Hunkiner down: Trinidad focuses on bottom line.
Trinidad focusing on finances
Canada-based Trinidad Drilling is presently focusing more on managing its balance sheet and conserving cash instead of looking at growth opportunities, as it tries to navigate through a difficult year, a top executive said.
"Right now we have moved into a market that hasn't been rewarding companies for growing but has been rewarding companies for balance-sheet management," numbers man Brent Conway said.
Conway said in an interview with Reuters that the company has adjusted its strategy and is now more focused on reducing debt and shoring up its balance sheet.
Trinidad, which has about 120 land drilling rigs, is in a cost-saving mode.
It has halved this year’s capital spending forecast and cut its quarterly dividend by 66% to preserve cash.
"We have had some staff reductions and are in the process of looking at more of those, and we are doing those to adjust the overall cost structure to the activity levels," Conway told the news agency, adding that the company may have to cut more jobs in the next three or four months if things do not improve.
Trinidad, which operates in the drilling, well-servicing and barge-drilling sectors of the North American oil and natural gas industry, had net debt of $586 million at the end of last year.
"We kind of got caught up in having a bunch of growth to do when the market wasn't focused on growth and was more focused on the balance sheet," he said.
Conway expects commodity prices to show signs of improvement in early next year and said overall drilling activity will improve with higher demand and rising commodity prices.
Trinidad has about 45% of its fleet under long-term contracts, also known as take-or-pay contracts, and sees them as a safer bet in the current economic crisis when most drillers are struggling amid lower activity levels and weaker day rates.
"We are looking at 50% on either side for both long-term and sub contracts. That gives us the best of both sides and adds ability to reap the benefits when the market prices and commodity prices justify," Conway said.
Earlier this month, the company renegotiated and extended the terms on 17 long-term, take-or-pay contracts with one of its key US customers and reduced its dayrates on the contracts.
Trinidad, which has no contracts up for renewal this year, believes that the benefit of guaranteed work over the contracted period more than outweighs the slightly lower gross margins the rigs are anticipated to achieve.
"I think the long-term contract certainly adds stability and adds predictability to our cash flow and it is an added measure of certainty around the returns that we are going to earn," Conway said.
Conway said the company will consider reducing prices for other customers only if it gets something back in return, such as additional contract days or additional contracts for its rigs to make sure the contracts are economical.
Trinidad had delayed construction of six drilling rigs due to unfavourable industry conditions.
"Right now it's really just a waiting game for us and them until the commodity prices are going to turn around a little bit and they get more active in drilling programmes," Conway said.