Stoneham Drilling Trust
TSX : SDG.UN

Stoneham Drilling Trust

December 06, 2010 08:06 ET

Stoneham to Seek Unitholder Approval for Conversion to Corporate Entity and Application for Normal Course Issuer Bid

CALGARY, ALBERTA--(Marketwire - Dec. 6, 2010) - The Board of Directors (the "Board") of Stoneham Administration Inc., the administrator of Stoneham Drilling Trust ("Stoneham" or the "Trust") (TSX:SDG.UN), announced today that it has resolved to undertake the conversion of the Trust into a corporation and intends to seek unitholder approval for the conversion at its annual general and special meeting to be held June 9, 2011. Subject to receipt of all required stock exchange, regulatory and Court of Queen's Bench approvals and receipt of the consent of Stoneham's lenders, Management expects the conversion will become effective on June 30, 2011, provided that the Board shall have the discretion to delay implementation of the conversion to not later than December 31, 2011.

Anticipated Benefits

Stoneham's Management believes that proceeding with the conversion to a corporation at this time will provide the following benefits:

  • Completion of the conversion will remove the uncertainty that exists in the income trust marketplace today and will avoid, subsequent to the conversion, the imposition of the specified investment flow-through (SIFT) tax applicable beginning in 2011.
  • The removal of the restrictions on non-resident ownership applicable to income trusts may provide Stoneham with greater access to capital markets and improved liquidity.
  • Conversion will provide for a simplified corporate structure which is easier for market participants to understand and value.

The Trust anticipates efficiencies and cost savings from presenting the conversion for approval to unitholders at its regularly scheduled annual meeting.

Under the conversion, it is anticipated that unitholders will exchange each Stoneham trust unit they hold for one common share of a corporate entity ("New Stoneham"). Stoneham intends to make application to have the common shares of New Stoneham listed on the Toronto Stock Exchange (the "TSX") following the completion of the corporate conversion. The listing of the shares on the TSX will be subject to the ability of the Trust and New Stoneham to satisfy all of the listing conditions of the TSX.

Based on a preliminary assessment of tax implications, this is expected to be considered a tax deferred exchange for Canadian investors. This information is not intended to be, and should not be construed as tax advice, and investors in both Canada and the U.S. should consult with financial advisors, legal counsel or accountants regarding the tax consequences of the conversion once more detailed information becomes available.

A management information circular and proxy statement outlining the details of the conversion will be mailed to unitholders in advance of the June 9, 2011 meeting date. To be implemented, the conversion must be approved by not less than two-thirds of the votes cast by unitholders at the annual general and special meeting in June.

The decision to convert to a corporate entity results from a Government of Canada decision in 2006 that introduced legislation designed to change the taxation of certain public flow-through entities, including income trusts. In response to this change, after detailed consideration of the various options available to the Trust, the Board determined conversion from an income trust to a corporate entity will best serve the interests of Stoneham and its unitholders.

Board Approval

The Board has determined that the conversion of Stoneham into a corporation is in the best interests of Stoneham and its unitholders. The Board unanimously recommends that unitholders approve the corporate conversion.

Normal Course Issuer Bid

The Trust also announced today that it intends to institute a Normal Course Issuer Bid, subject to receiving all required regulatory approvals. The Issuer Bid would allow for the purchase, from time to time over the next 12 months, if considered advisable, of up to an aggregate of 503,318 of its trust units ("Trust Units"), being approximately 6.3% of its outstanding Trust Units, on the TSX. The Trust will file with the TSX a Notice of Intention to Make a Normal Course Issuer Bid (the "Notice"). Purchases may commence through the TSX two trading days after the TSX accepts the Notice. As of the date hereof, the Trust has 8,023,261 issued and outstanding Trust Units.

The Board believes that the proposed purchases are in the best interests of the Trust and are a desirable use of funds. All Trust Units purchased by the Trust pursuant to the Notice will be cancelled.

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 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 www.stonehamdrilling.com.

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 document contains forward-looking statements and information, including certain financial outlook, pertaining to, without limitation, the following: Stoneham's corporate strategy, including the proposed conversion of Stoneham to a corporate form in 2011; the anticipated benefits from conversion to a corporation; the ability to list the common shares of New Stoneham on the TSX; Stoneham's ability to get the necessary consents from its lenders for the normal course issuer bid; the ongoing utilization and expansions of and additions to Stoneham's business and asset base, growth and growth potential. These forward-looking statements and information are being made by Stoneham based on certain assumptions that Stoneham has made in respect thereof as at the date of this document including those discussed below.

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.

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

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