Stoneham Drilling Trust

Stoneham Drilling Trust

November 10, 2010 09:00 ET

STONEHAM DRILLING TRUST (TSX:SDG.UN) Announces Financial Results for the Third Quarter Ended September 30, 2010

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) -


Stoneham Drilling Trust ("Stoneham" or the "Trust") (TSX:SDG.UN) is pleased to announce the third consecutive quarter of solid financial results from increased utilization levels, causing significantly higher revenues, net earnings and cash flow from operations than were earned in the third quarter of 2009.


Three months ended Nine months ended
September 30, September 30,
(000s except for 2010 2009 Change 2010 2009 Change
per trust unit amounts) $ $ $ $

Revenue 27,953 8,616 224% 74,154 41,882 77%
Net earnings (loss) 3,027 (2,095) - 7,888 163 -
Per trust unit
(basic and diluted) 0.38 (0.26) - 0.98 0.02 -
Cash flow from
operations (1) 7,050 (889) - 17,876 5,434 229%
Per trust unit
(basic and diluted) 0.88 (0.11) - 2.23 0.68 229%
Cash flow from
operating activities (2,499) 568 - 10,105 23,560 -57%
Per trust unit
(basic and diluted) (0.31) 0.07 - 1.26 2.94 -57%
EBITDA (1) 7,851 (171) - 20,994 8,578 145%

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, amortization, and gain on disposal of property, plant and
equipment. 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 nine month periods ended September
30, 2010.


Three months ended Nine months ended
September 30, September 30,
2010 2009 Change 2010 2009 Change

Rigs at period end
Canada 17 17 - 17 17 -
U.S. 2 2 - 2 2 -

Operating days (1) 998 356 180% 2,584 1,267 104%
Stoneham rig utilization
rate (2) 63.8% 22.8% 180% 55.7% 28.4% 96%
CAODC industry average (2) 40.5% 20.6% 97% 37.9% 22.4% 69%

Operating days (1) 153 83 84% 349 355 -2%
Stoneham rig utilization
rate (2) 83.1% 45.0% 85% 63.9% 49.3% 30%

Operating days (1) 1,151 439 162% 2,933 1,622 81%
Stoneham rig utilization
rate (2) 65.9% 25.1% 163% 56.5% 31.3% 81%

(1) 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.
(2) Rig utilization is expressed as a percentage, and 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).

Total operating days exceeded the prior period for the third consecutive quarter. Operating days in Canada more than doubled to 998 days, while operating days in the U.S. grew 84% to 153 days as a result of improved demand for contract drilling services, and more specifically oil related drilling. Rig utilization averaged 66% in the third quarter of 2010, up significantly from the comparative 2009 quarter. In Canada, Stoneham continues to deliver industry leading utilization, exceeding the industry average rig utilization rate by 58% in the quarter and 47% for the nine month period.

The majority of Stoneham's fleet participates in the spot market. During the third quarter, three long-term contracts expired and Stoneham negotiated the termination of another long-term contract. The remaining long-term contract will expire in the fourth quarter of 2010. The contract for Rig 17 in the Bakken play of North Dakota was extended for a second six month term to March 2011. Rig 18 also continues to work in North Dakota on a one year contract that expires in April 2011.

Revenue rose substantially in the third quarter of 2010 as a result of higher operating days, improved dayrates in Canada (mainly because more rigs were operating under contracted dayrates in 2010), and revenue associated with the termination of a long-term contract, partially offset by lower dayrates in the U.S. and a weaker U.S. dollar. The cancellation of one of our long-term contracts resulted in $1.0 million being recorded in revenue as a termination fee. Revenue per day was $24,286 up 24% from $19,626 per day in the third quarter of last year.

Cash flow from operations grew to $7.1 million as a result of the increased activity levels and revenue as well as improved operating margins. Net earnings rose to $3.0 million from a loss of $2.1 million in the third quarter last year as a result of higher cash flow from operations, partly offset by higher amortization and income taxes.

At the end of the quarter we had bank indebtedness of $1.7 million, and $51.0 million of long-term debt reflecting debt repayment of $2.0 million during the quarter and $6.0 million year to date. Working capital totaled $16.4 million compared to $5.1 million at December 31, 2009.

Despite an exceptionally wet spring and summer throughout western Canada, our rig utilization continues to surpass that of 2009. As a result, we anticipate equivalent or better utilization for the fourth quarter of 2010. The revised Alberta Royalty program appears to have been received favourably by exploration and production companies as evidenced by higher land sale prices in Alberta (for oil and gas drilling rights) and an increase in the number of well license applications, both of these indicators are positive for the drilling industry. However, 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 potentially reducing the demand for our services and its affect on pricing. With our modern, medium-deep fleet of rigs we are well positioned to compete for work in unconventional oil and shale gas plays, which dictate the use of long reach horizontal drilling and multi-zone fracturing. As we continue to participate in exploration and development of oil reserves, we expect our utilization to continue to be well above the industry average.


This news release includes selected financial information relating to the three and nine month periods ended September 30, 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 three and nine month periods ended September 30, 2010 and 2009 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 select basins in the U.S., with one rig currently operating onshore in western Newfoundland. 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

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 this news 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 and contracts for drilling rig services; (iii) timing of a recovery in natural gas prices, (iv) plans for conversion to International Financial Reporting Standards 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 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 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; 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) the impact of increased competition and an over-supply of drilling rigs in the industry; (xi) the impact of disasters and accidents such as blow-outs; (xii) the impact of environmental issues, including climate change; and (xiii) the risk of lenders' not renewing current credit facilities.

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
Unaudited - stated in thousands

September 30, 2010 December 31, 2009


Accounts receivable $ 26,067 $ 14,759
Prepaid expenses 1,127 1,085
27,194 15,844

Property, plant and equipment 147,814 150,880
$ 175,008 $ 166,724


Bank indebtedness $ 1,745 $ 1,005
Accounts payable and accrued
liabilities 9,047 6,141
Current portion of long-term debt - 3,563
10,792 10,709

Long-term debt 51,000 53,437
Future income taxes 6,816 4,066
68,608 68,212


Unitholders' capital 89,198 89,198
Accumulated earnings 64,886 56,998
Accumulated distributions to
unitholders (47,684) (47,684)
106,400 98,512

$ 175,008 $ 166,724

Consolidated Statements of Earnings (Loss), Comprehensive
Income (Loss) and Accumulated Earnings
Unaudited - stated in thousands, except for per trust unit amounts

Three months ended Nine months ended
September 30, September 30,

2010 2009 2010 2009

REVENUE $ 27,953 $ 8,616 $ 74,154 $ 41,882


Operating 18,847 7,485 48,664 29,073
Amortization 2,946 1,666 8,174 5,560
General and administrative 1,255 1,302 4,496 4,231
Interest on long-term debt 786 716 2,343 1,840
Other interest 8 2 35 48
Gain on disposal of property,
plant and equipment - - (229) (113)
23,842 11,171 63,483 40,639

Earnings (loss) before income taxes 4,111 (2,555) 10,671 1,243

Income tax expense (recovery):
Current 7 - 32 -
Future 1,077 (460) 2,751 1,080
1,084 (460) 2,783 1,080

Net earnings (loss) and
comprehensive income (loss)
for the period 3,027 (2,095) 7,888 163

Accumulated earnings, beginning
of period 61,859 58,399 56,998 56,141

Accumulated earnings,
end of period $ 64,886 $ 56,304 $ 64,886 $ 56,304

Earnings (loss) per unit
Basic and diluted $ 0.38 $ (0.26) $ 0.98 $ 0.02

Consolidated Statements of Cash Flows
Unaudited - stated in thousands

Three months ended Nine months ended
September 30, September 30,

2010 2009 2010 2009

Net earnings (loss) for the period $ 3,027 $ (2,095) $ 7,888 $ 163
Adjustment for items not
affecting cash:
Revenue - - (708) (1,256)
Amortization 2,946 1,666 8,174 5,560
Gain on disposal of property,
plant and equipment - - (229) (113)
Future income tax expense
(recovery) 1,077 (460) 2,751 1,080
7,050 (889) 17,876 5,434

Change in non-cash working
capital relating to operating
activities (9,549) 1,457 (7,771) 18,126
(2,499) 568 10,105 23,560

Purchase of property, plant
and equipment (181) (34) (5,108) (311)
Proceeds on disposal of property,
plant and equipment - 33 229 336
Change in non-cash working capital
relating to investing activities (1,006) 6 34 (525)
(1,187) 5 (4,845) (500)

Long-term debt repayments (2,000) - (6,000) (13,000)
Distributions paid and payable
to Trust unitholders - - - (802)
Change in non-cash working capital
relating to financing activities - - - (401)
(2,000) - (6,000) (14,203)

(Decrease) increase in cash (5,686) 573 (740) 8,857
Cash (bank indebtedness),
beginning of period 3,941 2,494 (1,005) (5,790)

(Bank indebtedness) cash,
end of period $ (1,745) $ 3,067 $ (1,745) $ 3,067

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

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