Stoneham Drilling Trust
TSX : SDG.UN

Stoneham Drilling Trust

March 23, 2011 09:00 ET

Stoneham Drilling Trust (TSX:SDG.UN) Announces Financial Results for the Fourth Quarter and Year Ended December 31, 2010

CALGARY, ALBERTA--(Marketwire - March 23, 2011) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Stoneham Drilling Trust ("Stoneham" or the "Trust") (TSX:SDG.UN) is proud to announce the fourth consecutive quarter of solid financial results due to higher utilization causing a significant increase in revenue, net earnings and cash flow from operations than were earned in the fourth quarter of 2009.



FINANCIAL HIGHLIGHTS
Three months ended
December 31, Year ended December 31,
(000s except for 2010 2009 Change 2010 2009 Change
per trust unit
amounts) $ $ $ $

Revenue 31,948 18,141 76% 106,102 60,023 77%
Net earnings 4,480 694 - 12,368 857 -
Per trust unit
(basic and
diluted) 0.56 0.09 - 1.54 0.11 -
Cash flow from
operations (1) 8,846 4,120 115% 26,722 9,554 180%
Per trust unit
(basic and
diluted) 1.10 0.51 115% 3.33 1.19 180%
Cash flow from
operating
activities 5,528 (4,067) - 15,633 19,493 -20%
Per trust unit
(basic and
diluted) 0.69 (0.51) - 1.95 2.43 -20%
EBITDA (1) 9,529 4,958 92% 30,523 13,536 125%

Distributions paid
and payable - - - - 802 -100%
Units outstanding
(weighted average
and diluted) 8,023 8,023 - 8,023 8,023 -

1. Cash flow from operations is defined as cash flow from operating
activities before changes in non-cash working capital relating to
operating activities. EBITDA means earnings before interest, taxes,
depreciation and amortization. Readers are advised that cash flow from
operations, cash flow from operations per trust unit and EBITDA do not
have standardized meanings prescribed by GAAP and therefore may not be
comparable with the calculations of similar measures for other
companies. However, Stoneham does compute these measures on a consistent
basis for each reporting period. The reconciliation of cash flow from
operations and EBITDA to a GAAP measure can be found in Management's
Discussion and Analysis (MD&A) for the year ended December 31, 2010.

OPERATING HIGHLIGHTS
Three months
ended Years ended
December 31, % December 31, %
2010 2009 Change 2010 2009 Change
-------------------------- ------- ------- -------- ------- ------- -------
Average number of rigs 19.0 19.0 - 19.0 19.0 -
Rigs at period end
Canada (1) 17 17 - 17 17 -
U.S. (1) 2 2 - 2 2 -

Canada
Operating days (2) 1,064 802 33 % 3,648 2,069 76%
Stoneham rig utilization
rate (3) 68.0% 51.3% 33 % 58.8% 34.3% 71%
CAODC industry average
(3) 48.7% 31.9% 53 % 40.6% 24.8% 64%
U.S.
Operating days (2) 123 83 48 % 472 438 8%
Stoneham rig utilization
rate (3) 66.8% 45.1% 48 % 64.7% 48.5% 33%

Total
Operating days (2) 1,187 885 34 % 4,120 2,507 64%
Stoneham rig utilization
rate (3) 67.9% 50.6% 34 % 59.4% 36.1% 65%

1. In June 2009, Rig 11 was redeployed from Oklahoma to the Bay St. George
Basin in western Newfoundland.
2. Operating days is the sum of the number of days from spud to rig release
(excluding stand-by, moving, rig-up, and rig-out days) for rigs active
during the period.
3. Rig utilization rate is expressed as a percentage. It is calculated by
dividing the number of operating days for a period (as the numerator) by
the number of rigs active during the period multiplied by the number of
calendar days in the period (as the denominator).


FOURTH QUARTER RESULTS

Operating days rose in the fourth quarter of 2010 in both Canada and the U.S. as a result of continued increased demand for contract drilling services. In Canada, Stoneham surpassed the industry average of 49% by 39% in the quarter.

Revenue in the fourth quarter grew 76% from prior year to $31.9 million as a result of increased operating days, improved dayrates in Canada, and higher cost recoverable charges partially offset by lower dayrates in the U.S. and a weaker U.S. dollar. Revenue per day rose 31% to $26,915 from $20,498 earned in the fourth quarter of 2009.

Cash flow from operations more than doubled from prior year to $8.8 million in the fourth quarter of 2010, while net earnings and comprehensive income rose by $3.8 million to $4.5 million. Higher revenues were partially offset by increased operating expenses, which grew by 76% due in part to the higher activity. On a per day basis operating expenses increased 32% to $17,741. The rise in daily variable operating expenses was caused by an increase in crew wages effective October 1, 2010, higher repairs and maintenance expenses and increased cost recoverable charges. The fixed cost component was also higher due to higher compensation costs associated with our Operations Centre in Leduc and higher training and education costs for rig crews. General and administrative expenses increased 9% year over year due to higher compensation costs and stand-by charges on our credit facilities. Amortization expense was essentially unchanged in the quarter despite the increased activity levels as a result in the change in estimate of the useful lives of rig equipment, which lowered per operating day amortization. Lower average debt levels resulted in a somewhat reduced interest expense despite a 75 basis point increase in the Canadian prime interest rate. Future income tax expense rose in the fourth quarter due to an increase in the cumulative temporary differences between the accounting and tax values of property, plant and equipment.

Capital expenditures totaled $0.4 million in the quarter, and $6.0 million of long-term debt was repaid. On December 6, 2010, the Trust's Board of Directors announced its intention to convert to a corporation at its Annual General and Special Meeting to be held on June 9, 2011. The Trust announced on December 16, 2010, the acceptance by the TSX of its normal course issuer bid (NCIB) application. As at December 31, 2010, the Trust had repurchased 9,964 trust units for $0.1 million. These trust units were cancelled in January 2011.

Subsequent to the year end, on January 31, 2011 the Trust announced its intention to repurchase up to 300,000 of its units through a Substantial Issuer Bid (SIB). The Trust repurchased a further 35,420 trust units for $0.5 million under the NCIB subsequent to year end. The NCIB was suspended on January 31, 2011 coincident with announcement of the SIB. On March 14, 2011, the Trust announced a variation and extension to its SIB, extending the offer to 1:00 p.m. (Calgary time) on April 7, 2011.

ANNUAL RESULTS

Improved demand for contract drilling services, and more specifically oil and liquids rich natural gas related drilling, resulted in significantly higher operating days and utilization rates for the year in Canada. Stoneham continues to deliver industry leading utilization exceeding the industry average rig utilization rate by 45% for the year as reported by the Canadian Association of Oilwell Drilling Contractors (CAODC). In the U.S. operating days in 2010 decreased slightly with Rigs 17 and 18 being deployed to the Bakken play of North Dakota from the Anadarko Basin in Oklahoma. In 2009, Rig 11 was active in Oklahoma until it was redeployed to western Newfoundland in June.

In Canada, the remaining long-term contract expired during the fourth quarter. As a result, all Canadian rigs now participate in the spot market in anticipation of increased activity levels. Our customer's drilling program in western Newfoundland has been completed. We anticipate deploying the rig to the U.S. to participate in the Bakken play during the second quarter of 2011. In the U.S., the contract for Rig 17 has been extended for a third six month term expiring September 2011. The contract for Rig 18 has also been extended for a second year and will expire in April 2012.

For the year ended December 31, 2010, revenue rose substantially from 2009 as a result of higher operating days, improved dayrates in Canada (in part because more rigs were operating under term contract dayrates in 2010), stand-by and contract termination revenue recognized throughout the year, and higher cost recoverable charges, partially offset by lower dayrates in the U.S. and a weaker U.S. dollar. During the year, $5.1 million of stand-by revenue was recorded as a result of shortfalls in contracted operating days and the termination of one of our long-term contracts. In 2009, $1.3 million of stand-by revenue was recorded. Revenue per operating day averaged $25,753 in 2010, up 8% from $23,942 in the prior year.

The majority of our operating expenses are variable in nature and adjust with our activity levels. Consequently, operating expenses for the year ended December 31, 2010, increased 70% to $69.7 million in 2010, due to higher operating days, increased cost recoverable charges, and higher planned major maintenance expenditures throughout the year as a result of improved activity levels. The fixed cost component grew slightly due to higher compensation costs associated with our Operations Centre in Leduc and increased training and education costs for rig crews. Operating expenses per day increased 3% to $16,923 from $16,357 in 2009.

Cash flow from operations and net earnings grew substantially in 2010 to $26.7 million and $12.4 million, respectively. The increased activity levels and revenue were partially offset by somewhat higher costs in all major categories attributable to the rise in activity year over year.

OUTLOOK

We continue to be cautiously optimistic with respect to demand for contract drilling services in 2011. The CAODC is forecasting similar utilization rates in 2011 as were experienced in 2010. To date in 2011, the strong demand for our services has continued. This has enabled us to realize price increases in the first quarter of 2011. However with the majority of our fleet participating in the spot market, we remain cautious in our outlook for the second half of 2011. We continue to be concerned about the factors influencing both the demand for and the supply of natural gas and the potential for continued downward pressure on natural gas prices. In 2011, we plan to increase our presence in the U.S. focusing on the Bakken play where Rigs 17 and 18 are currently operating. With the completion of our client's drilling program onshore in western Newfoundland, Rig 11 is expected to be deployed to the area in the second quarter of 2011. Our modern, medium to deep fleet of rigs is will positioned to compete for work in the unconventional oil and shale gas plays which dictate the use of long reach horizontal drilling and multi zone fracturing. We expect our utilization to continue to be well above the industry average. We anticipate revenue, net income and cash flow from operations will be comparable to that earned in 2010.

DOCUMENTS AVAILABLE ON SEDAR

This news release includes selected financial information relating to the three and twelve month periods ended December 31, 2010 and 2009. This information should be read in conjunction with the consolidated financial statements and the notes thereto of Stoneham Drilling Trust for the years ended December 31, 2010 and 2009 and accompanying management's discussion and analysis. These documents are being filed today with securities regulators and will be available on www.sedar.com and on our website.

ABOUT STONEHAM

Stoneham Drilling Trust is an income trust that provides contract drilling services to oil and natural gas exploration and production companies operating in the Western Canada Sedimentary Basin and select basins in the U.S. 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. Visit our website at www.stonehamdrilling.com.

This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "might" and similar expressions is intended to identify forward- looking information or statements. In particular, this press release contains forward-looking information and statements pertaining to the following: (i) utilization of drilling rigs in Canada and the United States; (ii) market pricing for drilling rig services; (iii) timing of a recovery in natural gas prices; (iv) anticipated conversion of the Trust to a corporation and; (v) other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking statements throughout this press release.

The forward-looking information and statements contained in this press release reflect several material factors, expectations and assumptions including, without limitation: (i) demand for Stoneham's services by oil and gas exploration and production companies; (ii) capital expenditure programs and other expenditures by oil and gas exploration and production companies; (iii) commodity prices, foreign currency exchange rates, and interest rates; (iv) supply and demand for commodities; (v) expectations regarding the Trust's ability to raise capital and to increase the fleet of drilling rigs through acquisitions and construction; (vi) schedules and timing of certain projects and Stoneham's strategy for growth; (vii) Stoneham's future operating and financial results; (viii) treatment under governmental regulatory regimes and tax, environmental and other laws; (ix) the ability to attract and retain qualified crews for Stoneham's drilling rigs, and; (x) timely receipt of required unitholder, court, and regulatory approvals to corporate conversion and that the corporate conversion will be completed as described herein.

The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: (i) volatility in market prices for commodities; (ii) volatility in exchange rates for the Canadian dollar relative to other world currencies; (iii) liabilities and risks inherent in the drilling industry, including technical problems; (iv) competition for, among other things, capital, the ability to secure manufacturers for drilling rig construction and skilled personnel; (v) changes in general economic, market and business conditions in Canada, North America, and worldwide; (vi) actions by governmental or regulatory authorities including changes in income tax laws; (vii) the ability of Stoneham's customers to maintain cash flow and/or to raise capital and to continue with their drilling programs; (viii); the impact of adverse weather on Stoneham's operations; (ix) the impact of increased competition and an over-supply of drilling rigs in the industry; (x) the impact of disasters and accidents such as blow-outs; (xi) the impact of environmental issues, including climate change; (xii) the risk of lenders' not renewing current credit facilities; (xiii) inability of the Trust to obtain the necessary unitholder approval in a timely fashion or at all; and (xiv) the corporate conversion may not be completed when planned or at all on the terms and conditions set forth herein.

The foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this press release speak only as of the date of this press release, and the Trust assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.



Consolidated Balance Sheets

December 31, December 31,
stated in thousands 2010 2009
----------------------------------------------------------------------------

ASSETS

Current
Accounts receivable $ 29,603 $ 14,759
Prepaid expenses 904 1,085
----------------------------------------------------------------------------
30,507 15,844

Property, plant and equipment 144,966 150,880
----------------------------------------------------------------------------
$ 175,473 $ 166,724
--------------------------------------------------------------------------

LIABILITIES

Current
Bank indebtedness $ 2,218 $ 1,005
Accounts payable and accrued liabilities 9,510 6,141
Current portion of long-term debt 2,812 3,563
----------------------------------------------------------------------------
14,540 10,709

Long-term debt 42,188 53,437
Future income taxes 7,994 4,066
----------------------------------------------------------------------------
64,722 68,212

UNITHOLDERS' EQUITY

Unitholders' capital 89,198 89,198
Accumulated earnings 69,366 56,998
Accumulated distributions to unitholders (47,684) (47,684)
Repurchase of trust units (129) -
----------------------------------------------------------------------------
110,751 98,512

$ 175,473 $ 166,724
--------------------------------------------------------------------------


Consolidated Statements of
Earnings,
Comprehensive Income and
Accumulated Earnings


stated in thousands, except Three months ended Twelve months ended
for per trust unit amounts December 31, December 31,
----------------------------------------------------------------------------

2010 2009 2010 2009

REVENUE $ 31,948 $ 18,141 $106,102 $ 60,023
----------------------------------------------------------------------------

EXPENSES

Operating 21,058 11,934 69,722 41,007
Amortization 3,203 3,257 11,377 8,817
General and administrative 1,361 1,249 5,857 5,480
Interest on long-term debt 655 790 2,998 2,630
Other interest 13 10 48 58
Gain on disposal of
property, plant and
equipment (19) - (248) (113)
----------------------------------------------------------------------------
26,271 17,240 89,754 57,879
----------------------------------------------------------------------------

Earnings before income
taxes 5,677 901 16,348 2,144

Income tax expense:
Current 15 38 47 38
Future 1,182 169 3,933 1,249
----------------------------------------------------------------------------
1,197 207 3,980 1,287
----------------------------------------------------------------------------

Net earnings and
comprehensive income for
the period 4,480 694 12,368 857

Accumulated earnings,
beginning of period 64,886 56,304 56,998 56,141
----------------------------------------------------------------------------

Accumulated earnings, end
of period $ 69,366 $ 56,998 $ 69,366 $ 56,998
----------------------------------------------------------------------------

Earnings per unit Basic and
diluted $ 0.56 $ 0.09 1.54 0.11


Consolidated Statements
of Cash Flows

Three months ended Twelve months ended
stated in thousands December 31, December 31,
----------------------------------------------------------------------------
2010 2009 2010 2009

OPERATING ACTIVITIES
Net earnings for the
period $ 4,480 $ 694 $ 12,368 $ 857
Adjustment for items not
affecting cash:
Revenue - - (708) (1,256)
Amortization 3,203 3,257 11,377 8,817
Gain on disposal of
property, plant and
equipment (19) - (248) (113)
Future income tax
expense 1,182 169 3,933 1,249
----------------------------------------------------------------------------
8,846 4,120 26,722 9,554
Changes in non-cash
working capital
relating to operating
activities (3,318) (8,187) (11,089) 9,939
----------------------------------------------------------------------------
5,528 (4,067) 15,633 19,493
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of property,
plant and equipment (363) (27) (5,471) (338)
Proceeds on disposal of
property, plant and
equipment 28 8 257 344
Repurchase of trust
units (129) - (129) -
Changes in non-cash
working capital
relating to investing
activities 463 14 497 (511)
----------------------------------------------------------------------------
(1) (5) (4,846) (505)
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Long-term debt
repayments (6,000) - (12,000) (13,000)
Distributions paid and
payable to Trust
unitholders - - - (802)
Changes in non-cash
working capital
relating to financing
activities - - - (401)
----------------------------------------------------------------------------
(6,000) - (12,000) (14,203)
----------------------------------------------------------------------------
(Decrease) increase in
cash (473) (4,072) (1,213) 4,785
(Bank indebtedness)
cash, beginning of
period (1,745) 3,067 (1,005) (5,790)
----------------------------------------------------------------------------

Bank indebtedness, end
of period $ (2,218) $ (1,005) $ (2,218) $ (1,005)
----------------------------------------------------------------------------



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