TRINIDAD DRILLING 2017 ANNUAL REPORT

Transcription

1 TRINIDAD DRILLING 2017 ANNUAL REPORT

2 Trinidad s drilling fleet has always been one of the most adaptable, technologically advanced, and competitive in the industry and we re focused on keeping it that way. In 2017, this included undertaking an extensive rig upgrade program and the strategic acquisition of RigMinder. We are meeting customers changing needs with integrated service offerings and cutting-edge automation and technology that unlocks potential and adds value. We have shown innovation in our rig designs, our product offerings to our customers and our day-to-day performance management. Moving into 2018, we are robustly equipped and strategically poised to deliver unparalleled value in the face of ever-changing markets, environments and challenges.

3 TABLE OF CONTENTS Message to Shareholders 02 Innovation in Our Strategy 04 Innovation in Our Operations 05 Operations Overview 06 Management s Discussion & Analysis 11 Management s Report 47 Auditor s Report 48 Consolidated Financial Statements 49 Notes to the Consolidated Financial Statements ANNUAL REPORT 1

4 MESSAGE TO SHAREHOLDERS Dear Fellow Investors From left: Adrian Lachance, Lesley Bolster, Brent Conway Over the past year we have seen improving industry conditions, with growing activity levels and improved customer demand. During 2017, Trinidad responded by reactivating and upgrading a large portion of our rigs, while also keeping a close eye on the safety of our people. In addition, we embraced the changing demands of our customers to improve drilling performance and efficiency with the acquisition of RigMinder. RigMinder s innovative technology platform allows Trinidad to deliver an integrated drilling solution, while also reducing costs for customers. Clear Strategy in Evolving Industry Conditions Our strategy is to have a rig fleet with the highest earning capacity, not the largest fleet or market share. Capital discipline starts with the right assets, driven by the needs of our clients, focused in the right geographies. We are a high specification, performance-based drilling contractor with an international focus, almost 65% of our revenue comes from our US and international operations. Our strength has always been investment in core drilling rig technology and rig design that drives performance for our clients. We are focused on keeping to areas where we have extensive experience and strong performance. The drilling industry s investment in high specification drilling equipment has created efficiency gains that allow producers to economically drill completely new well profiles. However, in the past few years, the benefit of this investment has accrued not to drilling companies but rather to oil and gas producers. We are focused on finding ways to retain some of these benefits within Trinidad. Customers are now asking drillers and service providers for bundled services or expanded service lines. Our customers want this integrated delivery model on select services because it reduces their execution risk. This demand has been the driving factor behind Trinidad selectively adding complementary services that deliver high margins but require low capital investment, relative to our drilling rigs. We have the ability to leverage off our key strengths and provide enhanced returns to shareholders on a capital-efficient basis by pursuing this model. For Trinidad, 2017 was a year of change. Despite having one of the most experienced operational teams with proven technical capability and a high specification rig fleet, we were delivering financial results which have been, for the most part, at or just above average. We stepped back and took an objective view of our operational and financial performance, and found areas where we could improve. 2 TRINIDAD DRILLING

5 We created an environment of ownership and accountability. An environment focused on achieving financial results, driving strong return on capital and improved returns for shareholders. Trinidad s management team, together with our directors, have worked diligently to create this environment and have taken steps to improve our performance. In the past year, we have made major changes to our management team and restructured our senior operations group to improve consistency and accountability across our drilling operations. In addition, we have increased our focus on cost control with significant reductions to overhead costs and strengthened our supply chain management. We are focused on capital discipline and we have formalized our approach to financial returns, with benchmark full cycle returns set for capital projects and regular reviews to ensure actuals meet targeted returns. Finally, we have made changes to our compensation plans to further align them with shareholder interest, including a 15% salary rollback for executives, a cap on our 2017 short-term incentive plan and increased share ownership for our executives. Strategic Review to Enhance Shareholder Value Despite improving industry fundamentals and recent steps we have taken to improve shareholder value; we do not believe that our current stock price reflects the value of the company. As a result, our Board of Directors recently initiated a strategic review in an effort to enhance shareholder value. In connection with this process, the Board intends to undertake a comprehensive review of a broad range of alternatives and their potential to enhance shareholder value, including, a sale of selected assets, a merger, a corporate sale, a strategic partnership and various capital re-deployment opportunities. This review is not a reflection of our financial or operating situation. We remain in a strong financial position, generating free cash flow from our core business to fund our capital program, and we also have additional liquidity through our existing credit facilities. There is no guarantee that the strategic review process we are undertaking will result in a transaction. To that end, we will continue to manage our business carefully, with a focus on enhancing returns and improving results for our shareholders. We will remain focused on providing customers with the strong performance they have come to expect from Trinidad, while also maintaining our commitment to the safety of our crews and the condition of our high-performance equipment. Sincerely, Brent Conway President & Chief Executive Officer Lesley Bolster Chief Financial Officer Adrian Lachance Chief Operating Officer February 26, ANNUAL REPORT 3

6 INNOVATION IN OUR STRATEGY Industry conditions began to improve in 2017 and we responded quickly. We were innovative in our strategic approach to benefit from evolving industry conditions, as we: REVENUE INCREASED 39% FROM 2016 Increased revenue by nearly $140 million or 39% from the previous year as we met growing customer demand for equipment and dayrates started to improve. Made significant changes to our management team and increased our focus on ownership and accountability. We remain committed to achieving financial results, driving strong return on capital and improved returns for shareholders. Streamlined all our purchasing activities with our new global procurement group which has executed global supply agreements and created millions of dollars in operational savings. Improved our unwavering focus on capital returns by refining our approach to capital allocation decisions. Returns have also been incorporated as a key measure for our compensation plans. Acquired RigMinder and its innovative technology platform to provide an integrated rig performance solution and reduce costs for customers. RigMinder s Criterion bit guidance software and electronic data recorders integrate with Trinidad s control systems, improving rig efficiency, safety and performance. Lowered leverage and interest costs, and extended long-term debt maturity by refinancing our senior notes and issuing equity in early TRINIDAD DRILLING

7 INNOVATION IN OUR OPERATIONS The growing customer demand and increasing activity levels witnessed in 2017 are strong drivers for business. During these changing conditions, we focused on being innovative in how we keep our people safe, our customers satisfied and our operations working efficiently, as we: Responded to growing customer demand by crewing rigs and reactivating equipment quickly. We worked more than 22,000 operating days in 2017, 64% more than the year before. Remained committed to providing high performing operations and helping our customers achieve their best results. Updated our fleet to meet the new specifications customers are looking for. More than 30 rigs received upgrades to improve their marketability in Relocated rigs to areas where demand was stronger, largely under customer commitment, including moving rigs from Canada to the US. Grew our rig count in the most active play in North America, the Permian Basin, by 27% at year end. Maintained our focus on safety; we recorded a very strong safety incident (1) level of 0.24, even lower than our already strong level of 0.75 in GROWING ACTIVITY LEVELS UP 64%(2) DROVE OVER 22,000 OPERATING DAYS (1) TRIR Total Recordable Incident Rate. (2) Compared to ANNUAL REPORT 5

8 OPERATIONS OVERVIEW In 2017, we responded strongly to growing customer demand and activity in our operations with our ongoing commitment to efficient, safe performance. We have well-trained, experienced crews, a fleet of highperformance rigs and strategic partnerships that provide opportunities for future expansion both in North America and internationally. GLOBAL OPERATIONS (1) RIGS TRIR * EMPLOYEES (1) As at December 31, * TRIR Total Recordable Incident Rate. 6 TRINIDAD DRILLING

9 US AND INTERNATIONAL OPERATIONS We have 68 rigs in the US and one international rig. Our US and international fleet is mostly made up of 1,500 HP triples. We have historically worked in most of the key plays across the US. We have strong and growing market share in the Permian Basin, the most active play in the US Dayrates (1) 23,381 21,749 24,917 26,518 18,492 Utilization (1) 73% 87% 45% 23% 48% Operating Margin (1)(2) 41% 36% 49% 51% 32% (1) See Non-GAAP Measure Definitions on page 43 and Additional GAAP Measures Definitions on page 46. (2) Operating Income - net percentage RIGS TRIR EMPLOYEES 2017 ANNUAL REPORT 7

10 CANADIAN OPERATIONS Our Canadian fleet is made up of 70 rigs, with an average depth capacity of approximately 6,200 metres or 20,300 feet. Our rigs operate throughout the Western Canadian Sedimentary Basin, with most of our recent activity coming from the Montney, Duvernay and Deep Basin. The blend of heavy doubles and modern triple rigs in our Canadian fleet meets the wide range of customer demands, driving consistently higher utilization than industry averages ,892 25,638 24,907 22,492 20,216 Utilization (1) 53% 57% 31% 23% 35% Operating Margins (1),(2) 42% 43% 41% 41% 36% Dayrates ($USD) (1) (1) See Non-GAAP Measure Definitions on page 43 and Additional GAAP Measures Definitions on page 46. (2) Operating Income - net percentage TRINIDAD DRILLING RIGS 0.12 TRIR 696 EMPLOYEES

11 JOINT VENTURE OPERATIONS We operate eight rigs through a joint venture arrangement, with four in Saudi Arabia and four in Mexico, including some of our largest and newest rigs. Our joint venture is with Halliburton and gives us the first right to their integrated project drilling work Adjusted EBITDA from Investments in Joint Ventures ($mm) (1) Rig Count (2) (1) See Non-GAAP Measure Definitions on page 43 and Additional GAAP Measures Definitions on page 46. (2) Excludes DCM Rigs RIGS TRIR EMPLOYEES 2017 ANNUAL REPORT 9

12 FINANCIALS

13 Management s Discussion and Analysis The following management s discussion and analysis (MD&A) of the 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 year ended December 31, 2017, is dated February 26, 2018, and takes into consideration information available up to that date. The MD&A is based on the audited annual consolidated financial statements of Trinidad for the year ended December 31, The MD&A should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended December 31, 2017, prepared in accordance with International Financial Reporting Standards (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 ( All amounts are denominated in Canadian dollars (CDN$) unless otherwise identified. All amounts are stated in thousands unless otherwise identified ANNUAL REPORT 11

14 Financial Highlights For the years ended December 31, ($ thousands except share and per share data) % Change 2015 % Change (5) Revenue 501, , ,899 (9.1) Revenue, net of third party costs (1) 469, , ,043 (10.6) Operating income (1) 157, ,577 (1.4) 222,166 (29.2) Operating income percentage (1) 31.4% 44.1% (28.8) 40.3% (22.1) Operating income - net percentage (1) 33.5% 46.1% (27.3) 42.1% (20.4) Adjusted EBITDA (1) 129, ,002 (9.5) 186,746 (30.7) Per share (diluted) (2) (23.4) 1.11 (55.9) Cash flow provided by operating activities 20,475 30,310 (32.4) 215,462 (90.5) Per share (basic / diluted) (2) (42.9) 1.28 (93.8) Funds flow (1) 51,429 62,618 (17.9) 108,219 (52.5) Per share (basic / diluted) (2) (32.1) 0.64 (70.3) Net (loss) (3) (79,618) (52,546) (51.5) (218,350) 63.5 Per share (basic / diluted) (2)(3) (0.30) (0.24) (25.0) (1.30) 76.9 Capital expenditures 163,117 44, , Dividends declared (4) ,668 (100.0) Shares outstanding - diluted (weighted average) (2) 266,014, ,496, ,227, December 31, December 31, December 31, ($ thousands) % Change 2015 % Change (5) Total assets 1,903,773 1,982,076 (4.0) 2,236,200 (14.9) Total long-term liabilities 533, ,602 (18.9) 783,254 (31.9) (1) Readers are cautioned that Revenue, net of third party costs, Operating income, Operating income percentage, Operating income - net percentage, Adjusted EBITDA, Funds flow, and the related per share information do not have standardized meanings prescribed by IFRS see Non-GAAP Measures Definitions and Additional GAAP Measures Definitions (beginning on page 43). (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 number of shares issuable pursuant to the Incentive Option Plan. (3) Net (loss) is net (loss) attributable to shareholders of Trinidad. Net (loss) per share is calculated as net (loss) attributable to shareholders of Trinidad divided by the weighted average number of common shares outstanding, both adjusted for dilutive factors. (4) No dividends were declared for the years ending December 31, 2017 and For the year ended December 31, 2015, $0.05 per share was declared in the first, second and third quarters, and $0.01 per share was declared in the fourth quarter. (5) Represents the percentage change for the year ending December 31, 2015 compared to the year ended December 31, TRINIDAD DRILLING

15 Operating Highlights For the years ended December 31, Operating days (1) % Change 2015 % Change (4) United States and International 11,924 5, , Canada 9,004 6, , Rate per operating day (1) United States and International (CDN$) 24,022 35,094 (31.5) 31,241 (23.1) United States and International (US$) 18,492 26,518 (30.3) 24,917 (25.8) Canada (CDN$) 20,216 22,492 (10.1) 24,907 (18.8) Utilization rate - operating day (1) United States and International 48% 23% % 6.7 Canada 35% 23% % 12.9 Number of drilling rigs at year end (2) United States and International Canada (2.8) 72 (2.8) TDI Joint Venture Operations (3) Operating days (1) 1,278 1,709 (25.2) 2,189 (41.6) Rate per operating day (CDN$) (1) 86,491 74, , Rate per operating day (US$) (1) 65,929 55, , Utilization rate - operating day (1) 44% 58% (24.1) 96% (54.2) Number of drilling rigs at year end (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A for further details (beginning on page 43). (2) Refer to the Results from Operations section for details on the changes to the rig count. (3) Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton. These rigs are owned by the joint venture. (4) Represents the percentage change for the year ended December 31, 2015 compared to the year ended December 31, ANNUAL REPORT 13

16 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 forwardlooking 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. In particular, but without limiting the foregoing, this MD&A may contain forward-looking information and statements pertaining to: the assumption that Trinidad's customers will honour their long-term contracts, and Trinidad's ability to sign future long-term contracts; future liquidity levels; 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; Trinidad's ability to increase dayrates; the existence of competitors, technological changes and developments in the oilfield services industry; the existence of operating risks inherent in the oilfield services industry; assumptions respecting internal capital expenditure programs and 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 future expected cash flows and potential distributions from joint venture partners including Trinidad Drilling International (TDI); assumptions regarding foreign currency exchange rates and interest rates; assumptions around future Other G&A cost levels; the existence of regulatory and legislative uncertainties; the possibility of changes in tax laws; and general economic conditions including the capital and credit markets; assumptions made about our future banking covenants and liquidity; assumptions made about future performance and operations of joint ventures and partnership arrangements; the ability of the Company to continue to execute on its business strategy during the strategic review process, and the various risks and assumptions customarily related thereto; and the likelihood that the Company will be able to identify and undertake alternatives which enhance shareholder value. Trinidad cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. Additional information on these and other factors that could affect Trinidad s business, operations or financial results are described in reports filed with securities regulatory authorities, accessible through the SEDAR website ( including but not limited to 14 TRINIDAD DRILLING

17 Trinidad s annual MD&A, financial statements, Annual Information Form and Management Information Circular. 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 and Additional 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 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 Operating income, Operating income percentage, Operating income - net percentage, Adjusted EBITDA, Adjusted EBITDA from investments in joint ventures, Funds flow, working capital, Senior Debt to Bank EBITDA, Bank EBITDA to Cash Interest Expense, operating revenue or revenue, net of third party costs, drilling days, operating days, utilization rate - drilling day, utilization rate - operating day, and rate per operating day or dayrate. Refer to the Non-GAAP Measures Definitions and Additional GAAP Measures Definitions sections of this MD&A (beginning on page 43) for details with respect to definitions of these measures. Responsibility Of Management And The Board Of Directors Management is responsible for the information disclosed in this MD&A and the accompanying audited 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 audited annual consolidated financial statements. Profile Trinidad is an industry-leading contract driller, providing safe, 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. Trinidad provides contract drilling and related services in Canada, the US, the Middle East and Mexico. Trinidad is headquartered in Calgary, Alberta, Canada. The Company s common shares are listed on the Toronto Stock Exchange under the trading symbol TDG. For more information, please visit Overview In 2017, activity grew significantly over the levels recorded in the previous year. In the US and international operations, activity increased by 108.6%, and in the Canadian operations, activity grew by 46.5%. The increase in activity was mainly driven by higher commodity prices and increased customer demand. Conditions continued to strengthen in the fourth quarter of 2017 and Trinidad benefited from improved profitability in its US and international operations, driven by growing activity levels, less rig reactivation costs and improving underlying dayrates. These improving conditions allowed Trinidad to record increased adjusted EBITDA in the fourth quarter of 2017 when compared to the same period of the prior year. "Industry conditions improved in 2017 and our operating days increased significantly, particularly in our US operations," said Brent Conway, Trinidad's President and Chief Executive Officer. "Throughout the year we saw our underlying dayrates in the US improve each quarter as the impact of rigs starting up on new contracts under market rates more than offset the impact of rigs rolling off legacy contracts. In Canada, market conditions improved, but not to the extent seen in the US." 2017 ANNUAL REPORT 15

18 "Due to this growing customer demand, we expanded our upgrade program and relocated rigs to high demand areas such as the Permian Basin in These strategic decisions positioned Trinidad with a strong market presence in the most active play in North America and with a fleet of high quality rigs that meet customer demands. added Conway. In addition, in response to customer requests for improved efficiency and performance, Trinidad acquired RigMinder Operating LLC (RigMinder), a global provider of rig technology in the third quarter of This acquisition allows Trinidad to deliver an integrated rig performance solution and reduce costs for customers. Industry Statistics Crude oil prices improved during 2017, with WTI crude oil prices averaging US$50.85 per barrel during the year and finishing the year at US$ On average, WTI crude oil was US$55.43 per barrel in the fourth quarter of 2017, up 12% from the same quarter last year and up 15% from the third quarter of Henry Hub natural gas averaged US$2.98 per million British thermal unit (mmbtu) in 2017 and US$2.91 per mmbtu in the fourth quarter of 2017, up 18% and down 4%, respectively from the same periods last year. While Canadian-based oil and gas pricing increased in 2017 over the prior year, infrastructure constraints and related challenges kept pricing from reaching levels equivalent to US-based commodity pricing. With the increase in WTI and Henry Hub prices in 2017, activity levels increased year over year. In the US, the active rig count averaged 856 active rigs in 2017, up 68% or 347 active rigs from There were 901 active rigs in the fourth quarter of Increased activity in the US drove the rig count up to 958 rigs in July 2017, but as producers cut back slightly on capital spending towards the end of the year, the active rig count exited the fourth quarter at 929 active rigs. Canadian activity levels also increased in 2017, with full year average utilization at 28%, up from an average of 17% in Full Year 2017 Q4 Q3 Q2 Q Q4 Q3 Q2 Q1 Commodity Prices AECO natural gas price (CDN$ per gigajoule) Henry Hub natural gas price (US$ per million British thermal unit) Western Canada Select crude oil price (CDN$ per barrel) WTI crude oil price (US$ per barrel) Canadian / US dollar exchange rate Full Year 2016 US Activity Average industry active land rig count (1) Average Trinidad active land rig count (2) Canadian Activity Average industry utilization (3) 28% 28% 28% 18% 40% 17% 25% 17% 7% 20% Average Trinidad utilization (4) 32% 36% 37% 19% 41% 22% 31% 20% 10% 29% (1) Baker Hughes North America Rotary Rig Count. (2) Includes US and international rigs. (3) Canadian Association of Oilwell Drilling Contractors (CAODC) utilization. (4) Based on drilling days (spud to rig release dates). 16 TRINIDAD DRILLING

19 Full Year 2017 Highlights (Compared to corresponding prior-year period unless otherwise noted) In 2017, revenue increased by 38.5% compared to 2016, due to higher activity levels in both the US and Canada, partly offset by lower dayrates and lower early termination and standby revenue in In both Trinidad's US and international and Canadian drilling operations, dayrates lowered due to the number of rigs working under competitive spot market pricing compared to existing higher dayrate legacy contracts in As well, in Canada, dayrates lowered due to a higher proportion of smaller rigs operating. Operating days during 2017 increased by 108.6% and 46.5%, respectively, in the US and international and Canadian drilling operations. Activity levels increased as industry conditions continued to strengthen in 2017 due to higher commodity prices and improved customer demand, served by an upgraded Trinidad fleet. Operating income for 2017 was $157.3 million, relatively flat compared to The impact of higher activity levels was offset by lower dayrates, lower early termination and standby revenues, and foreign currency translation impacts year over year. Operating income - net percentage decreased to 33.5% in 2017 from 46.1% in 2016 largely due to lower early termination and standby revenues in the US and international division in 2017 compared to Adjusted EBITDA decreased in 2017 largely due lower average dayrates recorded in Trinidad, and due to an increase in general and administrative expenses driven by increased activity levels and severance and bad debt expenses. Net (loss) increased in 2017 as a result of higher depreciation and amortization expenses and a loss on foreign exchange. The impact of these factors was partly offset by lower finance and transaction costs and a larger recovery on deferred taxes. In 2017, Trinidad spent $163.1 million on capital expenditures, compared to $44.3 million in As well, the Company spent $4.3 million related to its portion of capital spending for the TDI joint venture, compared to $6.0 million in Capital expenditures in 2017 were higher than previously anticipated as a result of improving industry conditions and increased customer demand. Additional spend related mainly to capital requirements to reactivate equipment, such as additional drill pipe, rig re-certifications and capital inventory. Effective August 25, 2017, Trinidad acquired RigMinder, a leading provider of rig technology that is complementary to the Company's industry-leading drilling fleet. Since the acquisition, Trinidad has begun to roll out the RigMinder technology platform to its customers, including the use of Criterion TM, RigMinder's directional advisory software, customer-partnered testing of frac-optimization software, GMXSteering TM, and adding electronic data recorders (EDR) to its fleet. In addition, the Company has put in place several agreements to provide integrated down hole tool solutions. In the first quarter of 2017, Trinidad refinanced its long-term debt and strengthened the balance sheet by lowering the Company's overall indebtedness and reducing interest costs moving forward. The Company redeemed its outstanding US$450 million of 7.875% senior unsecured notes due in 2019 (2019 Senior Notes) and issued US$350 million of 6.625% senior unsecured notes which mature in 2025 (2025 Senior Notes), collectively the Senior Notes. The company also completed an offering of 47,460,317 common shares at $3.15 per share for gross proceeds of $149.5 million in the first quarter of ANNUAL REPORT 17

20 Results From Operations United States and International Operations For the years ended December 31, ($ thousands except percentage and operating data) % Change Operating revenue (1) 286, , Other revenue (85.7) 286, , Operating costs (1) 195,720 98, Operating income (2) 90, ,980 (11.0) Operating income - net percentage (2) 31.7% 50.8% Operating days (2) 11,924 5, Drilling days (2) 10,473 4, Rate per operating day (CDN$) (2) 24,022 35,094 (31.5) Rate per operating day (US$) (2) 18,492 26,518 (30.3) Utilization rate - operating day (2) 48% 23% Utilization rate - drilling day (2) 42% 20% Number of drilling rigs at year end (1) Operating revenue and operating costs for the year ended December 31, 2017 and 2016 exclude third party recovery and third party costs of $12.8 million and $5.0 million, respectively. (2) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section (beginning on page 43) of this MD&A for further details. For the year ended December 31, 2017, Trinidad recorded operating revenue of $286.4 million, an increase of 42.8% compared to Operating revenue increased in the current year due to higher activity levels. Operating income was negatively impacted in the current year due to less early termination and standby revenue and the impact of a lower US dollar to Canadian dollar exchange rate. As well, lower dayrates impacted overall profitability in the current year. During the year ended December 31, 2017, Trinidad recorded 11,924 operating days, up from 5,716 days in Activity increased due to improving commodity prices and growing customer demand. In response to improved industry conditions in 2017, Trinidad re-activated 17 rigs in its US and international division, primarily in the Permian Basin. In the year ended December 31, 2017, Trinidad recorded average dayrates of US$18,492 per day, a reduction of US$8,026 per day from the comparable period of 2016, primarily due to less early termination and standby revenue recorded in the current year. In the year ended December 31, 2017, Trinidad recorded early termination and standby revenue of US$3.5 million, compared to early termination and standby revenue of US$42.5 million in Early termination and standby revenue in 2017 mainly related to three rigs, compared to six rigs in Adjusted for the impact of early termination and standby revenue, Trinidad's dayrates averaged US$18,202 per day in 2017, a decrease of US$879 per day from the adjusted dayrates in Trinidad's adjusted dayrates lowered during the the year ended December 31, 2017, compared to 2016, as a result of an increased number of rigs working at spot market rates as activity levels improved, compared to legacy long-term contracts with higher dayrates in the prior year. As well, as more rigs were reactivated in 2017, a change in rig mix effected Trinidad's average dayrates. Sequentially, Trinidad's average dayrates increased in each of the four quarters of 2017, showing an improvement to market pricing conditions in the drilling industry. Operating income decreased by $11.2 million for the year ended December 31, 2017 mainly due to lower early termination and standby revenue, competitive pricing pressure on dayrates, and movements in foreign currency translation in 2017; partially offset by increased activity levels in the current year. In the first half of 2017, Trinidad incurred rig re-activation costs related to readying rigs to go back to work and related transportation costs. In the second half of the year, rigs commenced full operations and reactivation costs decreased, providing greater contributions to income and lessening the year-over-year impact. 18 TRINIDAD DRILLING

21 For the year ended December 31, 2017, Trinidad recorded operating income - net percentage of 31.7% compared to 50.8% in Operating income - net percentage decreased mainly as a result of lower early termination and standby revenue. After adjusting for early termination and standby revenue, Trinidad recorded operating income - net percentage of 30.6% compared to 32.1% in The remaining reduction in operating income - net percentage in 2017 was primarily due to declines in Trinidad's average dayrate in the current year. Trinidad s US and international rig count totaled 69 rigs at December 31, 2017 compared to 67 at December 31, 2016 due to two rigs transferred from the Canadian operations in the first half of The rigs were transferred to meet increased customer demand in the Permian Basin. Canadian Operations For the years ended December 31, ($ thousands except percentage and operating data) % Change Operating revenue (1) 182, , Other revenue 1, , , Operating costs (1) 117,070 82, Operating income (2) 66,095 57, Operating income - net percentage (2) 36.1% 41.1% Operating days (2) 9,004 6, Drilling days (2) 8,326 5, Rate per operating day (CDN$) (2) 20,216 22,492 (10.1) Utilization rate - operating day (2) 35% 23% 52.2 Utilization rate - drilling day (2) 32% 22% 45.5 CAODC industry average (3) 28% 17% 64.7 Number of drilling rigs at year end (2.8) (1) Operating revenue and operating costs for the year ended December 31, 2017 and 2016 exclude third party recovery and third party costs of $18.7 million and $11.8 million, respectively. (2) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section (beginning on page 43) of this MD&A for further details. (3) Canadian Association of Oilwell Drilling Contractors (CAODC) industry average is based on drilling days divided by total days available. Improving industry conditions and higher commodity prices drove increased activity levels for the year ended December 31, 2017, compared to the prior year. Additionally, Trinidad's operations were positively impacted by higher early termination and standby revenue recorded in the current year. Overall, operating revenue and operating income increased to $182.0 million and $66.1 million, respectively, in 2017, an increase of 30.5% and 14.6%, respectively, compared to the prior year. The impact of improved activity levels, combined with increased standby and early termination revenue, was slightly offset by lower average dayrates in Trinidad for the current year. For the year ended December 31, 2017, Trinidad recorded 9,004 operating days, compared to 6,144 operating days in the prior year. Improved industry conditions and higher demand resulted in higher activity in the current year. As well, Trinidad's average utilization in 2017 was four percentage points higher than the industry average utilization. Dayrates for the year ended December 31, 2017, decreased by $2,276 per day compared to the prior year. Dayrates lowered in 2017 as more rigs were re-activated and worked under short-term or spot market contracts compared to more rigs working under long-term contracts in As well, a change in the active rig mix in 2017, compared to 2016, also led to a reduction in dayrates. The impact of lower contracted dayrates was partly offset by higher early termination and standby revenue in 2017 due to contracted rigs not working the contracted number of days ANNUAL REPORT 19

22 For the year ended December 31, 2017, Trinidad received early termination and standby revenue of $22.5 million compared to $9.9 million in the prior year. The early termination and standby revenue recognized in 2017 primarily related to lump sum amounts for shortfall days collected on eight rigs. The early termination and standby revenue recognized in 2016 mainly related to lump sum amounts collected for five rigs. Excluding early termination and standby revenue, dayrates for the year ended December 31, 2017 were $17,716 per day, a decline of $3,162 per day compared to the adjusted 2016 dayrates. For the year ended December 31, 2017, operating income increased by 14.6% compared to the same period last year mainly as a result of increased activity, continued focus on cost control, and higher early termination and standby revenue, which adds revenue with no corresponding operating costs. This was partly offset by the impact of lower dayrates in the current period. For the year ended December 31, 2017, operating income - net percentage was 36.1%, compared to 41.1% in the prior year. Operating income - net percentage decreased in the current year mainly due to lower dayrates related to the change in short term, spot market contract pricing in 2017, partially offset by higher early termination and standby revenue recorded in the current year. In 2017, operating costs remained in line with the increase in operating days; however, operating revenue, excluding early termination and standby revenue, grew at a slower rate due to lower dayrates, driving lower overall profitability. Trinidad s Canadian rig count totaled 70 rigs at December 31, 2017, compared to 72 rigs at December 31, During 2017, the Company transferred two rigs to its US and international division. Joint Venture Operations Trinidad Drilling International (TDI): Amounts below are presented at 100% of the value included in the statement of operations and comprehensive (loss) income for Trinidad Drilling International (TDI); Trinidad owns 60% of the shares of TDI and each of the parties has equal voting rights. Trinidad considers the investment to be a financial asset at fair value through profit or loss and recognizes changes in fair value of the investment in the statement of operations and comprehensive (loss) as a gain from investments in joint ventures. For the years ended December 31, ($ thousands except percentage and operating data) % Change Operating revenue 113, ,823 (13.7) Other revenue , ,823 (13.7) Operating costs 51,645 69,324 (25.5) Operating income (1) 62,163 62,499 (0.5) Operating income - net percentage (1) 54.6% 47.4% Operating days (1) 1,278 1,709 (25.2) Rate per operating day (CDN$) (1) 86,491 74, Rate per operating day (US$) (1) 65,929 55, Utilization rate - operating day (1) 44% 58% (24.1) Number of drilling rigs at year end (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A (beginning on page 43) for further details. For the year ended December 31, 2017, TDI recorded operating revenue of $113.7 million, a decrease of 13.7%, from the same period in Operating revenue decreased due to lower activity in both the Saudi Arabian and Mexican divisions, and was further reduced by lower dayrates in the Saudi Arabian division. The impact of these factors was partly offset by increased early termination and standby revenue in the Mexican division in During the year ended December 31, 2017, TDI recorded utilization of 44%, compared to 58% in Operating days decreased by 151 days in Saudi Arabia and 280 days in Mexico. There were three active rigs in Saudi Arabia in 2017 compared to four in 2016, whereas Mexico had one active rig in 2017 compared to four active rigs in TRINIDAD DRILLING

23 In 2017, dayrates increased by US$10,335 per day compared to 2016, largely as a result of increased early termination and standby revenues in Mexico, offsetting a reduction in dayrates in Saudi Arabia. Excluding early termination and standby of US$26.8 million in 2017 and US$14.7 million in 2016, dayrates were US$44,950 per day in 2017, compared to US$46,981 per day in Operating income decreased by $0.3 million for the year ended December 31, 2017 compared to the same period in 2016, mainly due to lower activity in the current year offset by higher early termination and standby revenues in Mexico. Operating income - net percentage increased to 54.6% in 2017 from 47.4% in 2016, reflecting the increase in early termination and standby revenue, which has no accompanying operating expenses. General and Administrative For the years ended December 31, ($ thousands except percentage) % Change General and administrative (1) 58,215 47, % of revenue 11.6% 13.1% Share-based payment expense 1,405 8,434 (83.3) Third party recoverable costs 460 1,051 (56.2) Total general and administrative 60,080 56, % of revenue 12.0% 15.7% (1) General and administrative expenses excluding share-based payment expense and third party recoverable costs. For the year ended December 31, 2017, Trinidad recorded higher general and administrative (G&A) costs compared to the same period in 2016 due to an increase in salary expenses and higher professional fees as a result of putting rigs back to work, as well as higher severance and bad debt expense recorded in Salary expenses increased due to higher activity within the Company combined with an increase due to the RigMinder acquisition, while professional fees were higher due to an increase in general corporate activities. Trinidad recorded $7.1 million of severance and bad debt expenses in the first quarter of The bad debt expense was related to the barge division that was discontinued in For the year ended December 31, 2017, share-based payment expense decreased when compared to the same period in 2016 mainly due to a decrease in the share price. A reduction in the share price reduces the liability associated with the Company's performance share units, deferred share units and restricted share units. Third party recoverable costs relate to costs incurred by Trinidad on behalf of the TDI joint venture. As these costs are fully recoverable, Trinidad records a related revenue entry for this same amount. For the year ended December 31, 2017, G&A as a percentage of revenue decreased compared to the same period in 2016, mainly due to an increase in revenue generation associated with higher activity in ANNUAL REPORT 21

24 Depreciation, Amortization and Sale of Assets For the years ended December 31, ($ thousands) % Change Depreciation 196, , Amortization 3, (Gain) on sale of assets (2,166) (11,317) (80.9) Depreciation expense for the year ended December 31, 2017 increased when compared to the prior year mainly due to a change in the useful life estimates effective from July 1, In the third quarter of 2017, Trinidad reviewed the useful life estimates for all rigs and related equipment and adjusted to more accurately reflect the future economic benefits related to these assets. The useful life estimates were adjusted within Trinidad's current depreciation policy. Depreciation also increased as a result of capital asset additions from rig upgrade and capital maintenance projects throughout Amortization expense for the year ended December 31, 2017 increased when compared to the prior year mainly due to technology assets acquired through the RigMinder acquisition. In addition, amortization increased due to the addition of a licensing agreement in the second quarter of For the year ended December 31, 2017, Trinidad recognized a gain on sale of assets of $2.2 million, mainly due to the disposition of non-core assets. The gain on sale of assets recorded for the year ended December 31, 2016 was due to the disposition of non-core assets and duplicate properties acquired as part of a previous business combination. Foreign Exchange For the years ended December 31, ($ thousands except percentage) % Change Foreign exchange loss (gain) 9,295 (3,374) % of revenue 1.9% (0.9)% Foreign exchange gains and losses are the result of foreign currency fluctuations on the Company's foreign currency funds and outstanding inter-company balances. For the year ended December 31, 2017, Trinidad recorded a foreign exchange loss of $9.3 million compared to a gain of $3.4 million in the comparative period of The loss in 2017 reflects the impact of the strengthening of the Canadian dollar on the inter-company balances. The Company utilizes a net investment hedge on a portion of its foreign subsidiaries against its US dollar denominated Senior Notes. This hedge allows the Company to better reflect foreign exchange impacts related to operations as the translation adjustment is included in the cumulative translation account in other comprehensive (loss). Impairment For the years ended December 31, ($ thousands except percentage) % Change Impairment of property and equipment 2, % of revenue 0.6% 0.0% For the year ended December 31, 2017, the Company identified top drives in its US and international segment that had a carrying amount which exceeded the recoverable amount. As a result, Trinidad recorded an impairment of $3.0 million for the year ended December 31, TRINIDAD DRILLING

25 Finance and Transaction Costs For the years ended December 31, ($ thousands except percentage) % Change Interest on long-term debt 37,600 49,907 (24.7) Accretion of 2019 Senior Notes (91.3) Amortization of deferred financing costs 2,338 5,306 (55.9) Finance costs related to long-term debt 39,991 55,824 (28.4) Transaction costs 2, Finance and transaction costs 42,059 55,824 (24.7) % of revenue 8.4% 15.4% For the year ended December 31, 2017, finance and transaction costs were $42.1 million, a decrease of 24.7% when compared to the same period in Finance and transaction costs decreased mainly due to the redemption of the Company's outstanding US$450 million Senior Notes that were due in 2019, and the issuance of new Senior Notes at a reduced principal amount of US$350 million, due in The new Senior Notes have a lower interest rate of 6.625% compared to the previous instrument's interest rate of 7.875%. The reduction in the principal amount combined with a lower interest rate on long-term debt caused the reduction in expense. Amortization of deferred financing costs decreased compared to prior period due to the accelerated recognition of the unamortized debt issuance costs in the prior year associated with the 2019 Senior Notes. As Trinidad announced the cash tender offer to purchase the 2019 Senior Notes in January of 2017, the related unamortized debt issuance costs were completely expensed at December 31, For the year ended December 31, 2017, Trinidad recorded transaction costs of $0.7 million related to the RigMinder acquisition and $1.4 million relating to the early redemption of the 2019 Senior Notes. Refer to the Liquidity and Capital Resources section for further details on the debt refinancing agreement and amendments made to the credit facility. Income Taxes For the years ended December 31, ($ thousands except percentage) % Change Current 929 (871) Deferred (59,744) (33,289) 79.5 (58,815) (34,160) 72.2 % of revenue (11.7)% (9.4)% For the year ended December 31, 2017, current tax expense was $0.9 million, compared to a recovery of $0.9 million recorded in The change was due to a recovery that was booked in 2016 related to the Manufacturing division along with increased state taxability in the US division in For the year ended December 31, 2017, deferred tax recovery increased to $59.8 million compared to $33.3 million in the prior year. The increase was largely due to the US tax reform, decreasing the future tax rate by 14.64%, along with reduced taxability in the US and Canadian drilling operations ANNUAL REPORT 23