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Trinidad Drilling agrees to sell Saudi Arabian rigs

Published 13 April 2018

Trinidad Drilling (TDG) has agreed to sell its three remaining rigs located in Saudi Arabia owned by its international joint venture, Trinidad Drilling International (TDI).

The rigs and related equipment will be sold for approximately US$30 million each, or US$91 million in total gross proceeds. Trinidad’s share of these proceeds totals approximately US$55 million (C$68 million).

TDI had initially planned to relocate these rigs to the Permian Basin in the US, where customer demand is strong for high specification rigs; however, TDI was recently approached by parties interested in acquiring the equipment. The Company assessed the possible sale relative to the relocation alternative and determined that the value being offered and cash proceeds, which will provide Trinidad increased financial flexibility, were sufficiently attractive to pursue with the sale.

“As part of the strategic review we announced earlier this year, our Board and management have been evaluating opportunities to create additional value for shareholders,” said Brent Conway, Trinidad’s President and Chief Executive Officer. “While these rigs have been strong performers for our joint venture operations in Saudi Arabia, we believe that selling the rigs at an attractive price will add more value for our shareholders. In addition, the proceeds from the sale of the assets can be used to fund our existing capital program or to repay debt outstanding on our credit facility. Our strategic review process is ongoing and we will continue to look for additional opportunities to add value for shareholders.”

Trinidad has identified three wholly-owned US rigs to upgrade to meet customer demand in the Permian in substitution for the Saudi Arabian rigs. Due to the different style of these rigs and the varying upgrades required, combined with changes to the prior capital program largely driven by customer requests, Trinidad expects that an additional $16 million in upgrade capital will be needed to meet customer specifications. Including these changes, Trinidad expects to spend a total of $57.5 million in growth capital in 2018. This total includes a contingent RigMinder earnout of US$10 million and the previously disclosed upgrade and relocation of existing rigs from Canada and areas of weaker demand in the US. Trinidad continues to believe that the costs associated with relocating these rigs to the Permian will be largely covered by customers and that it will be able to generate a full cycle return on the invested upgrade capital of approximately 20% and a payback of approximately 1.5 years.

Following the close of the sale, which is anticipated to occur in the second quarter of 2018, TDI expects to distribute the net proceeds from the asset sale to its partners. TDI is currently awaiting the announcement of upcoming international tender awards and, if successful, Trinidad may use a portion of the proceeds to fund upgrades to bring two existing TDI rigs located in Mexico to meet the required tender specifications. If needed, Trinidad’s 60% share of these upgrades are expected to cost US$15 to US$20 million per rig. Trinidad expects the return generated from these upgrades to meet or exceed internal capital return benchmarks.

Following the sale of the Saudi Arabian rigs, TDI will have four rigs located in Mexico and, one rig in Bahrain. The rig located in Bahrain and one Mexican rig were recently re-activated and are expected to continue operating for the remainder of 2018. In addition to its North American fleet, Trinidad also has one wholly-owned rig located in the United Arab Emirates. Trinidad and TDI remain committed to their international operations, with a focus on Bahrain, Kuwait and Mexico.

 

Source: Company Press Release

TD Securities Inc. is acting as financial advisor to Trinidad.