $ 19 million in the same period last year. It took a $ 27- million writeoff on its barge assets, dropping the value to zero, and booked a $ 112- million impairment on goodwill.
Revenue fell more than 49 per cent to $ 124 million from $ 245 million in the third quarter of 2014 as operating days tumbled 38 per cent in Canada and 55 per cent in its United States and international division — despite the addition of 51 CanElson rigs to take the combined total to 163.
In a note to investors, analyst Dan MacDonald of RBC Dominion Securities said Trinidad beat expectations on earnings before interest, taxes, depreciation and amortization of $ 45.2 million ( RBC $ 37.9 million, consensus $ 40.8 million).
“Higher operating margins, international revenues and modestly higher early termination payments ( from customers backing out of contracts) were the drivers,” he wrote in a note to investors.
“The dividend cut is, in our view, unlikely to surprise investors given that the stock was yielding over eight per cent at yesterday’s close,” wrote TD Securities analyst Scott Treadwell in a report. “However, we are troubled by the company’s U. S. operation, which appears to have materially underperformed both the peer group and the overall industry in terms of activity.”
Trinidad shares closed at $ 2.42, down six cents. They’ve traded between $ 1.97 and $ 7.16 in the past year.
On Tuesday, the Petroleum Services Association of Canada said it expects 5,150 rig- released wells to be drilled in Canada in 2016, down from 5,340 wells in 2015. The 2014 total was 11,255 wells.
Trinidad said its international joint venture with Halliburton delivered $ 7.9 million in third- quarter EBITDA from rigs in Mexico and Saudi Arabia.
Early this year, Trinidad laid off one in five salaried employees, enacted a seven per cent across theboard wage cut and trimmed its executive salaries and directors’ fees by 10 per cent, while cutting capital spending in half to $ 175 million for 2015.