Stoneham Drilling Trust (TSX:SDG.UN): Announces Financial Results for the Second Quarter Ended June 30, 2009

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2009) - NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. Stoneham Drilling Trust SDG ("Stoneham" or the "Trust") announces improved operating results as rigorous cost controls and stand-by revenue resulting from contract shortfalls more than offset reduced operating days and revenue. /T/ FINANCIAL HIGHLIGHTS Three months ended Six months ended June 30, June 30, (000s except for 2009 2008 Change 2009 2008 Change per trust unit amounts) $ $ $ $ Revenue 9,078 13,176 -31% 33,266 44,817 -26% Net earnings (loss) (187) (2,275) 92% 2,258 2,300 -2% Per trust unit (basic and diluted) (0.02) (0.28) 92% 0.28 0.29 -2% Cash flow from operations (1) (467) (1,880) 75% 6,323 6,813 -7% Per trust unit (basic and diluted) (0.06) (0.23) 75% 0.79 0.85 -7% Cash flow from operating actvities 14,061 8,208 71% 22,992 14,152 62% Per trust unit (basic and diluted) 1.75 1.02 71% 2.87 1.76 62% EBITDA (1) 1,277 (838) 252% 8,749 9,042 -3% Distributions paid and payable - 3,009 -100% 802 6,018 -87% Units outstanding (weighted average and diluted) 8,023 8,023 - 8,023 8,023 - (1) Cash flow from operations is defined as cash flow from operating activities before changes in non-cash working capital relating to operating activities. EBITDA means earnings before interest, taxes, depreciation and amortization. Readers are advised that cash flow from operations, cash flow from operations per trust unit and EBITDA do not have standardized meanings prescribed by GAAP and therefore may not be comparable with the calculations of similar measures for other companies. However, Stoneham does compute these measures on a consistent basis for each reporting period. The reconciliation of cash flow from operations and EBITDA to a GAAP measure can be found in Management's Discussion and Analysis (MD&A) for the three and six month periods ended June 30, 2009. OPERATING HIGHLIGHTS Three months ended Six months ended June 30, June 30, 2009 2008 Change 2009 2008 Change Average number of rigs (1) 19.0 19.0 - 19.0 18.5 3% Rigs at period end Canada 17 17 - 17 17 - U.S. 2 2 - 2 2 - Canada Operating days (2) 265 328 -19% 911 1,545 -41% Stoneham utilization rate (3) 18.1% 21.9% -17% 31.4% 50.2% -37% CAODC industry average (3) 10.7% 19.5% -45% 23.4% 37.7% -38% U.S. Operating days (2) 83 155 -46% 272 181 50% Stoneham rig utilization rate (3) 31.2% 89.0% -65% 50.7% 88.2% -43% Total Operating days (2) 348 483 -28% 1,183 1,726 -31% Stoneham utilization rate 20.1% 27.9% -28% 34.4% 51.2% -33% (1) Rig 18, completed in November 2007, was deployed in February 2008. Rig 17 was completed and deployed in March 2008. (2) Operating days is the sum of the number of days from spud to rig release (excluding stand-by, moving, rig-up, and rig-out days) for rigs active during the period. (3) Rig utilization rate is based on data reported by the CAODC. Expressed as a percentage, it is calculated by dividing the number of operating days for a period (as the numerator) by the number of rigs active during the period multiplied by the number of calendar days in the period (as the denominator). /T/ In Canada, Stoneham's rig utilization for the quarter was down 17% from the corresponding period in 2008. The reduction in operating days is the result of reduced demand for contract drilling services as most exploration and production (E&P) companies have reduced their drilling programs due to low commodity prices. However, Stoneham continued to outperform the Canadian industry average by 69% with rig utilization of 18.1%. In the U.S. operating days declined 46% as a result of contract expirations due to a lack of drilling activity in the Anadarko Basin on two of the three rigs. The total rig count in the Anadarko Basin has fallen by more than 50% in the second quarter of 2009 as compared to 2008 levels. In Canada six long-term contracts expired during in the quarter. These rigs will participate in the spot market. Of the remaining six contracts, one will expire before the end of the year, with the remainder expiring in 2010 and 2011. During the first quarter, contracts on two U.S. rigs expired. The third contract will expire in the third quarter of 2009. Consequently Rig 11 was deployed to Newfoundland from Oklahoma in June for a multi-well program in the Bay St. George Basin. Revenue in the second quarter of 2009 declined 31% to $9.1 million mainly due to fewer operating days, reduced cost recoverable charges, and to a lesser degree lower dayrates as compared to the same period in 2008. The revenue decline was partly offset by $1.3 million of stand-by revenue recognized during the quarter as a result of compensation for shortfalls in contract operating days. Cash flow from operations increased 75% to $(0.5) million relative to the second quarter of 2008 as the decline in revenue was more than offset by a reduction in operating expenses and interest expense. The major decline in operating expenses resulted from lower activity and reduced third party recoverable charges, as well as significantly lower costs associated with recertifications, repairs and maintenance. As described in Note 3 to the interim consolidated financial statements, the stand-by revenue is excluded from cash flow from operations because cash was not exchanged as part of the transaction. The loss for the period decreased 92% to $(0.2) million. The reduction in the loss was larger than the increase in cash flow from operations as the stand-by revenue and lower amortization more than exceeded the reduction in the future income tax recovery. Stoneham made only minor ancillary equipment purchases during the quarter. As described in Note 3 to the interim consolidated financial statements, in lieu of current and expected future cash compensation for stand-by revenue, Stoneham acquired certain drill pipe and heavy weight drill pipe valued at $2.0 million that is not included in the interim Consolidated Statements of Cash Flow. During the second quarter, we extended the terms of our credit facilities to July 9, 2010. Under the renewal, our $75.0 million extendable revolving secured facility bears interest at a rate of prime plus 3.25% and the $15.0 million operating loan and the $2.0 million secondary operating facility bear interest at a rate of prime plus 3.0%. Should the extendable revolving secured facility not be renewed in July 2010, repayment would commence in October 2010. Monthly repayments would be based on the outstanding principal divided by 48 for a period of 24 months. At that time, the remaining principal balance would be payable. Security and debt covenants on the facilities remain unchanged. As a result of the renewal, the current portion of long-term debt was reduced to $nil as at June 30, 2009. At the end of the quarter, we had $2.5 million of cash and outstanding long-term bank debt was $57.0 million. During the quarter, $10.0 million was repaid on the long-term debt facility. We continue to expect a significant decline in industry rig utilization for the third quarter of 2009 as compared to 2008, and potentially longer depending on natural gas prices. Customers have provided very little insight into their requirements for contract drilling services in the fourth quarter of 2009. The continued recessionary environment has reduced global demand for energy, causing commodity prices to decline significantly. With lower cash flows and restricted access to both capital markets and credit, most E&P companies remain cautious with respect to their 2009 drilling programs. DOCUMENTS AVAILABLE ON SEDAR This news release includes selected financial information relating to the three and six month periods ended June 30, 2009 and 2008. This information should be read in conjunction with the consolidated financial statements and the notes thereto of Stoneham Drilling Trust for the three and six month periods ended June 30, 2009 and 2008 and accompanying management's discussion and analysis. These documents are being filed today with securities regulators and will be available on www.sedar.com and on our website. ABOUT STONEHAM Stoneham Drilling Trust is an income trust that provides contract drilling services to oil and natural gas exploration and production companies operating in the Western Canada Sedimentary Basin and in the Anadarko Basin of Oklahoma. With its modern, innovative fleet of drilling rigs, Stoneham is an industry leader in operational performance, safety and rig utilization. Stoneham trades on the TSX under the symbol SDG.UN. Visit our website at www.stonehamdrilling.com. This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "might" and similar expressions is intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: (i) utilization of drilling rigs in Canada and the United States; and (ii) other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking statements throughout this news release. The forward-looking information and statements contained in this news release reflect several material factors, expectations and assumptions including, without limitation: (i) demand for Stoneham's services by oil and gas exploration and production companies; (ii) capital expenditure programs and other expenditures by oil and gas exploration and production companies; (iii) commodity prices, foreign currency exchange rates and interest rates; (iv) supply and demand for commodities; (v) expectations regarding the Trust's ability to raise capital and to increase the fleet of drilling rigs through acquisitions and development; (vi) schedules and timing of certain projects and Stoneham's strategy for growth; (vii) Stoneham's future operating and financial results; (viii) treatment under governmental regulatory regimes and tax, environmental and other laws; and (ix) the ability to attract and retain qualified crews for Stoneham's drilling rigs. The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: (i) volatility in market prices for commodities; (ii) volatility in exchange rates for the Canadian dollar relative to other world currencies; (iii) liabilities and risks inherent in the drilling industry, including technical problems; (iv) competition for, among other things, capital, the ability to secure manufacturers for drilling rig construction and skilled personnel; (v) changes in general economic, market and business conditions in Canada, North America, and worldwide; (vi) actions by governmental or regulatory authorities including changes in income tax laws; (vii) the ability of Stoneham's customers to maintain cash flow and/or to raise capital and to continue with their drilling programs; (viii) the assumption that customers will continue to honour the terms of their take or pay contracts and/or that amendments may be negotiated to such contracts that would not have a material adverse effect on Stoneham; (ix) the impact of adverse weather on Stoneham's operations; (x) the impact of increased competition and an over-supply of drilling rigs in the industry; (xi) the impact of disasters and accidents such as blow-outs; (xii) the impact of environmental issues, including climate change; and (xiii) the risk of not renewing current credit facilities. The Trust cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information and statements contained in this news release speak only as of the date of this news release, and the Trust assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws. /T/ Consolidated Balance Sheets Unaudited - stated in thousands June 30, December 31, 2009 2008 ---------------------------------------------------------------------------- ASSETS Current Cash $ 2,494 $ - Accounts receivable 6,626 30,023 Prepaid expenses 1,143 1,008 ---------------------------------------------------------------------------- 10,263 31,031 Property, plant and equipment 155,783 157,626 ---------------------------------------------------------------------------- $ 166,046 $ 188,657 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- LIABILITIES Current Bank indebtedness $ - $ 5,790 Accounts payable and accrued liabilities 4,550 10,781 Distributions payable - 401 Current portion of long-term debt - 4,375 ---------------------------------------------------------------------------- 4,550 21,347 Long-term debt 57,000 65,625 Future income taxes 4,583 3,228 ---------------------------------------------------------------------------- 66,133 90,200 UNITHOLDERS' EQUITY Unitholders' capital 89,198 89,198 Accumulated earnings 58,399 56,141 Accumulated distributions to unitholders (47,684) (46,882) ---------------------------------------------------------------------------- 99,913 98,457 $ 166,046 $ 188,657 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Statements of Earnings (Loss), Comprehensive Income (Loss) and Accumulated Earnings Unaudited - stated in thousands, except for per trust unit amounts Three months ended Six months ended ---------------------------------------------------------------------------- June 30, June 30, 2009 2008 2009 2008 ---------------------------------------------------------------------------- REVENUE $ 9,078 $ 13,176 $ 33,266 $ 44,817 EXPENSES Operating 6,276 12,662 21,588 33,099 Amortization 1,242 1,997 3,894 5,399 General and administrative 1,525 1,352 2,929 2,676 Interest on long-term debt 485 990 1,124 2,110 Other interest 3 52 46 119 Gain on disposal of property, plant and equipment - - (113) - ---------------------------------------------------------------------------- 9,531 17,053 29,468 43,403 ---------------------------------------------------------------------------- Earnings (loss) before income taxes (453) (3,877) 3,798 1,414 Future income tax expense (recovery) (266) (1,602) 1,540 (886) ---------------------------------------------------------------------------- Net earnings (loss) and comprehensive income (loss) for the period (187) (2,275) 2,258 2,300 Accumulated earnings, beginning of period 58,586 45,732 56,141 41,157 ---------------------------------------------------------------------------- Accumulated earnings, end of period $ 58,399 $ 43,457 $ 58,399 $ 43,457 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Earnings (loss) per unit Basic and diluted $ (0.02) $ (0.28) $ 0.28 $ 0.29 Consolidated Statements of Cash Flows Unaudited - stated in thousands Three months ended Six months ended June 30, June 30, ---------------------------------------------------------------------------- 2009 2008 2009 2008 OPERATING ACTIVITIES Net earnings (loss) for the period $ (187) $ (2,275) $ 2,258 $ 2,300 Adjustment for items not affecting cash: Revenue (1,256) - (1,256) - Amortization 1,242 1,997 3,894 5,399 Gain on disposal of property, plant and equipment - - (113) - Future income tax expense (recovery) (266) (1,602) 1,540 (886) ---------------------------------------------------------------------------- (467) (1,880) 6,323 6,813 Change in non-cash working capital relating to operating activities 14,528 10,088 16,669 7,339 ---------------------------------------------------------------------------- 14,061 8,208 22,992 14,152 ---------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant and equipment (28) (1,861) (277) (6,555) Proceeds on disposal of property, plant and equipment - - 303 - Change in non-cash working capital relating to investing activities (164) (3,631) (531) (3,913) ---------------------------------------------------------------------------- (192) (5,492) (505) (10,468) ---------------------------------------------------------------------------- FINANCING ACTIVITIES Long-term debt repayments (10,000) - (13,000) - Long-term debt financing - 1,700 - 1,700 Distributions paid and payable to Trust unitholders - (3,009) (802) (6,018) Change in non-cash working capital relating to financing activities - - (401) - ---------------------------------------------------------------------------- (10,000) (1,309) (14,203) (4,318) ---------------------------------------------------------------------------- Increase (decrease) in cash 3,869 1,407 8,284 (634) Bank indebtedness, beginning of period (1,375) (5,096) (5,790) (3,055) ---------------------------------------------------------------------------- Cash (bank indebtedness), end of period $ 2,494 $ (3,689) $ 2,494 $ (3,689) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- /T/