TRINIDAD DRILLING 2011 SECOND QUARTER REPORT

Transcription

1 TRINIDAD DRILLING 2011 SECOND QUARTER REPORT FOR THE THREE AND SIX MONTHS ENDING JUNE 30, 2011 TRINIDAD SECOND QUARTER REPORT

2 TRINIDAD DRILLING LTD. REPORTS SOLID SECOND QUARTER AND YEAR TO DATE 2011 RESULTS; STRONG MARKET CONDITIONS CONTINUE TO PUSH DAYRATES HIGHER Trinidad Drilling Ltd. reported second quarter and year-to-date 2011 results which reflected the strong industry conditions that have been present throughout the first half of the year. Trinidad s dayrates have consistently grown for the past several quarters, and revenue, Adjusted EBITDA (1) and Adjusted net earnings (1) were all higher for the quarter and year to date compared to the same periods last year. We are encouraged by the strong industry conditions we have seen to date in 2011, said Lyle Whitmarsh, Trinidad s President and Chief Executive Officer. During the first half of the year, we have moved existing rigs into new, high demand areas, establishing additional operating areas for Trinidad, while also growing our fleet through construction and the acquisition of carefully selected assets. Although the global economy remains fragile and commodity prices have recently shown increased volatility, we have positioned the Company with the flexibility to perform well in a range of circumstances. Our high proportion of long-term contracts and lower debt levels increase our stability, while our top performing equipment remains in demand and provides us with industry-leading activity levels and opportunities for future growth. Demand remains high for our modern, technically advanced equipment and our improving dayrates, growing utilization and the high level of customer interest we continue to experience, lead us to believe that our results for 2011 and 2012 will show ongoing growth. (1) Please see the Non-GAAP Measures Definitions section of this MD&A for further details. MANAGEMENT S DISCUSSION AND ANALYSIS The following management s discussion and analysis (MD&A) of financial condition and results of operations is intended to help the reader understand the current and prospective financial position and operating results of Trinidad Drilling Ltd. ( Trinidad or the Company ). The MD&A discusses the operating and financial results for the three and six months ended June 30, 2011, is dated August 10, 2011 and takes into consideration information available up to that date. The MD&A is based on the unaudited consolidated financial statements of Trinidad for the three and six month periods ended June 30, The MD&A should be read in conjunction with the annual consolidated financial statements and related notes for the year ended December 31, 2010 prepared in accordance with Canadian GAAP and the unaudited interim consolidated financial statements for the three and six months ended June 30, 2011 and the unaudited consolidated financial statements for three months ended March 31, 2011 both prepared in accordance with IFRS. Additional information is available on Trinidad s website ( and all previous public filings, including the most recently filed Annual Report and Annual Information Form, are available through SEDAR ( The interim consolidated financial statements and comparative information has been prepared in accordance with International Financial Reporting Standards (IFRS) including, International Financial Reporting Standard 1, First-time Adoption of International Reporting Standards, and with International Financial Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. Previously, the Company prepared its interim and annual consolidated financial statements in accordance with Canadian generally accepted accounting principles ( Canadian GAAP or previous GAAP ). Unless otherwise noted, 2010 comparative information has been prepared in accordance with IFRS. The adoption of IFRS has not had an impact on the Company s operations, strategic decisions or cash flow. Further information on IFRS impacts is provided in Changes In Accounting Policy in this MD&A and includes reconciliations between previous GAAP and IFRS. All amounts are denominated in Canadian dollars (CDN$) unless otherwise identified. All amounts are stated in thousands unless otherwise identified. 1 + TRINIDAD SECOND QUARTER REPORT 2011

3 FINANCIAL HIGHLIGHTS Three months ended June 30, Six months ended June 30, ($ thousands except share and per share data) % Change % Change Revenue 143, , , , Gross margin (1) 52,638 47, , , Gross margin percentage (1) 36.8% 37.2% (1.1) 38.2% 39.0% (2.1) EBITDA (1) 41,164 40, ,977 85, Per share (diluted) (2) Adjusted EBITDA (1) 39,069 34, ,692 88, Per share (diluted) (2) Cash flow from operations 82,320 39, ,580 67, Per share (basic) (2) Per share (diluted) (2) Cash flow from operations before change in non-cash working capital (1) 25,897 20, ,073 61, Per share (diluted) (2) Net earnings 5,005 9,968 (49.8) 20,994 8, Per share (basic / diluted) (2) (50.0) Adjusted net earnings (1) 11,903 3, ,702 11, Per share (diluted) (2) Capital expenditures 47,524 36, ,076 71, Net debt (1) 428, ,783 (8.1) 428, ,783 (8.1) Shares outstanding - basic (weighted average) (2) 120,858, ,840, ,851, ,840,962 - Shares outstanding - diluted (weighted average) (2) 120,906, ,840, ,899, ,840,962 - (1) Readers are cautioned that gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, Adjusted net earnings, and net debt and the related per share information do not have standardized meanings prescribed by IFRS see Non-GAAP Measures. (2) Basic shares include the weighted average number of shares outstanding over the period. Diluted shares include the weighted average number of shares outstanding over the period and the dilutive impact, if any, of the deemed conversion of convertible debentures and the number of shares issuable pursuant to the Incentive Option Plan. TRINIDAD SECOND QUARTER REPORT

4 OPERATING HIGHLIGHTS Three months ended June 30, Six months ended June 30, % Change % Change Land Drilling Market Operating days - drilling Canada 1,522 1,616 (5.8) 5,529 4, United States and International (1) 4,741 3, ,280 7, Rate per drilling day Canada (CDN$) 25,265 23, ,112 22, United States and International (CDN$) (1) 20,152 18, ,075 19, United States and International (US$) (1) 20,835 18, ,459 19, Utilization rate - drilling Canada 31% 34% (8.8) 55% 50% 10.0 United States and International (1) 82% 66% % 65% 24.6 CAODC industry average 23% 20% % 36% 22.2 Number of drilling rigs at quarter end Canada United States and International (1) (3.0) (3.0) Utilization rate for service rigs 34% 37% (8.1) 51% 45% 13.3 Number of service rigs at quarter end (2) - 22 (100.0) - 22 (100.0) Number of coring and surface casing rigs at quarter end Barge Drilling Market Operating days Rate per drilling day (CDN$) (3) 22,672 25,013 (9.4) 22,334 24,276 (8.0) Rate per drilling day (US$) (3) 23,432 24,406 (4.0) 22,749 23,375 (2.7) Utilization rate 96% 78% % 85% 14.1 Number of barge drilling rigs at quarter end Number of barge drilling rigs under Bareboat Charter at quarter end (1) Trinidad commenced its operations in Mexico effective November 2008 and expanded its international operations into Chile effective August Effective April 6, 2010, the rig located in Chile was sold to a third party. (2) In the second quarter of 2011 Trinidad disposed of its 22 well servicing rigs and related equipment. (3) In the second quarter of 2010, other revenue associated with equipment repairs was removed from the dayrate calculation to comply with corporate dayrate calculation practices. FORWARD-LOOKING STATEMENTS The MD&A contains certain forward-looking statements relating to Trinidad s plans, strategies, objectives, expectations and intentions. The use of any of the words expect, anticipate, continue, estimate, objective, ongoing, may, will, project, should, believe, plans, intends, confident, might and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this MD&A. The forward-looking information and statements included in this MD&A 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. In particular, but without limiting the foregoing, this MD&A may contain forward-looking information and statements pertaining to the completion of announced rig construction programs on a timely basis and on economical terms; the assumption that Trinidad s customers will honour their take-or-pay contracts; fluctuations in the demand for Trinidad s services; the ability for Trinidad to attract and retain qualified personnel, in particular field staff to crew the Company s rigs; the existence of competitors, technological 3 + TRINIDAD SECOND QUARTER REPORT 2011

5 changes and developments in the oilfield services industry; the existence of operating risks inherent in the oilfield services industry; assumptions respecting capital expenditure programs and other expenditures by oil and gas exploration and production companies; assumptions regarding commodity prices, in particular oil and natural gas; assumptions respecting supply and demand for commodities, in particular oil and natural gas; assumptions regarding foreign currency exchange rates and interest rates; the existence of regulatory and legislative uncertainties; the possibility of changes in tax laws; and general economic conditions including the capital and credit markets. Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this MD&A speak only as of the date of this MD&A and Trinidad assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws. NON-GAAP MEASURES This MD&A contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by IFRS and Canadian GAAP, and may not be comparable to similar measures presented by other companies. These financial measures are computed on a consistent basis for each reporting period and include gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, Adjusted net earnings, net debt and working capital. Please see the Non-GAAP Measures Definitions section of this MD&A for details with respect to definitions of these Non-GAAP measures. RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS Management is responsible for the information disclosed in this MD&A and the accompanying interim consolidated financial statements, and has in place appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. In addition, Trinidad s Audit Committee, on behalf of the Board of Directors, provides an oversight role with respect to all public financial disclosures made by the Company, and has reviewed and approved this MD&A and the accompanying interim consolidated financial statements. PROFILE Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad s divisions operate in the drilling, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States and Mexico. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad s drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry. OVERVIEW Overall in the second quarter, Trinidad performed strongly showing increased levels of revenue, Adjusted EBITDA and Adjusted net earnings over the same quarter last year. Results in the Company s US and international division were particularly strong in the quarter, with gross margins recovering well, reflecting higher dayrates, activity levels and a reduction in operating costs as rigs had largely been reactivated during prior quarters. The Canadian operations were impacted by a wet spring break-up, reducing activity levels slightly, and higher repairs and maintenance expenses as rigs were made ready in anticipation of a busy second half. Conditions in Canada have improved since the end of the quarter and look set to provide a solid operating environment for the remainder of the year. When compared to the same quarter last year, net earnings in the second quarter of 2011 were negatively impacted by higher depreciation charges, due to the Company s increased activity level, a lower gain on foreign exchange and the impairment of capital assets recorded in the quarter. These factors were partly offset by lower finance costs reflecting the Company s reduced debt levels. Year-to-date net earnings were significantly higher than the previous year, largely due to improved revenue generation. Industry activity levels in the second quarter and first half of 2011 continued to show improvement over last year. Demand for high performance, modern equipment, such as Trinidad s, remained strong, particularly in the natural gas liquids (NGL) rich or oil directed drilling areas across North America. Despite an exceptionally wet spring break-up in the second quarter in Canada, industry utilization averaged 23.0%, up three percentage points from the same quarter of 2010; year-to-date industry utilization averaged 44.0% in Canada compared to 36.0% last year. The US active rig count increased to 1,984 rigs in the second quarter, up 22.2%, from the same period last year and only 16.4% below the peak reached in October According to Baker Hughes, 52.0% of wells drilled in the second quarter of 2011 were targeting oil, compared to 35.0% in the same quarter last year, a trend the industry has seen develop in both Canada and the US over the past two years. TRINIDAD SECOND QUARTER REPORT

6 Strong demand has led to increasing pricing power for drilling contractors and Trinidad has recorded improving dayrates for the past three consecutive quarters in Canada and the past four consecutive quarters in its US and international segment. This clearly demonstrates the strong and growing demand for the Company s equipment and the general robustness of conditions in the drilling industry. Overall the improving dayrates and increasing activity levels led to higher revenue and Adjusted EBITDA (1) in the second quarter and first half of 2011, partly offset by the impact of the weaker US dollar. Crude oil prices improved in the second quarter and first half of 2011 compared to the same periods in 2010, driving the growing activity levels in oil and NGL-rich directed drilling. West Texas Intermediate crude oil averaged US$ per barrel in the quarter and US$98.36 per barrel year to date in 2011, a 31.7% and 25.6% increase from the same periods of 2010, respectively. In contrast, natural gas prices remained at relatively stable but low levels over the same period. Henry Hub natural gas spot prices averaged US$4.37 per mmbtu in the second quarter and US$4.27 per mmbtu year to date in 2011, up 0.7% and down 9.2% from the same periods of 2010, respectively. North American storage levels for natural gas remain high and economic demand is relatively low, both factors continue to place downward pressure on natural gas prices. Trinidad has seen increased demand for its equipment across North America over the past year. The Company s reputation for providing modern, top performing equipment has allowed it to increase utilization, extend expiring contracts at higher dayrates and sign contracts for the construction of new rigs during this period. Trinidad has also been able to make a significant switch towards oil and NGL-rich drilling, moving rigs into newer areas such as the Eagle Ford shale and previously established areas that have shown a resurgence of interest, such as the Niobrara, the Bakken and the Cardium. The Company is well positioned to perform well in the strong industry conditions with improving dayrates, high activity levels, built in organic growth and improved financial flexibility. Second quarter 2011 and year- to-date highlights Trinidad generated revenue of $143.1 million for the second quarter and $359.2 million year to date in 2011, up 11.1% and 20.2% from the same periods of Revenue grew in the quarter and year to date as a result of increased operating days and higher dayrates, reflecting stronger industry conditions. The impact of the improved market conditions were partially offset by the weakening of the US dollar versus the Canadian dollar. Gross margin (1) grew to $52.6 million in the second quarter and $137.4 million year to date, an increase of 9.9% and 17.9%, respectively from the prior comparative periods due to higher revenue generation which was partly offset by increased costs. Gross margin percentage (1) was 36.8% in the quarter and 38.2% year to date, down from 37.2% and 39.0% respectively in 2010, as a result of the absence of one-time revenue items received in 2010, and higher repairs and maintenance costs in Canada. In addition, incremental costs were incurred in the first quarter of 2011 to move rigs into new, higher margin operating areas. Adjusted EBITDA (1) was $39.1 million ($0.32 per share (diluted)) in the second quarter and $108.7 million year to date ($0.90 per share (diluted)), up by 12.6% and 23.3%, respectively from 2010, primarily due to higher revenue and partly offset by the items affecting gross margin mentioned above. Adjusted net earnings (1) were $11.9 million ($0.10 per share (diluted)) for the quarter and $33.7 million ($0.28 per share (diluted)) year to date in 2011, compared to $3.8 million ($0.03 per share (diluted)) and $12.0 million ($0.10 per share (diluted)), respectively in This increase was due to higher Adjusted EBITDA, lower financing costs, and the gain on sale of assets which were partly offset by increased depreciation costs, reflecting the Company s increased activity levels. Total debt at the end of the quarter decreased to $539.0 million, a reduction of $67.1 million or 11.1% from the end of Trinidad is committed to lowering its overall level of indebtedness and has demonstrated its commitment to this goal throughout the past few years through ongoing debt reduction. During the quarter, Trinidad sold its 22 well servicing rigs and related equipment for $38.0 million cash as part of its strategy to focus on its higher return, core business of contract drilling. In addition, with the proceeds of the sale the Company purchased four existing US-based land drilling rigs, which it plans to upgrade. The total anticipated cost of the rig acquisition, and subsequent upgrade, is $44.0 million with expected rig completion dates in the third and fourth quarter of (1) Please see the Non-GAAP Measures Definitions section of this MD&A for further details. 5 + TRINIDAD SECOND QUARTER REPORT 2011

7 QUARTERLY ANALYSIS FINANCIAL HIGHLIGHTS QUARTERLY ANALYSIS (2) 2009 (2) ($ millions except per share data and operating data) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Revenue (1) Gross margin Gross margin percentage Net earnings (loss) (84.7) (1.0) 3.9 (12.1) Effective interest on deferred financing costs Accretion on senior notes Accretion on convertible debentures Fair value of interest rate swaps (0.8) (1.2) Stock-based compensation (0.9) (0.3) 1.8 (0.1) 2.1 Unrealized foreign exchange (gain) loss (1.3) (5.8) Depreciation and amortization (Gain) loss on sale of assets (5.3) (4.0) Impairment of property and equipment Impairment of intangible asset and goodwill Deferred income taxes (5.8) 5.2 (0.1) (1.0) (6.3) Cash flow from operations before change in non-cash working capital Net earnings (loss) per share (diluted) (0.70) (0.01) 0.03 (0.10) Cash flow from operations before change in non-cash working capital per share (diluted) (1) The second quarter of 2010 includes a reduction in the previously reported revenue and operating costs of $8.8 million to properly reflect the characterization of certain activities as inter-segment. There were no changes to the previously reported gross margin, net earnings (loss) and other related amounts. (2) The periods of 2010 have been restated under IFRS, while the prior periods of 2009 have been reported under previous GAAP. NON-GAAP MEASURES HIGHLIGHTS QUARTERLY ANALYSIS (3) 2009 (3) ($ millions except per share data and operating data) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 EBITDA (1) Per share (diluted) (2) Adjusted EBITDA (1) Per share (diluted) (2) Adjusted net earnings (1) Per share (diluted) (2) Adjusted net earnings before refinancing costs (1) Per share (diluted) (2) (1) Please see the Non-GAAP Measures Definitions section of this MD&A for further details. (2) Diluted shares include the weighted average number of shares outstanding over the period and the dilutive impact, if any, of the deemed conversion of convertible debentures and the number of shares issuable pursuant to the Incentive Option Plan. (3) The periods of 2010 have been restated under IFRS, while the prior periods of 2009 has been reported under previous GAAP. TRINIDAD SECOND QUARTER REPORT

8 OPERATING HIGHLIGHTS QUARTERLY ANALYSIS ($ millions except per share data and operating data) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Land Drilling Market Operating days - drilling Canada 1,522 4,008 3,270 2,786 1,616 3,170 2,090 1,739 United States and International (1) 4,741 4,539 4,430 4,424 3,958 3,769 3,994 3,419 Rate per drilling day Canada (CDN$) 25,265 25,053 24,086 21,477 23,590 21,868 22,543 21,486 United States and International (CDN$) (1) 20,152 19,996 20,384 19,910 18,504 21,206 21,887 21,819 United States and International (US$) (1) 20,835 20,067 19,955 19,117 18,092 20,157 20,355 19,632 Utilization rate - drilling Canada 31% 80% 65% 56% 34% 67% 44% 36% United States and International (1) 82% 80% 73% 72% 66% 63% 63% 61% CAODC industry average 23% 66% 49% 39% 20% 52% 32% 21% Number of drilling rigs at quarter end Canada United States and International (1) Utilization rate for service rigs (2) 34% 66% 57% 41% 37% 54% 32% 27% Number of service rigs at quarter end (2) Number of coring and surface casing rigs at quarter end Barge Drilling Market Operating days Rate per drilling day (CDN$) (3) 22,672 22,002 24,402 24,738 25,013 23,732 20,275 28,805 Rate per drilling day (US$) (3) 23,432 22,081 23,878 23,757 24,406 22,559 19,482 25,736 Utilization rate 96% 99% 99% 88% 78% 93% 75% 72% Number of barge drilling rigs at quarter end Number of barge drilling rigs under Bareboat Charter at quarter end (1) Trinidad commenced its operations in Mexico effective November 2008 and expanded its international operations into Chile effective August Effective April 6, 2010, the rig located in Chile was sold to a third party. (2) In the second quarter of 2011 Trinidad disposed of all of its 22 well servicing rigs and related equipment. (3) In the second quarter of 2010, other revenue associated with equipment repairs was removed from the dayrate calculation to comply with corporate dayrate calculation practices. An assessment or comparison of Trinidad s quarterly results, at any given time, requires consideration of crude oil and natural gas commodity prices and seasonality. Commodity prices ultimately drive the level of exploration and development activities carried out by the Company s customers and the associated demand for the oilfield services provided by Trinidad. Generally speaking, North American markets have greater exposure to natural gas prices while international markets are more heavily weighted to crude oil projects. From a seasonality perspective, Trinidad operates a substantial number of rigs in western Canada; and therefore, operations are impacted by weather and seasonal factors. The winter season, which incorporates the first quarter, is generally a busy period in western Canada as oil and gas companies take advantage of frozen conditions to move drilling rigs into regions which might otherwise be inaccessible to heavy equipment due to swampy conditions. The second quarter normally encompasses a slow period referred to as spring break-up. During this period, melting conditions result in temporary municipal road bans that effectively prohibit the movement of drilling rigs. The third and fourth quarters in western Canada are usually representative of average activity levels. Trinidad s continued expansion into the US and international markets reduced the Company s overall exposure to the seasonal factors that are present in its Canadian operations. Operators in the US and international areas have more flexibility to work throughout the year. This increased number of available operating days has allowed Trinidad to better manage its business with more sustainable cash flow throughout the annual cycle. This was evident throughout 2009 and 2010 as Trinidad expanded its operations in the US land rig markets and into Mexico. During 2009, Trinidad s financial and operating results were impacted by the global economic recession. In 2009, Trinidad faced declining market conditions company-wide as a result of lower commodity prices and a decline in 7 + TRINIDAD SECOND QUARTER REPORT 2011

9 customer activity. These downward financial and operational trends in 2009 were directly tied to the global recession, tight capital markets, and sustained lows for energy commodity prices, particularly natural gas. In response to these conditions, Trinidad significantly reduced its capital expenditure plans, lowered its dividend and undertook a number of cost reduction measures. The Canadian dollar strengthened in the latter half of 2009 resulting in foreign exchange losses upon translation of US dollar denominated intercompany loans. In addition to the foreign exchange loss, an intangible impairment charge, loss on sale of assets and increased general and administration and stock-based compensation expense brought Trinidad s overall reporting to a net loss during the year. Activity began to improve in the first half of 2010 and strengthened significantly in the second half of the year. As the year progressed and activity grew, dayrates began to increase as a result of ongoing customer demand. Revenue levels grew during the year due to improving dayrates and higher activity; however, gross margin percentage reduced in the second and third quarters of the year as the active rig mix changed and additional costs were incurred as rigs were put back into operation. By the fourth quarter, the majority of these reactivation costs were complete and gross margin percentage increased. Net earnings, although impacted by fluctuating foreign exchange gains and losses and increasing depreciation and amortization costs, increased year over year for the first three quarters of the year. Net earnings in the fourth quarter lowered as a result of impairment charges recorded on goodwill and capital assets and additional financing costs recorded in association with the debt refinancing that was completed in the quarter. The improving industry conditions continued into the first and second quarters of Net earnings increased in the first quarter compared to the prior comparative quarter, reflecting the increased activity levels and growing dayrates. In the second quarter of 2011, Trinidad continued to show operational improvement; however, net earnings were negatively impacted by the seasonality of the Canadian drilling operations, fluctuations in exchange rates, and the impairment of capital assets, which were partially offset by a gain on the sale of assets. Overall, the first half of 2011 has shown improvement over the previous year in almost all financial and operational metrics, demonstrating the improved industry conditions and the Company s ability to participate in these positive changes. RESULTS FROM OPERATIONS Canadian drilling operations Three months ended June 30, Six months ended June 30, ($ thousands except percentage and operating data) % Change % Change Revenue 42,145 42,833 (1.6) 161, , Operating expense 33,202 29, ,055 83, Gross margin 8,943 13,217 (32.3) 56,522 43, Gross margin % 21.2% 30.9% 35.0% 34.4% Operating days - drilling 1,522 1,616 (5.8) 5,529 4, Rate per drilling day (CDN$) 25,265 23, ,112 22, Utilization rate - drilling 31% 34% (8.8) 55% 50% 10.0 CAODC industry average 23% 20% % 36% 22.2 Number of drilling rigs at period end Utilization rate for service rigs (1) 34% 37% (8.1) 51% 45% 13.3 Number of service rigs at quarter end (1) - 22 (100.0) - 22 (100.0) Number of coring and surface rigs at period end (1) In the second quarter of 2011, Trinidad disposed of all of its 22 well servicing rigs and related equipment. Revenue in the Canadian drilling operations segment totaled $42.1 million in the second quarter of 2011, and $161.6 million for the first six months of 2011, down 1.6% from the second quarter last year, but up 26.9% from the first half of Lower revenue levels in the second quarter of 2011 were due to slightly lower operating days and utilization levels, which more than offset the increases in dayrates. Additionally, in the second quarter of 2010, Trinidad received a one-time payment for settlement of an existing customer contract. In the quarter, operating days and utilization were down compared to the same quarter last year due to a wet and prolonged spring break-up, which delayed Trinidad s ability to get rigs back to work as many roads and leases were too wet to allow heavy equipment to move. As a result, Trinidad s drilling rig utilization averaged 31.0% in the quarter, down 8.8% from the second quarter last year but eight percentage points ahead of the industry average of 23.0%. Year to date, utilization averaged 55.0% in 2011, up from 50.0% in 2010, and an industry average of 44.0% for the first half of 2011, reflecting the strong demand for Trinidad s high quality drilling equipment in Canada. TRINIDAD SECOND QUARTER REPORT

10 Gross margin totaled $8.9 million in the second quarter of 2011, and $56.5 million year to date, down 32.2% and up 29.0% from the same periods last year, respectively. In addition to the factors affecting revenue discussed above, gross margin was negatively impacted by higher repairs and maintenance costs as rigs were made ready in anticipation of a busy second half of the year. As well, rigs were placed back in service later than usual in the second quarter due to wet weather conditions following spring breakup, which resulted in a delay in the revenue relative to the repair costs, negatively impacting margins. Furthermore, the well servicing division had a year-over-year variance in regional activity, resulting in a higher proportion of the activity occurring in the lower margin Lloydminster market in the current quarter, negatively impacting margins. These factors resulted in gross margin percent decreasing to 21.2% in the quarter, from 30.9% in the same quarter last year. Consistent with the trend in revenue, gross margin in the first half of 2011 increased significantly over the first half of 2010 as Trinidad benefited from a long winter in 2011 and significantly improved day rates over the same period in However, gross margin percent increased only slightly in the first half of 2011 to 35.0% from 34.4% for the first half of 2010 mainly due to the factors affecting the second quarter gross margins noted above. Trinidad expects that gross margin percentage will improve in the coming quarters as dayrates continue to increase, in response to the high demand for the Company s drilling equipment. Since the second quarter of 2010, three rigs were redeployed from Mexico back to Canada, one Canadian rig was decommissioned and in the second quarter of 2011, one rig was redeployed from Canada to the Company s US operations. The net effect of these changes was one additional rig operating in the second quarter of 2011 compared to the same quarter of During the second quarter, Trinidad sold its well servicing rigs and related equipment for $38.0 million in cash, excluding positive working capital. The transaction closed on June 15, 2011 and the division s operating results are included in this segment up until that date. Trinidad s decision to sell these assets reflects the Company s strategy to focus on the deep, modern contract drilling market where returns are generally stronger and where the Company sees opportunities for future growth. Trinidad s coring rigs were largely inactive during the quarter due to the seasonality that is typically associated with these assets. Oil sands activity has increased in the past 12 months and the outlook for Trinidad s coring rigs looks positive for the coming winter drilling season. United States and international drilling operations (1) Three months ended June 30, Six months ended June 30, ($ thousands except percentage and operating data) % Change % Change Revenue 100,567 82, , , Operating expense 56,647 49, ,331 98, Gross margin 43,920 32, ,939 69, Gross margin % 43.7% 39.9% 41.2% 41.3% Land Drilling Rigs Operating days - drilling 4,741 3, ,280 7, Rate per drilling day (CDN$) 20,152 18, ,075 19, Rate per drilling day (US$) 20,835 18, ,459 19, Utilization rate - drilling 82% 66% % 65% 24.6 Number of drilling rigs at period end (1) (3.0) (3.0) Barge Drilling Rigs Operating days - drilling Rate per drilling day (CDN$) (2) 22,672 25,013 (9.4) 22,334 24,276 (8.0) Rate per drilling day (US$) (2) 23,432 24,406 (4.0) 22,749 23,375 (2.7) Utilization rate - drilling 96% 78% % 85% 14.1 Number of barge drilling rigs at period end Number of barge drilling rigs under Bareboat Charter Agreements at period end (1) Trinidad commenced its operations in Mexico effective November 2008 and expanded its international operations into Chile effective August Effective April 6, 2010, the rig located in Chile was sold to a third party. (2) In the second quarter of 2010, other revenue associated with equipment repairs was removed from the dayrate calculation to comply with corporate dayrate calculation practices. 9 + TRINIDAD SECOND QUARTER REPORT 2011

11 In the second quarter and first half of 2011, improved market conditions drove strong demand for drilling equipment, increased utilization levels and higher dayrates in the US and international drilling operations segment, compared to the same periods last year. Revenue increased to $100.6 million for the quarter and $196.3 million for the first six months, up from the prior comparative periods by 22.1% and 17.1%, respectively. The positive impact to revenue from these factors was partly offset by a weakening of the US dollar against the Canadian dollar in 2011, as compared to US-dollar denominated dayrates for the land drilling rigs averaged $20,835 per day for the quarter and $20,459 per day for the first half of 2011, up 15.2% and 7.1% from the prior year, demonstrating the strengthening market conditions. In addition, drilling rig utilization averaged 82.0% in second quarter of 2011 and 81% year-to-date, up 24.2% and 24.6% from the same periods of 2010, respectively. Higher rig utilization led to a 19.8% increase in operating days allowing Trinidad to a reach a record level of 4,741 days in the second quarter of 2011, despite the segment having two fewer rigs than the same quarter last year. During the second quarter of 2011, two rigs were added to the Company s US and international operations, bringing the total number of rigs to 65, with 62 rigs in the US and three in Mexico. Trinidad transferred one rig from its Canadian operations into the Niobrara play in Wyoming in the quarter. This rig is the first of several rigs that Trinidad expects to move into this area of growing interest and activity in the coming months. The second rig was a newly constructed, high performance rig that was delivered to the Eagle Ford shale under long-term, take-or-pay contract as part of the Company s current rig construction program. In addition to these changes above, in the past year Trinidad has redeployed three rigs from its Mexican operations to Canada, added three new builds and decommissioned four US land rigs. Gross margin increased to $43.9 million for the second quarter and $80.9 million in the first six months of 2011, up 33.6% and 16.8% from the same periods last year. Gross margin percentage improved in the quarter to 43.7% from 39.9% in the same quarter last year, largely due to higher dayrates and lower per day operating costs. In 2010, Trinidad incurred higher operating expenses as it reactivated a large number of rigs in response to improving market conditions and increasing activity levels. With almost all its equipment now working, these reactivation expenses were not incurred in the second quarter of Year to date in 2011, gross margin percentage remained relatively consistent with the prior year, reflecting higher operating costs incurred in the first quarter of 2011 as rigs were moved to new operating areas and final reactivation costs were incurred. In the Company s barge drilling operations, US-dollar denominated dayrates averaged $23,432 per day in the quarter and $22,749 per day year to date in 2011, down 4.0% and 2.7% from the prior year, respectively. Dayrates were lower largely due to the addition of a lower depth capacity rig in the past year. Dayrates are beginning to show positive trends, utilization levels have been high for several consecutive quarters and higher demand is now beginning to flow through to increasing dayrates. Construction operations Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Revenue (1) 18,764 27,890 (32.7) 35,505 42,788 (17.0) Operating expense (1) 18,989 26,078 (27.2) 35,599 39,389 (9.6) Gross margin (225) 1,812 (112.4) (94) 3,399 (102.8) Gross margin % -1.2% 6.5% -0.3% 7.9% (1) Includes inter-segment revenue and costs for three months of $18.3 million ( $24.3 million), and for six months $34.2 million ( $38.9 million). In December 2010, the Company made the decision to narrow the focus of its rig construction operations to the rig design, commissioning, and the development of new technology for internal purposes only. Revenue from the construction operations segment declined to $18.8 million in the second quarter of 2011, down from $27.9 million in the same period of 2010, due to a reduction of both the Company s external and internal rig build program, versus the same period of Revenue for the three months ended June 30, 2011 included $18.3 million of inter-segment construction work and $0.4 million of external construction revenue, compared to $24.3 million and $3.6 million respectively in the same period of Revenue in 2011 was largely comprised of income related to the ongoing internal rig construction program, including work completed on one rig that was delivered in the US drilling operations segment during the second quarter of The decline in third party work of $3.3 million, to $0.4 million in the second quarter of 2011, is in line with Trinidad s reorganization of the construction division to internal rig builds only. TRINIDAD SECOND QUARTER REPORT

12 Operating expenses also declined in the quarter from $26.1 million for the three months ended June 30, 2010, to $19.0 million for the three months ended June 30, The reorganization impacted the segment s gross margin and gross margin percentage, as there was less third party work in the quarter, which decreased gross margin and gross margin percentage from 6.5% in 2010 to a loss of 1.2% in the second quarter of The current quarter loss is reflective of the reorganization of the construction segment to focus on internal rig builds only, and going forward the segment should have no margin as all internal work performed will be billed at cost to Trinidad s other operating segments. GENERAL AND ADMINISTRATIVE Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change General and administrative 12,691 12,931 (1.9) 31,850 29, % of revenue 8.9% 10.0% 8.9% 10.0% During the second quarter of 2011, General and Administrative (G&A) expenses declined by 1.9% or $0.2 million, to $12.7 million compared to the same period of The reduction in G&A was the result of a higher stock-based compensation expense recovery in the second quarter of 2011 totalling $0.9 million, compared to a recovery of $0.3 million in the same quarter of The recovery in both periods was due to a decline in the company s stock price, which resulted in a decrease in the associated share-based option plan liabilities. The recovery was partly offset by slightly higher professional fees. Year to date G&A expenses increased 6.5% or $1.9 million, to $31.9 million for the six months ended June 30, 2011, versus the same period of The higher G&A expense is the result of a $1.7 million increase in stock-based compensation, due to a higher share price in the first quarter of 2011 compared to the same period of 2010, as well as an increase in share-based options issued during the period. As a percentage of revenue, G&A declined from 10.0% to 8.9% in the quarter as a result of a higher revenue base over which to spread the predominantly fixed costs. This is consistent with the year to date percentage of revenue which also decreased from 10.0% to 8.9% for the six months period. DEPRECIATION AND AMORTIZATION Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Depreciation 25,341 23, ,840 50, Amortization (46.2) (47.4) (Gain) on sale of assets (5,342) (3,976) 34.4 (5,353) (3,920) 36.6 Depreciation expense for the quarter increased 6.9% or $1.6 million, to $25.3 million, compared to the same period of The increase in depreciation expense was driven by the significant increase in operating days in US drilling operations. The increase in depreciation expense was partially offset by a weakening of the US dollar versus the Canadian dollar, reducing the US and international operations depreciation expense upon translation to Canadian dollars. In the second quarter of 2011, the amortization on Trinidad s acquired intangible assets decreased 46.2% from the same period of The reduction was as a result of a decline in intangibles in 2011 due to impairments taken in the third and fourth quarter of Gain on sale of assets in the second quarter of 2011 increased by 34.4%, versus the same period of The $5.3 million gain reported in the second quarter of 2011 consists of a $3.5 million gain on the sale of the company s well servicing assets, $1.1 million gain on the sale of non-core inventory, and $0.8 million gain on the sale of land and building assets. In the second quarter of 2010, Trinidad recorded a $4.1 million gain on the sale of its Chile operations. The majority of the increase for the six month period of 2011 consists of the previously mentioned gains during the second quarter TRINIDAD SECOND QUARTER REPORT 2011

13 FOREIGN EXCHANGE LOSS Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Foreign exchange (gain) loss (1,217) (5,929) (79.5) 540 1,545 (65.0) % of revenue -0.9% -4.6% 0.2% 0.5% During the fourth quarter of 2010, a portion of the US dollar-denominated intercompany balances and a portion of the long-term debt, now US denominated, within the Canadian entity, were designated as a hedge of the net investment in the applicable foreign subsidiaries. As a result, in the first quarter of 2011, unrealized foreign exchange gains and losses related to these balances were offset against foreign exchange gains and losses arising from the translation of applicable foreign subsidiaries accounts within Other Comprehensive Income (OCI). Throughout 2010, the translation of the intercompany balances and long-term debt were previously reflected in the statement of operations. Therefore, Trinidad s foreign exchange gain decreased 79.5% or $4.7 million in the second quarter of Of the $1.2 million foreign exchange gain in the second quarter of 2011, $1.3 million were related to unrealized gains and $0.1 million were realized losses. IMPAIRMENT Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Impairment of capital assets 8, % 8, % % of revenue 6.3% 0.0% 2.5% 0.0% During the second quarter of 2011, the Company recorded an impairment of $9.0 million, related to the write down of certain underutilized assets. The assets have been recognized as assets held for sale, and have been measured at the lower of fair value less cost to sell or their carrying value. The non-current assets consist of (i) four US land drilling rigs which have technology that does not currently meet the Company s target drilling market, (ii) a manufacturing site (building and land) that is expected to be unoccupied within the next year as a result of re-organization of the construction operations, (iii) a training facility in Canadian drilling operations that is underutilized, and (iv) certain land rig engines in the US that are no longer compatible with the Company s existing rig fleet. During the second quarter of 2011, one of the US land rigs and the manufacturing site were sold, with completion of the sales occurring subsequent to June 30, FINANCE COSTS Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Interest on long-term debt 9,869 4, ,631 8, Accretion on senior notes Deferred financing costs on long-term debt (48.0) 1,053 1,889 (44.3) 10,452 5, ,833 10, Interest on convertible debentures - 6, ,723 - Accretion of convertible debentures - 1, ,848 - Deferred financing costs on convertible debentures , , ,911 - Finance costs 10,452 14,195 (26.4) 22,833 27,981 (18.4) % of revenue 7.3% 11.0% 6.4% 9.4% For the three months ended June 30, 2011, finance costs declined $3.7 million (or 26.4%), to $10.5 million for the same period of Additionally, financing costs have declined by $5.1 million (or 18.4%), to $22.8 million for the six months ended June 30, 2011, compared to the same period of The reduction in financing costs was attributable to the refinancing under taken in the fourth quarter of Specifically, at June 30, 2011, Trinidad s long-term debt included a US$450.0 million in 7.875% Senior Notes, a $200.0 million Canadian dollar revolving facility, and a $100.0 million US dollar revolving facility. All of which were issued in December of 2010, and replaced the company s pervious term and revolving facilities, as well as the convertible debentures. TRINIDAD SECOND QUARTER REPORT

14 The termination of the previous debt facilities and convertible debentures resulted in the write-off of the associated deferred financing costs, and as a result there is no longer any debenture interest related expenses. Additionally, the deferred financing costs incurred on the new credit facilities, as well as the Senior Notes, are being amortized over a longer period of time than the previous credit facilities, causing a decrease in the deferred financing costs on the long-term debt from the second quarter and year to date Furthermore, the Senior Notes were issued at a discount causing an accretion expense which will increase the debt balance such that it is consistent with the value of the liability at maturity in January INCOME TAXES Three months ended June 30, Six months ended June 30, ($ thousands except percentage) % Change % Change Current 2,441 3,161 (22.8) 3,166 3,573 (11.4) Deferred (5,803) (6,306) (8.0) (649) (2,033) (68.1) (3,362) (3,145) 6.9 2,517 1, % of revenue -2.3% -2.4% 0.7% 0.5% The current tax expense for the second quarter of 2011, decreased by 22.8% to $2.4 million, compared to the same period of The reduction in current tax was the result of decreased profitability in the construction and international operating segments, which was partially offset by the profit on the sale of the well servicing assets. Deferred tax recovery decreased by $0.5 million, or 8.0%, to a recovery of $5.8 million for the second quarter of The decrease is the result of increased profitability in both the Canadian and US segments where tax is being deferred into the future. NET EARNINGS (LOSS) AND CASH FLOW Three months ended June 30, Six months ended June 30, ($ thousands except per share data) % Change % Change Net earnings (loss) 5,005 9,968 (49.8) 20,994 8, Per share (diluted) (50.0) Adjusted net earnings (1) 11,903 3, ,702 11, Per share (diluted) Cash flow from operations 82,320 39, ,580 67, Per share (diluted) Cash flow from operations before change in non-cash working capital (1) 25,897 20, ,073 61, Per share (diluted) (1) Please see Non-GAAP Measures Definition section of this MD&A for further details. CHANGE IN NET EARNINGS (LOSS) Three months ended June 30, Six months ended June 30, Change Change ($ thousands) (loss)/recovery (loss)/recovery Revenue 143, ,774 14, , ,847 60,342 Operating expense 90,491 80,878 9, , ,326 39,496 Gross margin 52,638 47,896 4, , ,521 20,846 Losses: Depreciation and amortization 25,418 23,852 1,566 54,993 50,544 4,449 Other (1) 29,235 26,311 2,924 61,489 57,536 3,953 Recoveries: Foreign exchange (gain) loss (1,217) (5,929) 4, ,545 (1,005) Deferred income taxes (5,803) (6,306) 503 (649) (2,033) 1,384 Net earnings 5,005 9,968 (4,963) 20,994 8,929 12,065 (1) Other includes all other expenses from the statement of operations for the first and second quarter of 2011 and 2010 (includes: general and administrative expenses, financing costs, impairments, and gain and loss on the sale of assets) TRINIDAD SECOND QUARTER REPORT 2011

15 For the three month period ending June 30, 2011 Trinidad s consolidated net earnings declined by $5.0 million to $5.0 million (a net earnings of $0.04 per share (diluted)), compared to the same period of The reduction in earnings was the result of a lower foreign exchange gain, as well as a higher impairment on property and equipment, combined with a higher depreciation expense, versus the same period of These factors were slightly offset by a higher gross margin, due to stronger operating performance and activity levels in the current quarter, as well as a higher gain on the sale of assets, versus the same period of Cash flow from operations for the second quarter of 2011 increased by 107.6%, to $82.3 million ($0.68 per share (diluted)) in 2011, compared to the same period of The increase in cash flow from operations is the result of a significant change in working capital, due to the seasonality of the Canadian drilling operating segment, as well as higher revenue, as a result of stronger activity levels. Cash flow from operations before changes in non-cash working capital increased by 25.9%, to $25.9 million ($0.21 per share (diluted)) in the second quarter of 2011, compared to the same period of The increase in cash flow from operations before changes in non-cash working capital was the result of higher activity level and subsequently higher revenue. LIQUIDITY AND CAPITAL RESOURCES As at June 30, December 31, ($ thousands except percentage data) Working capital (1) 110, ,811 Current portion of long-term debt Long-term debt (2) 539, ,154 Total debt 539, ,700 Total debt as a percentage of assets 36.7% 39.6% Net debt (1) 428, ,343 Net debt as a percentage of assets 29.1% 31.3% Total assets 1,471,858 1,531,325 Total long-term liabilities 609, ,712 Total long-term liabilities as a percentage of assets 41.4% 44.2% Shareholders equity 778, ,638 Total debt to shareholders equity 69.3% 77.4% Net debt to shareholders equity 55.0% 61.2% (1) See Non-GAAP Measures Definition section of this MD&A for further details. (2) Long-term debt is net of associated transaction costs. As mentioned previously, working capital in 2011 decreased to $110.9 million during the quarter, a decline of 12.5%. The lower working capital is due to a reduction of accounts receivable offset by an increase in accounts payable and accrued liabilities due to the seasonality of the Canadian Drilling operating segment, but partly offset by approximately $10.0 million in assets held for sale. Trinidad s total debt declined by $67.1 million year to date 2011, partially due to the retranslation of the Senior Notes of US$450.0 million, as a result of the decline in the US to Canadian foreign exchange rate. The Senior Notes are translated at each quarter end, as such their value will fluctuate quarterly with variations in exchange rates. The Senior Notes are due January 2019 and interest is payable semi-annually in arrears on January 15 and July 15. The first payment was due on July 15, During the first six months of 2011, pursuant to the Company s strategy to reduce overall indebtedness and as a result of the strong operating conditions, Trinidad reduced the balances on its revolving credit facility by $53.2 million. At June 30, 2011, Trinidad had CDN$80.0 million outstanding on its Canadian revolving credit facility and US$37.0 million on its US revolving credit facility, leaving CDN$120.0 million and US$63.0 million unutilized in the facility, respectively. The new Canadian and US revolving facility requires quarterly interest payments that are based on Bankers Acceptance (BA) and LIBOR rates and incorporate a tiered interest rate, which varies depending on the results of the Consolidated Total Debt to Consolidated EBITDA ratio (see table below). This facility matures December 16, 2014, and is subject to annual extensions of an additional year on each anniversary. TRINIDAD SECOND QUARTER REPORT

16 A total of $47.5 million and $72.1 million of capital expenditures were incurred during the three and six months ended June 30, 2011, compared to $36.3 million and $71.7 million for the same periods last year. Capital expenditures year to date were substantially related to the Company s rig build program, the purchase of four land rigs from a third party and a number of capital upgrades made to Trinidad s rig fleet to improve the equipment s marketability. Trinidad expects cash flow from operations and the Company s various sources of financing to be sufficient to meet its debt repayments, future obligations and to fund planned capital expenditures. Shareholders equity declined by $5.4 million to $778.2 million at June 30, 2011 compared to $783.6 million at December 31, The decline was due to an $8.9 million increase in retained earnings, as a result of $21.1 million in net earnings slightly offset by $12.1 million in dividends in the first half of 2011, which was more than offset by a $14.9 million decrease in accumulated other comprehensive income (AOCI). The AOCI loss in the first half of 2011 was due to a loss on the translation of the Company s foreign subsidiaries, as a result of the strengthening of the Canadian dollar relative to the US dollar. The Board of Directors of Trinidad declared a cash dividend for the first and second quarters of 2011 of $0.05 per common share per quarter. Trinidad s objectives when managing capital include: safeguarding the Company s ability to continue to provide returns for shareholders and applying capital efficiencies to achieve financial objectives while focusing on operating within generated cash flows. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, repurchase or issue new shares, sell assets, reduce indebtedness or take on additional long-term debt. Current financial performance is well in excess of the financial ratio covenants under the revolving credit facility as reflected in the table below under IFRS: June 30, December 31, THRESHOLD RATIO Consolidated Senior Debt to Consolidated EBITDA (1) 0.56:1 0.94:1 3.00:1 maximum Consolidated Total Debt to Consolidated EBITDA (2) 2.53:1 3.18:1 4.00:1 maximum Consolidated EBITDA to Consolidated Cash Interest Expense (3) 4.33:1 4.12:1 2.75:1 minimum (1) Maximum Consolidated Senior Debt to Consolidated EBITDA means the consolidated balance of the revolving facility and other debt secured by a lien at quarter end to consolidated EBITDA for the trailing twelve months (TTM). (2) Maximum Consolidated Total Debt to Consolidated EBITDA means the consolidated balance of long-term debt, which includes the Senior Debt, and dividends payable at quarter end, plus the current portion of long-term debt, to consolidated EBITDA for the TTM. (3) Minimum Consolidated EBITDA to Consolidated Cash Interest Expense means the consolidated EBITDA for TTM to the cash interest expense on all debt balances for TTM. Readers are cautioned that the ratios noted above do not have standardized meanings prescribed in IFRS or previous GAAP. COMMITMENTS AND CONTINGENCIES Commitments Trinidad has several capital and operating lease agreements on buildings and equipment. Operating lease expenses are included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). The Company does not have any contingent rental or sublease payments, nor any sublease income. The leases expire at various times through 2016 and there are no significant renewal or purchase options. Payments Due by Period As at June 30, 2011 Less than 1 to 3 4 to 5 After ($ thousands) Total 1 year years years 5 years Debt (1) 825,941 39,408 83, , ,548 Operating leases 12,748 2,803 5,734 4, Other obligations (2) 84,052 84, Total contractual obligations 922, ,263 89, , ,693 (1) Debt payments consist of expected payments on the Credit Facilities, the Canadian Dollar face value at maturity of the Senior Notes, other debt payments, as well as related interest payments. (2) Other obligations consist of accounts payable and accrued liabilities, dividends payable TRINIDAD SECOND QUARTER REPORT 2011

17 Contingencies Trinidad is involved in various legal actions which have occurred in the course of operations. Management is of the opinion that losses, if any, arising from such legal actions would not have a material effect on these financial statements. SHAREHOLDERS EQUITY Common shares at June 30, 2011 were valued at $952.0 million (120,858,226 shares), which increased from $951.8 million at December 31, 2010, due to the exercise of 17,264 in stock options. Common shares at August 10, 2011 were valued at $952.0 million (120,859,476 shares). GOING CONCERN The Company s MD&A and financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Trinidad s ability to continue as a going concern is substantially dependent on, but not limited to, the successful execution of the Company s objectives and strategies outlined in this MD&A, as well as the Company s ability to be proactive in managing these objectives and strategies in a timely manner. This financial information does not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should Trinidad be unable to continue as a going concern. SEASONALITY Trinidad operates a substantial number of rigs in western Canada and therefore Canadian Drilling operations are heavily dependent upon the seasons. The winter season, which incorporates the first quarter, is typically a busy period as oil and natural gas companies take advantage of frozen conditions to move drilling rigs into regions which might otherwise be inaccessible to heavy equipment due to swampy conditions. The second quarter normally encompasses a slow period referred to as spring break-up. During this period melting conditions result in temporary municipal road bans that effectively prohibit the movement of drilling rigs. The third and fourth quarters are usually representative of average activity levels. Trinidad s expansion to the US and international markets has reduced its overall exposure to the seasonal factors that are present in its Canadian operations. These seasonal conditions typically limit Canadian drilling activity, whereas in the US and international areas, operators have more flexibility to work throughout the year. This increased number of operating days throughout the year has allowed Trinidad to better manage its business with more sustainable cash flow throughout the annual cycle. CRITICAL ACCOUNTING ESTIMATES The preparation of the unaudited interim consolidated financial statements requires that certain estimates and judgements be made with regard to the reported amount of revenues and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management judgement. Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the unaudited interim consolidated financial statements may change as future events unfold, additional experience is acquired or Trinidad s operating environment changes. The following discussion outlines the Company s critical accounting estimates adopted under IFRS. Capital assets The accounting estimate that has the greatest impact on Trinidad s financial results is depreciation and amortization. Depreciation and amortization of Trinidad s capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of Trinidad s capital assets. Stock-based compensation Compensation expense for options under the Incentive Option Plan are estimated based on various assumptions at grant date, such as volatility, annual dividend yield, risk free interest rate and expected life using the Black-Scholes methodology to produce an estimate of the fair value of such compensation. Compensation expense, for options under the Deferred Share Unit Plan and Performance Share Unit Plan, are estimates at grant date calculated using the fair value method and are re-measured at the end of each reporting period based on volume-weighted average trading price of the Company s share for the five days immediately preceding period end. TRINIDAD SECOND QUARTER REPORT

18 Allowance for doubtful accounts Trinidad regularly performs a review of outstanding accounts receivable balances greater than 90 days to determine eventual collectability. If an account is deemed uncollectable, a provision for bad debt is recorded. Trinidad also analyzes the bad debt provision regularly to determine if any of the accounts provided for should be written off. These accounts which are deemed uncollectible could materially change as a result of changes in a customer s financial situation. Impairments Trinidad performs impairment tests of long-lived assets with determinable useful lives when indications of impairment exist. Application of judgement is required in determining whether an impairment test is warranted. When indicators support the asset is no longer impaired, Trinidad will reverse impairment losses. Similar to the impairment, application of judgement is required to determine whether a reversal should be considered. Other than the impairment of $9.0 million recognized in the second quarter of 2011 related to assets held for sale, there were no impairment indicators deemed to exist for any definite life asset at June 30, 2011 or June 30, 2010, and no reversals of any previous impairment for both periods. Fair value of interest rate swaps The fair value of the interest rate swaps are estimated based on future projected interest rates and adjusted on a quarterly basis for monthly settlements and changes in projections. Trinidad receives the valuation from the contract counterparty on a quarterly basis, reviews it for reasonability, and records the associated change in fair value at each reporting period. At June 30, 2011, Trinidad no longer held any interest rate swaps. Income taxes Trinidad calculates an income tax provision in each of the jurisdictions in which it operates. Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions against future taxable income before the deductions expire. The assessment is based upon existing tax laws and estimates of future taxable income. Further, there are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Trinidad maintains provisions for uncertain tax positions that it believes appropriately reflect its risks with respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to involve uncertainty. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. Trinidad reviews the adequacy of these provisions at each reporting period. However, it is possible that at some future date an additional liability could result from audits by taxation authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. Provision for sales taxes When rigs in the US drilling operations move from state to state they are subject to capital sales taxes. Trinidad records a provision for capital sales taxes based on estimates of the rig value and available tax incentives at the time of the rig move. The actual capital sales tax payable is ultimately based on audits by the relevant state tax authorities. The amount of the provision recorded in any period could materially differ from the ultimate liability determined by the state tax authorities. Determination of functional currency The determination of the functional currency is a matter of determining the primary economic environment in which an entity operates. Whereas the accounting standard, IAS 21, considers factors that indicate differing functional currencies within a subsidiary, Trinidad uses judgment in the ultimate determination of that subsidiary s functional currency. Judgment was applied in the determination of the functional currency of the Company s Mexico and Chile operating entities, whose functional currencies were determined to be the Mexico peso and US dollar. The functional currency of the Canadian and US operations were determined to be the Canadian and US dollars, respectively. CHANGES IN ACCOUNTING POLICY Adoption of international financial reporting standards Trinidad prepared its June 30, 2011 consolidated interim financial statements in accordance with IFRS, including IAS 34 - Interim Financial Reporting and IFRS 1 - First-time Adoption of International Financial Reporting Standard (IFRS 1). Prior to 2011, the Company prepared its consolidated financial statements in accordance with Canadian generally accepted accounting policies. Subject to certain optional and mandatory transition elections provided in IFRS 1, the Company has retroactively and consistently applied its IFRS accounting policies throughout all periods presented in this MD&A and in the interim consolidated financial statements TRINIDAD SECOND QUARTER REPORT 2011

19 Details of the Company s IFRS accounting policies and reconciliations of the January 1, 2010 and December 31, 2010 balance sheets, including the impact of IFRS 1 transition elections, were previously provided in the interim consolidated financial statements for the three months ended March 31, The interim consolidated financial statements for the three and six months ended June 30, 2011 include detailed reconciliations of the 2010 financial results previously presented in accordance with Previous Canadian GAAP including the consolidated balance sheet at June 30, 2010 and the statements of operations and comprehensive income (loss) for the three and six months ended June 30, All 2009 and prior information provided in this MD&A has not been restated and is applied in accordance with previous GAAP. The following tables present the impact of applying IFRS to key operating metrics in The approval by Trinidad s external auditors of the adjustments presented in these tables cannot be confirmed until the annual audit is complete. Reconciliation of Net Earnings (Loss) Three months ended Year end March 31, June 30, September 30, December 31, December 31, ($ thousands except per share data) Net earnings (loss) Canadian GAAP (791) 5, (87,658) (82,133) Recertification costs (1,042) (62) 215 (700) (1,589) Property and equipment components (14) 557 Property and equipment impairment (1,318) (1,318) Borrowing costs ,176 1,170 2,918 Stock-based compensation Deferred income taxes 489 3,336 (1,084) 3,809 6,550 Net earnings (loss) - IFRS (1,039) 9, (84,709) (75,012) Net earnings (loss) per share Basic fully diluted - Canadian GAAP (0.01) (0.73) (0.68) Basic fully diluted - IFRS (0.01) (0.70) (0.62) Reconciliation of EBITDA Three months ended Year end March 31, June 30, September 30, December 31, December 31, ($ thousands) EBITDA - Canadian GAAP (1) 43,680 40,121 42,078 61, ,107 Recertification costs , ,561 Stock-based compensation EBITDA - IFRS 44,180 40,894 44,113 61, ,671 (1) Please see the Non-GAAP Measures Definition section of this MD&A for further details. Reconciliation of Cash Flow from Operations Before Change in Non-cash Working Capital (1) Three months ended Year end March 31, June 30, September 30, December 31, December 31, ($ thousands) Cash flow from operations before change in non-cash working capital - Canadian GAAP (1) 40,644 19,257 34,201 52, ,581 Recertification costs , ,561 Borrowing costs ,179 1,183 2,934 Cash flow from operations before change in non-cash working capital - IFRS (1) 41,178 20,568 37,414 53, ,076 (1) Please see the Non-GAAP Measures Definition section of this MD&A for further details. TRINIDAD SECOND QUARTER REPORT

20 Description of IFRS adjustments and accounting policy changes Details of the IFRS adjustments including a discussion of the significant accounting policy changes and IFRS 1 elections were previously provided in the MD&A and interim consolidated financial statements for the three months ended March 31, The following provides a summary of the IFRS adjustments provided in the above tables: Recertification costs. IAS 16 Property, plant and equipment (IAS 16) requires capitalization of costs associated with regularly scheduled major overhauls, inspections and recertification. Trinidad previously expensed all rig recertification costs under Canadian GAAP. Accordingly, historical operating expense is decreased by the amount of recertification costs included as period expense, offset to property and equipment resulting in an increase in depreciation expense under IFRS. In addition, costs associated with the initial certification of a rig are capitalized under both Canadian GAAP and IFRS; however, the rate of depreciation has increased as the basis for depreciation has been reduced from 4,200 drilling days under Previous Canadian GAAP to 1,000 drilling days under IFRS. Consequently, depreciation expense increases and the carrying value of property and equipment decreases. In certain quarters of 2010, accelerated depreciation expense more than offset the reduction of operating expense, due to the timing of recertifications. Property and equipment components. IAS 16 requires that when an item of property and equipment consists of individual components with different useful lives, each component is accounted for and depreciated separately. Canadian GAAP includes the same concept of componentization, but is less specific about the level at which component accounting is required and provides no guidance on the cost of a component. Accordingly, historical depreciation expense is adjusted to reflect appropriate component costs under IFRS. Property and equipment impairment. IFRS and Canadian GAAP differ significantly in the methodology applied to impairments of non-financial assets, including the method by which impairment tests are conducted, how assets are aggregated, how goodwill is allocated and inputs used in determining recoverable amounts. As a result of these differences, Trinidad incurred an additional impairment of $1.3 million under IFRS at December 31, Borrowing costs. IAS 23 Borrowing Costs (IAS 23) requires capitalization of borrowing costs when they are directly attributable to an asset that requires a substantial period of time to get ready for its intended use. There is no specific requirement to capitalize borrowing costs under Canadian GAAP, and therefore, Trinidad has historically expensed such costs. Trinidad determined that certain rig build programs would be considered qualifying assets under IAS 23, and commenced capitalizing related borrowing costs upon IFRS transition. Accordingly, historical finance costs are decreased by the amount of borrowing costs capitalized to property and equipment. The borrowing costs are then depreciated in connection with the underlying asset once that asset commences operation; however, incremental depreciation expense in 2010 was minimal. Share-based payments. IFRS and Canadian GAAP can differ in the calculation methodology applied in accounting for share-based payments, including the treatment of forfeitures and graded vesting terms. The change in the calculation methodology for measuring share-based payments under IFRS resulted in an immaterial decrease to historical stockbased compensation expense (included in general and administrative expenses) as Trinidad had minimal unvested share-based awards outstanding at January 1, 2010 that were impacted by the accounting differences. Deferred income taxes. Adjustments to deferred income taxes include the tax effect of the adjustments described above in addition to the result of applying IAS 12 Income Taxes (IAS 12) to applicable historical transactions, including the tax effect of the equity component of the convertible debentures and the tax effect of certain historical asset acquisitions. FUTURE CHANGES IN ACCOUNTING POLICIES A number of new standards and amendments to existing standards have been issued by the International Accounting Standards Board (IASB) that are effective after June 30, 2011, and therefore, have not been applied to the consolidated interim financial statements. These new standards and amendments and their anticipated impact on Trinidad s consolidated financial statements once they are adopted are as follows: IFRS 9 Financial Instruments. IFRS 9 addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return on investment, are recognized in profit or loss; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely TRINIDAD SECOND QUARTER REPORT 2011

21 Requirements for financial liabilities were added in October 2010 but they largely carried forward existing requirements in IAS 39, Financial Instruments Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Trinidad has not yet assessed the impact of the standard or determined whether it will adopt the standard early. IFRS 10 Consolidated Financial Statements. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The revised standard is effective for Trinidad on January 1, 2013, with earlier adoption permitted. Trinidad has not yet assessed the impact of the standard or determined whether it will adopt the standard early. IFRS 11 Joint Arrangements. IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting, whereas joint operations will require the venture to recognize its share of the assets, liabilities, revenue and expenses. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. It is unlikely that this standard will have an impact on Trinidad s consolidated financial statements as the Company currently has no joint arrangements. IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates and special purpose entities. The standard introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity s interests in other entities. This standard is effective to Trinidad on January 1, 2013, with early adoption permitted. The Company has not assessed the impact the adoption of this revised standard will have, nor has it determined if it will early adopt the standard. IFRS 13 Fair Value Measurement. IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosure requirements about fair value measurement. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Trinidad is currently assessing the impact of this standard including determining whether or not it will early adopt the standard. IAS 19 Post Employment Benefits. IAS 19 amends the recognition and measurement of defined benefit pension expense and expands disclosures for all employee benefit plans. It is unlikely that this standard will have a significant impact on Trinidad s consolidated financial statements as the Company currently has no defined benefit pensions. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no significant changes in the Company s disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICFR) for the three months ended June 30, 2011 and no material weaknesses or significant deficiencies have been identified in the design and operating effectiveness of these controls, that could materially affect or are reasonably likely to affect Trinidad s internal controls over financial reporting. RELATED PARTY TRANSACTIONS All related party transactions were incurred during the normal course of operations on similar terms and conditions to those entered into with unrelated parties. These transactions are measured at the amount of consideration established and agreed to by the related parties. Trinidad engages the law firm of Blake, Cassels & Graydon LLP to provide legal advice. One partner of this law firm holds a board position with Trinidad, and another partner is an officer of the Company. During the three and six months ended June 30, 2011, Trinidad incurred legal fees of $0.2 million and $0.3 million, respectively ( $0.2 million and $0.3 million, respectively) to Blake, Cassels & Graydon LLP. At June 30, 2011, a total of $0.1 million was due to Blake, Cassels & Graydon LLP (December 31, 2010 $0.2 million). TRINIDAD SECOND QUARTER REPORT

22 BUSINESS RISKS The business of Trinidad Drilling Ltd. is subject to certain risks and uncertainties. Prior to making any investment decision regarding Trinidad investors should carefully consider, among other things, the risks described herein (including the risks and uncertainties listed in the Forward-Looking Statements section in this MD&A) and the risk factors set forth in the most recently filed Annual Information Form of the Company which are incorporated by reference herein. The Annual Information Form has been filed with SEDAR and can be accessed at Copies of the Annual Information Form may be obtained, on request without charge, by contacting Trinidad at (403) OUTLOOK Although global markets remain concerned about European debt levels and the speed and strength of the US economic recovery, Trinidad is continuing to see strong demand for its equipment. The first half of 2011 has shown increasing activity levels and consistently improving dayrates in both of Trinidad s drilling divisions, and the Company believes that its full year results will show continued improvements over the previous year. In Canada, the wet spring weather and the subsequent delays in customer s drilling programs has led to an increased level of customer demand going forward. The vast majority of the division s equipment is booked throughout the summer and bookings and their associated dayrates are looking strong for the coming winter drilling season. In the US and international divisions, Trinidad has experienced continued demand for its equipment and has moved a number of rigs into higher margin, higher demand areas. As part of Trinidad s strategy to mitigate the cyclicality of the drilling industry, the Company aims to maintain a range of 40.0% to 60.0% of its fleet under long-term contracts. In weaker industry conditions, this percentage tends to trend downwards as contracts expire and the Company waits for improved conditions before resigning. Trinidad is seeing strong demand to re-contract rigs as their existing contracts expire with terms improving in almost all areas of operation. To date in 2011, the Company has re-contracted a significant number of rigs and expects the full benefit of these improved terms to be realized in the coming year. Including the rigs under construction, Trinidad has approximately 55.0% of its fleet under long-term contract with an average remaining term of between two and two and a half years. Trinidad has a strong track record of growth and the Company is continuing to grow its fleet both organically and through acquisition. In 2011, the Company plans to add five new rigs to its fleet, the final two rigs from its 2010 rig construction program and three new rigs to be constructed this year. As well, the Company will be constructing an additional three new rigs in All eight rigs are high-performance, high-mobility rigs with three to five year, longterm, take-or-pay contracts. In addition, Trinidad purchased four existing rigs which it is currently upgrading; these rigs are expected to be delivered into operation in the third and fourth quarters of In total, Trinidad expects it will incur capital expenditures, net of dispositions, for these additions and upgrades to existing equipment of approximately $100 million in 2011 and $35 to $40 million in While Trinidad is continuing to grow its fleet, it remains focused on reducing overall debt levels. To date in 2011, the Company has lowered its total debt by approximately 11.1% and expects that it will be able to continue to balance its growth opportunities while also lowering its debt levels. Trinidad has assembled a fleet of equipment that is well suited for today s drilling industry. The Company s modern, technically advanced equipment has proven its ability to continually meet its customers evolving needs with its industry-leading utilization and contract extensions. While the Company is presently operating in strong industry conditions and is optimistic regarding the future, it has built additional stability into its business model by maintaining a high level of long-term contracts and lowering its debt levels over the past few years. Current indications for future dayrates and activity levels are positive and Trinidad continues to gain momentum as it moves into the second half of the year. The Company believes that its track record of high performance, the adaptability of its fleet and its growing financial flexibility position it well for the remainder of 2011 and into NON-GAAP MEASURES DEFINITIONS This MD&A contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by IFRS and previous GAAP and may not be comparable to similar measures presented by other companies. These financial measures are computed on a consistent basis for each reporting period and include gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before change in non-cash working capital, Adjusted net earnings, net debt and working capital. These non-gaap measures are identified and defined as follows under IFRS: 21 + TRINIDAD SECOND QUARTER REPORT 2011

23 Gross margin is used by management and investors to analyze overall and segmented operating performance. Gross margin is not intended to represent operating income nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with IFRS. Gross margin is calculated from the consolidated statements of operations and comprehensive income (loss) and from the segmented information contained in the notes to the consolidated financial statements and is defined as revenue less operating expenses. Gross margin percentage is used by management and investors to analyze overall and segmented operating performance. Gross margin percentage is calculated from the consolidated statements of operations and comprehensive income (deficit) and from the segmented information in the notes to the consolidated financial statements and is defined as gross margin divided by revenue. EBITDA is a measure of the Company s operating profitability. EBITDA provides an indication of the results generated by the Company s principal business activities prior to how these activities are financed, assets are depreciated, amortized and impaired, or how the results are taxed in various jurisdictions. EBITDA is derived from the consolidated statements of operations and comprehensive income (loss) and is calculated as follows under IFRS: Three months ended June 30, Six months ended June 30, ($ thousands) Net earnings 5,005 9,968 20,994 8,929 Plus: Finance costs 10,452 14,195 22,833 27,981 Depreciation and amortization 25,418 23,852 54,993 50,544 (Gain) loss on sale of assets (5,342) (3,976) (5,353) (3,920) Impairment of capital assets 8,993-8,993 - Income taxes (3,362) (3,145) 2,517 1,540 EBITDA 41,164 40, ,977 85,074 Adjusted EBITDA is used by management and investors to analyze EBITDA (as defined above) prior to the effect of foreign exchange loss and stock-based compensation, and is not intended to represent net earnings as calculated in accordance with IFRS. Adjusted EBITDA is calculated as follows under IFRS: Three months ended June 30, Six months ended June 30, ($ thousands) EBITDA 41,164 40, ,977 85,074 Plus: Stock-based compensation (878) (264) 3,175 1,499 Foreign exchange (gain) loss (1,217) (5,929) 540 1,545 Adjusted EBITDA 39,069 34, ,692 88,118 Cash flow from operations before change in non-cash working capital is used to assist management and investors in analyzing Trinidad s liquidity and ability to generate cash to finance investing and financing activities. Cash flow from operations before change in non-cash working capital is derived from the consolidated statements of cash flows and is defined as cash flow from operating activities plus or minus the change in non-cash operating working capital. Adjusted net earnings is used by management and the investment community to analyze net earnings prior to the effect of foreign exchange (gain) loss, stock-based compensation charges and impairment charges and is not intended to represent net earnings as calculated in accordance with IFRS. Adjusted net earnings are calculated as follows under IFRS: Three months ended June 30, Six months ended June 30, ($ thousands) Net earnings 5,005 9,968 20,994 8,929 Plus: Stock-based compensation (878) (264) 3,175 1,499 Foreign exchange (gain) loss (1,217) (5,929) 540 1,545 Impairment of capital assets 8,993-8,993 - Adjusted earnings 11,903 3,775 33,702 11,973 TRINIDAD SECOND QUARTER REPORT

24 Working capital is used by management and the investment community to analyze the operating liquidity available to the Company. Working capital is derived from the consolidated balance sheets and is calculated as follows under IFRS: June 30, December 31, ($ thousands) Current assets 195, ,786 Less Current liabilities 84,604 70,975 Working capital 110, ,811 Net debt is used by management and the investment community to analyze the amount of debt less the working capital of the Company. Net debt is derived from the consolidated balance sheets and is calculated as follows under IFRS: June 30, December 31, ($ thousands) Long-term debt 539, ,154 Less: Working capital 110, ,811 Net debt 428, ,343 References to gross margin, gross margin percentage, EBITDA, Adjusted EBITDA, cash flow from operations before changes in non-cash working capital, Adjusted net earnings, net debt and working capital throughout this MD&A have the meanings set out above. Trinidad is a growth oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad s divisions operate in the drilling, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States and Mexico. Trinidad is focused on providing modern, reliable, expertly designed equipment operated by well-trained and experienced personnel. Trinidad s drilling fleet is one of the most adaptable, technologically advanced and competitive in the industry. Lyle C. Whitmarsh President and Chief Executive Officer Brent J. Conway Executive Vice President and Chief Financial Officer 23 + TRINIDAD SECOND QUARTER REPORT 2011

25 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS As at June 30, December 31, ($ thousands - Unaudited) Assets Current Assets Cash and cash equivalents 9,429 7,905 Accounts receivable 151, ,866 Inventory (note 3) 20,316 25,448 Prepaid expenses 3,180 4,567 Assets held for sale (note 4) 10, , ,786 Property and equipment (note 5) 1,192,332 1,246,867 Intangible assets and goodwill (note 6) 83,957 86,672 1,471,858 1,531,325 Liabilities Current Liabilities Accounts payable and accrued liabilities 78,009 62,291 Dividends payable 6,043 6,042 Deferred revenue Current portion of long-term debt (note 7) Current portion of fair value of interest rate swaps - 1,991 84,604 70,975 Long-term debt (note 7) 539, ,154 Deferred income taxes 70,026 70, , ,687 Shareholders Equity Common shares (note 8) 952, ,863 Contributed surplus 49,354 49,016 Accumulated other comprehensive income (loss) (44,878) (30,030) Retained earnings (deficit) (178,303) (187,211) Commitments and contingencies (note 15) (See Notes to the Consolidated Interim Financial Statements) 778, ,638 1,471,858 1,531,325 TRINIDAD SECOND QUARTER REPORT

26 CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Three months ended Six months ended June 30, June 30, ($ thousands except per share data - Unaudited) Revenue Oilfield service revenue 142, , , ,027 Other revenue , , , ,847 Expenses Operating expense (note 19) 90,491 80, , ,326 General and administrative (note 19) 12,691 12,931 31,850 29,902 Depreciation and amortization 25,418 23,852 54,993 50,544 Foreign exchange (gain) loss (note 19) (1,217) (5,929) 540 1,545 Gain on sale of assets (note 10 and 11) (5,342) (3,976) (5,353) (3,920) Impairment of capital assets (note 4) 8,993-8, , , , ,397 Finance costs (note 19) 10,452 14,195 22,833 27,981 Earnings (loss) before income taxes 1,643 6,823 23,511 10,469 Income taxes Current 2,441 3,161 3,166 3,573 Deferred (5,803) (6,306) (649) (2,033) (3,362) (3,145) 2,517 1,540 Net earnings (loss) 5,005 9,968 20,994 8,929 Other comprehensive income Change in fair value of derivatives designated as cash flow hedges, net of income tax ,241 Foreign currency translation adjustment, net of income tax (note 20) (6,053) 30,473 (14,848) 8,494 (6,053) 31,177 (14,848) 9,735 Total comprehensive income (loss) (1,048) 41,145 6,146 18,664 Earnings (loss) per share (note 12) Net earnings (loss) Basic Diluted (See Notes to the Consolidated Interim Financial Statements) 25 + TRINIDAD SECOND QUARTER REPORT 2011

27 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the six months ended June 30, 2011 and 2010 Accumulated other Equity comprehensive Retained attributable Non- Common Convertible Contributed income earnings to controlling Total ($ thousands - Unaudited) shares debentures surplus (loss) (1) (deficit) shareholders interest equity Balance at December 31, ,863-49,016 (30,030) (187,211) 783, ,638 Exercise of stock options (44) Stock-based compensation Total comprehensive income (14,848) 20,994 6,146-6,146 Dividends (12,086) (12,086) - (12,086) Balance at June 30, ,026-49,354 (44,878) (178,303) 778, ,199 Balance at January 1, ,863 20,838 27,832 (4,068) (88,031) 908,434 2, ,771 Stock-based compensation Total comprehensive income ,735 8,929 18,664-18,664 Reduction of non-controlling interest (note 11) (2,337) (2,337) Dividends (12,084) (12,084) - (12,084) Balance at June 30, ,863 20,838 28,105 5,667 (91,186) 915, ,287 (1) Accumulated other comprehensive income (loss) as at and for the six months ended June 30, 2011 consists entirely of foreign currency translation. The balance at January 1, 2010 consists entirely of the change in the fair value of derivatives designated as cash flow hedges, net of income taxes. Other comprehensive income (loss) for the six months ended June 30, 2010 consists of $8.5 million in foreign currency translation and $1.2 million in the change in fair value of derivatives designed as cash flow hedges, net of income taxes. (See Notes to the Consolidated Interim Financial Statements) TRINIDAD SECOND QUARTER REPORT

28 CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended Six months ended June 30, June 30, Cash provided by (used in) Operating activities Net earnings (loss) for the period 5,005 9,968 20,994 8,929 Items not affecting cash Stock-based compensation (note 19) (878) (264) 3,175 1,499 Depreciation and amortization 25,418 23,852 54,993 50,544 Unrealized foreign exchange loss (gain) (note 19) (1,267) (5,796) (309) 650 Gain on sale of assets (5,342) (3,976) (5,353) (3,920) Impairment of capital assets (note 4) 8,993-8,993 - Effective interest on deferred financing costs (note 19) 509 1,649 1,053 3,229 Accretion on senior notes (note 19) Accretion on convertible debentures (note 19) - 1,441-2,848 Fair value of interest rate swaps (812) - (1,973) - Deferred income taxes (5,803) (6,306) (649) (2,033) 25,897 20,568 81,073 61,746 Change in non-cash operating working capital 56,423 19,094 25,507 6,118 82,320 39, ,580 67,864 Investing activities Purchase of property and equipment (47,524) (36,257) (72,076) (71,723) Proceeds from disposition of capital assets 36,480 26,096 36,762 26,190 Change in non-cash working capital (8,014) (1,329) (3,773) (2,318) (19,058) (11,490) (39,087) (47,851) Financing activities Increase in long-term debt 19,156 25,702 35,156 43,000 Decrease in long-term debt (72,083) (36,392) (88,224) (36,392) Proceeds from exercise of options Dividends paid (6,043) (6,042) (12,085) (12,084) Deferred financing costs (2) (6,418) (1,180) (6,418) (58,972) (23,150) (66,214) (11,894) Cash flow from operating, investing and financing activities 4,290 5,022 1,279 8,119 Effect of translation of foreign currency cash (11) (473) 245 (6) Increase in cash for the period 4,279 4,549 1,524 8,113 Cash and cash equivalents - beginning of period 5,150 7,762 7,905 4,198 Cash and cash equivalents - end of period 9,429 12,311 9,429 12,311 Interest paid 3,296 11,525 6,368 15,609 Interest received Taxes paid 913 2,860 3,105 2,908 (See Notes to the Consolidated Interim Financial Statements) 27 + TRINIDAD SECOND QUARTER REPORT 2011

29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. STRUCTURE OF THE CORPORATION Organization Trinidad Drilling Ltd. ( Trinidad or the Company ) is incorporated under the laws of the Province of Alberta. The Company was formed by way of an arrangement under the Business Corporations Act of Alberta pursuant to an arrangement agreement effective March 10, 2008 between the Company and Trinidad Energy Services Income Trust (the Trust ). Trinidad s principal place of business is located at 2500, 700 9th Avenue SW, Calgary, Alberta. Operations Trinidad is a growth-oriented corporation that trades on the Toronto Stock Exchange under the symbol TDG. Trinidad s divisions operate in the drilling, coring and barge-drilling sectors of the North American oil and natural gas industry with operations in Canada, the United States ( US ) and Mexico. 2. BASIS OF PRESENTATION The Company previously prepared its consolidated financial statements in accordance with generally accepted accounting principles established by the Canadian Institute of Chartered Accountants ( Canadian GAAP ). For years beginning on or after January 1, 2011, the CICA requires all publically accountable enterprises to prepare consolidated financial statements in accordance with International Financial Reporting Standards ( IFRS ). Accordingly, these interim consolidated financial statements were prepared in accordance with IFRS applicable as of August 10, 2011 (being the date the consolidated financial statements were authorized for issuance by the Board of Directors), including IAS 34 - Interim Financial Reporting and IFRS 1 - First-time Adoption of International Financial Reporting Standard ( IFRS 1 ). Any subsequent changes to IFRS that are given effect in the Company s annual consolidated financial statements for the year ending December 31, 2011 could result in restatement of these interim consolidated financial statements, including the changes to the opening consolidated balance sheet at January 1, Subject to certain transition elections, the Company has consistently applied the same accounting policies to its opening IFRS consolidated balance sheet at January 1, 2010 and throughout all periods presented in these interim consolidated financial statements, as if these policies had always been in effect. Note 21 discloses the impact of the transition to IFRS on the Company s comparative consolidated balance sheets at June 30, 2010, and consolidated statements of operations and comprehensive income (loss) for the three and six months period ended June 30, 2010 including the nature and effect of significant changes in accounting policies from those used in the Company s previous consolidated financial statements for the year ended December 31, 2010 presented in accordance with Canadian GAAP. These interim consolidated financial statements are prepared by management, in accordance with IFRS, and follow the same accounting policies and methods as the unaudited interim consolidated financial statements for the three months ended March 31, 2011, except as noted below. These interim consolidated financial statements do not contain all of the disclosures required for the annual financial statements. As a result, these interim consolidated financial statements should be read in conjunction with the Company s previous annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with Canadian GAAP, and the unaudited consolidated financial statements for three months ended March 31, 2011, prepared in accordance with IFRS. Measurement basis The consolidated interim financial statements are presented in Canadian dollars, which is the Company s functional currency, assuming the Company will continue as a going concern for the foreseeable future. The consolidated interim financial statements are prepared on an historical cost basis except as specifically noted within these notes to the consolidated interim financial statements. Segment reporting An operating segment is a component of the Company that engages in business activities from which it earns revenues and incurs expenses, including revenues and expenses from transactions with other segments of Trinidad. Trinidad determines its operating segments based on information that is internally generated and used by key operating decision makers within the Company to make determinations about allocation of resources and assessments of performance. Trinidad has identified current operating segments based on services provided and geographic location. Accordingly, operating segments consist of construction operations and drilling operations. Construction operations commenced with the acquisition of Mastco Derrick Service Ltd. in 2006 and expanded with the acquisition of Victory Rig Equipment TRINIDAD SECOND QUARTER REPORT

30 Corporation (Victory) in Construction operations are located entirely within Canada and comprise the design, manufacture, sale and refurbishment of land and barge rigs and related equipment for internal purposes. Drilling operations consist of land and barge drilling services, well-servicing and coring. Drilling operations have been located in Canada since Trinidad s inception with expansion into the US beginning in US drilling operations now comprise a significant proportion of Trinidad s total drilling operation segment and are managed separately from Canadian drilling operations due to the unique characteristics of the US drilling industry. In 2009, Trinidad expanded its drilling operations to Chile and Mexico. The Mexico and Chile operations do not meet the threshold requirements for separate disclosure and have been aggregated with the US drilling operations as they demonstrate similar operating and economic characteristics. The Company sold its well servicing assets in June 2011 (note 10) and its Chile operations were sold in April 2010 (note 11). Use of judgment and estimates The preparation of the consolidated interim financial statements requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are continually evaluated and are based on historical experience and expectations of future events. While judgements and estimates used by Trinidad are believed to be reasonable under current circumstances, actual results could differ. Trinidad uses significant estimates in the determination of a number of account balances. These estimates have a significant risk of causing a material adjustment to the carrying amounts of the underlying assets and liabilities within the next fiscal year. Material accounts subject to significant estimates as at June 30, 2011, in addition to those included in the March 31, 2011 interim consolidated financial statements, are as follows: Impairments. Trinidad performs impairment tests on long-lived determinate life assets when impairment indicators exist. In addition, Trinidad tests goodwill for impairment at least annually, regardless of whether impairment indicators exist. However, an asset or goodwill is impaired and written down only when the impairment test demonstrates that the carrying value is not recoverable. The determination of recoverable amounts on any given asset is subject to significant estimates regarding such issues as timing and magnitude of cash flows and appropriate discount rates. At June 30, 2011, Trinidad determined that assets held for sale were impaired resulting in impairment losses of $9.0 million (note 4). The amount of this impairment could materially change if any of the assumptions and estimates used in assessing recoveries were changed. Seasonality Trinidad operates a substantial number of rigs in western Canada, and therefore, operations are heavily dependent upon the seasons. The winter season, which incorporates the first quarter, is typically a busy period as oil and natural gas companies take advantage of frozen conditions to move drilling rigs into regions which might otherwise be inaccessible to heavy equipment due to swampy conditions. The second quarter normally encompasses a slow period referred to as spring break-up. During this period melting conditions result in temporary municipal road bans that effectively prohibit the movement of drilling rigs. The third and fourth quarters are usually representative of average activity levels. Trinidad s expansion into the US and international markets has reduced its overall exposure to the seasonal factors that are present in its Canadian operations. These seasonal conditions typically limit Canadian drilling activity, whereas in the US and international areas, operators have increased flexibility to work throughout the year. This increased number of operating days throughout the year has allowed Trinidad to better manage its business with more sustainable cash flows throughout the annual cycle. Future accounting policies A number of new standards and amendments to existing standards have been issued by the International Accounting Standards Board ( IASB ) that are effective after June 30, 2011, and therefore, have not been applied to the consolidated interim financial statements. These new standards and amendments and their anticipated impact on Trinidad s consolidated financial statements once they are adopted are as follows: IFRS 9 Financial Instruments. IFRS 9 addresses classification and measurement of financial assets and replaces the multiple category and measurement models for debt instruments in IAS 39 Financial Instruments Recognition and Measurement ( IAS 39 ) with a new measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and related dividends which will now limit recognition to fair value through profit or loss or at fair value through other comprehensive income TRINIDAD SECOND QUARTER REPORT 2011

31 Requirements for financial liabilities were also added in October 2010 but they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be recorded in other comprehensive income. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Trinidad is currently assessing the impact of the standard including determining whether it will adopt the standard early. IFRS 10 Consolidated Financial Statements. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The revised standard is effective January 1, 2013, with earlier adoption permitted. Trinidad has not yet assessed the impact of the standard or determined whether it will adopt the standard early. IFRS 11 Joint Arrangements. IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting, whereas joint operations will require the venturer to recognize its share of the assets, liabilities, revenue and expenses. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. This standard will not have a significant impact on Trinidad s consolidated financial statements as the Company currently has no joint arrangements. IFRS 12 Disclosure of Interests in Other Entities. IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates and special purpose entities. The standard introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity s interests in other entities. This standard is effective to Trinidad on January 1, 2013, with early adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early. IFRS 13 Fair Value Measurement. IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies the basis by which fair value should be determined and establishes new disclosure requirements about fair value measurement. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. Trinidad is currently assessing the impact of this standard including determining whether or not it will early adopt the standard. IAS 19 Post Employment Benefits. IAS 19 amends the recognition and measurement of defined benefit pension expense and expands disclosures for all employee benefit plans. This standard will not have a significant impact on Trinidad s consolidated financial statements as the Company currently has no defined benefit pensions. 3. INVENTORY As at June 30, December 31, ($ thousands) Parts and materials 12,054 12,610 Work-in-process 8,262 12,838 Total inventory 20,316 25,448 There were no material inventory write-downs or reversals of previously written-down amounts in the three and six months ended June 30, 2011 or The manufacturing division has been reorganized to just focus on internal business only, and as such they have been utilizing internal inventory and work-in-progress on the current new builds, and subsequently reducing the stock. 4. ASSETS HELD FOR SALE During the three months ended June 30, 2011, the Company identified a number of non-current assets that were being underutilized and determined that the maximum value of these non-current assets would only be realized through a sales transaction. The non-current assets consist of (i) four US. land drilling rigs which have technology that does not currently meet the Company s target drilling market, (ii) a manufacturing site (building and land) that is expected to be unoccupied within the next year as a result of re-organization of the construction operations, (iii) a training facility in Canadian drilling operations that is no longer being used, and (iv) certain land rig engines in the US that are no longer compatible with the Company s existing rig fleet. The non-current assets are being marketed for sale, generally through an external independent broker in addition to internal sales efforts. Subsequent to June 30, 2011, one of the US land rigs and a manufacturing site were sold. The non-current assets have been measured at the lower of their carrying value, after TRINIDAD SECOND QUARTER REPORT

32 transferring certain component parts to spare parts inventory, and fair value less cost to sell, resulting in an impairment loss of $9.0 million reported in the consolidated statement of operations and comprehensive income (loss). For the assets that were sold subsequent to June 30, 2011, fair value less cost to sell, was based on the actual net sales proceeds. For those assets that remain held for sale at June 30, 2011, fair value less cost to sell was based on an estimate of the amount that could be obtained for similar assets in a non-compulsory asset sale, with an arm s length willing third party, making reference to the Company s actual asset sales where applicable, actual listing prices for the assets, and similar types of transactions in the industry. 5. PROPERTY AND EQUIPMENT Property and equipment as at and for the periods ended June 30, 2011 and December 31, 2010 are as follows: Rigs and Automotive Assets related and other Construction under ($ thousands) equipment equipment Buildings equipment Land construction Total Cost Balance at January 1, ,479,667 27,968 40,917 3,676 16,091 58,968 1,627,287 Additions/transfers 127,609 2,989 1, (125) 12, ,387 Disposals (58,143) (1,781) - (9) - (26) (59,959) Effect of foreign exchange (41,559) (371) (529) (18) (73) (1,854) (44,404) Balance at December 31, ,507,574 28,805 42,146 4,113 15,893 69,780 1,668,311 Additions/transfers 69,953 1,834 2, ,326 79,009 Disposals (49,708) (2,086) (815) (28) (395) - (53,032) Asset held for sale (note 4) (19,290) - (5,170) - (1,601) - (26,061) Effect of foreign exchange (29,453) (225) (301) (10) (39) (783) (30,811) Balance at June 30, ,479,076 28,328 38,742 4,089 13,858 73,323 1,637,416 Accumulated depreciation Balance at January 1, ,755 17,212 4, ,516 Depreciation 99,140 4,645 1, ,331 Impairment loss 24, ,899 Disposals (37,700) (1,310) - (2) - - (39,012) Effect of foreign exchange (4,021) (237) (34) (4,290) Balance at December 31, ,073 20,310 6,197 1, ,444 Depreciation 51,560 1, ,840 Impairment loss (note 4) 7,459-1, ,993 Disposals (15,320) (1,289) (166) (18) - - (16,793) Asset held for sale (note 4) (12,905) - (2,579) (15,484) Effect of foreign exchange (7,747) (141) (25) (3) - - (7,916) Balance at June 30, ,120 20,874 5,812 2, ,084 Net book value At June 30, ,062,956 7,454 32,930 1,811 13,858 73,323 1,192,332 At December 31, ,114,501 8,495 35,949 2,249 15,893 69,780 1,246,867 Additions/transfers from construction at June 30, 2011 and December 31, 2010 includes $1.0 million and $2.9 million, respectively, of capitalized borrowing costs based on a capitalization rate of 7.54% and 12.47%, respectively. At June 30, 2011, Trinidad determined that the carrying value of assets held for sale, including four US land drilling rigs which have technology that does not currently meet the Company s target drilling market, and a training facility in Canadian drilling operations that is no longer being used, exceeded their recoverable amounts. Subsequently, at June 30, 2011, Trinidad recorded a corresponding impairment loss on those assets totaling $9.0 million (note 4). At December 31, 2010, Trinidad determined that the carrying value of four land rigs in the US and international drilling operating segment, and five coring rigs in the Canadian drilling operations segment, exceeded their recoverable amounts. As such, Trinidad recorded a corresponding impairment loss on those assets totaling $24.9 million. The recoverable amount of the rigs was based on the fair value less cost to sell of the rigs as determined based on estimates of the amount that could be obtained for the serviceable component parts of each rig in a non-compulsory asset sale, with an arm s length willing third party, making reference to similar types of transactions in the industry TRINIDAD SECOND QUARTER REPORT 2011

33 6. INTANGIBLE ASSETS AND GOODWILL Intangible assets and goodwill as at and for the periods ended June 30, 2011 and December 31, 2010 are as follows: Non- Engineering Trade compete Customer and ($ thousands) Patents name agreements relationships design Goodwill Total Cost Balance at January 1, , , ,777 Reclassify to expense (66) - (66) Effect of foreign exchange (4,799) (4,799) Balance at December 31, , , ,912 Effect of foreign exchange (2,562) (2,562) Balance at June 30, , , ,350 Accumulated amortization Balance at January 1, ,009 Amortization Impairment loss ,522 59,434 Balance at December 31, ,522 61,240 Amortization Balance at June 30, , ,522 61,393 Net book value At June 30, , ,079 83,957 At December 31, , ,641 86,672 Remaining useful life at June 30, 2011 (years) n/a n/a Intangible assets Patents consist of patent applications for a number of drilling rig component parts that were acquired in a previous business combination and are included in the construction operating segment. The patents were determined to be impaired at December 31, 2010 and an impairment loss of $0.3 million was recorded to reflect the patents estimated recoverable amounts based on estimated future rig sales to external customers. Trade name consists of the Victory name which was acquired in a previous business combination and is used in connection with the build and use of specific rig components included in the construction operating segment. The trade name was determined to be fully impaired at December 31, 2010 based on estimated future rig sales to external customers, resulting in an impairment loss of $0.4 million. Customer relationships consist of (i) contractual and pre-existing relationships with various customers that were acquired in previous business combinations and are included in the construction operating segment, and (ii) the right to use certain drilling site camp structures acquired in a specific transaction within the Canadian drilling operating segment. Customer relationships were determined to be fully impaired at December 31, 2010 based on estimated future rig sales to applicable customers and estimated future usage of the drilling site camp structures, resulting in an impairment loss of $0.2 million. TRINIDAD SECOND QUARTER REPORT

34 Goodwill Goodwill is a result of a number of previous business combinations and is generally attributable to anticipated synergies expected from those acquisitions. Goodwill by definition has no useful life, and therefore is not amortized. However, goodwill is subject to impairment tests at least annually. For purposes of impairment testing, Trinidad allocates goodwill by aggregating cash generating units (CGUs) to a level that is internally monitored with the aggregated CGUs and associated allocated goodwill being assessed for impairment. Goodwill was allocated to aggregated CGUs at June 30, 2011 and December 31, 2010 as follows: As at June 30, December 31, ($ thousands) US and international single, double, triple rigs and barges 82,079 84,641 Construction operations - 58,522 Impairment loss 82, ,163 - (58,522) 82,079 84,641 US and international single, double, triple rigs and barges (US/International CGUs) There were no indications of impairment at June 30, 2011 that warranted an impairment test of the goodwill assigned to the US/International CGUs (the change in the balance at June 30, 2011 compared to December 31, 2010 is due entirely to the effects of foreign exchange rate changes). Construction operations As at December 31, 2010 goodwill totalling $58.5 million was allocated to the construction operations CGU which also includes the construction operating segment. An impairment test was performed on the construction operations CGU at December 31, 2010 resulting in the full impairment of the goodwill balance. The recoverable amount of construction operations CGU was based on its value in use and was determined by estimating future cash flows that would be generated from the continuing use of the construction operation CGU, incorporating the following assumptions: 1. A pre-tax discount rate of 11.7% which considered past experience, industry average cost of capital, asset specific risk and anticipated debt to equity levels. 2. Cash flows were projected based on 2010 operating results, adjusted to reflect a narrowing in the focus of the construction operating segment from third party rig construction to rig design and commissioning and development of new technology for Trinidad s internal rig construction. As a result, revenue was forecast to reflect committed third party rig construction and a moderate level of future internal rig development. However, projected revenues are reflective of what could be obtained from arm s length third parties even on rigs constructed for internal use. 3. Operating profit is projected to be consistent with historical experience through the life of the CGU. The construction operations operating profit is sufficient to cover the maintenance of the construction operations and the necessary growth to support the underlying growth forecast in the Canadian and US/International drilling operations. 7. LONG TERM DEBT As at June 30, December 31, ($ thousands) Senior Notes (a) 419, ,560 Credit facility (b) 113, ,204 Building and other equipment loans (d,e) 6,649 6, , ,700 Less: current portion of long-term debt (540) (546) 539, ,154 a) On December 16, 2010, Trinidad issued US$450.0 million of 7.875% senior unsecured notes (Senior Notes) for gross proceeds of US$446.7 million. The Canadian dollar equivalency on this date was $449.1 million. Interest is payable semi-annually in arrears on January 15 and July 15, and the Senior Notes are due in January The discount on the Senior Notes is being accreted such that the liability at maturity will equal the face value of US$450.0 million and deferred financing charges of $11.7 million are being amortized over the life of the Senior Notes using the effective interest rate method TRINIDAD SECOND QUARTER REPORT 2011

35 b) Effective December 16, 2010, Trinidad entered into a new senior secured revolving facility which includes $200.0 million in Canadian dollars and $100.0 million in US dollars. The new facility requires quarterly interest payments based on Bankers Acceptance (BA) and LIBOR rates and incorporates a tiered interest rate which varies depending on the results of a defined financial ratio being consolidated total debt to consolidated EBITDA (earnings before charges of interest, taxes, and gains/losses, impairments and depreciation and amortization on assets). The facility matures December 16, 2014, but can be extended at the consent of the lenders. Deferred financing charges of $2.5 million are being amortized over the life of the debt, using the effective interest rate method. c) Prior to December 16, 2010, Trinidad extended its existing credit facility on April 6, 2010 which included a Canadian dollar revolving facility of $150.0 million and a US dollar revolving facility of US$100.0 million. The cost to Trinidad of this amendment was $6.6 million, which was included in the debt financing costs and was amortized over the life of the amended agreement until December 16, 2010, when all costs were fully expensed. The effective interest rate incurred on this facility was 10.23% for the 350 day period ended December 16, The effective interest rate, including the penalties for early extinguishment for the 350 day period ended December 16, 2010 was 13.23%. d) On December 15, 2010, Trinidad entered into a $6.9 million mortgage with Canadian Western Bank on properties held by the Company. The facility requires monthly interest payments at a rate of 3.95% per annum, matures January 2014 and is secured by the respective properties. Other equipment loans are payable over various periods, between six and fourteen months, at interest rates varying from 0% to 1.5% per annum, and are secured by the related assets. e) On December 15, 2005, Trinidad entered into a $9.1 million mortgage with GE Canada on properties held by the Company. The facility required monthly principal and an interest payment at a rate of 6.26% per annum, matured January 2011 and was secured by the respective properties. 8. COMMON SHARES Authorized Unlimited number of common shares, voting, participating Six months ended Year ended (Number of shares) June 30, 2011 December 31, 2010 Outstanding - beginning of period 120,840, ,840,962 Issued upon exercise of stock options 17,264 - Outstanding - end of period 120,858, ,840,962 At June 30, 2011, all common shares issued are fully paid and there are no treasury or un-cancelled common shares outstanding. Holders of common share are entitled to participate in dividends if and when declared by the Company. During the six months ended June 30, 2011 Trinidad declared dividends totalling $12.1 million or $0.05 per share per quarter (June 30, $12.0 million or $0.05 per share per quarter). TRINIDAD SECOND QUARTER REPORT

36 9. SHARE-BASED PAYMENTS Incentive option plan On March 10, 2008, Trinidad established and Incentive Option Plan (Option Plan) to provide an opportunity for officers, employees and consultants of Trinidad and its affiliates to participate in the growth and development of the Company. Options vest 50% immediately and 25% on the first and second anniversary of the date of grant and are exercisable for a period of five years from the date of grant. At June 30, 2011, a maximum of 10% of the outstanding common share balance outstanding may be used under the Option Plan. The following summarizes the changes in outstanding options: Six months ended Year ended June 30, 2011 December 31, 2010 Weighted Weighted average exercise average exercise Number price (CDN$) Number price (CDN$) Outstanding - beginning of period 3,942, ,033, Granted 180, , Exercised (17,264) Expired (1,953,663) (2,112,280) Forfeited (14,755) 8.40 (4,497) Outstanding - end of period 2,136, ,942, Trinidad uses the Black-Scholes option-pricing model to determine the estimated fair value of the options granted. The per share weighted average fair value of options granted during the six months ended June 30, 2011 and 2010 were $3.68 and $2.91, respectively, which was based on the following assumptions: For options granted in the six months ended June 30, Share price (CDN$) Exercise price (CDN$) Volatility (%) Expected life (years) Dividend yield (%) Forfeiture rate (%) Risk free interest rate (%) Volatility was determined based on Trinidad s historical daily trading price over the trailing period up to the expected life of the awards. For the three and six months ended June 30, 2011, Trinidad recognized stock-based compensation expense of $0.1 million and $0.4 million, respectively (three and six months ended June 30, 2010 $0.1 million and $0.2 million, respectively). Stock-based compensation expense is included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). Deferred share unit plan On March 11, 2008, the Company established the Deferred Share Unit (DSU) Plan to provide a compensation system for members of the Board of Directors that is reflective of the responsibility, commitment and risk accompanying Board membership. Each DSU granted permits the holder to receive a cash payment equal to the volume weightedaverage share price for the five days preceding payment. DSUs vest immediately upon grant but are not exercisable until resignation or termination from the Board of Directors. DSU holders are entitled to share in dividends which are credited as additional DSUs at the dividend record date. The following summarizes the changes in outstanding DSUs: Six months ended Year ended (Number of DSUs) June 30, 2011 December 31, 2010 Outstanding - beginning of period 172, ,385 New grants 58,685 53,190 Granted through dividend payment 2,711 6,046 Exercised - (14,430) Outstanding - end of period 233, , TRINIDAD SECOND QUARTER REPORT 2011

37 The total fair value of DSUs at June 30, 2011 is $1.9 million (at December 31, $1.1 million) which represents total DSUs outstanding multiplied by the trailing five day volume weighted-average share price of the Company s underlying common shares as the DSUs have no exercise price. The liability is recorded in accounts payable and accrued liabilities in the consolidated balance sheets. For the three and six months ended June 30, 2011 Trinidad recognized stock- based compensation expense related to the outstanding DSUs totalling a recovery of $0.3 million and expense of $0.7 million, respectively (three and six months ended June 30, recovery of $0.3 million and expense of $0.1 million, respectively). Stock-based compensation expense is included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). Performance share unit plan On March 11, 2008, Trinidad established the Performance Share Unit (PSU) Plan to provide an opportunity for officers and employees of Trinidad to promote further alignment of interests between employees and the shareholders. Each PSU granted permits the holder to receive a cash payment equal to the fair value of the volume weighted-average share price for the five days preceding payment. The PSUs generally vest equally on the first, second or third anniversary of the grant date, and must be exercised within three years from the grant date. PSU holders are entitled to share in dividends which are credited as additional PSUs at the dividend record date. The following summarizes the changes in outstanding PSUs: Six months ended Year ended (Number of PSUs) June 30, 2011 December 31, 2010 Outstanding - beginning of period 1,012, ,846 New grants 722, ,478 Granted through dividend payment 21,193 45,707 Exercised - (429,093) Forfeited (308,349) (29,809) Outstanding - end of period 1,447,619 1,012,129 At June 30, 2011, there were no vested PSUs outstanding (December 31, 2010 nil). Of the PSUs outstanding at June 30, 2011, 371,515 vest on December 1, 2011, and 368,602 vest on December 1, 2011, and a further 707,502 vest on December 1, The total fair value of PSUs at June 30, 2011 is $5.0 million (at December 31, $3.0 million) which represents total PSUs outstanding multiplied by the trailing five day volume weighted-average share price of the Company s underlying common shares as the PSUs have no exercise price. The liability is recorded in accounts payable and accrued liabilities in the consolidated balance sheets. For the three and six months ended June 30, 2011, Trinidad recognized stock-based compensation expense related to the outstanding PSUs, a recovery of $0.5 million and expense of $2.1 million, respectively (three and six months ended June 30, 2010 recovery of $0.1 million and expense of $1.2 million, respectively). Stock-based compensation expense is included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). 10. SALE OF SERVICE RIG OPERATIONS On June 15, 2011, the Company disposed of its 22 well servicing rigs and related equipment located in Canada (Well Servicing rigs) for cash considerations of $38.0 million. The carrying value of the Service rigs was $34.5 million, resulting in a gain on disposal of assets totalling $3.5 million which is presented within gain on sale of assets in the consolidated statements of operations and comprehensive income (loss). The Service rigs equipment had previously been reported within the Canadian drilling operations segment. 11. SALE OF CHILEAN OPERATIONS At March 31, 2010, the Company increased its controlling interest percentage in TDL Chile S.A. ( TDL Chile ) from 90% to 95% which subsequently reduced the non-controlling interest ownership to 5%. On April 6, 2010, the Company disposed of its drilling rig located in Chile and all of its shares in TDL Chile for cash consideration of US$28.0 million (CDN$29.9 million). The carrying value of the drilling rig and related equipment and working capital included in the asset sale, net of the associated non-controlling interest was CDN$25.8 million resulting in a gain on disposal of assets totalling CDN$4.1 million which is presented within gain (loss) on sale of assets in the consolidated statements of operations and comprehensive income (loss). The rig and rig-related equipment and the Chilean subsidiary had previously been reported within the United States/International drilling operations segment. TRINIDAD SECOND QUARTER REPORT

38 12. EARNINGS PER SHARE Basic earnings per share for the three and six months ended June 30, 2011 is based on the net earnings attributable to shareholders, as reported in the consolidated statements of operations and comprehensive income, and the weighted average number of common shares outstanding in the period of $5.0 million and 120,858,226, and $21.0 million and 120,851,072, respectively (three and six months ended June 30, 2010 $10.0 million and 120,840,962, and $8.9 million and 120,840,962, respectively). Diluted earnings per share for the three and six months ended June 30, 2011 and 2010 is based on the net earnings attributable to shareholders as reported in the consolidated statement of operations and comprehensive income (loss) and basic weighted average number of common share outstanding, both adjusted for dilutive factors as follows: Three months ended Six months ended June 30, June 30, ($ thousands except share data) Net earnings (loss) attributable to common shareholders Basic 5,005 9,968 20,994 8,929 Diluted 5,005 9,968 20,994 8,929 Weighted average common shares Basic 120,858, ,840, ,851, ,840,962 Stock options 48,019-48,019 - Diluted 120,906, ,840, ,899, ,840,962 For the three and six months ended June 30, 2011, stock options of 2,088,471 were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. For the three and six months ended June 30, 2010, stock options of 6,030,358 and all previously outstanding convertible instruments were excluded from the calculation of diluted earnings per share as the effects would have been anti-dilutive. There were no common shares transactions subsequent to June 30, 2011 that would have materially changed the earnings per share calculations had the transactions occurred prior to this date. 13. CAPITAL MANAGEMENT Trinidad s capital is comprised of debt, convertible debentures and shareholders equity, less cash and cash equivalents. Management regularly monitors total capitalization to ensure flexibility in the pursuit of ongoing initiatives, while ensuring that shareholder returns are being maximized. The overall capitalization of the Company is outlined below: As at June 30, December 31, ($ thousands) Long-term debt (1) 122, ,666 Senior Notes (1) 430, ,220 Total debt 552, ,886 Shareholders equity 778, ,638 Less: cash and cash equivalents (9,429) (7,905) Total capitalization 1,321,509 1,396,619 (1) Balance outstanding without consideration of transaction costs. Management is focused on several objectives while managing the capital structure of the Company. Specifically: a) Ensuring Trinidad has the financing capacity to continue to execute on opportunities to increase overall market share through strategic acquisitions and fleet construction programs that add value for our shareholders; b) Maintaining a strong capital base to ensure that investor, creditor and market confidence is secured; c) Maintaining balance sheet strength, ensuring Trinidad s strategic objectives are met, while retaining an appropriate amount of leverage; 37 + TRINIDAD SECOND QUARTER REPORT 2011

39 d) Providing shareholder return through dividends to ensure that income-oriented investors are provided a cash yield; and e) Safeguarding the entity s ability to continue as a going concern, such that it continues to provide returns for shareholders and benefits for other stakeholders. Trinidad manages its capital structure based on current economic conditions, the risk characteristics of the underlying assets, and Trinidad s planned capital requirements, within guidelines approved by its Board of Directors. Total capitalization is maintained or adjusted by drawing on existing debt facility, issuing new debt or equity securities when opportunities are identified and through the disposition of underperforming assets to reduce debt or equity when required. The Company s syndicated loan facility is subject to three covenants, which are reported to the bank on a quarterly basis. These covenants are used by management to monitor capital, with increased focus on the Maximum Consolidated Senior Debt to Consolidated EBITDA Ratio, which is a non-gaap measure. This ratio is calculated as the consolidated senior debt balance, divided by consolidated net earnings (loss), adjusted by interest on the long-term debt, depreciation and amortization, income taxes, gain/loss on sale of assets, unrealized foreign exchange and any other non-cash expenditure or loss for the rolling four quarters, and must be maintained below 3.00:1. For the rolling four quarters ended June 30, 2011 this ratio was 0.56:1 (December 31, :1). Trinidad remains in compliance with all of the banking syndicate s financial covenants. 14. FINANCIAL INSTRUMENTS Trinidad s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, dividends payable, interest rate swaps and long-term debt. The carrying amounts of these financial instruments, reported on the Company s consolidated balance sheets, approximates their fair values due to their short-term nature, with the exception of the long-term debt as follows: As at June 30, 2011 December 31, 2010 Fair Carrying Fair Carrying ($ thousands) Value Value Value Value Loans and Receivables: Cash and cash equivalents 9,429 9,429 7,905 7,905 Accounts receivable 151, , , ,866 Financial liabilities measured at fair value through profit or loss: Interest rate swap (1) - - 1,991 1,991 Financial liabilities measured at amortized cost: Accounts payable and accrued liablities 78,009 78,009 62,291 62,291 Dividends payable 6,043 6,043 6,042 6,042 Credit Facility (2) Canadian Revolving Credit Facility 80,000 80, , ,000 US Revolving Credit Facility 35,687 35,687 49,730 49,730 Senior Notes (2) 453, , , ,220 Other debt 6,649 6,649 6,936 6,936 (1) Trinidad previously entered into two cash flow hedges using interest rate swap arrangements to hedge the floating interest rate on a portion of the Company s previously outstanding term debt facilities. As a result, the change in the fair value of the hedges was included as other comprehensive income until December 15, On December 16, 2010, the Company extinguished the term debt facilities that were underlying the interest rate swaps, resulting in the hedge being no longer effective. Accordingly, the interest rate swaps were measured at fair value through profit and loss until they expired in May (2) The credit facility and Senior Notes are recorded at their gross amounts and do not include transaction costs incurred on their issuance. TRINIDAD SECOND QUARTER REPORT

40 15. COMMITMENTS AND CONTINGENCIES Commitments Trinidad has several capital and operating lease agreements on buildings and equipment. Operating lease expenses are included in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss). The Company does not have any contingent rental or sublease payments, nor any sublease income. The leases expire at various times through 2016 and there are no significant renewal or purchase options. Payments Due by Period As at June 30, 2011 Less than After ($ thousands) Total 1 year years years 5 years Operating leases 12,748 2,803 5,734 4, Contingencies Trinidad is involved in various legal actions which have occurred in the course of operations. Management is of the opinion that losses, if any, arising from such legal actions would not have a material effect on these financial statements. 16. SEGMENTED INFORMATION The following presents the result of Trinidad s operating segments: United States/ Three months ended, Canadian international Inter- June 30, 2011 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Revenue 41, , ,583 Other revenue Inter-segment revenue ,347 (18,347) , ,567 18,764 (18,347) - 143,129 Operating expense 33,202 56,647 18,989 (18,347) - 90,491 8,943 43,920 (225) ,638 Finance costs 10, ,452 Depreciation and amortization 5,815 19, ,418 Gain on sale of assets (3,426) (1,123) (793) - - (5,342) Impairment of capital assets 1,535 7, ,993 14,222 25,636 (337) ,521 Segmented income (loss) (5,279) 18, ,117 General and administrative ,691 12,691 Foreign exchange (1,217) (1,217) Income taxes (3,362) (3,362) Net earnings (loss) (5,279) 18, (8,112) 5,005 Capital expenditures 13,544 33, , TRINIDAD SECOND QUARTER REPORT 2011

41 United States/ Three months ended, Canadian international Inter- June 30, 2010 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Revenue 42,821 81,714 3, ,110 Other revenue Inter-segment revenue ,310 (24,310) ,833 82,361 27,890 (24,310) - 128,774 Operating expense 29,616 49,494 26,078 (24,310) - 80,878 13,217 32,867 1, ,896 Finance costs 11,992 2, ,195 Depreciation and amortization 6,855 16, ,852 Loss (gain) on sale of assets 31 (4,007) (3,976) 18,878 14, ,071 Segmented income (loss) (5,661) 18,197 1, ,825 General and administrative ,931 12,931 Foreign exchange (5,929) (5,929) Income taxes (3,145) (3,145) Net earnings (loss) (5,661) 18,197 1,289 - (3,857) 9,968 Capital expenditures 5,210 30, ,257 United States/ Six months ended, Canadian international Inter- June 30, 2011 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Revenue 161, ,968 1, ,302 Other revenue Inter-segment revenue ,163 (34,163) , ,270 35,505 (34,163) - 359,189 Operating expense 105, ,331 35,599 (34,163) - 221,822 56,522 80,939 (94) ,367 Finance costs 22, ,833 Depreciation and amortization 16,562 37, ,993 Gain on sale of assets (3,382) (1,182) (789) - - (5,353) Impairment of capital assets 1,535 7, ,993 37,385 43, ,466 Segmented income (loss) 19,137 37,011 (247) ,901 General and administrative ,850 31,850 Foreign exchange Income taxes ,517 2,517 Net earnings (loss) 19,137 37,011 (247) - (34,907) 20,994 Capital expenditures 17,358 54, ,076 TRINIDAD SECOND QUARTER REPORT

42 United States/ Six months ended, Canadian international Inter- June 30, 2010 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Revenue 127, ,905 3, ,027 Other revenue Inter-segment revenue ,945 (38,945) , ,646 42,788 (38,945) - 298,847 Operating expense 83,528 98,354 39,389 (38,945) - 182,326 43,830 69,292 3, ,521 Finance costs 24,025 3, ,981 Depreciation and amortization 16,438 33,039 1, ,544 Loss (gain) on sale of assets 42 (4,008) (3,920) 40,505 32,971 1, ,605 Segmented income (loss) 3,325 36,321 2, ,916 General and administrative ,902 29,902 Foreign exchange ,545 1,545 Income taxes ,540 1,540 Net earnings (loss) 3,325 36,321 2,270 - (32,987) 8,929 Capital expenditures 18,302 53, ,723 United States/ Canadian international Inter- As at, June 30, 2011 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Property and equipment 361, ,817 16, ,192,332 Assets held for sale 4,192 6, ,996 Goodwill - 82, ,079 Total assets 406,040 1,021,618 44, ,471,858 Deferred income tax liability 4,504 64, ,026 United States/ Canadian international Inter- As at, December 31, 2010 drilling drilling Construction segment Corporate/ ($ thousands) operations operations operations eliminations unallocated Total Property and equipment 410, ,611 17, ,246,867 Goodwill - 84, ,641 Total assets 470,880 1,011,414 49, ,531,325 Deferred income tax liability ,418 1, , SIGNIFICANT CUSTOMERS At June 30, 2011, Trinidad had long-term, take-or-pay contracts in place with multiple, significant oil and natural gas producing companies. Trinidad has two customers that provided a percentage of total revenue for the six months ended June 30, 2011 of 29% (six months ended June 30, 2010 two customers totalling 41%). 18. RELATED PARTY TRANSACTIONS Trinidad engages the law firm of Blake, Cassels & Graydon LLP to provide legal advice. One partner of this law firm holds a board position with Trinidad, and another partner is an officer of the Company. During the three and six months ended June 30, 2011, Trinidad incurred legal fees of $0.2 million and $0.3 million, respectively (three and six months ended June 30, $0.2 million and $0.3 million, respectively) to Blake, Cassels & Graydon LLP. At June 30, 2011 a total of $0.1 million was due to Blake, Cassels & Graydon LLP (December 31, 2010 $0.2 million). All related party transactions were incurred during the normal course of operations on similar terms and conditions to those entered into with unrelated parties. These transactions are measured at the amount of consideration established and agreed to by the related parties TRINIDAD SECOND QUARTER REPORT 2011

43 19. EXPENSES BY NATURE The Company presents certain expenses in the consolidated statement of operations and comprehensive income (loss) by function. The following table presents those expenses by nature: Three months ended Six months ended June 30, June 30, ($ thousands) Expenses Wages and benefits 55,377 51, , ,795 Materials and supplies 23,750 20,865 60,901 47,990 Repairs and maintenance 16,506 14,278 33,654 28,377 External services and facilities 8,427 7,419 18,113 15,567 Stock-based compensation (878) (264) 3,175 1, ,182 93, , ,228 Allocated to: Operating expense 90,491 80, , ,326 General and administrative 12,691 12,931 31,850 29, ,182 93, , ,228 Foreign exchange (gain) loss Foreign exchange loss (gain) - realized 50 (133) Foreign exchange (gain) loss - unrealized (1,267) (5,796) (309) 650 (1,217) (5,929) 540 1,545 Finance costs Interest on long-term debt 9,869 4,244 21,631 8,181 Accretion of Senior Notes Deferred financing costs on long-term debt ,053 1,889 Interest on convertible debentures - 6,861-13,723 Accretion of convertible debentures - 1,441-2,848 Deferred financing costs on convertible debentures , FOREIGN CURRENCY TRANSLATION 10,452 14,195 22,833 27,981 Three months ended Six months ended June 30, June 30, ($ thousands) Unrealized (losses) gains on translation of foreign operations with functional currency different from Canadian dollar (13,489) 30,473 (25,963) 8,494 Foreign exchange gain on net investment hedge with US dollar denominated debt, net of tax of $1,891 7,436-11,115 - Total foreign currency translation adjustment (6,053) 30,473 (14,848) 8, INITIAL ADOPTION OF IFRS Trinidad adopted IFRS in accordance with IFRS 1 with the date of transition being January 1, Trinidad s consolidated financial statements were previously prepared in accordance with Canadian GAAP which differs from IFRS in a number of areas. Accordingly, comparative amounts provided in these interim consolidated financial statements have been reconciled to the same periods previously prepared under Canadian GAAP, giving effect to the retrospective adoption of IFRS except where optional and mandatory exemptions to retroactive adoption are afforded under IFRS 1. Reconciliations of the consolidated balance sheets as at December 31, 2010 and January 1, 2010, including a description of the IFRS 1 mandatory and optional exemptions adopted, were previously provided in the interim consolidated financial for the three months ended March 31, 2011, and therefore, are not included in these interim consolidated financial statements. TRINIDAD SECOND QUARTER REPORT

44 IFRS financial statement reconciliations The reconciliation of the consolidated balance sheet from Canadian GAAP to IFRS is as follows: As at June 30, 2010 Canadian IFRS ($ thousands) notes GAAP adj IFRS ASSETS Current Assets Cash and cash equivalents 12,311-12,311 Accounts receivable 142, ,102 Inventory 23,647-23,647 Prepaid expenses 1,243-1, , ,303 Property and equipment (a) 1,313,911 (8,820) (a) (1,104) (b) 441 (c) 572 (f) (85) 1,304,915 Intangible assets and goodwill 152, ,466 1,645,680 1,636,684 Liabilities Current Liabilities Accounts payable and accrued liabilities 64,390-64,390 Dividends payable 6,042-6,042 Deferred revenue Current portion of long-term debt 23,901-23,901 Current portion of fair value of interest rate swaps 5,125-5,125 99,854 99,854 Long-term debt 209, ,796 Convertible debentures 335, ,436 Deferred income taxes (d) 85,799 (5,633) (d) (3,825) (f) (30) 76, , ,397 Equity Common shares 951, ,863 Convertible debentures (d) 28,207 (7,369) 20,838 Contributed surplus (d) 28,105-28,105 Accumulated other comprehensive loss (1) (e) (43,663) 49,385 (f) (55) 5,667 Retained earnings (deficit) (49,717) (41,469) (91,186) 914, ,287 1,645,680 1,636,684 (1) Accumulated other comprehensive loss excludes $0.2 million recovery of the foreign currency translation adjustment on the sale of Chilean assets (note 11) TRINIDAD SECOND QUARTER REPORT 2011

45 The reconciliation of the consolidated statements of operations and other comprehensive income (loss) from Canadian GAAP to IFRS is as follows: Three months ended June 30, 2010 Six months ended June 30, 2010 Canadian IFRS Canadian IFRS ($ thousands) notes GAAP adj IFRS GAAP adj IFRS Revenue Oilfield service revenue 128, , , ,027 Other revenue , , , ,847 Expenses Operating expense (a) 81,651 (773) 80, ,599 (1,273) 182,326 General and administrative 12,931-12,931 29,902-29,902 Depreciation and amortization (a) 22,961 1,061 48,382 2,603 (b) (170) 23,852 (441) 50,544 Foreign exchange (gain) loss (5,929) - (5,929) 1,545-1,545 Gain on sale of assets (a) (3,750) (226) (3,976) (3,694) (226) (3,920) 107, , , ,397 Finance costs (c) 14,733 (538) 14,195 28,553 (572) 27,981 Earnings before income taxes 6,177 6,823 10,560 10,469 Income taxes Current 3,161-3,161 3,573-3,573 Deferred (d) (2,970) (3,336) (6,306) 1,792 (3,825) (2,033) 191 (3,145) 5,365 1,540 Net earnings 5,986 9,968 5,195 8,929 Other comprehensive income Change in fair value of derivatives designated as cash flow hedges, net of income tax ,241-1,241 Foreign currency translation adjustment, net of income tax (1) (f) 30,681 (208) 30,473 8,549 (55) 8,494 31,385 31,177 9,790 9,735 Total comprehensive income 37,371 41,145 14,985 18,664 (1) Other comprehensive income excludes $0.2 million recovery of the foreign currency translation adjustment on the sale of Chilean assets (note 11). The adoption of IFRS has no impact on the net cash flows of the Company, except that under IFRS cash flows related to recertification costs and capitalized borrowing costs are included as a component of the purchase of property and equipment in investing activities. Under Canadian GAAP, these amounts were included in net earnings (loss) in operating activities. For the three months ended June 30, 2010 recertification costs and capitalized borrowing costs of $0.8 million and $0.5 million, respectively, were included as investing activities. For the six months ended June 30, 2010 recertification costs and capitalized borrowing costs of $1.3 million and $0.6 million, respectively, were included as investing activities. TRINIDAD SECOND QUARTER REPORT

46 Notes to financial statement reconciliations (a) Recertification costs. IAS 16 Property, plant and equipment ( IAS 16 ) requires capitalization of costs associated with regularly scheduled major overhauls, inspections and recertification. Canadian GAAP states that maintenance expenditures which do not extend the life of the asset should be expensed; however, costs associated with major overhauls, inspections and recertification are not specifically addressed. Under Canadian GAAP, Trinidad expensed all rig recertification costs. As a result of capitalizing historical recertification costs upon transition to IFRS at January 1, 2010, the opening carrying value of property and equipment was decreased a total of $8.8 million, offset to opening retained earnings. For the six months ended June 30, 2010 the carrying value of property and equipment was decreased an additional $1.1 million, which consists of (i) $1.3 million increase in the carrying value of property and equipment resulting from reclassifying recertification costs that were previously reported as operating expenses in the period, (ii) $0.2 million increase to the carrying value of property and equipment as a result of the change in gain on sale of asset arising on the restated IFRS property and equipment balances, both offset by (ii) $2.6 million decrease in the carrying value of property and equipment resulting from depreciating all historical recertification costs that were previously expensed as a period costs and accelerating depreciation on recertification costs that were capitalized under both Canadian GAAP and IFRS as part of the initial rig construction. For the three and six months ended June 30, 2010 recertification costs totalling $0.8 million and $1.3 million, respectively, were reclassified from operating expense to property and equipment. In addition depreciation expense for the three and six months ended June 30, 2010 increased $1.1 million and $2.6 million, respectively as a result of depreciating all previously expensed recertification costs and accelerating depreciation on recertification costs that were capitalized under both Canadian GAAP and IFRS as part of the initial rig construction. (b) Property and equipment components. IAS 16 requires that when an item of property and equipment consists of individual components with different useful lives, each component is accounted for and depreciated separately. Canadian GAAP includes the same concept of componentization, but is less specific about the level at which component accounting is required and provides no guidance on the cost of a component. Trinidad determined that the components used to depreciate significant items of property and equipment under Canadian GAAP required further refinement in order to determine depreciation expense that is fully compliant with IAS 16. Upon transition to IFRS at January 1, 2010, there was no material impact as a result of depreciating historical property and equipment based on IAS 16 components. However, for the three and six months ended June 30, 2010 depreciation expense decreased $0.2 million and $0.4 million, respectively, due to the change in components and related useful lives under IAS 16. (c) Borrowing costs. IAS 23 Borrowing Costs (IAS 23) requires capitalization of borrowing costs when they are directly attributable to an asset that requires a substantial period of time to get ready for its intended use. There is no specific requirement to capitalize borrowing costs under Canadian GAAP, and therefore, Trinidad has historically expensed all related borrowing costs. Pursuant to IFRS 1, Trinidad began capitalizing borrowing costs for qualifying assets whose construction began after January 1, Accordingly, for the three and six months ended June 30, 2010 borrowing costs totalling $0.5 million and $0.6 million, respectively, were capitalized to property and equipment. There was no depreciation on capitalized borrowing costs in the three and six months ended June 30, 2010 as the related assets were not in service. (d) Deferred income taxes. IAS 12 Income Taxes was applied retroactively resulting in an opening adjustment to decrease deferred income taxes of $5.6 million. The adjustment consists of (i) $2.9 million tax effect of the IFRS adjustments noted in (a) through (c) above, (ii) $6.9 million related to the IFRS tax treatment of certain historical asset acquisitions, both offset by (iii) $4.2 million related to the IFRS tax treatment of Trinidad s convertible debentures, which is net of $3.2 million in historical accretion with the original $7.4 million offset to the equity component of the convertible debentures. As at and for the six months ended June 30, 2010 deferred income taxes decreased an additional $3.8 million which consists of (i) $0.2 million tax effect of the IFRS adjustments noted in (a) through (c) above, (ii) $0.7 million related to the accretion of the IFRS tax treatment of Trinidad s convertible debentures, (iii) $3.2 million related to the IFRS recognition of rate benefit on the intercompany transfer of assets not previously reflected under Canadian GAAP, all offset by, (vi) $0.3 million in amortization of the IFRS tax treatment of certain historical asset acquisitions TRINIDAD SECOND QUARTER REPORT 2011

47 For the three months ended June 30, 2010 deferred income tax expense decreased $3.3 million, respectively which consists of (i) $0.4 million, respectively, related to the accretion of the IFRS tax treatment of Trinidad s convertible debentures, (ii) $3.2 million, respectively, related to the IFRS recognition of rate benefit on the intercompany transfer of assets not previously reflected under Canadian GAAP, both offset by, (iii) $0.2 million, respectively, in amortization of the IFRS tax treatment of certain historical asset acquisitions, and (iv) $0.1 million, respectively, tax effect of the IFRS adjustments noted in (a) through (c) above. (e) Accumulated foreign currency translation. IFRS 1 allows an exemption to set accumulated foreign currency translation balances reported in other comprehensive income to zero upon IFRS transition. Trinidad adopted the IFRS 1 exemption and the total accumulated foreign currency translation balance reported in accumulated other comprehensive income at January 1, 2010 of $49.4 million was reversed and offset to retained earnings. (f) Foreign currency translation on restated IFRS balances. The adjustments made to the carrying value of property and equipment and deferred income taxes results in a total change to the foreign currency translation amounts in other comprehensive income for the three and six months ended June 30, 2010 of $0.2 million and $0.05 million, respectively. Reclassification of balances Certain balances in the consolidated statements of operations and other comprehensive income (loss) have been reclassified or aggregated under IFRS. For the three months ended June 30, 2010, Bareboat charter gain of $0.1 million was reclassified to other revenue, stock-based compensation expense recovery of $0.3 million was reclassified to general and administrative expense and interest on long term debt of $5.7 million was aggregated with interest on convertible debt of $9.0 million and reported as finance costs (before considering for capitalized borrowing costs). For the six months ended June 30, 2010, Bareboat charter gain of $0.7 million was reclassified to other revenue, stock-based compensation expense of $1.5 million was reclassified to general and administrative expense and interest on long term debt of $10.6 million was aggregated with interest on convertible debt of $17.9 million and reported as finance costs (before considering capitalized borrowing costs). In addition, intangible assets and goodwill totalling $2.0 million and $84.6 million, respectively, have been combined into one line item in the consolidated balances sheets at December 31, Previously, they were reported as separate line items under Canadian GAAP. TRINIDAD SECOND QUARTER REPORT

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49 CORPORATE INFORMATION DIRECTORS Michael E. Heier Chairman Trinidad Drilling Ltd. Calgary, AB Brian Bentz Independent Businessman Vancouver, BC Jim Brown Independent Businessman Calgary, AB Brock Gibson Chair Blake, Cassels & Graydon LLP Calgary, AB Lewis W. Powers Independent Businessman Montgomery, Texas Ken Stickland Chief Legal Officer, TransAlta Corporation Calgary, AB Lyle C. Whitmarsh President and Chief Executive Officer Trinidad Drilling Ltd. Calgary, AB MANAGEMENT Lyle C. Whitmarsh President and Chief Executive Officer Brent J. Conway Executive Vice President and Chief Financial Officer Lesley Bolster Vice President, Finance and Treasurer Jason Clemett Senior Vice President, Sales and Marketing Adrian Lachance Chief Operating Officer, US Drilling Operations and Manufacturing Ed Oke Vice President, Human Resources and Safety BANKERS TD Canada Trust Calgary, AB Wells Fargo Houston, TX AUDITORS PricewaterhouseCoopers LLP Chartered Accountants Calgary, AB LEGAL COUNSEL Blake, Cassels & Graydon LLP Calgary, AB REGISTRAR AND TRANSFER AGENT Valiant Trust Company Calgary, AB TRINIDAD SECOND QUARTER REPORT

50 TRINIDAD DRILLING LTD. 2500, 700-9th Avenue SW Calgary AB T2P 3V4 Phone: Fax: Download the latest presentation reports and financial results about Trinidad Drilling at Trinidad Drilling is traded on the TSX under the symbol TDG