TRINIDAD DRILLING 2017 THIRD QUARTER REPORT 2017 THIRD QUARTER REPORT

Transcription

1 TRINIDAD DRILLING 2017 THIRD QUARTER REPORT 2017 THIRD QUARTER REPORT

2 TABLE OF CONTENTS 01 Management s Discussion & Analysis 02 Financial Highlights 03 Operating Highlights 07 Industry Statistics 11 Results from Operations 30 Consolidated Financial Statements 34 Notes to the Condensed Consolidated Interim Financial Statements (unaudited)

3 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 three and nine months ended September 30, 2017, is dated November 8, 2017, and takes into consideration information available up to that date. The MD&A is based on the unaudited consolidated interim financial statements of Trinidad for the three and nine months ended September 30, The MD&A should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended December 31, 2016, prepared in accordance with International Financial Reporting Standards (IFRS), and the unaudited consolidated interim financial statements for the three and nine months ended September 30, 2017, prepared in accordance with IFRS applicable to preparation of interim financial statements, including International Accounting Standard (IAS) 34 - Interim Financial Reporting. 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. TRINIDAD DRILLING 2017 Q3 Report 1

4 Financial Highlights Three months ended September 30, Nine months ended September 30, ($ thousands except share and per share data) % Change % Change Revenue 129,810 66, , , Revenue, net of third party costs (1) 121,887 63, , , Operating income (1) 37,061 22, , ,337 (16.7) Operating income percentage (1) 28.6% 34.3% (16.6) 30.1% 48.8% (38.3) Operating income - net percentage (1) 30.4% 35.9% (15.3) 31.9% 50.7% (37.1) Adjusted EBITDA (1) 27,458 17, , ,233 (21.7) Per share (diluted) (2) (35.2) Cash flow provided by operating activities 35,918 (7,757) (363.0) (3,035) 38,293 (107.9) Per share (basic / diluted) (2) (0.13) (0.03) (333.3) (0.01) 0.17 (105.9) Funds flow (1) 7,956 (10,576) ,710 45,022 (58.4) Per share (basic / diluted) (2) 0.03 (0.05) (65.0) Net (loss) (3) (44,408) (35,780) (24.1) (61,927) (40,733) (52.0) Per share (diluted) (2) (3) (0.16) (0.16) - (0.23) (0.18) (27.8) Capital expenditures 52,570 13, ,128 38, Shares outstanding - diluted (weighted average) (2) 271,005, ,501, ,847, ,501, As at September 30, December 31, ($ thousands) % Change Total assets 1,901,210 1,982,076 (4.1) Total long-term liabilities 512, ,602 (22.0) (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 26). (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. 2

5 Operating Highlights Operating days (1) Three months ended September 30, Nine months ended September 30, % Change % Change Canada 2,520 1, ,507 4, United States and International 3,212 1, ,634 3, Rate per operating day (1) Canada (CDN$) 17,961 18,856 (4.7) 20,500 23,696 (13.5) United States and International (CDN$) 23,820 27,975 (14.9) 24,012 39,376 (39.0) United States and International (US$) 18,515 21,557 (14.1) 18,233 29,779 (38.8) Utilization rate - operating day (1) Canada 39% 21% % 21% 61.9 United States and International 52% 21% % 22% Number of drilling rigs at period end (2) Canada (2.8) (2.8) United States and International TDI Joint Venture Operations (3) Operating days (1) ,010 1,425 (29.1) Rate per operating day (CDN$) (1) 65,089 87,127 (25.3) 93,198 71, Rate per operating day (US$) (1) 50,595 67,133 (24.6) 70,440 53, Utilization rate - operating day (1) 43% 37% % 65% (29.2) Number of drilling rigs at period end (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A for further details (beginning on page 26). (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. TRINIDAD DRILLING 2017 Q3 Report 3

6 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; and assumptions made about future performance and operations of joint ventures and partnership arrangements. 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 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. 4

7 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 26) 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 unaudited condensed consolidated interim 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 unaudited condensed consolidated interim 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, Saudi Arabia 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 the third quarter and first nine months of 2017, activity grew strongly over the levels recorded in the previous year, driven by higher commodity prices and increased customer demand. Industry conditions continued to improve through the third quarter and our operating days increased significantly, particularly in our US operations, said Brent Conway, Trinidad s President and Chief Executive Officer. In the third quarter of 2017, operating days in our Canadian and US and international divisions were up 79% and 146%, respectively, from the same period last year. Operating income also increased in the quarter as activity levels grew and there was less impact from rig re-activation and transportation costs. In addition, underlying dayrates in the US continued to improve for the second sequential quarter, as the impact of rigs starting up on new contracts more than offset the impact of rigs rolling off legacy contracts. As part of our strategy to expand our service offering to customers and to share in the benefits of improved industry efficiency, we acquired RigMinder, a global provider of rig technology in the third quarter. This acquisition allows Trinidad to provide its customers with an integrated rig performance solution by integrating drilling software and data collection, along with Trinidad s proprietary control system. We believe our customers will benefit from this combined service offering through improved drilling efficiency, while Trinidad will benefit from an increased product offering and greater revenue generation. TRINIDAD DRILLING 2017 Q3 Report 5

8 Third Quarter and Year-to-Date 2017 Highlights (Compared to corresponding prior-year period unless otherwise noted) Effective August 25, 2017, Trinidad acquired RigMinder Operating LLC (RigMinder). Through this strategic business acquisition, Trinidad acquired significant technology rights that are complementary to its industry-leading drilling fleet and added future revenue generating streams to its customer product offering. Revenue increased in the third quarter and first nine months of 2017, due to higher activity levels in both Canada and the US, partly offset by lower dayrates in the current periods and lower early termination and standby revenue year to date in In Canada, dayrates lowered due to a higher proportion of smaller rigs operating; and in both Canada and the US and international drilling operations, dayrates lowered due to the number of rigs working under spot market pricing. Operating days during the third quarter and first nine months of 2017 increased by 110.9% and 88.5%, respectively, in the Canadian and US and international drilling operations, as industry conditions continued to strengthen due to higher commodity prices and improved customer demand. Operating income increased during the third quarter of 2017, due largely to increased activity levels, partly offset by lower dayrates as more rigs operated in the spot market. Year to date in 2017, operating income lowered due to less early termination and standby revenue received in the current year. As well, higher rig re-activation costs offset the impact of increased activity levels to date in Adjusted EBITDA increased in the third quarter, primarily as a result of the increased operating income, partly offset by higher general and administrative (G&A) expenses. Year to date in 2017, adjusted EBITDA decreased due to lower operating income and higher G&A expenses. G&A expenses increased in the current year due to an increase in salary expenses and professional fees, as well as one-time severance and bad debt expenses incurred in the first quarter of Net (loss) increased in the third quarter and first nine months of 2017 as a result of higher depreciation and amortization expenses, a non-cash valuation adjustment on the Company s non-controlling interests 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 addition, year to date in 2017, net (loss) was positively impacted by a larger gain from investments in joint ventures. To date in 2017, Trinidad has completed a significant portion of its capital program, spending $142.8 million. Included in the total spend is $87.2 million in capital upgrades and enhancements to meet customer demand for high performance rigs, and $31.4 million on the RigMinder acquisition. In the first quarter of 2017, Trinidad 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. This debt refinancing lowered Trinidad s overall indebtedness and reduced interest costs moving forward. 6

9 Industry Statistics Crude oil prices increased in the third quarter and first nine months of 2017 over the same periods last year. WTI crude oil prices averaged US$48.13 per barrel during the third quarter and US$49.37 per barrel year to date in 2017, up 7% and 19%, respectively, from the same periods last year. Compared to the second quarter of 2017, on average crude oil prices were largely in line with the current quarter, although prices increased towards the end of the quarter, closing at US$ Henry Hub natural gas averaged US$2.95 per million British thermal unit (mmbtu) in the third quarter and US$3.01 per mmbtu year to date in 2017, up 2% and 29%, respectively from the same periods last year. In the third quarter, AECO natural gas prices in Canada softened compared to the prior year and the previous quarter, largely as a result of infrastructure limitations. In the US, the active rig count has grown through the first nine months of 2017, reflecting the stronger year-over-year commodity prices. The active rig count in the US averaged 926 active rigs in the third quarter and 854 rigs year to date in 2017, up 93% and 76%, respectively, from the same periods last year. The average active rig count increased by 3% or an additional 31 rigs in the third quarter, compared to the second quarter of While average US industry activity levels were higher in the current quarter, the momentum of growth in the active rig count began to soften during the third quarter. The active rig count exited the third quarter at 918 active rigs, slightly below the exit rate in the second quarter. Activity in Canada in the third quarter of 2017 increased to 28%, up from 17% in the same quarter last year reflecting increased customer demand. Activity also increased compared to the second quarter of 2017, due to typical seasonality Q3 Q2 Q Q4 Q3 Q2 Q Q4 Commodity Prices AECO natural gas price (CDN$ 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 Full Year 2015 US Activity Average industry active land rig count (1) Average Trinidad active land rig count (2) Canadian Activity Average industry utilization (3) 28% 18% 40% 17% 25% 17% 7% 20% 23% 21% Average Trinidad utilization (4) 37% 19% 41% 22% 31% 20% 10% 29% 29% 28% (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). TRINIDAD DRILLING 2017 Q3 Report 7

10 Financial Highlights Quarterly Analysis ($ millions except per share data and operating data) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Revenue Operating income (1) Operating income percentage (1) 28.6% 23.5% 36.6% 30.3% 34.3% 65.3% 43.4% 40.6% Operating income - net percentage (1) 30.4% 24.9% 38.8% 32.3% 35.9% 66.8% 45.4% 42.5% Net (loss) income (2) (44.7) (6.0) (12.1) (12.1) (36.1) (16.6) 11.1 (141.3) Adjustments for: Depreciation and amortization Foreign exchange (0.7) (0.3) 0.1 (2.4) (2.3) (Gain) loss on sale of assets (0.3) (1.7) 0.1 (0.7) (8.6) (0.7) (1.2) 0.5 Impairment of property and equipment Loss (gain) from investments in joint ventures 17.2 (28.3) (8.5) (19.7) (21.4) 6.2 Finance and transaction costs Non-controlling interests fair value adjustment (3.5) (5.9) Income taxes (16.0) (14.8) (12.8) (9.9) (10.3) (3.5) (10.4) (66.7) Other expense (0.8) Income taxes paid (0.5) (0.7) (0.3) (0.1) (0.2) (0.9) (0.9) (5.8) Income taxes recovered Interest paid (17.0) (0.6) (29.4) (0.7) (24.0) (1.5) (24.4) (2.2) Funds flow (1) (10.6) Per share (diluted) (3) (0.05) Adjusted EBITDA (1) Per share (diluted) (3) Net (loss) income attributable to Trinidad (44.4) (5.6) (11.9) (11.8) (35.8) (16.3) 11.3 (141.5) Per share (diluted) (3)(4) (0.16) (0.02) (0.05) (0.05) (0.16) (0.07) 0.05 (0.64) (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. (2) Net (loss) income used in the consolidated statement of cash flows is total net (loss) income before adjustments for non-controlling interests amounts. (3) 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. (4) Net (loss) income per share is calculated as net (loss) income attributable to shareholders of Trinidad divided by the weighted average number of common shares outstanding. Both are adjusted for dilutive factors. 8

11 Operating Highlights Quarterly Analysis Operating days (1) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Canada 2,520 1,099 2,888 2,067 1, ,001 2,471 United States and International 3,212 2,957 2,465 1,761 1, ,733 2,378 Rate per operating day (1) Canada (CDN$) 17,961 19,842 22,965 20,118 18,856 31,138 24,635 24,079 United States and International (CDN$) 23,820 24,589 23,570 25,472 27,975 76,220 28,529 28,171 United States and International (US$) 18,515 18,249 17,847 19,191 21,557 59,070 20,438 21,209 Utilization rate - operating day (1) Canada 39% 21% 45% 31% 21% 10% 31% 31% United States and International 52% 48% 41% 29% 21% 15% 29% 36% Number of drilling rigs at period end (2) Canada United States and International TDI Joint Venture Operations (3) Operating days (1) Rate per operating day (CDN$) (1) 65,089 68, ,143 86,951 87,127 72,773 64,894 60,619 Rate per operating day (US$) (1) 50,595 50, ,057 65,529 67,133 55,962 46,676 45,898 Utilization rate - operating day (1) 43% 47% 49% 39% 37% 63% 95% 97% Number of drilling rigs at period end (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. (2) Refer to the Results from Operations section for details on changes to the rig count. (3) Trinidad is party to a joint venture with a wholly-owned subsidiary of Halliburton (TDI). These rigs are owned by the joint venture. TRINIDAD DRILLING 2017 Q3 Report 9

12 An assessment or comparison of Trinidad s quarterly results, at any given time, requires consideration of crude oil and natural gas commodity prices, geographic location 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 Analysis In 2015, Trinidad s Canadian and US operations were negatively impacted by weakened commodity prices and the resulting reduction in spending by oil and gas exploration and production companies. These soft market conditions led to lower activity levels and utilization in Canada and the US, and downward pressure on dayrates and profitability. In response, Trinidad s management instituted a number of cost containment initiatives that, combined with early termination and standby revenue received, helped to maintain operating margins. Trinidad s manufacturing division completed work on a training rig for Halliburton, the Company s joint venture partner, and delivered the remaining two rigs to the joint venture in Mexico. In the third quarter of 2015, Trinidad completed an acquisition, which included 28 rigs in Canada, 21 rigs in the United States and four joint venture rigs in Mexico (two drilling and two service rigs). Profitability was impacted by an impairment reserve recorded on the Company s barge assets and goodwill in the third quarter of 2015 and impairments recorded on Trinidad s property and equipment during the third and fourth quarters of Analysis In the first half of 2016, Trinidad s Canadian and US and international operations continued to be negatively impacted by weak commodity prices causing downward pressure on dayrates and decreased activity. In the first two quarters of 2016, the Company was able to maintain a strong operating income - net percentage as a result of early termination and standby revenue recorded during the year, as well as cost cutting initiatives and lower manufacturing activity. In the third quarter of 2016, improving commodity prices drove increased activity levels; however, ongoing competition caused downward pressure on dayrates and negatively impacted profitability. In the fourth quarter of 2016, Trinidad continued to record improved activity in each of the Canadian and US drilling divisions compared to prior periods in Profitability was negatively impacted in the fourth quarter of 2016 due to lower early termination and standby revenue, as well as continued competition affecting dayrates. In addition, Adjusted EBITDA from Trinidad s TDI joint venture increased in 2016, positively impacting results Analysis In the first nine months of 2017, Trinidad s Canadian and US and international operations continued to record improved activity levels associated with stabilized commodity prices and increased customer demand. Higher activity levels were partially offset by lower dayrates. The reduction in dayrates was a result of ongoing competition in the sector and pressure on spot market pricing, combined with changes in Trinidad s rig mix. Trinidad has been impacted by increased operating costs associated with seasonal repairs and maintenance in Canada, one-time costs related to rig re-activations in the US and one-time G&A costs. In addition, during the first nine months of 2017, Trinidad has spent $111.1 million on capital expenditures focused primarily on upgrades to meet increasing customer demand for high performance rigs and $31.4 million on the acquisition of RigMinder. 10

13 RESULTS FROM OPERATIONS Canadian Operations Three months ended September 30, Nine months ended September 30, ($ thousands except percentage and operating data) % Change % Change Operating revenue (1) 45,253 26, ,387 97, Other revenue (15.7) ,366 26, ,311 98, Operating costs (1) 30,670 18, ,247 56, Operating income (2) 14,696 7, ,064 41, Operating income - net percentage (2) 32.4% 29.6% 36.5% 42.6% Operating days (2) 2,520 1, ,507 4, Drilling days (2) 2,350 1, ,036 3, Rate per operating day (CDN$) (2) 17,961 18,856 (4.7) 20,500 23,696 (13.5) Utilization rate - operating day (2) 39% 21% % 21% 61.9 Utilization rate - drilling day (2) 37% 20% % 19% 63.2 CAODC industry average (3) 28% 17% % 15% 93.3 Number of drilling rigs at period end (2.8) (2.8) (1) Operating revenue and operating costs for the three months ended September 30, 2017 and 2016 exclude third party recovery and third party costs of $4.2 million and $2.5 million, respectively. Operating revenue and operating costs for the nine months ended September 30, 2017 and 2016 exclude third party recovery and third party costs of $12.3 million and $7.6 million, respectively. (2) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section (beginning on page 26) of this MD&A for further details. (3) CAODC industry average is based on drilling days divided by total days available. Improving industry conditions in Canada and higher commodity prices drove increased activity levels in both the three and nine months ended September 30, 2017, compared to the same periods last year. The impact of higher operating days and utilization was partially offset by a change in the active rig mix which caused a decline in dayrates in For the three and nine months ended September 30, 2017, Trinidad recorded operating revenue of $45.3 million and $133.4 million, respectively, an increase of 70.1% and 36.2%, respectively, compared to the three and nine months ended September 30, Operating revenue increased in the current periods as a result of significantly higher operating days and additional early termination and standby revenue, partly offset by lower dayrates. Dayrates for the three and nine months ended September 30, 2017, decreased by $895 per day and $3,196 per day, respectively, 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 rigs under long-term contracts in 2016, combined with changes in active rig mix. Long-term contract pricing was generally set during stronger industry conditions and typically had higher dayrates than spot market pricing. In addition, dayrates were impacted during 2017 by one rig with a high dayrate that moved to a standby rate in the first quarter of The impact of lower dayrates from operations was partly offset by higher early termination and standby revenue in 2017 due to contracted rigs not working the contracted number of days. For the three and nine months ended September 30, 2017, Trinidad received early termination and standby revenue of $4.6 million and $18.1 million, respectively, compared to $0.2 million and $9.7 million, respectively, in the prior year. The early termination and standby revenue recognized in 2017 primarily related to lump sum amounts for shortfall days collected on three rigs in the third quarter, and eight rigs year to date in The early termination and standby revenue recognized in 2016 mainly related to lump sum amounts collected for one rig in the third quarter of 2016, and five rigs year to date in Excluding early termination and standby revenue, dayrates for the three and nine months ended September 30, 2017 were $16,141 per day and $17,724 per day, a decline of $2,569 per day and $3,593 per day, respectively, compared to the adjusted 2016 dayrates. TRINIDAD DRILLING 2017 Q3 Report 11

14 For the three and nine months ended September 30, 2017, operating income increased by 85.5% and 17.0%, respectively, compared to the same periods last year, as a result of increased activity, ongoing cost controls and the impact of 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 periods. For the three months ended September 30, 2017, operating income - net percentage was 32.4%, compared to 29.6% in the prior year. Operating income - net percentage increased in the current quarter largely as a result of higher early termination and standby revenue. Excluding the impact of early termination and standby revenue, operating income - net percentage in the third quarter was 24.8% compared to 29.1% in the same period last year. On a year-to-date basis, operating income - net percentage decreased to 36.5% compared to 42.6% in the prior year. Excluding the impact of early termination and standby revenue, operating income - net percentage for the nine months ended September 30, 2017 was 26.7% compared to 36.3% in the same period last year. In 2017, operating costs grew largely 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 operating income - net percentage. Trinidad s Canadian rig count totaled 70 rigs at September 30, 2017, compared to 72 rigs at September 30, During the first nine months of 2017, the Company transferred two rigs to its US and international division. Third Quarter of 2017 versus Second Quarter of 2017 Operating revenue and operating income increased by $23.4 million and $10.6 million, respectively, in the third quarter of 2017 compared to the second quarter of 2017 largely due to seasonality. As a result of rigs returning to work in the third quarter, Trinidad recorded 1,421 more operating days in the third quarter of 2017 compared to the second quarter of 2017, thereby increasing revenue. In addition, higher early termination and standby revenue in the current quarter and the ability to spread fixed operating costs over a larger revenue base led to an increase in operating income in the current quarter. Trinidad received $4.6 million in early termination and standby revenue in the third quarter of 2017 compared to $2.1 million in the second quarter. Dayrates were $1,881 per day lower in the current quarter as result of a change in the active rig mix, offsetting the increased early termination and standby revenues. Operating income - net percentage increased to 32.4% in the third quarter of 2017 compared to 18.5% in the second quarter of 2017, due to higher early termination and standby revenue in the current period, partly offset by lower contracted dayrates. 12

15 United States and International Operations Three months ended September 30, Nine months ended September 30, ($ thousands except percentage and operating data) % Change % Change Operating revenue (1) 76,512 36, , , Other revenue 9 55 (83.6) (86.5) 76,521 36, , , Operating costs (1) 54,219 21, ,321 66, Operating income (2) 22,302 14, ,031 89,631 (33.0) Operating income - net percentage (2) 29.1% 40.5% 29.0% 57.5% Operating days (2) 3,212 1, ,634 3, Drilling days (2) 2,807 1, ,593 3, Rate per operating day (CDN$) (2) 23,820 27,975 (14.9) 24,012 39,376 (39.0) Rate per operating day (US$) (2) 18,515 21,557 (14.1) 18,233 29,779 (38.8) Utilization rate - operating day (2) 52% 21% % 22% Utilization rate - drilling day (2) 45% 19% % 19% Number of drilling rigs at period end (1) Operating revenue and operating costs for the three months ended September 30, 2017 and 2016 exclude third party recovery and third party costs of $3.6 million and $0.9 million, respectively. Operating revenue and operating costs for the nine months ended September 30, 2017 and 2016 exclude third party recovery and third party costs of $9.4 million and $3.2 million, respectively. (2) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section (beginning on page 26) of this MD&A for further details. For the three and nine months ended September 30, 2017, Trinidad recorded operating revenue of $76.5 million and $207.3 million, an increase of 109.2% and 33.1%, respectively, compared to Operating revenue increased in the current periods due to higher activity compared to 2016, partially offset by less early termination and standby revenue, lower dayrates and a lower US to CDN foreign currency impact in During the three and nine months ended September 30, 2017, Trinidad recorded 3,212 operating days and 8,634 operating days, respectively, up 1,905 days and 4,679 days from Improving commodity prices and growing customer demand drove increased activity levels in the current year. In the first nine months of 2017, Trinidad re-activated 14 rigs in its US and international division, primarily in the Permian Basin. Trinidad recorded lower average dayrates in the three and nine months ended September 30, 2017, than in the comparable periods of 2016 primarily due to a decrease in early termination and standby revenue recorded. In the three and nine months ended September 30, 2017, Trinidad recorded early termination and standby revenue of US$0.6 million and US$2.1 million, respectively, compared to early termination and standby revenue of US$2.7 million and US$41.1 million, respectively, in Early termination and standby revenue in the first nine months of 2017 mainly related to two rigs, compared to six rigs in Adjusted for the impact of early termination and standby revenue, dayrates averaged US$18,344 per day in the third quarter of 2017 and US$17,992 per day in the first nine months of 2017, a decrease of US$1,177 per day and US$1,401 per day, respectively, from the adjusted dayrates in Adjusted dayrates lowered during the three and nine months ended September 30, 2017, compared to 2016, as a result of an increased number of rigs operating in the spot market in the current periods compared to legacy contracts in the prior year. Operating income increased by $7.5 million for the three months ended September 30, 2017 mainly due to increased activity, partly offset by lower early termination and standby revenue combined with competitive pricing pressure on dayrates. Operating income decreased by $29.6 million in the nine months ended September 30, 2017, compared to 2016, mainly due to decreased early termination and standby revenue combined with rig re-activation and transportation costs in the current year, partly offset by increased activity in In the first half of 2017, Trinidad had unusually large rig re-activation costs TRINIDAD DRILLING 2017 Q3 Report 13

16 of approximately $5.7 million related to readying rigs to go back to work and related transportation costs. In the third quarter these costs returned to more normalized levels, with the exception of higher transportation costs mainly related to moving two rigs of approximately $1.4 million. For the three and nine months ended September 30, 2017, Trinidad recorded operating income - net percentage of 29.1% and 29.0%, respectively, compared to 40.5% and 57.5%, respectively in Operating income - net percentage decreased mainly as a result of lower dayrates, due to less early termination and standby revenue received and continued pricing pressure, as well as, rig re-activation and transportation costs in After adjusting for early termination and standby revenue, Trinidad recorded operating income - net percentage of 28.5% in the third quarter of 2017 and 28.0% during the first nine months of 2017, compared to 34.3% and 35.4%, respectively, in The decrease in operating income - net percentage in 2017 was primarily due to declines in the average dayrate in the current year. Trinidad s US and international rig count totaled 69 rigs at September 30, 2017 compared to 67 at September 30, 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. Third Quarter of 2017 versus Second Quarter of 2017 Operating revenue and operating income increased by $3.8 million and $2.8 million, respectively, in the third quarter of 2017, compared to the second quarter of Operating revenue and operating income increased due to 255 more operating days and higher dayrates in the current period. Dayrates in the third quarter increased from the second quarter by US$266 per day reflecting rigs returning to work at higher dayrates. Operating income - net percentage increased to 29.1% in the third quarter of 2017 compared to 26.9% in the second quarter of Operating income - net percentage increased in the current quarter as a result of higher dayrates and lower costs associated with rig re-activations in the current period. 14

17 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 (loss) gain from joint ventures. Three months ended September 30, Nine months ended September 30, ($ thousands except percentage and operating data) % Change % Change Operating revenue 21,241 25,467 (16.6) 96, ,243 (9.0) Other revenue ,303 25,467 (16.4) 96, ,243 (9.0) Operating costs 13,385 12, ,421 57,632 (29.9) Operating income (1) 7,918 12,795 (38.1) 56,298 48, Operating income - net percentage (1) 37.2% 50.2% 58.2% 45.8% Operating days (1) ,010 1,425 (29.1) Rate per operating day (CDN$) (1) 65,089 87,127 (25.3) 93,198 71, Rate per operating day (US$) (1) 50,595 67,133 (24.6) 70,440 53, Utilization rate - operating day (1) 43% 37% % 65% (29.2) Number of drilling rigs at period end (1) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. For the three and nine months ended September 30, 2017, TDI recorded operating revenue of $21.2 million and $96.7 million, respectively, a decrease of 16.6% and 9.0%, respectively, from the same periods in Operating revenue decreased during the three months ended September 30, 2017 due to lower activity and dayrates in the Saudi Arabian division, offset with higher activity in the Mexican division. For the nine month period, revenue decreased due to lower activity in both the Saudi Arabian and Mexican divisions, in addition to lower dayrates in Saudi Arabia, offset by increased early termination and standby revenues in Mexico. During the three months ended September 30, 2017, TDI recorded utilization of 43%, compared to 37% in Utilization increased in the current period as one rig worked in Mexico and three rigs worked in Saudi Arabia compared to a total of three rigs actively working in the third quarter of Utilization in the nine months ended September 30, 2017, decreased compared to the comparable period in 2016 as a result of less activity in the Mexican division. For the three months ended September 30, 2017, dayrates decreased by US$16,538 per day compared to 2016 as a result of a decrease in dayrates in Saudi Arabia, combined with lower early termination and standby revenue in Dayrates for the first nine months of 2017 averaged US$70,440 per day, an increase of US$16,831 per day compared to 2016, due to early termination and standby revenue of US$26.1 million recognized during 2017 compared to US$8.3 million in the comparable period of As this revenue is recorded with no operating days, it increases operating income - net percentage and dayrates. Early termination and standby revenue recorded in the first nine months of 2017 related to three contracts, one of which had an expiry date prior to December 31, 2017 and the other two with expiry dates prior to March 31, The impact of higher early termination and standby revenue was partially offset by a decline in the average day rate in the Saudi Arabian division. Operating income and operating income - net percentage decreased for the three months ended September 30, 2017 compared to 2016 due to lower dayrates. Operating income and operating income - net percentage increased in the nine months ended September 30, 2017 as a result of higher early termination and standby revenue received in TRINIDAD DRILLING 2017 Q3 Report 15

18 Third Quarter of 2017 versus Second Quarter of 2017 TDI recorded a decrease of $2.7 million in operating revenue and a decrease of $2.2 million in operating income during the third quarter compared to the second quarter of This decrease was attributable to lower activity in the Mexican division and lower dayrates in the Saudi Arabian division. As well, TDI was negatively impacted by foreign exchange fluctuations during the current quarter. Operating days for the third quarter were consistent with operating days during the second quarter of Manufacturing Operations In the fourth quarter of 2015, due to lower demand for new and upgraded equipment, Trinidad chose to restructure its manufacturing operations, resizing its cost base to better reflect lower activity levels. As of June 30, 2016, the restructuring of the manufacturing division was complete; as such, no revenue or operating costs were recorded in For the nine months ended September 30, 2016, Trinidad recognized revenue of $2.9 million and operating expenses of $4.0 million, which related to one upgrade project and various repairs and maintenance type work performed on the TDI joint venture rigs in Mexico and Saudi Arabia. General and Administrative Three months ended September 30, Nine months ended September 30, ($ thousands except percentage) % Change % Change General and administrative (1) 12,834 10, ,429 35, % of revenue 9.9% 15.9% 12.2% 13.3% Share-based payment expense 1, ,544 5,016 (49.3) Third party recoverable costs (70.1) (63.0) Total general and administrative 13,920 11, ,303 41, % of revenue 10.7% 16.6% 13.0% 15.5% (1) General and administrative expenses excluding share-based payment expense and third party recoverable costs. This number is defined as Other G&A. For the three and nine months ended September 30, 2017, total G&A expenses were $13.9 million and $47.3 million, respectively, an increase of 25.3% and an increase of 13.3%, respectively, when compared to the same periods in the prior year. For the three months ended September 30, 2017, Trinidad recorded higher G&A costs compared to the same period in 2016 mainly due to an increase in salary expenses and higher professional fees in the current year. Salary expenses increased in the current quarter due to increased activity as well as the RigMinder acquisition. For the nine months ended September 30, 2017, Trinidad recorded higher G&A costs compared to the prior year mainly due to an increase in salary expenses, as well as $7.1 million of one-time severance and bad debt expenses in the first quarter of The bad debt expense related to the Company s barge division. For the three months ended September 30, 2017, share-based payment expense increased when compared to the same period in 2016 mainly due to an improvement in the performance metrics related to the performance share units (PSUs) in This was offset with a decrease in the share price in A reduction in the share price reduces the liability associated with the Company s PSUs, deferred share units (DSUs) and restricted share units (RSUs) with an offsetting credit to the expense. For the nine months ended September 30, 2017, share-based payment expense decreased compared to the same period in 2016 due primarily to a decrease in the share price and number of units outstanding for each of the PSUs and DSUs. This decrease was partially offset by an increase in the fair value of the PSUs due to an increase in the performance metrics (as noted above) and an increase in the number of RSUs outstanding in

19 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 three and nine months ended September 30, 2017, G&A as a percentage of revenue decreased compared to the same period in 2016, due primarily to an increase in revenue generation. Depreciation, Amortization and Sale of Assets Three months ended September 30, Nine months ended September 30, ($ thousands) % Change % Change Depreciation 52,571 42, , , Amortization , (Gain) on sale of assets (309) (8,647) (96.4) (1,948) (10,575) (81.6) Depreciation expense for the three and nine months ended September 30, 2017 increased to $52.6 million and $142.2 million, respectively, compared to $42.1 million and $127.4 million, respectively, in the comparative periods for Depreciation expense increased primarily due to a change in the useful life estimates effective from July 1, 2017, as well as capital asset additions from rig upgrade projects and maintenance capital throughout 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. Amortization expense relates to the Company s intangible assets. For the three and nine months ended September 30, 2017, amortization expense increased compared to the same period in 2016, mainly due to the increase in intangible assets acquired through the RigMinder acquisition, as well as the addition of a licensing agreement during the second quarter of For the three and nine months ended September 30, 2017, Trinidad recognized a gain on sale of assets of $0.3 million and $1.9 million, respectively, mainly due to the disposition of non-core assets. The gain on sale of assets recorded in each of the three and nine months ended September 30, 2016 was due to the disposition of non-core assets and duplicate properties acquired as part of a previous business combination. Foreign Exchange Three months ended September 30, Nine months ended September 30, ($ thousands except percentage) % Change % Change Foreign exchange loss (gain) 3,452 (340) 1, ,062 (2,676) % of revenue 2.7% (0.5%) 2.8% (1.0%) 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 three and nine months ended September 30, 2017, Trinidad recorded a foreign exchange loss of $3.5 million and $10.1 million, respectively, compared to a gain of $0.3 million and $2.7 million, respectively, in the comparative periods for Fluctuations in the US and Canadian dollar during the three and nine months ended September 30, 2017 resulted in an increase in foreign exchange loss compared to 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). TRINIDAD DRILLING 2017 Q3 Report 17

20 Impairment For each of the three and nine months ended September 30, 2017 and 2016, Trinidad did not identify any impairment indicators. As such, no impairment loss was recorded on either property and equipment or intangible assets and goodwill in either period. Finance and Transaction Costs Three months ended September 30, Nine months ended September 30, ($ thousands except percentage) % Change % Change Interest on long-term debt 8,383 11,645 (28.0) 28,896 37,670 (23.3) Accretion of 2019 Senior Notes (100.0) (88.3) Amortization of deferred financing costs ,734 1, Finance costs related to long-term debt 9,018 12,380 (27.2) 30,683 39,779 (22.9) Transaction costs , Finance and transaction costs 9,709 12,380 (21.6) 32,736 39,779 (17.7) % of revenue 7.5% 18.5% 9.0% 14.8% For the three and nine months ended September 30, 2017, finance and transaction costs were $9.7 million and $32.7 million, respectively, a decrease of 21.6% and 17.7%, respectively, when compared to the same periods in Finance and transaction costs decreased primarily due to a reduction in the principal amount of long-term debt outstanding combined with a lower interest rate on long-term debt during 2017 compared to In the first quarter of 2017, Trinidad redeemed the 2019 Senior Notes and issued the 2025 Senior Notes. The 2025 Senior Notes were issued at an aggregate principal amount of US$350 million and a interest rate of 6.625%, compared to the 2019 Senior Notes with an aggregate principal amount of US$450 million and an interest rate of 7.875%. The reduction in the total principal amount outstanding and the reduction in the interest rate resulted in a decrease in interest on long-term debt for the three and nine months ended September 30, 2017, respectively, when compared to In addition there was a slight decrease in interest expense related to the revolving credit facilities for the three and nine months ended September 30, 2017, when compared to For the three months ended September 30,2017, Trinidad recorded transaction costs of $0.7 million related to the RigMinder acquisition. For the nine months ended September 30, 2017 transaction costs of $2.1 million related to the early redemption of the 2019 Senior Notes during the first quarter of 2017 and the RigMinder acquisition. Refer to the Liquidity and Capital Resources section for further details on the debt refinancing agreement and amendments made to the credit facility. Income Taxes Three months ended September 30, Nine months ended September 30, ($ thousands except percentage) % Change % Change Current 173 (973) Deferred (16,220) (9,369) 73.1 (43,917) (24,432) 79.8 (16,047) (10,342) 55.2 (43,690) (24,249) 80.2 % of revenue (12.4%) (15.4%) (12.0%) (9.0%) 18

21 For the three and nine months ended September 30, 2017, current tax expense increased by 117.8% and 24.0%, respectively, compared to the same periods last year. The increase was mainly due to a tax refund recorded in 2016 related to a prior acquisition, which decreased the expense in the prior year. Additionally, Trinidad recorded lower current tax expense in the US and international operations in 2017 due to reduced state taxes associated with the US operations. For the three and nine months ended September 30, 2017, the deferred tax recovery increased by 73.1% and 79.8%, respectively, compared to the same periods last year. The increase in deferred tax recovery is largely due to reduced taxability in the US and Canadian drilling operations. Net (Loss) and Cash Flows Three months ended September 30, Nine months ended September 30, ($ thousands except per share data) % Change % Change Net (loss) (1) (44,408) (35,780) (24.1) (61,927) (40,733) (52.0) Per share (diluted) (1) (0.16) (0.16) - (0.23) (0.18) (27.8) Cash flow (used in) provided by operating activities (35,917) (7,757) (363.0) (3,034) 38,293 (107.9) Per share (diluted) (0.13) (0.03) (333.3) (0.01) 0.17 (105.9) Funds flow (2) 7,956 (10,576) ,710 45,022 (58.4) Per share (diluted) 0.03 (0.05) (65.0) (1) 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. (2) See Non-GAAP Measures Definitions and Additional GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. For the three months ended September 30, 2017, net loss was $44.4 million compared to a net loss of $35.8 million in the third quarter of Although Trinidad had higher operating income in the current quarter, overall net loss increased due to higher depreciation and amortization expense as a result of a change in useful life estimates and additions to intangible assets acquired as part of the RigMinder acquisition, increased G&A expenses mainly due to higher salary and professional fees, fluctuations in foreign exchange and the fair value of the non-controlling interests. These losses were offset by lower finance and transaction costs and a larger tax recoverable position in the current year. For the nine months ended September 30, 2017, net loss was $61.9 million compared to a net loss of $40.7 million in Net loss increased on a year-to-date basis mainly due to the same factors discussed above in the current quarter; offset additionally by an increase of $26.4 million in non-cash fair value gain from investments in joint ventures during the first nine months of 2017 compared to For the nine months ended September 30, 2017, cash flow used in operating activities decreased by $41.3 million compared to the same period in 2016 mainly due to a $26.3 million reduction in funds flow combined with a $15.0 million decrease in non-cash working capital. Funds flow decreased primarily as a result of the increase in net loss. Non-cash operating working capital fluctuations are due to increased accounts receivable consistent with increased activity levels and the reduction in interest payable associated with the redemption of the 2019 Senior Notes during the first quarter of 2017, partially offset by increased trade payables associated with increased activity levels and contingent payments associated with the RigMinder acquisition. Further details on changes discussed above are outlined in previous sections of the MD&A. TRINIDAD DRILLING 2017 Q3 Report 19

22 Liquidity and Capital Resources As at September 30, December 31, ($ thousands) $ Change Working capital (1) 15,540 48,121 (32,581) Limited partnership loan - 1,959 (1,959) Senior Notes 437, ,758 (165,013) Credit facility 51,232-51, , ,717 (115,740) Less: unamortized debt issue costs (11,366) (1,701) (9,665) Total long-term debt 477, ,016 (125,405) Total long-term debt as a percentage of assets 25.1% 30.4% Total assets 1,901,210 1,982,076 (80,866) Total long-term liabilities 512, ,602 (144,787) Total long-term liabilities as a percentage of assets 27.0% 33.2% Nine months ended September 30, $ Change Cash flow (used in) provided by operating activities (3,035) 38,293 (41,328) Cash flow (used in) provided by investing activities (70,139) 19,817 (89,956) Cash flow provided by (used in) financing activities 51,786 (91,665) 143,451 (1) See Non-GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. For the nine months ended September 30, 2017, working capital decreased by $32.6 million when compared to December 31, 2016, due to a $27.5 million increase in current liabilities and a $5.1 million decrease in current assets. Current liabilities increased in the period mainly due to an increase in accounts payable and accrued liabilities. Included in accounts payable and accrued liabilities at September 30, 2017 was $12.3 million related to the current portion of the contingent consideration associated with the RigMinder acquisition. As well, accounts payable increased as a result of higher trade and accrued liabilities associated with increased capital expenditures and higher activity levels in Canada and the US and international divisions, partially offset by lower interest payable. During the first quarter of 2017, the Company redeemed its US$450 million 2019 Senior Notes and issued US$350 million 2025 Senior Notes at a lower interest rate, reducing the aggregate principal amount outstanding of the Senior Notes and the interest payable due. The strengthening of the Canadian dollar and a reduction in the interest rate associated with the 2025 Senior Notes compared to the 2019 Senior Notes has further reduced interest payable. Current assets decreased in the period ended September 30, 2017 due to a decrease in cash and cash equivalents, partially offset by an increase in accounts receivable of $20.8 million. The decrease in cash and cash equivalents was primarily due to the cash used by investing activities related to capital upgrades and the RigMinder acquisition, partially offset by the private placement of shares in the first quarter of The increase in accounts receivable was primarily due to higher activity levels in Trinidad s total long-term debt balance at September 30, 2017 decreased by $125.4 million compared to December 31, This decrease was largely due to the redemption of the 2019 Senior Notes, followed by the issuance of the 2025 Senior Notes at a lower principal balance (as discussed above) as well as the strengthening of the Canadian dollar compared to the US dollar at September 30, 2017 versus December 31, As these notes are held in US funds, the Senior Notes are translated at each period end, and as such, their aggregate value fluctuates with the US to Canadian exchange rates. 20

23 Trinidad has designated the Senior Notes as a net investment hedge of the US and international operations. As a result, unrealized gains and losses on the US dollar Senior Notes are offset against foreign exchange gains and losses arising from the translation of the foreign subsidiaries and included in the cumulative translation account in other comprehensive (loss). Credit Facility and Debt Covenants On January 27, 2017, Trinidad amended its previously existing credit facility, dated June 24, 2016, to allow for flexibility in the redemption of the 2019 Senior Notes and subsequent issuance of the 2025 Senior Notes. The new amended credit facility includes a Canadian revolving facility of $100.0 million and a US revolving facility of $100.0 million. Included in the facility are a $10.0 million Canadian dollar bank overdraft and a $10.0 million US dollar bank overdraft. The facility requires quarterly interest payments based on Bankers Acceptance and LIBOR rates. The facility matures on December 12, 2018, and is subject to annual extensions of an additional year on each anniversary date upon consent of the lenders holding two-thirds of the aggregate commitments under the credit facility. The members of the syndicated groups include major Canadian, US and international financial institutions. The debt is secured by a general guarantee over the assets of Trinidad and its subsidiaries. At September 30, 2017, the following financial covenants were in place: Senior Debt to Bank EBITDA (1) (2) Max of 2.5x Bank EBITDA to Cash Interest Expense (1) Min of 1.5x (1) See Non-GAAP Measures Definitions section of this MD&A (beginning on page 26) for further details. (2) On April 1, 2018, the Bank EBITDA to Cash Interest Expense covenant increases to a minimum of 2.5 times. At September 30, 2017, Senior Debt to Bank EBITDA was 0.47 times and Bank EBITDA to Cash Interest Expense was 2.83 times. Trinidad was in compliance with all covenants at September 30, Other covenants in effect include, but are not limited to, the following: incurring additional debt and liens on assets; investments, including advances to the TDI joint venture; asset sales; and making restricted payments. The new amended credit facility also includes a dividend restriction whereby no dividends may be paid from April 1, 2016 to March 31, At September 30, 2017, Trinidad is in compliance with all covenants related to the credit facility Senior Notes The 2025 Senior Notes are unsecured and have no financial covenant compliance reporting requirements. There are other covenant limitations, including the following: incurring additional debt; investments; asset sales; and restricted payments. Restricted payments are allowed within a basket, calculated as the accumulated net earnings from January 1, 2017 to the current period at 50.0% of net income or 100.0% of net loss, plus equity issued for cash and the net fair market value of other restricted assets added for equity. At September 30, 2017, Trinidad has a significant positive restricted payment basket available. Future contributions to the TDI joint venture are limited in a separate permitted business investment basket not to exceed the greater of US$300.0 million and 20% of consolidated tangible assets. Readers are cautioned that the ratios noted above do not have standardized meanings under IFRS. Capital Resources Trinidad s objectives when managing capital include safeguarding the Company s ability to continue to provide returns for shareholders; as well as applying capital efficiencies to achieve financial objectives while focusing on operating within generated cash flows if possible. 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 repurchase or issue new shares, sell assets, reduce indebtedness or take on additional debt. TRINIDAD DRILLING 2017 Q3 Report 21

24 Capital Expenditures In 2017, Trinidad expects to spend approximately $175 million in capital expenditures. Nine months ended September 30, ($ thousands) Capital upgrades and enhancements 87,240 19,438 Maintenance and infrastructure 23,888 5,710 Capital spares inventory - 13,197 Total capital expenditures for Trinidad 111,128 38,345 TDI joint venture capital expenditures (Trinidad's 60% share) 278 5,713 RigMinder acquisition (net) 31,396 - Total capital expenditures including TDI joint venture and acquisitions 142,802 44,058 During the first nine months of 2017, Trinidad spent $111.1 million on capital expenditures, compared to $38.3 million in The increase in expenditures related primarily to capital upgrades due to increased customer demand for high performance rigs and additional maintenance and infrastructure projects. At September 30, 2017, Trinidad had completed a significant portion of its planned upgrades. In addition, the Company spent $0.3 million related to its portion of capital spending for the TDI joint venture, compared to $5.7 million in Lastly, on August 25, 2017, Trinidad acquired RigMinder for cash proceeds (excluding shares and contingent consideration) of $31.4 million. Outlook Activity levels in the fourth quarter of 2017 remain well ahead of the same time last year and are up marginally from the third quarter. In both Canada and the US, activity has flattened out as customers complete capital spending plans for 2017 and wait to begin 2018 development plans. Dayrates in both countries remain stable and Trinidad expects activity levels to increase going into the first quarter of In Canada, activity continues to be focused in the Montney, Duvernay and Deep Basin. Trinidad currently has 32 rigs or 46% of its Canadian fleet running, compared to an average utilization of 33% for the industry. In the US, the industry active rig count has lowered in recent weeks and is currently at 880 active rigs, down from a high of 958 active rigs in the third quarter of Trinidad currently has 37 rigs or 54% of its US fleet operating. As the remainder of the Company s upgraded rigs are completed and additional rigs are put to work in the coming months, Trinidad expects to have approximately 40 rigs operating by the end of 2017, down from initial expectations of 45 rigs due to a reduction in the upgrade program and an earlier-than-expected completion of customer budgets. To date in 2017, Trinidad has incurred incremental costs as it has relocated and re-activated rigs, driving higher operating costs and lower operating margins. The Company expects that the impact of these types of costs will normalize and that operating margins will not be significantly impacted in the coming quarters. In the TDI joint venture, three rigs in Saudi Arabia are working on a well-to-well basis and one rig is operating in Mexico. The contract on the Mexico rig is due to expire during the fourth quarter of Trinidad has bid its international and joint venture rigs for several upcoming projects in the Middle East, and expects to be able to provide further clarification on the planned activity levels and future locations of these rigs in the coming months. Currently, Trinidad has 33 rigs, or 22% of its fleet under long-term contracts, with an average term remaining of 1.0 year; six contracts have expiration dates during the remainder of

25 The integration of RigMinder is progressing well. Trinidad has begun to implement RigMinder electronic data recorder units on its rigs and has another 20 units currently under construction, with encouraging customer interest for these units. Customers in Canada and US have also shown interest in Criterion, RigMinder s drill bit guidance software, and Trinidad expects to expand the current customer base using this product in the coming months. Trinidad remains focused on cost control and maintaining efficiencies gained during the downturn. However, given higher than expected professional fees and increased salary costs associated with higher activity levels and the RigMinder acquisition, Trinidad expects that G&A expenses will total approximately $58 million for the full year in 2017, up slightly from previous guidance of $56 million. Trinidad has made good progress on its capital upgrade program to date in 2017, with the majority of its upgrades complete and the rigs now working. Final upgrades are expected to be complete in the fourth quarter, positioning Trinidad with a modern, competitive fleet. Including the acquisition of RigMinder, Trinidad expects its full year 2017 capital program to total approximately $175 million. Debt levels increased during the third quarter due to the RigMinder acquisition and capital spent on the 2017 upgrade program. The Company has not yet set its capital budget for 2018; however, it remains committed to maintaining conservative leverage and expects to manage its business within cash flow generated from its operations next year. In order to make exploration and development economic under a lower commodity price environment, oil and gas producers have become increasingly focused on improving efficiency and performance. Drilling contractors and other oilfield service providers have met this challenge by incorporating automation, developing new technology and by providing equipment able to drill deeper, faster and move more quickly. The focus being on products, services and technology that save time, but also lower costs for producers. In order to share in the benefits these advancements create, Trinidad is expanding its service offering in terms of its products and service lines to gain a larger portion of the revenue streams attached to the drilling lease. The recent acquisition of RigMinder fits within this strategy, allowing Trinidad to capture revenue associated with monitoring the drilling process, optimizing the directional drilling process and analyzing data to find opportunities for operational improvement. With the drilling rig being the key asset on the drilling lease, Trinidad plans to leverage its customer relationships, geographical footprint and top tier asset class to pursue additional opportunities for new revenue generating streams. Commitments and Contingencies Commitments Trinidad enters into drilling contracts with third parties for use of the Company s drilling equipment. These contracts range from 12 months to five years. As well, Trinidad has several operating lease agreements on buildings and equipment. Operating lease expenses are included in G&A expenses and operating expenses in the consolidated statements of operations and comprehensive (loss). The Company does not have any contingent rental payments. The Company s annual commitments are shown net of sublease income. The leases expire at various times through 2029 and there are no significant renewal or purchase options. Payments Due by Period As at September 30, 2017 Less than After ($ thousands) Total 1 year years years 5 years Debt (1) 650,416 29,001 58,001 58, ,413 Operating leases 31,332 3,562 5,872 5,229 16,669 Contingent consideration 22,303 12,327 9, Other obligations (2) 146,926 95,694 51, Total contractual obligations 850, , ,081 63, ,082 (1) Debt payments include the face value of the 2025 Senior Notes plus any expected interest payments assuming the 2025 Senior Notes are held to maturity in (2) Other obligations consist of accounts payable, accrued liabilities, bank indebtedness, and revolving credit facility. TRINIDAD DRILLING 2017 Q3 Report 23

26 Contingencies Trinidad is involved in various legal actions that have arisen 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 the condensed consolidated interim financial statements. Shareholders Equity Common shares outstanding at September 30, 2017 were 273,457,951 shares. Trinidad s shares closed September 29, 2017 at $1.89 per share. Common shares outstanding at November 8, 2017 were 273,457,951 shares. Seasonality Trinidad operates a substantial number of rigs in western Canada; therefore, operations are impacted by weather and seasonal factors. The winter season is typically a busy period as oil and natural gas companies take advantage of frozen ground conditions to move drilling rigs into regions that might otherwise be inaccessible to heavy equipment due to swampy conditions. Springtime 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 remainder of the year is 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. The activity in the US and international operations has allowed Trinidad to better manage its business with more sustainable cash flows throughout the annual cycle. However, industry conditions have an effect on how seasonality effects Trinidad s activity. Critical Accounting Judgments and Estimates The preparation of the unaudited condensed 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 judgments and estimates used by Trinidad are believed to be reasonable under current circumstances, actual results could differ. Refer to the audited annual consolidated financial statements for a detailed description of all material judgments and estimates used by the Company. New standards adopted Statement of Cash Flows (IAS 7): The Company has adopted the disclosure requirements in Disclosure Initiative (Amendments to IAS 7) as of the effective date of January 1, Additional disclosures for changes in liabilities arising from financing activities has been included in Note 20 of the condensed consolidated interim financial statements for the three and nine months ended September 30, As allowed by IAS 7, comparative information has not been presented. New standards not yet adopted A number of new accounting standards and amendments to accounting standards and interpretations have been issued by the IASB that are effective after September 30, 2017 and, therefore, have not been applied to these condensed consolidated interim financial statements. These standards and amendments, and their anticipated impact on Trinidad s condensed consolidated interim financial statements once they are adopted, are as follows: 24

27 Financial Instruments (IFRS 9): In July 2014, the IASB issued final amendments to IFRS 9. These amendments to IFRS 9 introduce a single, forward-looking expected loss impairment model for financial assets which will require more timely recognition of expected credit losses, and a fair value through other comprehensive income category for financial assets that are debt instruments. The amendments are effective for annual periods beginning on or after January 1, Trinidad does not expect the change in the impairment model to have a material impact on the consolidated financial statements. Revenue from Contracts with Customers (IFRS 15): In May 2014, the IASB issued IFRS 15, which replaces the previous guidance on revenue recognition and provides a framework to record revenue from contracts for the sale of goods or services, unless the contracts are in the scope of IAS 17 - Leases or other IFRS standards. Under IFRS 15, revenue is to be recognized to depict the transfer of goods or services in an amount that reflects the consideration to which the entity expects to be entitled following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation The new standard is effective for annual periods beginning on or after January 1, 2018, using either a full retrospective approach or a modified retrospective approach. Trinidad will adopt IFRS 15 on January 1, The Company is currently reviewing its sales contracts with customers and does not expect IFRS 15 to have a material impact on the consolidated financial statements. Upon adoption, the Company will expand its disclosures in the notes to the consolidated financial statements. Leases (IFRS 16): In January 2016, IASB issued IFRS 16 to replace the guidance currently found in IAS 17. The new standard replaces the previous guidance on lease recognition and establishes principles for recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however will remain largely unchanged and the distinction between operating and finance leases is retained. The amendments are effective for annual periods beginning on or after January 1, 2019, with early application permitted if IFRS 15 has also been applied. IFRS 16 will be adopted by Trinidad on January 1, The Company is currently reviewing contracts that are identified as leases and assessing the impact of this standard on its consolidated financial statements. 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 and nine months ended September 30, In addition, no material weaknesses or significant deficiencies have been identified in the design and operating effectiveness of these controls which could materially affect, or are reasonably likely to affect, Trinidad s ICFR. Trinidad has limited the scope of its design of DC&P and ICFR to exclude the controls, policies and procedures of RigMinder. Trinidad acquired all of the issued and outstanding shares of RigMinder on August 25, The limitation is due to the time restraints for Management to assess the controls design and effectiveness, given the proximity of the acquisition to the period-end. From the date of acquisition on August 25, 2017, RigMinder contributed less than $0.1 million of revenue and $0.5 million of net loss before tax, respectively for the Company. Additionally, RigMinder had current assets and current liabilities as at September 30, 2017 of $0.6 million and $12.7 million, respectively, and non-current assets and non-current liabilities of $59.8 million and $10.0 million, respectively. Included in current and non-current liabilities is the contingent consideration related to the acquisition. TRINIDAD DRILLING 2017 Q3 Report 25

28 Business Risks The business of Trinidad 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 is incorporated by reference herein. The Annual Information Form has been filed with SEDAR and can be accessed at Copies may be obtained on request and without charge, by contacting Trinidad at (403) 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 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: adjusted EBITDA, adjusted EBITDA from investments in joint ventures, working capital, Senior Debt to Bank EBITDA, Bank EBITDA to Cash Interest Expense, drilling days, operating days, utilization rate - drilling day, utilization rate - operating day, and rate per operating day or dayrate. These non-gaap measures are identified and defined as follows: Adjusted EBITDA is used by management and investors to analyze the Company s profitability based on the Company s principal business activities prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core business alone, amounts are removed related to foreign exchange, share-based payment expense, impairment expenses, the sale of assets, and fair value adjustments on financial assets and liabilities, as the Company does not deem these to relate to the core drilling business. Adjusted EBITDA also takes into account the Company s portion of the principal activities of the joint venture arrangements by removing the loss (gain) from investments in joint ventures and including adjusted EBITDA from investments in joint ventures. Adjusted EBITDA is not intended to represent net (loss) as calculated in accordance with IFRS. Adjusted EBITDA is calculated using 100% of the related amounts from all entities controlled by Trinidad where Trinidad may not hold 100% of the outstanding shares. 26

29 Adjusted EBITDA is calculated as follows: Three months ended September 30, Nine months ended September 30, ($ thousands) Net (loss) (44,657) (36,053) (62,754) (41,535) Plus: Finance and transaction costs 9,709 12,380 32,736 39,779 Depreciation and amortization 53,317 42, , ,043 Income taxes (16,047) (10,342) (43,690) (24,249) EBITDA 2,322 8,302 70, ,038 Plus: (Gain) on sale of assets (309) (8,647) (1,948) (10,575) Share-based payment expense 1, ,544 5,016 Foreign exchange loss (gain) 3,452 (340) 10,062 (2,676) Non-controlling interests fair value adjustment 494 (5,944) 3,594 (5,944) Loss (gain) from investments in joint ventures 17,182 18,497 (19,627) 6,730 Adjusted EBITDA from investments in joint ventures 3,294 5,857 28,704 24,644 Adjusted EBITDA 27,458 17,990 93, ,233 Adjusted EBITDA from investments in joint ventures is used by management and investors to analyze the results generated by the Company s joint venture operations prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core drilling business, amounts related to foreign exchange, dividend expense, impairment adjustments to property and equipment, as well as preferred share valuation and the sale of assets are removed. Lastly, amounts recorded for the revaluation on the investment of the TDI joint venture are removed as these are non-cash items and unrelated to the operations of the business. Adjusted EBITDA from investments in joint ventures is not intended to represent net (loss) as calculated in accordance with IFRS. Adjusted EBITDA from investments in joint ventures is calculated as follows: Three months ended September 30, Nine months ended September 30, ($ thousands) (Loss) gain from investments in joint ventures (17,182) (18,497) 19,627 (6,730) Plus: Finance costs ,166 Depreciation and amortization 5,340 5,902 17,182 15,583 Income taxes (462) (491) 247 2,758 EBITDA (12,105) (12,740) 37,376 12,777 Plus: (Gain) on sale of property and equipment - (5) - (4) Dividend expense ,891 Foreign exchange (64) TDI investment - fair value adjustment 15,024 19,548 (10,677) 12,141 Preferred share valuation 439 (1,204) 1,106 (15,804) Adjusted EBITDA from investments in joint ventures 3,294 5,857 28,704 24,644 TRINIDAD DRILLING 2017 Q3 Report 27

30 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 statements of financial position and is calculated as follows: As at September 30, December 31, ($ thousands) Current assets 124, ,927 Less: Current liabilities 109,282 81,806 Working capital 15,540 48,121 Senior Debt to Bank EBITDA is defined as the consolidated balance of the revolving facility and other debt secured by a lien at quarter end to consolidated Bank EBITDA for the trailing 12 months (TTM). Bank EBITDA used in this financial ratio is calculated as net earnings before interest, taxes, depreciation and amortization, plus impairment expense, loss (gain) on sale of assets, loss (gain) from investments in joint ventures, share-based payment expense and unrealized foreign exchange. Bank EBITDA also includes all distributions received from the Company s joint ventures during the period. Bank EBITDA to Cash Interest Expense is defined as the consolidated Bank EBITDA for TTM to the cash interest expense on all debt balances for TTM. Bank EBITDA used in this financial ratio is calculated as net earnings before interest, taxes, depreciation and amortization, plus impairment expense, loss (gain) on sale of assets, loss (gain) from investments in joint ventures, share-based payment expense and unrealized foreign exchange. Bank EBITDA also includes all distributions received from the Company s joint ventures during the period. Drilling days is defined as rig days between spud to rig release. Operating days is defined as moving days (move in, rig up and tear out) plus drilling days (spud to rig release). Utilization rate - drilling day is defined as drilling days divided by total available rig days. Utilization rate - operating day is defined as operating days divided by total available rig days. Rate per operating day or Dayrate is defined as operating revenue (net of third party costs) divided by operating days (drilling days plus moving days). 28

31 Additional GAAP Measures Definitions To assess performance, the Company uses certain additional GAAP financial measures within the financial statements and MD&A that are not defined terms under IFRS. Management believes that these measures provide useful supplemental information to investors, and provide the reader a more accurate reflection of our industry. These financial measures are computed on a consistent basis for each reporting period and include Operating revenue or Revenue, net of third party costs, Funds flow, Operating income, Operating income percentage and Operating income - net percentage. These additional GAAP measures are defined as follows: Operating revenue or Revenue, net of third party costs is defined as revenue earned for drilling activities excluding all third party revenues. Third party revenues mainly consist of rental activities and other services provided by third parties for which Trinidad does not earn a mark-up on. This metric is used by analysts and investors to assess the operations of each segment based on the core drilling business alone and more accurately reflects the health of those operations. The operating revenue for each reportable segment is disclosed in the segmented information included in the consolidated financial statements. Funds flow is used by management and investors to analyze the funds generated by Trinidad s principal business activities prior to consideration of working capital, which is primarily made up of highly liquid balances. This balance is reported in the consolidated statements of cash flows included in the cash flows from operating activities section. Operating income is used by management and investors to analyze overall and segmented operating performance. Operating income is not intended to represent an alternative to net (loss) or other measures of financial performance calculated in accordance with IFRS. Operating income is calculated from the consolidated statements of operations and comprehensive (loss) and from the segmented information contained in the notes to the consolidated financial statements. Operating income is defined as revenue less operating expenses. Operating income percentage is used by management and investors to analyze overall and segmented operating performance, including third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs. Operating income percentage is calculated from the consolidated statements of operations and comprehensive (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income percentage is defined as operating income divided by revenue. Operating income - net percentage is used by management and investors to analyze overall and segmented operating performance excluding third party recovery and third party costs, as well as inter-segment revenue and inter-segment operating costs, as these revenue and expenses do not have an effect on consolidated net (loss). Operating income - net percentage is calculated from the consolidated statements of operations and comprehensive (loss) and from the segmented information in the notes to the consolidated financial statements. Operating income - net percentage is defined as operating income less third party G&A expenses divided by revenue net of operating and G&A third party costs. 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, Saudi Arabia and Mexico. Brent Conway President and Chief Executive Officer Lesley Bolster Chief Financial Officer TRINIDAD DRILLING 2017 Q3 Report 29

32 Consolidated Statements of Financial Position As at September 30, December 31, ($ thousands) - unaudited Assets Current Assets Cash and cash equivalents (Note 4) - 25,780 Accounts receivable 111,827 91,062 Inventory 6,130 7,907 Prepaid expenses 6,865 4,960 Assets held for sale (Note 5) , ,927 Property and equipment (Note 7) 1,391,094 1,482,897 Intangible assets and goodwill (Note 8) 92,726 33,706 Deferred income taxes 77,098 72,873 Investments in joint ventures (Note 9) 215, ,673 1,901,210 1,982,076 Liabilities Current Liabilities Bank indebtedness (Note 4) 1,550 - Accounts payable and accrued liabilities 106,471 79,388 Deferred revenue and customer deposits 1, Current portion of long-term debt (Note 10) - 1, ,282 81,806 Long-term debt (Note 10) 477, ,057 Contingent consideration (Notes 6 & 15) 9,976 - Deferred income taxes 15,849 49,348 Non-controlling interests (Note 11) 9,379 7, , ,408 Shareholders Equity Common shares (Note 12) 1,525,633 1,374,656 Contributed surplus 65,243 65,087 Accumulated other comprehensive income 126, ,499 Deficit (438,501) (376,574) 1,279,113 1,242,668 1,901,210 1,982,076 Commitments and contingencies (Note 16) (See Notes to the condensed consolidated interim financial statements) 30

33 Consolidated Statements of Operations and Comprehensive (Loss) Three months ended September 30, Nine months ended September 30, ($ thousands) - unaudited Revenue Oilfield service revenue 129,625 66, , ,435 Other revenue ,290 1, ,810 66, , ,086 Expenses Operating expense 92,749 43, , ,749 General and administrative 13,920 11,111 47,303 41,764 Depreciation and amortization (Notes 7 & 8) 53,317 42, , ,043 Foreign exchange (Note 18) 3,452 (340) 10,062 (2,676) (Gain) on sale of assets (Notes 5 & 7) (309) (8,647) (1,948) (10,575) 163,129 88, , ,305 Loss (gain) from investments in joint ventures (1) (Note 9) 17,182 18,497 (19,627) 6,730 Finance and transaction costs (Note 18) 9,709 12,380 32,736 39,779 Non-controlling interests fair value adjustment (Note 11) 494 (5,944) 3,594 (5,944) (Loss) before income taxes (60,704) (46,395) (106,444) (65,784) Income taxes Current 173 (973) Deferred (16,220) (9,369) (43,917) (24,432) (16,047) (10,342) (43,690) (24,249) Net (loss) (44,657) (36,053) (62,754) (41,535) Other comprehensive (loss) Foreign currency translation adjustment for foreign operations, net of income tax (Note 19) (28,419) 10,926 (52,761) (40,887) Foreign currency translation adjustment for non-controlling interests, net of income tax (Note 11) (415) 70 (796) (253) (28,834) 10,996 (53,557) (41,140) Total comprehensive (loss) (73,491) (25,057) (116,331) (82,675) Net (loss) attributable to: Shareholders of Trinidad (44,408) (35,780) (61,927) (40,733) Non-controlling interests (Note 11) (249) (273) (827) (802) Total comprehensive (loss) attributable to: Shareholders of Trinidad (72,827) (24,854) (114,688) (81,620) Non-controlling interests (Note 11) (664) (203) (1,623) (1,055) Earnings per share Basic (Note 14) (0.16) (0.16) (0.24) (0.18) Diluted (Note 14) (0.16) (0.16) (0.23) (0.18) (1) Loss (gain) from investments in joint ventures includes Trinidad s portion of the net (loss) income in all joint ventures as well as the fair value adjustment related to the TDI joint venture as this is held as a financial asset. (See Notes to the condensed consolidated interim financial statements) TRINIDAD DRILLING 2017 Q3 Report 31

34 Consolidated Statements of Changes in Equity Nine months ended September 30, 2017 and 2016 ($ thousands) - unaudited Common shares Contributed surplus Accumulated other comprehensive income (1) Balance at December 31, ,374,656 65, ,499 (376,574) 1,242,668 Issuance of shares (Note 12) 155, ,782 Share issuance costs (net of tax) (Note 12) (4,805) (4,805) Share-based payment expense (Note 13) Total comprehensive (loss) (Note 19) - - (52,761) (61,927) (114,688) Balance at September 30, ,525,633 65, ,738 (438,501) 1,279,113 (Deficit) Total equity Balance at December 31, ,374,656 64, ,947 (324,028) 1,319,459 Share-based payment expense (Note 13) Total comprehensive (loss) (Note 19) - - (40,887) (40,733) (81,620) Balance at September 30, ,374,656 65, ,060 (364,761) 1,237,986 (1) Accumulated other comprehensive income consists of the foreign currency translation adjustment. All amounts will be reclassified to profit or loss when specific conditions are met. (See Notes to the condensed consolidated interim financial statements) 32

35 Consolidated Statements of Cash Flows Nine months ended September 30, ($ thousands) - unaudited Cash (used in) provided by Operating activities Net (loss) (62,754) (41,535) Adjustments for: Depreciation and amortization (Notes 7 & 8) 143, ,043 Foreign exchange (Note 18) 10,062 (2,676) (Gain) on sale of assets (Notes 5 & 7) (1,948) (10,575) (Gain) loss from investments in joint ventures (1) (Note 9) (19,627) 6,730 Finance and transaction costs (Note 18) 32,736 39,779 Non-controlling interests fair value adjustment 3,594 (5,944) Income taxes (43,690) (24,249) Interest income - (2) Other (2) 3,056 7,262 Income taxes paid (1,474) (2,012) Income taxes recovered 1, Interest paid (46,752) (49,927) Interest received - 2 Funds flow 18,710 45,022 Change in non-cash operating working capital (Note 20) (21,745) (6,729) Cash flow (used in) provided by operating activities (3,035) 38,293 Investing activities Purchase of property and equipment (111,128) (38,345) Proceeds from disposition of assets 3,321 17,848 Net investments in joint ventures (Note 9) 7,081 9,838 Distribution and dividends received from joint venture 40,149 21,509 Acquisition of RigMinder (net) (Note 6) (31,396) - Purchase of intangibles (3,145) - Change in non-cash working capital (Note 20) 24,979 8,967 Cash flow (used in) provided by investing activities (70,139) 19,817 Financing activities Proceeds from long-term debt 105, ,188 Repayments of long-term debt (55,416) (218,971) Purchase of non-controlling interest (Note 11) (200) - Issuance of shares (Note 12) 149,500 - Share issuance costs (Note 12) (6,561) - Dividends paid - (2,221) Proceeds from 2025 Senior Notes (Note 10) 461,860 - Repayments of 2019 Senior Notes (Note 10) (591,670) - Debt issuance costs (11,456) (661) Cash flow provided by (used in) financing activities 51,786 (91,665) Cash flow from operating, investing and financing activities (21,388) (33,555) Effect of translation of foreign currency cash (5,942) (787) (Decrease) in cash for the period (27,330) (34,342) Cash and cash equivalents - beginning of period 25,780 63,686 (Bank indebtedness) cash and cash equivalents - end of period (1,550) 29,344 (1) (Gain) loss from investments in joint ventures includes Trinidad s portion of net (loss) income in all joint ventures and the TDI joint venture fair value adjustment as this is held as a financial asset. (2) Other includes share-based payment expense of $2.5 million ( $5.0 million) and elimination of downstream transactions between Trinidad and the Joint Venture Operations. (See Notes to the condensed consolidated interim financial statements) TRINIDAD DRILLING 2017 Q3 Report 33

36 NOTES TO THE CONDENSED CONSOLIDATED INTERIM 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, Canada. 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. Trinidad s principal place of business is located at 1000, 585-8th Avenue SW, Calgary, Alberta. Operations 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, Saudi Arabia and Mexico. The Company trades on the Toronto Stock Exchange under the symbol TDG. 2. Basis of Presentation Statement of compliance These condensed consolidated interim financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements. These condensed consolidated interim financial statements were prepared using International Accounting Standard (IAS) 34 Interim Financial Reporting as at and for the period ended September 30, These condensed consolidated interim financial statements were authorized for issuance by the Board of Directors as of November 8, These condensed consolidated interim financial statements were prepared by management and follow the same accounting policies and methods as the audited financial statements as at and for the year-ended December 31, 2016, except as described in note 3. These condensed consolidated interim financial statements do not contain all of the disclosures required for the annual consolidated financial statements. As a result, these condensed consolidated interim financial statements should be read in conjunction with the Company s previous annual consolidated financial statements for the year-ended December 31, 2016, prepared in accordance with IFRS as issued by the IASB. Measurement basis These condensed consolidated interim financial statements are presented in Canadian dollars, assuming the Company will continue as a going concern for the foreseeable future. These condensed consolidated interim financial statements are prepared on a historical cost basis except as specifically noted within these notes. Use of judgment and estimates The preparation of the condensed 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 judgments and estimates used by Trinidad are believed to be reasonable under current circumstances, actual results could differ. The Company has applied significant judgments on a basis consistent with the prior year. 34

37 Seasonality Trinidad operates a substantial number of rigs in western Canada; therefore, operations are impacted by weather and seasonal factors. The winter season is typically a busy period as oil and natural gas companies take advantage of frozen ground conditions to move drilling rigs into regions that might otherwise be inaccessible to heavy equipment due to swampy conditions. Springtime 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 remainder of the year is 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. The activity in the US and international operations has allowed Trinidad to better manage its business with more sustainable cash flows throughout the annual cycle. However, industry conditions have an affect on how seasonality affects Trinidad s activity. 3. Significant Accounting Policies New standards adopted Statement of Cash Flows (IAS 7): The Company has adopted the disclosure requirements in Disclosure Initiative (Amendments to IAS 7) as of the effective date of January 1, Additional disclosures for changes in liabilities arising from financing activities has been included in note 20 of the condensed consolidated interim financial statements for the three and nine months ended September 30, As allowed by IAS 7, comparative information has not been presented. New standards not yet adopted A number of new accounting standards and amendments to accounting standards and interpretations have been issued by the IASB that are effective after September 30, 2017 and, therefore, have not been applied to these condensed consolidated interim financial statements. These standards and amendments, and their anticipated impact on Trinidad s condensed consolidated interim financial statements once they are adopted, are as follows: Financial Instruments (IFRS 9): In July 2014, the IASB issued final amendments to IFRS 9. These amendments to IFRS 9 introduce a single, forward-looking expected loss impairment model for financial assets which will require more timely recognition of expected credit losses, and a fair value through other comprehensive income category for financial assets that are debt instruments. The amendments are effective for annual periods beginning on or after January 1, Trinidad does not expect the change in the impairment model to have a material impact on the consolidated financial statements. Revenue from Contracts with Customers (IFRS 15): In May 2014, the IASB issued IFRS 15, which replaces the previous guidance on revenue recognition and provides a framework to record revenue from contracts for the sale of goods or services, unless the contracts are in the scope of IAS 17 Leases or other IFRS standards. Under IFRS 15, revenue is to be recognized to depict the transfer of goods or services in an amount that reflects the consideration to which the entity expects to be entitled following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation TRINIDAD DRILLING 2017 Q3 Report 35

38 The new standard is effective for annual periods beginning on or after January 1, 2018, using either a full retrospective approach or a modified retrospective approach. Trinidad will adopt IFRS 15 on January 1, The Company is currently reviewing its sales contracts with customers and does not expect IFRS 15 to have a material impact on the consolidated financial statements. Upon adoption, the Company will expand its disclosures in the notes to the consolidated financial statements. Leases (IFRS 16): In January 2016, IASB issued IFRS 16 to replace the guidance currently found in IAS 17. The new standard replaces the previous guidance on lease recognition and establishes principles for recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however will remain largely unchanged and the distinction between operating and finance leases is retained. The amendments are effective for annual periods beginning on or after January 1, 2019, with early application permitted if IFRS 15, has also been applied. IFRS 16 will be adopted by Trinidad on January 1, The Company is currently reviewing contracts that are identified as leases and assessing the impact of this standard on its consolidated financial statements. 4. Cash and Cash Equivalents As at September 30, December 31, ($ thousands) Cash and cash equivalents 7,388 25,780 Bank overdraft (8,938) - Total (bank indebtedness) cash and cash equivalents (1,550) 25,780 Cash and cash equivalents (bank indebtedness) are comprised of cash at bank and cash on hand, less cheques in transit, as well as short-term investments and similar instruments that have a maturity of three months or less. The majority of the Company s bank accounts are tied to a master netting agreement, and as such, are disclosed as a total consolidated balance on the consolidated statements of financial position. The Company s bank accounts that are excluded from the master netting agreement had a total balance as at September 30, 2017 of $5.3 million (December 31, $4.4 million). Available within Trinidad s credit facility is a $10.0 million Canadian bank overdraft and a $10.0 million US bank overdraft. Trinidad uses the bank overdraft as part of its short-term cash management strategy to minimize the requirement of carrying cash on hand to cover outstanding cheques and deposits. The bank overdraft is subject to the same terms and conditions as the credit facility (note 10). 5. Assets Held for Sale At December 31, 2016, the Company reclassified $0.2 million of assets to be held for sale, relating to a top drive included in capital inventory in the Canadian division that was being underutilized. During the first quarter of 2017, these assets were disposed of for proceeds of $0.3 million. 36

39 6. Business Combination Effective August 25, 2017, Trinidad acquired RigMinder Operating LLC (RigMinder). Through this strategic business acquisition, Trinidad acquired significant technology rights that are complementary to its industry-leading drilling fleet. Trinidad acquired RigMinder for total consideration of $60.4 million. The purchase price is comprised of $31.3 million in cash, $6.3 million in common shares (3,910,364 shares at a deemed price per share of $1.6065), and $22.8 million in contingent consideration. Included in the short-term portion of the contingent consideration is a US$10.0 million payment, due on the later of the anniversary of the closing date and the achievement of certain equipment deployment milestones, and a hold back adjustment related to working capital. Included in the long-term portion of the contingent consideration is a potential earn-out payment due in 2020, dependent on the future performance of certain software acquired. The following summarizes the major classes of consideration transferred at the acquisition date: Classes of consideration transferred August 25, ($ thousands) 2017 Cash paid 31,304 Shares issued 6,282 Contingent consideration - short-term portion 12,634 Contingent consideration - long-term portion 10,133 Total consideration paid 60,353 The acquisition was accounted for using the acquisition method, whereby the assets acquired and the liabilities assumed were recorded at their fair values with the surplus of the aggregate consideration relative to the fair value of the identifiable net assets recorded as goodwill. The Company assessed the fair values of the net assets acquired based on management s best estimate of the market value for each asset. Subsequent to the acquisition date, RigMinder s operating results have been included in the Company s revenues, expenses and capital spending. Assets and liabilities acquired August 25, ($ thousands) 2017 Working capital (143) Property and equipment 1,064 Goodwill 31,033 Intangible assets 28,399 Total assets acquired and liabilities assumed 60,353 TRINIDAD DRILLING 2017 Q3 Report 37

40 The allocations and determinations of the consideration described on the previous page, are preliminary and subject to change. Management is continuing to review and assess information to accurately determine the fair value of the assets acquired and liabilities assumed. During the measurement period, Trinidad will continue to obtain information to assist in finalizing the fair value of the net assets acquired, which may differ materially from the above preliminary estimates. The goodwill arises as a result of the assembled workforce and the synergies that are expected to be achieved as a result of combining the technology acquired with Trinidad s current rig fleet. None of the goodwill recognized was expected to be deductible for income tax purposes. With respect to the valuation of the intangible assets, the Company considered future expected cash flows generated from software and technology components acquired. Assumptions were made based on management s best estimates available at this time. As noted above, the estimates used to value the assets acquired and the liabilities assumed are preliminary and subject to change during the measurement period. The net cash movement was included in the acquisition of RigMinder (net) in the consolidated statements of cash flows for the nine months ended September 30, 2017 as total cash paid of $31.4 million, which is the total amount of cash paid equal to $31.3 million less cash acquired of $0.1 million; offset by $0.2 million of transaction costs settled upon closing the acquisition (included in finance and transaction costs per below). From the date of acquisition on August 25, 2017 to September 30, 2017, RigMinder contributed less than $0.1 million of revenue and $0.5 million of net loss before tax to the Company. If the business combination had been completed on January 1, 2017, the estimated revenue and net loss before income tax for the nine months ended September 30, 2017 would have been $1.2 million and $2.7 million, respectively. Trinidad has used RigMinder s unaudited 2017 prior period operations to estimate these disclosures whereby RigMinder was run under a different business model. For the nine months ended September 30, 2017, the Company incurred total transaction costs of $0.7 million related to the acquisition of RigMinder. These costs mainly related to due diligence and external legal fees and were included in finance and transaction costs on the consolidated statements of operations and comprehensive (loss). Contingent consideration is considered a financial liability under IFRS and, as such, is revalued at each period end. With respect to the long-term portion of the contingent consideration related to the earn out payment, this would be considered a level 3 in the fair value hierarchy. Fair value will be assessed each period end using a discounted future cash flow model which compares the estimated future cash flows to the carrying value of the liability at the period end date. At September 30, 2017, due to the acquisition closing so closely to the quarter-end date, there was no fair value adjustment. The change in value at August 25, 2017 to September 30, 2017 is due entirely to the foreign currency translation. For a discussion on the accounting treatment and consolidation methods applied to the above, please refer to the significant accounting policies described in note 3 of the Company s previous annual consolidated financial statements for the year-ended December 31,

41 7. Property and Equipment Property and equipment as at and for the periods ended September 30, 2017 and December 31, 2016 are as follows: ($ thousands) Rigs and related equipment Automotive and other equipment Buildings Construction equipment Land Assets under construction Cost Balance as at January 1, ,865,180 33,733 54,203 3,836 12,228 97,111 3,066,291 Additions/transfers 105, (76,182) 29,273 Disposals (124,331) (6,663) (35) (946) (88) (7,285) (139,348) Assets held for sale (275) (275) Effect of foreign exchange (54,106) (565) (648) (53) (86) (867) (56,325) Balance as at December 31, ,791,761 26,623 53,520 2,881 12,054 12,777 2,899,616 Additions/transfers 75, , ,766 Acquired upon business combination 1, ,064 Disposals (5,673) (797) (403) (9) (67) (267) (7,216) Effect of foreign exchange (124,368) (623) (1,415) (35) (187) (1,043) (127,671) Balance as at September 30, ,738,054 25,965 51,702 2,837 11,800 49,201 2,879,559 Accumulated depreciation Balance as at January 1, ,378,044 16,635 11,971 3, ,410,023 Depreciation 164,484 3,985 2, ,835 Disposals (129,536) (4,126) (8) (844) - - (134,514) Assets held for sale (57) (57) Effect of foreign exchange (29,048) (367) (104) (49) - - (29,568) Balance as at December 31, ,383,887 16,127 14,047 2, ,416,719 Depreciation 138,086 2,426 1, ,248 Disposals (5,289) (581) (182) (9) - - (6,061) Effect of foreign exchange (63,574) (490) (342) (35) - - (64,441) Balance as at September 30, ,453,110 17,482 15,152 2, ,488,465 Net book value September 30, ,284,944 8,483 36, ,800 49,201 1,391,094 December 31, ,407,874 10,496 39, ,054 12,777 1,482,897 Total For the nine months ended September 30, 2017, disposals mainly related to various non-core assets in the US and Canadian divisions. No impairment indicators were identified and no impairment expense was recognized for the nine months ended September 30, The cost of assets under construction includes cost of materials, direct labour, construction overhead and any other costs directly attributable in readying the asset for its intended use. Accumulated costs are reported as assets under construction until the related asset is ready for use, at which time it will be subject to depreciation, or is subsequently sold. In the third quarter of 2017, the Company reviewed the useful life estimates for all rigs and related equipment, and as a result adjusted the useful life estimates within the current depreciation policy. For the period ended September 30, 2017, the change resulted in an increase to depreciation expense of $7.2 million. TRINIDAD DRILLING 2017 Q3 Report 39

42 8. Intangible Assets and Goodwill Intangible assets and goodwill as at and for the period ended September 30, 2017, and December 31, 2016, are as follows: ($ thousands) Patents and licensing agreements Technology Customer relationships Engineering and design Goodwill Total Cost Balance as at January 1, , , , ,390 Effect of foreign exchange (431) (431) Balance as at December 31, , , , ,959 Additions 3, ,145 Acquired upon business combination - 28, ,033 59,432 Effect of foreign exchange (268) (433) - - (1,373) (2,084) Balance as at September 30, ,877 27, , , ,452 Accumulated amortization and impairment Balance as at January 1, , , ,342 Amortization Balance as at December 31, , , ,253 Amortization ,501 Effect of foreign exchange (25) (3) (28) Balance as at September 30, , , ,726 Net book value September 30, ,397 27, ,549 92,726 December 31, ,889 33,706 Remaining useful life September 30, 2017 (years) n/a Intangibles Patents and licensing agreements - licensing agreements include a method and apparatus for controlling the rotation of a drill string and is included in the US operations, with patents consisting of a fully amortized patent application for a number of drilling rig component parts that were acquired in a previous business combination and were included in the Canadian operations. Technology - consists of technology and software assets acquired from the RigMinder acquisition and are included in the US and international operations (note 6). Customer relationships - consists of customer relationships acquired from a previous business combination and are included in the Canadian operations. Engineering and design - consists of costs related to work completed on standardized engineering and design drawings for new rig builds and are included in the Canadian operations. 40

43 Goodwill Goodwill is a result of a number of 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 assesses goodwill at the operating segment level. At September 30, 2017, there were no indicators of impairment and as such no impairment test of goodwill was performed. The change in the balance at September 30, 2017 when compared to December 31, 2016 is due to the goodwill acquired through the business combination of RigMinder and the effects of changes in the foreign exchange rate during the period. As at September 30, 2017, goodwill of $62.5 million is comprised of $18.9 million in the Canadian operations and $43.6 million in the US and international operations (December 31, $18.9 million in the Canadian operations and $14.0 million in the US and international operations). 9. Investments in Joint Ventures Joint Ventures Loss (Gain) Reconciliation Three months ended September 30, Nine months ended September 30, ($ thousands) Trinidad Drilling International loss (gain) from investment 2,106 (761) (9,643) (5,698) Trinidad Drilling International fair value adjustment 15,024 19,548 (10,677) 12,141 Diavez CanElson de Mexico, S.A de C.V loss (gain) from investment 168 (290) Charger Trinidad, LLC (gain) from investment (116) - (14) - Loss (gain) from investments in joint ventures 17,182 18,497 (19,627) 6,730 Joint Ventures Investments Reconciliation As at September 30, December 31, ($ thousands) Trinidad Drilling International investment balance 214, ,984 Diavez CanElson de Mexico, S.A. de C.V. investment balance Charger Trinidad, LLC investment balance Investments in joint ventures 215, ,673 TRINIDAD DRILLING 2017 Q3 Report 41

44 Joint Venture Trinidad Drilling International Effective September 3, 2013, Trinidad entered into a joint venture arrangement with a wholly-owned subsidiary of Halliburton to operate drilling rigs for international projects outside of Canada and the US. The joint venture currently has operations in Saudi Arabia and Mexico and is exploring future growth opportunities in other international markets. The joint venture is conducting business under the name Trinidad Drilling International (TDI) through separately incorporated companies. Trinidad owns 60% of the shares of TDI and each of the joint parties have equal voting rights. The investment is held through common shares and mandatory redeemable preferred shares (MRPS) classified as liabilities. As the MRPS s are considered a liability, all dividends declared are recorded as an expense to net (loss) on the statement of operations and comprehensive (loss). 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 loss (gain) from investment in joint venture. Continuity of Investment in TDI Joint Venture for Trinidad Total Investment Nine months ended Year ended ($ thousands) September 30, 2017 December 31, 2016 Opening balance 261, ,511 Distribution and dividends received from joint venture (40,149) (21,509) Gain from investment in joint venture 9,643 5,986 Change in loan to joint venture (7,081) (13,138) Elimination of downstream transactions (305) (1,062) Fair value adjustment 10,677 7,353 Effect of foreign exchange (20,254) (10,157) Ending balance 214, ,984 Determination of functional currency. Management reviewed the primary factors under IAS 21 - The effects of changes in foreign exchange rates, in order to determine the functional currency of TDI, including the country whose competitive forces and regulations determine the sales price and the currency that influences sales prices and costs related to labour and materials. As all rig contracts are negotiated and settled in US dollars, and the majority of expenses are quoted and paid in US dollars (including lease expenses and most capital costs), the functional currency for TDI was determined to be the US dollar for each of the subsidiaries, including those with drilling operations in Saudi Arabia and Mexico. Translation gains and losses resulting from the translation of the Company s investment into the Canadian dollar equivalent are for presentation purposes only and are included in equity as accumulated other comprehensive (loss). Trinidad records its portion of income in US dollars; therefore, this amount is calculated with no related translation adjustment. 42

45 Summarized financial information for Trinidad Drilling International Summarized statements of operations and comprehensive (loss) income for TDI: Three months ended September 30, ($ thousands) TDI Trinidad 60% Share TDI Trinidad 60% Share Revenue Oilfield service revenue 21,241 12,745 25,467 15,280 Other revenue ,303 12,782 25,467 15,280 Expenses Operating expense 13,385 8,031 12,672 7,603 General and administrative 2,540 1,524 2,479 1,487 Depreciation and amortization 8,634 5,181 8,742 5,245 Foreign exchange Finance costs (Gain) on sale of property and equipment - - (7) (4) Preferred share valuation (2,007) (1,204) (Loss) income before income tax (4,278) (2,567) 2,693 1,616 Income taxes Current (905) (543) Deferred Net (loss) income (3,510) (2,106) 1, Nine months ended September 30, ($ thousands) TDI Trinidad 60% Share TDI Trinidad 60% Share Revenue Oilfield service revenue 96,657 57, ,243 63,746 Other revenue ,719 58, ,243 63,746 Expenses Operating expense 40,421 24,253 57,632 34,579 General and administrative 7,584 4,550 8,606 5,164 Depreciation and amortization 27,897 16,738 22,517 13,510 Foreign exchange (49) (29) 1, Finance costs , Dividend expense ,818 14,891 Preferred share valuation 1,844 1,106 (26,341) (15,804) Income before income tax 18,623 11,174 16,339 9,803 Income taxes Current 2,829 1,697 5,303 3,182 Deferred (277) (166) 1, Net income 16,071 9,643 9,497 5,698 TRINIDAD DRILLING 2017 Q3 Report 43

46 Summarized statements of financial position for TDI: Amounts are presented at 100% of the value included in the statement of financial position for Trinidad Drilling International. As at September 30, December 31, ($ thousands) Assets Current Assets Cash and cash equivalents 38,000 78,008 Accounts receivable 27,342 23,494 Inventory 6,961 7,054 Prepaid expenses 1,501 2,578 73, ,134 Property and equipment 337, ,383 Deferred income taxes 3,017 3, , ,725 Liabilities Current Liabilities Accounts payable and accrued liabilities 20,864 15,544 Preferred shares 335, ,930 Current portion of long-term debt - 11, , ,263 Notes payable to joint venture partners 24,272 26, , ,117 Shareholders Equity Common shares 23,508 29,484 Accumulated other comprehensive income 1,610 4,159 Retained earnings (deficit) 8,032 (8,035) 33,150 25, , ,725 Commitments TDI has entered into several operating lease agreements that are included in general and administrative expenses and operating expenses. TDI does not have any contingent rental or sublease agreements, nor any sublease income, and there are no significant renewal or purchase options. These leases expire at various times through Of these leases, $0.1 million is due in less than one year. 44

47 Related party transactions The related party transaction exchange amounts are determined depending on the nature of the transaction, and negotiations by both parties. They generally fall into two categories: shared services and sale of pre-existing equipment. Shared services TDI, and the shareholders of TDI, signed a shared-services agreement that outlines the costs that will be reimbursed and the rates based on an employee time allocation assessment. Sale of pre-existing equipment This equipment is sold at a gain/loss on sale to the Company based on third-party valuations. Related party transactions in the comparative period also included overhead allocation and markup costs on new build equipment completed by Trinidad s manufacturing division. During the three and nine months ended September 30, 2017, Trinidad charged TDI general and administrative expenses related to shared services of $0.1 million and $0.8 million, respectively ( $0.5 million and $2.2 million, respectively). As at September 30, 2017, TDI had an outstanding trade payable to Trinidad of $0.5 million (December 31, $0.9 million) related to general and administrative expenses. The joint shareholders of TDI have loaned funds, via promissory notes, to fund the importation of drilling rigs into Saudi Arabia. The funds are recoverable through operations in TDI within five years from date of advance and earn interest at 4.25% and mature in December As at September 30, 2017, the loan payable to the joint venture shareholders is $24.3 million, of which $14.6 million is payable to Trinidad (December 31, total loan payable of $26.9 million of which $16.1 million was payable to Trinidad). The joint shareholders of TDI had loaned funds, via promissory notes, to fund the importation of drilling rigs into Mexico. The funds were recoverable through operations in TDI within three years from date of advance, earned interest at LIBOR + 2.5% and matured in November As at September 30, 2017, the loan payable to the joint venture shareholders was nil (December 31, total loan payable of $11.8 million of which $7.9 million was payable to Trinidad). Fair value of investment in TDI joint venture At September 30, 2017, the fair value of the investment in the TDI joint venture was assessed by comparing the discounted future cash flows to the net book value of this asset at the period end date. For the nine months ended September 30, 2017, it was determined that the fair value of the investment exceeded the net book value and as such an adjustment of $10.7 million was recorded ( fair value of the investment was lower than the net book value and as such an adjustment of $12.1 million was recorded). TRINIDAD DRILLING 2017 Q3 Report 45

48 Joint Venture - Diavaz CanElson de Mexico, S.A. de C.V. Effective August 11, 2015, acquired through a business combination, Trinidad entered into a joint venture arrangement with D&S Petroleum, S.A. de C.V. to operate drilling and service rigs in Mexico. The joint venture conducts business under the name Diavaz CanElson de Mexico, S.A. de C.V. (DCM) through a separately incorporated company. Trinidad owns 50% of the shares of DCM and each of the joint parties have equal voting rights. The joint venture partners have joint control over the relevant activities of the joint venture and as such DCM is accounted for under the equity method of accounting. Continuity of Investment in DCM Joint Venture for Trinidad Total Investment Nine months ended Year Ended ($ thousands) September 30, 2017 December 31, 2016 Opening balance 689 1,147 (Loss) from investment in joint venture (707) (410) Effect of foreign exchange 18 (48) Ending balance Joint Venture - Charger Trinidad, LLC Effective April 1, 2017, Trinidad entered into a joint venture arrangement with Charger Drilling Services, LLC to operate a rig in the US. The joint venture conducts business through a separately incorporated company, Charger Trinidad, LLC (LLC). Trinidad owns 50% of the shares of the LLC and each of the joint parties have equal voting rights. The joint venture partners have joint control over the relevant activities of the joint venture and as such the LLC is accounted for under the equity method of accounting. Continuity of Investment in Charger Trinidad, LLC Joint Venture for Trinidad Total Investment Nine months ended ($ thousands) September 30, 2017 Opening balance - Increase in joint venture investment 469 Gain from investment in joint venture 14 Change in loan to joint venture 680 Elimination of downstream transactions (208) Effect of foreign exchange - Ending balance

49 10. Long-term Debt As at Nine months ended Year Ended ($ thousands) September 30, 2017 December 31, 2016 Limited partnership loan (1) - 1, Senior Notes (a) - 602, Senior Notes (b) 437,745 - Credit Facility (c) 51, , ,717 Less: unamortized debt issue costs (11,366) (1,701) 477, ,016 (1) The limited partnership loan was classified as current portion of long-term debt on the consolidated statements of financial position as the balance was fully callable. At September 30, 2017, Trinidad had paid the outstanding balance of the CanElson Drilling Limited Partnership #3 loan. a) On December 16, 2010, Trinidad issued US$450.0 million of 7.875% senior unsecured notes (2019 Senior Notes) for gross proceeds of US$446.7 million. The Canadian dollar equivalent on this date was $449.1 million. Interest was payable semi-annually in arrears on January 15 and July 15, and the 2019 Senior Notes were due in January On January 25, 2017, Trinidad announced a cash tender offer to purchase any and all of the Company s outstanding 2019 Senior Notes for consideration of US$1,005 per US$1,000 principal amount. On February 8, 2017, approximately US$203.0 million of these notes were validly tendered for cash of US$204.9 million, including accrued and unpaid interest. The remainder of the notes were redeemed on March 10, 2017, for US$250.0 million including accrued and unpaid interest. The 2019 Senior Notes were designated as a hedge of the net investment in self-sustaining foreign operations. Unrealized foreign exchange gains and losses on the 2019 Senior Notes were offset against foreign exchange gains and losses arising from the translation of the accounts of self-sustaining foreign subsidiaries. These gains and losses are included in the cumulative translation account in other comprehensive (loss). b) On February 8, 2017 Trinidad issued US$350.0 million of 6.625% senior unsecured notes (2025 Senior Notes) for par value. The Canadian dollar equivalent on this date was $461.9 million. Interest is payable semi-annually in arrears on February 15 and August 15 and the 2025 Senior Notes mature in February On or after February 15, 2020, Trinidad has the option to redeem all or a portion of the 2025 Senior Notes at set redemption prices, which includes the principal amount plus any accrued and unpaid interest to the applicable redemption date. Trinidad incurred debt issue costs of $11.3 million related to the 2025 Senior Notes which will be amortized over the life of the 2025 Senior Notes using the effective interest rate method. The 2025 Senior Notes have been designated as a hedge of the net investment in self-sustaining foreign operations. As a result, unrealized foreign exchange gains and losses on the 2025 Senior Notes are offset against foreign exchange gains and losses arising from the translation of the accounts of self-sustaining foreign subsidiaries. These gains and losses are included in the cumulative translation account in other comprehensive (loss). c) On December 12, 2014, Trinidad terminated its existing credit facility from 2010 and entered into a new agreement, which was amended on December 14, 2015, June 24, 2016 and January 27, The new amended credit facility includes a Canadian revolving facility of $100.0 million, and a US revolving facility of $100.0 million. Included in the facility are a $10.0 million Canadian dollar bank overdraft and a $10.0 million US dollar bank overdraft. The facility requires quarterly interest payments based on Bankers Acceptance and LIBOR rates. The facility matures December 12, 2018, and TRINIDAD DRILLING 2017 Q3 Report 47

50 is subject to annual extensions of an additional year on each anniversary date upon consent of the lenders holding two-thirds of the aggregate commitments under the credit facility. The members of the syndicated groups include major Canadian, US and international financial institutions. The debt is secured by a general guarantee over the assets of Trinidad and its subsidiaries. At September 30, 2017 the following financial covenants were in place: Senior Debt to Bank EBITDA Max of 2.5x Bank EBITDA to Cash Interest Expense (1) Min of 1.5x (1) On April 1, 2018, the Bank EBITDA to Cash Interest Expense covenant increases to a minimum of 2.5 times. Other covenants in effect include but are not limited to the following: incurring additional debt and liens on assets; investments, including advances to the TDI joint venture; asset sales; and making restricted payments. The new amended credit facility also includes a dividend restriction whereby no dividends may be paid from April 1, 2016 to March 31, At September 30, 2017, Trinidad is in compliance with all covenants related to the credit facility. At September 30, 2017, the Company had outstanding letters of credit of $0.6 million (December 31, $0.6 million). 11. Non-controlling Interests Non-controlling interests arise from business combinations in which Trinidad acquires less than a 100 percent interest. Non-controlling interests are initially measured at either fair value or at the non-controlling interest s proportionate share of the acquiree s identifiable assets. Subsequent to acquisition, the carrying amount of non-controlling interests are increased or decreased by the non-controlling interests share of subsequent changes in net (loss), as well as dividends or cash disbursements made to the non-controlling interests. The non-controlling interests of Midland C Ranch Holdings, LLC (Midland), CanElson Drilling Limited Partnership #1 (LP1), CanElson Drilling Limited Partnership #2 (LP2), and CanElson Drilling Limited Partnership #3 (LP3) were initially measured at fair value on the date of acquisition. On September 18, 2017, Trinidad acquired the remaining ownership of LP3 for consideration of $0.2 million. Effective September 30, 2017, Trinidad holds 100 percent of the share capital of the subsidiary. The carrying amount of the non-controlling interest liability on the date of acquisition was nil. As a result, Trinidad recognized an expense of $0.2 million representing the excess between the consideration paid and the carrying amount of the non-controlling interest liability. The following table summarizes the information relating to the non-controlling interests: Nine months ended Year ended ($ thousands) September 30, 2017 December 31, 2016 Opening balance 7,197 18,448 Comprehensive (loss) attributable to non-controlling interests (1,623) (1,233) Change in fair value of liability 3,594 (9,398) Foreign currency translation adjustment 211 (620) Closing balance 9,379 7,197 48

51 Summarized statements of financial position for non-controlling interests As at September 30, 2017 LP1 LP2 LP3 (1) Midland Non-controlling interests ownership percentage 50% 45.6% 0% 50% Total ($ thousands) Current assets 1, ,542 5,303 Non-current assets 4,557 4,198-18,216 26,971 Current liabilities 1,250 3,100-1,465 5,815 Non-current liabilities (1) On September 18, 2017, Trinidad acquired the remaining ownership interest of LP3. As at December 31, 2016 LP1 LP2 LP3 Midland Non-controlling interests ownership percentage 50% 45.6% 50% 50% Total ($ thousands) Current assets 1, ,863 5,113 Non-current assets 4,288 4,067 4,336 20,409 33,100 Current liabilities 1,250 3,100 2, ,863 Non-current liabilities Summarized statements of operations and comprehensive (loss) for non-controlling interests Three months ended September 30, 2017 LP1 LP2 LP3 (1) Midland Non-controlling interests ownership percentage 50% 45.6% 0% 50% Total ($ thousands) Revenue 1, ,994 3,865 Net (loss) (44) (92) (53) (318) (507) Net (loss) attributable to non-controlling interests (22) (42) (26) (159) (249) Total comprehensive (loss) attributable to non-controlling interests (22) (42) (26) (574) (664) (1) On September 18, 2017, Trinidad acquired the remaining ownership interest of LP3. For the three months ended September 30, 2017 net (loss) attributable to non-controlling interest is recognized for the period the partner still held a 50 percent interest. Three months ended September 30, 2016 LP1 LP2 LP3 Midland Non-controlling interests ownership percentage 50% 45.6% 50% 50% Total ($ thousands) Revenue 1, ,374 2,967 Net (loss) (24) (96) (212) (222) (554) Net (loss) attributable to non-controlling interests (12) (44) (106) (111) (273) Total comprehensive (loss) attributable to non-controlling interests (12) (44) (106) (41) (203) TRINIDAD DRILLING 2017 Q3 Report 49

52 Nine months ended September 30, 2017 LP1 LP2 LP3 (1) Midland Non-controlling interests ownership percentage 50% 45.6% 0% 50% Total ($ thousands) Revenue 3,417 1,687-5,281 10,385 Net (loss) (364) (334) (392) (594) (1,684) Net (loss) attributable to non-controlling interests (182) (152) (196) (297) (827) Total comprehensive (loss) attributable to non-controlling interests (182) (152) (196) (1,093) (1,623) (1) On September 18, 2017, Trinidad acquired the remaining ownership interest of LP3. For the nine months ended September 30, 2017 net (loss) attributable to non-controlling interest is recognized for the period the partner still held a 50 percent interest. Nine months ended September 30, 2016 LP1 LP2 LP3 Midland Non-controlling interests ownership percentage 50% 45.6% 50% 50% Total ($ thousands) Revenue 2,696 1,045-4,203 7,944 Net (loss) (106) (304) (604) (616) (1,630) Net (loss) attributable to non-controlling interests (53) (139) (302) (308) (802) Total comprehensive (loss) attributable to non-controlling interests (53) (139) (302) (561) (1,055) As at September 30, 2017, Trinidad completed a valuation assessment of the non-controlling interests liability whereby the discounted cash flows were compared to the net book value of the liability in order to ensure the fair value of the non-controlling interests liability was properly valued for the period-end date. At September 30, 2017, it was determined that the fair value of the liability was higher than the net book value and as such an adjustment of $3.6 million was recorded as non-controlling interests fair value adjustment included in the consolidate statements of operations and comprehensive (loss). At December 31, 2016, it was determined that the fair value of the investment was lower than the net book value of the liability and as such an adjustment of $9.4 million was recorded. 50

53 12. Common Shares Authorized Unlimited number of common shares, voting, participating: Nine months ended Year ended (Number of shares) September 30, 2017 December 31, 2016 Outstanding - beginning of period 222,087, ,087,270 Issuance of shares 47,460,317 - Issued upon business combination 3,910,364 - Outstanding - end of period 273,457, ,087,270 Holders of common shares are entitled to participate in dividends if and when declared by the Company. On February 8, 2017, Trinidad closed a bought deal equity financing agreement, resulting in the issue of 47,460,317 common shares at a price of $3.15 per share, for gross proceeds of $149.5 million. Gross share issuance costs of $6.6 million were recorded net of tax of $1.8 million. On August 25, 2017, Trinidad acquired all of the issued and outstanding shares of RigMinder for US$30.0 million, comprised of US$25.0 million in cash and US$5.0 million in common shares. Trinidad issued 3,910,364 shares at a deemed price per share of $1.6065, for a total value of $6,282,000, converted at an exchange rate of US$1.00 to CDN$ (note 6). On September 25, 2017, Trinidad filed a notice with the Toronto Stock Exchange (TSX) to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by the TSX, Trinidad is authorized to purchase up to 23,032,913 common shares (which represent approximately 10 percent of the Company s public float outstanding at the time of the bid) during the period September 28, 2017 to September 27, 2018, or until such time as the bid is completed or terminated at the Company s option. Any shares purchased under the bid are purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the transaction. Common shares acquired under the bid will be canceled. TRINIDAD DRILLING 2017 Q3 Report 51

54 13. Share-Based Payments Incentive Option Plan On March 10, 2008, Trinidad established an 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 generally vest on the first, second and third anniversary of the date of grant. They are exercisable for a period of five years from the date of grant. Under the Option Plan, a maximum of 4% of the outstanding common share balance is available to be issued. The following summarizes the changes in outstanding options: Nine months ended Year ended, September 30, 2017 December 31, 2016 Number Weighted average exercise price (CDN$) Number Weighted average exercise price (CDN$) Outstanding - beginning of period 1,160, , Granted 594, , Expired (244,001) 7.82 (123,815) 8.58 Forfeited (84,690) 3.36 (77,431) 5.22 Outstanding - end of period 1,425, ,160, Trinidad uses the Black-Scholes option-pricing model to determine the estimated fair value of the options granted. During the nine months ended September 30, 2017, Trinidad had five sets of options granted. The per share fair value of options granted for the nine months ended September 30, 2017 ranged between $0.49 and $1.83 based on the following assumptions ( the per share fair value of options granted for the nine months ended September 30, 2016 was $0.42): For options granted during nine months ended September 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 nine months ended September 30, 2017, Trinidad recognized share-based payment expense relating to outstanding options of less than $0.1 million and $0.2 million, respectively ( $0.1 million and $0.1 million, respectively). 52

55 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 weighted average 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: Nine months ended Year ended (Number of DSUs) September 30, 2017 December 31, 2016 Outstanding - beginning of period 557, ,457 New grants 136, ,935 Exercised - (158,085) Outstanding - end of period 693, ,307 The total fair value of DSUs at September 30, 2017 was $1.3 million (December 31, $1.9 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 statements of financial position. For the three and nine months ended September 30, 2017, Trinidad recognized share-based payment recovery related to the outstanding DSUs of less than $0.1 million and $0.6 million, respectively ( expense of less than $0.1 million and $1.1 million, respectively). For the nine months ended September 30, 2017, no deferred share units were exercised ( ,085 deferred share units were exercised for total proceeds of $0.4 million). 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 participate in the growth and development of the Company and to promote further alignment of interests between employees and the shareholders. PSUs are subject to Company performance metrics assessed by management with a three-year performance period. Each PSU granted permits the holder to receive a cash payment equal to the volume weighted average share price for the five days preceding payment adjusted for performance metrics. 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: Nine months ended Year ended (Number of PSUs) September 30, 2017 December 31, 2016 Outstanding - beginning of period 6,180,683 3,198,453 New grants 1,504,886 4,112,807 Exercised (1,363,124) (965,447) Exchange of units (368,396) - Forfeited (454,245) (165,130) Outstanding - end of period 5,499,804 6,180,683 TRINIDAD DRILLING 2017 Q3 Report 53

56 At September 30, 2017, there were no vested PSUs outstanding (December 31, nil). Of the PSUs outstanding at September 30, 2017, 1,608,372 vest on December 1, 2017, 2,508,443 vest on December 1, 2018 and 1,382,989 vest on December 1, The total fair value of PSUs at September 30, 2017 was $6.6 million (December 31, $7.2 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, adjusted for performance factors. The liability is recorded in accounts payable and accrued liabilities in the consolidated statements of financial position. During the nine months ended September 30, 2017, Trinidad entered into an exchange agreement with certain officers and employees whereby the holders of specific PSUs exchanged their rights to these PSUs for restricted share units (RSUs). The PSUs were exchanged on a one-to-one basis for RSUs. For the three and nine months ended September 30, 2017, Trinidad recognized a share-based payment expense related to the outstanding PSUs of $0.9 million and $2.4 million, respectively ( $0.2 million and $3.8 million, respectively). Stock Appreciation Rights Plan On November 5, 2013, Trinidad established the Stock Appreciation Rights (SAR) Plan to provide an opportunity for officers and employees of Trinidad to promote further alignment of interests between employees and shareholders. Each SAR granted permits the holder to receive a cash payment equal to the spread of the closing sales price of the stock and the grant price for all vested SARs. The SARs generally vest a portion on the first, second and third anniversary of the grant date, and must be exercised within ten years from the grant date. Nine months ended Year ended (Number of SARs) September 30, 2017 December 31, 2016 Outstanding - beginning of period 655, ,916 New grants 633, ,850 Forfeited (214,978) (174,202) Outstanding - end of period 1,073, ,564 During the three and nine months ended September 30, 2017, 61,197 SARs were granted at an exercise price ranging between $1.63 and $1.73, respectively, and 633,238 SARs were granted at an exercise price ranging between $1.63 and $2.41, respectively ( nil SARs were granted and 353,850 SARs were granted at an exercise price of $2.13). At September 30, 2017, there were 294,405 vested SARs outstanding (December 31, ,650). The total fair value of SARs was less than $0.1 million at September 30, 2017 (December 31, $0.1 million). For the three and nine months ended September 30, 2017, Trinidad recognized a share-based payment expense and recovery related to the outstanding SARs of less than $0.1 million and $0.1 million, respectively ( expense of less than $0.1 million and less than $0.1 million, respectively). 54

57 Restricted Share Unit Plan On January 1, 2017, Trinidad established the RSU Plan to provide an opportunity for officers and employees of Trinidad to promote further alignment of interests between employees and the shareholders. Each RSU granted permits the holder to receive a cash payment equal to the volume weighted average share price for the five days preceding payment. RSU holders are entitled to share in dividends which are credited as additional RSUs at the dividend record date. Nine months ended Year ended (Number of RSUs) September 30, 2017 December 31, 2016 Outstanding - beginning of period - - New grants 573,608 - Exchange of units 368,396 - Forfeited (10,758) - Outstanding - end of period 931,246 - At September 30, 2017, there were no vested RSUs outstanding (December 31, nil). The total fair value of RSUs at September 30, 2017 was $0.7 million (December 31, nil), which represents total RSUs outstanding multiplied by the trailing five day volume weighted average share price of the Company s underlying common shares, as the RSUs have no exercise price. The liability is recorded in accounts payable and accrued liabilities in the consolidated statements of financial position. For the three and nine months ended September 30, 2017, Trinidad recognized a share-based payment expense related to the outstanding RSUs of $0.2 million and $0.7 million, respectively ( nil and nil, respectively). 14. Earnings Per Share Basic earnings per share for the three and nine months ended September 30, 2017 and 2016, is based on the net (loss) attributable to Trinidad shareholders, as reported in the consolidated statements of operations and comprehensive (loss), and the weighted average number of common shares outstanding in the period. Diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 is based on the net (loss) attributable to Trinidad shareholders, as reported in the consolidated statements of operations and comprehensive (loss), and the basic weighted average number of common shares outstanding, both adjusted for dilutive factors as follows: Three months ended September 30, Nine months ended September 30, ($ thousands except share data) Net (loss) attributable to Trinidad common shareholders Basic (44,408) (35,780) (61,927) (40,733) Diluted (44,408) (35,780) (61,927) (40,733) Weighted average number of common shares Basic 270,992, ,087, ,428, ,087,270 Stock options 12, , , ,225 Diluted 271,005, ,501, ,847, ,501,495 For the three and nine months ended September 30, 2017, 1,413,016 and 1,006,556 stock options were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive ( ,759 stock options excluded in both periods). TRINIDAD DRILLING 2017 Q3 Report 55

58 15. Financial Instruments Trinidad s financial instruments include cash and cash equivalents, accounts receivable, investment in TDI joint venture, bank indebtedness, accounts payable and accrued liabilities, long-term debt, non-controlling interests liability and contingent consideration. The carrying amounts of these financial instruments, reported on the Company s consolidated statements of financial position approximates their fair values, with the exception of the 2019 Senior Notes and the 2025 Senior Notes, as follows: As at September 30, 2017 December 31, 2016 ($ thousands) Fair Value Carrying Value Fair Value Carrying Value Financial assets at an amortized cost: Cash and cash equivalents ,780 25,780 Accounts receivable 111, ,827 91,062 91,062 Financial assets at fair value through profit or loss: Investment in TDI joint venture 214, , , ,984 Financial liabilities measured at amortized cost: Bank indebtedness 1,550 1, Accounts payable and accrued liabilities 106, ,471 79,388 79,388 Limited Partnership Loan - - 1,959 1,959 Credit Facility Canadian Revolving Credit Facility (1) 19,965 19, US Revolving Credit Facility (1) (2) 31,267 31, Senior Notes (1) , , Senior Notes (1) 415, , Financial liabilities at fair value through profit or loss: Contingent consideration 9,976 9, Non-controlling interests liability 9,379 9,379 7,197 7,197 (1) 2019 Senior Notes, 2025 Senior Notes and Credit Facilities are recorded at their gross amounts and do not include transaction costs incurred on their issuance. (2) US Revolving Credit Facility was equivalent to US$25 million at September 30, 2017 and nil at December 31, Trinidad has estimated the fair value amounts using appropriate valuation methodologies and information available to management as of the valuation dates. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it was practicable to estimate that value: Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued liabilities. The carrying amounts approximate fair value because of the short maturity of these instruments. Investment in TDI joint venture. The fair value of the investment reflects amounts that Trinidad has invested into the TDI joint venture and the financial performance of the joint venture operations. The investment in joint venture is a level 3 in the fair value hierarchy. Inputs to the change in fair value of the investment in joint venture are disclosed in note 9. Long-term debt and limited partnership loan. The fair value of the various pieces of long-term debt (including amounts drawn on credit facilities) is based on the values owed to third-party financial institutions using current market price indicators. Long-term debt is a level 2 in the fair value hierarchy. Senior Notes. The fair value of the 2019 Senior Notes and the 2025 Senior Notes is based on the closing market price on the date of valuation. The 2019 Senior Notes and 2025 Senior Notes are a level 1 in the fair value hierarchy. 56

59 Contingent consideration. The fair value of the contingent consideration is a level 3 in the fair value hierarchy. Inputs to the change in the fair value are disclosed in note 6. Non-controlling interests. The fair value of the non-controlling interests are a level 3 in the fair value hierarchy. Inputs to the change in fair value of the non-controlling interests are disclosed in note 11. During the nine months ended September 30, 2017 and the year ended December 31, 2016, there were no transfers of any financial assets or liabilities between levels. Financing costs The carrying value of the 2025 Senior Notes is recorded net of debt issuance costs. At September 30, 2017, the deferred issuance costs related to Trinidad s 2025 Senior Notes and revolving credit facilities was $11.4 million (December 31, $1.7 million). Trinidad recorded finance costs of $0.6 million and $1.7 million for the three and nine months ended September 30, 2017 relating to amortization of debt issuance costs ( $0.6 million and $1.7 million, respectively). Nature and Extent of Risks Arising from Financial Instruments Trinidad is exposed to a number of market risks arising through the use of financial instruments in the ordinary course of business. Specifically, Trinidad is subject to credit risk, liquidity risk, currency risk and interest rate risk. Risks Market risks Financial Instrument Credit Liquidity Currency Interest rate Measured at cost or amortized cost Cash and cash equivalents X X X Accounts receivable X X Bank indebtedness X X X Accounts payable and accrued liabilities X X Current portion of long-term debt X X Long-term debt X X X Measured at fair value Investment in TDI joint venture X X X Non-controlling interests X X Contingent consideration X X TRINIDAD DRILLING 2017 Q3 Report 57

60 Credit risk Trinidad is exposed to credit risk as a result of extending credit to customers prior to receiving payment for services to be performed, creating exposure on accounts receivable balances with trade customers. This exposure to credit risk is managed through a corporate credit policy whereby upfront evaluations are performed on all customers and credit is granted based on payment history, financial conditions and anticipated industry conditions. When a customer does not meet initial credit evaluations, work may be performed subject to a prepayment of services. Customer payments are continuously monitored to ensure the creditworthiness of all customers with outstanding balances and when collectability becomes questionable a provision for doubtful accounts is established. As at September 30, 2017, Trinidad had accounts receivable of $8.6 million that were greater than 90 days for which no provision had been established (December 31, $13.7 million). Of this accounts receivable balance, $0.3 million relates to accounts receivable from TDI (December 31, $0.6 million). The Company believes that these amounts will be collected. Liquidity risk Liquidity risk is the risk that Trinidad will not be able to meet its financial obligations as they become due. The Company actively manages its liquidity through daily, weekly and longer-term cash outlook and debt management strategies. Trinidad s policy is to ensure that sufficient resources are available either from cash balances, cash flows or undrawn committed bank facility, to ensure all obligations are met as they fall due. To achieve this objective, the Company: Maintains cash balances and liquid investments with highly-rated counterparties; Limits the maturity of cash balances; and Borrows the bulk of its debt needs under committed bank lines or other term financing. The following maturity analysis shows the remaining contractual maturities for Trinidad s financial liabilities: As at September 30, 2017 Less than After 5 ($ thousands) 1 year years years years Bank indebtedness 1, Accounts payable and accrued liabilities 94, Canadian Revolving Credit Facility - 19, US Revolving Credit Facility - 31, Senior Notes (1) ,745 Contingent consideration 12,327 9, Interest payments on contractual obligations 29,001 58,001 58,001 67,668 Total 137, ,209 58, ,413 (1) The financial liability of the 2025 Senior Notes represents the Canadian dollar face value at maturity in January of

61 Currency risk Trinidad s operations are affected by fluctuations in currency exchange rates due to the Company s expansion into the US and international marketplace and reliance on US and international suppliers to deliver components used by these drilling operations. The exposure to realized foreign currency fluctuations from its US subsidiaries is mitigated due to the independence of the US and international operations from its Canadian parent for cash flow requirements to satisfy daily operations, creating a natural hedge. However, Trinidad is exposed to unrealized fluctuations in the gains and losses on consolidation, and US dollar-denominated intercompany balances between the US, international and Canadian entities. During the nine months ended September 30, 2017 and 2016, the Company had in place a net investment hedge on these foreign entities. As at September 30, 2017 and 2016, portions of Trinidad s cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities and contingent consideration were denominated in US dollars. In addition, Trinidad s US and international subsidiaries, and Trinidad s investments in joint ventures, including all related joint venture gains and losses, are subject to foreign translation adjustments upon consolidation. Based on these US dollar financial instrument closing balances, net (loss) for the three and nine months ended September 30, 2017 would have fluctuated by $0.2 million and less than $0.1 million, respectively ( $0.1 million and $0.1 million, respectively), and for the three and nine months ended September 30, 2017, other comprehensive (loss) would fluctuate by $1.0 million and $10.8 million, respectively ( $0.7 million and $11.5 million, respectively), for every $0.01 variation in the value of the US/Canadian exchange rate. Interest rate risk Trinidad is exposed to risk related to changes in interest rates on borrowings under the credit facility which is subject to floating interest rates. As at September 30, 2017, Trinidad had $20.0 million outstanding debt on the Canadian dollar credit facility and $31.3 million outstanding debt on the US credit facility. A change of one percent in the interest rates for both the three and nine months ended September 30, 2017 would cause a change of less than $0.1 million and $0.2 million, respectively, in interest costs ( nil and $0.2 million, respectively). 16. Commitments and Contingencies Commitments Trinidad enters into drilling contracts with third parties for use of the Company s drilling equipment. These contracts range from 12 months to five years. As well, Trinidad has several operating lease agreements on buildings and equipment. Operating lease expenses are included in general and administrative expenses and operating expenses in the consolidated statements of operations and comprehensive (loss). The Company does not have any contingent rental payments. The Company s annual commitments are shown net of sublease income. The leases expire at various times through 2029 and there are no significant renewal or purchase options. As at September 30, 2017 Due within After 5 ($ thousands) 1 year years years years Operating leases 3,562 5,872 5,229 16,669 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 condensed consolidated interim financial statements. TRINIDAD DRILLING 2017 Q3 Report 59

62 17. Segmented Information The following presents the result of Trinidad s operating segments: Three months ended United States / September 30, 2017 Canadian International Manufacturing Joint Venture Inter-segment ($ thousands) Operations Operations Operations Operations (1) Eliminations Corporate Total Operating revenue 45,253 76, ,765 Other revenue Third party recovery 4,218 3, ,860 General and administrative - third party recovery Elimination of downstream transactions (94) (94) 49,584 80, ,810 Operating costs 30,670 54, ,889 Third party costs 4,218 3, ,860 Operating income 14,696 22, ,061 Depreciation and amortization 24,171 28, ,317 (Gain) on sale of assets (13) (296) (309) 24,158 28, ,008 Segmented (loss) income (9,462) (6,159) (389) (15,947) Loss from investments in joint ventures (1) , ,182 General and administrative ,855 13,855 General and administrative - third party costs Foreign exchange ,452 3,452 Finance and transaction costs ,709 9,709 Non-controlling interests fair value adjustment (66) Income taxes (16,047) (16,047) Net (loss) (9,396) (6,719) (389) (17,182) - (10,971) (44,657) Purchase of property and equipment 11,711 40, ,570 (1) The loss from investments in joint ventures reflects the Company s share of the financial performance of the joint ventures during the period. The Company s share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position. 60

63 Three months ended September 30, 2016 ($ thousands) Canadian Operations United States / International Operations Manufacturing Operations Joint Venture Operations (1) Inter-segment Eliminations Corporate Total Operating revenue 26,603 36, ,173 Other revenue Third party recovery 2, ,387 General and administrative - third party recovery Inter-segment revenue - - 1,529 - (1,529) - - Elimination of downstream transactions (100) (67) (167) 29,215 37,534 1,529 - (1,529) ,960 Operating costs 18,816 21, ,594 Third party costs 2, ,387 Inter-segment operating costs - - 1,529 - (1,529) - - Operating income 7,921 14, ,979 Depreciation and amortization 17,238 24, ,317 (Gain) loss on sale of assets (62) (8,594) (8,647) 17,176 16, ,670 Segmented (loss) income (9,255) (1,227) (420) (10,691) Loss from investments in joint ventures (1) , ,497 General and administrative ,900 10,900 General and administrative - third party costs Foreign exchange (340) (340) Finance and transaction costs ,380 12,380 Non-controlling interests fair value adjustment 1,421 (7,365) (5,944) Income taxes (10,342) (10,342) Net (loss) income (10,676) 6,138 (420) (18,497) - (12,598) (36,053) Purchase of property and equipment , ,682 (1) The loss from investments in joint ventures reflects the Company s share of the financial performance of the joint ventures during the period. The Company s share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position. TRINIDAD DRILLING 2017 Q3 Report 61

64 Nine months ended United States / September 30, 2017 Canadian International Manufacturing Joint Venture Inter-segment ($ thousands) Operations Operations Operations Operations (1) Eliminations Corporate Total Operating revenue 133, , ,703 Other revenue 1, ,265 Third party recovery 12,286 9, ,720 General and administrative - third party recovery Elimination of downstream transactions (293) (12) (305) 146, , ,713 Operating costs 85, , ,568 Third party costs 12,286 9, ,720 Operating income 49,064 60, ,425 Depreciation and amortization 58,633 83,920 1, ,749 (Gain) on sale of assets (312) (1,636) (1,948) 58,321 82,284 1, ,801 Segmented (loss) income (9,257) (22,253) (1,196) (32,376) (Gain) from investments in joint ventures (1) (19,627) - - (19,627) General and administrative ,973 46,973 General and administrative - third party costs Foreign exchange ,062 10,062 Finance and transaction costs ,736 32,736 Non-controlling interests fair value adjustment 205 3, ,594 Income taxes (43,690) (43,690) Net (loss) income (9,462) (25,642) (1,196) 19,627 - (46,081) (62,754) Purchase of property and equipment 38,534 72, ,128 (1) The (gain) from investments in joint ventures reflects the Company s share of the financial performance of the joint ventures during the period. The Company s share of individual assets and liabilities are recognized as investments on the consolidated statements of financial position. 62

65 Nine months ended September 30, 2016 ($ thousands) Canadian Operations United States / International Operations Manufacturing Operations Joint Venture Operations (1) Inter-segment Eliminations Corporate Total Operating revenue 97, ,746 7, ,933 Other revenue ,328 Third party recovery 7,628 3, ,869 General and administrative - third party recovery Inter-segment revenue ,734 - (54,734) - - Elimination of downstream transactions (327) (243) (4,367) (4,937) 106, ,253 57,652 - (54,734) ,086 Operating costs 56,470 66,381 8, ,893 Third party costs 7,628 3, ,869 Inter-segment operating costs ,734 - (54,734) - - Elimination of downstream transactions - - (4,013) (4,013) Operating income 41,924 89,631 (1,111) ,337 Depreciation and amortization 52,482 74,113 1, ,043 (Gain) on sale of assets (145) (10,412) (18) (10,575) 52,337 63,701 1, ,468 Segmented (loss) income (10,413) 25,930 (2,541) ,869 Loss from investments in joint ventures (1) , ,730 General and administrative ,871 40,871 General and administrative - third party costs Foreign exchange (2,676) (2,676) Finance and transaction costs ,779 39,779 Non-controlling interests fair value adjustment 1,421 (7,365) (5,944) Income taxes (24,249) (24,249) Net (loss) income (11,834) 33,295 (2,541) (6,730) - (53,725) (41,535) Purchase of property and equipment 13,875 24, ,345 (1) The loss from investments in joint ventures reflects the Company s share of the financial performance of the joint ventures during the period. The Company s share of individual assets and liabilities are recognized as investments on the consolidated statements of financial position. TRINIDAD DRILLING 2017 Q3 Report 63

66 United States / As at September 30, 2017 ($ thousands) Canadian Operations International Operations Manufacturing Operations Joint Venture Operations (1) Inter-segment Eliminations Corporate Total Property and equipment 500, ,797 19, ,391,094 Intangible assets and goodwill 18,898 73, ,726 Total assets less deferred tax asset 535,579 1,066,616 6, , ,824,112 Deferred income taxes asset (liability) 76,684 (14,668) (767) ,249 (1) The loss (gain) from investments in joint ventures reflects the Company s share of the financial performance of joint ventures during the period. The Company s share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position. As at September 30, 2016 ($ thousands) Canadian Operations United States / International Operations Manufacturing Operations Joint Venture Operations (1) Inter-segment Eliminations Corporate Total Property and equipment 571, ,852 20, ,499,306 Intangible assets and goodwill 19,285 13, ,631 Total assets less deferred tax asset 598,531 1,025,434 21, , ,886,068 Deferred income taxes asset (liability) 59,660 (47,647) ,037 (1) The loss from investments in joint ventures reflects the Company s share of the financial performance of joint ventures during the period. The Company s share of individual assets and liabilities are recognized as an investment on the consolidated statements of financial position. 18. Expenses by Nature The Company presents certain expenses in the consolidated statements of operations and comprehensive (loss) by function. The following table presents these expenses by nature: Three months ended September 30, Nine months ended September 30, ($ thousands) Foreign exchange Foreign exchange - realized 1, ,938 3,799 Foreign exchange - unrealized 2,209 (1,270) 4,124 (6,475) 3,452 (340) 10,062 (2,676) Finance and transaction costs Interest on long-term debt 8,383 11,645 28,896 37,670 Accretion of 2019 Senior Notes Amortization of deferred financing costs ,734 1,655 Transaction costs 691-2,053-9,709 12,380 32,736 39,779 64

67 19. Foreign Currency Translation The foreign currency translation adjustment relates to Trinidad s non-canadian operations that have functional currencies that differ from the Canadian dollar and exchange differences on Trinidad s 2019 Senior Notes and 2025 Senior Notes held in US dollars. When the settlement of a balance is not foreseeable in the near future, foreign exchange gains and losses arising on the translation of inter-company balances are considered part of the net investment in the foreign operation. All amounts will be reclassified to profit or loss when specific conditions are met. Three months ended September 30, Nine months ended September 30, ($ thousands) Unrealized gain on translation of foreign operations with functional currency different from Canadian dollar (38,753) 17,560 (79,200) (65,326) Foreign exchange loss on net investment hedge with US dollar denominated debt, net of income tax (1) 10,334 (6,634) 26,439 24,439 Total foreign currency translation adjustment (28,419) 10,926 (52,761) (40,887) (1) Net of income tax for the three and nine months ended September 30, 2017 is $4.6 million and $9.7 million, respectively ( $(2.4) million and $9.0 million, respectively). 20. Supplemental Information Change in non-cash working capital balances: Nine months ended September 30, ($ thousands) Accounts receivable (24,993) 42,575 Inventory 1,619 (4,094) Prepaid expenses (2,967) 813 Accounts payable and accrued liabilities 28,670 (5,592) Deferred revenue 906 (31,464) 3,235 2,238 Pertaining to: Operations (21,744) (6,729) Investing 24,979 8,967 3,235 2,238 Reconciliation of liabilities to cash flows arising from financing activities: Short-tem Long-term ($ thousands) Borrowings Borrowings As at December 31, , ,057 Changes from financing cash flows Proceeds from long-term debt - 105,729 Repayments of debt (1,959) (53,457) Repayments of 2019 Senior Notes - (591,670) Proceeds from 2025 Senior Notes - 461,860 Debt issuance costs - (11,456) Non-cash changes - Accretion of 2019 Senior Notes - 53 Amortization of deferred financing costs - 1,734 Unrealized foreign exchange gain - (36,239) As at September 30, ,611 TRINIDAD DRILLING 2017 Q3 Report 65

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69 CORPORATE INFORMATION DIRECTORS Michael Heier Independent Businessman Cochrane, AB Jim Brown Independent Businessman Calgary, AB Brian Burden Independent Businessman Calgary, AB David Halford Independent Businessman Calgary, AB Nancy Laird Corporate Director Calgary, AB Ken Stickland Independent Businessman Calgary, AB MANAGEMENT Brent Conway President and Chief Executive Officer Lesley Bolster Chief Financial Officer David Gibson Senior Vice President, US Drilling Operations Randy Hawkings Executive Vice President, US Operations Laura Ingram Vice President, Finance Adrian Lachance Chief Operating Officer Gavin Lane Senior Vice President, Canadian Operations Ron Parent Vice President, Human Resources, HSE and QMS BANKERS Royal Bank of Canada Calgary, AB Wells Fargo Houston, TX AUDITORS PricewaterhouseCoopers LLP Chartered Professional Accountants Calgary, AB LEGAL COUNSEL Blake, Cassels & Graydon LLP Calgary, AB REGISTRAR AND TRANSFER AGENT TSX Trust Company Toronto, ON Nial Shepherd Senior Vice President, Trinidad Drilling International