Stoneham Drilling Trust

Stoneham Drilling Trust

August 14, 2008 09:00 ET

Stoneham Drilling Trust (TSX:SDG.UN) Announces Financial Results for the Second Quarter Ended June 30, 2008

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2008) -


Stoneham Drilling Trust (TSX:SDG.UN) (Stoneham or the Trust) continued to benefit from increased capacity resulting from the 2007 rig construction program and a rig utilization rate that exceeded the industry average. Our drilling rigs operating in the U.S. contributed strongly to overall performance in the second quarter with a much higher utilization rate than our rigs operating in Canada as U.S. operations are not hampered by spring break-up.

Three months ended Six months ended
June 30, June 30,
(000s except for 2008 2007 Change 2008 2007 Change
per trust unit amounts) $ $ $ $

Revenue 13,176 2,867 360% 44,817 21,830 105%
Net earnings (loss) (2,275) (7,399) 69% 2,300 (3,054) -
Per trust unit (basic and
diluted) (0.28) (0.92) 69% 0.29 (0.38) -
Cash flow from operations (1) (1,880) (1,990) 6% 6,813 4,205 62%
Per trust unit (basic and
diluted) (0.23) (0.25) 6% 0.85 0.52 62%
EBITDA (1) (838) (1,373) 39% 9,042 5,224 73%
Distributions paid and payable 3,009 3,610 -17% 6,018 7,220 -17%
Units outstanding (weighted
average and diluted) 8,023 8,023 0% 8,023 8,023 0%

(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 three and six
months ended June 30, 2008.

Three months ended Six months ended
June 30, June 30,
2008 2007 Change 2008 2007 Change

Average number of rigs (1) 19.0 13.0 46% 18.5 12.8 45%
Rigs at quarter end
Canada 17 13 31% 17 13 31%
U.S. 2 - - 2 - -

Operating days (2) 328 136 141% 1,545 941 64%
Stoneham utilization rate (3) 21.9% 11.5% 90% 50.2% 40.9% 23%
CAODC industry average (3) 19.5% 16.8% 16% 37.7% 37.5% 1%

Operating days (2) 155 - - 181 - -
Stoneham utilization rate 89.0% - - 88.2% - -

Operating days (2) 483 136 255% 1,726 941 83%
Stoneham utilization rate 27.9% 11.5% 143% 51.2% 40.9% 25%

(1) Rig 18, which was completed in November 2007 was deployed in February
2008. Rig 17 was completed in the first quarter of 2008 and deployed in
March. In 2007, Rig 15 was deployed in February, Rig 12 was deployed in
July, Rigs 16 and 19 were deployed in October, and Rig 20 was deployed
in December.

(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, expressed as a percentage, is based on data
reported by the Canadian Association of Oilwell Drilling Contractors
(CAODC). 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

In the second quarter of 2008, operating days increased 255% from the prior year as a result of the additional rig capacity from the deployment of seven new drilling rigs throughout 2007 and the first quarter of 2008, and expansion of operations into the U.S. where seasonal conditions allow for uninterrupted drilling activity. The increase is also the result of full period inclusion of Rig 15 (deployed in February 2007) in 2008 results and an increase in our customer base year over year. Overall rig utilization increased 143% in the quarter and Stoneham exceeded the Canadian industry average utilization rate by 12% for the three months ended June 30, 2008.

Revenue for the second quarter of 2008 increased 360% to $13.2 million due to the larger rig fleet, improved Canadian rig utilization, commencement of U.S. operations, and higher cost recoverable charges. Revenue generated in the U.S. totalled $4.7 million in the quarter (36% of total revenue). Cash flow from operations increased by $0.1 million in the quarter as the increased revenues were offset by increased interest costs associated with the rig construction program, and reduced operating margins caused by higher expenditures on equipment maintenance, recertifications and deployment of rigs to the U.S. Loss before income taxes for the quarter was higher than the comparative prior period by $1.4 million as the modestly higher cash flow from operations was offset by higher amortization expense associated with the higher activity in the period. Future income tax expense for the second quarter of 2008 was a recovery of $1.6 million as compared to the initial $5.0 million charge recorded last year as a result of the enactment of the trust tax legislation, which imposes a tax on distributed trust income derived from certain sources beginning in 2011.

Capital expenditures in the second quarter were minimal, following completion of the rig construction program and operations centre in Leduc in early 2008, and totalled $1.9 million. As at June 30, 2008, bank indebtedness was $3.7 million and outstanding long-term debt was $71.2 million, including the current portion of $5.9 million.

Distributions paid and payable during the second quarter of 2008 totalled $3.0 million, consistent with the first quarter and lower by $0.6 million than the second quarter last year. Monthly distributions during the second quarter of 2008 were $0.125 per trust unit, slightly lower than $0.150 per trust unit declared during the second quarter of 2007.

Concern regarding the sustainability of strong natural gas prices, a strong Canadian dollar and uncertainty regarding the Alberta royalty regime have impacted Canadian drilling budgets to date. Canadian industry activity levels were 16% higher this quarter than in the second quarter last year, but were relatively flat for the year to date. Based on July operations, we anticipate our rig utilization will remain above the industry average and be further augmented by our continued expansion into the U.S. In July, a third rig was deployed to the Anadarko Basin of Oklahoma and was operational towards the end of July. Further rigs may be deployed to the U.S. in the future.

We are pleased to announce the appointment of Mr. Jim Conroy to the board of directors of Stoneham Drilling Inc., effective August 12, 2008. Jim is the founding partner of Conroy Ross Partners, an executive search and management consulting company with offices in Calgary and Edmonton. A graduate of the University of Western Ontario, Jim worked for an international oilfield service firm as a human resources executive and subsequently took on senior operational roles responsible for divisions in Canada, the United States, the United Kingdom and South America, before joining a Calgary-based management consulting firm in 1988. He founded Conroy Ross Partners in 1994.


This news release includes selected financial information relating to the three and six months ended June 30, 2008 and 2007. This information should be read in conjunction with the consolidated financial statements and the notes thereto of Stoneham Drilling Trust for the three and six months ended June 30, 2008 and 2007 and accompanying management's discussion and analysis. These documents are being filed today with securities regulators and will be available on and on our website.


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 in the Anadarko Basin of Oklahoma. 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. Visit our website at

This news 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, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: (i) utilization of drilling rigs in Canada and the United States; and (ii) 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 news release.

The forward-looking information and statements contained in this news 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 development; (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; and (ix) the ability to attract and retain qualified crews for Stoneham's drilling rigs.

The forward-looking information and statements included in this news 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 assumption that customers will continue to honour the terms of their take or pay contracts and/or that amendments may be negotiated to such contracts that would not have a material adverse effect on Stoneham; (ix) the impact of adverse weather on Stoneham's operations; (x) increases and overruns in drilling rig construction costs; (xi) the impact of increased competition and an over-supply of drilling rigs in the industry; (xii) the impact of disasters and accidents such as blow-outs; and (xiii) the impact of environmental issues, including climate change.

The Trust cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this news release speak only as of the date of this news 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

June 30, December 31,
unaudited - stated in thousands 2008 2007


Accounts receivable $ 14,841 $ 22,023
Prepaid expenses 754 890
15,595 22,913

Property, plant and equipment 164,597 163,438
$ 180,192 $ 186,351


Bank indebtedness $ 3,689 $ 3,055
Accounts payable and accrued liabilities 9,757 13,649
Distributions payable 1,003 1,003
Current portion of long-term debt 5,933 -
20,382 17,707

Long-term debt 65,267 69,500
Future income taxes 3,355 4,238
89,004 91,445


Unitholders' capital 89,198 89,198
Accumulated earnings 43,457 41,157
Accumulated distributions to unitholders (41,467) (35,449)
91,188 94,906

$ 180,192 $ 186,351

Consolidated Statements of Earnings,
Comprehensive Income and
Accumulated Earnings

unaudited - stated in thousands, Three months ended Six months ended
except for per trust unit amounts June 30, June 30,

2008 2007 2008 2007

REVENUE $ 13,176 $ 2,867 $ 44,817 $ 21,830


Operating 12,662 2,963 33,099 14,024
Amortization 1,997 449 5,399 2,299
General and administrative 1,352 1,277 2,676 2,582
Interest on long-term debt 990 573 2,110 903
Other interest 52 44 119 116
17,053 5,306 43,403 19,924
Earnings (loss) before income
taxes (3,877) (2,439) 1,414 1,906
Future income tax expense
(recovery) (1,602) 4,960 (886) 4,960
Net earnings (loss) and
comprehensive income (loss)
for the period (2,275) (7,399) 2,300 (3,054)

Accumulated earnings, beginning
of period 45,732 39,506 41,157 35,161
Accumulated earnings, end of
period $ 43,457 $ 32,107 $ 43,457 $ 32,107

Earnings (loss) per unit
Basic and diluted $ (0.28) $ (0.92)$ 0.29 $ (0.38)

Consolidated Statements of
Cash Flows

Three months ended Six months ended
unaudited - stated in thoussands June 30, June 30,

2008 2007 2008 2007
Net earnings (loss) for the
period $ (2,275) $ (7,399) $ 2,300 $ (3,054)
Adjustment for items not
affecting cash:
Amortization 1,997 449 5,399 2,299
Future income tax expense
(recovery) (1,602) 4,960 (886) 4,960
(1,880) (1,990) 6,813 4,205
Changes in non-cash working
capital relating to
operating activities 10,088 8,793 7,339 11,244
8,208 6,803 14,152 15,449

Purchase of property, plant
and equipment (1,861) (12,710) (6,555) (31,453)
Changes in accounts payable
relating to
investing activities (3,631) (4,357) (3,913) (6,058)
(5,492) (17,067) (10,468) (37,511)

Long-term debt financing 1,700 23,500 1,700 38,500
Distributions paid and
payable to Trust
unitholders (3,009) (3,610) (6,018) (7,220)
(1,309) 19,890 (4,318) 31,280

Increase (decrease) in cash
and cash equivalents 1,407 9,626 (634) 9,218
Bank indebtedness, beginning
of period (5,096) (3,703) (3,055) (3,295)
Cash and cash equivalents
(bank indebtedness),
end of period $ (3,689) $ 5,923 $ (3,689) $ 5,923

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

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