Trinidad Drilling changes plan to move rigs from Saudi Arabia

By Patrick C. Miller | April 17, 2018

Three drilling rigs that Trinidad Drilling Ltd. had planned to move from Saudi Arabia to the Permian Basin will instead be sold for about $30 million each

The Calgary-based Canadian drilling company said it had “assessed the possible sale relative to the relocation alternative and determined that the value being offered and cash proceeds, which will provide Trinidad increased financial flexibility, were sufficiently attractive to pursue with the sale.” The rigs and related equipment will be sold for $91 million, with Trinidad’s share totaling about $55 million.

In January, Trinidad announced that it would move three rigs owned by its international joint venture in Saudi Arabia to the U.S. because of the strong demand in the Permian Basin for high-specification, efficient drilling equipment. The company then launched a strategic review process to consider alternatives, such as a selected asset sale, a merger, a corporate sale, a strategic partnership or capital re-deployment opportunities.

“As part of the strategic review we announced earlier this year, our board and management have been evaluating opportunities to create additional value for shareholders,” said Brent Conway, Trinidad’s president and CEO. He added that while the rigs had been strong performers in Saudi Arabia, selling them adds more value for shareholders.

“In addition, the proceeds from the sale of the assets can be used to fund our existing capital program or to repay debt outstanding on our credit facility,” Conway said. “Our strategic review process is ongoing and we will continue to look for additional opportunities to add value for shareholders.”

In substitution for the Saudi rigs, Trinidad announced that it would upgrade three wholly-owned U.S. rigs to meet demand in the Permian. Because of the different rig style and the varying upgrades required—combined with changes to the prior capital program largely driven by customer requests—Trinidad expects an additional $16 million in upgrade capital will be needed to meet customer specifications.

Trinidad said it expects to spend $57.5 million in growth capital during 2018, which includes a contingent RigMinder earnout of $10 million and the previously disclosed upgrade and relocation of existing rigs from Canada and areas of weaker demand in the U.S. The company said it believes the costs associated with relocating rigs to the Permian will largely be covered by customers. It also expects to generate a full-cycle return on the invested upgrade capital of approximately 20 percent with a payback of approximately 1.5 years.

Following the close of the sale, which is anticipated to occur in the second quarter of 2018, Trinidad expects to distribute the net proceeds from the asset sale to its partners. The company is currently awaiting the announcement of upcoming international tender awards and, if successful, it might use a portion of the proceeds to fund upgrades to bring two existing rigs located in Mexico to meet the required tender specifications. If needed, Trinidad’s 60 percent share of these upgrades are expected to cost $15 million to $20 million per rig. Trinidad expects the return generated from these upgrades to meet or exceed internal capital return benchmarks.