Stoneham Drilling Trust
TSX : SDG.UN

Stoneham Drilling Trust

November 09, 2006 09:37 ET

Stoneham Drilling Trust: Financial Results for the Three and Nine Months Ended September 30, 2006 and Increase in Distributions

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Stoneham Drilling Trust ("Stoneham" or the "Trust") (TSX:SDG.UN) continued to achieve record results, benefiting from additional rigs in operation as a result of the 2005 rig construction program and higher activity levels. The Trust announces that its monthly cash distribution to unitholders will be increased by 20% to $0.15 per trust unit ($1.80 per annum), commencing with the distribution to be paid to unitholders of record November 30, 2006.




HIGHLIGHTS
(000s except for
per unit amounts) Three months ended Nine months ended
September 30, September 30,
2006 2005 Change 2006 2005 Change
$ $ % $ $ %
Revenue(1) 15,780 10,458 51% 45,433 25,336 79%
Net earnings 3,953 2,662 48% 11,763 5,641 109%
Per unit(diluted) 0.49 0.43 14% 1.47 0.98 50%
Cash flow from
operations(2) 5,542 3,730 49% 16,101 7,994 101%
Per unit(diluted) 0.69 0.61 13% 2.01 1.39 45%
EBITDA(3) 5,372 3,684 46% 15,478 7,939 95%

Distributions paid
and payable 3,009 2,309 30% 9,026 6,630 36%
Payout ratio 54% 62% -13% 56% 83% -33%
Units outstanding
(weighted average
and diluted) 8,023 6,157 30% 8,023 5,759 39%
Operating Highlights
Average number
of rigs(4) 10 8.3 20% 10 7.3 37%
Rigs at September 30 10 9 11% 10 9 11%
Operating days(5) 753 543 39% 2,076 1331 56%
Utilization rate(6) 81.8% 70.9% 15% 76.0% 66.5% 14%
Industry average(6) 57.2% 63.2% -9% 57.8% 55.6% 4%

(1) Revenue has been restated to reflect the application of the CICA's
Emerging Issues Committee Abstract 123. For additional information
please see Note 1 to the financial statements for the three and nine
month periods ended September 30, 2006.
(2) Readers are advised that cash flow from operations does not have a
standardized meaning prescribed by GAAP and therefore may not be
comparable to other companies. However, Stoneham does compute cash flow
from operations on a consistent basis for each reporting period.
(3) EBITDA means earnings before interest, taxes, depreciation and
amortization. Readers are cautioned that EBITDA does not have a
standardized meaning prescribed by GAAP and therefore may not be
comparable to other companies. However, Stoneham does compute EBITDA
on a consistent basis for each reporting period.
(4) Rigs 7, 8, and 9 were deployed in February, July, and September, 2005,
respectively.
(5) Operating days represent the days the rig is in operation from spud to
rig release. It does not include stand-by, moving, rig-up or rig-out
days.
(6) Rig utilization is the percentage of operating days to total days
available.


An increase in operating days, price increases, higher day rates associated with the new rigs and an increase in expenditures recovered at cost from our customers caused revenue to grow 51% from $10.5 million in the third quarter of 2005 to $15.8 million for the same period in 2006. Net earnings and cash flow from operations increased 48% and 49%, respectively in the third quarter of 2006 to $4.0 million and $5.5 million, as a result of additional capacity and improved rig utilization.

Operating days increased 39% in the third quarter of 2006 to 753 and 56% year-over-year to 2,076, as a result of increased capacity from the 2005 rig construction program and continued strong demand for our services. Stoneham's utilization rate exceeded the industry average as reported by the Canadian Association of Oilwell Drilling Contractors (CAODC) by 43% and 31% for the three and nine months ended September 30, 2006.

The drop in natural gas prices has resulted in a slow down of drilling activity in Canada, particularly in the shallow gas market. Stoneham, with its fleet of deeper depth rated and newer drilling rigs, which are mainly under long term take or pay contracts, expects to continue to operate at a utilization rate higher than the industry average for the remainder of the year.

During the third quarter of 2006, Stoneham continued to incur costs on its rig construction program with deposits and progress payments being made on all of the drilling rigs currently under construction. On September 28, 2006, the Trust announced that a settlement was reached with its supplier regarding Rigs 11 and 12. Rig 11 is now complete and has commenced drilling operations under its long-term contract. Rig 12 is expected to be completed in the latter half of 2007. Construction of Rigs 14 through 18, with Houston based National Oilwell Varco, is progressing slightly slower than anticipated, with two rigs expected to be deployed during the fourth quarter of 2006 and three rigs deployed in the first half of 2007. Rigs 19 and 20 are expected to commence field operations in the fourth quarter of 2007.

On October 31, 2006, the Minister of Finance announced a new tax regime for income trusts and limited partnerships. For trusts publicly traded before November 2006, the new regime will impose a tax of 31.5% on distributions of trust income derived from certain sources beginning in 2011. For the Trust, this would include income from Canadian business activities allocated to it from the Partnership, interest earned on loans made to the Partnership and capital gains from the disposition of non-portfolio investments. The tax would be paid by the Trust. To the extent distributions are paid out of such income, unitholders will treat them as dividends. Individuals will be entitled to dividend tax credits, while Canadian corporations will be subject to the tax regime for inter-corporate dividends and non-residents will be subject to withholding tax at the rates applicable to dividends.

Selected financial information relating to the three and nine month periods ended September 30, 2006 and 2005 is included in this press release. This information should be read in conjunction with the consolidated financial statements and the notes thereto of Stoneham Drilling Trust for the three and nine month periods ended September 30, 2006 and 2005 and accompanying management's discussion and analysis that are being filed today with securities regulators and will be available on www.sedar.com and on Stoneham's website at www.stonehamdrilling.com.

Stoneham Drilling Trust is an income trust that provides contract drilling services to oil and natural gas exploration and production companies operating in western Canada. With its modern innovative fleet of drilling rigs Stoneham is an industry leader in operational performance, safety and rig utilization. Stoneham trades on the TSX under the symbol SDG.UN. The Trust pays monthly cash distributions to unitholders. To learn more about Stoneham, log onto our website at www.stonehamdrilling.com.

This news release may contain forward-looking statements concerning the anticipated performance of Stoneham. Forward-looking statements are based on the estimates and opinions of management at the date the statements are made, and, subject to its obligations under applicable law, Stoneham does not intend, and does not assume any obligation to update these forward looking statements if conditions or opinions should change.



Consolidated Balance Sheets
($000s)

September 30, December 31,
2006 2005
(unaudited) (audited)

ASSETS

Current
Cash and cash equivalents $ 5,066 $ 35,659
Accounts receivable 13,381 14,595
Prepaid expenses 1,796 513
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20,243 50,767

Property, plant and equipment 91,292 58,789
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$ 111,535 $ 109,556
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LIABILITIES

Current
Accounts payable and accrued liabilities $ 7,905 $ 7,847
Distributions payable 1,003 1,003
Current portion of obligations under capital
lease - 391
Callable debt - 757
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8,908 9,998
Obligations under capital lease - 378
Long-term debt 710 -
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9,618 10,376
UNITHOLDERS' EQUITY

Unitholders' capital 89,198 89,198
Accumulated earnings 30,918 19,154
Accumulated distributions to unitholders (18,199) (9,172)
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101,917 99,180

$ 111,535 $ 109,556
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Consolidated Statements of Earnings and Accumulated Earnings (unaudited)
($000s except for per trust unit amounts)

Three months ended Nine months ended
Sept 30, Sept 30,
2006 2005 2006 2005

REVENUE $ 15,780 $ 10,458 $ 45,433 $ 25,336
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EXPENSES
Operating 9,313 5,996 27,015 15,312
Amortization 1,589 1,068 4,337 2,353
General and administrative 1,095 778 2,940 2,085
Interest on term and callable
debt 10 35 42 184
Other interest (income) (180) (81) (665) (239)
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11,827 7,796 33,669 19,695
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Net earnings 3,953 2,662 11,764 5,641
Accumulated earnings, beginning
of period 26,965 11,359 19,154 8,380
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Accumulated earnings, end of
period $ 30,918 $ 14,021 $ 30,918 $ 14,021
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Earnings per unit
Basic and diluted $ 0.49 $ 0.43 $ 1.47 $ 0.98


Consolidated Statements of Cash Flows (unaudited)
($000s)

Three months ended Nine months ended
Sept 30, Sept 30,
2006 2005 2006 2005

OPERATING ACTIVITES
Net earnings for the period $ 3,953 $ 2,662 $ 11,764 $ 5,641
Adjustments for an item not
affecting cash
Amortization 1,589 1,068 4,337 2,353
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Cash flow from operations 5,542 3,730 16,101 7,994
Changes in non-cash working
capital relating to operating
activities (7,679) (4,838) (3,765) (2,318)
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(2,137) (1,108) 12,336 5,676
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INVESTING ACTIVITES
Purchase of property, plant and
equipment (22,213) (5,810) (36,841) (19,066)
Changes in accounts payable
relating to investing
activities 5,104 1,044 3,755 2,286
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(17,109) (4,766) (33,086) (16,780)
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FINANCING ACTIVITIES
Term and callable debt
repayments (42) (620) (852) (11,627)
Term debt financing 35 - 35 -
Trust unit issue - - - 39,270
Proceeds on exercise of Trust
unit options - - - 200
Distributions paid and payable
to Trust unitholders (3,009) (2,309) (9,026) (6,630)
Due to Trust unitholders - - - (23)
Changes in accounts payable
relating to financing
activities - - - 769
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(3,016) (2,929) (9,843) 21,959
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(Decrease) Increase in cash and
cash equivalents (22,262) (8,803) (30,593) 10,855
Cash and cash equivalents (Bank
indebtedness),beginning of
period 27,328 17,739 35,659 (1,919)
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Cash and cash equivalents,
end of period $ 5,066 $ 8,936 $ 5,066 $ 8,936
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